Question

Problem 16-4A Weighted average: Process cost summary, equivalent units, cost estimates C2Qc3Q P40 0 Main content Tamar Co. manufactures a single product in one department. All direct materials are added at the beginning of the manufacturing process. Conversion costs are added evenly throughout the process. During May, the company completed and transferred 22,200 units of product to finished goods inventory. Its 3,000 units of beginning work in process consisted of $19,800 of direct materials and $221,940 of conversion costs. It has 2,400 units (100% complete with respect to direct materials and 80% complete with respect to conversion) in process at month-end. During the month, $496,800 of direct material costs and $2,165,940 of conversion costs were charged to production. Required 1. Prepare the company's process cost summary for May using the weighted average method. Check (1) EUP for conversion, 24,120 2. Prepare the journal entry dated May 31 to transfer the cost of completed units to finished goods inventory. (2) Cost transferred out to finished goods, $2,664,000 Analysis Component 3. The costing process depends on numerous estimates. a. Identify two major estimates that determine the cost per equivalent unit. b. In what direction might you anticipate a bias from management for each estimate in part 3a (assume that management compensation is based on maintaining low inventory amounts)? Explain your answer.

Answer 1

1.

Total costs to account for:
Costs of beginning work in process	241740
Costs incurred this period	2662740
Total costs to account for:	2904480
Total costs accounted for	2904480
Difference due to rounding cost/unit	0
Unit reconciliation:
Units to account for:
Beginning work in process inventory - units	3000
Units started this period	21600
Total units to account for	24600
Total units accounted for:
Units completed and transferred out	22200
Ending work in process - units	2400
Total units accounted for	24600
Equivalent units of production (EUP) - Weighted Average method
	Units	% Materials	EUP-Materials	% Conversion	EUP-Conversion
Completed and transferred out	22200	100%	22200	100%	22200
Ending work in process	2400	100%	2400	80%	1920
Total units			24600		24120
Cost per equivalent unit of production			Materials		Conversion
Cost of beginning work in process			19800		221940
Costs incurred this period			496800		2165940
Total costs		Costs	516600	Costs	2387880
÷ Equivalent units of production		EUP	24600	EUP	24120
Cost per equivalent unit of production			21.00		99.00
Total costs accounted for:
	EUP	Cost per EUP	Total cost
Cost of units completed and transferred out:
Direct materials	22200	21.00	466200
Conversion	22200	99.00	2197800
Total cost of units completed and transferred out				2664000
Cost of ending work in process:
Direct materials	2400	21.00	50400
Conversion	1920	99.00	190080
Total cost of ending work in process				240480
Total costs accounted for				2904480

2.

Date	General Journal	Debit	Credit
May 31	Finished goods inventory	2664000
	Work in process inventory		2664000
	(To record transfer of goods to finished goods inventory)

3a. Two major estimates that determine the cost per equivalent unit are:

i. The degree of completion of the units in ending inventory.

ii. The amount of overheads included in conversion costs incurred.

3b. In order to maintain low inventory:

i. The degree of completion of the units in ending inventory may be considered on the lower side.

ii. The amount of overheads applied may also be considered to be lower.