Chapter 4.A, Problem 6E

EXERCISE 4A-6 Equivalent Units of Production-FIFO Method IL04-6

Refer to the data for Alaskan Fisheries, Inc., in Exercise 4-10.

Required:

Compute the Cleaning Department's equivalent units of production for materials and for labor and overhead for July.

To determine

1. Equivalent units of production for materials and conversion for July

Answer to Problem 6E

Solution:

1. Equivalent units of production

Particulars	Direct Materials	Conversion Cost
Opening Units in WIP (A)	10,000	10,000
% of Completion of Opening WIP (B)	100%	30%
% of Opening WIP completed this period [C = 100%-B]	0%	70%
Equivalent units in beginning WIP [D=A×C]	0	7,000
Units started and completed in current period (E)	150,000	150,000
Units closing WIP (F)	20,000	20,000
% of completion of closing WIP (G)	100%	40%
Equivalent units in closing WIP (H=F×G)	20,000	8,000
Total equivalent units [D+E+H]	170,000	165,000

Explanation of Solution

Explanation:-

Given:

Following data available for the month of July:-

Particulars	Direct Materials	Conversion Cost
Opening Units in WIP	10,000	10,000
% of Completion of Opening WIP	100%	30%
Units started into production	170,000	170,000
Units closing WIP	20,000	20,000
% of completion of closing WIP	100%	40%
Cost of Opening WIP	$8,500	$4,900
Cost added during the month	$139,400	$244,200

Formula used:

  $\begin{array}{l}EquivalentunitsunderFIFOmethod=[(100\%-percentageofcompletionattheendoflastperiod)\\ \times UnitsinOpeningWorkinProcess]+Unitsadded/startedandtransferredout \\ +(PercentageofcompletionofunitsinClosingWorkinProcess \times Unitsinclosingworkinprocess)\end{array}$

Calculation:

  $\begin{array}{l}Equivalentunitsofproduction\left(Materials\right)=(100\%-100\%)\times 10,000+150,000+(20,000\times 100\%)\hfill \\ =(0\%\times 10,000)+150,000+20,000\hfill \\ =170,000units\hfill \end{array}$

  $\begin{array}{l}Equivalentunitsofproduction\left(Conversion\right)=(100\%-30\%)\times 10,000+150,000+(20,000\times 40\%)\hfill \\ =(70\%\times 10,000)+150,000+8,000\hfill \\ =165,000units\hfill \end{array}$

Conclusion

Particulars	Direct Materials	Conversion Cost
(i) Total equivalent units	170,000	165,000

To determine

1. Cost per equivalent unit for materials and conversion for July

Answer to Problem 6E

Solution:

1. Cost per equivalent unit

Particulars	Direct Materials	Conversion Cost
Cost of Opening WIP (A)	$8,500	$4,900
Cost added during the period (B)	$139,400	$244,200
Equivalent units of production (C)	170,000	165,000
Cost per Equivalent Unit [A+B]÷C	$0.87	$1.51

Explanation of Solution

Explanation:-

Given:

Following data available for the month of July:-

Particulars	Direct Materials	Conversion Cost
Opening Units in WIP	10,000	10,000
% of Completion of Opening WIP	100%	30%
Units started into production	170,000	170,000
Units closing WIP	20,000	20,000
% of completion of closing WIP	100%	40%
Cost of Opening WIP	$8,500	$4,900
Cost added during the month	$139,400	$244,200

Formula used:

  $\begin{array}{l}\begin{array}{l}\text{Cost }perequivalentperiodunit=(\text{Cost of Opening WIP+Cost }addedduringtheperiod)÷\\ Equivalentunitsofproductionduring theperiod\end{array}\hfill \\ \hfill \\ \hfill \end{array}$

Calculation:

  $MaterialCostperequivalentperiodunit=(8,500+139,400)÷170,000=\$0.87$

  $\text{Converison }Costperequivalentperiodunit=(4,900+244,200)÷165,000=\$1.51$

Conclusion

Particulars	Direct Materials	Conversion Cost
(ii) Cost per Equivalent Unit	$0.87	$1.51

To determine

iii. Cost of ending work in process inventory for materials, conversion, and in total for July

Answer to Problem 6E

Solution:

iii. Cost of Closing WIP

Particulars	Direct Materials	Conversion Cost
Equivalent units in closing WIP (A)	20,000	8,000
Cost per Equivalent Unit (B)	$0.87	$1.51
Cost of Closing WIP (A×B)	$17,400	$12,080

