Principles of Financial Accounting.
Principles of Financial Accounting.
22nd Edition
ISBN: 9780077632892
Author: John J. Wild
Publisher: McGraw Hill
Question
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Chapter 20, Problem 2BP

1. (a)

To determine

Calculate the equivalent units of production with respect to conversion.

1. (a)

Expert Solution
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Explanation of Solution

Equivalents units for production: The activity of a processing department in terms of fully completed units is known as equivalent units. It includes the completed units of direct materials and conversion cost of beginning work in process, units completed and transferred out, and ending work in process.

Conversion cost:  Cost of changing the materials into a finished product. It includes direct labour costs and factory overhead costs.

Compute equivalent units of production with respect to conversion.

Given, work in process inventory at the end of September is 8,000 units and are 25% complete with respect to conversion.

Equivalent units of production Conversion (EUP)
Units completed and transferred out80,000
Ending work in process (8,000 units×25%) 2,000
Equivalent units of production82,000

Table (1)

Conclusion

Therefore, the equivalent units of production with respect to conversion are 82,000 EUP..

1. (b)

To determine

Calculate the equivalent units of production with respect to direct materials.

1. (b)

Expert Solution
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Explanation of Solution

Equivalents units for production: The activity of a processing department in terms of fully completed units is known as equivalent units. It includes the completed units of direct materials and conversion cost of beginning work in process, units completed and transferred out, and ending work in process.

Direct materials cost: Manufacturing products arise with raw materials that are altered into finished products. The cost of any material that is an important part of the finished product is categorized as a direct materials cost.

Compute equivalent units of production with respect to direct materials.

Given, work in process inventory at the end of September is 8,000 units and are 100% complete with respect to conversion.

Equivalent units of productionDirect Materials (EUP)
Units completed and transferred out80,000
Ending work in process (8,000 units×100%)8,000
Equivalent units of production88,000

Table (2)

Conclusion

Therefore, the equivalent units of production with respect to direct materials are 88,000 EUP.

2.

To determine

Compute the conversion cost and the direct materials cost per equivalent unit.

2.

Expert Solution
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Explanation of Solution

Cost per equivalents units of production: Cost per equivalents units of production refers to the costs incurred for each equivalent unit produced. The cost per equivalents units for production (EUP) is computed as follows:

Costs per EUP=Costs incurred for the current periodEquivalent unit of production

Compute the conversion cost and the direct materials cost per equivalent unit.

Cost per EUPDirect Materials Conversion
Cost of beginning work in process$58,000$86,400
Cost incurred during this period$712,000$1,980,000
 Total costs (A)$770,000$2,066,400
Equivalent units of production (B)88,000 82,000
Cost per EUP$8.75 per EUP$25.20 per EUP

Table (3)

Note: Refer table (1) and table (2) for equivalents units of production.

Conclusion

Therefore, the conversion cost and the direct materials cost per equivalent unit are $8.75 per EUP and $25.20 per EUP respectively.

3. (a)

To determine

Calculate conversion cost and direct materials costs assigned to units completed and transferred out.

3. (a)

Expert Solution
Check Mark

Explanation of Solution

Direct materials cost: Manufacturing products arise with raw materials that are altered into finished products. The cost of any material that is an important part of the finished product is categorized as a direct materials cost.

Conversion cost:  Cost of changing the materials into a finished product. It includes direct labour costs and factory overhead costs.

Calculate conversion cost and direct materials costs assigned to units completed and transferred out.

Cost assignment– Weighted averageDirect materials Conversion
Costs transferred out   
Direct materials (80,000 EUP×$8.75 per EUP) $700,000 
Conversion (80,000 EUP×$25.20 per EUP)$2,016,000 
Total costs transferred out$2,716,000

Table (4)

Conclusion

Thus, the conversion cost and direct materials costs assigned to units completed and transferred out are $700,000 and $2,016,000 respectively.

3. (b)

To determine

Calculate conversion cost and direct materials costs assigned to ending inventory.

3. (b)

Expert Solution
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Explanation of Solution

Direct materials cost: Manufacturing products arise with raw materials that are altered into finished products. The cost of any material that is an important part of the finished product is categorized as a direct materials cost.

Conversion cost:  Cost of changing the materials into a finished product. It includes direct labour costs and factory overhead costs.

Calculate conversion cost and direct materials costs assigned to ending inventory.

