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700321
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| Posted: 18 Nov 2009 at 08:52 | IP Logged
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can someone solve this using the forumlas provided by Yaegar???
The answer is $195,000
A company employs a process costing system for its two-department manufacturing operation using the first-in-first-out (FIFO) inventory method. When units are completed in department 1, they are transferred to department 2 for completion. Inspection takes place in department 2 immediately before the direct materials are added, when the process is 70% complete with respect to conversion. The specific identification method is used to account for lost units.
Generally the number of defective units (that is, those failing inspection) is below the normal tolerance limit of 4% of units inspected. Defective units have minimal value, and the company sells them without any further processing for whatever it can. Generally the amount collected equals, or slightly exceeds, the transportation cost. A summary of the manufacturing activity for department 2, in units for the current month, is presented below.
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Physical flow |
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(output units) |
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Beginning inventory
(60% complete with respect to conversion) |
20,000 |
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Units transferred in from department 1 |
180,000 |
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Total units to account for |
200,000 |
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Units completed in department 2 during the month |
170,000 |
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Units found to be defective at inspection |
5,000 |
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Ending inventory
(80% complete with respect to conversion) |
25,000 |
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Total units accounted for |
200,000 |
The equivalent units for direct materials for the current month would be?
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bryris
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| Posted: 18 Nov 2009 at 09:29 | IP Logged
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Under the FIFO method, it is required to ONLY utilize activity that occurs during the period. This applies to EU and to any monetary figures. If you were to calculate the payments made under the weighted average method you'd have to subtract any BWIP from that since that was expended in a prior period.
In this case, the question is asking for EU only. Therefore, no payments need to be figured. Since we are figuring DM EU, we must consider that DM are added at the 70% point (in the department in question).
Therefore, BWIP is 60% complete - has not hit the DM addition point yet. Therefore, IN THE CURRENT PERIOD, we will be adding ALL of the required DM - 20,000 EU.
Next we must determine how many units were started and finished entirely within the period. 170,000 units completed, less 20,000 from BWIP = 150,000.
Lastly, we need to determine the DM EU for the EWIP portion. Since EWIP is 80% complete, ALL DM have been added, so the EU is 25,000.
Add them up: 20,000 + 150,000 + 25,000 = 195,000. Remember this is NOT dollars as you've indicated above, it is equivalent units.
You could also back into the answer by going with the weighted average method first, then subtracting BWIP.
Total units completed during the period (without regard to BWIP) was 170,000, then add EWIP (all materials added) 25,000 = 195,000. Then to convert to FIFO, you would subtract BWIP. In this case, since material are added after the BWIP conversion point, BWIP would be 0.
170,000 + 25,000 - 0 = 195,000.
Whatever path you like is just fine.
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700321
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| Posted: 18 Nov 2009 at 10:01 | IP Logged
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thanks
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700321
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| Posted: 18 Nov 2009 at 10:07 | IP Logged
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hey bryris,
do you have an email address?? I have my exam on the 28th but I would like to see if I can run some things by you if you have time?
thanks
B
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bryris
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| Posted: 18 Nov 2009 at 10:39 | IP Logged
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Just post what you've got here.
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Topic: FIFO EUP - Yaegar
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