Question

Standard-costing method. Ozumo’s Gardening makes several different kinds of mulch. Its busy period is in the summer months. In August, the controller suddenly quit due to a stress-related disorder He took with him the standard costing results for RoseBark, Ozumo’s highest quality mulch. The controller had already completed the assignment of costs to finished goods and work in process, but Ozumo does not know standard costs or the completion levels of inventory. The following information is available:

1. Completion percentages of beginning work in process with respect to the two inputs

2. Completion percentages of ending work in process with respect to the two inputs

3. Standard costs per unit for the two inputs

4. Cost of beginning work in process inventory

 

Answer 1

Standard-costing method.

 

1.            

Since there was no additional work needed on the beginning inventory with respect to materials, the initial mulch must have been 100% complete with respect to materials. For conversion costs, the work done to complete the opening inventory was 434,250 ÷ 965,000 = 45%. Therefore, the unfinished mulch in opening inventory must have been 55% complete with respect to conversion costs.

 

2.            

It is clear that the ending WIP is also 100% complete with respect to direct materials (1,817,000 ÷ 1,817,000), and it is 60% (= 1,090,200 ÷ 1,817,000) complete with regard to conversion costs.

 

3.            

We can first obtain the total standard costs per unit. The number of units started and completed during August is 845,000, and a total cost of $6,717,750 is attached to them. The per unit standard cost is therefore ($6,717,750 ÷ 845,000) = $7.95. If x and y represent the per unit cost for direct materials and conversion costs, respectively, we therefore know that:

                                

x + y = 7.95

 

 We also know that the ending inventory is costed at $12,192,070 and contains 1,817,000 equivalent units of materials and 1,090,200 equivalent units of conversion costs. This provides a second equation:

 

1,817,000 x + 1,090,200 y = 12,192,070.

 

Solving these equations reveals that the direct materials cost per unit, x, is $4.85, while the conversion cost per unit, y, is $3.10.

 

4.            

Finally, the opening WIP contained 965,000 equivalent units of materials and (965,000-434,250) = 530,750 equivalent units of conversion costs. Applying the standard costs computed in step (3), the cost of the opening inventory must have been:

 

965,000 × $4.85 + 530,750 × $3.10 = $6,325,575.

Finally, the opening WIP contained 965,000 equivalent units of materials and (965,000-434,250) = 530,750 equivalent units of conversion costs. Applying the standard costs computed in step (3), the cost of the opening inventory must have been: