Chapter 8, Problem 51P

a.

To determine

Determine the equivalent units of production for the month of July using weighted average method and select the best answer from the given option.

Answer to Problem 51P

Option (2) the equivalent units of production for the month of July using weighted average method formaterials is 870,000 and for conversion costs 814,000.

Explanation of Solution

Weighted average cost method:

Weighted average cost method is the method to find out the equivalent units in the process costing. Under this method work done on all completed units taken as 100% whether these units are from beginning inventory or units introduced in the process. The work done on the ending inventory is calculated as per work done on it with respect to the completed units.

Compute the equivalent units of production for the month of July using weighted average method:

Particulars	Materials	Conversion
Units transferred out	790,000	790,000
EU in ending inventory
Materials	80,000(1)
Conversion costs		24,000(2)
EU produced this period	870,000	814,000

Working note 1:

Compute the ending inventory of materials:

$\begin{array}{c}\text{Ending}\text{inventory}\text{=}\text{Completion}\text{rate}\text{×}\text{Number}\text{of}\text{units}\\ \text{=}\text{100\%}\text{×}\text{80,000}\\ \text{=}\text{80,000}\end{array}$

Working note 2:

Compute the ending inventory for conversion costs:

$\begin{array}{l}\text{Ending}\text{inventory}\text{=}\text{Completion}\text{rate}\text{×}\text{Number}\text{of}\text{units}\\ \text{=}\text{30\%}\text{×}\text{80,000}\\ \text{=}\text{24,000}\end{array}$

(1)

720,000 for materials and 744,000 for conversion costs is the incorrect option because the computed values of materials and conversion costs are 720,000 and 744,000 respectively

(2)

870,000 for materials and 814,000 for conversion costs is the correct option because these are the computed values of the same.

(3)

734,000 for materials and 720,000 for conversion costs is the incorrect option because the computed values of materials and conversion costs are 870,000 and 814,000 respectively.

(4)

795,000 for materials and 734,000 for conversion costs is the incorrect option because the computed values of materials and conversion costs are 870,000 and 814,000 respectively.

(5)

None of the above is the incorrect option because the computed values of materials and conversion costs are 870,000 and 814,000 respectively.

b.

To determine

Determine the equivalent units produced during November using weighted-average method and select the best answer from the given option

Answer to Problem 51P

Option (2) the equivalent units produced during November using weighted-average method are 370,000 for prior department costs, 330,000 for materials and 356,000 for conversion costs.

Explanation of Solution

Weighted average cost method:

Weighted average cost method is the method to find out the equivalent units in the process costing. Under this method work done on all completed units taken as 100% whether these units are from beginning inventory or units introduced in the process. The work done on the ending inventory is calculated as per work done on it with respect to the completed units.

Compute the equivalent units produced during November using weighted-average method:

Particulars	Prior department costs	Materials	Conversion costs
Units transferred out	330,000(3)	330,000	330,000
EU in ending inventory
Prior department costs	40,000
Materials		0
Conversion costs			26,000 (4)
EU produced this period	370,000	330,000	356,000

Working note 3:

Compute the units transferred out:

$\begin{array}{c}\text{Units}\text{transferred}\text{out}\text{=}\left(\begin{array}{l}\text{Number}\text{of}\text{units}\text{started}\text{with}\\ \text{+}\text{Beginning}\text{inventory}\\ -\text{Ending}\text{inventory}\end{array}\right)\\ \text{=}320,000+50,000-40,000\\ =330,000\end{array}$

Working note 4:

Compute the ending inventory conversion costs:

$\begin{array}{c}\text{Ending}\text{inventory}\text{=}\text{Completion}\text{rate}\text{×}\text{Prior}\text{department}\text{cost}\\ \text{=}\text{65\%}\text{×}\text{40,000}\\ \text{=}\text{26,000}\end{array}$

Justification for correct and incorrect answer:

(1)

Prior department costs 370,000, materials 330,000 and 304,000 conversion costs equivalent units is the incorrect option as that are 370,000, 330,000 and 356,000 are the computed values of prior department costs, materials and conversion costs respectively.

(2)

Prior department costs 370,000, materials 330,000 and 356,000 conversion costs equivalent units is the correct option as that are the computed values of the same.

(3)

Prior department costs 370,000, materials 330,000 and 345,000 conversion costs equivalent units is the incorrect option as that are 370,000, 330,000 and 356,000 are the computed values of prior department costs, materials and conversion costs respectively.

(4)

Prior department costs 320,000, materials 330,000 and 345,000 conversion costs equivalent units is the incorrect option as that are 370,000, 330,000 and 356,000 are the computed values of prior department costs, materials and conversion costs respectively.

(5)

None of the above is the incorrect option as that are 370,000, 330,000 and 356,000 are the computed values of prior department costs, materials and conversion costs respectively.

c.

To determine

Determine the equivalent units for the conversion costs using FIFO method and select the best answer from the given option.

Answer to Problem 51P

Option (4) the equivalent units for the conversion costs using FIFO method is 342,000.

