Chapter 3, Problem 6E

To determine

(a)

Introduction:

Process costing is a system in which production cost are allocated to individual production stages used in the manufacturing process. In this process, production is continuous and divided into number of processes.

To compute:

The physical units missing in the table and numbers of inventory stated and completed during each month.

Answer to Problem 6E

To reconcile the number of physical units:

February:

Units started = 48,000units

June:

Units transferred out = 47,000 units

September:

Units in beginning inventory = 1,800 units

December:

Units in ending inventory = 7,000 units

Number of units started and completed each month February:

Units started and completed = 35,000units

June:

Units started and completed = 38,600 units

September:

Units started and completed = 48,200 units

December:

Units started and completed = 37,000 units

Explanation of Solution

To reconcile the number of physical units:

Reconciling the number of physical units (FIFO method) using the formula given below:

Beginning inventory (WIP) + Units started = Units completed + closing inventory (WIP)

Thus for February, Units Started

$\begin{array}{l}=\left(38,000+13,000\right)-3,000\hfill \\ =48,000units\hfill \end{array}$

For June, units completed

$\begin{array}{l}\hfill \\ =\left(8,400+46,600\right)\text{ -}8,000\hfill \\ =47,000units\hfill \end{array}$

For September, Beginning inventory

$\begin{array}{l}=\left(50,000+4,600\right)-52,800\hfill \\ =1,800units\hfill \end{array}$

For December, Closing inventory

$\begin{array}{l}=\left(5,800+44,000\right)-42,800\hfill \\ =7,000units\hfill \end{array}$

As we understand that in First in First out method, the determination of beginning and completed units is required. Thus the formula to calculate the same is:

Units started and completed = Units completed-Units in beginning inventory

Or

Units started and completed = Units started-Units in closing inventory

Thus, for February Units started and completed:

$\begin{array}{l}=38,000-3,000\hfill \\ =35,000units\hfill \end{array}$

ForJune, Units started and completed

$\begin{array}{l}=47,000\text{ - }8,400\hfill \\ =38,600units\hfill \end{array}$

For September, Units statted and completed

$\begin{array}{l}=50,000\text{ - }1,800\hfill \\ =48,200units\hfill \end{array}$

For December Units stated and completed

$\begin{array}{l}=42.800-5,800\hfill \\ =37,000units\hfill \end{array}$

To determine

(b)

Introduction:

Process costing is a system in which production cost are allocated to individual production stages used in the manufacturing process. In this process, production is continuous and divided into number of processes.

To compute:

The number of equivalent units for both material and conversion for each month using FIFO method.

Explanation of Solution

	Physical units		equivalent units
		Direct material	Conversion
February
Beginning inventory	3,000	0	1,500 (3,000×15%)
Units started and completed	35,000	35,000	3,5000
Closing inventory	13,000	13,000	3,900 (13,000×30%)
Total	51,000	48,000	=40,400
June
Beginning inventory	8,400	0	6,300 (84,00×75%)
Units started and completed	38,600	38,600	38,600
Closing inventory	8,000	8,000	3,600 (8,000×45%)
Total	55,000	46,600	48,500
September
Beginning inventory	1,800	0	360 (1,800×45%)
Units started and completed	48,200	48,200	48,200
Closing inventory	4,600	4,600	2,760 (4,600×60%)
Total	54,600	52,800	51,320
December
Beginning inventory	5,800	0	1,740 (5,800×30%)
Units started and completed	37,000	37,000	37,000
Closing inventory	7,000	7,000	4,900 (7,000×70%)
Total	49,800	44,000	43,640