Question

A manufacturer uses process costing. It has one direct material cost pool and one conversion cost pool. Information for the month is as follows:

                                                                    Beginning of Month         End of Month

Work in process:                                             21,000 units                12,000 units

Conversion (% of completion in WIP):                  35%                                 90%

Costs of Materials in WIP:                               $ 81,000                                ?

Costs of Conversion in WIP:                            $113,000                                ?

During the month:

Units started during the month:              70,000 units

Costs incurred for Materials:            $280,000  

Costs incurred for Conversion:           $270,000

Sales:                                                   $920,000

Admin expenses                                  $200,000

Other Information:

85% of direct materials is added at the beginning of the process, and the remaining 15% of direct materials (for packaging) are added at 95% completion.

Two assumption to make things a bit easier:

• There were no raw material inventories at any point of the process.
• There was no beginning or ending finished good inventory.

Required:

Part A: Calculate the total value of ending Work in Process and calculate Cost of Goods Sold, assuming that inventory is based on FIFO.

Part B: Calculate the total value of ending Work in Process and calculate Cost of Goods Sold, assuming that inventory is based on Weighted Average.

Answer 1

FIFO METHOD

step 1

determine physical unit to account for

unit in beginning inventory	21,000	completed unit transferred out	79,000
+ unit started during the period	70,000	+ ending inventory unit	12,000
physical unit	91,000		91,000

completed unit = beginning inventory + started during the period - ending inventory

step 2.

	material	conversion
completed unit	79,000	79,000
+ ending inventory	10,200 (12,000 * 85% )	10800 (12000 * 90%)
beginning inventory material 21000 * 85% conversion 21000 * 35%	(17850)	( 7350 )
EFU ( FIFO )	71,350	82450

step 3.

determine total cost to be accounted for.

	material	conversion
beginning inventory cost	81,000	113,000
period cost	280,000	270,000
total cost to accounted	361,000	383,000

step 4

compute unit cost based on EFU denominator compute in step 3 (use both method )

material 280,000 / 71,350 = 3.92

conversion 270,000 / 82450 = 3.27

total unit cost       = 7.19

step 5.

from beginning inventory
beginning costs ( 81,000 + 113,000 )	194,000
material add during period 21000 * 15% * 3.92	12,348
conversion added to completed during period 21000 * 65% * 3.27	44635.5
started and completed (started 70000 - 12000ending inventory ) 58000 * 7.19	417020
total costs transferred out		668003.5
ending WIP
material   12000 * 85% * 3.92	39984
conversion 12000 * 35% * 3.27	13734
ending WIP COST	53718
total cost account		721721.5

weighted average method

step 1

determine physical unit to account for

unit in beginning inventory	21,000	completed unit transferred out	79,000
+ unit started during the period	70,000	+ ending inventory unit	12,000
physical unit	91,000		91,000

completed unit = beginning inventory + started during the period - ending inventory

step 2

compute equivalent finished unit

	material	conversion
compete unit	79,000	79,000
+ ending inventory	10,200 (12000 *85%)	10,800 (12000 * 90%)
EFU (weighted average )	89,200	89,800

step 3

determine total cost to be accounted for.

	material	conversion
beginning inventory cost	81,000	113,000
period cost	280,000	270,000
total cost to accounted	361,000	383,000

step 4.

compute unit costs based on EFU denominators in step 3

(use total cost )

material 361,000 / 89,200 = 4.04 per unit

conversion 383,000 / 89,800 = 4.26 per unit

total unit cost      =    8.3

step 5. use unit cost computed in step 4 to allocate cost between units completed transferred out and units in ending inventory .

completed unit

	material	conversion	total cost
complete unit 79,000 * 8.3			655,700
ending inventory
material 12,000 * 85% * 4.04	41208		41,208
conversion 12000 * 90% * 4.26		46,008	46,008
total ending inventory			87,216
total cost accounted for			742,916