Question

Appendix: Normal and Abnormal Spoilage

Larkin Company produces leather strips for western belts using three processes: cutting, design and coloring, and punching. The weighted average method is used for all three departments. The following information pertains to the Design and Coloring Department for the month of June:

There was no beginning work in process.

There were 400,000 units transferred in from the Cutting Department.

Ending work in process, June 30: 50,000 strips, 80 percent complete with respect to conversion costs.

Units completed and transferred out: 330,000 strips. The following costs were added during the month:

Transferred in	$2,000,000
Direct materials	600,000
Conversion costs	780,000

Direct materials are added at the beginning of the process.

Inspection takes place at the end of the process. All spoilage is considered normal.

Required:

1. Calculate equivalent units of production for transferred-in materials, direct materials added, and conversion costs.

	Equivalent Units
Transferred In
Direct Materials
Conversion Costs

2. Calculate unit costs for the three categories of Requirement 1. Round your answers to the nearest cent.

	Unit Cost
Transferred In	$
Direct Materials	$
Conversion Costs	$
Total unit cost	$

3. What is the total cost of units transferred out?

$_________________

What is the cost of ending work-in-process inventory?

$_____________

Answer 1

Closing WIP	330,000
Goods Completed and Transferred	50,000
Normal Spoilage	20,000
Accounted for	400,000
Less: Opeining WIP	-
Started in current month	400,000
Accounted for	400,000

1.

	Transferred Units	Direct Material	Conversion Costs
Ending Work In Progress	50000	50000	50000
Completion %	100%	100%	80%
Equivalent units	50000	50000	40000
Normal Spoilage	20000	20000	20000
Completion %	100%	100%	100%
Equivalent units	20000	20000	20000
Abnormal Spoilage	0	0	0
Completion %	100%	100%	100%
Equivalent units	0	0	0
Units transferred out	330000	330000	330000
Completion %	100%	100%	100%
Equivalent units	330000	330000	330000
Total Equivalent Units	400000	400000	390000

2.

	Transferred Units	Direct Material	Conversion Costs
Begininnin WIP Cost	0	0	0
Add: Cost during the month	2000000	600000	780000
Total Cost	2000000	600000	780000
Total Equivalent Units	400000	400000	390000
Cost per equivalent unit	5.00	1.50	2.00

3.

Assignment of Costs	Transferred Units	Direct Material	Conversion Costs	Total
Units completed and transferred	330000	330000	330000
Add: Normal Spoilage	20000	20000	20000
Total Units	350000	350000	350000
Cost per equivalent unit	5.00	1.50	2.00
Total cost of Units completed and transferred	1,750,000.00	525,000.00	700,000.00	2,975,000.00
	Transferred Units	Direct Material	Conversion Costs	Total
Ending Work in Progress	50000	50000	40000
Cost per equivalent unit	5.00	1.50	2.00
Total cost of Ending Work in Progress	250,000.00	75,000.00	80,000.00	405,000.00
Total costs accounted for	2,000,000.00	600,000.00	780,000.00	3,380,000.00