Badgersize Company Has The Following Information For It
Badgersize Company Has The Following Information For Its Forming Depar
Badgersize Company has the following information for its Forming Department for the month of August: Work in Process Inventory, August 1: 20,000 units; direct materials: 100% complete $80,000; conversion: 20% complete $24,000. Balance in work in process, August 1: $104,000. Units started during August: 46,000. Units completed and transferred in August: 59,000. Work in process (70% complete), August 31: ? Costs charged to Work in Process in August: direct materials $152,000; conversion costs: direct labor $116,000, overhead applied $147,000. Total conversion: $263,000. Assume materials are added at the start of processing.
Paper For Above instruction
The analysis of the Forming Department’s costs for August involves calculating the equivalent units of production for both direct materials and conversion costs, as well as determining the cost per equivalent unit. These calculations are essential for understanding the department's efficiency and cost management.
Calculation of Equivalent Units
Given that materials are added at the start of processing, the calculation of equivalent units for direct materials is straightforward. All units in beginning inventory, units started, and ending inventory are considered to have received the full amount of materials once production begins; thus, the equivalent units for direct materials equal the units completed and in ending inventory (to be calculated).
For conversion costs, which include labor and overhead, the percentage of completion affects the equivalent units calculation since these costs are incurred throughout the manufacturing process.
Step 1: Determine units to account for
- Beginning inventory: 20,000 units
- Started during August: 46,000 units
- Total units available for processing: 20,000 + 46,000 = 66,000 units
- Units completed and transferred out: 59,000 units
- Ending inventory: 66,000 - 59,000 = 7,000 units
Step 2: Calculate equivalent units for direct materials
Since materials are added at the start, all units in beginning inventory, units started during the period, and ending inventory are considered to have received materials:
- Units completed and transferred: 59,000 units (100% complete for materials)
- Ending inventory units: 7,000 units (100% complete for materials)
Equivalent units for direct materials = 59,000 + 7,000 = 66,000 units
Step 3: Calculate equivalent units for conversion costs
Conversion costs are incurred uniformly; thus, the degree of completion affects the equivalent units.
- Units completed and transferred: 59,000 units (100% complete for conversion)
- Ending inventory: 7,000 units * 70% (degree of completion) = 4,900 units
Equivalent units for conversion costs = 59,000 + 4,900 = 63,900 units
Summary of Equivalent Units:
| Cost Category | Equivalent Units |
|------------------------|------------------------|
| Direct materials | 66,000 |
| Conversion | 63,900 |
Calculation of Cost per Equivalent Unit
The next step is to compute the cost per equivalent unit for both input resources.
Step 4: Determine total costs for each input
- Direct materials: $152,000
- Conversion costs: $116,000 (labor) + $147,000 (overhead) = $263,000
Step 5: Calculate cost per equivalent unit
- Cost per equivalent unit for direct materials:
\[
\text{Cost per EU (Materials)} = \frac{\text{Total Material Cost}}{\text{Equivalent Units for Materials}} = \frac{\$152,000}{66,000} ≈ \$2.30
\]
- Cost per equivalent unit for conversion:
\[
\text{Cost per EU (Conversion)} = \frac{\text{Total Conversion Cost}}{\text{Equivalent Units for Conversion}} = \frac{\$263,000}{63,900} ≈ \$4.12
\]
Conclusion
The equivalent units for August in the Forming Department are 66,000 for direct materials and 63,900 for conversion costs. The cost per unit is approximately $2.30 for materials and $4.12 for conversion costs. These figures provide a clear picture of production efficiency and cost accumulation, which are critical for accurate product costing and financial analysis.
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