Chapter 3, Problem 6PSB

1.

To determine

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

Explanation of Solution

Given,
Work in process (opening) is 62,500 units.
Units started and completed this month are 175,000 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 62,500 units for work in process (opening) and 175,000 units for units started and completed this month.

$\begin{array}{c}\text{Units}\text{transferred}\text{to}\text{finished}\text{goods}=62,500+175,000\\ =237,500\end{array}$

Hence, units transferred to finished goods are 237,500 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 37,500 units.
Completed goods are 175,000 units.
Work in progress (end) is 61,000 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 37,500 units for work in progress (beginning), 175,000 units for completed goods and 61,000 units for work in progress (end).

$\begin{array}{c}\text{Equivalent}\text{unit}\text{of}\text{production}\left(\text{direct material}\right)=37,500+175,000+61,000\\ =273,500\end{array}$

Hence, equivalent unit of production (direct material) is 273,500 units.

Working notes:

Calculation for work in progress (beginning),

$\begin{array}{c}\text{Work}\text{in}\text{progress}\left(\text{beginning}\right)=\text{Unfinsihed}\text{goods}\times \text{Finished}\text{percentage}\\ =62,500\times \frac{60}{100}\\ =37,500\end{array}$

Calculation for work in progress (end),

$\begin{array}{c}\text{Work}\text{in}\text{progress}\left(\text{end}\right)=\text{Unfinsihed}\text{goods}\times \text{Finished}\text{percentage}\\ =76,250\times \frac{80}{100}\\ =61,000\end{array}$

For Conversion:

Given,
Work in progress (beginning) is 12,500 units.
Completed goods are 175,000 units.
Work in progress (end) is 15,250 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 12,500 units for work in progress (beginning), 175,000 units for completed goods and 15,250 units for work in progress (end).

$\begin{array}{c}\text{Equivalent}\text{unit}\text{of}\text{production}\text{(Conversion)}=12,500+175,000+15,250\\ =202,750\end{array}$

Hence, equivalent unit of production (conversion) is 202,750 units.

Working notes:

Calculation for work in progress (beginning),

$\begin{array}{c}\text{Work}\text{in}\text{progress}\left(\text{beginning}\right)=\text{Unfinsihed}\text{goods}\times \text{Finished}\text{percentage}\\ =62,500\times \frac{20}{100}\\ =12,500\end{array}$

Calculation for work in progress (end),

$\begin{array}{c}\text{Work}\text{in}\text{progress}\left(\text{end}\right)=\text{Unfinsihed}\text{goods}\times \text{Finished}\text{percentage}\\ =76,250\times \frac{20}{100}\\ =15,250\end{array}$

3.

To determine

To compute: Cost per equivalent unit of production.

Explanation of Solution

For direct material:

Given,
Total direct material cost is $683,750.
Total EUP (Direct Material) is 273,500 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, $683,750 for total direct material cost and 273,500 units for total EUP (direct material) in the above equation.

$\begin{array}{c}\text{Cost}\text{per}\text{EUP}\text{(direct}\text{material)}=\frac{\$683,750}{273,500}\\ =\$2.5\end{array}$

Hence, cost per EUP (direct material) is $2.5.

For conversion:

Given,
Total conversion cost is $446,050.
Total EUP (Conversion) is 202,750 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, $446,050 for total conversion cost and 202,750 units for total EUP (Conversion) in the above equation.

$\begin{array}{c}\text{Cost}\text{per}\text{EUP}\text{(conversion)}=\frac{\$446,750}{202,750}\\ =\$2.20\end{array}$

Hence, cost per EUP (conversion) is $2.20.

4.

To determine

To prepare: Cost assigned 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	99,075
Conversion	53,493	152,568
Cost to complete work in process (beginning)
Direct Material	93,750
Conversion	27,500	121,250
Cost of started and completed units
Direct materials	437,500
Conversion	385,000	822,500
Total cost of units finished during this period		1,096,318
Cost of work in process (ending)
Direct materials	152,500
Conversion	33,550	186,050
Total cost		1,282,368

Table(1)

Hence, total cost of transferred goods and work in process (ending) is $1,096,318 and $186,050, respectively.

Working notes:

Calculation of complete work in process (beginning),

Calculation for direct material,

$\begin{array}{c}\text{Direct}\text{material}=\left(\begin{array}{l}\text{Number}\text{of}\text{Equivalent}\text{unit}\text{of}\text{production}\\ \times \text{Cost}\text{per}\text{Equivalent}\text{unit}\text{of}\text{production}\end{array}\right)\\ =37,500\times \$2.50\\ =\$93,750\end{array}$

Calculation for conversion,

$\begin{array}{c}\text{Direct}\text{labor}=\left(\begin{array}{l}\text{Number}\text{of}\text{equivalent}\text{unit}\text{of}\text{production}\\ \times \text{Cost}\text{per}\text{equivalent}\text{unit}\text{of}\text{production}\end{array}\right)\\ =12,500\times \$2.20\\ =\$27,500\end{array}$