Question

Aaron Company has a process costing system. All materials are introduced when conversion costs reach 50 percent. The following information is available for physical units during March. Work in process, March 1 (60% complete as to conversion costs) 150,000 Units started in March 600,000 Units transferred to Finishing Department in March 630,000 Work in process, March 31 (40% complete as to conversion costs) 120,000 Required: a. Compute the equivalent units for materials costs and for conversion costs using the weighted-average method. b. Compute the equivalent units for materials costs and for conversion costs using the FIFO method. c. The company president has been under considerable pressure to increase income. He tells the controller to change the estimated completion for ending work in process to 60 percent (from 40 percent). c-1. What effect will this change have on the unit costs of units transferred to finished goods in March

Answer 1

Answer:

Aaron Company

a. Weighted-average

Equivalent units of production        Units      Materials        Conversion

Units transferred to Finishing    630,000  630,000 (100%) 630,000 (100%)

Work in process, March 31         120,000               0  (0%)      48,000 (40%)

Equivalent units                                          630,000             678,000

b. FIFO:

Equivalent units of production      Units      Materials          Conversion

Work in process, March 1          150,000               0                60,000 (40%)

Units started and completed   480,000   480,000 (100%)  480,000 (100%)

Work in process, March 31       120,000               0  (0%)       48,000 (40%)

Equivalent units                                        480,000               588,000

c. The change will reduce the unit costs of units transferred to finished goods in March.

Explanation:

a) Data and Calculations:

Work in process, March 1 (60% complete as to conversion costs) 150,000

Units started in March 600,000

Units transferred to Finishing Department in March 630,000

Work in process, March 31 (40% complete as to conversion costs) 120,000

a. Weighted-average

Equivalent units of production        Units      Materials        Conversion

Units transferred to Finishing    630,000  630,000 (100%) 630,000 (100%)

Work in process, March 31         120,000               0  (0%)      48,000 (40%)

Equivalent units                                          630,000             678,000

b. FIFO:

Equivalent units of production      Units      Materials          Conversion

Work in process, March 1          150,000               0                60,000 (40%)

Units started and completed   480,000   480,000 (100%)  480,000 (100%)

Work in process, March 31       120,000               0  (0%)       48,000 (40%)

Equivalent units                                        480,000               588,000

c. If the estimated completion for ending work in process is changed to 60% from 40%, the equivalent units of production for materials will increase by 120,000.  This increase will also increase the cost of ending work in process and reduce the unit costs transferred to finished goods in March.