I am trying to figure out how to calculate work in process, April 1 conversion (problem 12 on page 13) by looking at the example on pages 1-2 of the attachment. This is 3. Computation of unit costs. Can you please give me a little help?

Thank you!

1 Process Costing: The First-In, First-Out Method FIFO Method of Process Costing In this supplement to Managerial Accounting we will illustrate the first-in, first-out (FIFO) method of process costing using the data for MVP Sports Equipment Company, which was given in Exhibit 4-4 in Chapter 4 of the text. Unlike the weighted-average method, the FIFO method does not commingle costs from two or more accounting periods. As the illustration will show, the costs from each period are treated separately. The physical flow of units is unaffected by the process-costing method used. Therefore, step 1 is identical under the weighted-average and FIFO methods. See Exhibit 4-5 in the text. Step 1: Analysis of Physical Flow of Units Step 2: Calculation of Equivalent Units A table of equivalent units, under FIFO process costing, is presented in Exhibit 4-A.* It is identical to the table prepared under the weighted-average method except for one important difference. Under the FIFO method, the equivalent units of direct material and conversion represented by the March 1 work-in-process inventory are subtracted in the last row of the table. By subtracting the equivalent units in the beginning work in process, we are able to determine the new equivalent units of activity accomplished in March only. The 20,000 physical units in the March 1 work in process have all of their materials, so they represent 20,000 equivalent units of direct material. However, these units are only 10 percent complete with respect to conversion, so they represent only 2,000 equivalent units of conversion activity (20,000 physical units \u0002 10% complete). Step 3: Computation of Unit Costs The calculation of unit costs is presented in Exhibit 4-B. The cost per equivalent unit for direct material is computed by dividing the directmaterial cost incurred during March only by the new equivalent units of direct material added during March only. An analogous procedure is used for conversion costs. Note that the costs for direct material and conversion assigned to the beginning inventory are not added to the costs incurred during March for the purpose of calculating unit costs. To complete the process-costing procedure, we determine the total cost to be transferred out of the Cutting Department's Work-inProcess Inventory account and into the Stitching Department's Work-in-Process Step 4: Analysis of Total Costs Physical Units Percentage of Completion with Respect to Conversion Exhibit 4-A Equivalent Units Direct Material Conversion 40,000 10,000 40,000 5,000 Total equivalent units . . . . . . . . . . . . . . . . . . . . . . . . . Less: equivalent units represented in March 1 work in process . . . . . . . . . . . . . . . . . . . 50,000 45,000 20,000 2,000 New equivalent units accomplished in March only . . . . . 30,000 43,000 Work in process, March 1 . . . . . . . . . . . . . . . . . . . . . . Units started during March . . . . . . . . . . . . . . . . . . . . . 20,000 30,000 Total units to account for . . . . . . . . . . . . . . . . . . . . . . . 50,000 Units completed and transferred out during March . . . . Work in process, March 31 . . . . . . . . . . . . . . . . . . . . . 40,000 10,000 Total units accounted for . . . . . . . . . . . . . . . . . . . . . . . 50,000 10% 100% 50% *Numerically designated exhibits are in Chapter 4 of the text (e.g., Exhibit 4-4). Alphanumerically designated exhibits are in this supplement (e.g., Exhibit 4-A). Step 2: Calculation of Equivalent UnitsCutting Department (FIFO method) 2 Process Costing: The First-In, First-Out Method Direct Material Exhibit 4-B Step 3: Computation of Unit CostsCutting Department (FIFO method) Work in process, March 1 (from Exhibit 4-4) . . . . . Costs incurred during March (from Exhibit 4-4) . . . These costs were incurred during February. They are not included in the unit-cost calculation for March. $90,000 Conversion $ 57,200 $193,500 Total costs to account for . . . . . . . . . . . . . . . . . . . Equivalent units for March only (from step 2, Exhibit 4-A) . . . . . . . . . . . . . . . . . Costs per equivalent unit . . . . . . . . . . . . . . . . . . . . Total 283,500 $340,700 30,000 $ 3.00 $ 43,000 4.50 $90,000 $193,500 30,000 43,000 $ 7.50 $3.00 + $4.50 Inventory account. Exhibit 4-C presents this analysis of total costs. The calculations from step 3 are repeated in Exhibit 4-C for convenient reference. Calculating the cost of goods completed and transferred out is more complicated under the FIFO method than under the weighted-average method. FIFO (first-in, firstout) implies that the units in the March 1 work-in-process inventory are completed and transferred out first. Under the FIFO method, the costs assigned to the March 1 work in process are not mingled with those incurred during March. Instead, these costs are kept separate and transferred out first. The units in the March 1 work in process need to be completed during March. Since 90 percent of the conversion remains to be done, 18,000 equivalent units of conversion is applied during March to the March 1 work in process. These equivalent units of conversion cost $4.50 per unit since they are accomplished during March. The remainder of the 40,000 units completed and transferred out during March had to be started and completed during March. Thus, the remaining 20,000 units (40,000 units completed minus 20,000 units in the beginning work in process) cost $7.50 each during March. The calculations in Exhibit 4-C are used as the basis for the following journal entry to transfer the cost of goods completed and transferred out to the Stitching Department. Work-in-Process Inventory: Stitching Department . . . . . . . . . . . . . . . . . . . . . . . . . . Work-in-Process Inventory: Cutting Department . . . . . . . . . . . . . . . . . . . . . . . 