solution to MGT402

MGT 402 – COST AND MANAGEMENT

ACCOUNTING

1- Units stared and completed during January:

Total units transferred to the next department 60,000

Less: unit in the January 01 inventory 10,000

Units started and completed in January 50,000

2- Equivalent units:

= Units transferred to next department + Completed portion of W.I.P inventory

Material Cost:

= 60,000 + 8,000 x 75%

= 60,000 + 6,000

= 66,000 units

Conversion Cost:

= 60,000 + 8,000 x 50%

= 60,000 + 4,000

= 64,000 units

3- Costs per equivalent unit for January:

Material cost per unit:

= Material cost / Equivalent units of materials cost

= (18,000 + 114,000) / 66,000

= 132,000 / 66,000

= £ 2.00 per units

Conversion cost per unit:

= Conversion cost / Equivalent units of Conversion cost

= (8,800 + 61,600) / 64,000

= 70,400 / 64,000

= £ 1.10 per units

Total per unit cost:

Material cost per unit + Conversion cost per unit

= 2.00 + 1.10

= £ 3.10 per units

4-The ending work in process inventory figure is verified as:

Material cost £ 12,000

(8,000 x 75% x 2)

(6,000 x 2.00)

Conversion cost 4,400

(8,000 x 50% x 1.10)

(4,000 x 1.10)

Total W.I.P inventory £ 16,400

5-

The FIFO method is superior because current performance should be measured in relation

to costs of the current period only. And the weighted – average method mixes these costs

in with costs of the prior period. Unit costs are influenced to some extent by what

happened in a prior period. This problem becomes particularly significant when

attempting to measure performance in the current period. Good or bad cost control in the

current period might be concealed to some degree by the costs that have been brought

forwarded in the beginning inventory.