- If the company discovers that 1,000 of the completed units should be classified as defective units (which reduces their transfer value by 40%), what is the impact on the cost allocation between transferred units and ending WIP?
Answer: No change in cost allocation between transferred units and ending WIP
The discovery of defective units affects the valuation of transferred units but not the cost allocation between transferred units and ending WIP. Under weighted-average process costing, costs are allocated based on equivalent units of production. The 1,000 defective units were still completed (used full equivalent units of input) so they receive full allocation of production costs. The 40% reduction in transfer value is a separate adjustment that doesn't change the fundamental cost allocation. Choice A and D incorrectly assume cost reallocation. Choice B misunderstands that defective units still consumed full production resources.
- Apex Company uses FIFO process costing in its Assembly Department. Beginning WIP contained 2,000 units that were 75% complete for conversion costs with a total cost of $15,000. During the period, 18,000 units were started, and 16,000 units were completed and transferred out. Ending WIP was 25% complete for conversion costs. Current period costs totaled $144,000. If the cost per equivalent unit for conversion costs is $4.50, what amount should be assigned to ending WIP inventory?
Answer: $4,500
Under FIFO, ending WIP = 2,000 + 18,000 - 16,000 = 4,000 units. These 4,000 units are 25% complete for conversion costs. Ending WIP conversion cost = 4,000 × 25% × $4.50 = $4,500. Note that this problem only asks for conversion costs assigned to ending WIP, not total costs. Choice B incorrectly uses 75% completion. Choice C uses 100% completion rate. Choice D calculates total equivalent units instead of ending WIP cost.
- What is the cost assigned to units transferred out during March?
Answer: $281,400
Under weighted-average method: Equivalent units for materials = 45,000 + 5,000(100%) = 50,000. Equivalent units for conversion = 45,000 + 5,000(40%) = 47,000. Cost per equivalent unit: Materials = ($24,000 + $126,000) ÷ 50,000 = $3.00. Conversion = ($18,600 + $155,400) ÷ 47,000 = $3.70. Total cost per unit = $6.70. Cost of units transferred out = 45,000 × $6.70 = $281,400. Choice B uses FIFO method incorrectly. Choice C omits beginning WIP costs. Choice D incorrectly calculates conversion equivalent units as 45,000.
- Sigma Company uses FIFO process costing with two cost categories: materials (added at the beginning) and conversion costs (added evenly throughout). In June, beginning WIP consisted of 5,000 units (30% complete for conversion) with costs of $35,000. The company started 30,000 units and incurred $245,000 in current period costs. If 28,000 units were completed and the cost per equivalent unit for the current period is $7.00, what is the total cost of units transferred out?
Answer: $231,000
Under FIFO, cost of units transferred out = Beginning WIP cost + Cost to complete beginning WIP + Cost of units started and completed. Beginning WIP cost = $35,000. Cost to complete beginning WIP = 5,000 × 70% × $7.00 = $24,500. Units started and completed = 28,000 - 5,000 = 23,000. Cost of units started and completed = 23,000 × $7.00 = $161,000. Total transferred out = $35,000 + $24,500 + $161,000 = $231,000. Choice A omits beginning WIP costs. Choice C uses total current period costs. Choice D miscalculates completion percentage.
- Theta Manufacturing uses FIFO process costing. Department A transfers units to Department B. In October, Department B received 20,000 units from Department A. Department B had 2,000 units in beginning WIP (100% complete for transferred-in costs, 40% complete for Department B processing costs). Department B completed 19,000 units during October. The remaining 3,000 units in ending WIP were 100% complete for transferred-in costs and 70% complete for Department B processing costs. If the cost per equivalent unit for Department B processing is $3.20 and for transferred-in costs is $8.50, what portion of total costs is assigned to ending WIP?
Answer: $32,220
When you encounter FIFO process costing problems involving transferred-in costs, focus on calculating equivalent units separately for each cost category, then multiply by the respective cost per equivalent unit.
For ending WIP costs, you need equivalent units for both transferred-in costs and Department B processing costs. The 3,000 units in ending WIP are 100% complete for transferred-in costs (since they've already been received from Department A) and 70% complete for Department B processing.
Equivalent units in ending WIP:
- Transferred-in costs: 3,000 × 100% = 3,000 equivalent units
- Department B processing: 3,000 × 70% = 2,100 equivalent units
Total costs assigned to ending WIP:
- Transferred-in costs: 3,000 × $8.50 = $25,500
- Department B processing: 2,100 × $3.20 = $6,720
- Total ending WIP costs: $25,500 + $6,720 = $32,220
Answer D ($32,220) is correct.
Answer A ($28,260) incorrectly uses 3,000 equivalent units for Department B processing instead of 2,100. Answer B ($31,440) appears to use an incorrect completion percentage calculation. Answer C ($25,500) only includes the transferred-in costs portion and completely omits the Department B processing costs assigned to ending WIP.
Remember: ending WIP always includes costs from all departments that have worked on those units. Always calculate equivalent units separately for each cost category and multiply by the appropriate cost per equivalent unit.
