Chapter 5, Problem 1AE

This exercise relates to the Double Diamond Skis’ Shaping and Milling Department that was discussed earlier in the chapter. The Excel worksheet form that appears below consolidates data from Exhibits 5-5 and 5-8. Download the workbook containing this form from Connect, where you will also receive instructions about how to use this worksheet form.

You should proceed to the requirements below only after completing your worksheet.

Required:

1. Check your worksheet by changing the beginning work in process inventory to 100 units, the units started into production during the period to 2,500 units, and the units in ending work in process inventory to 200 units, keeping all of the other data the same as in the original example. If your worksheet is operating properly, the cost per equivalent unit for materials should now be $152.50 and the cost per equivalent unit for conversion should be $145.50. If you do not get these answers, find the errors in your worksheet and correct them.
How much is the total cost of the units transferred out? Did it change? Why or why not?

To determine

Total cost of units transferred out.

Unit of goods completed in the production process and transferred to other department during in the period, cost incurred to this completed goods which includes material and conversions jointly is known as total cost of units transferred out.

Total cost of the units transferred out and its cost is changed or not.

Answer to Problem 1AE

Solution:

Costs per equivalent unit	Materials	Conversion
Cost of beginning work in process inventory	9600	5575
Cost added during the period	368600	350900
Total Cost	378200	356475
Equivalent unit of production	2480	2450
Cost per equivalent unit	152.50	145.50

Total cost of the units transferred out is $715,200.

Yes, total cost of the units transferred out was changed because current equivalent unit of production was decreased at the same time cost per equivalent unit has increased.

Explanation of Solution

Explanations:

Formulas used:

  $Totalcost=Costofbeginningworkinprocessinventory+costaddedduringtheperiod$

  $\begin{array}{l}Equivalentunitofproduction=Unitscompleteandtransferredduringintheperiod\hfill \\ +endingworkinginprocesscompletionpercentage.\hfill \end{array}$

  $Costperequivalentunit=Totalcost/Equivalentunitofproduction.$

  $\begin{array}{l}Unitscompleteandtransferredduringintheperiod=Totalunits-ending\hfill \\ workinprocessendinginventory.\hfill \\ \hfill \end{array}$

  $\begin{array}{l}Totalcostoftheunitstransferredout=Productionunitscompletedduringintheperiod*\hfill \\ totalcostperequivalentunit.\hfill \\ \hfill \end{array}$

Calculations:

Total cost for material= $9600 + $368600=$378,200

Total cost for conversion= $5575+$350900=$356475

Equivalent unit of production for materials = 2400 units +80 units (200 units *40/100=80) =2480units

Equivalent unit of production for conversion = 2400 units +50 units (200 units * 25/100=50) =2450 units.

Cost per equivalent unit for material = $378,200 / 2480units = $152.50

Cost per equivalent unit for conversion=$356475 / 2450 units = $145.50

Units complete and transferred during in the period = 2500 units -100 units=2400

Total cost of the units transferred out = 2400 * $298 ($152.50+$145.50=$298) =$715,200.

Conclusion

Above calculation derived given cost per equivalent unit for materials as well as conversion also derived total cost of the units transferred and above explanation stated total cost of the units transferred out was changed.