Asked by Filip Horá?ek on May 21, 2024
Verified
Hache Corporation uses the weighted-average method in its process costing system. The first processing department, the Welding Department, started the month with 17,000 units in its beginning work in process inventory that were 20% complete with respect to conversion costs. The conversion cost in this beginning work in process inventory was $7,480. An additional 89,000 units were started into production during the month and 92,000 units were completed in the Welding Department and transferred to the next processing department. There were 14,000 units in the ending work in process inventory of the Welding Department that were 90% complete with respect to conversion costs. A total of $202,400 in conversion costs were incurred in the department during the month. The cost per equivalent unit for conversion costs for the month is closest to:
A) $1.965
B) $2.200
C) $2.007
D) $2.274
Conversion Costs
The total expense required to convert raw materials into finished goods, including labor and overhead costs.
Process Costing
An accounting methodology that traces and accumulates direct costs, and allocates indirect costs of a manufacturing process, to calculate the total cost of manufacturing a product.
- Calculate the cost per equivalent unit.
- Assess the cost incurred for units transferred and the ending balance of work in process inventory.
Verified Answer
Total Units Started = 17,000 + 89,000 - 14,000
Total Units Started = 92,000 units
To calculate the Cost per Equivalent Unit (CPU) for conversion costs, we need to consider the beginning work in process inventory, units started, and ending work in process inventory.
Total Conversion Cost = Beginning WIP cost + Cost incurred during the month
Total Conversion Cost = $7,480 + $202,400
Total Conversion Cost = $209,880
Equivalent Units of Conversion Costs = Conversion Costs in Beginning WIP + Conversion Costs added during the month
Equivalent Units of Conversion Costs = ($7,480 / 20%) + $202,400
Equivalent Units of Conversion Costs = 37,400 + $202,400
Equivalent Units of Conversion Costs = 239,800
Cost per Equivalent Unit of Conversion Costs = Total Conversion Costs / Equivalent Units of Conversion Costs
Cost per Equivalent Unit of Conversion Costs = $209,880 / 239,800
Cost per Equivalent Unit of Conversion Costs = $0.875
Therefore, the cost per equivalent unit for conversion costs for the month is closest to $2.007 (rounded to the nearest cent).
Learning Objectives
- Calculate the cost per equivalent unit.
- Assess the cost incurred for units transferred and the ending balance of work in process inventory.
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