Question

Lokal Food Manufacturer produces the "Fresh" brand of pasteurised coconut milk from one of its manufacturing processes. The following information of process inputs, outputs and work in process relates to the month of September 2018:

kg

Opening work in process ...........26,700

Raw materials input.................. 110,600

Output completed....................... 98,400

Closing work in process............. 29,200

The opening and closing work in process are respectively 30 per cent and 60 per cent complete as to conversion costs. Raw materials are added at the beginning of the manufacturing process. However, conversion costs are incurred evenly throughout the manufacturing process. Spoilages are assumed to occur at the stage of completion where inspection takes place and these spoilages can be sold to a bio-fuel company at an estimated disposal value $0.25 per kg. Inspection takes place when the products are 90% complete. The opening work in process included raw material costs of $60,920 and conversion costs of $35,597.

Costs incurred during the period were:

Raw material input .......$276,500

Conversion costs.......... $373,248

The company uses FIFO method of process costing and assumes that the normal spoilage are 8 per cent of the good units produced.

Required: (a) Using the 4 step approach:

(i) Compute the cost per equivalent unit for each product cost category for the month of September.

(ii) Calculate the cost of goods transferred to the finished goods store at the end of September.

(iii) Calculate the cost of abnormal spoilage in September.

(iv) Calculate the cost of ending work in process at the end of September.

Answer 1

(i)	Cost per equivalent unit for each product cost category for the month of September
		Total Units	Percentage complete	Equivalent Unit
	Beginning Work in Process (100% - 30% complete)	26,700	70%	18,690
	Units Started and completed	71,700	100%	71,700
	Normal spoilage	7,872	90%	7,085
	Abnormal spoilage	1,828	90%	1,645
	Ending work in process	29,200	60%	17,520
	Total Equivalent units			116,640
	Cost per equivalent unit = Current cost added this period/Total equivalent units
	Conversion cost incurred during the period	$373,248
	Total Equivalent units	116640
	Cost per equivalent units	$3.20
		Equivalent Unit	Cost per equivalent unit	Total cost
	Beginning Work in Process	18,690	$3.20	$59,808
	Units Started and completed	71,700	$3.20	$229,440
	Normal spoilage	7,085	$3.20	$22,671
	Abnormal spoilage	1,645	$3.20	$5,265
	Ending work in process	17,520	$3.20	$56,064
	Total Equivalent units	116,640		$373,248
(ii)	The cost of goods transferred to the finished goods store
		Material cost	Conversion cost	Total cost
	Beginning WIP	$60,920	$35,597	$96,517
	Cost added to WIP		$59,808	$59,808
	Cost of units started and completed	$179,250	$229,440	$408,690
	Total cost of goods transferred	$240,170	$324,845	$565,015
(iii)	The cost of abnormal spoilage in September
	Abnormal spoilage units	1828
	Material cost	$4,570
	Abnormal spoilage equivalent units	1645
	Cost per Equivalent unit	$3.20
	Conversion cost	$5,265
	Total cost	$9,835
(iv)	The cost of Ending Work in Process
	Ending WIP units	29200
	Material cost (29200 x 2.50)	$73,000
	Ending WIP equivalent units	17520
	Cost per Equivalent unit	$3.20
	Conversion cost	$56,064
	Total cost	$129,064

Working note:
Physical flow of units
Beginning work in processs	26700
Units started this period	110600
Total units	137300
Units completed and transferred
Beginning work in processs	26700
Units started and completed	71700
Output completed	98400
Normal spoilage	7872
Abnormal spoilage	1828
Ending work in process	29200
Total units	137300
Cost of Raw Material	$276,500
Units of raw materials	110600
Cost of each unit	$2.50
Cost of units started and trasferred	$179,250.00
(71700 x $2.50)