Question

Question 5: Little Boy Blue Inc. uses process costing in costing out their WIP inventory. Here is some informatio cheir WIP account for the month of June: WIP Inventory, June 1: 5,000 units (100% DM, 80% Conversion) WIP Inventory, June 30: 8,000 units (100% DM, 50% Conversion) $ 20,450 $ 26,160 30,000 units Materials Costs for WIP June 1: Conversion Costs for WIP June 1: Units Started in June: Units completed and trans. Out: Materials Costs added: 24,000 units $ 99,600 $ 210,060 Normal Spoilage is 10% of good units and Normal and Abnormal spoilage have 100% of DM and Conversion. There are Conversion Costs added: 3,000 spoiled units. With this information, please find: a. The cost per equivalent unit for direct materials using the weighted average method: b. The cost per equivalent unit for conversion costs using the weighted average method: c. Find the Total Cost of Goods manufactured using the weighted average method: d. Find the Total Cost of Ending Inventory using the weighted average method: e. The cost per equivalent unit for direct materials using the FIFO method: f. The cost per equivalent unit for conversion costs using the FIFO method: g. Find the Total Cost of Goods manufactured using the weighted FIFO method: Find the Total Cost for Ending Inventory using the FIFO method: h.

Answer 1

1) Under weighted average method, equivalent units are to be calculated only for units completed & transferred out and units lying as ending work in process as it is assumed that the units once entered into the process become integral part of total units and no segregation between units transferred from beginning work in process and introduced during current process. Conversion cost includes Labor + Overheads. So, Physical units of production: Units in beginning inventory Add: Units started during current period 5,000 30,000 Less: Normal spoilage @ 10% of 30000 Less: Units in ending inventory -3,000 -8,000 Units completed and transferred out Abnormal spoilage -24,000 EUP- EUP- Particulars Whole Units Conversion Conversion Materials Materials Completed and transferred Normal Spoilage Ending work in process Equivalent Units of Production (EUP) 100% 100% [24000 units x 100%; 24000 units x 100%] 24,000 24,000 24,000 3,000 0% 0% [3000 units x 0%; 3000 units x 0%] [8000 units x 100%; 8000 units x 50%] 8,000 100% 4,000 28,000 8,000 50% 35,000 32,000

a) Materials b) Conversion $20,450 c) Total $46,610 Cost per equivalent units of production Cost of beginning work in process Cost added during the period Total cost of goods manufactured Divided by Equivalent units of Production (EUP) Cost per Equivalent units of Production $26,160 $99,600 $210,060 $236,220 $309,660 $120,050 $356,270 [As computed EUP schedule presented above] 32,000 28,000 $3.7516 $8.4364 [$120050 / 32000 units = $3.7516; $236220 / 28000 units = $8.4364] Cost per Cost of ending work-in-process Totals EUP EUP [8000 units x $3.7516] [4000 units x $8.4364] $3.7516 $8.4364 $30,013 Materials 8,000 $33,746 $63,759 Conversion 4,000 d) Total cost of ending work-in-process Under FIFO method, equivalent units would consist efforts required to complete the beginning inventory, efforts put for completed and transferred out goods and ending inventory. As the materials are introduced at the beginning itself, beginning inventory is 100% complete in terms of materials, 0% efforts would be required in current process or period and conversion costs also would require the uncompleted portion of costs in current process or period. That is, it. was complete by 80% already and so 20% efforts would be required in current period.

Units in ending inventory 8,000 Add: Units completed and trfd. out Add: Normal spoilage (calculated) Less: Units in beginning inventory Units started in the production 24,000 --> Of which 5000 units shall be from beg. inventory; Bal. 19000 units from current. 3,000 -5,000 30,000 EUP- EUP- Particulars Whole Units Conversion Conversion Materials Materials [5000 units x 0%; 5000 units x 20%] [19000 units x 100%; 19000 units x 100%] Beginning work in process 0% 20% 5,000 1,000 Started, Completed and transferred Transferred to next process 19,000 19,000 19,000 100% 100% 24,000 19,000 20,000 Normal Spoilage Ending work in process Equivalent Units of Production (EUP) [3000 units x 0%; 3000 units x 0%] [8000 units x 100%; 8000 units x 50%] 3,000 0% 0% 8,000 100% 8,000 50% 4,000 35,000 27,000 24,000 Cost per equivalent units of production Cost of Beginning WIP e) Material f) Conversion g) Total [Under FIFO method, it shall not be considered here] $210,060 $210,060 $99,600 $309,660 $309,660 Cost added during the month Total cost of goods manufactured Equivalent units of Production (EUP) Cost per Equivalent units of Production $99,600 [As computed EUP schedule presented above] [Materials = $99600 / 27000 units = $3.6889; Conversion = $210060 / 24000 = $8.7525] 27,000 24,000 $3.6889 $8.7525

Cost per Cost of ending work-in-process Totals EUP EUP [8000 units x $3.6889] $3.6889 $29,511 Materials 8,000 Conversion $8.7525 $35,010 [4000 units x $8.7525] 4,000 h) Total cost of ending work-in-process $64,521