[I'm, Ron Burgundy?]

I’m having a hard time with this one. Can someone please break down the answer for me using the Becker methodology?

I don’t see how they are coming up with using 100% of the beginning units in regard to direct materials.

A company employs a process costing system for its two-department manufacturing operation using the first-in-first-out (FIFO) inventory method. When units are completed in department 1, they are transferred to department 2 for completion. Inspection takes place in department 2 immediately before the direct materials are added, when the process is 70% complete with respect to conversion. The specific identification method is used to account for lost units.

Generally the number of defective units (that is, those failing inspection) is below the normal tolerance limit of 4% of units inspected. Defective units have minimal value, and the company sells them without any further processing for whatever it can. Generally the amount collected equals, or slightly exceeds, the transportation cost. A summary of the manufacturing activity for department 2, in units for the current month, is presented below.

Physical flow (output units)

Beginning inventory

(60% complete with respect to conversion)…………..20,000

Units transferred in from department 1……………………..180,000

Total units to account for………………………………..200,000

Units completed in department 2 during the month………170,000

Units found to be defective at inspection………………………5,000

Ending inventory

(80% complete with respect to conversion)…………….25,000

Total units accounted for…………………………….200,000

The equivalent units for direct materials for the current month would be

Answer: 195,000 units.

This alternative is the correct equivalent unit calculation for direct material. It appropriately provides for the recognition of the units that have to be added to both beginning and ending work-in-process as well as the units completed, but ignores the materials that would not be added to the defective units.

Supporting Calculations

Units completed

From beginning WIP 20,000

From current production 150,000

Defective units —

Ending WIP 25,000

Equivalent units 195,000

"If you're going through hell, keep going"
- Winston Churchill

"I've missed over 9,000 shots in my career. I've lost over 300 games. 26 times I've been trusted to take the game winning shot, and missed. I've failed, over and over and over again in my life. And that is why, I succeed."
- Michael Jordan

BEC: (54), (72), 80 (losing credit on 02/02/15 - nervous)
AUD: 78
REG: (74), 91
FAR: (71)

[Anonymous]

For FIFO, the Becker Method is as follows.

% to Complete Beginning Inventory (For this question, the materials are added when complete in dept 1 which means 100% complete. Direct Materials are 100% to complete because they are just waiting to be added when inspection/conversion costs reach 70% Until then the units do not have have any materials added. )

+ 100% to complete x 20,000 units = 20,000 Units +

+ Complete and Shipped Units = 170,000 +

– Beginning Inventory = 20,000 –

+ End Inventory = 25,000 + ( These units have all of the materials needed added in which is why 25,000 is the ending inventory)

FIFE EU = 195000

THis is the only way I can make sense of this question, haha.

[Author]

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