Gunnison Company had the following equivalent units schedule and cost information for its Sewing Department for the month of December:
Required:
- 1. Calculate the unit cost for December, using the FIFO method.
- 2. Calculate the cost of goods transferred out, calculate the cost of EWIP, and reconcile the costs assigned with the costs to account for.
- 3. What if you were asked for the unit cost from the month of November? Calculate November’s unit cost and explain why this might be of interest to management.
1.
Ascertain the unit cost for December using First-in-first-out (FIFO) method for company G.
Explanation of Solution
Cost per unit: Total unit cost is the cost incurred by the company to produce one unit of product. The unit cost is calculated by dividing the units produced with the total cost.
Compute unit cost using FIFO method:
Thus, the cost per equivalent unit for company G is $12 per equivalent unit.
2.
Determine the cost of EWIP, compute the cost of goods transferred out, and reconcile the cost assigned with the costs to account for.
Explanation of Solution
Ascertain the cost of EWIP (Ending Work-In Process):
Calculate the cost of goods transferred out:
Particulars | Amount ($) |
From BWIP | $ 45,000 |
To complete BWIP | |
$ 10,000 | |
Started and completed | |
$ 480,000 | |
Total cost of goods transferred out | $ 535,000 |
Table (1)
Determine the total cost assigned.
Reconcile the cost assigned with the costs to account for:
Particulars | Amount ($) |
Cost to account for: | |
BWIP | $ 45,000 |
Current (December) | $ 584,000 |
Total | $ 629,000 |
Table (2)
3.
Determine the unit cost for November and determine in what manner it might be of interest to management.
Explanation of Solution
There are 5,000 equivalent units of materials (100% complete) and 2,500
Therefore, November unit cost will be,
The managers can obtain the trends in cost and thereby they can implement better control over costs by recognizing last month’s unit cost. If costs are diminishing, it may disclose that continuous development effort is succeeding. If increasing, it may show obstacles that can be corrected.
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Chapter 6 Solutions
Cornerstones of Cost Management (Cornerstones Series)
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