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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Errors in equivalent unit computation

Napco Refining Company processes gasoline. On June 1 of the current year, 6,400 units were 3/5 completed in the Blending Department. During June, 55.000 units entered the Blending Department from the Refining Department. During June, the units in process at the beginning of the month were completed. Of the 55,000 units entering the department, all were completed except 5,200 units that were 1/5 completed. The equivalent units for conversion costs for June for the Blending Department were computed as follows:

Equivalent units of production in June:  
To process units in inventory on June 1:6,400 × 3/5 3,840
To process units started and completed in June: 55,000 − 6,400 48,600
To process units in inventory on June 30:5,200 × 1/5 1,040
Equivalent units of production 53,480

List the errors in the computation of equivalent units for conversion costs for the Blending Department for June.

To determine

Process costs

It is a method of cost accounting, which is used where the production is continuous, and the product needs various processes to complete. This method is used to ascertain the cost of the product at each process or stage of production.

Equivalents units for production

The activity of a processing department in terms of fully completed units is known as equivalent units. It includes the completed units of direct materials and conversion cost of beginning work in process, units completed and transferred out, and ending work in process.

To State: The errors while calculating of equivalent units for conversion costs for the blending department for June.

Explanation

List of errors while computing equivalent units for conversion costs for the blending department for June as shown below:

  • Error in calculating units of opening work in process inventory for conversion costs of blending department.
  • Error in calculating units of started and completed for conversion costs of blending department.
  • Error in calculating equivalents units for production of conversion costs for blending department.

Calculating units of opening work in process inventory for conversion costs of blending department is 2,560 units (6,400units ×25) instead of 3,840 (6,400units ×35) . Hence, the units of opening work in process inventory for conversion cost of blending department is 2,560 units

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