Tots Toys Inc. manufactures a wooden model wagon. The departments are cutting, a

Question

Tots Toys Inc. manufactures a wooden model wagon. The departments are cutting, assembly and painting. Following is the information for the assembly department for the month of September 2013. Costs: Beginning WIP: Transferred In $1,000 Direct materials 2,000 Conversion costs 6,000 Total $9,000 Added during the Month: Transferred In 10,000 Direct materials 15,000 Conversion costs 25,000 Total $50,000 Total Costs Incurred $59,000 Units: Beginning WIP 200 units Started 1000 units Completed 950 Units Ending WIP ? units Ending WIP was 50% complete for direct materials and 40% for conversion cost. Required: 1. Calculate the equivalent units. 2. Compute the cost per unit. 3. Price the inventories (Reconciliation) 4. In what industries might one find process costing being used? 5. Define an equivalent unit.

Explanation / Answer

Tots Toys Inc. All Amounts in $ 1. Calculation of Equivalent Units Beginning WIP 200 Started 1000 1200 Completed 950 Closing WIP 250 Equivalent Units of Production Direct Materials Conversion Costs Total Units Completed 100% 950 950 950 Units in Closing WIP 125 100 225 Total Equivalent Units of Production 1175 2. Calculation of Cost per unit Opening WIP Costs 9000 (Materials + Conversion Costs) 50000 Costs incurred during the month Total Costs incurred during the month 59000 Cost per equivalent unit of production 50.21 3. Inventory Price Materials 6277 Conversion Costs 5021 Total Cost 11298 4. Process costing is used in industries like chemical processing, oil refining, pharmaceuticals, plastics, brick and tile manufacturing, semiconductor chips, beverages, and breakfast cereals. 5. Equivalent Unit of production, in simple terms, is the total number of units completely produced. This includes units which are transferred to the Finished Goods stage plus those in Work in Process, for which the material, labour and overhead work is fully complete. Partially completed units of work in process are converted into full units, and considered for calculating the total equivalent units of production.

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