Explanation of Solution

First in and first out (FIFO) method:

Under this method cost of units sold and units lying as ending inventory is ascertained on the first in and first out basis. It means units entered in the store first would be sold out first.

Compute the equivalent units for the conversion costs using FIFO method:

Particulars	Amount
Beginning inventory	14,000(5)
Add: Started and completed	300,000 (6)
Add: Ending inventory	28,000 (7)
Total equivalent units done	342,000

Working note 5:

Compute the beginning inventory to be accounted for:

$\begin{array}{c}\text{Beginning}\text{inventory}\text{to}\text{be}\text{accounted}\text{=}\left(\text{1}-\text{Completion}\text{rate}\right)\text{×}\text{Beginning}\text{inventory}\\ \text{=}\left(1-30\%\right)\times 20,000\\ =70\%\times 20,000\\ =14,000\end{array}$

Working note 6:

Compute the units started and completed:

$\begin{array}{c}\text{Started}\text{and}\text{completed}\text{=}\text{Transferred}\text{out}-\text{Beginning}\text{inventory}\\ \text{=}\text{320,000}-\text{20,000}\\ =300,000\end{array}$

Working note 7:

Compute the equivalent units in ending inventory:

$\begin{array}{c}\text{Ending}\text{inventory}\text{=}\text{Completion}\text{rate}\text{×}\text{Ending}\text{inventory}\\ =70\%\times 40,000\\ =28,000\end{array}$

Justification for correct and incorrect answer:

(1)

298,000 is the incorrect option as the value of computed conversion costs is 342,000

(2)

320,000 is the incorrect option as the value of computed conversion costs is 342,000

(3)

348,000 is the incorrect option as the value of computed conversion costs is 342,000

(4)

342,000 is the correct option as the value of computed conversion costs is 342,000

(5)

None of the above is the incorrect option as the value of computed conversion costs is 342,000

d.

To determine

Determine the equivalent units produced for the month of December using FIFO method and select the best answer from the given option.

Answer to Problem 51P

Option (1) the equivalent units produced for the month of December using FIFO method are 172,000 for materials and 168,000 for conversion costs.

Explanation of Solution

First in and first out (FIFO) method:

Under this method cost of units sold and units lying as ending inventory is ascertained on the first in and first out basis. It means units entered in the store first would be sold out first.

Compute the equivalent units produced for the month of December using FIFO method:

Particulars	Materials	Costs
Materials	0(8)
Conversion costs		12,000(9)
Started and completed	140,000(10)	140,000
Ending inventory
Materials	32,000(11)
Conversion costs		16,000 (12)
Work done	172,000	168,000

Working note 8:

Compute the beginning inventory for materials:

$\begin{array}{c}\text{Beginning}\text{inventory}\text{=}\left(\text{1}-\text{Completion}\text{rate}\right)\text{×}\text{Beginning}\text{inventory}\\ \text{=}\left(1-100\%\right)\times 40,000\\ =0\%\times 40,000\\ =0\end{array}$

Working note 9:

Compute the beginning inventory for conversion costs:

$\begin{array}{c}\text{Beginning}\text{inventory}\text{=}\left(\text{1}-\text{Completion}\text{rate}\right)\text{×}\text{Beginning}\text{inventory}\\ \text{=}\left(1-70\%\right)\times 40,000\\ =30\%\times 40,000\\ =12,000\end{array}$

Working note 10:

Compute the started and completed units during the period:

$\begin{array}{c}\text{Started}\text{and}\text{completed}\text{units}\text{=}\text{Transferred}\text{out}-\text{Beginning}\text{inventory}\\ \text{=}\text{180,000}\text{-}\text{40,000}\\ \text{=}\text{140,000}\end{array}$

Working note 11:

Compute the ending inventory for materials:

$\begin{array}{c}\text{Ending}\text{inventory}\text{=}\text{Completion}\text{rate}\text{×}\text{Number}\text{of}\text{units}\text{in}\text{ending}\text{inventory}\\ \text{=}100\%\times 32,000\\ =32,000\end{array}$

Working note 12:

Compute the ending inventory for conversion costs:

$\begin{array}{c}\text{Ending}\text{inventory}\text{=}\text{Completion}\text{rate}\text{×}\text{Number}\text{of}\text{units}\text{in}\text{ending}\text{inventory}\\ \text{=}50\%\times 32,000\\ =16,000\end{array}$

Justification for correct and incorrect answer:

(1)

172,000 for materials and 168,000 for conversion costs is the correct option as those are the computed values of materials and conversion costs.

(2)

212,000 for materials and 204,000 for conversion costs is the incorrect option as the computed values of materials and conversion costs are 172,000 and 168,000 respectively.

(3)

212,000 for materials and 200,000 for conversion costs is the incorrect option as the computed values of materials and conversion costs are 172,000 and 168,000 respectively.

(4)

172,000 for materials and 172,000 for conversion costs is the incorrect option as the computed values of materials and conversion costs are 172,000 and 168,000 respectively.

(5)

None of the above is the incorrect option as the computed values of materials and conversion costs are 172,000 and 168,000 respectively.