Question

Azure Textiles Company makes silk banners and uses the weighted-average merhod of process costing. Direct materials are added at the beginning of the process, and conversion costs are added evenly during the process. Spoilage is detected upon in spection at the completion of the process. Spoiled units are disposed of at zero net disposal value. 18-1 Physical Units (Banners) Direct Conversion Materials Costs $ 1,423 $ 1,110 1,000 Work in process, July 1 Started in July 2017 Good units completed and transferred out in July Normal spoilage Abnormal spoilage Work in process, July 31h Total costs added during July 2017 9,000 100 50 2,000 $12,180 $27,750 Degree of completion: direct materials, 100 % ; conversion costs, 50%. Degree of completion: direct materials, 100%; conversion costs, 30%. Determine the cquivalent units of work done in July, and calculate the cost of units com- pleted and transferred out (including normal spoilage), the cost of abnormal spoilage and the cost of units in ending inventory FIFO Method and Spoilage Exhibit 18-3, Panel A, presents Steps 1 and 2 using the FIFO method, which focuses on cquiva- lent units of work done in the current period. Exhibit 18-3, Panel B, prescnts Steps 3, 4, and 5 Note how when assigning costs, the FIFO method keeps the costs of the beginning work in process separate and distinct from the costs of the work done in the current period. All spoil- age costs are assumed to be related to units completed during the period, using the unit costs of the current period. Consider Azure Textiles Company again. With the same information for July 2017 as provided in Try It 18-1, redo the problem assuming Azure uses FIFO costing instead. 18-2 Chapter 17 highlighted taxes, performance evaluation, and accounting-based covenants as some of the elements managers must take into account when choosing between the FIFO and weighted-average methods. It also stressed the importance of making careful estimates of degrees of completion in order to avoid misstating operating income. All of these consid- erations apply equally well to the material in this chapter. In addition, a new issue that arises with spoilage is that of estimating the normal spoilage percentage in an unbiased manner. A supervisor who wishes to show better performance might categorize more of the spoilage as normal, thereby reducing the amount that must be written off against income as the loss from abnormal spoilage. Managers must stress the valuc of consistent and unbiased estimates of completion and normal spoilage percentages and drive home the importance of pursuing ethical actions and reporting the correct income figures, regardless of the short-term conse- quences of doing so.

Help with 18-2 please.

Thank you!

Answer 1

A)	Statement of equivalent production					Degree of completion
						Direct Material			Conversion
a)	Particulars	Units	Particulars	Units		%	Units		%	Units
	Opening WIP	1000	Normal Loss	100		-	-		-	-
	Material Introduced	10150	Abnormal Loss	50		100%	50		100%	50
			Transfer to next process:
			From O/p WIP	1000		-	-		50%	500
			From Current Intro	8000		100%	8000		100%	8000
			Closing WIP	2000		100%	2000		30%	600
		11150		11150			10050			9150

Statement of cost per equivalent production
Element of costs	Units	Costs	Cost/eq. units
Direct Material	10050	$        12,180.00	$                  1.21
Conversion	9150	$        27,750.00	$                  3.03
			$                  4.24

Cost of Finished Goods
Existing cost of 1000 units =		$         2,533.00	($ 1423 + $ 1110)
Cost of Completing 500 units:
Conversion cost =		$         1,516.39	( 500 x $ 3.03)
Cost of 8000 units =		$       33,957.82	(8000 x $ 4.24)
	Total	$       38,007.21

Cost of closing WIP
	Units	Cost/eq. units	Costs
Direct Material	2000	$                 1.21	$      2,423.88
Conversion	600	$                 3.03	$      1,819.67
		Total	$      4,243.55

Cost of Abnormal Spoilage
	Units	Cost/eq. units	Costs
Material	50	$                 1.21	$            60.60
Conversion	50	$                 3.03	$         151.64
		Total	$         212.24