Question

Alvis Construction Supply Company has a department that manufactures wood trusses (wood frames used in the construction industry). The following information is for the production of these trusses for the month of February:

Work-in-process inventory, February 1		4,800	trusses
Direct materials: 100% complete	$	11,280
Conversion: 20% complete	$	16,058
Units started during February		18,800	trusses
Units completed during February and transferred out		17,800	trusses
Work-in-process inventory, February 29
Direct materials: 100% complete
Conversion: 40% complete
Costs incurred during February
Direct materials	$	59,840
Conversion	$	92,892

Required

Using the weighted-average method, calculate the following:

1-a. Costs per equivalent unit. (Round your answers to 4 decimal places.)

1-b. Cost of goods completed and transferred out. (Round "Cost per EU" to 4 decimal places. Round final answer to nearest whole dollars.)

1-c. Costs remaining in the Work-in-Process Inventory account. (Round "Cost per EU" to 4 decimal places. Do not round other intermediate calculations. Round final answer to nearest whole dollars.)

2. Assume that you are the company’s controller. The production department’s February equivalent unit cost is higher than expected. If the manager of the first department asks you to do him a favor by increasing the ending inventory completion percentage from 40 to 60% to lower the unit costs, how much would the unit cost be affected by this request? (Round your answer to 4 decimal places.)

Answer 1

1-a. Calculate costs per equivaent unit as follows:
	Physical Units	Equivalent Units
	Materials	Conversion costs
Units completed and transferred out	17800	17800	17800
Ending inventory	5800	5800	2320
Total	23600	23600	20120
		Costs
		Materials	Conversion costs	Total
Beginning inventory		11280	16058	27338
Incurred during current month		59840	92892	152732
Total		71120	108950	180070
Cost per equivalent unit		3.0136	5.4150	8.4286
1-b. Calculate cost of goods completed and transferred out as follows:
Number of nits completed and transferred out	17800
Total cost per equivalent unit	8.4286
Cost of goods completed and transferred out	150029
1-c. Calculate costs remaining in the work-in-process account as follows:
		Materials	Conversion costs	Total
Equivalent units, ending inventory		5800	2320
Cost per equivalent unit		3.0136	5.415
Costs remaining in WIP invetory		17479	12563	30042
2. Calculate the effect of increasing ending inventory completion percentage on unit cost as follows:
	Physical Units	Equivalent Units
	Materials	Conversion costs
Units completed and transferred out	17800	17800	17800
Ending inventory	5800	5800	3480
Total	23600	23600	21280
		Costs
		Materials	Conversion costs	Total
Beginning inventory		11280	16058	27338
Incurred during current month		59840	92892	152732
Total		71120	108950	180070
Cost per equivalent unit		3.0136	5.1198	8.1334
Decrease in units cost				0.2952
Therefore, if the ending inventory completion percentage is increased from 40% to 60%, the unit cost will decrease by $0.2952