Question 3: Process Costing [42 marks]

TeleFone Ltd assembles various components used in the telecommunications industry. The companys major product, a relay switch, is made by assembling three parts: A453, B344 and C543. The following information relates to activities in March:

• Beginning work-in-process inventory: 12,500 units, 60 percent complete as to conversion; cost, $625,000 (direct materials, $487,500; conversion cost, $137,500).

• Production started: 87,500 units.

• Production completed: 85,000 units.

• Ending work-in-process inventory: 15,000 units, 40 percent complete as to conversion.

• Direct materials used: A453, $387,500; B344, $937,500; C543, $625,000.

• Hourly wage of direct labourers, $20; total direct-labour payroll, $158,500.

• Overhead application rate: $28 per direct-labour hour.

• If the company uses First in First Out (FIFO) cost to allocate costs to production:

• Calculate the equivalent units of direct material during March.

• Calculate the equivalent units of conversion during March.

• Calculate the cost per equivalent units of direct material during March.

• Calculate the cost per equivalent units of conversion during March.

• Why are equivalent units needed to properly allocate costs between completed production and production in process?

• What is the key difference between Weighted Average and First in First Out All parts are introduced at the beginning of TeleFones manufacturing process; conversion cost is incurred uniformly throughout production.