Chapter 3, Problem 2PSA

Victory Company uses weighted-average process costing to account for its production costs. Coversion cost is added evenly throughout the process. Direct materials are added at the beginning of the process. During Novemeber, the company trasnferred 700,000 units of product to finished goods. At the end of November, the work in process inventory consists of 180,000 units that are 30% complete with respect to conversion. Beginning inventory had $420,000 of direct materials and $139,000 of conversion cost. The direct material cost added in Novemeber is $2,220,000, and the conversion cost added is $3,254,000. Beginning work in process consisited of 60,000 units that were 100% complete with respect to direct materials and 80% complete with respect to conversion. Of the units completed, 60,000 were from beginning work in process and 640,000 units were started and completed during the period.

Required

1. Determine the equivalent units of production with respect to (a) direct materials and (b) conversion.
2. Compute both the direct material cost and the conversion cost per equivalent unit.
3. Compute the direct material cost and the conversion cost assigned to (a) units completed and transferred out, and (b) ending work in process inventory.

Analysis Component

1. The company sells and ships all unit to customers as soon as they are completed. Assume that an error is made in determining the percentage of completion for units in ending inventory. Instead of being 30% complete with respect to labor, they are actually 60% complete. Write a one-page memo to the plant manager describing how this error affects its November financial statements.