Question

The Cutting Department of Karachi Carpet Company provides the following data for January. Assume that all materials are added at the beginning of the process.

Work in process, January 1, 9,000 units, 75% completed		$109,125*
*Direct materials (9,000 × $8)	$72,000
Conversion (9,000 × 75% × $5.5)	37,125
	$109,125
Materials added during January from Weaving Department, 138,800 units		$1,131,220
Direct labor for January		329,265
Factory overhead for January		402,435
Goods finished during January (includes goods in process, January 1), 140,400 units		—
Work in process, January 31, 7,400 units, 25% completed		—

a. Prepare a cost of production report for the Cutting Department. If an amount is zero or a blank, enter in "0". For the cost per equivalent unit computations, round your answers to two decimal places.

Karachi Carpet Company
Cost of Production Report-Cutting Department
For the Month Ended January 31
Unit Information
Units charged to production:
Inventory in process, January 1
Received from Weaving Department
Total units accounted for by the Cutting Department
Units to be assigned costs:
		Equivalent Units
	Whole Units	Direct Materials	Conversion
Inventory in process, January 1
Started and completed in January
Transferred to finished goods in January
Inventory in process, January 31
Total units to be assigned cost
Cost Information
Cost per equivalent unit:
		Direct Materials	Conversion
Total costs for January in Cutting Department		$	$
Total equivalent units
Cost per equivalent unit		$	$
Costs assigned to production:
	Direct Materials	Conversion	Total
Inventory in process, January 1			$
Costs incurred in January
Total costs accounted for by the Cutting Department			$
Costs allocated to completed and partially completed units:
Inventory in process, January 1 balance			$
To complete inventory in process, January 1	$	$
Cost of completed January 1 work in process			$
Started and completed in January	$
Transferred to finished goods in January			$
Inventory in process, January 31
Total costs assigned by the Cutting Department			$

b. Compute and evaluate the change in cost per equivalent unit for direct materials and conversion from the previous month (December). If required, round your answers to two decimal places.

	Increase or Decrease	Amount
Change in direct materials cost per equivalent unit		$
Change in conversion cost per equivalent unit		$

Answer 1

Solution a:

Karachi Carpet
Cutting Department
Computation of Equivalent unit (FIFO)
Particulars	Physical units	Material	Conversion
Units to be accounted for:
Beginning WIP Inventory	9000
Units started this period	138800
Total unit to be accounted for	147800
Units Accounted for:
Units completed and transferred out
From beginning inventory Material - 0% Conversion - 25%	9000	0	2250
Started and completed currently	131400	131400	131400
Units in ending WIP Material - 100% Conversion - 25%	7400	7400	1850
Total units accounted for	147800	138800	135500

Karachi Carpet
Cutting Department
Computation of Cost per Equivalent unit
Particulars	Total cost	Material	Conversion
Current period cost	$1,862,920.00	$1,131,220.00	$731,700.00
Equivalent units		138800	135500
Cost per equivalent unit		$8.15	$5.40

Karachi Carpet
Cutting Department
Producton cost report - FIFO
Particulars	Total cost	Material	Conversion
Cost Accounted for :
Cost assigned to unit transferred out:
Cost from beginning WIP Inventory	$109,125	$72,000	$37,125
Current cost added to complete beginning WIP:
Material	$0	$0
Conversion (2250 * $5.40)	$12,150		$12,150
Total Cost from beginning inventory	$121,275	$72,000	$49,275
Current cost of unit started and completed:
Material (131400*$8.15)	$1,070,910	$1,070,910
Conversion (131400*$5.40)	$709,560		$709,560
Total cost of unit started and completed	$1,780,470	$1,070,910	$709,560
Total cost of unit transferred out	$1,901,745	$1,142,910	$758,835
Cost assigned to ending WIP:
Material (7400*$8.15)	$60,310	$60,310
Conversion (1850*$5.40)	$9,990		$9,990
Total ending WIP inventory	70,300	60,310	9,990
Total cost accounted for	$1,972,045	$1,203,220	$768,825

Solution b:

Change in direct materials cost per equivalent unit = $8.15 - $8 = $0.15 Increase

Change in conversion cost per equivalent unit = $5.40 - $5.50 = $0.10 Decrease