288,200 288,200 On March 31, the Cutting Department's Work-in-Process Inventory account appears as follows: March 1 balance March cost of direct material, direct labor, and applied manufacturing overhead March 31 balance Work-in-Process Inventory: Cutting Department 57,200 283,500 288,200 Cost of goods completed and transferred out of Cutting Department 52,500 The March 31 balance in the account agrees with that calculated in Exhibit 4-C. Note that the March 31 balance in the Cutting Department's Work-in-Process Inventory account differs under the FIFO and weighted-average methods of process costing. 3 Process Costing: The First-In, First-Out Method Direct Material Conversion Total Work in process, March 1 (from Exhibit 4-4) . . . . . . These costs were incurred during February. They are not included in the unit-cost calculation for March. Costs incurred during March (from Exhibit 4-4) . . . . $90,000 $193,500 $ 57,200 Total costs to account for . . . . . . . . . . . . . . . . . . . . $340,700 Equivalent units for March only (from step 2, Exhibit 4-A) . . . . . . . . . . . . . . . . . . 30,000 Costs per equivalent unit . . . . . . . . . . . . . . . . . . . . $ 3.00 $ 283,500 43,000 4.50 $90,000 $193,500 30,000 43,000 $ $3.00 + $4.50 Cost of goods completed and transferred out of the Cutting Department during March: Cost of March 1 work-in-process inventory, which is transferred out first . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost incurred to finish the March 1 work-in-process inventory: Number Percentage of Cost per equivalent of units \u0002 conversion remaining \u0002 unit of conversion ( ) ( ( ) ( ) ( 7.50 ) ... $ 57,200 20,000 \u0002 .90 \u0002 $4.50 . . . Cost incurred to produce units that were both started and completed during March: Number Total cost per of units \u0002 equivalent unit . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000* \u0002 $7.50 . . . . . . . . 150,000 Total cost of goods completed and transferred out . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $288,200 Cost remaining in March 31 work-in-process inventory in the Cutting Department: Direct material: Number of equivalent Direct-material cost units of direct material \u0002 per equivalent unit . . . . . . . . . . . . 10,000 \u0002 $3.00 . . . . . . . . . $ 30,000 ( ) ) ( Conversion: Number of equivalent Conversion cost per \u0002 units of conversion equivalent unit ( ) ( ) ) ............. 81,000 5,000 \u0002 $4.50 . . . . . . . . . . 22,500 Total cost of March 31 work-in-process inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 52,500 *Units started and completed during March: 40,000 units completed and transferred out minus 20,000 units in the March 1 work-inprocess inventory. Check: Cost of goods completed and transferred out . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $288,200 Cost of March 31 work-in-process inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52,500 Total costs accounted for . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $340,700 Departmental Production Report The tables presented in Exhibits 4-A and 4-C can now be combined to form a production report for the Cutting Department. This report, which is displayed in Exhibit 4-D, provides a convenient summary of the FIFO process-costing method. Comparison of Weighted-Average and FIFO Methods The graph presented in Exhibit 4-E highlights the differences between the weightedaverage and FIFO methods of process costing. The graph is based on the same continuing illustration; the basic data are presented in Exhibit 4-4 of the text. The graph Exhibit 4-C Step 4: Analysis of Total CostsCutting Department (FIFO method) 4 Process Costing: The First-In, First-Out Method Exhibit 4-D Production ReportCutting Department (FIFO method) Physical Units Work in process, March 1 . . . . . . . . . . . . . . . . . . . . . . Units started during March . . . . . . . . . . . . . . . . . . . . . 20,000 30,000 Total units to account for . . . . . . . . . . . . . . . . . . . . . . . 50,000 Units completed and transferred out during March . . . . Work in process, March 31 . . . . . . . . . . . . . . . . . . . . . 40,000 10,000 Total units accounted for . . . . . . . . . . . . . . . . . . . . . . . 50,000 Percentage of Completion with Respect to Conversion Direct Material Conversion 40,000 10,000 40,000 5,000 50,000 45,000 20,000 2,000 30,000 43,000 10% 100% 50% Total equivalent units . . . . . . . . . . . . . . . . . . . . . . . . . Less: equivalent units represented in March 1 work in process . . . . . . . . . . . . . . . . . . . New equivalent units accomplished in March only . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Direct Material Equivalent Units Conversion Total Work in process, March 1 (from Exhibit 4-4) . . . . . . . . . . . . These costs were incurred during February. They are not included in the unit-cost calculation for March. Costs incurred during March (from Exhibit 4-4) . . . . . . . . . . $90,000 $193,500 $ 57,200 Total costs to account for . . . . . . . . . . . . . . . . . . . . . . . . . . $340,700 Equivalent units for March only (from step 2, Exhibit 4-A) . . . 30,000 Costs per equivalent unit . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3.00 43,000 $ 4.50 $90,000 $193,500 30,000 43,000 283,500 $ 7.50 $3.00 + $4.50 focuses on conversion activity, but an analogous graph could be prepared for direct material. Groups of physical units are graphed on the horizontal axis, and the percentage of conversion activity accomplished during March is graphed on the vertical axis. Area I represents the equivalent units of conversion accomplished during February on the March 1 work-in-process inventory. Area II represents the equivalent units of conversion required during March to complete the conversion of the beginning work-in-process inventory. Area III represents the equivalent units of conversion activity accomplished during March on the units that were both started and completed during March. Area IV represents the equivalent units of conversion activity accomplished during March on the March 31 work-in-process inventory. The key difference between the weighted-average and FIFO methods lies in the treatment of area I. Under the weighted-average method, the conversion costs associated with areas I, II, III, and IV are divided by the total equivalent units of conversion activity represented by areas I, II, III, and IV. The resulting conversion cost per equivalent unit is a weighted average of some of the conversion costs incurred in February (area I) and the conversion costs incurred during March (areas II, III, and IV). In contrast, under the FIFO method, the total conversion costs associated only with areas II, III, and IV are divided by the equivalent units of conversion activity represented by areas II, III, and IV. The resulting conversion cost per equivalent unit is a 5 Process Costing: The First-In, First-Out Method Exhibit 4-D Cost of goods completed and transferred out of the Cutting Department during March: Cost of March 1 work-in-process inventory, which is transferred out first . