Question

Old Victrola, Inc., produces top-quality stereos and uses process costing. The manufacture of stereos is such that direct materials, labor, and overhead are all added evenly throughout the production process. Due to the smooth production process, only one cost category—manufacturing costs—is used for equivalent unit calculations. Old Victrola had the following cost and production information available for the months of March and April.

		March				April
Direct materials costs	$	978,460			$	1,168,310
Direct labor costs		2,562,260				3,041,940
Manufacturing overhead applied		3,438,640				3,571,030
Total manufacturing costs	$	6,979,360			$	7,781,280
Units in beginning work in process		7,000				4,800
Units transferred to finished goods		18,500				23,000
Units in ending work in process		4,800				6,400

Beginning work in process was 30 percent complete in March and 60 percent complete in April. Ending work in process was 60 percent complete in March and 35 percent complete in April.

a. For each of the two months, calculate the equivalent units of production.

b-1. For each of the two months, calculate the manufacturing cost per equivalent unit.

b-2. Based on equivalent units produced, did total manufacturing costs per unit increase or decrease between March and April?

c-1. For each of the two months, calculate the direct materials cost per equivalent unit.

c-2. Did the direct materials cost per equivalent unit increase or decrease between March and April?

Answer 1

Solution:

Part-1)

   March   April     
Beginning WIP   4,900 (=7000*0.7)   1920 (= 4,800 * 0.4)     
Started and completed   11,500 ( = 18,500 - 7,000)   18,200 (=23,000 - 4,800)     
Ending WIP   2,880 (=4,800 * 0.6)   2,240 (=6,400 * 0.35)     
Total equivalent units   19,280   22,360     

Part-2)

   March   April     
Total manufacturing costs   6,979,360   7,781,280     
Equivalent units produced   19,280   22,360     
Total manufacturing costs per equilvalent unit   362 (= 6,979,360 / 19,280)   348 ( = 7,781, 280/ 22,360)     
Total manufacturing costs per equilvalent unit reduced from March to April

Part-3)

   March   April     
Direct material costs   978,460   1,168,310     
Equivalent units produced   19,280   22,360     
Total direct material costs per equivalent   50.75 (=978,460 / 19,280)   52.25 (= 1,168,310 / 22,360)