Chapter 4 connect CASE 4-19 Second Department-We \"I think we goofed when we hir

Question

Chapter 4 connect CASE 4-19 Second Department-We "I think we goofed when we hired that new assistant controller," said Ruth of Provost Department. I can't understand it." ighted-Average Method LO4-2, LO4-3, LO4-4 Scarpino, president Industries. "Just look at this report that he prepared for last month for the Finishine Finishing Department costs: Work in process inventory, April 1, 450 units; materials 100% complete, conversion 60% complete $ 8,208 Costs transferred in during the month from the preceding department, 1,950 units 17.940 6,210 13,920 $46,278 Materials cost added during the month Converslon costs incurred during the month Total departmental costs.... Finishing Department costs assigned to: Units completed and transferred to finished goods, 1,800 units at $25.71 per unt. $46,278 Work in process inventory, April 30, 600 units; materials 0% complete, conversion 35% complete Total departmental costs assigned $46,278 Consists of cost transferred in, $4,068; materials cost, $1,980 and conversion cost, $2.160 "He's struggling to learn our system," replied Frank Harrop, the operations manager. "The problem is that he's been away from process costing for a long time, and it's coming back slowly." "It's not just the format of his report that I'm concerned about. Look at that $25.71 unit cost that he's come up with for April. Doesn't that seem high to you?" said Ms. Scarpino. "Yes, it does seem high; but on the other hand, I know we had an increase in materials prices during April, and that may be the explanation," replied Mr. Harrop. "T'll get someone else to redo this report and then we can see what's going on." Provost Industries manufactures a ceramic product that goes through two processing departments-Molding and Finishing. The company uses the weighted-average method in its process costing. Required 1. Prepare a report for the Finishing Department showing how much cost should have been assigned to the units completed and transferred to finished goods, and how much cost should have been assigned to ending work in process inventory in the Finishing Department. 2. Explain to the president why the unit cost on the new assistant controller's report is so high.

Explanation / Answer

Solution 1:

Solution 2:

The unit cost on the new assistant controller's report is so high becuase, new assistant charged all costs of beginning WIP and cost added during the period to completed units and considered cost of ending WIP is zero. However we have units available in ending WIP that were 35% complete with respect to conversion and 100% complete with respect to cost transferred in from previous department. Therefore we should ascertain cost of ending WIP on the basis of equivalent units in ending WIP. Therefore new assistasnt did not performed activity to divide total cost in completed units and ending WIP. This is the main reason that new assistant per unit cost is too high.

Computation of Equivalent unit of Production - Finishing Department Particulars Physical Units Prior Department Cost Material Conversion Unit completed & Transferred out 1800 1800 1800 1800 Closing WIP: (450 + 1950 - 1800) 600 Prior deparment cost (100%) 600 Material (0%) 0 Conversion (35%) 210 Equivalent units of production 2400 2400 1800 2010

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