Question

Provost Industries Process Costing Analysis

I think we goofed by hiring the new assistant controller, said Ruth Scarpino, president of Provost Industries. Just look at this report he prepared for last month for the finishing department. I can’t understand it.

Finishing Department Costs:
- Work in process inventory, April 1: 1,700 units; materials 100% complete; conversion 88% complete - $8,833
- Costs transferred in during the month from the preceding department: 3,200 units - $38,181
- Materials cost added during the month - $16,385
- Conversion costs incurred during the month - $33,910
- Total departmental costs - $97,309

Costs Assigned:
- Units completed and transferred to finished goods: 4,300 units at $22.63 per unit - $97,309
- Work in process inventory, April 30: 600 units; materials 0% complete; conversion 40% complete - $0

Consists of cost transferred in: $4,318; materials cost: $2,105; and conversion cost: $2,410.

He's struggling to learn our system, replied Frank Harrop, the operations manager. The problem is he's been away from process costing for a long time, and it's coming back slowly.
It's not just the format of his report I'm concerned about. Look at that $22.630 unit cost he's come up with for April. Doesn't that seem high to you? said Ms. Scarpino.
Yes, it does seem high; but on the other hand, I know we had an increase in materials prices during April, and that may be the explanation, replied Mr. Harrop. I’ll get someone else to redo this report, and then we can see what’s going on.

Required:
1-a. Calculate the equivalent units of production.
1-b. Calculate the cost per equivalent unit.
1-c. How much cost should have been assigned to the ending work in process inventory?
1-d. How much cost was assigned to the ending work in process inventory?

Select the correct option:

a. The equivalent units of production were 4,300, and the cost per equivalent unit was $22.63.
b. The equivalent units of production were 5,000, and the cost per equivalent unit was $19.46.
c. The equivalent units of production were 4,900, and the cost per equivalent unit was $20.23.
d. The equivalent units of production were 4,600, and the cost per equivalent unit was $21.12.

Answer 1

The equivalent units of production are 4,300 and the cost per equivalent unit is $22.63. The cost assigned to the ending work in process inventory should have been $5,431.20. The correct option is a.

Step-by-step explanation:

To calculate the equivalent units of production, we need to consider the units that are partially completed at the end of the period. In this case, the work in process inventory on April 30 has 600 units that are 40% complete in terms of conversion costs. Therefore, the equivalent units of production for conversion costs are 600 x 40% = 240 units.

Similarly, the work in process inventory on April 30 has 600 units with 0% completion for materials costs. Therefore, the equivalent units of production for materials costs are 600 x 0% = 0 units.

As for the cost per equivalent unit, we can calculate it by dividing the total departmental costs by the equivalent units of production. In this case, the total departmental costs are $97,309 and the equivalent units of production are 4,300. Therefore, the cost per equivalent unit is $97,309 / 4,300 = $22.63.

The cost assigned to the ending work in process inventory should be calculated by multiplying the equivalent units of production for each cost category (materials and conversion) by the cost per equivalent unit. In this case, the equivalent units of production for materials costs are 0 units, so the cost assigned for materials is 0 x $22.63 = $0. The equivalent units of production for conversion costs are 240 units, so the cost assigned for conversion is 240 x $22.63 = $5,431.20.