Question

Miller Outdoor Equipment (MOE) makes four models of tents. The model names are Rookie, Novice, Hiker, and Expert. MOE manufactures the tents in two departments: Stitching and Customizing. All four models are processed initially in Stitching where all material is assembled and sewn into a basic tent. The Rookie model is then transferred to finished goods. After processing in Stitching, the other three models are transferred to Customizing for additional add-ons, and then transferred to finished goods.

There were no beginning work-in-process inventories on August 1. Data for August are shown in the following table. Ending work in process is 30 percent complete in Stitching and 55 percent complete in Customizing. Conversion costs are allocated based on the number of equivalent units processed in each department.

	Total			Rookie			Novice			Hiker			Expert
Units started					690			490			470			230
Units completed in Stitching					620			465			440			155
Units completed in Customizing								445			420			130
Materials	$	57,420		$	17,250		$	11,760		$	16,450		$	11,960
Conversion costs:
Stitching	$	55,260
Customizing		29,000
Total conversion costs	$	84,260

Required:

a. What is the unit cost of each model transferred to finished goods in August?

b. What is the balance of the Work-in-Process Inventory on August 31 for Stitching? For Customizing?

Answer 1

The solution to this problem is to apply process costing methods for the conversion costs and then add the cost of materials for each product. Because there is no beginning work-in-process inventory, FIFO and weighted-average process costing gives the same results.

a.

The material costs per unit are:

Product	Material Cost		Number of Units		Unit Material Cost
Rookie........	$17,250	÷	690	=	$  25
Novice........	11,760	÷	490	=	24
Hiker...........	16,450	÷	470	=	35
Expert.........	11,960	÷	230	=	52

The conversion costs per equivalent unit are:

Stitching Department:

		Physical Units			Conversion Costs Equivalent Units
Flow of units:
Units to be accounted for:
Beginning WIP inventory......................................................		–0–
Units started this period a (690+490+470+230)		1,880
Total units to account for.................................................................		1,880
Units accounted for:
Completed and transferred out b (620+465+440+155)		1,680					1,680
Units in ending inventory c = a-b		200
Conversion costs (200 x 30%)....................................................................							60
Total units accounted for.................................................................		1,880					1,740

a 1,880 units = 690 Rookie + 490 Novice + 470 Hiker + 230 Expert

b 1,680 units = 620 Rookie + 465 Novice + 440 Hiker + 155 Expert

c 200 units = 1,880 units started – 1,680 units transferred out.

	Total		Conversion Costs
Flow of costs:
Costs to be accounted for:
Costs in beginning WIP inventory......................................................	$       –0–				$    –0–
Current period costs.............................................................	55,260				55,260
Total costs to be accounted for.................................................................	$ 55,260				$ 55,260
Cost per equivalent unit
Conversion costs ($55,260 ÷ 1740)...........................................................					$ 32 (rounded)

Customizing Department:

		Physical Units			Conversion Costs Equivalent Units
Flow of units:
Units to be accounted for:
Beginning WIP inventory......................................................		–0–
Units started this perioda		1060
Total units to account for.................................................................		1060
Units accounted for:
Completed and transferred outb		995					995
Units in ending inventoryc		65
Conversion costs (65 x 55%)....................................................................							36 (rounded)
Total units accounted for.................................................................		1060					1031

a 1060 units = 465 Novice + 440 Hiker + 155 Expert

b 995 units = 445 Novice + 420 Hiker + 130 Expert

c 65 units = 1060 units started – 995 units transferred out.

	Total		Conversion Costs
Flow of costs:
Costs to be accounted for:
Costs in beginning WIP inventory.....................................................	$       –0–				$     –0–
Current period costs............................................................	29,000				29,000
Total costs to be accounted for...............................................................	$ 29,000				$ 29,000
Cost per equivalent unit
Conversion costs ($29,000 ÷ 1031).............................................................					$ 28 (rounded)

Cost of units transferred to finished goods:

Product	Unit Material Cost		Stitching Department Unit Cost		Customizing Department Unit Cost		Unit Cost
Rookie........	$25	+	$ 32	+	$ –0–	=	$ 57
Novice........	24	+	32	+	28	=	84
Hiker...........	35	+	32	+	28	=	95
Expert.........	52	+	32	+	28	=	112

b.

Work-in-Process Ending Inventory Balances are:

Stitching Department:

Material cost	Number of Units		Unit Cost	Total Cost
Rookie........................	70 (690-620)	x	$25	$ 1750
Novice........................	25 (490-465)	x	24	600
Hiker...........................	30 (470-440)	x	35	1050
Expert.........................	75 (230-155)	x	52	3900
Total material cost..........				$ 7300
Conversion costs............	60*	x	32	1,920
Total...............................				$ 5,380

        * 200 units, 30% complete.

Customizing Department:

Material cost	Number of Units		Unit Cost	Total Cost
Novice....................................	20 (465-445)	x	$24	480
Hiker.......................................	20 (440-420)	x	35	700
Expert.....................................	25 (155-130)	x	52	1,300
Total material cost.............................................				$ 1,480
Conversion costs...........................................
From Stitching.....................................	65	x	32	2080
From Customizing...............................	36* (rounded)	x	28	1008
Total conversion costs...........................................				$3088
Total...........................................				$ 4568

* 65 units, 55% complete.