Question

Proteger Company manufactures insect repellant lotion. The Mixing Department, the first process department, mixes the chemicals required for the repellant. The following data are for the current year:

Work in process, January 1		—
Gallons started		900,000
Gallons transferred out		756,000
Direct materials cost		$900,000
Direct labor cost		$2,000,000
Overhead applied		$1,571,200

Direct materials are added at the beginning of the process. Ending inventory is 95 percent complete with respect to direct labor and overhead. The cost of goods transferred out for the year is:

a.$3,780,000

b.$3,571,200

c.$3,024,000

d.$4,471,200

Answer 1

Correct Answer ---a. $3,780,000.

Calculations

		Units
Reconciliation of Units
A	Opening WIP	0
B	Introduced	900,000
C=A+B	TOTAL	900,000
D	Transferred	756,000
E=C-D	Closing WIP	144,000

Statement of Equivalent Units
		Material		Conversion Cost
	Units	Complete %	Equivalent units	Complete %	Equivalent units
Transferred	756,000	100%	756,000	100%	756,000
Closing WIP	144,000	100%	144,000	95%	136,800
Total	900,000	Total	900,000	Total	892,800

Cost per Equivalent Units
COST	Material	Conversion Cost	TOTAL
Cost incurred during period	$   900,000.00	$   3,571,200.00	$   4,471,200.00
Total Cost to be accounted for	$   900,000.00	$   3,571,200.00	$   4,471,200.00
Total Equivalent Units	900,000	892,800
Cost per Equivalent Units	$                1.00	$                    4.00

Statement of cost
Cost	Equivalent Cost/unit	Ending WIP		Transferred
		Units	Cost Allocated	Units	Cost Allocated
Material	$   1.00	144,000	$ 144,000.00	756,000	$ 756,000.00
Conversion Cost	$   4.00	136,800	$ 547,200.00	756,000	$ 3,024,000.00
		TOTAL	$ 691,200.00	TOTAL	$ 3,780,000.00