Alternate problem A Pure Aqua Company is a producer of flavored mineral water. These data are for
its March production:
Work in process inventory, March 1, 3,000 (units equal cases):
Direct materials $12,600
Direct labor 6,000
Manufacturing overhead (1,500 machine-hours at $6 per machine-hours) 9,000
$27,600
Units started in March 9,000
Costs incurred in March:
Direct materials $36,360
Direct labor 55,200
Manufacturing overhead applied (13,800 machine-hours) ?
The ending inventory consisted of 4,500 units (100% complete to materials, 60% complete as to
conversion).
Compute the following:
1. Number of units completed and transferred to finished goods inventory.
2. The equivalent units of production for materials and conversion costs using the average cost
method.
3. Cost per equivalent unit for materials and conversion costs.
4. Cost of units completed and transferred.
5. Cost of ending inventory
Pure Aqua Company, a renowned producer of flavored mineral water, aims to streamline its production and costing processes for the month of March. By examining the work in process inventory, units started, costs incurred, and ending inventory, this analysis will delve into key aspects of the production process. The focus will be on calculating completed units, equivalent units of production, cost per equivalent unit, cost of completed units, and the cost of ending inventory using the average cost method.
Number of Units Completed and Transferred: To determine the number of units completed and transferred to the finished goods inventory, we need to sum up the units that were in the work in process inventory on March 1 and the units started in March, and then subtract the ending inventory units.
3,000 Units Started in March: 9,000 Total Units to Account For: 12,000 Ending Inventory Units: 4,500 Units Completed and Transferred: 7,500
Equivalent Units of Production using Average Cost Method: Equivalent units of production help us account for partially completed units in terms of both materials and conversion costs. The average cost method considers the work done on units in progress.
Equivalent Units for Materials: Units Completed: 7,500 Ending Inventory Units (Materials, 100% complete): 4,500 Total Equivalent Units (Materials): 12,000
Equivalent Units for Conversion Costs: Units Completed: 7,500 Ending Inventory Units (Conversion, 60% complete): 2,700 (4,500 units * 60%) Total Equivalent Units (Conversion): 10,200
Cost per equivalent unit is calculated by dividing the total costs incurred by the total equivalent units of production for each cost component.
Cost per Equivalent Unit for Materials: Total Direct Materials Cost: $36,360 Total Equivalent Units (Materials): 12,000 Cost per Equivalent Unit (Materials): $36,360 / 12,000 = $3.03
Cost per Equivalent Unit for Conversion Costs: Total Direct Labor Cost: $55,200 Total Manufacturing Overhead Applied: ? Total Equivalent Units (Conversion): 10,200 Cost per Equivalent Unit (Conversion): (Direct Labor Cost + Manufacturing Overhead Applied) / Total Equivalent Units (Conversion)
To calculate the cost of units completed and transferred, multiply the cost per equivalent unit by the equivalent units of production for each cost component.
a) Cost of Completed Units (Materials): Cost per Equivalent Unit (Materials): $3.03 Equivalent Units (Materials): 7,500 Cost of Completed Units (Materials): $3.03 * 7,500 = $22,725
b) Cost of Completed Units (Conversion): Cost per Equivalent Unit (Conversion): ? Equivalent Units (Conversion): 7,500 (since all completed units also undergo conversion) Cost of Completed Units (Conversion): Cost per Equivalent Unit (Conversion) * Equivalent Units (Conversion)
The cost of ending inventory is calculated similarly to the cost of completed units, but using the equivalent units for the ending inventory.
Cost of Ending Inventory (Materials): Cost per Equivalent Unit (Materials): $3.03 Equivalent Units (Materials) in Ending Inventory: 4,500 Cost of Ending Inventory (Materials): $3.03 * 4,500 = $13,635
Cost of Ending Inventory (Conversion): Cost per Equivalent Unit (Conversion): ? Equivalent Units (Conversion) in Ending Inventory: 2,700 Cost of Ending Inventory (Conversion): Cost per Equivalent Unit (Conversion) * Equivalent Units (Conversion) in Ending Inventory
By meticulously analyzing Pure Aqua Company’s March production data, we have calculated essential metrics for the production and costing process. These include the number of completed units, equivalent units of production, cost per equivalent unit, cost of completed units, and cost of ending inventory. These calculations facilitate informed decision-making, allowing the company to optimize its production processes and manage costs effectively.
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