Question

20-3 20-08

Costs per Equivalent Unit

The following information concerns production in the Baking Department for March. All direct materials are placed in process at the beginning of production.

ACCOUNT Work in Process—Baking Department							ACCOUNT NO.
Date		Item	Debit		Credit		Balance
							Debit		Credit
Mar.	1	Bal., 4,200 units, 1/3 completed					8,050
	31	Direct materials, 75,600 units	128,520				136,570
	31	Direct labor	34,530				171,100
	31	Factory overhead	19,426				190,526
	31	Goods finished, 76,500 units			183,530		6,996
	31	Bal. ? units, 3/5 completed					6,996

a. Based on the above data, determine each cost listed below. Round "cost per equivalent unit" answers to the nearest cent.

1. Direct materials cost per equivalent unit	$
2. Conversion cost per equivalent unit	$
3. Cost of the beginning work in process completed during March	$
4. Cost of units started and completed during March	$
5. Cost of the ending work in process	$

b. Assuming that the direct materials cost is the same for February and March, did the conversion cost per equivalent unit increase, decrease, or remain the same in March?

Answer 1

a.	Based on the above data, determine each cost listed below. Round "cost per equivalent unit" answers to the nearest cent.
1	Determination of the equivalent units for March for Baking Department
	Calculation of No. of units in Ending WIP
	Beginning WIP	4,200.00
	Add: Units introduced during the period	75,600.00
	Total units available for production	79,800.00
	Less: No. of units completed and transferred out	76,500.00
	No. of units in Ending WIP	3,300.00
FIFO method :-
	Baking Department
	Cost of Production Report- Baking Department
	For the Month Ended March 31
	UNITS			Equivalent Units
		Physical Units	% to complete	Direct materials	% to complete	Conversion
	Units to be accounted for:
	Work in process, beginning	4,200.00
	Units introduced during the period	75,600.00
	Total units	79,800.00
	Units accounted for:
	From beginning Work in process (1-1/3= 2/3 i.e.66.67%)	4,200.00	0%	0	66.67%	2800.00
	Started and completed (76500-4200)	72,300.00	100%	72300	100%	72300.00
	Units completed and Transferred out	76500.00
	Work in process, Ending (3/5 =60%)	3,300.00	100%	3300.00	60%	1980.00
	Total units to be assigned costs	79,800.00		75600.00		77080.00
	2. Compute the costs per equivalent unit for March for Direct materials and conversion
	COSTS	Costs
		Direct materials	Conversion	Total
	Unit Costs
	Total Costs added during march	$             128,520	$              53,956	$            182,476
	Total Cost to be accounted for	$             128,520	$              53,956	$            182,476
		÷	÷
	Equivalent units	75600.00	77080.00
	Cost per equivalent unit	$1.70	$0.70	$2.40
	Costs to be accounted for
	Assignment of Cost of units completed and Transferred out (incuding normal spoilage), to Abnormal spoilage and to units in Ending Work in proces inventory :-
		Equivalent units	Cost per equivalent unit		Total
	Cost of Opening Work in proces inventory
	Direct materials	0	$1.70	$0
	Conversion Costs	2800.00	$0.70	$1,960	$1,960
	Cost of units started and completed in March Transferred out	72300	$2.40		$173,520
	Cost of Ending Work in proces inventory
	Materials	3300.00	$1.70	$5,610
	Conversion Costs	1980.00	$0.70	$1,386	$6,996
	Total costs accounted for				$182,476
	So,
	1. Direct materials cost per equivalent unit	$1.70
	2. Conversion cost per equivalent unit	$0.70
	3. Cost of the beginning work in process completed during March	$1,960
	4. Cost of units started and completed during March	$173,520
	5. Cost of the ending work in process	$6,996
b.	In order to check whether there was a change in the cost per equivalent unit, calculate the unit cost for conversion in beginning inventory as follows:
	Cost of beginning inventory = cost of materials + conversion costs
	8050 = 128520/75600 *4200 + conversion costs @ 33.33%
	8050 = 7140 + conversion costs @ 33.33%
	Conversion costs of 4200 units = (8050-7140)/33.33% = 2730
	Unit cost of conversion = 2730/4200 = $0.65
	Therefore, conversion costs increased from $0.65 to $0.70 in March

Feel free to ask any clarification, if required. Please provide feedback by thumbs up, if satisfied. It will be highly appreciated. Thank you.