Question

Chiplist is a​ fast-growing manufacturer of computer chips. Direct materials are added at the start of the production process. Conversion costs are added evenly during the process. Some units of this product are spoiled as a result of defects not detectable before inspection of finished goods. Spoiled units are disposed of at zero net disposal value. Chiplist uses the FIFO method of process costing. Summary data and​ weighted-average data for September 2017 are as​ follows:

	Physical Units (Computer Chips)	Direct Materials	Conversion Costs
Work in process, beginning inventory (September 1)	800	$ 157,088	$ 13,068
Degree of completion of beginning work in progress		100%	30%
Started during September	2,728
Good units completed and transferred out during September	2,400
Work in process, ending inventory (September 30)	480
Degree of completion of ending work in process		100%	15%
Total costs added during September		$ 583,792	$ 239,040
Normal spoilage as a percentage of good units	15%
Degree of completion of normal spoilage		100%	100%
Degree of completion of abnormal spoilage		100%	100%

	Total Production Costs	Direct Materials	Conversion Costs
Cost per equivalent unit for work done to date		$ 210.00	$ 81.00
Cost of units completed and transferred out	$ 803,160	$ 579,600	$ 223,560
Abnormal spoilage	83,808	60,480	23,328
Work in process, ending	106,632	100,800	5,832
Total costs accounted for	$ 993,600	$ 740,880	$ 252,720

1.	For each cost​ category, compute equivalent units. Show physical units in the first column of your schedule.
2.	Summarize the total costs to account​ for; calculate the cost per equivalent unit for each cost​ category; and assign costs to units completed and transferred out​ (including normal​ spoilage), to abnormal​ spoilage, and to units in ending work in process.
3.	Should Chiplist​'s managers choose the​ weighted-average method or the FIFO​method? Explain briefly

Answer 1

Answer;-

Part 1 and 2

Step for the solution
Step 1	Equivalent Units of production = Physical units multiplied by % of the competition
Step 2	Calculate the total cost to be accounted for
Step 3	Cost per Equivalent Unit =Cost incurred during Month / Equivalent Units of production
Step 4	Cost assigned to units transferred out = Cost in beginning WIP + Cost incurred for complete beginning WIP + Cost of units in Started and completed
Step 5	Cost assigned to units ending work in progress = equivalent units in ending WIP inventory * Cost per Equivalent Unit
For direct material 100% unit completed in the previous period. It means remaining 0% completed in this month.
For conversion cost 30% unit completed in the previous period. It means the remaining 70% completed in this month.

Chiplist
Department production Report
First in First out (FIFO) Method
Month ended September 30, 2017
Summary of Physical units
Units in beginning WIP inventory			800
Units started during month			2,728
Total unit to be accounted for			3,528
Normal spoilage (2400*15%)			360
Abnormal spoilage (3528-2400-480-360)			288
Units completed and transferred out			2,400
Units in ending WIP inventory			480
Total unit accounted for			3,528
Equivalent Units of production
Particulars	Physical units	Direct material		Conversion Cost
		%	units	%	units
units in beginning WIP inventory	800	0%	0	70%	560
Normal spoilage	360	100%	360	100%	360
Abnormal spoilage	288	100%	288	100%	288
Units in Started and completed (2400-800)	1600	100%	1600	100%	1600
units in ending WIP inventory	480	100%	480	15%	72
Equivalent Units of production			2728		2880
Summary of cost to be accounted
	Direct material	Conversion Cost	Total
Cost in beginning WIP	$        157,088	$          13,068	$        170,156
Cost incurred during Month (Add)	$        583,792	$        239,040	$        822,832
total cost to be accounted for	$        740,880	$        252,108	$        992,988
cost per Equivalent Unit
Cost incurred during Month	$        583,792	$        239,040
Equivalent Units of production	2,728	2,880
Cost per Equivalent Unit	$          214.00	$            83.00	$          297.00
Assign costs to units transferred out and units in ending WIP inventory
cost assigned to units transferred out
Direct material	$        157,088
Conversion Cost	$          13,068
Cost in beginning WIP		$        170,156
Direct material (0*214)	$                   -
Conversion Cost (560*83)	$          46,480
Cost incurred for complete beginning WIP		$          46,480
Normal spoilage
Direct material (360*214)	$          77,040
Conversion Cost (360*83)	$          29,880	$        106,920
Direct material (1600*214)	$        342,400
Conversion Cost (1600*83)	$        132,800
Cost of units in Started and completed		$        475,200
cost assigned to units transferred out		$        798,756
Abnormal spoilage
Direct material (288*214)	$          61,632
Conversion Cost (288*83)	$          23,904
Cost allocated to Abnormal spoilage		$          85,536
cost assigned to units ending work in progress
Direct material (480*214)	$        102,720
Conversion Cost (72*83)	$            5,976
cost assigned to units ending work in progress		$        108,696
Total cost assigned		$        992,988

Part 3

	Direct material	Conversion Cost	Total
Cost per unit Under FIFO Method	$        214	$          83	$        297
Cost per unit Under the weighted-average method	$        210	$          81	$        291
Manager should choose the weighted-average method. Because of Cost per unit under the weighted-average method is lower compared to the FIFO method.

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