Chapter 6, Problem 32P

Refer to the data in Problem 6.31. Assume that the FIFO method is used.

Required:

1. 1. Prepare a physical flow schedule.
2. 2. Calculate equivalent units of production for direct materials and conversion costs.
3. 3. Compute unit cost. Round to three decimal places.
4. 4. Calculate the cost of goods transferred to Painting at the end of the month. Calculate the cost of ending inventory.

To determine

Prepare a physical flow of schedule.

Explanation of Solution

Process Costing: Process costing is method of cost accounting in which all the costs that are incurred during the production process are recorded. Output of one process becomes input for next process. This method is used to apply cot to similar products that are mass-produced in uninterrupted manner.

Prepare a physical flow of schedule.

Particulars	Units	Workings
Units to account for:
Opening work in process	40,500
Add: Units started	94,500	$\begin{array}{l}\left(\text{135,000 - 40,500}\right)\hfill \end{array}$
Total units to account for	135,000
Units accounted for:
Units transferred out	121,500
Ending work in process	13,500
Total units accounted for	135,000

Table (1)

To determine

Calculate equivalent units of production for direct materials and conversion costs.

Explanation of Solution

Calculate equivalent units of production for direct materials and conversion costs.

Particulars	Direct materials		Conversion Costs
	Units	Workings	Units	Workings
Beginning work in process	0	$\begin{array}{l}\left(40,500\times 0\%\right)\hfill \end{array}$	32,400	$\begin{array}{l}\begin{array}{l}(40,500\times \\ \left(100\%-20\%\right)\end{array}\hfill \end{array}$
Started an completed	81,000		81,000
Add: Ending work in process	13,500	$\begin{array}{l}\left(\text{1,500 × 100\%}\right)\hfill \end{array}$	3,375	$\begin{array}{l}\left(13,500\times 25\%\right)\hfill \end{array}$
Equivalent units of production (A)	94,500		116,775

Table (2)

To determine

Calculate unit cost.

Explanation of Solution

Calculate unit cost.

Particulars	Direct Materials	Conversion	Workings
Cost added to production (A)	$2,565,000	$5,871,150	$\begin{array}{l}\left(\begin{array}{l}\text{\$3,471,150 + }\\ \text{\$2,400,000}\end{array}\right)\hfill \end{array}$
Equivalent units of production (B)	94,500	116,775
Cost per unit (A ÷ B)	$27.143	$50.277

Table (3)

Working note:

Calculate overhead costs.

Particulars	Workings	Amount
Overhead costs:
Inspection	$\begin{array}{l}\left(\text{4,000 × \$150}\right)\hfill \end{array}$	$600,000
Maintainece	$\left(\text{1,600 × \$750}\right)$	$1,200,000
Receiving	$\left(\text{2,000 × \$300}\right)$	$600,000
Total overhead costs		$2,400,000

Table (4)

To determine

Calculate the cost of goods transferred and ending work in process for painting department at the end of the month.

Explanation of Solution

Calculate cost of goods transferred out.

$\begin{array}{c}\text{Cost of goods transferred out = }\left(\begin{array}{l}\text{Beginning work in process inventory + }\\ \text{Cost to complete beginning work in process }\\ \text{+}\left[\text{Started and completed}\times \text{Cost per unit}\right]\end{array}\right)\\ \text{=}\left(\begin{array}{l}\left(\$1,215,000+\$372,600\right)+\left(32,400\times \$50.277\right)+\\ \left(81,000\times (\$27.143+\$50.277\right)\end{array}\right)\\ =\$1,587,600+\$1,628,975+\$6,271,020\\ =\$9,487,595\end{array}$

Therefore, cost of goods transferred out amount is $9,487,595.

Calculate ending work in process inventory.

$\begin{array}{c}\text{Ending work in process inventory}\text{=}\text{Direct materials + Conversion cost}\\ \text{=}\left(13,500\times \$27.143\right)+\left(3,375\times \$50.277\right)\\ =\$536,115\end{array}$

Therefore, ending work in process inventory amount is $536,115.