Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 46

Operation Costing: Work-in-Process Inventory

Washington, Inc., makes three models of motorized carts for vacation resorts, X-10, X-20, and X-40. Washington manufactures the carts in two assembly departments: Department A and Department B. All three models are processed initially in Department A, where all material is assembled. The X-10 model is then transferred to finished goods. After processing in Department A, the X-20 and X-40 models are transferred to Department B for final assembly, and then transferred to finished goods.

There were no beginning work-in-process inventories on April 1. Data for April are shown in the following table. Ending work in process is 25 percent complete in Department A and 60 percent complete in Department B. Conversion costs are allocated based on the number of equivalent units processed in each department.

	Total	X-10	X-20	X-40
Units started		500	300	200
Units completed in Department A		400	260	180
Units completed in Department B			225	165
Materials	$450,000	$75,000	$135,000	$240,000
Conversion costs
Department A	$264,000
Department B	42,000
Total conversion costs	$306,000

a.What is the unit cost of each model transferred to finished goods in April?

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b.What is the balance of work-in-process inventory on April 30 for Department A? Department B?

Step 1 of 2

?The solution to this problem is to apply process costing methods for the conversion costs and then add the cost of materials for each product. Because there is no beginning work-in-process inventory, FIFO and weighted-average process costing gives the same results.

a.

The material costs per unit are:

Product	Material Cost		Number of Units		Unit Material Cost
X-10?	$75,000	÷	500	=	$  150
X-20?	135,000	÷	300	=	450
X-40?	240,000	÷	200	=	1,200

The conversion costs per equivalent unit are:

Department A:

		Physical Units			Conversion Costs Equivalent Units
Flow of units:
?Units to be accounted for:
?Beginning WIP inventory?		–0–
?Units started this perioda		1,000
??Total units to account for?		1,000
?Units accounted for:
?Completed and transferred outb		840					840
?Units in ending inventoryc		160
??Conversion costs (160 x 25%)?							40
??Total units accounted for?		1,000					880

a 1,000 units = 500 X-10 + 300 X-20 + 200 X-40

b 840 units = 400 X-10 + 260 X-20 + 180 X-40

c 160 units = 1,000 units started – 840 units transferred out.

	Total		Conversion Costs
Flow of costs:
Costs to be accounted for:
?Costs in beginning WIP inventory?	$       –0–				$   ?–0–
?Current period costs?	264,000				264,000
??Total costs to be accounted for?	$ 264,000				$ 264,000
Cost per equivalent unit
?Conversion costs ($264,000 ÷ 880)?					$?300

Department B:

		Physical Units			Conversion Costs Equivalent Units
Flow of units:
?Units to be accounted for:
?Beginning WIP inventory?		–0–
?Units started this perioda		440
??Total units to account for?		440
?Units accounted for:
?Completed and transferred outb		390					390
?Units in ending inventoryc		50
??Conversion costs (50 x 60%)?							30
??Total units accounted for?		440					420

a 440 units = 260 X-20 + 180 X-40

b 390 units = 225 X-20 + 165 X-40

c 50 units = 440 units started – 390 units transferred out.

	Total		Conversion Costs
Flow of costs:
Costs to be accounted for:
?Costs in beginning WIP inventory?	$       –0–				$    ?–0–
?Current period costs?	42,000				42,000
??Total costs to be accounted for?	$ 42,000				$ 42,000
Cost per equivalent unit
?Conversion costs ($42,000 ÷ 420)?					$?100

Cost of units transferred to finished goods:

Product	Unit Material Cost		Unit Department A Cost		Unit Department B Cost		Unit Cost
X-10	$150	+	$ 300	+	$ –0–	=	$ 450
X-20	450	+	300	+	100	=	850
X-40	1,200	+	300	+	100	=	1,600