Question

Question 3: Process Costing [35 MARKS] You are employed by Spirit Ltd, a manufacturer of digital watches. The company's chief financial officer is trying to verify the accuracy of the ending work in process and finished goods inventories prior to closing the books for the year. You have been asked to assist with this The year-end balances shown on Spirit Ltd's books are as follows: Units 300,000 Cost $660,960 Work in process, 31 December 2019 (labour and overhead 50% complete) Finished goods, 31 December 2019 200,000 $1,009,800 • Materials are added to production at the beginning of the manufacturing process Overhead is applied to each product at the rate of 60% of direct labour cost There was no finished goods inventory at the beginning of the year. A review of Spirit Ltd's inventory and cost records has disclosed the following data: Units Costs Labour $315,000 Materials $200,000 200,000 Work in process, 1 January 2019 (labour and overhead 80% complete) Units started into production Cost added during the year Units completed during the year 1.000.000 $1,300,000 $1.995,000 900,000 Required: Keep all calculations to 2 decimal places. If Spirit Ltd applies the weighted average method: 1. Calculate the total equivalent units and costs per equivalent unit for each of the following: materials, labour and overhead for the year. (10 marks) ii. Calculate the cost of the ending work in process and the cost of the goods completed and transferred out. (5 marks) If Spirit Ltd applies the First-in-First-out method: il Calculate the total equivalent units and costs per equivalent unit for each of the following: materials, labour, and overhead for the year. (9 marks) iv. Calculate the cost of the ending work in process and the cost of the goods completed and transferred out. (11 marks)

Answer 1

Answer:

If Spirit Ltd. applies The Weighted Average Method:
Equivalents Units of Production (EUP)
	Units	% Materials	EUP-material	% conversion	EUP-conversion
Unit completed and transferred	900,000	100%	900,000	100%	900,000
Units in ending WIP	300,000	100%	300,000	50%	150,000
Equivalent units of production	1,200,000		1,200,000		1,050,000
Cost per equivalent units of production:	Direct materials	Conversion
Cost of beginnin WIP	$           200,000	$    315,000
Cost incurred this period	$        1,300,000	$ 1,995,000
Total costs	$        1,500,000	$ 2,310,000
Equivalent units of production	1,200,000	1,050,000
Cost per equivalent units of production	$                 1.25	$          2.20
TOTAL COST REPORT
Production	Element of cost	EUP	Cost per EUP	Total Cost	Total Cost
Finished out	Direct Material	900,000	$             1.25	$   1,125,000	$        3,105,000
Conversion	900,000	$             2.20	$   1,980,000
Ending WIP	Direct Material	300,000	$             1.25	$      375,000	$            705,000
Conversion	150,000	$             2.20	$      330,000

If Spirit Ltd. applies The FIFO Method:
Equivalents Units of Production (EUP)
	Units	% Materials	EUP-material	% conversion	EUP-conversion
unit completed out of Beginning WIP	200,000	0%	-	20%	40,000
Started and completed	700,000	100%	700,000	100%	700,000
Units in ending WIP	300,000	100%	300,000	50%	150,000
Equivalent units of production	1,200,000		1,000,000		890,000
Cost per equivalent units of production:	Direct materials	Conversion
Cost of beginnin WIP	$           200,000	$    315,000
Cost incurred this period	$        1,300,000	$ 1,995,000
Total costs	$        1,500,000	$ 2,310,000
Equivalent units of production	1,000,000	890,000
Cost per equivalent units of production	$                 1.50	$          2.60
TOTAL COST REPORT
Production	Element of cost	EUP	Cost per EUP	Total Cost	Total Cost
Finished out	Direct Material	700000	$             1.50	$   1,050,000	$        2,866,854
Conversion	700000	$             2.60	$   1,816,854
Ending WIP	Direct Material	300000	$             1.50	$      450,000	$            839,326
Conversion	150000	$             2.60	$      389,326