Question

Problem1 – Process costing

Timing Tech, a manufacturing company, has two departments: Production department and Finishing department. Goods completed in the Production department are immediately sent to the Finishing department. The following data pertains to the Production department.

Physical Direct Material Direct Labor

Units Cost Cost

Beg. WIP inventory (Jan. 1 2014) 200,000 units $ 200,000 $ 315,000

Units Started during the year 1,000,000 units

Costs incurred during the year $1,300,000 $1,995,000

End. WIP inventory (Dec. 31 2014) 300,000 units

• Beg. WIP completion rate: Direct Material – 100%, Conversion cost – 50%

• End. WIP completion rate: Direct Material – 100%, Conversion cost – 80%

• The company uses normal costing for allocation of manufacturing overhead. The pre-determined allocation rate in 2013 and 2014 is 60% of direct labor cost.

Required) Answer the following questions using a) FIFO method and b) Weighted Average Method.

1. FIFO

1. What is the number of physical units for the following accounts:

Goods Completed ______________

WIP End. Balance ___________________

2. What is the cost per equivalent unit?

Direct Material $_______________

Conversion $_______________

3. Compute the cost assigned to goods completed/transferred-out to testing department and the cost assigned to WIP ending balance for the Production department.

Transferred-out $_________________

WIP ending balance $________________

Problem 1 – Continued

2. Weighted average method

1. What is the number of physical units for the following accounts:

Goods Completed ______________

WIP End. Balance ___________________

2. What is the cost per equivalent unit?

Direct Material $_______________

Conversion $_______________

3. Compute the cost assigned to goods completed/transferred-out to testing department and the cost assigned to WIP ending balance for the Production department.

Transferred-out $_________________

WIP ending balance $________________

Answer 1

1 Statement showing physical units

Units to account for
Beginning work in process on Jan 1, 2014	200000
Started during the period	1000000
Total physical units to account for	1200000
Units accounted for :
Goods completed	900000 (1200000-300000)
WIP ending balance	300000

2 . Statement showing equivalent units of production :-

	Physical units	equivalent units	Equivalent units
Units to account for :		Direct material	direct labor
Beginning WIP	200000
Started during the period	1000000
Units to account for	1200000
Beginning WIP completed	200000	0	100000 (200000x50%)
Started and transferred	700000	700000 (700000x100%)	700000 (700000x100%)
Ending WIP	300000	300000 (300000x100%)	240000 (300000x80%)
Total physical Units accounted for	1200000
Equivalent units		1000000	1040000

Cost per equivalent units = cost incurred during the period (2014) / equivalent units

Direct material = $1300000 / 1000000 = $1.3

Direct labor = $1995000/1040000 = $1.92

3. Cost assigned to completed and transferred out = 700000x1.3+800000x1.92 = 910000+1534615 = $2444615.

Cost assigned to WIP ending balance = 300000x1.3+240000x1.92 = 390000+460385 = $850385.

Weighted average

1. Statement showing physical units :-

Units to account for :
Beginning WIP	200000
Started during the year	1000000
Total physical units to account for	1200000
Units accounted for :-
Goods completed	900000 (1200000-300000)
Ending WIP inventory	300000

2. Statement showing equivalent units produced :-

		Equivalent units	equivalent units
Units to account for :-	Physical units	direct material	direct labor
Beginning WIP	200000
Started during the period	1000000
Total physical units to be accounted for	1200000
Completed and transferred	900000	900000 (900000x100%)	900000 (900000x100%)
Ending WIP	300000	300000 (300000x100%)	240000 (300000x80%)
Total physical units accounted for	1200000
Equivalent units		1200000	1140000

Equivalent cost = beginning cost + cost incurred during the period / equivalent units

= Direct material = 200000+1300000/1200000 = $1.25

Direct labor = 315000+1995000/1140000 = $2.03

3. Cost assigned to gto giods completed and transferred out = 900000x1.25+900000x2.03 = 1125000+1823684 = $2948684 or

Cost assigned to ending WIP = 300000x1.25+240000x2.03 = 375000+486316 = $861316.