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Chapter 19: Problem 10

Enviro Wood Products Inc. completed and transferred 120,000 particle board units of production from the Pressing Department. There was no beginning inventory in process in the department. The ending in-process inventory was 7,500 units, which were 3 /5 complete as to conversion cost. All materials are added at the beginning of the process. Direct materials cost incurred was \(474,300, direct labor cost incurred was \)69,720, and factory overhead applied was $29,880. Determine the following for the Pressing Department: a. Total conversion cost b. Conversion cost per equivalent unit c. Direct materials cost per equivalent unit

Short Answer

Expert verified
a. Total conversion cost is $99,600. b. Conversion cost per equivalent unit is approximately $0.8. c. Direct materials cost per equivalent unit is approximately $3.72.

Step by step solution

01

Calculate Total Conversion Cost

The total conversion cost consists of the direct labor cost and the factory overhead. To find the total conversion cost, we simply add these two amounts.Given data:- Direct labor cost = \(69,720 - Factory overhead = \)29,880Total Conversion Cost = Direct Labor Cost + Factory Overhead\[ Total\ Conversion\ Cost = 69,720 + 29,880 = 99,600 \]
02

Calculate Equivalent Units for Conversion

Equivalent units are the product of the number of partially completed units and their percentage of completion. Since the ending inventory is 7,500 units, which are 3/5 complete concerning conversion, we calculate the equivalent units for conversion as follows:\[ \text{Equivalent Units for Conversion} = 120,000 + (7,500 \times \frac{3}{5}) \]Calculate the equivalent units:\[ 7,500 \times \frac{3}{5} = 4,500 \]Thus, the equivalent units for conversion are:\[ 120,000 + 4,500 = 124,500 \]
03

Calculate Conversion Cost per Equivalent Unit

Conversion cost per equivalent unit is calculated by dividing the total conversion cost by the total equivalent units for conversion.Given:- Total Conversion Cost = 99,600- Equivalent Units for Conversion = 124,500\[ \text{Conversion Cost per Equivalent Unit} = \frac{99,600}{124,500} \]Calculate:\[ \text{Conversion Cost per Equivalent Unit} \approx 0.8 \]
04

Calculate Direct Materials Cost per Equivalent Unit

Since direct materials are added at the beginning of the process, equivalent units for materials are just the total units started and completed plus the ending inventory. In this scenario, it is the full 120,000 plus the 7,500 in-process units.\[ \text{Equivalent Units for Materials} = 120,000 + 7,500 = 127,500 \]Direct materials cost per equivalent unit is calculated by dividing the total direct materials cost by the total equivalent units for materials.Given:- Direct Materials Cost = 474,300\[ \text{Direct Materials Cost per Equivalent Unit} = \frac{474,300}{127,500} \]Calculate:\[ \text{Direct Materials Cost per Equivalent Unit} \approx 3.72 \]

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Key Concepts

These are the key concepts you need to understand to accurately answer the question.

