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

Exercise 2

Refer to the data in Problem 20-4A. Assume that Tamar uses the FIFO method to account for its process costing system. The following additional information is available:

REFERENCE: Problem 20-4A
Tamar Co. manufactures a single product in one department. All direct materials are added at the be ginning of the manufacturing process. Conversion costs are added evenly throughout the process. During May, the company completed and transferred 22,200 units of product to finished goods inventory. Its 3,000 units of beginning work in process consisted of $19,800 of direct materials and $221,940 of conversion costs. It has 2,400 units (100% complete with respect to direct materials and 80% complete with respect to conversion) in process at month-end. During the month, $496,800 of direct material costs and $2,165,940 of conversion costs were charged to production.
Required
1. Prepare the company's process cost summary for May using the weighted-average method.
2. Prepare the journal entry dated May 31 to transfer the cost of completed units to finished goods inventory.
Analysis Components
3. The costing process depends on numerous estimates.
a. Identify two major estimates that determine the cost per equivalent unit.
b. In what direction might you anticipate a bias from management for each estimate in part 3a (assume that management compensation is based on maintaining low inventory amounts) Explain your answer.