Problem for Self-Study

Allied Chemicals operates an assembly process as the second of three processes at its plastics plant. Conversion costs are added evenly during the process, while direct materials are added at the end. The following data pertain to the assembly department for June 2020:

Spreadsheet screenshot shows the data pertaining to thermo-assembly department for June 2017.

One of the entries is given as question mark, which is mentioned below:

  1. Work in process, beginning inventory

    • Physical units: 50,000

  2. Degree of completion, beginning work in process

    • Transferred-in costs: 100%

    • Direct materials: 0%

    • Conversion costs: 80%

  3. Transferred in during current period

    • Physical units: 200,000

  4. Completed and transferred out during current period

    • Physical units: 210,000

  5. Work in process, ending inventory

    • Physical units: question mark

  6. Degree of completion, ending work in process

    • Transferred-in costs: 100%

    • Direct materials: 0%

    • Conversion costs: 40%.

Required

Compute equivalent units under (1) the weighted-average method and (2) the FIFO method.

Solution

  1. The weighted-average method uses equivalent units of work done to date to compute cost per equivalent unit. The calculations of equivalent units follow:
Spreadsheet screenshot shows the flow of production in physical units and equivalent units of various costs.

Details of the spreadsheet are as follows:

  1. Work in process, beginning inventory

    • Physical units: 50,000

  2. Transferred-in during current period (given)

    • Physical units: 200,000

  3. To account for

    • Physical units: 250,000

  4. Completed and transferred out during current period

    • Physical units: 210,000

    • Transferred-in costs: 210,000

    • Direct materials: 210,000

    • Conversion costs: 210,000

  5. Work in process, ending inventory (refer to note a)

    • Physical units: 40,000 (refer to note b)

    • Transferred-in costs (40,000 multiplied by 100%): 40,000

    • Direct materials (40,000 multiplied by 0%): 0

    • Conversion costs (40,000 multiplied by 40%): 16,000

  6. Accounted for

    • Physical units: 250,000

  7. Equivalent units of work done to date

    • Transferred-in costs: 250,000

    • Direct materials: 210,000

    • Conversion costs: 226,000

  8. Note a: Degree of completion in this department: Transferred-in costs, 100%; direct materials, 0%; conversion costs, 40%.

    • Note b: 250,000 physical units to account for minus 210,000 physical units completed and transferred out.

  1. The FIFO method uses equivalent units of work done in the current period only to compute cost per equivalent unit. The calculations of equivalent units follow:
Spreadsheet screenshot shows the flow of production in physical units and equivalent units of various costs.

Details of the spreadsheet are as follows:

  1. Work in process, beginning inventory

    • Physical units: 50,000

  2. Transferred-in during current period (given)

    • Physical units: 200,000

  3. To account for

    • Physical units: 250,000

  4. Completed and transferred out during current period

    1. From beginning work in process (refer to note a)

      • Physical units: 50,000

      • Transferred-in costs (product of 50,000 and the difference of 100% and 100%): 0

      • Direct materials (product of 50,000 and the difference of 100% and 0%): 50,000

      • Conversion costs (product of 50,000 and the difference of 100% and 80%): 10,000

    2. Started and completed

      • Physical units: 160,000 (refer to note b)

      • Transferred-in costs (product of 160,000 and 100%): 160,000

      • Direct materials (product of 160,000 and 100%): 160,000

      • Conversion costs (product of 160,000 and 100%): 160,000

  5. Work in process, ending inventory (refer to note c)

    • Physical units: 40,000 (refer to note d)

    • Transferred-in costs (40,000 multiplied by 100%): 40,000

    • Direct materials (40,000 multiplied by 0%): 0

    • Conversion costs (40,000 multiplied by 40%): 16,000

  6. Accounted for

    • Physical units: 250,000

  7. Equivalent units of work done to date

    • Transferred-in costs: 200,000

    • Direct materials: 210,000

    • Conversion costs: 226,000

  8. Note a: Degree of completion in this department: Transferred-in costs, 100%; direct materials, 0%; conversion costs, 80%.

    • Note b: 210,000 physical units completed and transferred out minus 50,000 physical units completed and transferred out from beginning work-in-process inventory.

    • Note c: Degree of completion in this department: Transferred-in costs, 100%; direct materials, 0%; conversion costs, 40%.

    • Note d: 250,000 physical units to account for minus 210,000 physical units completed and transferred out.