Question

In: Accounting

Materials are added at the beginning of the process in McKay Company's blending department, the first...

Materials are added at the beginning of the process in McKay Company's blending department, the first stage of the production cycle. The inspection point is at the end of the process. The following information is available for the month of July:

Units

Work in process, July 1 (35% complete as to conversion costs)

50,000

Started in July

200,000

Completed and transferred to the next department

195,000

Work in process, July 31 (40% complete as to conversion costs)

45,000

Costs in beginning work in process

       Direct materials

$125,600

       Conversion

$104,300

Costs added in July

       Direct materials

$349,400

       Conversion

$397,500

1.) McKay estimates that normal spoilage is 2% of the good units completed. Using the weighted average cost method, what is the cost of the units transferred out of the blending department?

2.) McKay estimates that normal spoilage is 2% of the good units completed. Using the weighted average cost method, what amount will be identified as abnormal spoilage?

Solutions

Expert Solution

Physical Material Conversion
UNITS Units Equiv. Units Equiv. Units
Units to account for:
Beginning work in process 50000
Started in production 200000
Total Units to account for 250000
Units Accounted for:
Completed and transferred 195000 195000 195000
Normal Spoilage 3900 3900 3900
Abnormal Spoilage 6100 6100 6100
Ending work in process 45000 45000 18000
Total Units to be accounted for 250000 250000 223000
Material Conversion Total
COSTS   Cost Cost Cost
Costs to account for:
Beginning work in process 1,25,600 104300 2,29,900
cost added during the period 3,49,400 3,97,500 7,46,900
Total cost to account for 4,75,000 5,01,800 9,76,800
Divided by: Total EUP 250000 223000
Cost per equivalent unit 1.9 2.25 4.15
Cost Accounted for:
Good Units completed:
Cost before Normal Spoilage (195000 units @4.15) 809250
   Normal Spoilage (3900 units @$4.15) 16185
Total cost of Good unit 825435
Abnormal Spilage (6100 units @$4.15) 25315
Cost of good units transferred to Blending: 825435
Cost of Abnormal spoilage 25315

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