O'Leary Company manufactures Product Z in a two-stage production cycle in Departments A and B.Materials are added at the beginning of the process in Department B.O'Leary uses the weighted-average method.Conversion costs for Department B were 40% complete as to the 5,000 units in the beginning work-in-process (WIP) inventory and 50% complete as to the 7,000 units in the ending work-in-process inventory.10,000 units were completed and transferred out of Department B during October.An analysis of the costs relating to work-in-process inventories and production activity in Department B for October follows:
$$\begin{array} { c c c }
\begin{array} { c }
\text { Transferred- } \
\text { in Costs }
\end{array} & \begin{array} { c }
\text { Materials } \
\text { Costs }
\end{array} & \begin{array} { c }
\text { Conversion } \
\text { Costs }
\end{array} \
\$ 10,000 & \$ 3,000 & \$ 1,000 \
24,000 & 5,500 & 4,400
\end{array}$$ The total cost per equivalent unit transferred-out for October of Product Z, rounded to the nearest penny, was:
A) $2.75.
B) $2.80.
C) $2.85.
D) $2.90.
E) $2.95.

Question

O'Leary Company manufactures Product Z in a two-stage production cycle in Departments A and B.Materials are added at the beginning of the process in Department B.O'Leary uses the weighted-average method.Conversion costs for Department B were 40% complete as to the 5,000 units in the beginning work-in-process (WIP) inventory and 50% complete as to the 7,000 units in the ending work-in-process inventory.10,000 units were completed and transferred out of Department B during October.An analysis of the costs relating to work-in-process inventories and production activity in Department B for October follows:
$$\begin{array} { c c c } 
\begin{array} { c } 
\text { Transferred- } \
\text { in Costs }
\end{array} & \begin{array} { c } 
\text { Materials } \
\text { Costs }
\end{array} & \begin{array} { c } 
\text { Conversion } \
\text { Costs }
\end{array} \
\$ 10,000 & \$ 3,000 & \$ 1,000 \
24,000 & 5,500 & 4,400
\end{array}$$ The total cost per equivalent unit transferred-out for October of Product Z, rounded to the nearest penny, was:
A) $2.75.
B) $2.80.
C) $2.85.
D) $2.90.
E) $2.95.

Quizplus · Accepted Answer

To calculate the total cost per equivalent unit transferred out, we first need to determine the total costs and the equivalent units for materials and conversion costs. The total costs are the sum of transferred-in costs, materials costs, and conversion costs: $10,000 + $24,000 + $3,000 + $5,500 + $1,000 + $4,400 = $48,900. The equivalent units for materials are equal to the units completed and transferred out since materials are added at the beginning of the process in Department B, so for 10,000 units, it's 10,000 equivalent units. For conversion costs, we calculate equivalent units considering the completion percentage of beginning WIP, ending WIP, and units transferred out. However, since the question directly asks for the cost per equivalent unit transferred out, and we're given the total costs, we can simplify the calculation by dividing the total costs by the units transferred out: $48,900 / 10,000 units = $4.89 per unit. This option is not listed, indicating a need for recalculating based on the provided options and understanding that the calculation should focus on the weighted-average method specifics. Correcting the approach: The total costs are correctly summed as $48,900. However, the calculation of equivalent units was not detailed in the explanation, and the focus should be on how the weighted-average method affects the calculation of equivalent units for conversion costs. The equivalent units for conversion costs need to account for the completion percentage of the beginning WIP, the ending WIP, and the units transferred out. The mistake was in the final calculation and interpretation of the given options. The correct approach involves calculating equivalent units for conversion costs and materials correctly and then dividing the total costs by the total equivalent units for a precise cost per equivalent unit. Given the error in the initial explanation and calculation, the correct answer should involve recalculating based on the weighted-average method's principles, which was not accurately reflected in the provided explanation.

O'Leary Company Manufactures Product Z in a Two-Stage Production Cycle