The Following Production And Cost Per Unit Data Are Availabl

The Following Production And Cost Per Eup Data Are Available For Lou

The following production and cost per EUP data are available for Louvre Corp. for February 2013: Units completed during February 390,000 Units in ending inventory (100% complete as to direct material; 30% complete as to direct labor; 25% complete as to overhead) 55,500 Direct material cost per EUP $7.50 Direct labor cost per EUP $9.00 Overhead cost per EUP $10.20

a. What is the cost of goods completed during February?

b. What is the cost of ending inventory at February 28, 2013?

c. What is the cost to account for during February?

In October 2013, Manachaca Company had the following production and cost data: Beginning inventory units (80% complete as to DM; 45% complete as to DL; 42% complete as to OH) October complete production 1,570,000 Units in ending inventory (35% complete as to DM; 15% complete as to DL; 25% complete as to OH) 28,400 Beginning inventory cost $458,482 October direct material cost per EUP $10.74 October direct labor cost per EUP $13.88 October overhead cost per EUP $24.80

a. What is the cost of the beginning inventory transferred out in October?

b. What is the total cost transferred out in October?

c. What is the cost of ending inventory at the end of October?

d. What is the total cost to account for during October?

Paper For Above instruction

The provided data offers a comprehensive overview of manufacturing costs and inventory levels for two companies, Louvre Corp. and Manachaca Company, during specific months in 2013. To analyze their production costs effectively, it is essential to understand and apply the principles of process costing, particularly the computation of equivalent units of production (EUP), cost per EUP, and the assignment of costs to units completed and ending inventory. This paper will systematically address each query based on the data, demonstrating methods for calculating the cost of goods manufactured, ending inventory, and total costs to be accounted for, using the weighted-average method, which is commonly employed in process costing systems.

Introduction

Cost accounting plays a vital role in providing managers with accurate information on production costs, inventory valuation, and profitability. Process costing, suitable for continuous manufacturing processes like those at Louvre Corp. and Manachaca Company, involves calculating equivalent units of production to assign costs evenly across units. This method involves two main components: determining the total costs to be allocated and allocating these costs appropriately to completed units and remaining inventory.

Cost Calculation for Louvre Corp. (February 2013)

To compute the cost of goods completed during February, the cost of ending inventory, and the total costs to account for, we first determine the equivalent units of production (EUP) for each cost component—materials, labor, and overhead—as well as the total costs associated with these units.

Step 1: Calculate the EUP for units completed and in ending inventory

Total units transferred out = 390,000 units. The ending inventory comprises 55,500 units, which are fully complete for materials, 30% complete for labor, and 25% complete for overhead. The equivalent units for ending inventory are computed as follows:

  • Materials: 55,500 units x 100% = 55,500 EUP
  • Labor: 55,500 units x 30% = 16,650 EUP
  • Overhead: 55,500 units x 25% = 13,875 EUP

The completed units are assumed to be 390,000 units for all components as they are fully completed in terms of their respective costs.

Step 2: Calculate total costs to be allocated

Using the given costs per EUP:

  • Materials: 390,000 units x $7.50 = $2,925,000
  • Labor: 390,000 units x $9.00 = $3,510,000
  • Overhead: 390,000 units x $10.20 = $3,978,000

Total costs for each component sum to the overall processing cost.

Step 3: Compute the cost of goods completed (COGS)

The cost of goods completed includes the costs assigned to units transferred out, which encompass the costs associated with the units completed during February:

  • Materials: 390,000 units x $7.50 = $2,925,000
  • Labor: 390,000 units x $9.00 = $3,510,000
  • Overhead: 390,000 units x $10.20 = $3,978,000

Sum: $2,925,000 + $3,510,000 + $3,978,000 = $10,413,000

Thus, the total cost of goods completed during February is approximately $10,413,000.

Step 4: Calculate ending inventory cost

The ending inventory costs are based on the equivalent units in ending inventory:

  • Materials: 55,500 units x $7.50 = $416,250
  • Labor: 16,650 EUP x $9.00 = $149,850
  • Overhead: 13,875 EUP x $10.20 = $141,675

Sum of ending inventory costs: $416,250 + $149,850 + $141,675 = $707,775.

Step 5: Total costs to account for

The total costs to be accounted for include the costs of beginning inventory plus costs incurred during February. Given no specific beginning inventory costs at Louvre Corp., the total is derived from the summation of the costs for completed units and ending inventory, amounting to approximately $11,120,775.

Analysis for Manachaca Company (October 2013)

Similarly, constructing the costs for Manachaca involves calculating the costs of beginning inventory transferred out, total costs transferred out, ending inventory, and total costs to account for. The data provided allows us to perform these calculations systematically through equivalent units and cost per EUP methods.

Step 1: Determine equivalent units for October production

Beginning inventory units are 80% complete for materials, 45% for labor, and 42% for overhead, with a total of 28,400 units remaining in inventory. The production volume for October is 1,570,000 units.

The equivalent units for beginning inventory based on the percentage completion are:

  • Materials: 28,400 units x 80% = 22,720 EUP
  • Labor: 28,400 x 45% = 12,780 EUP
  • Overhead: 28,400 x 42% = 11,928 EUP

For the October production, the EUP are full for completed units, whereas for ending inventory, the equivalent units are calculated as:

  • Materials: 28,400 units x 35% = 9,940 EUP
  • Labor: 28,400 x 15% = 4,260 EUP
  • Overhead: 28,400 x 25% = 7,100 EUP

Step 2: Calculate total costs to be allocated

The costs per EUP for October are:

  • Materials: $10.74
  • Labor: $13.88
  • Overhead: $24.80

Compute total costs for transferred units:

  • Materials: 1,570,000 units x $10.74 = $16,837,800
  • Labor: 1,570,000 units x $13.88 = $21,787,600
  • Overhead: 1,570,000 units x $24.80 = $38,936,000

Total October costs sum to $77,561,400.

Step 3: Compute the cost of beginning inventory transferred out

Using the total costs and the equivalent units for beginning inventory, we allocate costs proportionally based on the units transferred out.

First, calculate the costs associated with beginning inventory:

  • Materials: 22,720 EUP x $10.74 = $244,085
  • Labor: 12,780 EUP x $13.88 = $177,260
  • Overhead: 11,928 EUP x $24.80 = $296,813

Sum: $244,085 + $177,260 + $296,813 = $718,158 approximately, representing the cost of beginning inventory transferred out.

Step 4: Total cost transferred out in October

Adding the costs of beginning inventory and October production, the total transfer-out cost is approximately $77,561,400, encompassing transfer of both starting inventory and newly produced units. This figure reflects the total value of units moved out of the process in October.

Step 5: Cost of ending inventory and total costs to account for

The ending inventory costs are calculated using the equivalent units for ending inventory multiplied by the cost per EUP:

  • Materials: 9,940 EUP x $10.74 = $106,935
  • Labor: 4,260 EUP x $13.88 = $59,093
  • Overhead: 7,100 EUP x $24.80 = $176,080

Sum: $106,935 + $59,093 + $176,080 = $342,108. These constitute the ending inventory costs. The total costs to account for during October are the sum of beginning inventory costs transferred out and costs added during the period, totaling approximately $78,279,558.

Conclusion

Accurately calculating manufacturing costs requires meticulous determination of equivalent units and precise allocation of costs across units transferred out and remaining inventory. The process costing methods demonstrated for Louvre Corp. and Manachaca Company highlight the importance of detailed data and systematic calculations. These analyses assist management in assessing production efficiency, pricing strategies, and inventory management, ultimately supporting the company's overall financial health and operational decision-making.

References

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