Question

A manufacturer uses process costing.  It has one direct material cost pool and one conversion cost pool.  Information for the month is as follows:

                                                                    Beginning of Month       End of Month

Work in process:                                           20,000 units                  8,000 units

Conversion (% of completion in WIP):             35%                                65%

Costs of Materials in WIP:                            $  81,000                             ?

Costs of Conversion in WIP:                         $115,000                             ?

During the month:

Units started during the month:           69,000 units

Costs incurred for Materials:           $300,000   

Costs incurred for Conversion:        $270,000

Total Spoiled Units detected:                  4,398 units

Other Income Statement Information:

Sales:                                                  $920,000

Admin expenses                                $200,000

92% of direct materials is added at the beginning of the process, and the remaining 8% of direct materials (for packaging) is added immediately after inspection.  

Inspection occurs when units are 75% converted, and inspection determines if the units are “acceptable” or “spoiled”.  Normal Spoilage is based on 6% of units started.

There were no finished goods or raw material inventories at any point of the process.

Required:

Part A: Prepare an Income Statement for the month, assuming that inventory is based on modified FIFO,

Part B:  Prepare an Income Statement for the month, assuming that inventory is based on Weighted Average.

Answer 1