91Ó°ÊÓ

Ocean Worthy uses three processes to manufacture lifts for personal watercraft: forming a lift’s parts from galvanized steel, assembling the lift, and testing the completed lift. The lifts are transferred to Finished Goods Inventory before shipment to marinas across the country.

Ocean Worthy’s Testing Department requires no direct materials. Conversion costs are incurred evenly throughout the testing process. Other information follows for the month of August:

UNITS
Beginning work-in-process inventory	2,000 units
Transferred in from assembling department during the period	7,000 units
Completed during the period	4,000 units
Ending work in process inventory (40% complete for conversion work)	5,000 units
COSTS
Beginning work in process inventory (transferred in costs, \(93,400, conversion costs, \)18,100)	$111,500
Transferred in from the assembly department during the period	672,000
Conversion cost added during the period	54,000

The cost transferred into Finished Goods Inventory is the cost of the lifts transferred out of the Testing Department. Ocean Worthy uses weighted-average

process costing.

Requirements

1. Prepare a production cost report for the Testing Department.

2. What is the cost per unit for lifts completed and transferred out to Finished Goods Inventory? Why would management be interested in this cost?

Step by step solution

01

Step-by-Step Solution:Step 1: Production Cost Report

The production cost report shows the cost bifurcation of the product's manufacturing cost. It is prepared by the companies in which process costing is used. It conveys both total costs and the per-unit cost of manufactured products.

02

Equivalent unit of production for transferred in

$$\begin{gathered} \mathbf{EUP}\mathbf{}\mathbf{for}\mathbf{}\mathbf{Transferred}\mathbf{}\mathbf{in}\mathbf{=}(\mathbf{Completed}\mathbf{}\mathbf{units}\mathbf{×}\mathbf{Completion}\mathbf{\%})\mathbf{+}(\mathbf{Ending}\mathbf{}\mathbf{WIP}\mathbf{}\mathbf{units}\mathbf{×}\mathbf{Completion}\mathbf{\%}) \\ \mathbf{=}(\mathbf{4}\mathbf{,}\mathbf{000}\mathbf{×}\mathbf{100}\mathbf{\%})\mathbf{+}(\mathbf{5}\mathbf{,}\mathbf{000}\mathbf{×}\mathbf{100}\mathbf{\%}) \\ \mathbf{=}\mathbf{9}\mathbf{,}\mathbf{000} \end{gathered}$$

03

Equivalent unit of production for conversion costs

$$\begin{gathered} \mathbf{EUP}\mathbf{}\mathbf{for}\mathbf{}\mathbf{Conversion}\mathbf{}\mathbf{cost}\mathbf{=}(\mathbf{Completed}\mathbf{}\mathbf{units}\mathbf{×}\mathbf{Completion}\mathbf{\%})\mathbf{+}(\mathbf{Ending}\mathbf{}\mathbf{WIPunits}\mathbf{×}\mathbf{Completion}\mathbf{\%}) \\ \mathbf{=}(\mathbf{4}\mathbf{,}\mathbf{000}\mathbf{×}\mathbf{100}\mathbf{\%})\mathbf{+}(\mathbf{5}\mathbf{,}\mathbf{000}\mathbf{×}\mathbf{40}\mathbf{\%}) \\ \mathbf{=}\mathbf{6}\mathbf{,}\mathbf{000} \end{gathered}$$

04

Cost per EUP for the completed and transferred out to the finished goods inventory

$$\begin{gathered} \mathbf{Cost}\mathbf{}\mathbf{per}\mathbf{}\mathbf{EUP}\mathbf{=}\frac{\mathrm{Total}\mathrm{cost}\mathrm{incurred}\mathrm{on}\mathrm{completed}\mathrm{and}\mathrm{transferred}\mathrm{out}\mathrm{units}}{\mathbf{No}\mathbf{.}\mathbf{}\mathbf{of}\mathbf{}\mathbf{units}\mathbf{}\mathbf{}\mathbf{transferred}\mathbf{}\mathbf{}\mathbf{out}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\frac{\$388,000}{4,000} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{97} \end{gathered}$$

Management is interested in identifying the total manufacturing cost for deciding the product’s sale price.

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