Information for the current month for Process D is shown below. Units completed-72,000
Units in ending work in process inventory-5,000
Direct materials are added at the beginning of the process.Beginning work in process is 50 percent complete as to conversion costs;ending work in process inventory is 40 percent complete.Determine the cost of ending work in process inventory.

Question

Information for the current month for Process D is shown below.  Units completed-72,000
Units in ending work in process inventory-5,000
Direct materials are added at the beginning of the process.Beginning work in process is 50 percent complete as to conversion costs;ending work in process inventory is 40 percent complete.Determine the cost of ending work in process inventory.

Quizplus · Accepted Answer

To determine the cost of ending work in process inventory, we need to calculate the equivalent units of production for both direct materials and conversion costs:
Direct materials:
Units completed = 72,000
Ending work in process inventory = 5,000
Total units = 77,000
Since direct materials are added at the beginning of the process, all 77,000 units are considered to be 100% complete as to direct materials.
Conversion costs:
Beginning work in process inventory = 50% complete
Units completed = 72,000
Ending work in process inventory = 40% complete
Total units = 77,000
Equivalent units of production for conversion costs = (50% x 77,000) + 72,000 + (40% x 77,000) = 38,500 + 72,000 + 30,800 = 141,300
The total cost incurred for Process D during the current month is not given, so we cannot directly calculate the cost of ending work in process inventory. However, we can use the information about the cost incurred per equivalent unit of production for direct materials and conversion costs to estimate the cost of ending work in process inventory.
Direct materials:
Cost incurred for direct materials = $55,440
Equivalent units of production for direct materials = 77,000
Cost per equivalent unit of production = $55,440 ÷ 77,000 = $0.72
Ending work in process inventory for direct materials = 5,000 x $0.72 = $3,600
Conversion costs:
Cost incurred for conversion costs = unknown
Equivalent units of production for conversion costs = 141,300
Cost per equivalent unit of production = unknown
We know that the total cost incurred for Process D during the current month includes both the cost of direct materials and the cost of conversion costs. Since we have calculated the cost per equivalent unit of production for direct materials, we can use this information to estimate the total cost of direct materials:
Total cost of direct materials = $0.72 x 77,000 = $55,440
To estimate the cost per equivalent unit of production for conversion costs, we can subtract the cost of direct materials from the total cost incurred:
Total cost incurred = Cost of direct materials + Cost of conversion costs
Unknown cost = $55,440 + Cost of conversion costs
We do not know the cost of conversion costs, but we can use the information about equivalent units of production to estimate the cost per equivalent unit of production:
Cost per equivalent unit of production for conversion costs = (Total cost incurred - Cost of direct materials) ÷ Equivalent units of production for conversion costs
Cost per equivalent unit of production for conversion costs = ($unknown - $55,440) ÷ 141,300
We cannot solve for $unknown without the total cost incurred, but we can estimate the cost of ending work in process inventory for conversion costs:
Ending work in process inventory for conversion costs = 5,000 x (estimated cost per equivalent unit of production) = 5,000 x ($unknown ÷ 141,300)
Since $unknown is greater than $55,440, we know that the estimated cost per equivalent unit of production for conversion costs must be greater than $0.72. Of the answer choices given, only option D,$3,760, is greater than $3,600 (the cost of ending work in process inventory for direct materials) and seems feasible as a possible estimation for the cost of ending work in process inventory for conversion costs. Therefore, the best choice is D.

Information for the Current Month for Process D Is Shown