Question

Question 2. (14 Marks) Yum Yum Meat Company uses a process costing system. The following information relates to one month's activity in the company's Curing Department: Conversion Percentage Complete 20% Usts Beginning work in process inventory Unats started Units completed and transferred out Ending work in process inventory 10.000 21,000 26,000 5.000 80% The conversion cost of the beginning inventory was $6,500. During the month, $112,000 in additional conversion cost was incurred. Required: a) Assume that the company uses the FIFO method. Compute the following: 1. The equivalent units of production for conversion for the month. (2Marks) 2. The cost per equivalent unit for conversion for the month. (1 Mark) 3. The total cost transferred out during the month. (3 Marks) 4. The cost assigned to the ending work-in-process inventory (2 Marks) b) Assume that the company uses the weighted average cost method. Compute the following: 1. The equivalent units of production for conversion for the month. (1 Mark) 2. The cost per equivalent unit for conversion for the month. (2 Marks) 3. The total cost transferred out during the month. (1 Mark) 4. The cost assigned to the ending work-in-process inventory. (2Marks)

Answer 1

Under FIFO method, equivalent units would consist efforts required to complete the beginning inventory, efforts put for completed and transferred out goods and ending inventory. As the materials are introduced at the beginning itself, beginning inventory is 20% complete already and so 80% efforts would be required for conversion in current period. Units in beginning inventory Add: Units added during the period Less: Units in ending inventory Units completed and transferred out 10,000 21,000 -5,000 26,000 --> Of which 10000 units shall be from beg. inventory; Bal. 16000 units from current. EUP Particulars Physical Units 10,000 16,000 26,000 5,000 31,000 Beginning work in process Started, Completed and transferred Transferred to next process Ending work in process 1) Equivalent Units of Production (EUP) [10000 units x 80%] [16000 units x 100%] Conversion Conversion 80% 8,000 100% 16,000 24,000 80% 4,000 28,000 [5000 units x 80%] Conversion [Under FIFO method, it shall not be considered here) Cost per equivalent units of production Cost of beginning work in process Cost added during the period Total Materials Costs & Conversion Costs Equivalent units of Production (EUP) 2) Cost per Equivalent units of Production $112,000 $112,000 28,000 $4 [As computed EUP schedule presented above] ($112000 / 28000 = $4]

Cost of goods completed & transferred EUP Cost per EUP Totals [Given] [8000 units x $4] 8,000 $4 Cost of beginning inventory Cost incurred to complete beginning inventory Cost of goods completed & trfd from beginning Cost of goods completed & trfd from current 3) Total Cost of goods completed & transferred $6,500 $32,000 $38,500 $64,000 $102,500 16,000 $4 [16000 units x $4] [$38500 + $64000] EUP Totals Cost of ending work-in-process 4) Total cost of ending work-in-process Cost per EUP $4 4,000 $16,000 [4000 units x $4] b) Under weighted average method, equivalent units are to be calculated only for units completed & transferred out and units lying as ending work in process as it is assumed that the units once entered into the process become integral part of total units and no segregation between units transferred from beginning work in process and introduced during current process. Conversion cost includes Labor + Overheads. So, Units in beginning inventory Add: Units added during the period Less: Units in ending inventory Units completed and transferred out 10,000 21,000 -5,000 26,000

Particulars Transferred to next process Ending work in process 1) Equivalent Units of Production (EUP) Physical Units 26,000 5,000 31,000 EUP Conversion Conversion 100% 26,000 80% 4,000 30,000 [26000 units x 100%] [5000 units x 80%] Cost per equivalent units of production Cost of beginning work in process Cost added during the period Total Materials Costs & Conversion Costs Equivalent units of Production (EUP) 2) Cost per Equivalent units of Production Conversion $6,500 $112,000 $118,500 30,000 |[As computed EUP schedule presented above] $3.95 $118500 / 30000 = $3.95] Cost of goods completed & transferred EUP Totals Cost per EUP $3.95 3) Total Cost of goods completed & transferred 26,000 $102,700 [26000 units x $3.95] EUP Cost of ending work-in-process Total cost of ending work-in-process Cost per EUP $3.95 Totals $15,800 4) 4,000 [4000 units x $3.95]