Question

Wizard’s Skateboard shop sells premium skateboards for use in skate parks. The shop uses a process-costing system to compute the unit costs of the skateboards that it produces and sells for $450. Customers place orders online for skateboards where they can customize the decks and griptape with a choice of patterns and colours. The parts are purchased and assembled, customized with the customer’s choice of grip tape for the deck, trucks and wheels, and packaged to be sent by courier directly to the customer. Wizard’s Skateboard shop has three distinct departments: Assembly, Customization, and Packaging/Shipping.

The production process works as follows: all major parts have been assembled and the skateboard is tested before it is transferred from Assembly to Customization, the Customization department adds some materials to meet customer’s preference, and finally, the Packaging/Shipping department places the skateboard in a cardboard box and makes arrangements for shipping to the customer. Overhead in each department is applied based on direct labour costs at a rate of 130% for assembly and 115% for customization.

During March, the following results are available for the first two departments:

	Assembly	Customization
Beginning inventories:
Physical units	22 skateboards	15 skateboards
Costs:
Materials	$4,600	$4,900
Labour	$3,400	$4,250
Overhead	?	?
Transferred in	–	$1,000
Current production:
Transferred out	220 skateboards	240 skateboards
Ending inventory	14 skateboards	12 skateboards
Costs incurred in March:
Materials	$17,040	$1,300
Transferred in	–	?
Labour	$14,650	$1,180
Overhead	?	?
Percentage of completion:
Beginning inventory	65%	75%
Ending inventory	Material 50%	Material 100%
	Conversion 50%	Conversion 25%

1. Physical flow analysis

2. Calculations of equivalent units

3. Calculation of unit costs

4. Valuation of inventories

5. Cost reconciliation

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Answer 1

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Wizard’s Skateboard
Production report- Assembly
Step 1. Physical flow analysis
Units reconciliation	Whole Units
Beginning work in process inventory	22.00
Add: Units started in the month	212.00
Units to be account for	234.00
Units completed and transferred out	220.00
Add: Ending work in process inventory	14.00
Total Units accounted for	234.00

Step 2- Equivalent units of production	Whole Units	% Materials	EUP- Materials	% Conversion	EUP- Conversion
Units completed and transferred out	220.00	100%	220.00	100%	220.00
Ending work in process inventory	14.00	50%	7.00	50%	7.00
Equivalent units of production	234.00		227.00		227.00

Step 3- Costs per EUP	Materials	Conversion	Total Cost
Cost of beginning Inventory	4,600.00	7,820.00	12,420.00
Costs incurred during the month	17,040.00	33,695.00	50,735.00
Total cost to account for	21,640.00	41,515.00	63,155.00
Equivalent units of production	227.00	227.00
Cost per Equivalent unit	95.33	182.89	278.22
Step 4- Valuation of inventories
Costs of units transferred out	EUP	Cost per EUP	Total Cost
Direct Materials	220.00	95.33	20,973.00
Conversion	220.00	182.89	40,236.00
Total transferred out			61,209.00
Costs of ending work in process	EUP	Cost per EUP	Total Cost
Direct Materials	7.00	95.33	667.00
Conversion	7.00	182.89	1,281.00
Total costs of ending work in process			1,948.00
Total costs accounted for			63,157.00

Step 5- Cost reconciliation	Amount $
Total cost to account for	63,155.00
Total costs accounted for	63,157.00
Rounding off difference	(2.00)
Production report- Customization
Step 1. Physical flow analysis
Units reconciliation	Whole Units
Beginning work in process inventory	15.00
Add: Units started in the month	237.00
Units to be account for	252.00
Units completed and transferred out	240.00
Add: Ending work in process inventory	12.00
Total Units accounted for	252.00

Step 2- Equivalent units of production	Whole Units	% Transferred In	EUP- Transferred In	% Materials	EUP- Materials	% Conversion	EUP- Conversion
Units completed and transferred out	240.00	100%	240.00	100%	240.00	100%	240.00
Ending work in process inventory	12.00	100%	12.00	100%	12.00	25%	3.00
Equivalent units of production	252.00		252.00		252.00		243.00

Step 3- Costs per EUP	Transferred In	Materials	Conversion	Total Cost
Cost of beginning Inventory	1,000.00	4,900.00	9,138.00	15,038.00
Costs incurred during the month	61,209.00	1,300.00	2,537.00	65,046.00
Total cost to account for	62,209.00	6,200.00	11,675.00	80,084.00
Equivalent units of production	252.00	252.00	243.00
Cost per Equivalent unit	246.86	24.60	48.05	319.51

Step 4- Valuation of inventories
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