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Graham Petroleum produces oil. On May 1, it had no work-in-process inventory. It

ID: 2340736 • Letter: G

Question

Graham Petroleum produces oil. On May 1, it had no work-in-process inventory. It started production of 198 million barrels of oil in May and shipped 173 million barrels in the pipeline. The costs of the resources used by Graham in May consist of the following: Materials $ 2,420 million $ 3,370 million Conversion costs (labor and overhead) Required: The production supervisor estimates that the ending work in process is 80 percent complete on May 31. Compute the cost of oil shipped in the pipeline and the amount in work-in-process ending inventory as of May 31. (Do not round intermediate calculations. Enter your answers in millions. For example, enter"1" instead of "1,000,000".) Answer is complete but not entirely correct. Cost of oil shipped in the pipeline Work-in-process ending inventory $5,135million $ 655million

Explanation / Answer

Cost of oil shipped in the pipeline

$ 5,190

Million

Work-in-process ending inventory

$   600

Million

Explanation:

Shipped

Work-in-process

Total

May 31 Production in million barrels

173

25

198

% completed

100 %

80 %

Equivalent units in million barrels

173

20

193

Material cost

$ 2,420 Million

Labor and overhead cost

$ 3,370 Million

Total cost

$ 5,790 Million

÷ Total equivalent barrels produced

        193 Million

Cost per equivalent barrel

      $ 30

Cost of oil shipped = equivalent units shipped x cost per equivalent units

                            = 173 Million x $ 30 = $ 5,190 Million

Cost of oil in ending work-in-process = work-in-process equivalent units x cost per equivalent

                                                     = 20 Million x $ 30 = $ 600 Million

Cost of oil shipped in the pipeline

$ 5,190

Million

Work-in-process ending inventory

$   600

Million