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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

Equivalent units of production

Kellogg Company manufactures cold cereal products, such as Frosted Flukes. Assume that the inventory in process on March 1 for the Packing Department included 1,200 pounds of cereal in the packing machine hopper (enough for 800 24-oz. boxes) and 800 empty 24-oz. boxes held in the package carousel of the packing machine. During March, 65,400 boxes of 24-oz. cereal were packaged. Conversion costs are incurred when a box is filled with cereal. On March 31, the packing machine hopper held 900 pounds of cereal and the package carousel held 600 empty 24-oz. (1½-lb.) boxes. Assume that once a box is filled with cereal, it is immediately transferred to the finished goods warehouse.

Determine the equivalent units of production for cereal, boxes, and conversion costs for March. An equivalent unit is defined as “pounds” for cereal and ‘24-oz boxes" for boxes and conversion costs.

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 Determine: The equivalent units for production of Company K.

Explanation

Calculate equivalent units for production of Company K as shown below:

Company K
Equivalent units of Production
Particulars Cereals Boxes Conversion cost
(in pounds) (in boxes) (In boxes)
Inventory in process, March 1 0 0 800
Add: Started and completed in March 96,900 64,600 64,600
Transferred to finished goods in march 96,900 64,600 65,400
Add: Inventory in process, March 31 900 600 0
Total 97,800 65,200 65,400

Table (1)

Working notes:

Calculate started and completed in March for cereals as shown below:

Started and completed for Cereals=64,600units ×

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