Question

XYZ chair company manufactures a standard recliner. During February, the firm's Assembly Department started production of 75,000 chairs. During the month, the firm completed 80,000 chairs, and transferred them to the Finishing Department. The firm ended the month with 10,000 chairs in ending inventory. There were 15,000 chairs in beginning inventory. All direct materials costs are added at the beginning of the production cycle and conversion costs are added uniformly throughout the production process. The FIFO method of process costing is used by the company. Beginning work in process was 30% complete as to conversion costs, while ending work in process was 80% complete as to conversion costs. Beginning inventory: Direct materials $24,000 Conversion costs $35,000 3 Manufacturing costs added during the accounting period: Direct materials $168,000 Conversion costs $278,000 a. How many of the units that were started during February were completed during February? b. What were the equivalent units for conversion costs during February? c. What is the amount of direct materials cost assigned to ending work-in-process inventory at the end of February? d. What is the cost of the goods transferred out during February?

Answer 1

a. Computation of units that were started during February and were completed during February:

= Units produced during the month of February - Ending inventory

= 75,000-10,000

= 65,000 units

b. Computation of equivalent units for conversion costs during February:

= [(Beginning inventory x Percentage of work-in-process complete for beginning inventory) + Number of units that were started during February and were completed during February + (Ending inventory x Percentage of work-in-process complete for ending inventory)]

= (15,000 x 70%) + 65,000 + (10,000 x 80%)

= 83,500 units

Note: Percentage of work-in-process complete for beginning inventory = 100%-30% = 70%

c. Computation of direct materials cost assigned to ending work-in-process inventory during February:

= (Direct materials cost at the beginning / Number of units produced during the month) x Ending Inventory

= ($168,000/75,000) x 10,000

= $2.24 x 10,000

= $22,400

Note: Direct material cost per unit = $2.24 ($168,000/75,000)

d. Computation of the cost of goods transferred out in the month of February:

Cost of beginning inventory = $24,000 + $35,000 = $59,000

Cost of direct materials = $2.24 x 65,000 = $145,600

Conversion cost = ($278,000/83,500) x 65,000 = $216,450

The conversion cost per unit is $3.33 ($278,000/83,500)

Finished goods beginning inventory = 15,000 x 70% x 3.33 = $34,965

Cost of goods sold = Cost of beginning inventory + Cost of direct materials + Conversion cost + Finished goods beginning inventory)

= $59,000+$145,600+$216,450+$34,965

= $456,015