Cost assignment– Weighted averageDirect materials conversion
Costs of ending work in process inventory   
Direct materials (8,000 EUP×$8.75 per EUP) $70,000 
Conversion (2,000 EUP×$25.20 per EUP)$50,400 
Total cost of ending work in process inventory$120,400

Table (5)

Conclusion

Thus, the conversion cost and direct materials costs assigned to units completed and transferred out are $70,000 and $50,400 respectively.

4.

To determine

Write a one page memo to the plant manager of Company A explaining the effects of the errors in percentage of completion in the financial statements.

4.

Expert Solution
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Explanation of Solution

Memo

From

   XYZ

To

   ABC,

   Plant manager,

   Company A.

January 29, 2019

Subject: Percentage of completion error analysis.

The number of equivalent units in ending inventory with respect to conversion would be understated and the total equivalent units produced for the period would also be understated if the units in ending inventory are 75% complete instead of 25% with respect to conversion. Though, the conversion cost in ending work in process is higher due to the larger percentage of equivalent units remaining in the ending inventory.

Such errors would overstate the cost of goods sold and understate the net income on the income statement for the month of September. Subsequently, the work in process inventory (total assets) and the retained earnings (equity) would also be understated. Please revert back for further clarifications.

Regards,

XYZ

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Chapter 20 Solutions

Principles of Financial Accounting.

Ch. 20 - Prob. 6DQCh. 20 - Prob. 7DQCh. 20 - Prob. 8DQCh. 20 - Prob. 9DQCh. 20 - Prob. 10DQCh. 20 - Prob. 11DQCh. 20 - Prob. 12DQCh. 20 - Prob. 13DQCh. 20 - Prob. 14DQCh. 20 - Prob. 15DQCh. 20 - Prob. 16DQCh. 20 - Prob. 1QSCh. 20 - Prob. 2QSCh. 20 - Prob. 3QSCh. 20 - Prob. 4QSCh. 20 - Prob. 5QSCh. 20 - Prob. 6QSCh. 20 - Prob. 7QSCh. 20 - Prob. 8QSCh. 20 - Prob. 9QSCh. 20 - Prob. 10QSCh. 20 - Prob. 11QSCh. 20 - Prob. 12QSCh. 20 - Prob. 13QSCh. 20 - Prob. 14QSCh. 20 - QS 20-10 The follow inn informal ion applies to QS...Ch. 20 - Prob. 16QSCh. 20 - Prob. 17QSCh. 20 - Prob. 18QSCh. 20 - Prob. 19QSCh. 20 - Prob. 20QSCh. 20 - Prob. 21QSCh. 20 - Prob. 22QSCh. 20 - Prob. 23QSCh. 20 - Prob. 24QSCh. 20 - Prob. 25QSCh. 20 - Prob. 26QSCh. 20 - Prob. 27QSCh. 20 - Prob. 1ECh. 20 - Prob. 2ECh. 20 - Prob. 3ECh. 20 - Prob. 4ECh. 20 - Prob. 5ECh. 20 - Prob. 6ECh. 20 - Exercise 20-7A Refer to the information in...Ch. 20 - Prob. 8ECh. 20 - Prob. 9ECh. 20 - Prob. 10ECh. 20 - Prob. 11ECh. 20 - Prob. 12ECh. 20 - Exercise 20-13A. Refer to the information in...Ch. 20 - Prob. 14ECh. 20 - Prob. 15ECh. 20 - Prob. 16ECh. 20 - Prob. 17ECh. 20 - Prob. 18ECh. 20 - Prob. 19ECh. 20 - Prob. 20ECh. 20 - Prob. 21ECh. 20 - Prob. 22ECh. 20 - Prob. 23ECh. 20 - Prob. 24ECh. 20 - Prob. 25ECh. 20 - Prob. 26ECh. 20 - Prob. 27ECh. 20 - Prob. 1APCh. 20 - Prob. 2APCh. 20 - Prob. 3APCh. 20 - Prob. 4APCh. 20 - Prob. 5APCh. 20 - Prob. 6APCh. 20 - Prob. 7APCh. 20 - Prob. 1BPCh. 20 - Prob. 2BPCh. 20 - Prob. 4BPCh. 20 - Prob. 5BPCh. 20 - Prob. 6BPCh. 20 - Prob. 7BPCh. 20 - Prob. 20SPCh. 20 - Prob. 20CPCh. 20 - BTN 20-1 Apple reports in notes to its financial...Ch. 20 - BTN 20-2 Manufacturers such as Apple and Google...Ch. 20 - Prob. 3BTNCh. 20 - Prob. 4BTNCh. 20 - BTN 20-7 This chapter’s opener featured Nick...Ch. 20 - Prob. 9BTN
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