Question

Nouveaux Toys Inc., manufactures plastic rubber ducks. In June, Nouveaux reported the following data:

a. All direct materials are added at the beginning of the process.

b. Beginning work-in-process consisted of 3,000 units, 30 percent complete with respect to direct labor and overhead. Costs in beginning inventory included direct materials, $450; and conversion costs, $138.

c. Costs added to production during the month were direct materials, $950; and conversion costs, $2,174.50.

d. Inspection takes place at the end of the process. Malformed units are discarded. During normal operations, 0.5% of the units started will end up being malformed and discarded.

e. During the month, 7,000 units were started and 8,000 good units were transferred out to Finishing. All other units finished were malformed and discarded. There were 1,000 units that remained in ending work in process, 55 percent complete.

f. Remember to round your decimal points to four places for cost/EU rates.

Required: A. Prepare a physical unit flow schedule.

B. Calculate the 1) cost of goods transferred out, 2) ending work-in-process, and 3) loss due to spoilage using the weighted average method.

C. Prepare the journal entries to record 1) and 3) above. Reconcile these journal entries with beginning work in process to ensure that ending work in process matches 2).

D. Calculate the 1) cost of goods transferred out, 2) ending work-in-process, and 3) loss due to spoilage using the FIFO method.

E. Prepare the journal entries to record 1) and 3) above. Reconcile these journal entries with beginning work in process to ensure that ending work in process matches 2).

F. Assume instead that inspection takes place when units are 40 percent complete. How does this change the number of units spoiled? How does this change the number of units that were abnormal spoilage v. normal spoilage?

Answer 1

A&B) Weighted Average method:
Inputs	Particulars	Phy. Units	DM	Conv. Costs	Total
3000	B WIP	3000	3000	3000
7000	Started & Compl.	5000	5000	5000
	Transf. out	8000	8000	8000
	Normal loss	35
	Abnormal loss	965	965	965
	C WIP	1000	1000	550
10000	Equivalent units	10000	9965	9515
	Total costs:
	B WIP		450	138
	During month		950	2174.5
	T. Costs to account for		1400	2312.5	3712.5
	Cost per Eq. unit		0.1405	0.2430
	Cost of Transf. out		1124	1944	3068
	Cost of C WIP		140	134	274
	Cost of Abnormal loss		136	235	370
	Cost accounted for				3713
C) Journal Entry:
Date	Acc. Titles	Debit $	Credit $
1	WIP -finishing deptt	3068
	WIP - production deptt		3068
	(finished goods transferred out)
3	Income Summary	370
	WIP - production deptt		370
	(Abnormal loss transferred to Income summary)
D) FIFO method:
Inputs	Particulars	Phy. Units	DM	Conv. Costs	Total
3000	B WIP	3000	0	2100	588
7000	Started & Compl.	5000	5000	5000
	Transf. out	8000	5000	7100
	Normal loss	35
	Abnormal loss	965	965	965
	C WIP	1000	1000	550
10000	Equivalent units	10000	6965	8615
	During month		950	2174.5	3124.5
	Cost per Eq. unit		0.1364	0.2524
	Cost to account for				3712.5
	Cost of B WIP:
	B WIP cost		450	138
	Add: during month		0	530
	Total cost of B WIP		450	668	1118
	Cost of Started & Compl.		682	1262	1944
	Cost of Transf. out		1132	1930	3062
	Cost of C WIP		136	139	275
	Cost of Abnormal loss		132	244	375
	Cost accounted for				3713
E) Journal Entry:
Date	Acc. Titles	Debit $	Credit $
1	WIP -finishing deptt	3062
	WIP - production deptt		3062
	(finished goods transferred out)
3	Income Summary	375
	WIP - production deptt		375
	(Abnormal loss transferred to Income summary)
F) If the inspection takes place at 40%, it does not affect the number
of spoiled because the Direct Material cost has being feed-in at the
beginning of the process. But inspection at 40% could reduce the cost
of abnormal loss as abnormal spoilage taken away at 40% of Conversion
costs. This will increase the cost of transferred out and closing WIP.