Question

Our company manufactures Chemical X. Assume the company uses weighted average. Separate direct materials and conversion costs. Chemical X is comprised of two liquids, Liquid A and Liquid B. The formula of Chemical X is 60% Liquid A, 40% Liquid B. 60% of the mixed liquid is added at the beginning of the process; 40% added at the very end. The average cost of the raw materials is $45 per gallon. At the beginning of the month, there was 1,200 gallons in process, 70% through the process (as to conversion costs). The total costs in beginning WIP is $32,400 for materials and $82,160 for conversion costs. During the month, 11,000 gallons were started. Conversion costs were $285,200 for the month. Compute direct material costs (hint use DM EUP under FIFO). At the end of the month, there were 1,800 gallons in process, 60% through the process.

Answer 1

Direct material cost during month no. of units percentage (%) per unit cost (5 per gallon) Total material cost Units in beginning of the month 1,200 40 45 21,600 9,200 100 45 4,14,000 Units started and completed during month (11000-1800) Units at the end of the month 1,800 60 45 48,600 Total Material cost 4,84,200 f. Unit costs using FIFO For finished goods units Material cost Conversion cost Beginning WIP 82,160 1,200 32,400 (given) (given) 9,200 4,14,000 Units during the year 2,85,200 10,400 Total Cost per unit 4,46,400 42.92 3,67,360 35.32 Total cost per unit 78.25 g. Using WA, Equivalent units of production Step 1: Physical units Beginning of the month + Units started during the month = units completed + Ending Work in progress (WIP) Ending WIP = 1,200 + 11,000 -1,800 - 10,400 gallons Step 2: Under weighted average method, the equivalent units of production are computed using the following formula: Equivalent units of production - Units transferred out + (Units in ending inventory x Percentage of completion) h. Cost per equivalent unit of production (Using WA) Particulars Raw Material Conversion cost 10,400 10,400 Units completed during the period (units X 100%) Add: Units in ending inventor 1,080 (1800 x 60%) 1,260 (1800 x 70%) Equivalent units of production 11,480 11,660 Total cost during month divide by: equivalent units of productions 2,85,200 11,660 Cost per unit of production ($ per gallon) 24.46 45.00 (given) Cost per equivalent unit of production = 45 +24.46 69.46 j. Cost per unit (Using WA) Total costs Material cost 4,84,200 Conversion cost Total cost 2,85,200 7,69,400 Total units 12,200 Cost per unit (Using WA) 63.07