Fundamental Accounting Principles 22th Edition by John Wild ,Ken Shaw,Barbara Chiappetta

Exercise 90

Abraham Company uses process costing to account for its production costs. Conversion is added evenly throughout the process. Direct materials are added at the beginning of the process. During September, the production department transferred 80,000 units of product to finished goods. Beginning work in process consisted of 2,000 units that were 100% complete with respect to direct materials and 85% complete with respect to conversion. Of the units completed, 2,000 were from beginning work in process and 78,000 units were started and completed during the period. Beginning work in process had $58,000 of direct materials and $86,400 of conversion cost. At the end of September, the work in process inventory consists of 8,000 units that are 25% complete with respect to conversion. The direct materials cost added in September is $712,000, and conversion cost added is $1,980,000. The company uses the weighted-average method.
Required
1. Determine the equivalent units of production with respect to (a) conversion and (b) direct materials.
2. Compute both the conversion cost and the direct materials cost per equivalent unit.
3. Compute both conversion cost and direct materials cost assigned to (a) units completed and transferred out and (b) ending work in process inventory.
Analysis Component
4. The company sells and ships all units to customers as soon as they are completed. Assume that an error is made in determining the percentage of completion for units in ending inventory. Instead of being 25% complete with respect to conversion, they are actually 75% complete. Write a one-page memo to the plant manager describing how this error affects its September financial statements.