Question

 Big Band Corporation produces a semiconductor chip used on communications. The direct materials are added at the start of the production process while conversion costs are added uniformly throughout the production process. Big Band had no inventory at the start of June. During the month, it incurred direct materials costs of $935,750 and conversion costs of $4,554,000. Big Band started 475,000 chips and completed 425,000 of them in June. Ending inventory was

 50% complete as to conversion costs.

 Compute (a) the equivalent units of work done in June, and (b) the total manufacturing cost per chip. Allocate the total costs between the completed chips and those in ending inventory.

 

Answer 1

Percentage of Completion		Equivalent Units Produced
	Units	Direct Materials	Conversion Costs	Direct Materials	Conversion Costs
Units Completed	425000	100	100	425000	425000
Ending Inventory	50000	100	50	50000	25000
Total Units of Production				475000	450000

Direct materials costs - $ 935,750

Conversion costs - $ 4,554,000

Total Manufacturing Costs - $ 5,489,750

 

Direct Material cost per unit = $ 935,750 / 475000= $ 1.97

Conversion Costs per unit = $ 4,554,000 / 450,000= $ 10.12

 

Cost of Completed Units
	Calculation	Amount
Direct Materials	425000 x $ 1.97	$837,250
Conversion Costs	425000 x $ 10.12	$4,301,000
Total		$5,138,250
Cost of Ending Inventory
	Calculation	Amount
Direct Materials	50000 x $ 1.97	$98,500
Conversion Costs	25000 x $ 10.12	$253,000
Total		$351,500

Qa: Direct Materials: 475,000 units       Conversion Costs: 450,000 units