Mgt402 - Solution

Solution:

Bell Computers, LTD.,

Cost of Production Report

For the Month of Jan

1. Quantity Schedule

Units of open work in process 10,000

Units put into the process 58,000

68,000

Units of closing work in process 8,000

Units completed and transferred 60,000

68,000



2. Cost Accumulated in the process

Material Cost (18,000+114,000) 132,000

Conversion Cost (8,800+61,600) 70,400

Total Cost 202,400

3. Equivalent unit Produced

Material Cost (60,000+8000*75%) 66,000

Conversion Cost (60,000+8000*50%) 64,000

4. Per Unit Cost

Material Cost (132,000/66,000) = 2

Conversion Cost (70,400/64,000) = 1.1

Total per Unit Cost 3.1

5. Cost Apportionment

Units completed and transferred

(60,000*3.1) 186,000

Closing work in process

Material Cost (6,000*2) 12,000

Conversion Cost (4000*1.1) 4,400 16,400

202,400



Required:

1. How many units were started and completed during January?

Answer:

Unit Started in Jan. = 68,000

Unit Completed in Jan. = 60,000

2. What were the equivalent units for January for material and conversion costs?

Answer:

Equivalent units for January for material costs = 66,000

Equivalent units for January for conversion costs = 64,000



3. What were the costs per equivalent unit for January?

Answer:

Material Cost (132,000/66,000) = 2

Conversion Cost (70,400/64,000) = 1.1

Total per Unit Cost 3.1



4. Verify the accountant’s ending work in process inventory figure (£16,400) given in the report.

Answer:

Closing work in process

Material Cost (6,000*2) 12,000

Conversion Cost (4000*1.1) 4,400 16,400

5. What criticism can be made of the unit costs that have been computed weighted –Average Method by the company and which method is superior computing unit cost under process costing based on your criticism?

Answer:

Comparison of Both methods is under as equivalent production and per unit costs.

Weighed Average Method FIFO Method

Equivalent production per unit costs Equivalent production per unit costs

Material Cost (60,000+8000*50%)

66,000 (132,000/66,000)

2 (1000+50,000+6000)

57,000 (114,000/57,000)

2

Conversion Cost (60,000+8000*75%)

64,000 (70,400/64,000)

1.1 (2000+50,000+4000)

56,000 (61,600/56,000)

1.1

Total 130,000 3.1 113,000 3.1

In comparison we see that the equivalent unit in both methods is different but per unit cost has same. FIFO method is complex than Weighted Average method, so Average method is superior because of less complexity and due to:

1. There are fewer chances to complete the unit which produced first it means first in first, because Authorities prefer to complete the open units and there may be delay in new units to put into the process.

2. Accountants will refer to Average method due to less time consuming and complexity.