Answer:
1. How many units were started, completed and transferred out in August?
How many were completed and transferred from beginning work-in-process in August?
2. Calculate the cost per equivalent unit for
a. Direct materials = $13.4151
b. Conversion costs = $2.8216
3. Calculate the direct materials and conversion costs assigned to units that were completed and transferred out in August, and those in ending WIP.
- units completed = $844,309.77
- ending WIP = $15,390.23
4. Tony Stark, a cost accountant in the company, has raised the concern that the FIFO method of process costing is not as informative about the changes in product costs as the weighted average method. Is Tony correct? Explain.
- Ironman is wrong, since FIFO costing method is more exact. Under FIFO, only costs incurred during the period are considered, while weighted average includes costs incurred in previous periods. Weighted average is simpler to calculate, and whether it's better or not depends on actual costs incurred. E.g. if your production schedule and costs are fairly stable, then any differences between both methods will be irrelevant. But if your production schedule or costs vary form month to month, then the differences between both methods will be significant.
Explanation:
beginning WIP 8,000
100% complete for materials: $124,500
40% complete for conversion costs: $24,200
units started 45,000
units completed 52,000
ending WIP 1,000
100% complete for materials
70% complete for conversion costs
period costs:
Direct materials $463,500
Conversion costs $247,500
total manufacturing costs:
Direct materials $711,000
Conversion costs $148,700
EUP:
for materials 53,000
for conversion costs 52,700
cost per EUP:
Direct materials $711,000 / 53,000 = $13.4151
Conversion costs $148,700 / 52,700 = $2.8216
total cost assigned to finished units = [($711,000 / 53,000) x 52,000] + [($148,700 / 52,700) x 52,000] = $697,584.91 + $146,724.86 = $844,309.77
ending WIP = ($711,000 + $148,700) - $844,309.77 = $15,390.23
