Question

Samantha's Office Supplies manufactures desk organizers in its Processing Department. Direct materials are included at the inception of the production cycle and must be bundled in single kits for each unit. Conversion costs are incurred evenly throughout the production cycle. Inspection takes place as units are placed into production. After inspection, some units are spoiled due to undetectable material defects. Spoiled units generally constitute 4% of the good units. Data provided for February 2017 are as follows:

WIP, beginning inventory 2/1/2017                  51,000 units

       Direct materials (100% complete)

       Conversion costs (60% complete)

Started during February                                   170,500 units

Completed and transferred out                       180,100 units

WIP, ending inventory 2/28/2017                      26,600 units

       Direct materials (100% complete)

       Conversion costs (25% complete)

Costs:

       WIP, beginning inventory:

              Direct materials                                           $280,300

              Conversion costs                                             80,900

       Direct materials added                                        408,200

       Conversion costs added                                      264,200

Required:

Write the journal entry that correctly represents the transfer of completed goods begun during February using the FIFO method of process costing. (Round any cost per unit calculations to the nearest cent.)

Answer 1

SOLUTION:

Normal Spoilage = 180,100 * 4%

= 7204 units

Calculation of Abnormal Spoilage

Particulars	Amount
Beginning WIP Inventory	51000
Add: Started during the year	170500
Less: Completed & transferred out	(180100)
Less: Ending WIP Inventory	(26600)
Less: Normal Spoilage	(7204)
Abnormal Spoilage	7596

Calculation of Equivalent Units

Particulars	Direct Materials	Conversion Cost
Beginning WIP Inventory (Conversion Cost=51000*40%)	0	20400
Started & completed (180100-51000)	129100	129100
Normal Spoilage	7204	7204
Abnormal Spoilage	7596	7596
Ending WIP Inventory (Conversion Cost=26600*25%)	26600	6650
Equivalent Units	170500	170950

Calculation of Spoilage Cost

Particulars	Direct Materials	Conversion Cost
Beginning WIP Inventory	0	0
Cost added during the period	408200	264200
Total cost to be accounted for	408200	264200
Divided by equivalent units	170500	170950
Equivalent Unit Cost	2.39	1.55

Normal Spoilage = 7204 * (2.39+1.55)

= 7204 * (3.94)

Normal Spoilage = 28383.76

Abnormal Spoilage = 7596 * (2.39+1.55)

= 7596 * (3.94)

Abnormal Spoilage = 29928.24