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 57,200 Cost incurred to finish the March 1 work-in-process inventory: Number Percentage of Cost per equivalent of units \u0002 conversion remaining \u0002 unit of conversion . . 20,000 \u0002 .90 \u0002 $4.50 . . . 81,000 Cost incurred to produce units that were both started and completed during March: Number Total cost per of units \u0002 equivalent unit . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000* \u0002 $7.50 . . . . . . . . 150,000 ( ) ( ( ) ( ) ( ) ) Total cost of goods completed and transferred out . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $288,200 Cost remaining in March 31 work-in-process inventory in the Cutting Department: Direct material: Number of equivalent Direct-material cost units of direct material \u0002 per equivalent unit ( ) ( Conversion: Number of equivalent Conversion cost per \u0002 units of conversion equivalent unit ( ) ( ) . . . . . . . . . . . . 10,000 \u0002 $3.00 . . . . . . . . . $ 30,000 ) ............. 5,000 \u0002 $4.50 . . . . . . . . . . 22,500 Total cost of March 31 work-in-process inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 52,500 *Units started and completed during March: 40,000 units completed and transferred out minus 20,000 units in the March 1 work-in-process inventory. Check: Cost of goods completed and transferred out . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $288,200 Cost of March 31 work-in-process inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52,500 Total costs accounted for . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $340,700 pure March unit cost, because areas II, III, and IV represent conversion costs and activity of March only. Evaluation of Weighted-Average and FIFO The weighted-average method of process costing is more widely used than the FIFO method, probably because it is somewhat simpler. Most product costing systems were designed before the wide use of computers, when the complexity of the system was an important consideration. Nowadays, most product costing systems are computerized; operating a process costing system is equally simple when using either the weighted-average method or the FIFO method. Behavioral Implications For purposes of cost control and performance evaluation, FIFO process costing is superior to the weighted-average method. To provide incentives for departmental managers to control costs, it is important to evaluate their performance on the basis of current-period costs only. When current-period and prior-period costs are averaged, a departmental manager's current performance is less clear. Moreover, performance evaluation based partially on costs incurred in prior periods is less timely. Behavioral scientists generally agree that for performance evaluation to be most effective, it should be done on a timely basis. The difference between weighted-average and FIFO process costing becomes much less significant when the firm uses the just-intime approach to inventory and production management. Under the JIT philosophy, all inventories are kept to an absolute minimum, including work-in-process inventories. The difference that arises between weighted-average and FIFO process costing calculations is due to the different treatment of each period's beginning work-in-process Just-in-Time (JIT) Inventory Methods (concluded) 6 Process Costing: The First-In, First-Out Method 90% of conversion yet to be completed during March 10% of conversion complete on March 1 20,000 physical units in the March 1 work-in-process inventory 20,000 physical units started and completed during March 10,000 physical units in the March 31 work-in-process inventory Comparison of WeightedAverage and FIFO Methods Exhibit 4-E I. 2,000 equivalent units (20,000 \u0002 10%) II. 18,000 equivalent units (20,000 \u0002 90%) IV. 5,000 equivalent units (10,000 \u0002 50%) III. 20,000 equivalent units (20,000 \u0002 100%) V. 5,000 equivalent units (10,000 \u0002 50%) 50% of conversion completed during March 50% of conversion to be completed in a future period Weighted-Average Method: Total costs for conversion activity in areas I, II, III, IV Conversion cost per equivalent unit (weighted-average)= Total equivalent units of conversion activity in areas I, II, III, IV FIFO Method: Conversion cost per equivalent unit (March only) = Total costs for conversion activity in areas II, III, IV Total equivalent units of conversion activity in areas II, III, IV inventory under the two methods. (To see this most clearly, you may wish to review Exhibit 4-C.) Since work-in-process inventories are very small or nonexistent under JIT, there will be little or no difference in the process costing calculations under the weighted-average and FIFO methods. Sequential Production Departments Sequential Production Departments In manufacturing operations with sequential production departments, the costs assigned to the units transferred out of one department remain assigned to those units as they enter the next department. In our illustration, the partially completed baseball gloves transferred out of the Cutting Department go next to the Stitching Department. There the cut-out pieces are stitched together. Since the cost of the thread used in the stitching is very small, it is treated as an indirect-material cost and included in manufacturing overhead. At the end of the process in the Stitching Department, rawhide lacing is woven through the fingers and along some edges of each baseball glove. The rawhide lacing is treated as a direct material. The cost of goods completed and transferred out of the Cutting Department is transferred as shown in the following display. 