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Chapter 18: Q16SE (page 1010)

Refer to Short Exercise S18A-15. At Spring Fresh, water is added at the beginning of the filtration process. Conversion costs are added evenly throughout the process. Now assume that in February, 130,000 liters were completed and transferred out of the Filtration Department into the Bottling Department. The 70,000 liters remaining in Filtration’s ending Work-in-Process Inventory were 80% of the way through the filtration process. Recall that Spring Fresh has no beginning inventories.

Compute the equivalent units of production for direct materials and conversion

costs for the Filtration Department using the FIFO method.

Short Answer

Expert verified

The equivalent unit of production for direct material is 200,000 liters, and for conversion costs, 186,000 liters.

Step by step solution

01

Step-by-Step Solution:Step 1: Equivalent Unit of Production

The equivalent units of production denote the amount of work done on the partially completed units at the end of the reporting period. It represents units in terms of fully completed units.

02

Equivalent unit of production (EUP) for direct material

EUPfordirectmaterial=(Completedunits×Completion%)+(WIPunits×Completion%)=(130,000×100%)+(70,000×100%)=200,000

03

Equivalent unit of production for conversion cost

EUPforConversioncost=(Completedunits×Completion%)+(WIPunits×Completion%)=(130,000×100%)+(70,000×80%)=186,000

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Most popular questions from this chapter

Billy Davidson operates Billy’s Worm Farm in Mississippi. Davidson raises worms for fishing. He sells a box of 20 worms for \(12.60. Davidson has invested \)400,000 in the worm farm. He had hoped to earn a 24% annual rate of return (net income divided by total assets), which works out to a 2% monthly return on his investment. After looking at the farm’s bank balance, Davidson fears he is not achieving this return. To evaluate the farm’s performance, he prepared the following production cost report. The Finished Goods Inventory is zero because the worms ship out as soon as they reach the required size. Monthly operating expenses total \(2,000 (in addition to the costs below).

BILLY’S WORM FARM

Production cost report – BROODING DEPARTMENT

Month Ended June 30, 2018


Equivalent units

Units

Physical units

Transferred in

Direct materials

Conversion costs

Units to account for:

Beginning WIP

9,000

Transferred in

21,000

Total units to account for

30,000

Units accounted for:

Completed and transferred out

20,000

20,000

20,000

20,000

Ending WIP

10,000

10,000

6,000

3,600

Total units accounted for

30,000

30,000

26,000

23,600

COSTS

Transferred in

Direct materials

Conversion costs

Total costs

Cost to account for:

Beginning WIP

\)21,000

\(39,940

\)5,020

\(65,960

Cost added during period

46,200

152,460

56,340

255,000

Total cost to account for

67,200

192,400

61,360

320,960

Divided by total EUP

30,000

26,000

23,600

Cost per equivalent units

\)2.24

\(7.40

\)2.60

Costs accounted for:

Completed and transferred out

\(44,800

\)148,000

\(52,000

\)244,800

Ending WIP

22,400

44,400

9,360

76,160

Total costs accounted for

\(67,200

\)192,400

\(61,360

\)320,960

Requirements

Billy Davidson has the following questions about the farm’s performance during June.

1. What is the cost per box of worms sold? (Hint: This is the unit cost of the boxes completed and shipped out of brooding.)

2. What is the gross profit per box?

3. How much operating income did Billy’s Worm Farm make in June?

4. What is the return on Davidson’s investment of \(400,000 for the month of

June? (Compute this as June’s operating income divided by Davidson’s \)400,000

investment, expressed as a percentage.)

5. What monthly operating income would provide a 2% monthly rate of return?

What sales price per box would Billy’s Worm Farm have had to charge in June to

achieve a 2% monthly rate of return?

Question: What are equivalent units of production?

Happy Colors manufactures crayons in a three-step process: mixing, molding, and packaging. The Mixing Department combines the direct materials of paraffin wax and pigments. The heated mixture is pumped to the Molding Department, where it is poured into molds. After the molds cool, the crayons are removed from the molds and are transferred to the Packaging Department, where paper wrappers are added and the crayons are boxed.

In the Mixing Department, the direct materials are added at the beginning of the

process and the conversion costs are incurred evenly throughout the process. Work in process of the Mixing Department on April 1, 2018, consisted of 300 batches of crayons that were 30% of the way through the production process. The beginning balance in Work-in-Process Inventory—Mixing was \(27,800, which consisted of \)10,700 in direct materials costs and $17,100 in conversion costs. During April, 3,200 batches were started in production. The Mixing Department transferred 2,800 batches to the Molding Department in April, and 700 were still in process on April 30. This ending inventory was 80% of the way through the mixing process. Happy Colors uses FIFO process costing.

At April 30, before recording the transfer of costs from the Mixing Department

to the Molding Department, the Happy Colors general ledger included the following account:

Work-in-process inventory – Mixing

Balance, March 1

27,800

Direct materials

22,400

Direct labor

21,330

Manufacturing overhead

44,070

Requirements

1. Prepare a production cost report for the Mixing Department for April. Round

equivalent unit costs to four decimal places. Round all other costs to the nearest

dollar.

2. Journalize all transactions affecting the Mixing Department during April, including the entries that have already been posted. Assume the labor costs are accrued and not yet paid.

The Packaging Department started the month with 600 units in process, received 1,200 units from the Finishing Department, and transferred 1,500 units to Finished Goods. Direct materials are added at the beginning of the process and conversion costs are incurred evenly. The units still in process at the end of the month are 60% complete for conversion costs. Calculate the number of units still in process at the end of the month and the equivalent units of production. The company uses the weighted-average method.

The Finishing Department reports the following data for the month:

Equivalent unit of production:

Transferred in

3,000

Direct materials

3,000

Conversion cost

2,250

Costs:

Beginning WIP

Added this month

Total

Transferred in

\(7,500

\)15,000

\(22,500

Direct materials

3,250

6,500

9,750

Conversion costs

6,125

13,000

19,125

Total

\)16,875

\(34,500

\)51,375

Calculate the cost per equivalent units of production for each input. The company

uses the weighted-average method.
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