FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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**Understanding Conversion Costs in Process Inventory**

In this section, we will analyze work in process inventory and compute the conversion cost per unit using the weighted-average method.

**Scenario:**

- There are 2,600 units in the ending work in process inventory.
- These units are 100% complete concerning materials but only 30% complete regarding conversion costs.
- The total cost of the ending work in process inventory is $8,060.
- The per-unit material cost is $1.

**Objective:**

Calculate the conversion cost per unit using the weighted-average method.

**Solution:**

- **Step 1:** Determine the total material cost.
  - Total material cost = Number of units × Per-unit material cost
  - Total material cost = 2,600 units × $1 = $2,600

- **Step 2:** Calculate the conversion cost.
  - Total conversion cost = Total cost - Total material cost
  - Total conversion cost = $8,060 - $2,600 = $5,460

- **Step 3:** Calculate the equivalent units for conversion costs.
  - Equivalent units = Number of units × Percentage completion for conversion costs
  - Equivalent units = 2,600 units × 30% = 780 equivalent units

- **Step 4:** Calculate the conversion cost per unit.
  - Conversion cost per unit = Total conversion cost ÷ Equivalent units
  - Conversion cost per unit = $5,460 ÷ 780 = $7

**Conclusion:**

The conversion cost per unit, using the weighted-average method, is $7.

This example demonstrates the concept of calculating conversion costs in a process inventory and highlights the importance of understanding production completion percentages.
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Transcribed Image Text:**Understanding Conversion Costs in Process Inventory** In this section, we will analyze work in process inventory and compute the conversion cost per unit using the weighted-average method. **Scenario:** - There are 2,600 units in the ending work in process inventory. - These units are 100% complete concerning materials but only 30% complete regarding conversion costs. - The total cost of the ending work in process inventory is $8,060. - The per-unit material cost is $1. **Objective:** Calculate the conversion cost per unit using the weighted-average method. **Solution:** - **Step 1:** Determine the total material cost. - Total material cost = Number of units × Per-unit material cost - Total material cost = 2,600 units × $1 = $2,600 - **Step 2:** Calculate the conversion cost. - Total conversion cost = Total cost - Total material cost - Total conversion cost = $8,060 - $2,600 = $5,460 - **Step 3:** Calculate the equivalent units for conversion costs. - Equivalent units = Number of units × Percentage completion for conversion costs - Equivalent units = 2,600 units × 30% = 780 equivalent units - **Step 4:** Calculate the conversion cost per unit. - Conversion cost per unit = Total conversion cost ÷ Equivalent units - Conversion cost per unit = $5,460 ÷ 780 = $7 **Conclusion:** The conversion cost per unit, using the weighted-average method, is $7. This example demonstrates the concept of calculating conversion costs in a process inventory and highlights the importance of understanding production completion percentages.
Expert Solution
Check Mark
Step 1

Process costing is used where units are produced after multiple processes. the ending inventory work in process of one process becomes the beginning work in process of another.

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