Materials Work in Process-Mixing Dept Work in Process-Bottling Dept Finished Goods Beg Inventory + Purchases Direct Materials
Question:
Materials | Work in Process-Mixing Dept | Work in Process-Bottling Dept | Finished Goods | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Factory Overhead | ||||||||||||||||||||||||||
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Production costs are assigned to the units transferred out of WIP and to the units in ending WIP by multiplying the equivalent units by the per-unit cost. The following steps are involved:
1. Compute the equivalent units of production
2. Determine the cost per equivalent unit
3. Assign costs to ending WIP and cost of goods transferred out
Consider the T account showing the detail costs and units in the Mixing Dept using the FIFO costing method.
Work in Process-Mixing Dept | ||||||||
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$Amt | #units | %completed | $Amt | #units | %completed | |||
Beg Inventory | $5,566 | 4,600 | 70% | |||||
+ Cost of units | Units transferred out | $87,837 | 63,600 | 100% | ||||
transferred in | $64,978 | 61,300 | ||||||
+ Direct Labor | $11,200 | |||||||
+ Factory Overhead | $6,720 | |||||||
applied | ||||||||
End Inventory: | $627 | 2,300 | 20% |
Inventory in process, July 1, 4,600 units (70% complete) | $ | 5,566 |
Direct materials cost incurred in July, 61,300 units | 64,978 | |
Direct labor cost incurred in the period | 11,200 | |
Factory overhead applied in the period | 6,720 | |
Total production costs to account for | $ | 88,464 |
63,600 units were completed and transferred out
2,300 units remain in WIP, 20% complete
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Equivalent units: | Cost of WIP: | |||||
Beginning WIP x 30% | 1,380 | $ | 1,880 | $ | 1,880 | |
Started & completed | 59,000 | 80,391 | + $5,566 = | 85,957 | ||
Ending WIP x 20% | 460 | 627 | 627 | |||
60,840 | $ | 82,898 | $ | 88,464 |
Cost per equivalent unit:
Current period costs / equivalent units
($88,464 - $5,566) / 60,840 = 1.36256
Note that the number of whole units used to calculate equivalent units (beginning WIP + started and completed units + ending WIP) agrees with the number of whole units in - Select your answer -completed units and units transferred incomplete units and beginning WIPbeginning WIP and units transferred inCorrect 1 of Item 1 . Another important point is that - Select your answer -current period materialcurrent period conversioncurrent periodall Correct 2 of Item 1 costs incurred are used to calculate the cost per equivalent unit when the FIFO costing method is used.
Fill in the formula for calculating cost per unit using the FIFO method:
- Select your answer -Current period material costsCurrent period conversion costsCurrent period production costsTotal production costs (including beginning WIP costs)Correct 3 of Item 1 | |
Cost per unit formula = | |
- Select your answer -Units started and completedEquivalent units of outputEquivalent units in ending WIPEquivalent units in ending WIP less equivalent units in beginning WIPCorrect 4 of Item 1 |
ecause the FIFO method assumes that the first units put into production are the first units transferred out, the cost of beginning WIP is included in the cost of - Select your answer -ending WIPcompleted unitsCorrect 5 of Item 1 .
What if ending WIP is 30% complete and production costs are the same? Select if the below statements are True or False.
The value of ending WIP would increase and the cost of goods transferred out would decrease by the same amount. | - Select your answer -TrueFalseCorrect 6 of Item 1 |
The cost per equivalent unit would decrease because the same cost is spread over more units. | - Select your answer -TrueFalseCorrect 7 of Item 1 |
The value of ending WIP and the value of the cost of goods transferred out will stay the same. | - Select your answer -TrueFalseCorrect 8 of Item 1 |
his example assumes that materials and conversion costs are added to the process evenly. When materials and conversion costs are added at different times in a process, the equivalent units for materials may be different than the equivalent units for conversion costs. For example, if materials are added at the beginning of a process, the materials may be 100% complete but unfinished for labor and overhead.
Fill in the schedule to show how the calculation changes when materials are added at the beginning of the Mixing Dept in the above example. Round cost per unit to four decimal places.
Equivalent Units | ||||||
Current Period Cost | Beginning WIP | Started & completed Units | Ending WIP | Total | Cost per unit | |
Materials | $64,978 | 0 | $ | |||
Conversion costs | $17,920 | 1,380 | $ | |||
$82,898 | $1.3545 |
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When FIFO is used, the key to remember is that the cost of beginning inventory is added to the cost of completed units rather than being added to the cost per equivalent unit calculation.
The steps are:
1. Compute the equivalent units of production
2. Determine the cost per equivalent unit
3. Assign costs to ending WIP and cost of goods transferred out
If materials and conversion costs are added at different times, the units are completed at different times in the process and the equivalent units should reflect that. If this is the case, the cost per equivalent unit is determined by separating the costs into material and conversion cost components and dividing the costs by the related equivalent units.
• Current period materials cost / Equivalent units for materials = Material cost per equivalent unit
• Current period conversion cost / Equivalent units for conversion costs = Conversion cost per equivalent unit
Ivy Manufacturing produces ketchup in a production process whereby units are indistinguishable from one another. The company uses process costing to calculate the cost of its products and also employs the FIFO method in its calculations.
The following information is available for August:
Beginning work in process | Current period | |||
Materials | $ | 5,690 | $ | 28,942 |
Conversion costs | 21,300 | 70,440 | ||
Total costs | $ | 26,990 | $ | 99,382 |
Gallons of ketchup in process on August 1 (30% complete)* | 12,200 |
Gallons of Ketchup completed and transferred out during August | 48,000 |
Gallons of Ketchup in process on August 31 (25% complete)* | 14,100 |
*All materials are added at the beginning of the process. |
Fill in the calculation of cost per unit and the following proof using the first in, first out method. Round cost per unit to three decimal places.
Calculation of cost per unit | ||||||
Cost element | Current period cost | Beginning WIP equiv. units (to be completed) | Started & completed equivalent units | Ending WIP equivalent Units | Current total equivalent units | Cost per unit |
Materials | $28,942 | $ | ||||
Conversion costs | 70,440 | $ | ||||
$99,382 | $ |
Calculate the cost of:
Completed units: - Select your answer -$90037$99382$113022$126389Correct 12 of Item 2
Ending WIP: - Select your answer -$8102$8102$13367$30461Correct 13 of Item 2.
Accounting Principles
ISBN: 978-0470533475
9th Edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso