1. Arnold's Custom Log Beds manufactures log beds in a production line.

Direct materials are

added at the beginning of the production process. Conversion costs are consumed evenly
throughout production. The following information pertains to the month of April:
Work in process, beginning inventory: 85 units
Direct materials (100% complete)
Conversion costs (45% complete)
Units started during April 125 units
Work in process, ending inventory: 60 units
Direct materials (100% complete)
Conversion costs (65% complete)
Costs added in April:
Direct materials $38,000
Conversion costs $28,000
Work in process, beginning inventory:
Direct materials $24,000
Conversion costs $19,500

Required: if Arnold's used the weighted average method of process costing.

1) What is the total manufacturing cost per chip for April?
2) Determine the costs that would be assigned to
a) Finished goods inventory
b) Ending work-in-process inventory

Solution

Tabular analysis and overall answer for the above questions

Step-1:Calculation of Equivalent units of production

 
Unit to be accounted for
WIP beginning ----------------------------------------------85 units
Started in to production-----------------------------------125 units
Total units----------------------------------------------------210 units
Unit accounted for
Completed and transferred out------------------------150 units (210-60)
Ending WIP------------------------------------------------60 units
Total units-----------------------------------------------------210 units

Step2: compute equivalent unit of product

Equivalent units
Materials conversion
Unit transferred---------------------------------------------------150 150
Beginning WIP
60 x 100%--------------------------------------------60
60 x 65%--------------------------------------------------------------------------------39
Total equivalent units ----------------------------------------210 units 189 units
We can summarize the above by the following table,

    Materials Conversion
Physical % of Equivalent Units % of Equivalent Units
  Units completion of Production completion of Production
Units completed 150 100% 150 100% 150
Ending work in
60 100% 60 65% 39
process units
           
Total 210   210   189

Step 3: compute unit production costs

Unit production cost = unit materials cost + unit conversion cost

Material cost

Materials cost of beginning WIP----------------------------------------------24,000

Direct materials cost add to production during period---------------------38,000

Total material cost----------------------------------------------------------------------62,000

Therefore, unit materials cost = total material cost

Equivalent of materials
= 62,000

210

Unit material cost = $295.24 per unit

Conversion cost

Conversion cost at beginning WIP--------------------------------------19,500

Conversion cost at added to production during period-------------28,000

Total conversion cost ----------------------------------------------------47,500

Unit conversion cost = total conversion cost

Equivalent of conversion
 = 47,500

189

Unit conversion cost= $251.32 per unit

So, Total manufacturing cost per unit= unit material cost + unit conversion cost

=$295.24 + 251.32

T.M.COST PER UNIT = $546.56

2) a) cost of finished goods inventory

Material conversion

Equivalent units-----------------------------------150 150

Cost per equivalent-------------------------------295.24 251.32

Cost of finished goods---------------------------44,286 37,689

Total cost of finished goods= material cost +conversion cost

= 44,286 + 37,689

T.C.FINISHED GOODS =$81,984

b) Cost of ending WIP inventory

Material conversion

Equivalent units-----------------------------------------60 39

Cost per equivalent unit------------------------------295.24 251.32

Cost of finished goods--------------------------------17,714.4 9,801.48

Total cost of ending wip inventory = material cost of ending inv + conversion cost of ending inv

= 17,714.4 + 9,801.48

T.C.ENDING WIP INVENTORY = 27,515.88

  Cost

Finished Goods $81,984.13

Ending Work-in-Process $27,515.87