Chapter 3, Problem 6PSA

1.

To determine

To compute: Number of units transferred to finished goods inventory.

Explanation of Solution

Given,
Work in process (opening) is 37,500 units.
Units started and completed this month are 150,000 units.

Formula to calculate units transferred to finished goods,

$\text{Units}\text{transferred}\text{to}\text{finished}\text{goods}=\left(\begin{array}{l}\text{Work}\text{in}\text{process(opening)}\\ \text{+Units}\text{started}\text{and}\text{completed}\text{this}\text{month}\end{array}\right)$

Substitute 37,500 units for work in process (opening) and 150,000 units for units started and completed this month.

$\begin{array}{c}\text{Units}\text{transferred}\text{to}\text{finished}\text{goods}=37,500+150,000\\ =187,500\end{array}$

Hence, units transferred to finished goods are 187,500 units.

2.

To determine

To compute: Equivalent unit of production according to FIFO method.

Explanation of Solution

For direct material

Given,
Work in progress (beginning) is 15,000 units.
Completed goods are 150,000 units.
Work in progress (end) is 30,750 units.

Formula to calculate equivalent unit of production (direct material),

$\text{Equivalent}\text{unit}\text{of}\text{production}\left(\text{direct material}\right)=\left(\begin{array}{l}\text{Work}\text{in}\text{progress(beginning)}\\ +\text{Completed}\text{goods}\\ +\text{Work}\text{in}\text{progress(end)}\end{array}\right)$

Substitute 15,000 units for work in progress (beginning), 150,000 units for completed goods and 30,750 units for work in progress (end).

$\begin{array}{c}\text{Equivalent}\text{unit}\text{of}\text{production}\left(\text{direct material}\right)=15,000+150,000+30,750\\ =195,750\end{array}$

Hence, equivalent unit of production (direct material) is 195,750 units.

Working notes:

Calculation for work in progress (beginning),

$\begin{array}{c}\text{Work}\text{in}\text{progress}\left(\text{beginning}\right)=\text{Unfinsihed}\text{goods}\times \text{Finished}\text{percentage}\\ =37,500\times \frac{40}{100}\\ =15,000\end{array}$

Calculation for work in progress (end),

$\begin{array}{c}\text{Work}\text{in}\text{progress}\left(\text{end}\right)=\text{Unfinsihed}\text{goods}\times \text{Finished}\text{percentage}\\ =51,250\times \frac{60}{100}\\ =30,750\end{array}$

For Conversion:

Given,
Work in progress (beginning) is 22,500 units.
Completed goods are 150,000 units.
Work in progress (end) is 10,250 units.

Formula to calculate equivalent unit of production (conversion),

$\text{Equivalent}\text{unit}\text{of}\text{production}\left(\text{conversion}\right)=\left(\begin{array}{l}\text{Work}\text{in}\text{progress(beginning)}\\ +\text{Completed}\text{goods}\\ +\text{Work}\text{in}\text{progress(end)}\end{array}\right)$

Substitute 22,500 units for work in progress (beginning), 150,000 units for completed goods and 10,250 units for work in progress (end).

$\begin{array}{c}\text{Equivalent}\text{unit}\text{of}\text{production}\left(\text{conversion}\right)=22,500+150,000+10,250\\ =182,750\end{array}$

Hence, equivalent unit of production (Conversion) is 182,750 units.

Working notes:

Calculation for work in progress (beginning),

$\begin{array}{c}\text{Work}\text{in}\text{progress}\left(\text{beginning}\right)=\text{Unfinsihed}\text{goods}\times \text{Finished}\text{percentage}\\ =37,500\times \frac{60}{100}\\ =22,500\end{array}$

Calculation for work in progress (end),

$\begin{array}{c}\text{Work}\text{in}\text{progress}\left(\text{end}\right)=\text{Unfinsihed}\text{goods}\times \text{Finished}\text{percentage}\\ =51,250\times \frac{20}{100}\\ =10,250\end{array}$

3.

To determine

To compute: Cost per equivalent unit of production.

Explanation of Solution

For direct material:

Given,
Total direct material cost is $505,035.
Total EUP (Direct Material) is 195,750 units.

Formula to calculate cost per equivalent unit of production,

$\text{Cost}\text{per}\text{EUP}\text{(direct}\text{material)}=\frac{\text{Total}\text{direct}\text{material}\text{cost}}{\text{Total}\text{EUP}\text{(direct}\text{material)}}$

Substitute, $505,035 for total direct material cost and 195,750 units for total EUP (direct material) in the above equation.

$\begin{array}{c}\text{Cost}\text{per}\text{EUP}\text{(direct}\text{material)}=\frac{\$505,035}{195,750}\\ =\$2.58\end{array}$

Hence, cost per EUP (direct material) is $2.58.

For conversion:

Given,
Total conversion cost is $396,568.
Total EUP (Conversion) is 182,750 units.

Formula to calculate cost per equivalent unit of production,

$\text{Cost}\text{per}\text{EUP}\text{(conversion)}=\frac{\text{Total}\text{direct}\text{conversion}\text{cost}}{\text{Total}\text{EUP}\text{(conversion)}}$

Substitute, $396,568 for total conversion cost and 182,750 units for total EUP (Conversion) in the above equation.

$\begin{array}{c}\text{Cost}\text{per}\text{EUP}\text{(conversion)}=\frac{\$396,568}{182,750}\\ =\$2.17\end{array}$

Hence, cost per EUP (conversion) is $2.17.

4.

To determine

To prepare: Cost assignment to finished and work in process (ending).

Explanation of Solution

Prepare production cost summary:

T. Company-Production Department
Assign Cost (FIFO method)
For the month ended May 31, 20XX
Cost Assignment	Amount ($)	Amount ($)
Cost of units completed and transferred out
Cost of work in process (beginning)
Direct Material	74,075
Conversion	28,493	102,568
Cost to complete work in process (beginning)
Direct Material	38,700
Conversion	48,825	87,525
Cost of started and completed units
Direct materials	387,000
Conversion	325,500	712,500
Total cost of units finished during this period		902,593
Cost of work in process (ending)
Direct materials	79,335
Conversion	22,243	101,578
Total cost		1,004,171

Table(1)

Hence, total cost of transferred goods and work in process (ending) is $902,593and $101,578 respectively.

Working notes:

Calculation to complete work in process (beginning),

Calculation for direct material,

$\begin{array}{c}\text{Direct}\text{material}=\left(\begin{array}{l}\text{Number}\text{of}\text{equivalent}\text{unit}\text{of}\text{production}\\ \text{×Cost}\text{per}\text{equivalent}\text{unit}\text{of}\text{production}\end{array}\right)\\ =15,000\times \$2.58\\ =\$38,700\end{array}$

Calculation for conversion,

$\begin{array}{c}\text{Direct}\text{labor}=\left(\begin{array}{l}\text{Number}\text{of}\text{equivalent}\text{unit}\text{of}\text{production}\\ \text{×Cost}\text{per}\text{equivalent}\text{unit}\text{of}\text{production}\end{array}\right)\\ =22,500\times \$2.17\\ =\$48,825\end{array}$