Equivalent Units
Equivalent units are an essential component in process costing, especially when dealing with partially completed inventories. They help standardize the measure of production for both completed and in-process units, creating a uniform metric to assess costs.
In our scenario, the calculation of equivalent units involves both fully finished units and a portion of those still being processed. Since our ending inventory of 7,500 units is 3/5 complete for conversion purposes, we only count 4,500 of those units as "equivalent units" for the conversion costs. The entirely completed 120,000 units add up, resulting in a total of 124,500 equivalent units when considering conversion costs.
Key Points About Equivalent Units:
  • Include fully completed units in full.
  • Calculate the percentage completed of in-process units and apply this to determine their contribution.
  • Separate calculations are needed for different cost elements like conversion and direct materials.
Conversion Costs
Conversion costs are those necessary to convert raw materials into a finished product. These encompass direct labor and factory overheads. In process costing, understanding and calculating the conversion cost per equivalent unit is crucial to evaluate the cost-efficiency of production.
For the Pressing Department, the total conversion costs are derived by summing the direct labor cost of $69,720 and the factory overhead of $29,880, reaching a total of $99,600. Dividing this sum by the 124,500 equivalent units provides the conversion cost per equivalent unit, approximately $0.8.
Understanding Conversion Costs:
  • Direct Labor: Represents the workforce expenses directly tied to production.
  • Factory Overhead: Encompasses indirect costs such as utilities, maintenance, and depreciation on equipment.
  • Conversion Costs Per Unit: Indicate the efficiency and cost-effectiveness of turning raw materials into finished goods.
Direct Materials Cost
Direct materials costs refer to the expenses incurred from purchasing materials that are directly tied to production. These costs are typically straightforward, as all direct materials are added at the start of the process in many manufacturing environments.
In this example, all materials were added at the onset, considering the entirety of units (both completed and in-process). Therefore, the equivalent units for materials encompass the total amount started and finished: 120,000 units, plus the ending inventory of 7,500, equaling 127,500 equivalent units.
By dividing the total direct materials cost of $474,300 by these 127,500 equivalent units, we find the direct materials cost per equivalent unit to be approximately $3.72.
Insights on Direct Materials Cost:
  • Straightforward calculation due to addition at the beginning of production.
  • Reflects the actual materials consumed in the manufacturing process.
  • Essential for understanding overall production and cost fluctuations.

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Most popular questions from this chapter

The Converting Department of Zhao Napkin Company uses the average cost method and had 1,200 units in work in process that were 60% complete at the beginning of the period. During the period, 10,500 units were completed and transferred to the Packing Department. There were 600 units in process that were 30% complete at the end of the period. a. Determine the number of whole units to be accounted for and to be assigned costs for the period. b. Determine the number of equivalent units of production for the period.

The Converting Department of Rhino Napkin Company had 1,800 units in work in process at the beginning of the period, which were 75% complete. During the period, 13,500 units were completed and transferred to the Packing Department. There were 1,200 units in process at the end of the period, which were 40% complete. Direct materials are placed into the process at the beginning of production. Determine the number of equivalent units of production with respect to direct materials and conversion costs.

Alcoa Inc. is the world鈥檚 largest producer of aluminum products. One product that Alcoa manufactures is aluminum sheet products for the aerospace industry. The entire output of the Smelting Department is transferred to the Rolling Department. Part of the fully processed goods from the Rolling Department are sold as rolled sheet, and the remainder of the goods are transferred to the Converting Department for further processing into sheared sheet. Prepare a chart of the flow of costs from the processing department accounts into the finished goods accounts and then into the cost of goods sold account. The relevant accounts are as follows: Cost of Goods Sold Finished Goods鈥擱olled Sheet Materials Finished Goods鈥擲heared Sheet Factory Overhead鈥擲melting Department Work in Process鈥擲melting Department Factory Overhead鈥擱olling Department Work in Process鈥擱olling Department Factory Overhead鈥擟onverting Department Work in Process鈥擟onverting Department

Prepare a cost of production report for the Cutting Department of Arizona Carpet Company for July 2006. Use the average cost method with the following data: Work in process, July 1, 10,000 units, 70% complete $ 50,000 Materials added during July from Weaving Dept., 182,000 units 837,200 Direct labor for July 71,160 Factory overhead for July 50,504 Goods finished during July (includes goods in process, July 1), 178,000 units 鈥� Work in process, July 31, 14,000 units, 20% completed

The Domino Sugar Corporation manufactures a sugar product by a continuous process, involving three production departments鈥擱efining, Sifting, and Packing. Assume that records indicate that direct materials, direct labor, and applied factory overhead for the first department, Refining, were \(245,000, \)112,000, and \(81,600, respectively. Also, work in process in the Refining Department at the beginning of the period totaled \)24,000, and work in process at the end of the period totaled $38,000. Journalize the entries to record (a) the flow of costs into the Refining Department during the period for (1) direct materials, (2) direct labor, and (3) factory overhead, and (b) the transfer of production costs to the second department, Sifting.
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