7 Process Costing: The First-In, First-Out Method Work-in-Process Inventory: Cutting Department Direct material Cost of goods completed and transferred out Conversion: Direct labor Manufacturing overhead Work-in-Process Inventory: Stitching Department Transferredin costs Direct material Conversion: Direct labor Manufacturing overhead As the T-accounts show, the Cutting Department has two cost elements: direct-material and conversion costs. However, the Stitching Department has three cost elements: direct-material, conversion, and transferred-in costs. Transferred-in costs are the costs assigned to the units transferred from the Cutting Department to the Stitching Department. Transferred-in costs are conceptually similar to direct-material costs. The only difference is that direct-material costs relate to raw materials, whereas transferredin costs relate to partially completed products. Exhibit 4-F presents the basic data for our illustration of process costing in the Stitching Department. The March 1 work-in-process inventory in the department consists of 10,000 units that received some work in the Stitching Department during February but were not completed. The $61,000 of transferred-in costs in the March 1 work-in-process inventory are costs that were transferred into the Stitching Department's Work-in-Process Inventory account during February. Note that any partially completed baseball glove in the Stitching Department must have received all of its Exhibit 4-F Work in process, March 110,000 units: Transferred-in: 100% complete, cost of . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Direct material: none . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conversion: 20% complete, cost of . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance in work in process, March 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 61,000* -0- 7,600* $ 68,600* Units transferred in from Cutting Department during March . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Units completed during March and transferred out to finished-goods inventory . . . . . . . . . . . . . . . . Work in process, March 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transferred in: 100% complete Direct material: none Conversion: 90% complete Costs incurred during March: Transferred in from Cutting Department (assumes that the FIFO method was used for the Cutting Department) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000 units 30,000 units 20,000 units Direct material . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,500 Conversion costs: Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Applied manufacturing overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $115,000 115,000 Total conversion costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *These costs were incurred during the prior month, February. Direct\u0002 = 100% \u0002 $115,000 = $115,000 ( Predetermined overhead rate ) ( labor cost ) $288,200 $230,000 Basic Data for Illustration Stitching Department 8 Process Costing: The First-In, First-Out Method Exhibit 4-G STEP 1 Production ReportStitching Department (FIFO method) Percentage of Completion with Respect to Conversion Physical Units Work in process, March 1 . . . . . . . . Units transferred in during March . . . 10,000 40,000 Total units to account for . . . . . . . . . 50,000 Units completed and transferred out during March . . . . . . . . . . . . Work in process, March 31 . . . . . . . 30,000 20,000 Total units accounted for . . . . . . . . . 50,000 STEP 2 Equivalent Units Transferred in Direct Material Conversion 20% 90% 30,000 20,000 30,000 -0- 30,000 18,000 Total equivalent units . . . . . . . . . . . Less equivalent units represented in March 1 work in process . . . . . 50,000 30,000 48,000 10,000 -0- 2,000 New equivalent units accomplished in March only . . . . . . . . . . . . . . . 40,000 30,000 46,000 STEP 3 Transferred in Work in process, March 1 (from Exhibit 4-F) . . . . . . . . . . . . . . . . Costs incurred during March (from Exhibit 4-F) . . . . . . . . . . . . . . . . Direct Material Conversion These costs were incurred during February. They are not included in the unit-cost calculation for March. $288,200* $ 7,500 $ 68,600 $230,000 Total costs to account for . . . . . . . . . . . . Equivalent units for March only . . . . . . . . Costs per equivalent unit . . . . . . . . . . . . . Total 525,700 $594,300 40,000 $ 7.205 30,000 $ .25 46,000 5.00 $ 12.455 $288,200 $7,500 $230,000 $7.205 40,000 30,000 46,000 $ +$.25 +$5.00 *Cost of goods completed and transferred out of Cutting Department during March, under the FIFO method (calculated in Exhibit 4-C). transferred-in input, or it would not have been transferred from the Cutting Department. The March 1 work-in-process inventory has not yet received any direct material in the Stitching Department, because the direct material (rawhide lacing) is not added until the end of the process. As Exhibit 4-F shows, 40,000 units were transferred into the Stitching Department during March. This agrees with Exhibit 4-4 in the text, which shows that 40,000 units were completed and transferred out of the Cutting Department during March. The Stitching Department completed 30,000 units during March and transferred them to finished-goods inventory. This left 20,000 units in the Stitching Department's March 31 work-in-process inventory. 9 Process Costing: The First-In, First-Out Method Exhibit 4-G STEP 4 (concluded) Cost of goods completed and transferred out of the Stitching Department during March: Cost of March 1 work-in-process inventory, which is transferred out first . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 68,600 Cost incurred to finish the March 1 work-in-process inventory: Number Percentage of Cost per of units \u0002 direct material \u0002 equivalent unit remaining . . . 10,000 \u0002 100% \u0002 $.25 . . . . . . 2,500 of material ( )( ( )( Number of units \u0002 )( )( Percentage of \u0002 conversion remaining Cost per equivalent unit of conversion ) ) .... 10,000 \u0002 80% \u0002 $5.00 . . . . . . Cost incurred to produce units that were both started and completed during March: Number Total cost per of units \u0002 equivalent ..................... unit 20,000 \u0002 $12.455 . . . . . . . . . . ( )( ) 40,000 249,100 Total cost of goods completed and transferred out . