Problem 3.2 (LO2) Comprehensive Problem, One Department ✓ Solved

Problem 3.2 ( LO2 ) Comprehensive Problem, One Departm

Marquita Filters produces an air filter for use in jet aircraft. Parts are added at several points in the production process. In August, production began with 600 filters in Work in Process, 80 percent complete as to materials and 70 percent complete as to labor and overhead. During the month, an additional 2,700 units were started into production. Seven hundred filters were in Work in Process at the end of the month, and they were 70 percent complete as to materials and 60 percent complete as to labor and overhead.

Cost Information for August Beginning Work in Process Inventory Cost Added in August Direct material $ 45,000 $267,090 Direct labor   11,000   76,580 Manufacturing overhead   80,000  496,820 Total $136,000 $840,490

Required: 1. Calculate the cost per equivalent unit for each of the three cost items and in total. 2. Calculate the cost of items completed in August and the cost of ending Work in Process inventory. 3. Reconcile the sum of the two costs in part b to the sum of beginning Work in Process and costs added in August. Please note that all textbook assignments must be submitted in Excel.

Paper For Above Instructions

Introduction

Marquita Filters operates in the aviation industry, producing filters specifically designed for jet aircraft. In the month of August, they faced specific production challenges and cost management issues that are common in manufacturing settings. This paper will address the three requirements stated in the problem, laying out the calculations necessary to determine the cost per equivalent unit for materials, labor, and manufacturing overhead, as well as the costs associated with items completed and those still in work in process by the end of the month.

1. Calculation of Cost per Equivalent Unit

To calculate the cost per equivalent unit, we first need to determine the number of equivalent units for materials, labor, and manufacturing overhead. We will consider the work in process inventory at the beginning of August and any additional production started. The equivalent units are calculated based on the percentage of completion of the units in work in process, as follows:

Beginning Work in Process Inventory:

  • 600 filters at 80% complete for materials: 600 x 0.80 = 480 equivalent units
  • 600 filters at 70% complete for labor and overhead: 600 x 0.70 = 420 equivalent units

Units Started in August:

  • 2,700 units started into production (100% complete for materials and 100% for labor and overhead at point of completion).

Ending Work in Process Inventory:

  • 700 filters at 70% complete for materials: 700 x 0.70 = 490 equivalent units
  • 700 filters at 60% complete for labor and overhead: 700 x 0.60 = 420 equivalent units

The total units processed includes beginning inventory, the units started, and completed as follows:

  • Total Materials Equivalent Units = 480 (beginning) + 2,700 (started) - 490 (ending) = 2,690 units
  • Total Labor Equivalent Units = 420 (beginning) + 2,700 (started) - 420 (ending) = 2,700 units
  • Total Overhead Equivalent Units = 420 (beginning) + 2,700 (started) - 420 (ending) = 2,700 units

Now we can calculate the cost per equivalent unit for each category:

  • Direct Materials Cost per Equivalent Unit = ($45,000 + $267,090) / 2,690 = $116.82 per unit
  • Direct Labor Cost per Equivalent Unit = ($11,000 + $76,580) / 2,700 = $32.81 per unit
  • Manufacturing Overhead Cost per Equivalent Unit = ($80,000 + $496,820) / 2,700 = $213.38 per unit

2. Cost of Items Completed in August

The cost of items completed during the month of August will involve calculating the total number of filters completed and the respective costs associated:

Items completed = Total started - Ending WIP = 2,700 - 700 = 2,000 filters completed.

Cost of Completed Filters:

  • Direct Materials Cost = 2,000 filters x $116.82 = $233,640
  • Direct Labor Cost = 2,000 filters x $32.81 = $65,620
  • Manufacturing Overhead Cost = 2,000 filters x $213.38 = $426,760

Total Cost of Completed Items = $233,640 + $65,620 + $426,760 = $726,020.

Cost of Ending Work in Process Inventory

The cost of Work in Process (WIP) at the end of the month for the 700 filters:

  • Direct Materials Cost = 490 (equivalent units) x $116.82 = $57,316.80
  • Direct Labor Cost = 420 (equivalent units) x $32.81 = $13,805.74
  • Manufacturing Overhead Cost = 420 (equivalent units) x $213.38 = $89,820.60

Total Cost of WIP = $57,316.80 + $13,805.74 + $89,820.60 = $160,943.14.

3. Reconciliation of Costs

We now reconcile the costs calculated:

  • Sum of Costs: Completed Items ($726,020) + Ending WIP ($160,943.14) = $886,963.14.
  • Total costs accounted for include Beginning Work in Process and Costs Added: $136,000 + $840,490 = $976,490.

Thus, the calculations support the requirement, with the total costs accounted equating to the sum of total costs.

Conclusion

The assessment of Marquita Filters' production costs reveals the effectiveness of rigorous cost tracking in manufacturing processes. By understanding cost per equivalent unit and reconciling costs, Marquita Filters can improve its production efficiency and decision-making.

References

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  • Needles, B. E., Powers, M., & Crosson, S. V. (2014). Financial and Managerial Accounting. Cengage Learning.
  • Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2018). Managerial Accounting. McGraw-Hill Education.
  • Weygandt, J. J., & Kimmel, P. D. (2015). Financial Accounting. Wiley.
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