Service Organization with Work-in-Process Inventories, Multiple Departments, FIFO Method, Unit Cost

Hepworth Credit Corporation is a wholly owned subsidiary of a large manufacturer of computers. Hepworth is in the business of financing computers, software, and other services that the parent corporation sells. Hepworth has two departments that are involved in financing services: the Credit Department and the Business Practices Department. The Credit Department receives requests for financing from field sales representatives, records customer information on a preprinted form, and then enters the information into the computer system to check the creditworthiness of the customer. (Other actions may be taken if the customer is not in the database.) Once creditworthiness information is known, a printout is produced with this information plus other customer-specific information. The completed form is transferred to the Business Practices Department.

The Business Practices Department modifies the standard loan covenant as needed (in response to customer request or customer risk profile). When this activity is completed, the loan is priced. This is done by keying information from the partially processed form into a personal computer spreadsheet program. The program provides a recommended interest rate for the loan. Finally, a form specifying the loan terms is attached to the transferred-in document. A copy of the loan-term form is sent to the sales representative and serves as the quote letter.

The following cost and service activity data for the Business Practices Department are provided for the month of May:

Transferred-in applications	11,200
Applications in process, May 1, 40% complete*	2,000
Applications in process, May 31, 25% complete*	3,200
*All materials and supplies are used at the end of the process.

		Transferred In		Direct Materials		Conversion Costs
Costs:
Beginning work in process		$18,000				$11,200
Costs added		112,000		$5,000		150,000

Required:

1. Using the FIFO method, prepare the following for the Business Practices Department:

a. A physical flow schedule:

Hepworth Credit Corporation
Physical flow schedule
Units, beginning work in process	fill in the blank 3eb7b2ff4fe0077_2
Units started	fill in the blank 3eb7b2ff4fe0077_4
Total units to account for	fill in the blank 3eb7b2ff4fe0077_6
Units completed and transferred out:
Started and completed	fill in the blank 3eb7b2ff4fe0077_8
From beginning work in process	fill in the blank 3eb7b2ff4fe0077_10
Units, ending work in process	fill in the blank 3eb7b2ff4fe0077_12
Total units accounted for	fill in the blank 3eb7b2ff4fe0077_14

Feedback

a. A physical flow schedule shows the units to account for and what happened to them. See Cornerstone 6.3.

b. An equivalent units schedule. Enter percentages as whole numbers. If an amount is zero, enter "0'.

Hepworth Credit Corporation Equivalent units schedule

	Transferred In	Direct Materials	Conversion Costs
Units started and completed	fill in the blank c31b54fe404ffaa_2	fill in the blank c31b54fe404ffaa_3	fill in the blank c31b54fe404ffaa_4
Beginning work in process:
fill in the blank c31b54fe404ffaa_5 x fill in the blank c31b54fe404ffaa_6 %	fill in the blank c31b54fe404ffaa_7
fill in the blank c31b54fe404ffaa_8 x fill in the blank c31b54fe404ffaa_9 %		fill in the blank c31b54fe404ffaa_10
fill in the blank c31b54fe404ffaa_11 x fill in the blank c31b54fe404ffaa_12 %			fill in the blank c31b54fe404ffaa_13
Ending work in process:
fill in the blank c31b54fe404ffaa_14 x fill in the blank c31b54fe404ffaa_15 %	fill in the blank c31b54fe404ffaa_16
fill in the blank c31b54fe404ffaa_17 x fill in the blank c31b54fe404ffaa_18 %		fill in the blank c31b54fe404ffaa_19
fill in the blank c31b54fe404ffaa_20 x fill in the blank c31b54fe404ffaa_21 %			fill in the blank c31b54fe404ffaa_22
Equivalent units of output	fill in the blank c31b54fe404ffaa_24	fill in the blank c31b54fe404ffaa_25	fill in the blank c31b54fe404ffaa_26

Feedback

b. The equivalent units schedule measures the output of the period. A fully completed unit is counted as a unit of output. Output for a unit in ending work in process is counted by its degree of completion.

c. Calculation of unit costs. If required, round your answer to the nearest cent. $fill in the blank b3c3b5075fb8f89_1 per unit

d. Cost of ending work in process. $fill in the blank b3c3b5075fb8f89_2

Cost of units transferred out. $fill in the blank b3c3b5075fb8f89_3

e. A cost reconciliation

Costs to account for:
Beginning WIP	$fill in the blank b3c3b5075fb8f89_4
Costs added	fill in the blank b3c3b5075fb8f89_5
Total	$fill in the blank b3c3b5075fb8f89_6
Costs accounted for:
Transferred out	$fill in the blank b3c3b5075fb8f89_7
Ending WIP	fill in the blank b3c3b5075fb8f89_8
Total	$fill in the blank b3c3b5075fb8f89_9