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $360,200 Cost remaining in March 31 work-in-process inventory in the Stitching Department: Transferred-in costs: Number of equivalent Transferred-in units of transferred- \u0002 cost per in costs equivalent unit ( )( Conversion: Number of equivalent \u0002 units of conversion ( )( Conversion cost per equivalent unit ) ) .......... ......... 20,000 \u0002 $7.205 . . . . . . . . . . . . $144,100 18,000 \u0002 $5.00 . . . . . . . . . . . . . 90,000 Total cost of March 31 work-in-process inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $234,100 Units started and completed during March: 30,000 units completed and transferred out minus 10,000 units in the March 1 work-inprocess inventory. Check: Cost of goods completed and transferred out . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $360,200 Cost of March 31 work-in-process inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234,100 Total costs accounted for . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $594,300 Exhibit 4-F shows that the costs incurred in the Stitching Department during March were $7,500 for direct material, $115,000 for direct labor, and $115,000 for applied manufacturing overhead. The predetermined overhead rate in the Stitching Department is 100 percent of direct-labor cost. Note that the predetermined overhead rates are different in the two production departments. The March transferred-in cost in the Stitching Department is the cost of goods completed and transferred out of the Cutting Department. The amount of this cost depends on whether the weighted-average or FIFO process-costing method is used in the Cutting Department. The amount shown in Exhibit 4-F, $288,200, assumes that the FIFO method was used in the Cutting Department. This amount comes from Exhibit 4-C. Exhibit 4-G presents a production report for the Stitching Department using the FIFO process-costing method. Step 1 details the physical flow of units. In step 2, the calculation of equivalent units, the equivalent units in the March 1 work-in-process 10 Process Costing: The First-In, First-Out Method inventory are subtracted to arrive at the new equivalent units of activity for March only. This is done for transferred-in activity, direct material, and conversion. The costs per equivalent unit are computed in step 3. Under FIFO, the cost assigned to the March 1 work-in-process inventory is not added to the cost incurred during March. The March transferred-in cost is $288,200. This is the cost of goods completed and transferred out of the Cutting Department, computed using the FIFO method (Exhibit 4-C). An analysis of the total costs in the Stitching Department is presented in step 4 of Exhibit 4-G. Under the FIFO method, the cost assigned to the March 1 work-inprocess inventory, $68,600, is transferred out first. Note that the cost incurred to complete the March 1 work-in-process inventory includes the cost of direct material since direct material is not added in the Stitching Department until the end of the process. The cost of the 20,000 units started and completed in the Stitching Department during March is found by multiplying 20,000 by the total cost per equivalent unit computed in step 3, $12.455. Finally, the cost remaining in the Stitching Department's Work-inProcess Inventory account on March 31 includes not only conversion costs but also transferred-in costs. The transferred-in cost per equivalent unit in March, under FIFO, is $7.205 (see step 3). The following journal entry is made to transfer the cost of the units completed to the Finished-Goods Inventory account. Finished-Goods Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Work-in-Process Inventory: Stitching Department . . . . . . . . . . . . . . . . . . . . . . To transfer the cost of goods completed, as computed under the FIFO method. 360,200 360,200 Summary of Transferred-in Costs When manufacturing is done in sequential production departments, the cost assigned to the units completed in each department is transferred to the next department's Workin-Process Inventory account. This cost is termed transferred-in cost, and it is handled as a distinct cost element in the process-costing calculations. In this way, the final cost of the product is built up cumulatively as the product progresses through the production sequence. Review Questions Review Questions 1. 2. 3. Exercises Exercise 4 Physical Flow and Equivalent Units; FIFO JIT inventory and production management systems are coming into widespread use. What are the implications of the JIT approach for process costing? Explain how the computation of equivalent units differs between the weighted-average and FIFO methods. How are the costs of the beginning work-in-process inventory treated differently under the weighted-average and FIFO methods? Exercises The Portsmouth plant of Health Foods Corporation produces low-fat salad dressing. The following data pertain to the year just ended. Percentage of Completion Work in process, January 1 . . . . . . . . . . . . . . . . . . . . . . Work in process, December 31 . . . . . . . . . . . . . . . . . . . Units 20,000 lb. 15,000 lb. Direct Material 80% 70% During the year the company started 120,000 pounds of material in production. Conversion 60% 30% 11 Process Costing: The First-In, First-Out Method Required: Prepare a schedule analyzing the physical flow of units and computing the equivalent units of both direct material and conversion for the year. Use FIFO process costing. Glass Creations, Inc. manufactures decorative glass products. The firm employs a process-costing system for its manufacturing operations. All direct materials are added at the beginning of the process, and conversion costs are incurred uniformly throughout the process. The company's production schedule for October follows. Work in process on October 1 (60% complete as to conversion) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Units started during October . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Units 1,000 5,000 Total units to account for . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 Units from beginning work in process, which were completed and transferred out during October . . . . . Units started and completed during October . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Work in process on October 31 (20% complete as to conversion) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000 3,000 2,000 Total units accounted for . