Question

Monthly information is as follows:                   Beginning of month       End of month

          Work in process Inventory:                            1,000 units          4,000 units

          Conversion: degree of completion in WIP           60%                     40%

          Direct Material Costs in Beginning WIP       $ 8,100                          ?

          Conversion Costs in Beginning WIP              $11,300                       ?

During the month:      Costs incurred for Direct Materials                $27,975  

Costs incurred for Conversion                        $27,235

At month end:             2,860 good units were completed, 140 units were spoiled

Direct Materials:         90% are added at the beginning of the process, the rest at 90% conversion

Conversion costs:        Added evenly during the process.

Spoiled Units:             Detected at 100% conversion. Normal Spoilage = 2% of units started

Required:

1. Using FIFO, calculate:
   1. Ending WIP
   2. Cost of Goods Manufactured
   3. Spoilage expense

Answer 1

Working Notes :-

1) Statement of Equivalent Production :-

Degree of Completion

Direct Material Conversion

Particulars	Units	Particulars	Units	%	Units	%	Units
Opening WIP	1000	Transfer to next process:
		From O/p WIP	1000	10%	100	40%	400
		From Current Intro	1860	100%	1860	100%	1860
		Normal Spoilage	120	0%	0	0%	0
		Abnormal Spoilage	20	100%	20	100%	20
		Closing WIP	4000	90%	3600	40%	1600
Material Introduced	6000
TOTAL	7000	TOTAL	7000		5580		3880

2) Statement of cost per equivalent production :-

Particulars	Units	Costs	Cost/equivalent units
Direct Material	5580	$ 27,975.00	$ 5.01
Conversion	3880	$ 27,235.00	$ 7.02

MAIN SOLUTION :-

i) Cost of Ending WIP :-

Particulars	Units	Cost/equivalent units	Units*cost
Direct Material	3600	$ 5.01	$ 18,048.39
Conversion	1600	$ 7.02	$ 11,230.93

TOTAL

$ 29,279.31

ii) Cost of Goods Manufactured :-

Particulars	Units	Calculations	Costs
Direct Material	1960	[$ 8100 + (100 x $ 5.01) + (1860 x $ 5.01)]	$ 17,926.34
Conversion	2260	[$ 11300 + (400 x $ 7.02) + (1860 x $ 7.02)]	$ 27,163.69

TOTAL

$ 45,090.03

iii) Spoilage Expense :-

Particulars	Units	Cost/equivalent units	Costs
Direct Material	20	$ 5.01	$ 100.27
Conversion	20	$ 7.02	$ 140.39

TOTAL

$ 240.66