E 18-21

Equivalent units, zero beginning inventory.

Panagra, Inc. manufactures digital cameras. It has two departments: assembly and testing. In January 2020, the company incurred $775,000 on direct
materials
and $816,000 on conversion costs, for a total manufacturing cost of $1,591,000.
1. Assume there was no beginning inventory of any kind on January 1, 2020. During January, 10,000 cameras were placed into production and all 10,000 were
fully completed at the end of the month. What is the unit cost of an assembled camera in January?
2. Assume that during February 10,000 cameras are placed into production. Further assume the same total assembly costs for January are also incurred in
February, but only 9,000 cameras are fully completed at the end of the month. All direct materials have been added to the remaining 1,000 cameras.
However, on average, these remaining 1,000 cameras are only 60% complete as to conversion costs.
(a) What are the equivalent units for direct materials and conversion costs and their respective costs per equivalent unit for February?
(b) What is the unit cost of an assembled camera in February 2020?
3. Explain the difference in your answers to requirements 1 and 2.

1.
units: $
Direct materials cost per unit 77.50 775,000/10,000
Conversion cost per unit 81.60 816,000/10,000
Assembly Department cost per unit 159.10

2.
a)
Summarize Output in Physical Units and Compute Output in Equivalent Units; Assembly Department of Panagra, Inc. for February 2020.
(Step 2) Equivalent Units
(Step 1) Physical
Flow of Production Direct Materials Conversion Costs
Units
Work in process, beginning (given) 0
Started during current period (given) 10,000
To account for 10,000
Completed and transferred out during
9,000 9,000 9,000
current period
Work in process, ending* (given) 1,000
1,000 x 100%; 1,000 x 60% 1,000 600
 Accounted for 10,000
Equivalent units of work done in current
10,000 9,600
period

*Degree of completion in this department: direct materials, 100%; conversion costs, 60%.

b)
Compute Cost per Equivalent Unit, Assembly Department of Panagra, Inc. for February 2020.
Total Production
Direct Materials Conversion Costs
Costs
Costs added during February 1,591,000 775,000 816,000 Units: $
Divide by equivalent units of work done
/10,000 /9,600
in current period
Cost per equivalent unit 77.5 85 Units: $

Direct materials cost per unit 77.5 Units:$

Conversion cost per unit 85
Assembly Department cost per unit 162.5

3.
The difference in the Assembly Department cost per unit calculated in requirements 1 and 2 arises because the costs incurred in January and February are the
same but fewer equivalent units of work are done in February relative to January. In January, all 10,000 units introduced are fully completed resulting in
10,000 equivalent units of work done with respect to direct materials and conversion costs. In February, of the 10,000 units introduced, 10,000 equivalent
units of work is done with respect to direct materials but only 9,600 equivalent units of work is done with respect to conversion costs. The Assembly
Department cost per unit is, therefore, higher.

E 18-22
Journal entries (continuation of 18-21).
Refer to requirement 2 of Exercise 18-21.
Prepare summary journal entries for the use of direct materials and incurrence of conversion costs.
Also prepare a journal entry to transfer out the cost of goods completed.
Show the postings to the work-inprocess account.
3. Transferred out to Work in Process––Testing

1.
Work in Process––Assembly 775,000 units: $
Accounts Payable 775,000
To record $775,000 of direct materials purchased and used in production during February 2020

2.
Work in Process––Assembly 816,000 units: $
Various accounts 816,000
To record $816,000 of conversion costs for February 2020; examples include energy, manufacturing supplies, all manufacturing labor, and plant depreciation

3.
Work in Process––Testing 1,462,500 units: $
Work in Process––Assembly 1,462,500

To record 9,000 units completed and transferred from Assembly to Testing during February 2020 at
= $162.5 /9,000 units
= $1,462,500

Postings to the Work in Process––Assembly account follow.

Work in Process –– Assembly Department
Beginning inventory, Feb. 1 0
1. Direct materials 775,000 1,462,500 3. Transferred out to Work in Process––Testing
2. Conversion costs 816,000
Ending inventory, Feb. 29 128,500

E 18-23
1.
Steps 1 and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units; Mixing
Department of Pilar Chemicals for July 2020.

(Step 2) Equivalent Units

(Step 1)
Chemical
Flow of Production Physical Chemical P Conversion Costs
Q
Units
Work in process, beginning (given) 0

Started during current period (given) 100,000

To account for 100,000

Completed and transferred out during
70,000 70,000 70,000 70,000
current period
Work in process, ending* (given) 30,000
30,000 x 100%; 30,000 x 0%; 30,000 x
30,000 0 20,000
2/3
Accounted for 100,000
Equivalent units of work done in
100,000 70,000 90,000
current period

*Degree of completion in this department: Chemical P, 100%; Chemical Q, 0%; conversion costs, 2/3.

=> equivalent units of work done in the current period of Chemical P, 100,000; Chemical Q, 70,000; Conversion costs,
90,000.

2.
Steps 3, 4, and 5: Summarize Total Costs to Account For, Compute Cost per Equivalent Unit, and
Assign Total Costs to Units Completed and to Units in Ending Work in Process; Mixing Department of
Roary Chemicals for July 2012.

Total
Chemical
Production Chemical P Conversion Costs
Q
Costs
Costs added during July 1,100,000 600,000 140,000 360,000 UNITS: $ Steps 3

Total costs to account for 1,100,000 600,000 140,000 360,000 UNITS: $

Costs added in current period 600,000 140,000 360,000 Steps 4

Divide by equivalent units of work
/100,000 /70,000 /90,000
done in current period
Cost per equivalent unit 6 2 4 UNITS: $

Assignment of costs: Steps 5

+
Completed and transferred out 840,000 420,000 + 140,000 UNITS: $
280,000
(70,000 x
(70,000 units) (70,000 x $6) (70,000 x $4)
$2)
Work in process, ending 260,000 180,000 +0 + 80,000 UNITS: $

(30,000 units) (30,000 x $6) (0 x $2) (20,000 x $4)

+
Total costs accounted for 1,100,000 600,000 + 140,000 UNITS: $
360,000
The total Mixing Department costs for July 2020, calculates cost per equivalent unit of work done in the current
period for Chemical P, Chemical Q, and Conversion costs, and assigns these costs to units completed (and
transferred out) and to units in ending work in process.

E 18-28

1.
Budgeted Budgeted Conversion
Conversion number of Cost per
Cost packages Package
Mixing 18,080 22,600 0.80
Shaping 3,250 13,000 0.25
Cutting 1,440 9,600 0.15
Baking 14,690 22,600 0.65
Slicing 1,300 13,000 0.10
Packaging 16,950 22,600 0.75

2.
Work order Work order
215 216
Bread type: Dinner Roll Multigrain Loaves
Quantity: 2,400 2,800
Direct Materials 1,320 2,520 UNITS: $
Mixing 1,920 2,240
Shaping 0 700
Cutting 360 0
Baking 1,560 1,820
Slicing 0 280
Packaging 1,800 2,100
Total 6,960 9,660 UNITS: $

The direct materials costs per unit vary based on the type of bread ($5,280 ÷
9,600 = $0.55 for the dinner rolls, and $11,700 ÷ 13,000 = $0.90 for the multi-
grain loaves). Conversion costs are charged using the rates computed in
part (1), taking into account the specific operations that each type of bread
3.
Work order #215 (Dinner rolls):
Total cost 6,960 UNITS: $
Divided by number of packages: /2,400