Question

Adam Plastics, Inc., manufactures plastic moldings for car seats. Its costing system utilizes two cost categories, direct materials and conversion costs. Direct materials are added at the beginning of production. Conversion costs are allocated evenly throughout production.
Data for February 2012 are:Work in process, beginning inventory, 200 units.Units started during February 600 unitsWork in process, ending inventory, 100 units30% complete as to conversion costs100% complete as to materialsCosts:Work in process, beginning inventory:Direct materials $200,000Conversion costs $200,000Direct materials costs added during February $2,000,000Conversion costs added during February $2,500,000What is the cost assigned to Ending WIP (Ending Inventory) in February?a. $393,162.50b. $4,900,000c. $385,958.90d. None of the above

Answer 1

Answer:

c. $385,958.90

Explanation:

Step 1 Determine the Total Cost Incurred for Both materials and Conversion

Raw Materials

Opening Work In Process                  $200,000

Add Cost Added during the year    $2,000,000

Total                                                   $2,200,000

Conversion

Opening Work In Process                  $200,000

Add Cost Added during the year    $2,500,000

Total                                                   $2,700,000

Step 2 Determine the total equivalent units for materials and conversion

Materials

Closing work in process 100 × 100%                         = 100

Completed and Transferred (600+200-100)×100% =700

Total                                                                            =800

Conversion

Closing work in process 100 × 30%                          =  30

Completed and Transferred (600+200-100)×100% =700

Total                                                                            =730

Step 3 Determine equivalent cost per unit of materials and conversion costs

Materials = $2,200,000/800 = $2,750

Conversion = $2,700,000/730 = $3,699

Step 4 Determine the cost assigned to Ending WIP

Materials  ($2,750×100)           = $275,000

Conversion Cost ($3,699×30) = $110,970

Total                                           =$385970