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 Exercise 5 Equivalent Units; FIFO Required: Calculate each of the following amounts using FIFO process costing. 1. Equivalent units of direct material during October. 2. Equivalent units of conversion activity during October. (CMA, adapted) Energy Resource Company refines a variety of petrochemical products. The following data are from the firm's Amarillo plant. Work in process, November 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Direct material . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Units started in process during November . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Work in process, November 30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Direct material . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exercise 6 Equivalent Units; FIFO 2,000,000 gallons 100% complete 25% complete 950,000 gallons 240,000 gallons 100% complete 80% complete Required: Compute the equivalent units of direct material and conversion for the month of November. Use the FIFO method of process costing. Vancouver Glass Company manufactures window glass for automobiles. The following data pertain to the Plate Glass Department. Work in process, June 1: Direct material . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Costs incurred during June: Direct material . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 37,000 36,750 $150,000 230,000 The equivalent units of activity for June, under FIFO process costing, were as follows: 15,000 equivalent units of direct material, and 46,000 equivalent units of conversion activity. Required: Calculate the cost per equivalent unit, for both direct material and conversion, during June. Use FIFO process costing. Exercise 7 Cost per Equivalent Unit; FIFO 12 Process Costing: The First-In, First-Out Method Exercise 8 Cost per Equivalent Unit; FIFO Montana Lumber Company grows, harvests, and processes timber for use in construction. The following data pertain to the firm's sawmill during November. Work in process, November 1: Direct material . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Costs incurred during November: Direct material . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 65,000 180,000 $425,000 690,000 The equivalent units of activity for November, under FIFO process costing, were as follows: 4,250 equivalent units of direct material, and 1,000 equivalent units of conversion activity. Required: Calculate the cost per equivalent unit, for both direct material and conversion, during November. Use FIFO process costing. Exercise 9 Analysis of Total Costs; FIFO Richmond Textiles Company manufactures a variety of natural fabrics for the clothing industry. The following data pertain to the Weaving Department for the month of September. Equivalent units of direct material . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equivalent units of conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Units completed and transferred out during September . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000 44,000 50,000 The cost data for September are as follows: Work in process, September 1 Direct material . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Costs incurred during September Direct material . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 94,000 44,400 $164,000 272,800 There were 20,000 units in process in the Weaving Department on September 1 (complete as to direct material, and 40% complete as to conversion). Required: Compute each of the following amounts using FIFO process costing. 1. Cost of goods completed and transferred out of the Weaving Department during September. 2. Cost of the September 30 work-in-process inventory in the Weaving Department. The equivalent units in the ending work in process are 10,000 for direct material and 2,000 for conversion. Exercise 10 Analysis of Total Costs; FIFO The following data pertain to Birmingham Paperboard Company, a manufacturer of cardboard boxes. Work in Process, February 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 units* Direct material . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,500 Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,000 Costs incurred during February Direct material . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $110,000 Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171,600 *Complete as to direct material; 40% complete as to conversion. The equivalent units of activity for February were as follows: Direct material (FIFO method) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conversion (FIFO method) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Completed and transferred out . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000 88,000 90,000 13 Process Costing: The First-In, First-Out Method Required: Compute each of the following amounts using FIFO process costing. 1. Cost of goods completed and transferred out during February. 2. Cost of the February 28 work-in-process inventory. The equivalent units in the ending work in process are 20,000 for direct material and 2,000 for conversion. On January 1, the Molding Department of Camden Plastics Company had no work-in-process inventory due to the implementation of a just-in-time inventory system. On January 31, the following journal entry was made to record the cost of goods completed and transferred out of the Molding Department. Finished-Goods Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Work-in-Process Inventory: Molding Department . . . . . . . . . . . . . . . . . . . . . . . Exercise 11 JIT; Weighted-Average versus FIFO; Journal Entry $176,000 $176,000 The company uses weighted-average process costing. Required: What would the amount in the journal entry have been if Camden Plastics Company had used the FIFO method of process costing? Why? Problems Moravia Company processes and packages cream cheese. The following data have been compiled for the month of April. Conversion activity occurs uniformly throughout the production process. Work in process, April 110,000 units: Direct material: 100% complete, cost of . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conversion: 20% complete, cost of . