Question

Saline Solutions uses process costing to account for production of its unique compound BG at its River Plant. The River Plant has two departments: R and S. Raw materials are added at two points in the production of BG. First, rubber pellets are added at the beginning of production in Department R. Next, a liquid thinner is added in Department R when the product is 60% complete with respect to conversion costs. Once the basic compound is completed in Department R, it is transferred to Department S for mixing and packaging. The following information is available from the River Plant for May. (No new material is added in Department S.) Department S Production and Costs: May Beginning inventory (60,000 units, 20% complete with respect to Department S costs) Total cost (Department R and Department S) cost: Beginning inventory $ 495,974 Current work (540,000 units started) Department R costs $ 3,464,600 Department S costs 1,359,426 The ending inventory has 80,000 units, which are 100 percent complete for Department R costs. Required: a. Assume that Saline Solutions used weighted-average process costing and that the cost per equivalent unit for May for materials in Department S is $6.50 and for conversion costs it is $2.50. Prepare a production cost report for Saline Solutions' Department S for the month of May. (Round "Cost per equivalent unit" to 2 decimal places.) b. What is the cost of product transferred out of Department S for May? c. What is the cost of ending inventory in Department S for May?

Answer 1

Direct material
Equivalent Units of production	600000
Equivalent cost per unit	6.5
Total cost to be accounted for (multiply of both)	3900000
Less: cost incurred in month	3464600
Cost included in beginning work in progress	435400
Overhead
Cost included in beginning work in progress (495974-435400)	60574
Add: Cost incurred during Month	1359426
Total cost to be accounted for	1420000
Divided by equivalent cost per unit	2.5
Equivalent Units of production	568000
Less: equivalent unit in beginning WIP	-60000
Less: equivalent unit in Started and completed	-460000
Equivalent unit in ending work in progress	48000
Divided by: physical unit in ending inventory	80000
% of work completed in ending inventory	60%

Step for solution
Step 1	Equivalent Units of production = Physical units multiplied by % of competition
Step 2	Calculate total cost to be accounted for
Step 3	Cost per Equivalent Unit = total cost to be accounted for / Equivalent Units of production
Step 4	Cost assigned to units transferred out = units completed and transferred out * Cost per Equivalent Unit
Step 5	Cost assigned to units ending work in progress = equivalent units in ending WIP inventory * Cost per Equivalent Unit

Saline Solutions
Mixing and packaging Department production Report
Weighted average Method
Month ended May 31
Summary of Physical units
Units in beginning WIP inventory			60000
Units started during month			540000
Total unit to be accounted for			600000
Units completed and transferred out (600000-80000)			520000
Units in ending WIP inventory			80000
Total unit accounted for			600000
Equivalent Units of production
Particulars	Physical units	Direct material		Conversion Cost
		%	Units	%	Units
Units in beginning WIP inventory	60000	100%	60000	100%	60000
Units in Started and completed (520000-60000)	460000	100%	460000	100%	460000
Units in ending WIP inventory	80000	100%	80000	60%	48000
Equivalent Units of production			600000		568000
Summary of cost to be accounted
	Direct material	Conversion Cost	Total
Cost in beginning WIP	435400	60574	495974
Cost incurred during Month (Add)	3464600	1359426	4824026
Total cost to be accounted for	3900000	1420000	5320000
Cost per Equivalent Unit
Total cost to be accounted for	3900000	1420000
Equivalent Units of production	600000	568000
Cost per Equivalent Unit	6.50	2.50	9.00
Assign costs to units transferred out and units in ending WIP inventory
Cost assigned to units transferred out
Units completed and transferred out	520000	520000
Cost per Equivalent Unit	6.5	2.5
Cost assigned to units transferred out	3380000	1300000	4680000
Cost assigned to units ending work in progress
Equivalent units in ending WIP inventory	80000	48000
Cost per Equivalent Unit	6.5	2.5
Cost assigned to units ending work in progress	520000	120000	640000
Total cost assigned			5320000