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Topic
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Hi Can anyone please help this one??
Thank you in advance!!!!
Question
Richardson Company computed the flow of physical units completed for Department M for the month of March as follows:
Units completed:
From work-in-process on March 115,000
From March production 45,00060,000
Materials are added at the beginning of the process. The 12,000 units of work-in-process at March 31, were 80% complete as to conversion costs. The work-in-process at March 1, was 60% complete as to conversion costs. Using the FIFO method, the equivalent units for March conversion costs were
A. 55,200
B. 57,000
C. 60,600
D. 63,600Explanation
The correct answer is C. Process costing (unlike job-order costing) is used for a continuous manufacturing process of the same or similar products. This is because the product is uniform and there is no need to determine the costs of different groups of products. The 5 steps in process costing include:Determine the physical flow of units
Calculate the equivalent units (EU) of production
Determine the costs to allocate
Calculate unit costs
Allocate total costs to completed goods and ending work-in-processThere are two main methods used for EUs; FIFO and weighted average (WA). The main difference between the WA and FIFO methods for process costing is that under FIFO, separate equivalent units (EU) and related costs must be determined for beginning work-in-process (WIP) inventory and current period production. With WA, current costs are combined with prior period costs and all units are carried at an average cost of production. The key to WA is that all units completed during the period are started and completed during that period. Therefore, the percentage of work performed last period on the beginning work-in-process inventory is ignored.
Using WA, the beginning WIP and the units started in the current period are considered together as a single group of units for the allocation of materials cost. Because materials are added at the beginning of the process, materials cost are allocated even to those units which remain in WIP at the end of the period, since materials have already become part of the units.
With the FIFO method of process costing, units completed that were in process at the beginning of the period and the units completed which were started during the current period are considered separately. Also with FIFO, the appropriate stages of completion of both the beginning and ending work-in-process must be taken into consideration.
Since Richardson uses the FIFO method of processing costing, the equivalent units for March conversion costs are calculated as follows:
Physical
Equivalent units
Units completed:From beginning work-in-process 15,000 (40% × 15,000) 6,000
From current production 45,000
45,000
Ending work-in-process 12,000 (12,000 × 80%)
9,600
Totals 72,000
60,600
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