Question

Synchromatic Industries manufactures tiles for sale in the home renovation industry. It uses the weighted-average method for its two divisions. Division A performs the first process in the production process and Division B performs the second. Following is information for Division B for the month of September:

		Physical Units
WIP, Sep 1		2,600 (30% complete)
Transferred from Division A		12,000 units
WIP, Sep 30		3,000 (10% complete)
	Sep 1, WIP	Costs added in September	Total
Transferred in	$25,740	$120,000	$145,740
Direct materials	8,190	48,000	56,190
Direct Labour	20,904	300,240	321,144
Overhead	6,864	100,080	106,944
Total	$61,698	$568,320	$630,018

In Division B, materials are added at the beginning of the process and conversion costs are incurred uniformly throughout the process. There is no spoilage of the products.

Calculate the total cost of the units completed and transferred out of Division B in September (rounded) using the FIFO method.

Answer 1

All amounts are in $

Using FIFO (Process Costing)

Units Completed & transferred from B = 2,600 + 12,000 - 3,000

= 11,600 units

Out of these, opening WIP units are 2,600 and the remaining 9,000 units are started this month.

Equivalent Units :

Formula = Opening WIP units (1-% already completed) + Units Started & completed + Ending WIP units x % completed

For transferred in cost = 2,600 (1-100%) + 9,000 + 3,000 x 100%

= 12,000 units

For Materials = 12,000 units (same as above)

For Direct labour & OH = 2,600 (1-30%) + 9,000 + 3,000 x 10%

= 11,120 units

Cost per Equivalent Unit :

Formula = Current period Costs/Equivalent units

For Transferred in Cost = 120,000/12,000 = 10 per unit

For Materials = 48,000/12,000 = 4 per unit

For Direct labour & Overhead = (300,240+100,080)/11,120

= 36 per unit

Total cost of equivalent units = 10+4+36 = 50 per unit

Cost of Units Completed & transferred out

1. From Opening WIP

= 61,698 + 2,600 units x 70% x 36

= 127,218

2. From Current period started units

= (11,600-2,600) units x 50

= 450,000

Total Cost = 450,000 + 65,520 = 577,218