A manufacturing company employs a process cost system. The company's product passes through both Department 1 and Department 2 in order to be completed. Conversion costs are incurred uniformly throughout the process in Department 2. The direct material is added in Department 2 when conversion is 80% complete. This direct material is a preservative that does not change the volume. Spoiled units are discovered at the final inspection and are recognized then for costing purposes. The physical flow of units for the current month is presented below.
Beginning work-in-process 14,000
in Department 2 (90% complete
with respect to conversion costs)
Transferred in from Department 1 76,000
Completed and transferred to 80,000
finished goods
Spoiled units – all normal 1,500
Ending work-in-process in 8,500
Department 2 (60% complete
with respect to conversion costs)
If the manufacturing company uses the weighted-average method, the equivalent units for direct materials in Department 2 for the current month would be:
A.
67,500.
B.
80,000.
C.
81,500.
D.
90,000.
Why is the normal spoilage included in the equivalent units here? Is it because of the sentence “Spoiled units are discovered at the final inspection and are recognized then for costing purposes” in the question? What does that sentence even mean?
Becker for all
AUD - 87 (Q2 2017)
FAR - 97 (Q3 2017)
REG - 95 (Q3 2017)
BEC - 98 (Q3 2017)
.
