Final answer:
The cost per unit of the ending work-in-process inventory for Serene Watch Company is $65.20, calculated considering the costs for direct materials as fully allocated and the conversion costs as 60% complete for the incomplete units.
Step-by-step explanation:
The task is to calculate the cost per unit of the ending work-in-process inventory for Serene Watch Company. Given that the direct materials cost $200,000 and the conversion costs are $210,000 for 5,000 units started, we can initially find the total cost per unit for both direct materials and conversion costs.
First, calculate the total cost per unit:
- Direct materials cost per unit = $200,000 / 5,000 units = $40 per unit
- Conversion cost per unit = $210,000 / 5,000 units = $42 per unit
- Total cost per unit = $40 (direct materials) + $42 (conversion costs) = $82 per unit
Now, we determine the cost of ending work-in-process inventory, which consists of 2,000 units (5,000 units started - 3,000 units completed) at 60% completion for conversion costs. Since direct materials are added at the beginning of the process, we assume these costs are fully imparted to the units in process.
- Direct materials cost for ending inventory = 2,000 units * $40 = $80,000
- Conversion costs for ending inventory (60% complete) = 2,000 units * $42 * 60% = $50,400
- Total cost for ending inventory = $80,000 (direct materials) + $50,400 (conversion) = $130,400
Finally, we calculate the cost per unit of ending inventory:
- Cost per unit of ending inventory = Total ending inventory cost / Number of units in ending inventory
- Cost per unit of ending inventory = $130,400 / 2,000 units = $65.20 per unit
This cost per unit reflects the partial cost for partially completed units in terms of direct materials that are completely allocated and the conversion costs that are only 60% complete.