Question

Question 4

Icy Delight Company, which manufactures quality ice cream sold at premium prices, uses a single production department. Production begins with the blending of various ingredients, which are added at the beginning of the process, and ends with the packaging of the ice cream. Packaging occurs when the mixture reaches the 90% stage of completion. The two-litre cartons are then transferred to the shipping department for shipment. Labour and overhead are added continuously throughout the process. Manufacturing overhead is applied on the basis of direct labour hours at the rate of $3 per hour.

The company has always used the weighted-average method to determine equivalent units of production and unit costs. Now, production management is considering changing from the weighted-average method to the first-in, first-out method. The following data relate to actual production during the month of May:

Please keep the structure of the question neat, thank you in advance.

Question 4 Icy Delight Company, which manufactures quality ice cream sold at premium prices, uses a single production department. Production begins with the blending of various ingredients, which are added at the beginning of the process, and ends with the packaging of the ice cream. Packaging occurs when the mixture reaches the 90% stage of completion. The two- litre cartons are then transferred to the shipping department for shipment. Labour and overhead are added continuously throughout the process. Manufacturing overhead is applied on the basis of direct labour hours at the rate of $3 per hour. The company has always used the weighted average method to determine equivalent units of production and unit costs. Now, production management is considering changing from the weighted average method to the first-in, first-out method. The following data relate to actual production during the month of May: Costs Work in process inventory, May 1 (16,000 litres; 15% complete) Direct materials (ingredients) Direct labour ($10 per hour) Manufacturing overhead $45,600 6,250 1,875 Costs Incurred Direct materials (ingredients) $228,400 Direct materials (cartons) 7,000 Direct labour ($10 per hour) 35,000 Manufacturing overhead 10,500 Production Units Litres Work in process inventory, May 1 (15% complete) 16,000 Started in May 84,000 Sent to shipping department 80,000 Work in process inventory, May 31 (95% complete) 20,000

Answer 1

Answer :

(a)

(1) Weighted Average	Physical Units	Equivalent Units
Quantities	Material 1	Material 2		Conversion Costs
Units to be accounted for
Work in process, beginning	16,000
Started in May	84,000
Total units	100,000
Units accounted for
Completed	80,000	80,000	80,000		80,000
Work In process, ending	20,000
Material 1 (100%)		20,000
Material 2 (100%)1			20,000
Conversion (95%)					19,000
Total equivalent units	100,000	100,000	100,000		99,000

1Material 2 is added to the process at 90% completion; goods are 95% completed

(b) Cost per equivalent unit	TOTAL
	Material 1	Material 2		Conversion Costs
Production costs for May
Work in process, beginning	$53,725	$45,600	$0		$8,125
Costs incurred for May	280,800	228,400	7,000		45,400
Total costs	$334,525	$274,000	$7,000		$53,225
Equivalent units (from (a))		100,000	100,000		99,000
Cost per equivalent unit	$3.98	$2.74	$0.70		$0.54

(2) First-in, first-out	Physical Units	Equivalent Units
Quantities	Material 1	Material 2		Conversion Costs
Units to be accounted for
Work in process, beginning	16,000
Started in May	84,000
Total units	100,000
Units accounted for
Work in process, beginning	16,000
Material 1 (0%1)		–0–
Material 2 (100%2)			16,000
Conversion (85%3)					13,600
Started &Completed	64,000	64,000	64,000		64,000
Work In process, ending	20,000
Material 1 (100%)		20,000
Material 2 (100%4)			20,000
Conversion (95%)					19,000
Total equivalent units	100,000	84,000	100,000		96,600

(b) Cost per equivalent unit	TOTAL
	Material 1	Material 2		Conversion Costs
Production costs for May
Costs incurred for May	$280,800	$228,400	$7,000		$45,400
Equivalent units (from (a))		84,000	100,000		96,600
Cost per equivalent unit	$3.26	$2.72	$0.07		$0.47

1Material is 100% complete, 0% to be added

2Material is 0% complete, needs 100% to be added

3Conversion is 15% complete, 85% to be added

4Material 2 is added to the process at 90% completion