The ledger of American Company has the following work in process account. Work i

Question

The ledger of American Company has the following work in process account. Work in Process—Painting 5/1 Balance 3,690 5/31 Transferred out ? 5/31 Materials 5,740 5/31 Labor 2,830 5/31 Overhead 1,280 5/31 Balance ? Production records show that there were 500 units in the beginning inventory, 30% complete, 1,680 units started, and 1,440 units transferred out. The beginning work in process had materials cost of $2,540 and conversion costs of $1,150. The units in ending inventory were 40% complete. Materials are entered at the beginning of the painting process. What is the unit conversion cost for May?

Explanation / Answer

With LIFO method:

Closing inventory for work in process = opening inventory for work in process + Units started - tranferred out units

= 500 + 1680 -1440

= 740

Calculation of equivalent units for conversion cost:

Total cost:

Unit conversion cost = Total cost of conversion/ Equivalent units

= 4110/2086

= $1.97

units of openinf Work in process 500*70% 350 Units transferred out 1440*100% 1440 Add: closing units 740*40% 296 Equivalent units 2086

Total cost:

Labor 2830 Overhead 1280 Total cost 4110

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