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,000 4,500 Balance in work in process, April 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 26,500 Units started during April . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Units completed during April and transferred out to finished-goods inventory . . . . . . . . . . . . . . . . . . . . Work in process, April 30 Direct material: 100% complete Conversion: 3313% complete Costs incurred during April: Direct material . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000 80,000 $198,000 Conversion costs: Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Applied manufacturing overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 52,800 105,600 Total conversion costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $158,400 Problem 12 Straightforward FIFO Process Costing; Step-byStep Approach Required: Prepare schedules to accomplish each of the following process-costing steps for the month of April. Use the FIFO method of process costing. l. 2. 3. 4. Analysis of physical flow of units. Calculation of equivalent units. Computation of unit costs. Analysis of total costs. Neptune Corporation accumulates costs for its single product using process costing. Direct material is added at the beginning of the production process, and conversion activity occurs uniformly throughout the process. A partially completed production report for the month of May follows. Problem 13 Partial Production Report; Journal Entries; FIFO Method 14 Process Costing: The First-In, First-Out Method Production Report For the Month of May Work in process, May 1 . . . . . . . . . . . . . . . . . . . . . Units started during May . . . . . . . . . . . . . . . . . . . . . Physical Units 25,000 30,000 Total units to account for . . . . . . . . . . . . . . . . . . . . 55,000 Units completed and transferred out during May . . . Work in process, May 31 . . . . . . . . . . . . . . . . . . . . 35,000 20,000 Total units accounted for . . . . . . . . . . . . . . . . . . . . 55,000 Percentage of Completion with Respect to Conversion 40% 80% Equivalent Units Direct Material 35,000 20,000 Conversion 35,000 16,000 Work in process, May 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Costs incurred during May . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Direct Material $143,000 165,000 Conversion $ 474,700 2,009,000 Total $ 617,700 2,174,000 Total costs to account for . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $308,000 $2,483,700 $2,791,700 Required: Use FIFO process costing to complete the following requirements. l. 2. 3. 4. 5. Prepare a schedule of equivalent units. Compute the costs per equivalent unit. Compute the cost of goods completed and transferred out during May. Compute the cost remaining in the work-in-process inventory on May 31. Prepare a journal entry to record the transfer of the cost of goods completed and transferred out during May. 6. How would the production report be different if the company used weighted-average process costing? Problem 14 Partial Production Report; Journal Entries; FIFO Method Atlantic City Taffy Company produces various kinds of candy, but salt-water taffy is by far its most important product. The company accumulates costs for its product using process costing. Direct material is added at the beginning of the production process, and conversion activity occurs uniformly throughout the process. Production Report For the Month of August Work in process, August 1 . . . . . . . . . . . . . . . . . . . . . . Units started during August . . . . . . . . . . . . . . . . . . . . . Physical Units 40,000 80,000 Total units to account for . . . . . . . . . . . . . . . . . . . . . . . 120,000 Units completed and transferred out during August . . . . Work in process, August 31 . . . . . . . . . . . . . . . . . . . . . 100,000 20,000 Total units accounted for . . . . . . . . . . . . . . . . . . . . . . . 120,000 Percentage of Completion with Respect to Conversion 80% 30% Equivalent Units Direct Material Conversion 100,000 20,000 100,000 6,000 Work in process, August 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Costs incurred during August . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Direct Material $ 42,000 96,000 Conversion $ 305,280 784,400 Total $ 347,280 880,400 Total costs to account for . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $138,000 $1,089,680 $1,227,680 15 Process Costing: The First-In, First-Out Method Required: 1. Complete each of the following process-costing steps using FIFO process costing. a. Calculation of equivalent units. b. Computation of unit costs. c. Analysis of total costs. 2. Prepare a journal entry to record the transfer of the cost of goods completed and transferred out during August. 3. How would the production report be different if the company used weighted-average process costing? The following data pertain to the Coating Department of Trenton Ceramics Company for August. Work in process, August 1 (in units) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Units started during August . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total units to account for . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Units completed and transferred out during August . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Work in process, August 31 (in units) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total equivalent units: direct material . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total equivalent units: conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . New equivalent units accomplished in August: direct material . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . New equivalent units accomplished in August: conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Work in process, August 1: direct material . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Work in process, August 1: conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Costs incurred during August: direct material . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Costs incurred during August: conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Work in process, August 1: total cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total costs incurred during August . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total costs to account for . