Question

In the month of April, the Forming Department had 500 units in beginning work in process inventory that were 60% complete. These units had $60,000 of materials cost and $45,000 of conversion cost. All materials are added at the beginning of the process and conversion costs are added uniformly throughout the process. During April, 10,000 units were completed and transferred to Finished Goods Inventory, and there were 2,000 units that were 25% complete in ending work in process inventory on April 30. During April, manufacturing costs charged to the department were $1,380,000 of materials and $1,530,000 of conversion. What was the total cost of goods transferred to Finished Goods Inventory?

Answer 1

Answer:

$2,700,000

Explanation:

since materials are added at the beginning of the process, we must first determine the number of units that started to be produced during April:

finished goods + ending inventory - beginning inventory = 10,000 + 2,000 - 500 = 11,500

the $1,380,000 must be divided by 11,500 units started = $1,380,000 / 11,500 = $120

total materials = [(11,500 - 2,000) x $120] + $60,000 (beginning inventory) = $1,140,000 + $60,000 = $1,200,000

conversion costs are added as the process is carried out so we must determine equivalent units:

• beginning work in process: 500 x 60% = 300 equivalent units
• 10,000 units were completed during April
• ending inventory: 2,000 x 25% = 500 equivalent goods

total equivalent units processed = 10,000 + 500 - 300 = 10,200

conversion cost per equivalent unit = $1,530,000 / 10,200 = $150

total conversion costs = [(10,200 - 500) x $150] + $45,000 (beginning inventory) = $1,455,000 + $45,000 = $1,500,000

total cost of finished goods inventory = $1,200,000 + $1,500,000 = $2,700,000