Question

O'Leary Company manufactures Product Z in a two-stage production cycle in Departments A and B. Materials are added at the beginning of the process in Department B. O'Leary uses the weighted-average method. Conversion costs for Department B were 40% complete as to the 40,000 units in the beginning work-in-process (WIP) inventory and 50% complete as to the 56,000 units in the ending work-in-process inventory. 80,000 units were completed and transferred out of Department B during October. An analysis of the costs relating to work-in-process inventories and production activity in Department B for October follows:

Transferred-
in Costs Materials
Costs Conversion
Costs
WIP, October 1: $ 80,000 $ 24,000 $ 8,000
Costs added in October 192,000 44,000 35,200
The total cost per equivalent unit transferred-out for October of Product Z, rounded to the nearest penny, was:

A. $2.80.
B. $2.75.
C. $2.90.
D. $2.85.
E. $2.95.

Answer 1

Answer:

C. $2.90

Explanation:

 Weighted average cost is given by :

Beginning units                   40,000       Transferred out    80,000

Started in production          96,000        Ending units        56,000

                                            136,000                                    136,000

Equivalent units is given by :

                                    Transferred in         Material            Conversion cost

Units transferred A       80,000                    80,000             80,000

Ending Units                  56,000                    56,000             56,000

Completion                     100%                        100%                 50%

B                                    56,000                     56,000              28,000

Total units                    136,000                     136,000             108,000

Cost per equivalent units

Particulars                             Transferred in     Material      Conversion cost  

At beginning                             80,000             24,000            8000

Added during the month         192,000            44,000           35,200

Cost to be accounted for A    272,000            68,000           43,200

Total equivalent units (B)        136,000            136,000          108,000

Cost per equivalent unit (a/b)    2.00                   0.5                   0.4

Therefore, total cost per equivalent unit is = 2.00 + 0.5 + 0.4

                                                                      = 2.90