Memorychip is a fast-growing manufacturer of computer chips. Direct materials ar
ID: 2433117 • Letter: M
Question
Memorychip is a fast-growing manufacturer of computer chips. Direct materials are added at the start of the production process. Conversion costs are added evenly during the process. Some units of this product are spoiled as a result of defects not detectable before inspection of finished goods. Spoiled units are disposed of at zero net disposal value. Memorychip uses the FIFO methad of process costing. Summary data and weighted-average data for September 2014 are as follows: ?(Click the icon to view the data.) ?(Click the icon to view, the weighted-average data.) Requirements 1. For each cost category, compute equivalent units. Show physical units in the first column of your schedule 2. Summarize the total costs to account for, calculate the cost per equivalent unit for each cost category; and assign costs to units completed and transferred out (including normal spoilage), to abnormal spoilage, and to units in ending work in process. Should Memorychip's managers choose the weighted-average method or the FIFO method? Explain briefly. 3. Flow of Production Units Materials Costs Work in process beginning Started during current period To account for Completed and transferred out during current period 600 2676 3276 From beginning work in process 330 286 460 Started and completed Normal spoilage Abnormal spoilage Work in process, ending Accounted for Equivalent units of work done in current periodExplanation / Answer
Solution to requirement 1 : Computation of equivalent units for each cost category
Normal Spoilage
Percentage completion
Abnormal Spoilage
Percentage completion
Units closing WIP (E)
330
100%
286
100%
460
330
100%
NA
NA
460
In cost terms (Figures in $)
Direct Materials Conversion Costs Units in beginning WIP (A) 600 600 % of completion of beginning WIP in previous period (B) 100% 30% % of beginning WIP completed this period [C=100%-B] 0% 70% Equivalent units in beginning WIP [D=A×C] 0 420 Good Units started and completed in current period 2,200 2,200Normal Spoilage
Percentage completion
Abnormal Spoilage
Percentage completion
Units closing WIP (E)
330
100%
286
100%
460
330
100%
NA
NA
460
% of completion of closing WIP (F) 100% 30% Equivalent units in closing WIP (G=E×F) 460 138 Total equivalent units 3276 uts3088 uts