Chapter 6, Problem 44P

1.

a.

To determine

Calculate the costs per equivalent unit for direct materials and conversion using the FIFO method.

Explanation of Solution

Equivalent units: Equivalent units are the number of units that could have been performed given the amount of work actually performed, and for both partially complete units and complete units, the quantity of other production inputs used.

Calculate the costs per equivalent unit:

Production Quantity Information
	Physical Units	Direct Materials	Conversion
Input		100%	20%
Beginning WIP	4,000	(4,000)	(800)
Units started	18,000
Units to account for	22,000
Output		100%	40%
Units Finished	17,000	17,000	17,000
Ending WIP	5,000	5,000	2,000
Units accounted for	22,000
Total Equivalent units		18,000	18,200
Unit Cost Determination
		Direct Materials	Conversion	Total
Beginning WIP		-	-	-
Current Costs		$59,040	$92,092	$151,132
Divide by: Equivalent units		18,000	18,200
Costs per equivalent unit		$3.2800	$5.0600	$8.3400

Table (1)

Hence, the costs per equivalent unit for direct materials is $3.2800, and for conversion is $5.0600.

b.

To determine

Calculate the costs of goods completed and transferred out.

Explanation of Solution

Transferred-out costs:  The costs that are incurred at the time of production of the previous process. These costs are brought to the next process to calculate the total production cost. The transferred in costs include the cost of direct materials and the conversion cost of the previous process.

Calculate cost of goods completed and transferred out.

$\begin{array}{c}\begin{array}{l}\text{Cost of goods completed}\\ \text{ and transferred out}\end{array})\text{=}\text{Transferred out units }\times \text{Total cost per unit}\\ \text{=}17\text{,000 units}\times \$8.3400\text{per unit}\\ \text{=}\$141,780\end{array}$

Hence, the costs of goods completed and transferred out is $141,780.

c.

To determine

Calculate the costs remaining in the Work-in-process inventory account.

Explanation of Solution

Calculate Ending WIP inventory for direct materials.

$\begin{array}{c}\text{Ending WIP, Direct materials})\text{=}\left(\begin{array}{c}\text{Direct materials, Ending }\times \\ \text{Cost per unit }\left(\text{Requirement a}\text{.}\right)\end{array}\right)\\ \text{=}\left(\text{5,000 units}\times 10\text{0\%}\right)\times \$3.2800\text{per unit}\\ \text{=}\$16,400\end{array}$

Calculate Ending WIP inventory for conversion.

$\begin{array}{c}\text{Ending WIP, Direct materials})\text{=}\left(\begin{array}{c}\text{Conversion, Ending }\times \\ \text{Cost per unit }\left(\text{Requirement 2}\right)\end{array}\right)\\ \text{=}\left(\text{5,000 units}\times 4\text{0\%}\right)\times \$5.0600\text{per unit}\\ \text{=}\$10,120\end{array}$

Hence, the cost of the Work-in-process inventory at October 31 is $16,400, and for conversion is $10,120.

2.

To determine

Discuss the exchange rate between the Country U dollar and Country C yuan.

Explanation of Solution

The responsibility of the controller is to prepare accurate production reports. The request by the manager is the violation of this responsibility of the controller. The best available estimate of percentage completion is to be used by the controller as required by the ethical principles of integrity and objectivity.

Production Quantity Information
	Physical Units	Direct Materials	Conversion
Input		100%	20%
Beginning WIP	4,000	(4,000)	(800)
Units started	18,000
Units to account for	22,000
Output		100%	60%
Units Finished	17,000	17,000	17,000
Ending WIP	5,000	5,000	3,000
Units accounted for	22,000
Total Equivalent units		18,000	19,200
Unit Cost Determination
		Direct Materials	Conversion	Total
Beginning WIP		-	-	-
Current Costs		$59,040	$92,092	$151,132
Divide by: Equivalent units		18,000	19,200
Costs per equivalent unit		$3.2800	$4,7965	$8.0765

Table (2)

The change of ending inventory completion from 40% to 60% would have a significant effect on cost per equivalent unit and on equivalent units, as there is a high level of ending work-in-process. The result of this change would be a decline in the total costs per unit from $8.3400 to $8.0765.