Ocean Worthy uses three processes to manufacture lifts for personal watercraft: forming a lift's parts from galvanized steel, assembling the lift, and testing the completed lift. The lifts are transferred to Finished Goods Inventory before shipment to marinas across the country.
Ocean Worthy's Testing Department requires no direct materials. Conversion costs are incurred evenly throughout the testing process. Other information follows for the month of August:
UNITS
Beginning Work-in-Process Inventory .................................... 2,000 units
Transferred in from Assembling Department during the period ...... 7,000 units
Completed during the period ............................................... 4,000 units
Ending Work-in-Process Inventory (40% complete for conversion.... 5,000 units
work)
COSTS
Beginning Work-in-Process Inventory (transferred in costs,.......... $ 111,000
$93,000; conversion costs, $18,000)
Transferred in from the Assembly Department during the period ......... 672,000
Conversion costs added during the period ...................................... 54,000
The cost transferred into Finished Goods Inventory is the cost of the lifts transferred out of the Testing Department. Ocean Worthy uses weighted-average process costing.
Requirements
1. Prepare a production cost report for the Testing Department.
2. What is the cost per unit for lifts completed and transferred out to Finished Goods Inventory? Why would management be interested in this cost?