Safe Inc. is a service firm that sells home security systems, which it installs and maintains. After the sales force makes initial contact with a new customer and completes the sale, setting up the new service requires two processes: (1) a home visit where the equipment is physically installed and (2) the remote connection from off-site at corporate headquarters. Given the different levels of skill and work required, Safe Inc. tracks costs separately for the Installation and Connection processes. Nevertheless, given the relative simplicity of these processes, Safe Inc. tracks them both on a single product cost report with one direct materials category for the equipment and two conversion cost categories for installation and connection services.
Assume that all home installations are completed the same day they are started. After installation, there is sometimes a delay of up to two days before the remote connection is completed. However, in the ideal situation, both the home installation and connection are completed on the same day.
$\bullet$At the beginning of July, Safe Inc. had 190 incomplete sales contracts. Of these incomplete contracts, 184 were awaiting both installation and connection and 6 had been installed but were still awaiting connection.
$\bullet$At the end of July, Safe Inc. had 240 incomplete sales contracts. Of these incomplete contracts, 228 jobs were awaiting both installation and connection and 12 jobs had been installed but were still awaiting connection.
$\bullet$The sales team closed 4,100 new security contracts during July.
$\bullet$Safe Inc. pays its suppliers $400, on average, to purchase one security system. However, the price experiences some variation due to fluctuations in suppliers cost of raw materials.
$\bullet$On average, the installation of each system requires approximately 3 labor hours and establishing and testing the connection requires 2 labor hours. However, Safe Inc. does encounter some variation across employees.
$\bullet$Labor and overhead costs for installation is approximately $20/hour.
$\bullet$Labor and overhead costs for connection costs approximately $35/hour.
$\bullet$Assume that the contracts outstanding at the beginning of July include $1,206 for equipment and $179 of installation costs.
$\bullet$Also assume that Safe Inc. actually incurs $816,270 for new equipment installed during July plus $119,652 of installation costs and $147,825 of connection-related costs.
$\bullet$Round calculations for equivalent units to whole numbers.
What is Safe Inc.'s ending Cost of Contracts Completed and Incomplete Contracts for July, assuming it uses the FIFO costing method?

Question

Quizplus · Accepted Answer

The Answer of Safe Inc. is a service firm that sells home security systems, which it installs and maintains. After the sales force makes initial contact with a new customer and completes the sale, setting up the new service requires two processes: (1) a home visit where the equipment is physically installed and (2) the remote connection from off-site at corporate headquarters. Given the different levels of skill and work required, Safe Inc. tracks costs separately for the Installation and Connection processes. Nevertheless, given the relative simplicity of these processes, Safe Inc. tracks them both on a single product cost report with one direct materials category for the equipment and two conversion cost categories for installation and connection services.
Assume that all home installations are completed the same day they are started. After installation, there is sometimes a delay of up to two days before the remote connection is completed. However, in the ideal situation, both the home installation and connection are completed on the same day.
$\bullet$At the beginning of July, Safe Inc. had 190 incomplete sales contracts. Of these incomplete contracts, 184 were awaiting both installation and connection and 6 had been installed but were still awaiting connection.
$\bullet$At the end of July, Safe Inc. had 240 incomplete sales contracts. Of these incomplete contracts, 228 jobs were awaiting both installation and connection and 12 jobs had been installed but were still awaiting connection.
$\bullet$The sales team closed 4,100 new security contracts during July.
$\bullet$Safe Inc. pays its suppliers $400, on average, to purchase one security system. However, the price experiences some variation due to fluctuations in suppliers cost of raw materials.
$\bullet$On average, the installation of each system requires approximately 3 labor hours and establishing and testing the connection requires 2 labor hours. However, Safe Inc. does encounter some variation across employees.
$\bullet$Labor and overhead costs for installation is approximately $20/hour.
$\bullet$Labor and overhead costs for connection costs approximately $35/hour.
$\bullet$Assume that the contracts outstanding at the beginning of July include $1,206 for equipment and $179 of installation costs.
$\bullet$Also assume that Safe Inc. actually incurs $816,270 for new equipment installed during July plus $119,652 of installation costs and $147,825 of connection-related costs.
$\bullet$Round calculations for equivalent units to whole numbers.
What is Safe Inc.'s ending Cost of Contracts Completed and Incomplete Contracts for July, assuming it uses the FIFO costing method?

Safe Inc Is a Service Firm That Sells Home Security Systems