Question

3. Cost of Units Completed and in Process

The charges to Work in Process—Assembly Department for a period, together with information concerning production, are as follows. All direct materials are placed in process at the beginning of production.

Work in Process—Assembly Department
Bal., 8,000 units, 45% completed	19,920	To Finished Goods, 184,000 units	?
Direct materials, 188,000 units @ $1.5	282,000
Direct labor	327,300
Factory overhead	127,260
Bal. ? units, 75% completed	?

a. Based on the above data, determine the different costs listed below.

If required, round your interim calculations to two decimal places.

1. Cost of beginning work in process inventory completed this period.	$
2. Cost of units transferred to finished goods during the period.	$
3. Cost of ending work in process inventory.	$
4. Cost per unit of the completed beginning work in process inventory, rounded to the nearest cent.	$

b. Did the production costs change from the preceding period?

c. Assuming that the direct materials cost per unit did not change from the preceding period, did the conversion costs per equivalent unit increase, decrease, or remain the same for the current period?

4. Process Costing for a Service Company

Madison Electric Company uses a fossil fuel (coal) plant for generating electricity. The facility can generate 900 megawatts (million watts) per hour. The plant operates 600 hours during March. Electricity is used as it is generated; thus, there are no inventories at the beginning or end of the period. The March conversion and fuel costs are as follows:

Conversion costs	$40,500,000
Fuel	10,800,000
Total	$51,300,000

Madison also has a wind farm that can generate 100 megawatts per hour. The wind farm receives sufficient wind to run 300 hours for March. The March conversion costs for the wind farm (mostly depreciation) are as follows:

Conversion costs

$2,700,000

a. Determine the cost per megawatt hour (MWh) for the fossil fuel plant and the wind farm to identify the lowest cost facility in March.

	Cost Per Mega-watt Hour
Fossil plant		$	per MWh
Wind farm

b. Why are equivalent units of production not needed in determining the cost per megawatt hour (MWh) for generating electricity?

c. What advantage does the fossil fuel plant have over the wind farm? Which of the following is true.

1. Fossil fuel is easily available.
2. Fossil fuel plant has a cost advantage over wind farm.
3. The wind farm is subject to the presence of wind and thus, not reliable.
4. The fossil fuel plant can be turned on and off on a schedule, while the wind farm is subject to the varieties of nature.

Answer 1

3.

		Equivalent units
	Whole units	Material	Conversion
Beginning work in process	8,000	0	4,400 (8,000*55%)
Units started and completed	176,000 (184,000-8,000)	176,000	176,000
Units transferred out	184,000
Ending work in process	12,000 (8,000+188,000-184,000)	12,000	9,000 (12,000*75%)
Total equivalent units	196,000	188,000	189,400

Cost per equivalent unit:

	Material	Conversion
Cost added during the period	$282,000	$454,560
Equivalent units	188,000	189,400
Cost per equivalent units	$1.5	$2.4

1. Cost of beginning work in process:

Beginning balance	$19,920
Add: Cost incurred during the period (4,400*$2.4)	10,560
Cost of beginning work in process:	$30,480

2. Cost of units transferred to finished goods:

Beginning work in process	$30,480
Cost of units started and completed:
Direct material (176,000*$1.5)	264,000
Conversion (176,000*$2.4)	422,400
Total cost of units transferred to finished goods	$716,880

3. Cost of ending work in process:

Direct material (12,000*$1.5)	$18,000
Conversion (9,000*$2.4)	21,600
Total cost of ending work in process	$39,600

4. Cost per unit of completed beginning work in process = $30,480/8,000 = $3.81 per unit

b. Yes the production cost is changed from preceding period.

c. The conversion cost per unit has increased for the current period