Chapter 18: Q.18-15RQ (page 1006)
Question: How is the cost per equivalent unit of production calculated?
Answer:
The cost per equivalent unit of production is calculated by dividing the total cost with the Equivalent unit of production.
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Rick Pines and Joe Lopez are the plant managers for High Mountain Lumber’s particle board division. High Mountain Lumber has adopted a just-in-time management philosophy. Each plant combines wood chips with chemical adhesives to produce particle board to order, and all product is sold as soon as it is completed. Laura Green is High Mountain Lumber’s regional controller. All of High Mountain Lumber’s plants and divisions send Green their production and cost information. While reviewing the numbers of the two particle board plants, she is surprised to find that both plants estimate their ending Work-in-Process Inventories at 75% complete, which is higher than usual. Green calls Lopez, whom she has known for some time. He admits that to ensure their division would meet its profit goal and that both he and Pines would make their bonus (which is based on division profit), they agreed to inflate the percentage completion. Lopez explains, “Determining the percent complete always requires judgment.
Whatever the percent complete, we’ll finish the Work-in-Process Inventory first thing next year.”
Requirements
Question: Refer to Short Exercises S18-8 and S18-9. Use Complete Foods’s costs per equivalent unit of production for direct materials and conversion costs that you calculated in Short Exercise S18-9.
Calculate the cost of the 38,000 units completed and transferred out and the
24,000 units, 20% complete, in the ending Work-in-Process Inventory.
The Finishing Department started the month with 500 units in process, received 2,000 units from the Assembly Department, and transferred 2,100 units to the finished goods storage area. All direct materials are added at the beginning of the process. The units in process at the end of the month are 45% complete concerning conversion costs. The department uses the weighted-average method. The Finishing Department incurred the following costs:
Beginning WIP | Added this month | Total | |
Transferred in | \(6,250 | \)25,000 | \(31,250 |
Direct materials | 500 | 2,000 | 2,500 |
Conversion cost | 1,250 | 5,590 | 6,840 |
Total | \)8,000 | \(32,590 | \)40,590 |
8. How many units are still in process at the end of the month?
9. Compute the equivalent units of production for the Finishing Department.
10. Determine the cost per equivalent unit for transfer, direct materials, and conversion costs.
11. Determine the cost to be transferred to Finished Goods Inventory.
Question: What are conversion costs? Why do some companies using process costing systems use conversion costs?
Collins Company has the following data for the Assembly Department for August:
Unit in process at the beginning of august | 900 |
Units started in august | 2,000 |
Units completed and transferred | 2,100 |
Units in process at the end of august | 800 |
Conversion costs are added evenly throughout the process. The company uses the weighted-average method. Compute the equivalent units of production for direct materials and conversion costs for each independent scenario:
1. Units in process at the end of August are 20% complete; materials are added at the beginning of the process.
2. Units in process at the end of August are 80% complete; materials are added at the beginning of the process.
3. Units in process at the end of August are 20% complete; materials are added at the end of the process.
4. Units in process at the end of August are 80% complete; materials are added at the halfway point.
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