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost per equivalent unit: direct material . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost per equivalent unit: conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total cost per equivalent unit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of goods completed and transferred out during August . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost remaining in ending work-in-process inventory: direct material . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost remaining in ending work-in-process inventory: conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total cost of August 31 work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ? ? ? 70,000 50,000 ? ? 80,000 ? $304,000 ? 612,000 ? ? 1,493,400 1,933,400 ? ? ? ? ? ? ? Problem 15 Missing Data; Production Report; FIFO Additional Information: Direct material is added at the beginning of the production process, and conversion activity occurs uniformly throughout the process. Trenton Ceramics Company uses FIFO process costing. The August 1 work in process was 30 percent complete as to conversion. The August 31 work in process was 40 percent complete as to conversion. Required: Compute the missing amounts, and prepare the August production report for the Coating Department. Cases Garden Life Company manufactures a plant nutrient known as Garden Pride. The manufacturing process begins in the Grading Department when raw materials are started in process. Upon completion of processing in the Grading Department, the output is transferred to the Saturating Department for the final phase of production. Here the product is saturated with water and then dried again. There is no weight gain in the process, and the water is virtually cost-free. The following information is available for the month of November. Case 16 Sequential Production Departments; FIFO; (Appendix to Chapter 4) 16 Process Costing: The First-In, First-Out Method November 1 Quantity Work-in-Process Inventories (pounds) Grading Department . . . . . . . . . . . . . . . . . . . . . None Saturating Department . . . . . . . . . . . . . . . . . . . 1,600 November 30 Cost $17,600* Quantity (pounds) None 2,000 *Includes $3,750 in Saturating Department conversion costs. The work-in-process inventory in the Saturating Department is estimated to be 50 percent complete both at the beginning and end of November. Costs of production for November are as follows: Costs of Production Grading Department . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Saturating Department . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Materials Used $265,680 Conversion $86,400 85,920 The material used in the Grading Department weighed 36,000 pounds. Required: Use the FIFO method to prepare production reports for both the Grading and Saturating Departments for the month of November. In calculating unit costs, round your answer to four decimal places. The answer should include: 1. 2. 3. 4. 5. Equivalent units of production (in pounds). Total manufacturing costs. Cost per equivalent unit (pounds). Cost of ending work-in-process inventory. Cost of goods completed and transferred out. (CPA, adapted) Case 17 FIFO Process Costing; Sequential Departments; Two Types of Direct Material; Ethics (Appendix to Chapter 4) Wood Glow Manufacturing Co. produces a wood refinishing kit that sells for $17.95. The final processing of the kits occurs in the Packaging Department. A quilted wrap is applied at the beginning of the packaging process. A compartmentalized outside box printed with instructions and the company's name and logo is added when units are 60 percent through the process. Conversion costs, consisting of direct labor and applied overhead, occur evenly throughout the packaging process. Conversion activities after the addition of the box involve package sealing, testing for leakage, and final inspection. The following data pertain to the activities of the Packaging Department during the month of October. Beginning work-in-process inventory was 10,000 units, 40 percent complete as to conversion. 40,000 units were transferred to Packaging during October. There were 10,000 units in ending work in process, 80 percent complete as to conversion. The Packaging Department's October costs were as follows: Quilted wrap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outside boxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Applied overhead ($3.00 per direct-labor dollar) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $80,000 50,000 22,000 66,000 The costs transferred in from prior processing were $3.00 per unit. The cost of goods sold for the month was $240,000, and the ending finished-goods inventory was $84,000. Wood Glow uses the first-in, first-out (FIFO) method for inventory valuation and for process costing. Wood Glow's controller, Mark Brandon, has been asked to analyze the activities of the Packaging Department for the month of October. Required: 1. Prepare a schedule of equivalent units for the October activity in the Packaging Department. (Hint: You will need two columns for direct material: wrap and boxes.) 2. Determine the cost per equivalent unit of the October production. Process Costing: The First-In, First-Out Method 3. Wood Glow's production manager, Jerry Drake, has been under pressure from the company president to reduce the cost of conversion in the Packaging Department. Although Drake has initiated various changes in the process to try to bring the cost down, he has been unsuccessful. Now Drake is faced with an early November meeting with the president, at which Drake will have to discuss the packaging cost and explain his failed attempts. Drake has approached Brandon, Wood Glow's controller and a close friend, with the following request: \"Mark, I've got to show some cost reduction in the Packaging Department. Even a little bit will help me get through next week's meeting. Then I can work on the problem without the president breathing down my neck. I want you to do me a favor. Let's call October's ending inventory 95 percent complete instead of 80 percent. This will increase the number of equivalent units and lower the unit costs.\" By how much would Drake's proposal lower the kit's unit cost? What should Brandon do? (CMA, adapted) 17