Department A: assembles frame of snowmobile Department B: mounts chassis, drive

Question

Department A: assembles frame of snowmobile

Department B: mounts chassis, drive belt and drive system onto frame

Department C: mounts engine onto frame, then connects and adjusts drive system Department

D: installs electrical system and performs functionality test on unit Department

E: mounts body panels and completes finish work (then transfers units out to finished goods warehouse to later be shipped to retail dealers)

Let’s say you are the production supervisor of Department B and it’s currently the end of the day on October 31. You need to do a quick analysis of the production activity that recently occurred during the month of October in your department. Here’s some pertinent information about production in Department B for the month of October: Number of units transferred in (these came in from Department A): 250 Number of completed units transferred out (these went out to Department C): 200 Number of WIP units on Oct 1 (i.e., at the beginning of the month in our department): 50 Number of partially completed (WIP) units as of Oct 31 still sitting in our department: 100 As the production supervisor for Department B, you know from the above data that this department finished and transferred out 200 completed units. However, you’re also required to apply judgment and make an estimate regarding the percentage of completion, as of the end of October, for the partially completed units in your department. You walk through the production area and take a good look at all of the incomplete WIP units still sitting in your department (remember that there are 100 of these unfinished units in various stages of completion), and here are your estimates:

With respect to material costs: 80% complete With respect to conversion costs: 50% complete

Specifically with respect to conversion costs, how many equivalent units are in Department B’sending Work in Process (WIP) inventory for October? (Remember that WIP inventory represents just the unfinished or incomplete units still in our department)

Again with respect to conversion, what are the total equivalent units of production for Department B during October?

Explanation / Answer

It is a problem on process costing. Five departments A,B,C,D and E are involved. Data given in the problem is related with Department B. It receives completed units from A as inputs and after completing the work transfers them to department C.

At the begining of October, there was 50 semi-finished units in the stock of department B. Degree of completion of opening WIP are not available. Under this situation, it is not possible to apply first-in-first-out technique of valuation. You have to apply weighted average method, in which all completed units are assumed as introduced and finished in the current month.

From department A 250 units are transferred as input in department B. Thus 50+250=300 units are available in October for production. From this quantity, 200 units are fully completed and trasferred to next process C. Thus 100 units semi-finished stock is lying in B at the end of October. It is 80% completed for material and 50% complete for conversion cost.

At the time of valuation of semi-finisherd items, they are coverted ito equivalent units. It indicates number of fully completed units representing equivalent units. Here 100 semi-finished units are 50% complete for conversion cost. With this conversion cost, B can manufacture 100x50%=50 fully completed conversion cost items. Thus equivalent units of end WIP inventory is 50 units.

With the above figure, add 200 units completed during the month. It is 100% complete and so equivalent unit is also 200. Thus total equivalent units with respect to conversion cost in department B is 50+200=250 units.

Answer: Equivalent unit for conversion cost of end WIP inventory is 50 units.

            Total equivalent units of October related with conversion cost is 250 units.

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.