[Anonymous]

Please help on this Mc from Wiley TestBank. How come I can not simply apply Comp 80K+Normal Spoilage 1500 +END 8500=90K for the equivalent units for direct materials…..? I am getting panic…any hints or explanations will be very very appreciated!!

Q: COST-0026

A manufacturing company employs a process cost system. The company’s product passes through both Department 1 and Department 2 in order to be completed. Conversion costs are incurred uniformly throughout the process in Department 2. The direct material is added in Department 2 when conversion is 80% complete. This direct material is a preservative that does not change the volume. Spoiled units are discovered at the final inspection and are recognized then for costing purposes. The physical flow of units for the current month is presented below.

Beginning work in process in Department 2

(90% complete with respect to conversion costs) 14,000

Transferred in from Department 1 76,000

Completed and transferred to finished goods 80,000

Spoiled units—all normal 1,500

Ending work in process in Department 2

(60% complete with respect to conversion costs) 8,500

If the manufacturing company uses the weighted-average method, the equivalent units for direct materials in Department 2 for the current month would be

Answers

A: 67,500

B: 80,000

C: 81,500

D: 90,000

Answer C is correct. This is the correct calculation for direct material equivalent units.

Supporting Calculations

Physical schedule

Units to account for:

Beginning WIP 14,000

Trans-in Dept. 1 76,000

Units to account for 90,000

Alternative Equivalent Unit Calculations

Alt. c

Total units completed 80,000

Spoiled 1,500

Units accounted for 81,500

Answer A is incorrect. This response is the equivalent units for direct material calculated using the FIFO method.

Answer B is incorrect. This response only considers the direct material in the units transferred out and ignores the direct material in the spoiled units.

Answer D is incorrect. This response is the actual physical flow for the month. In addition, it represents the inclusion of direct materials in the ending work in process, which is not correct because the ending inventory has not reached the 80% point for addition of direct material.

[Zizoty]

Look at the ending inventory… it needs to be 80% complete but current ending inventory is only 60% complete so you dont use it. That's my guess. Good luck.

AUD - 83 Feb11
REG - 75 May11
BEC - 73 July11 84 Oct11
FAR - 63 Aug11 76 Feb12 I'M DONE!!!!!

[Anonymous]

Thank you for your reply, Zizoty. I guess Becker does not cover this %-involved FIFO & WA questions. Wiley text does talk about it, but not too specific.. As I review your comments and other person's advise, i guess it's important to consider weather or not you include spoilage/defective units into calculation. Also, it must to consider % specifying BGN & END if it applies to questions. anyway, appreciated your time!!

[Anonymous]

CPA-punk. First, I thank you for posting the questions. I am using Becker, and I have never run into questions like this. I saw you posted two similar questions here, and I think the key for this kind of qestion is “material is added when the product is 80% completed.” Therefore, you need to figure out weather the material is added in Dept 2. So, no material is add to the ending balance since they are only 60% completed. therefore, the EU should be = 80,000 + 1,500. IF, IF this is a weighted average question, the begining unit should be”0″ since it's 90% completed, which meant material has been added in the prior period…Becker has never covered this topic, if I ran into this questions without seeing your posts, I could have completely missed it on my exam. Thanks again!

[Anonymous]

oh no, it's ok, CPA-Convertible. I use Becker as a main source. and I use Wiley as a supplemental source. I guess Becker is good for a beginner. Wiley covers details deeply. anyway, I try to specify topics here which people around me could not explain. For some topics I posted, I even asked Becker instructors but did not give enough details.. (i did not know who to ask at Wiley People) however, people here are very helpful which I really appreciated! good luck to you!

[Author]

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