Question

China Pacific manufactures a variety of natural fabrics for the clothing industry in a neighborhood of Shanghai. The following data pertain to the month of October 20X5.

WIP inventory, October 1 25,000 units

DM: 60% complete $57,000

Conversion: 30% complete $45,000

Costs incurred during October

DM: $736,000

Conversion: $1,094,950

During October 175,000 units were completed and transferred out. At the end of the month, 30,000 units (direct materials 80% complete and conversion 40% complete) remain in WIP inventory.

1. Calculate EU, cost per EU, cost of units transferred out, and cost of WIP ending inventory

Answer 1

Since method of calculating EUP is not given in question I have given solution with two methods Weighted average and FIFO as well

Weighted Average method

		Units
Reconciliation of Units
A	Opening WIP	25,000
B	Introduced	180,000
C=A+B	TOTAL	205,000
D	Transferred	175,000
E=C-D	Closing WIP	30,000

Statement of Equivalent Units (Weighted Average)
		Material		Conversion Cost
	Units	Complete %	Equivalent units	Complete %	Equivalent units
Transferred	175,000	100%	175,000	100%	175,000
Closing WIP	30,000	80%	24,000	40%	12,000
Total	205,000	Total	199,000	Total	187,000

Cost per Equivalent Units (Weighted Average)
COST	Material	Conversion Cost	TOTAL
Beginning WIP Inventory Cost	$              57,000	$                45,000	$        102,000
Cost incurred during period	$            736,000	$          1,094,950	$     1,830,950
Total Cost to be accounted for	$            793,000	$          1,139,950	$     1,932,950
Total Equivalent Units	199,000	187,000
Cost per Equivalent Units	$            3.98492	$              6.09599

Statement of cost (weighted average)
Cost	Equivalent Cost/unit	Ending WIP		Transferred
		Units	Cost Allocated	Units	Cost Allocated
Material	$     3.98492	24,000	$   95,638	175,000	$     697,362
Conversion Cost	$     6.09599	12,000	$   73,152	175,000	$   1,066,798
TOTAL	$ 1,932,950	TOTAL	$ 168,790	TOTAL	$    1,764,160

FIFO

STEP 1
Reconciliation of Units
	Units	% already completed		% completed this period
		Material	Conversion cost	Material	Conversion cost
Beginning WIP	25,000	60%	30%	40%	70%
Units introduced	180,000
Total units to be accounted for	205,000
Completed and Transferred unit	175,000	0%	0%	100%	100%
Ending WIP	30,000	0%	0%	80%	40%

STEP 2
Equivalent Units
	Total Units	Materials		Conversion Cost
Units Transferred:		% completed this period	Equivalent Units	% completed this period	Equivalent Units
From WIP	25,000	40%	10,000	70%	17,500
From units started/Introduced	180,000	100%	180,000	100%	180,000
Total	205,000		190,000		197,500
	Total Units	Materials		Conversion Cost
Ending WIP		% completed this period	Equivalent Units	% completed this period	Equivalent Units
Total	30,000	80%	24,000	40%	12,000
Total EUP	235,000		214,000		209,500

STEP 3
Cost per Equivalent Units AND Cost to be accounted for
	Materials	Conversion Cost	TOTAL
Cost incurred in Current Period	$    736,000.00	$    1,094,950.00	$ 1,830,950.00
Total Equivalent Units	214,000.00	209,500.00
Cost per Equivalent Units	$ 3.44	$      5.23
Cost of Beginning WIP	$   57,000.00	$   45,000.00	$   102,000.00
Total cost to be accounted for			$ 1,932,950.00

STEP 4
Cost report
	Cost of	Units Transferred		175,000.00	units
		Equivalent Units [Step 2]	Cost per Equivalent Units [Step 3]	Cost of Units Transferred	TOTAL
A	From Beginning WIP:
	Materials	10,000	$ 3.44	$       34,392.52
	Conversion costs	17,500	$ 5.23	$       91,463.60	$      125,856.13
B	From units started & completed
	Materials	180,000	$ 3.44	$     619,065.42
	Conversion Costs	180,000	$ 5.23	$     940,768.50	$   1,559,833.92
C=A+B	Total				$   1,685,690.04
D	Cost of Beginning WIP				$      102,000.00
E=C+D	Total Cost of Units transferred				$   1,787,690.04
	Cost of	Ending WIP		30,000.00	units
		Equivalent Units [Step 2]	Cost per Equivalent Units [Step 3]	Cost of Ending WIP	TOTAL
F	Materials	24,000	$ 3.44	$       82,542.06
G	Conversion Costs	12,000	$ 5.23	$       62,717.90
H = F + G	Total Cost of Ending WIP				$      145,259.96