Question

Costs per Equivalent Unit and Production Costs

The following information concerns production in the Forging Department for November. All direct materials are placed into the process at the beginning of production, and conversion costs are incurred evenly throughout the process. The beginning inventory consists of $95,460 of direct materials.

ACCOUNT Work in Process—Forging Department							ACCOUNT NO.
Date		Item	Debit		Credit		Balance
							Debit		Credit
Nov.	1	Bal., 8,600 units, 40% completed					103,716
	30	Direct materials, 78,000 units	842,400				946,116
	30	Direct labor	86,590				1,032,706
	30	Factory overhead	119,585		?		1,152,291
	30	Goods finished, ? units					?
	30	Bal., 6,900 units, 90% completed					?

Cost per equivalent units of $10.80 for Direct Materials and $2.50 for Conversion Costs.

Based on the above data, determine each of the following amounts.

If required, round your interim calculations to two decimal places. Round final answers (a-c) to the nearest dollar.

a. Cost of beginning work in process inventory completed in November.
$

b. Cost of units transferred to the next department during November.
$

c. Cost of ending work in process inventory on November 30.
$

d. Costs per equivalent unit of direct materials and conversion included in the November 1 beginning work in process. If required, round your answers to two decimal places.

Direct materials cost per equivalent unit	$
Conversion cost per equivalent unit	$

e. The November increase or decrease in costs per equivalent unit for direct materials and conversion from the previous month. If required, round your answers to two decimal places.

	Increase or Decrease	Amount
Change in direct materials cost per equivalent unit		$
Change in conversion cost per equivalent unit		$

Answer 1

Answer a:

Cost of beginning work in process inventory completed in November:

Beginning inventory is 40% completed. Balance completed in November is 60% which is conversion in EUP = 8,600 * 60% = 5,160

Given, Cost of beginning inventory (40% completed). = $103,716

Cost of balance conversion (60%) completed in November = 5,160 * $2.50 = $12,900

Hence,

Cost of beginning work in process inventory completed in November = $103,716 + $12,900 = $116,616

Answer b:

Cost of units transferred to the next department during November:

Given:

We need to first find units of finished goods transferred:

Beginning balance as on 1 Nov = 8,600 units

Add, Started during Nov =78,000 units

Total quantity to be accounted for =86,600 units

Less, Work in process on Nov 30 = 6,900 units

Hence, Goods finished = 86,600 - 6,900 = 79,700

Out of these 79,700 units of finished goods transferred, 8,600 units are from beginning inventory.

In November, Cost per equivalent units of $10.80 for Direct Materials and $2.50 for Conversion Costs

Hence total cost per equivalent unit of production = $10.80 + $2.50 = $13.30

As calculated in answer to question (a) above, cost of beginning work in process inventory completed in November: $116,616

Cost of balance (79,700 – 8,600=) 71,100 units of finished goods = 71,100 * $13.30 = $945,630

Hence, Cost of units transferred = $116,616 + $945,630 = $1,062,246

Answer C:

Cost of ending work in process inventory on November 30:

Working in process as on Nov 30:

Cost of Direct material = $10.80 * 6,900 = $74,520

Conversion cost = EUP * $2.50

= (6,900 *90% * $2.50) = $15,525

Cost of ending Work in process = $90,045

Answer d:

Beginning inventory:

Material (8600 units) cost = $95,460

Conversion (8600 * 40% EUP) cost = $103,716 - $95,460 = $8,256

Direct materials cost per equivalent unit = $95,460 / 8600 = $11.10
Conversion cost per equivalent unit = $8,256 / 3,440 = $2.40 Answer e: Increase/decrease Amount Change in direct materials cost per equivalent unit Decrease $ 0.30 Change in conversion cost per equivalent unit Increase $0.10