Case 4-20 (continued)
The percentage of completion, X, affects the cost of goods sold by its
effect on the unit cost, which can be determined as follows:
Unit cost = $187.50 +
$20,807,500
200,000 + 10,000X
required percentage completion, X, to obtain the $200,000 reduction in
cost of goods sold can be found by solving the following equation:
$20,807,500
$187.50 + = $289.00
200,000 + 10,000X
$20,807,500 = $289.00 – $187.50
200,000 + 10,000X
$20,807,500 = $101.50
200,000 + 10,000X
200,000 + 10,000X 1
=
$20,807,500 $101.50
10,000X = 5,000
5,000
Case 4-20 (continued)
3. (continued)
Computation of the Cost of Goods Sold:
Transferred In
Conversion
Units completed and sold …………………..
200,000
200,000
Ending work in process:
Transferred in:
10,000 units x 100% complete ………..
10,000
Conversion:
10,000 units x 50% complete …………
5,000
Equivalent units of production …………….
210,000
205,000
Transferred In
Conversion
Cost of beginning work in process ……….
$ 0
$ 0
Cost added during the period ……………..
39,375,000
20,807,500
Total cost (a) ………………………………….
$39,375,000
$20,807,500
Equivalent units of production (b) ……….
210,000
205,000
Cost per equivalent unit, (a) ÷ (b) ………
$187.50
$101.50
Cost of goods sold = 200,000 units × ($187.50 per unit + $101.50 per
unit) = $57,800,000
4. Mary is in a very difficult position. Collaborating with Gary Stevens in
subverting the integrity of the accounting system is unethical by almost
any standard. To put the situation in its starkest light, Stevens is
suggesting that the production managers lie in order to get their bonus.
Case 4-20 (continued)
From a broader perspective, if the net profit figures reported by the
managers in a division cannot be trusted, then the company would be
foolish to base bonuses on the net profit figures. A bonus system based
Appendix 4A
FIFO Method
Exercise 4A-1 (10 minutes)
FIFO Method
Materials
Conversion
To complete beginning work in process:
Materials: 30,000 units × (100% − 65%) ………
10,500
Conversion: 30,000 units × (100% − 30%) ……
21,000
Units started and completed during October* ……
160,000
160,000
Ending work in process:
Materials: 15,000 units × 80% complete ……….
12,000
Conversion: 15,000 units × 40% complete …….
6,000
Equivalent units of production ……………………….
182,500
187,000
*
175,000 units started – 15,000 units in ending work in process
= 160,000 units started and completed
Exercise 4A-2 (10 minutes)
FIFO method
Materials
Labor
Overhead
Cost added during May (a) …………….
$193,320
$62,000
$310,000
Equivalent units of production (b) …..
27,000
25,000
25,000
Cost per equivalent unit (a) ÷ (b)……
$7.16
$2.48
$12.40
Cost per equivalent unit for materials
$ 7.16
Cost per equivalent unit for labor ……
2.48
Cost per equivalent unit for overhead
12.40
Total cost per equivalent unit …………
$22.04
Exercise 4A-3 (15 minutes)
Materials
Conversion
Total
Ending work in process inventory:
Equivalent units of production ……………
400
200
Cost per equivalent unit ……………………
$2.32
$0.75
Cost of ending work in process inventory
$928
$150
$1,078
Units transferred out:
Cost in beginning inventory ……………….
$3,200
$650
$3,850
Cost to complete the units in beginning inventory:
Equivalent units of production required
to complete the beginning inventory
600
1,200
Cost per equivalent unit ………………….
$2.32
$0.75
Cost to complete the units in beginning
inventory …………………………………
$1,392
$900
$2,292
Cost of units started and completed this period:
Units started and completed this period
(26,000 units completed and
transferred to the next department
– 2,000 units in beginning work in
process inventory) ……………………..
24,000
24,000
Cost per equivalent unit ………………….
$2.32
$0.75
Cost of units started and completed
this period …………………………..…..
$55,680
$18,000
$73,680
Total cost of units transferred out ……….
$79,822
Exercise 4A-4 (10 minutes)
Mixing Department
Cost Reconciliation
Costs to be accounted for:
Cost of beginning work in process inventory .
$ 1,460
Costs added to production during the period .
36,540
Total cost to be accounted for ………………….
$38,000
Costs accounted for as follows:
Cost of ending work in process inventory ……
$ 3,120
Cost of units completed and transferred out ..
34,880
*
Total cost accounted for ………………………….
$38,000
*The cost of units completed and transferred out can be deduced as
follows:
Cost of beginning Costs added Cost of ending Cost of units
work in process + to production =work in process + completed and
inventory during the period inventory transferred out
Cost of
$1,460 + $36,540 = $3,120 +
units
completed and
transferred out
Cost of units
completed and = $1,460 + $36,540 – $3,120
transferred out
Cost of units
completed and = $34,880
transferred out
Exercise 4A-5 (10 minutes)
Materials
Conversion
To complete beginning work in process:
Materials: 500 units x (100% – 80%) ……………..
100
Conversion: 500 units x (100% – 40%) …………..
300
Units started and completed during the period
(153,600 units started – 400 units in ending
inventory) …………………………………………………
153,200
153,200
Ending work in process
Materials: 400 units x 75% complete ………………
300
Conversion: 400 units x 20% complete ……………
80
Equivalent units of production …………………………..
153,600
153,580
Exercise 4A-6 (15 minutes)
FIFO Method
Materials
Labor &
Overhead
To complete the beginning work in process:
Materials: 20,000 pounds × (100% − 100%) ……..
0
Labor and overhead:
20,000 pounds × (100% − 30%) ………………….
14,000
Pounds started and completed during July* ………….
355,000
355,000
Ending work in process:
Materials: 25,000 pounds × 100% complete ………
25,000
Labor and overhead:
25,000 pounds × 60% complete ……………………
15,000
Equivalent units of production …………………………..
380,000
384,000
*
380,000 pounds started – 25,000 pounds in ending work in process
inventory = 355,000 pounds started and completed this month
Exercise 4A-7 (20 minutes)
FIFO Method
1.
Materials
Labor
Overhead
To complete beginning work in process:
Materials: 5,000 units ×
(100% − 80%) …………………………
1,000
Labor: 5,000 units ×
(100% − 60%) …………………………
2,000
Overhead: 5,000 units ×
(100% − 60%) …………………………
2,000
Units started and completed during the
period* ………………………………………
37,000
37,000
37,000
Ending work in process:
Materials: 8,000 units × 75% ………….
6,000
Labor: 8,000 units × 50% ……………..
4,000
Overhead: 8,000 units × 50% ………..
4,000
Equivalent units of production …………..
44,000
43,000
43,000
*
45,000 units started into production – 8,000 units in ending work
in process = 37,000 started and completed
2.
Materials
Labor
Overhead
Cost added during the period (a) ……….
$52,800
$21,500
$32,250
Equivalent units of production (b) ………
44,000
43,000
43,000
Cost per equivalent unit (a) ÷ (b) ………
$1.20
$0.50
$0.75