A company uses process costing to assign product costs. Available inventory information for a period is as follows:
Inventory (in units) Material cost Conversion cost
Beginning 0
Started during the period 15,000 $75,000 $55,500
Transferred out 13,500
End of period 1,500
The ending inventory was 25% complete as to the conversion cost. 100% of direct material was added at the beginning of the process. What was the total cost transferred out?
a. $130,500
b. $121,500 – answer
c. $117,450
d. $126,973
So this is how i tackled this problem.
So @ $75,000 Material cost with 15,000 units we get (75,000/15,000) = $5 per unit
We are transferring 13,500 units so (13,500 * $5) = $67,500 for direct materials.
Now this is where i somehow messed up.
So using the concept of equivalent units.
We get 100% of the 13,500 units + 25% of the 1,500 units = (13,500 + 375) = 13,875 units
I took the $55,500 of conversion costs and divided it by 15,000 units. So we get a per unit cost of $3.70.
But this is method is wrong.
The correct method was to use $55,500 of conversion costs and divided it by 13,875 units for a unit cost of $4.00.
May someone explain this?
Shouldn't we apply the total cost to the total inventory (15,000) then multiple the amount transferred out by the per unit.
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