Concept explainers
Refer to the data in Problem 6.31. Assume that the FIFO method is used.
Required:
- 1. Prepare a physical flow schedule.
- 2. Calculate equivalent units of production for direct materials and conversion costs.
- 3. Compute unit cost. Round to three decimal places.
- 4. Calculate the cost of goods transferred to Painting at the end of the month. Calculate the cost of ending inventory.
1.
Prepare a physical flow of schedule.
Explanation of Solution
Process Costing: Process costing is method of cost accounting in which all the costs that are incurred during the production process are recorded. Output of one process becomes input for next process. This method is used to apply cot to similar products that are mass-produced in uninterrupted manner.
Prepare a physical flow of schedule.
Particulars | Units | Workings |
Units to account for: | ||
Opening work in process | 40,500 | |
Add: Units started | 94,500 | |
Total units to account for | 135,000 | |
Units accounted for: | ||
Units transferred out | 121,500 | |
Ending work in process | 13,500 | |
Total units accounted for | 135,000 |
Table (1)
2.
Calculate equivalent units of production for direct materials and conversion costs.
Explanation of Solution
Calculate equivalent units of production for direct materials and conversion costs.
Particulars | Direct materials | Conversion Costs | ||
Units | Workings | Units | Workings | |
Beginning work in process | 0 | 32,400 | ||
Started an completed | 81,000 | 81,000 | ||
Add: Ending work in process | 13,500 | 3,375 | ||
Equivalent units of production (A) | 94,500 | 116,775 |
Table (2)
3.
Calculate unit cost.
Explanation of Solution
Calculate unit cost.
Particulars | Direct Materials | Conversion | Workings |
Cost added to production (A) | $2,565,000 | $5,871,150 | |
Equivalent units of production (B) | 94,500 | 116,775 | |
Cost per unit (A ÷ B) | $27.143 | $50.277 |
Table (3)
Working note:
Calculate overhead costs.
Particulars | Workings | Amount |
Overhead costs: | ||
Inspection | $600,000 | |
Maintainece | $1,200,000 | |
Receiving | $600,000 | |
Total overhead costs | $2,400,000 |
Table (4)
4.
Calculate the cost of goods transferred and ending work in process for painting department at the end of the month.
Explanation of Solution
Calculate cost of goods transferred out.
Therefore, cost of goods transferred out amount is $9,487,595.
Calculate ending work in process inventory.
Therefore, ending work in process inventory amount is $536,115.
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Chapter 6 Solutions
CORNERSTONES OF COST MANAGEMENT
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