Question

1. Identify which costing system—job order or process cost— the following companies would primarily use: (a) Quaker Oats, (b) Jif Peanut Butter, (c) Gulf Craft (luxury yachts), and (d) Warner Bros. Motion Pictures.

2. What is meant by the term “equivalent units of production”?

3. Soria Co. started and completed 2,000 units for the period. Its beginning inventory is 800 units 25% complete and its ending inventory is 400 units 20% complete. Soria uses the FIFO method to compute equivalent units. How many units were transferred out this period?

4. Reyes Company transfers out 12,000 units and has 2,000 units of ending work in process that are 25% complete. Materials are entered at the beginning of the process and there is no beginning work in process. Reyes uses the FIFO method to compute equivalent units. Assuming unit materials costs of $3 and unit conversion costs of $7, what are the costs to be assigned to units (a) transferred out and (b) in ending work in process?

Answer 1

1.

	Costing System
(a) Quaker Oats	Process cost
(b) Jif Peanut Butter	Process cost
(c) Gulf Craft (luxury yachts)	Job order
(d) Warner Bros. Motion Pictures	Job order

2. Equivalent units of production denotes the amount of work completed during a period. It denotes the partially completed units in terms of whole units.

3. Soria Co.

Number of units transferred out = Beginning work in process + Units started and completed during the period = 800 + 2000 = 2800 units

4. Reyes Company

	Whole Units	Equivalent Units
		Materials		Conversion Costs
Beginning work in process	0
Started into production	14000
Total units	14000
Transferred out	12000	100%	12000	100%	12000
Ending work in process	2000	100%	2000	25%	500
Total units	14000		14000		12500

Costs assigned to units:

(a) Transferred out = (12000 x $3) + (12000 x $7) = $36000 + $84000 = $120000

(b) In ending work in process = (2000 x $3) + (500 x $7) = $6000 + $3500 = $9500