Chapter 20, Problem 6AP

1.

To determine

Compute the number of units transferred to finished goods.

Explanation of Solution

Determine the number of units transferred to finished goods.

Units transferred to finished goods inventory	Units
Units in beginning inventory	37,500
Units started and completed	150,000
Total units transferred to finished goods	187,500

Table (1)

Conclusion

Thus, the total units transferred to finished goods are 187,500 units.

2.

To determine

Compute the number of units transferred to finished goods.

Explanation of Solution

Equivalents units of production (EUP): Equivalents units are a measure of the work done during an accounting period. It includes the beginning and closing inventory of work in process and they also provide information relating to work on units that are completely processed during the period. The Equivalents units for production (EUP) under FIFO method is computed as follows:

$\begin{array}{l}\text{Equivalent units of }\\ \text{production}\left(\text{EUP}\right)\end{array}\}=\left[\begin{array}{l}\text{Number of}\\ \text{units completed }\\ \text{and transferred}\end{array}\right]+\left[\begin{array}{l}\text{Number of whole units}\\ \text{ started, completed }\\ \text{and transferred to next }\\ \text{department}\end{array}\right]+\left[\begin{array}{l}\text{Number of equivalent }\\ \text{units in ending }\\ \text{work-in process }\\ \text{inventory}\end{array}\right]$

Determine the equivalent units of productions.

Equivalent units of production - FIFO	Direct materials	Conversion
Equivalent units to complete beginning work in process:
Direct materials $\left(37,500\text{ units}\times \left\{1-60\%\right\}\right)$	15,000
Conversion $\left(37,500\text{ units}\times \left\{1-40\%\right\}\right)$		22,500
Units started and completed $\left(150,000\times 100\%\right)$	150,000	150,000
Units of ending work in process:
Direct materials $\left(51,250\text{ units}\times 60\%\right)$	30,750
Conversion $\left(51,250\text{ units}\times 20\%\right)$		10,250
Total Equivalent Units of Production	195,750	182,750

Table (2)

Conclusion

Thus, the total equivalent units of production for direct materials and conversion are 195,750 units and 187,500 units respectively.

3.

To determine

Compute the direct materials cost and the conversion cost per equivalent unit for the department.

Explanation of Solution

Cost per equivalents units of production: Cost per equivalents units of production refers to the costs incurred for each equivalent unit produced. The cost per equivalents units for production (EUP) is computed as follows:

$\text{Costs per EUP}\left(\text{FIFO}\right)=\frac{\text{Costs incurred for the current period}}{\text{Equivalent unit of production}}$

Determine the costs per equivalent unit of production for the forming department.

Equivalent units of production - FIFO	Direct materials	Conversion
Costs incurred during the month (A)	$505,035	$396,568
Total Equivalent Units of Production (B) (Refer Table (2))	195,750	182,750
Cost per equivalent unit of production (C) $\left(\text{A}\right)÷\left(\text{B}\right)$	$2.58 per EUP	$2.17 per EUP

Table (3)

Conclusion

Thus, the cost per equivalent unit of production for direct materials and conversion are $2.58 per EUP and $2.17 per EUP respectively.

4.

To determine

Compute and assign the costs to the units transferred to finished goods and the costs to its ending work in process inventory for the month of May.

Explanation of Solution

Process cost summary: Process cost summary is prepared separately for each production department or for each process. A process cost summary describes the costs charged to each department, determines the costs assigned to each department outputs and reports the equivalent units of production achieved by each department. It is also known as production report.

Compute and assign the costs to the units transferred to finished goods.

Assignment of costs to output of department—FIFO
Particulars	Amount	Amount
Costs of goods transferred out:
Cost of beginning work in process inventory
Direct materials	$74,075.00
Conversion	$28,493.00	$102,568.00
Costs to complete beginning work in process:
Direct materials $\left(15,000\text{ EUP}\times \$2.58\text{ per EUP}\right)$	$38,700.00
Conversion $\left(22,500\text{ EUP}\times \$2.17\text{ per EUP}\right)$	$48,825.00
Total costs to complete		$87,525.00
Cost of units started and completed this period:
Direct materials $\left(150,000\text{ EUP}\times \$2.58\text{ per EUP}\right)$	387,000.00
Conversion $\left(150,000\text{ EUP}\times \$2.17\text{ per EUP}\right)$	325,500.00
Total cost of units started and completed		$712,500.00
Total costs of goods transferred out		$902,593.00
Cost of ending work in process inventory
Direct materials $\left(30,750\text{ EUP}\times \$2.58\text{ per EUP}\right)$	$79,335.00
Conversion $\left(10,250\text{ EUP}\times \$2.17\text{ per EUP}\right)$	$22,242.50
Total costs of ending work in process		$101,577.50
Total costs accounted for		$1,004,170.50

Table (4)