Question

Direct materials are added at the beginning of the process and conversions costs are uniformly applied. Other details include:

WIP beginning (50% for conversion) 28,400 units
Units started 124,000 units
Units completed and transferred out 107,000 units
WIP ending (50% for conversion) 45,400 units
Beginning WIP direct materials $53,200
Beginning WIP conversion costs $19,600
Costs of materials added $442,100
Costs of conversion added $304,650

Required:

a. What are the total equivalent units for direct materials?
b. What are the total equivalent units for conversion costs?
c. What is the cost per equivalent unit for direct materials?
d. What is the cost per equivalent unit for conversion costs?
e. What is the total cost of units completed and transferred out?
f. What is the total cost of units remaining in ending WIP?

Answer 1

The best production method initially is Method 1, with a total cost of $9000. If the labor cost increases to $200/unit, Method 1 remains the best method with a total cost of $14000.

Step-by-step explanation:

Calculating the Best Production Method Based on Cost

To determine the best production method considering the costs of labor and capital, we’ll calculate the total cost for each method. Initially, labor costs $100/unit and capital costs $400/unit.

Method 1: (50 units of labor × $100/unit) + (10 units of capital × $400/unit) = $5000 + $4000 = $9000

Method 2: (20 units of labor × $100/unit) + (40 units of capital × $400/unit) = $2000 + $16000 = $18000

Method 3: (10 units of labor × $100/unit) + (70 units of capital × $400/unit) = $1000 + $28000 = $29000

So, the best method initially is Method 1. However, if the cost of labor rises to $200/unit:

Method 1: (50 units of labor × $200/unit) + (10 units of capital × $400/unit) = $10000 + $4000 = $14000

Method 2: (20 units of labor × $200/unit) + (40 units of capital × $400/unit) = $4000 + $16000 = $20000

Method 3: (10 units of labor × $200/unit) + (70 units of capital × $400/unit) = $2000 + $28000 = $30000

With the increased labor cost, Method 1 still remains the most cost-effective production method.

Answer 2

a. What are the total equivalent units for direct materials?

152,400 units

b. What are the total equivalent units for conversion costs?

129,700 units

c. What is the cost per equivalent unit for direct materials?

Total Direct Materials Cost

$495,300

Cost per equivalent unit = Total Direct Materials Cost / total equivalent units for direct materials

$3.25

d. What is the cost per equivalent unit for conversion costs?

Total conversion costs

$324,250

Cost per equivalent unit = Total conversion costs / total equivalent units for conversion

$2.50

e. What is the total cost of units completed and transferred out?

$615,250

f. What is the total cost of units remaining in ending WIP?

$204,300

Step-by-step explanation:

a. What are the total equivalent units for direct materials?

Completed and Transferred (107,000 × 100%) = 107,000 units

Ending Work In Process (45,400 × 100%) = 45,400 units

Total equivalent units = 152,400 units

b. What are the total equivalent units for conversion costs?

Completed and Transferred (107,000 × 100%) = 107,000 units

Ending Work In Process (45,400 × 50%) = 22,700 units

Total equivalent units = 129,700 units

c. What is the cost per equivalent unit for direct materials?

Total Direct Materials Cost

Beginning Work In Process $53,200

Added $442,100

Total Direct Materials $495,300

Cost per equivalent unit = Total Direct Materials Cost / total equivalent units for direct materials

= $495,300/ 152,400 units

= $3.25

d. What is the cost per equivalent unit for conversion costs?

Total conversion costs

Beginning Work In Process $19,600

Added $304,650

Total conversion costs $324,250

Cost per equivalent unit = Total conversion costs / total equivalent units for conversion

=$324,250/ 129,700 units

= $2.50

e. What is the total cost of units completed and transferred out?

Raw Materials ( $3.25 × 107000) = $347,750

Conversion($2.50 × 107000) = $267,500

Total $615,250

f. What is the total cost of units remaining in ending WIP?

Raw Materials ( $3.25 × 45,400) = $147,550

Conversion($2.50 × 22,700) = $56,750

Total $204,300