Question

Question: During May, the production department of a process manufacturing system completed a number of units of a product and transferred them to finished goods. Of these transferred units, 62,500 were in process in the production department at the beginning of May and 175,000 were started and completed in May. May’s beginning inventory units were 40% complete with respect to materials and 80% complete with respect to conversion. At the end of May, 76,250 additional units were in process in the production department and were 80% complete with respect to materials and 20% complete with respect to conversion. The production department had \(683,750 of direct materials and \)446,050 of conversion cost charged to it during May. Its beginning inventory included \(99,075 of direct materials cost and \)53,493 of conversion cost.

• 1.Compute the number of units transferred to finished goods.
• 2.Compute the number of equivalent units with respect to both materials used and conversion used in the production department for May using the FIFO method.
• 3.Compute the direct materials cost and the conversion cost per equivalent unit for the department.
• 4.Using the FIFO method, assign May’s costs to the units transferred to finished goods and assign costs to its ending work in process inventory

Short answer

• 1)Number of units transferred to finished goods =237,500
• 2)EUP for materials =273,500
• 3)Material and conversion costs are$2.5and$2.2 Per EUP
• 4)Total cost accounted for$1,282,368

Step-by-step solution

Meaning of Process Costing

Process costing is a technique of cost accounting used where similar products are produced in bulk, which helps charge the costs incurred to various processes.

(1) Computing the number of units transferred to finished goods

Particular	Units
Units in the beginning WIP	62,500
Units started and completed in May	175,000
Number of units transferred to finished goods	237,500

(2) Computing the number of equivalent units concerning materials used and conversion

Equivalent unit calculation Equivalent units Direct material Conversion Units in the beginning WIP 37,500 ( 62,500 x 60% ) 12,500 ( 62,500 x 20% )

Units started and completed (100%)	175,000	175,000
Units in ending WIP	61,000 (76,250 x 80% )	15,250 ( 76,250 x 20% )
Total Equivalent units	273,500	202,750

(3) The department's direct materials and conversion costs per equivalent unit.

Cost incurred	Total cost	Equivalent units	Cost per equivalent unit
Material cost	$683,750	273,500	$2.5
Conversion cost	$446,050	202,750	$2.2

(4) Assigning May’s costs to the units transferred to finished goods and assigning costs to its ending work in process inventory.

Assignment of costs to the output of department-FIFO

Cost of goods transferred out
Cost of beginning goods in process inventory
Direct material	$99,075
Conversion	53,493
Cost of beginning goods in process		152,568
Direct material ( 37, 500 EUP x $2.5 per EUP)	93,750
Conversion ( 12,500 EUP x $2.2 per EUP)	27,500
Total cost to complete		121,250
Cost of units started and completed this period
Direct material (175,5000 EUP x $2.5 per EUP)	437,500

Conversion ( 175,000 EUP x $2.2 per EUP)	385,000
The total cost of units started and completed		822,500
The total cost of goods transferred out		152,500
Cost of ending goods in process inventory
Direct materials ( 61,000 EUP x $2.5 per EUP )	152,500
Conversion (15,250 EUP x $2.2 per EUP )	33,550
The total cost of ending goods in the process		186,050
Total cost accounted for		$1,282,368