Q7TI - Horngren'S Financial And Managerial Accounting

Question

Bishop Company uses the FIFO method in its process costing system. The Mixing Department started the month with 500 units in a process that was 20% complete, started in the production of 2,000 units, and transferred 2,100 units to the finished goods storage area. All materials are added at the beginning of the process, and conversion costs occur evenly. The units in process at the end of the month are 45% complete concerning conversion costs. The department incurred the following costs:

	Beginning WIP	Added this month	Total
Direct materials	\(500	\)2,000	\(2,500
Conversion cost	1,250	5,450	6,700
Total	\)1,750	\(7,450	\)9,200

14A. How many units are still in process at the end of the month?

15A. Compute the equivalent production units for the Mixing Department for the current month.

16A. Determine the cost per equivalent unit for the current period for direct materials and conversion costs.

17A. Determine the cost to be transferred to the next department.

Step-by-Step Solution

Answer

14A. The number of units still in process at the end of the month is 400 units. 

 

15A. The equivalent unit of production for direct material for the current month is 2,000 units and for the conversion cost 2,180 units are the equivalent units of production.

 

16A. The cost per equivalent unit for the current period for direct material is $1, and for conversion cost is $2.50

 

17A. The cost to be transferred to the next department is $9,200

Step 1: Meaning of Costing System

A costing system is defined as the system used by the company to determine the total cost of the product manufactured. It is classified as the process and job order costing system.

Step 2: The number of units is still in process at the end of the month

$\begin{array}{rcl}\mathbf{EndingWIP}& \mathbf{=}& \mathbf{BeginningWIP}\mathbf{+}\mathbf{Receivedduringtheyear}\mathbf{-}\mathbf{Transferredtofinishedgoodsaccount}\\ & \mathbf{=}& \mathbf{500}\mathbf{+}\mathbf{2}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{2}\mathbf{,}\mathbf{100}\\ & \mathbf{=}& \mathbf{400}\end{array}$

Step 3: Equivalent units of production for the mixing department for direct materia l

$\begin{array}{rcl}\mathbf{EUP}& \mathbf{=}& \left(\mathbf{Openingunits}\mathbf{\times }\mathbf{Completion}\mathbf{\%}\right)\mathbf{+}\left(\mathbf{Completedunits}\mathbf{\times }\mathbf{Completion}\mathbf{\%}\right)\mathbf{+}\left(\mathbf{Inprocessunits}\mathbf{\times }\mathbf{Completion}\mathbf{\%}\right)\\ & \mathbf{=}& \left(\mathbf{500}\mathbf{\times }\mathbf{0}\mathbf{\%}\right)\mathbf{+}\left(\mathbf{1}\mathbf{,}\mathbf{600}\mathbf{\times }\mathbf{100}\mathbf{\%}\right)\mathbf{+}\left(\mathbf{400}\mathbf{\times }\mathbf{100}\mathbf{\%}\right)\\ & \mathbf{=}& \mathbf{2}\mathbf{,}\mathbf{000}\end{array}$

Step 4: Equivalent units of production for the mixing department for conversion cos t

$\begin{array}{rcl}\mathbf{EUP}& \mathbf{=}& \left(\mathbf{Openingunits}\mathbf{\times }\mathbf{Completion}\mathbf{\%}\right)\mathbf{+}\left(\mathbf{Completedunits}\mathbf{\times }\mathbf{Completion}\mathbf{\%}\right)\mathbf{+}\left(\mathbf{Inprocessunits}\mathbf{\times }\mathbf{Completion}\mathbf{\%}\right)\\ & \mathbf{=}& \left(\mathbf{500}\mathbf{\times }\mathbf{80}\mathbf{\%}\right)\mathbf{+}\left(\mathbf{1}\mathbf{,}\mathbf{600}\mathbf{\times }\mathbf{100}\mathbf{\%}\right)\mathbf{+}\left(\mathbf{400}\mathbf{\times }\mathbf{45}\mathbf{\%}\right)\\ & \mathbf{=}& \mathbf{2}\mathbf{,}\mathbf{180}\end{array}$

Step 5: Calculation of cost per equivalent unit of production for the current period for direct materials

$\begin{array}{rcl}\mathbf{CosrperEUPfordirectmaterial}& \mathbf{=}& \frac{\mathbf{Currentperioddirectmaterialcost}}{\mathbf{EUPfordirectmaterials}}\\ & \mathbf{=}& \frac{\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{000}}{\mathbf{2}\mathbf{,}\mathbf{000}}\\ & \mathbf{=}& \mathbf{\$}\mathbf{1}\end{array}$

Step 6: Calculation of cost per equivalent unit of production for the current period for conversion cost

$\begin{array}{rcl}\mathbf{CosrperEUPforconversioncost}& \mathbf{=}& \frac{\mathbf{Currentperiodconversioncost}}{\mathbf{EUPforConversioncost}}\\ & \mathbf{=}& \frac{\mathbf{\$}\mathbf{5}\mathbf{,}\mathbf{450}}{\mathbf{2}\mathbf{,}\mathbf{180}}\\ & \mathbf{=}& \mathbf{\$}\mathbf{2}\mathbf{.}\mathbf{50}\end{array}$

Step 7: Cost to be transferred to finished goods inventory

Particulars:	Calculation	Amount ($)
Direct material:		$500
Beginning WIP	0EUP x $1 per EUP	0
Started and completed	1,600 EUP x $1 per EUP	1,600
In process	400 EUP x $1 per EUP	400
Total (A)		2,500
Conversion cost
Beginning WIP		1,250
To complete Beginning WIP	400 EUP x $2.50 per EUP	1,000
Started and completed	1,600 EUP x $2.50 per EUP	4,000
In process	180 EUP x $2.50 per EUP	450
Total (B)		6,700
Total cost of conversion (A+B)		9,200