Total Cost of Closing WIP = 17,400 +12,080 =29,480

Explanation of Solution

Explanation:-

Given:

Following data available for the month of July:-

Particulars	Direct Materials	Conversion Cost
Opening Units in WIP	10,000	10,000
% of Completion of Opening WIP	100%	30%
Units started into production	170,000	170,000
Units closing WIP	20,000	20,000
% of completion of closing WIP	100%	40%
Cost of Opening WIP	$8,500	$4,900
Cost added during the month	$139,400	$244,200

Formula used:

$\text{Cost of Closing WIP=Closing Equivalent units}\times \text{Cost per Equivalent Unit}$

Calculation:

$\text{Material Cost of Closing WIP=20,000}\times \text{0}\text{.87=}\$17,400$

$\text{Conversion Cost of Closing WIP=8,000}\times \text{1}\text{.51=}\$12,080$

Conclusion

Particulars	Direct Materials	Conversion Cost
(iii) Cost of Closing WIP	$17,400	$12,080

To determine

iv. Cost of units transferred out to the next department for materials, conversion and in total for July

Answer to Problem 6E

Solution:

iv. Cost of units transferred out to other department

Particulars	Direct Materials	Conversion Cost
Opening Units in WIP (A)	10,000	10,000
% of Completion of Opening WIP (B)	100%	30%
% of Opening WIP completed this period [C = 100%-B]	0%	70%
Equivalent units in beginning WIP [D=A×C]	0	7,000
Units started and completed in current period (E)	150,000	150,000
Equivalent units which are transferred out (F=D+E)	150,000	157,000
Cost per Equivalent Unit (G)	$0.87	$1.51
Cost of transferred units (F×G)	$130,500	$237,070

Total Cost of transferred units = 130,500 +237,070 =367,570

Explanation of Solution

Explanation:-

Given:

Following data available for the month of July:-

Particulars	Direct Materials	Conversion Cost
Opening Units in WIP	10,000	10,000
% of Completion of Opening WIP	100%	30%
Units started into production	170,000	170,000
Units closing WIP	20,000	20,000
% of completion of closing WIP	100%	40%
Cost of Opening WIP	$8,500	$4,900
Cost added during the month	$139,400	$244,200

Formula used:

$\begin{array}{l}\text{Cost of transferred units=[(100\%-\% completed of opening WIP)}\times \text{Opening units of WIP}\\ \text{+Units started and completed during the period]}\times \text{Cost per Equivalent units}\end{array}$

Calculation:

$\begin{array}{l}\text{Material Cost of transferred units=[(100\%-100\%)}\times 1\text{0,000}+\text{150,000]}\times 0.87\\ \text{ =[0\%}\times 1\text{0,000}+\text{150,000]}\times \text{0}\text{.87}\\ \text{ =\$130,500}\end{array}$

$\begin{array}{l}\text{Material Cost of transferred units=[(100\%-30\%)}\times 1\text{0,000}+\text{150,000]}\times 1.51\\ \text{ =[}7,000+\text{150,000]}\times \text{1}\text{.51}\\ \text{ =\$237,070}\end{array}$

Conclusion

Particulars	Direct Materials	Conversion Cost
(iv) Cost of transferred units	$130,500	$237,070

To determine

To present:

v. Cost Reconciliation report

Answer to Problem 6E

Solution:

v. Cost reconciliation report

Cost to be accounted for	Amount (in $)
Cost of Opening WIP	13,400
Cost added during the period	383,650
Cost to be accounted for	397,050

Costs Accounted for	Amount (in $)
Cost of Closing WIP	29,480
Cost of transferred units	367,570
Costs Accounted for	397,050

Explanation of Solution

Explanation:-

Given:

Following data available for the month of July:-

Particulars	Direct Materials	Conversion Cost
Opening Units in WIP	10,000	10,000
% of Completion of Opening WIP	100%	30%
Units started into production	170,000	170,000
Units closing WIP	20,000	20,000
% of completion of closing WIP	100%	40%
Cost of Opening WIP	$8,500	$4,900
Cost added during the month	$139,400	$244,200

Formula used:

  $\begin{array}{l}Costoftransferredunits=CostofopeningWIP+Costaddedduringtheperiod\\ -CostofClosingWIP\end{array}$

Calculations:

  $*Costoftransferredunit=13,400+383,650-29,480=367,570$

While calculating cost of transferred units we should subtract cost of closing WIP from sum cost of

opening WIP and cost added during the period as closing units are not yet transferred.

Conclusion

Cost to be accounted for and costs accounted for are reconciled at 397,050.