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

Exercise 47

Operations Costing: Work-in-Process Inventory

Miller Outdoor Equipment (MOE) makes four models of tents. The model names are Rookie, Novice, Hiker, and Expert. MOE manufactures the tents in two departments: Stitching and Customizing. All four models are processed initially in Stitching where all material is assembled and sewn into a basic tent. The Rookie model is then transferred to finished goods. After processing in Stitching, the other three models are transferred to Customizing for additional add-ons, and then transferred to finished goods.

There were no beginning work-in-process inventories on August 1. Data for August are shown in the following table. Ending work in process is 40 percent complete in Stitching and 20 percent complete in Customizing. Conversion costs are allocated based on the number of equivalent units processed in each department.

	Total	Rookie	Novice	Hiker	Expert
Units started		600	480	290	150
Units completed in Stitching		540	450	270	120
Units competed in Customizing			440	250	1 00
Materials	$ 39,720	$12,000	$11,520	$8,700	$7,500
Conversion costs:
Stitching	$ 50,260
Customizing	24,000
Total conversion cost	$ 74,260

Required

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

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b.What is the balance of the Work-in-Process Inventory on August 31 for Stitching? For Customizing

Step 1 of 4

a.

Material costs are incurred individually on each model of tent and per unit cost on dividing total material cost by units started. The conversion costs consist of Stitching Department costs and Customizing Department costs.

Stitching department costs are allocated on the basis of total units of four tents manufactured. Customizing is done for N, H and E models of tents and hence, the Customizing Department costs are allocated on basis of total units of the three tents.

Per unit cost is obtained by dividing equivalent units produced during the period in the respective departments.

Statement showing cost per unit for the four models of tents of M Outdoor Equipment for the month ended August 31, 2015

Particulars	R ($)	N($)	H($)	E($)	Total($)
Materials (M)	12,000	11,520	8,700	7,500	39,720
Units started (U)	600	480	290	150
Material Cost per unit (M`)	20	24	30	50
Conversion Costs
Stitching Department (Working Note 2)	19,740	16,170	9,730	4,620	50,260
Number of units for Stitching Department (Sn)	564	462	278	132	1,436
Stitching cost per unit	35	35	35	35
Customizing (Working Note 2)	0	13,260	7,620	3,120	24,000
Number of units for Customizing Department	0	442	254	104	800
Customizing cost per unit	0	30	30	30
Total Conversion Costs per unit (C)	35	65	65	65
Total Costs per unit (T) = (M`) + (C)	55	89	95	115

Working Note 1

Table showing calculation of equivalent units for Rookie using FIFO method

Particulars	Units (a)	% of completion in the period (b)	Equivalent Units (c)=(a) x (b)
Work completed during the period	540	100%	540
Work in process at the end	600 – 540 = 60	40%	24
Total	600		564

Table showing calculation of equivalent units for Novice using FIFO method

Particulars	Units (a)	% of completion in the period in stitching (b)	Equivalent Units (c)=(a) x (b)	Units (d)	% of completion in the period in customizing (e)	Equivalent Units (f)=(d) x (e)
Work completed during the period	450	100%	450	440	100%	440
Work in process at the end	480 – 450 = 30	40%	12	450 – 440 = 10	20%	2
Total	480		462	450		442

Table showing calculation of equivalent units for Hiker using FIFO method

Particulars	Units (a)	% of completion in the period in stitching (b)	Equivalent Units (c)=(a) x (b)	Units (d)	% of completion in the period in customizing (e)	Equivalent Units (f)=(d) x (e)
Work completed during the period	270	100%	270	250	100%	250
Work in process at the end	290 – 270 = 20`	40%	8	270 – 250 = 20	20%	4
Total	290		278	270		254