Tavia Limited manufactures a plastic gasket that is used in automobile engines.

Question

Tavia Limited manufactures a plastic gasket that is used in automobile engines. The gaskets go through three processing departments: Mixing, Forming, and Stamping. The company's accountant (who is very inexperienced) has prepared a summary of production and costs for the Forming Department for October as follows: Work in process inventory, October 1 (10,200 units materials 100% complete, conversion 7/8 complete) Costs transferred in from the Mixing Department Material added during October (added when processing is 50% complete in the Forming Department) Conversion costs added during October $40,494* 144,726 71,956 201,564 Total departmental costs $458,740 Units completed and transferred to the Stamping $458,740 Department (130,000 units at $3.52877 each) Work in process inventory, October 31 (9,300 units conversion 2/5 complete) $458,740 Total departmental costs assigned Consists of cost transferred in, $14,076, materials cost, $7,344; and conversion costs, $19,074 After mulling over the data above, Tavia's president commented, "1 can't understand what's happening here. Despite a concentrated effort at cost reduction, our unit cost actually went up in the Forming Department last month. With that kind of per

Explanation / Answer

Calculation of equivalent units of production Physical Units % Completed with respect to Transferred in cost Equivalent Units for Costs Transferred in % Completed with respect to Material cost Equivalent Units for Material Costs % Completed with respect to Conversion costs Equivalent Units for Conversion Costs Units completed and transferred 130000 100% 130000 100% 130000 100% 130000 Units in ending work in process 9300 100% 9300 100% 9300 40% 3720 Equivalent Units of production 139300 139300 133720 Calculation of cost per equivalent unit Transferred in Material Conversion Beginning Work in process $14,076 $7,344 $19,074 Cost added during the period $144,726 $71,956 $201,564 Total Cost to account for $158,802 $79,300 $220,638 / Equivalent units of production 139300 139300 133720 Cost per equivalent unit $1.14 $0.57 $1.65 Calculation of cost of ending work in process Transferred in Material Conversion Total Cost of ending work in process = 9300 EU * $1.14 $10,602.00 $10,602.00 = 9300 EU * $0.57 $5,294.26 $5,294.26 = 3720 EU * $1.65 $6,138.00 $6,138.00 Cost of ending work in process $22,034.26 Calculation of cost of units completed and transferred out Transferred in Material Conversion Total Cost of units completed and transferred out = 130000 EU * $1.14 $148,200.00 $148,200.00 = 130000 EU * $0.57 $74,005.74 $74,005.74 = 130000 EU * $1.65 $214,500.00 $214,500.00 Cost of units completed and transferred out $436,705.74

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