Question

E3.15 (LO 3, 4), AP Service Santana Mortgage Company uses a process cost system to accumulate costs in its Application Department. When an application is completed, it is forwarded to the Loan Department for final processing. The following processing and cost data pertain to September. Determine equivalent units, unit costs, and assignment of costs. 1. Applications in process on Beginning WIP: September 1: 100. Direct materials $ 1,000 2. Applications started in Conversion costs 3,960 September: 1,000. September costs: 3. Completed applications during Direct materials $ 4,500 September: 800. Direct labor 12,000 Applications still in process at September 30: 100% complete as to materials (forms) 4. and 60% complete as to conversion costs. Overhead 9,520 Materials are the forms used in the application process, and these costs are incurred at the beginning of the process. Conversion costs are incurred uniformly during the process. Instructions a. Determine the equivalent units of service (production) for materials and conversion costs. b. Compute the unit costs and prepare a cost reconciliation schedule.

Answer 1

a) Under weighted average method, equivalent Applications are to be calculated only for Applications completed & transferred out and Applications lying as ending work in process as it is assumed that the Applications once entered into the process become integral part of total Applications and no segregation between Applications transferred from beginning work in process and introduced during current process. Conversion cost includes Labor + Overheads. So, % of completion of beginning Work in Process Inventory doesn't affect the calculation of equivalent Applications of production. 100 Physical Applications of production: Applications in beginning inventory Add: Applications started during current period Less: Applications completed and transferred out Applications in still in process 1,000 -800 300 Particulars Completed and transferred Ending work in process Equivalent Applications of Production (EUP) EUP- EUP. Materials Conversion 800 800 [800 Applications x 100%; 800 Applications x 100%] 300 180 [300 Applications x 100%; 300 Applications x 60%] 1,100 980 NOTE: As materials are added at the beginning of the process itself, percentage of completion for materials is 100% in ending inventory.

b) Cost per equivalent Applications of production Cost of beginning work in process Cost added during the period Total Costs Equivalent Applications of Production (EUP) Cost per Equivalent Applications of Production Materials Conversion $1,000 $3,960 $4,500 $21,520 (Conversion = Direct labor + Overhead = $12000 + $9520 = $21520] $5,500 $25,480 1,100 980 [As computed EUP schedule presented above] $5.00 $26.00 [$5500/ 1100 Applications = $5; $25480 / 980 Applications = $26] Cost per Cost of applications in process EUP Totals 300 Materials Conversion Total Cost of applications in process EUP $5.00 $26.00 180 $1,500 [300 Applications x $5.00] $4,680 [180 Applications x $26.00] $6,180 Cost per Cost of applications completed EUP Totals EUP Materials 800 Conversion 800 Total Cost of applications completed & transferred $5.00 $26.00 $4,000 [800 Applications x $5.00] $20,800 [800 Applications x $26.00] $24,800

Costs Reconciliation: Cost of beginning WIP Current period cost Total Costs to Account For Materials $1,000 $4,500 Conversion $3,960 $21,520 Total $4,960 $26,020 $30,980 Cost of Applications Completed $4,000 $20,800 $24,800 $1,500 $4,680 Cost of Applications in Process Total Cost Accounted For $6,180 $30,980