On August 1, Jones Corporation's Packaging Department Had Wo
On August 1 Jones Corporations Packaging Department Had Work In Proc
On August 1, Jones Corporation's packaging department had Work in Process inventory of 8,000 units that were 75% complete with respect to materials and 30% complete with respect to conversion costs. The cost of these units was $99,525 ($62,000 transferred-in from previous departments, $28,775 in materials, and $8,750 in labor and overhead). During August, 125,000 units were transferred into the department. These units had accumulated costs in previous departments of $1,418,560. The packaging department incurred costs of $799,225 for materials and $498,010 for conversion costs in August and transferred 131,000 units out of the department. The 2,000 units remaining in ending inventory are 50% complete with respect to materials and 20% complete with respect to conversion costs. Jones Corporation uses the average cost method to cost its inventories.
Paper For Above instruction
Introduction
The calculation of unit costs in a manufacturing process is essential for accurate financial reporting and inventory valuation. The use of the weighted-average method blends beginning inventory costs with costs incurred during the period to determine overall unit costs. This paper demonstrates the calculation of the cost per equivalent unit for transferred-in costs, materials, and conversion costs; the cost of units transferred out; and the ending inventory valuation in Jones Corporation’s packaging department for August.
Calculating the Cost per Equivalent Unit
The first step involves determining the total costs and equivalent units for each category, considering the beginning inventory and costs added during the period.
Transferred-in costs:
Transferred-in costs for beginning inventory are $62,000, and additional costs incurred during August amount to the costs transferred from the previous department, which total $1,418,560. The total transferred-in costs are thus:
$$
\text{Total transferred-in costs} = \$62,000 + \$1,418,560 = \$1,480,560.
$$
Equivalent units for transferred-in costs:
Since transferred-in costs are associated with all units in process (both beginning and units transferred during the period), they are based on units transferred out plus ending inventory units:
- Units transferred out = 131,000 units
- Ending inventory = 2,000 units
Total units to allocate costs to:
$$
\text{Units} = 131,000 + 2,000 = 133,000.
$$
Because transfer-in costs are not subject to partial completion, their equivalent units are 133,000 (full units). The cost per equivalent unit for transferred-in costs is:
$$
\text{Transferred-in cost per unit} = \frac{\$1,480,560}{133,000} \approx \$11.14.
$$
Materials:
Beginning inventory materials costs are $28,775; costs added during August are $799,225. Total materials costs:
$$
\$28,775 + \$799,225 = \$828,000.
$$
Equivalent units for materials:
- Units transferred out = 131,000 units
- Ending inventory = 2,000 units * 50% complete = 1,000 equivalent units
Total equivalent units for materials:
$$
131,000 + 1,000 = 132,000.
$$
Material cost per equivalent unit:
$$
\text{Materials cost per unit} = \frac{\$828,000}{132,000} \approx \$6.27.
$$
Conversion costs:
Beginning inventory conversion costs are $8,750; costs incurred during August are $498,010. Total conversion costs:
$$
\$8,750 + \$498,010 = \$506,760.
$$
Equivalent units for conversion:
- Units transferred out = 131,000 units
- Ending inventory = 2,000 units * 20% = 400 equivalent units
Total equivalent units:
$$
131,000 + 400 = 131,400.
$$
Conversion cost per equivalent unit:
$$
\text{Conversion costs per unit} = \frac{\$506,760}{131,400} \approx \$3.86.
$$
Cost of Units Transferred Out
The cost of units transferred out includes all costs associated with those units: transferred-in, materials, and conversion costs.
- Transferred-in costs:
$$
131,000 \text{ units} \times \$11.14 = \$1,458,340.
$$
- Materials:
$$
131,000 \times \$6.27 = \$820,370.
$$
- Conversion:
$$
131,000 \times \$3.86 = \$505,460.
$$
Total cost of units transferred out:
$$
\$1,458,340 + \$820,370 + \$505,460 = \$2,784,170.
$$
Note: The sum may differ slightly due to rounding; the accurate total is the sum of the individual components.
Cost of Ending Inventory
Ending inventory consists of 2,000 units at 50% complete for materials and 20% for conversion.
- Transferred-in costs for ending inventory:
$$
2,000 \times \$11.14 \times 50\% = \$11,140.
$$
- Materials:
$$
2,000 \times \$6.27 \times 50\% = \$6,270.
$$
- Conversion:
$$
2,000 \times \$3.86 \times 20\% = \$1,544.
$$
Total ending inventory cost:
$$
\$11,140 + \$6,270 + \$1,544 = \$19,954.
$$
Conclusion
This calculation accurately assigns costs to units transferred out and ending inventory using the weighted-average method. Proper understanding of equivalent units and total costs facilitates effective inventory valuation, aligning with generally accepted accounting principles. The calculated unit costs serve as a basis for financial reporting and managerial decision-making at Jones Corporation.
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