Managerial Accounting: The Cornerstone of Business Decision-Making
Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN: 9781337115773
Author: Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher: Cengage Learning
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Chapter 6, Problem 61P

Mimasca Inc. manufactures various holiday masks. Each mask is shaped from a piece of rubber in the molding department. The masks are then transferred to the finishing department, where they are painted and have elastic bands attached. Mimasca uses the weighted average method. In May, the molding department reported the following data:

  1. a. BWIP consisted of 15.000 units, 20% complete. Cost in beginning inventor)’ totaled $1,656.
  2. b. Costs added to production during the month were $26,094.
  3. c. At the end of the month, 45.000 units were transferred out to finishing. Then, 5,000 units remained in EWIP, 25% complete.

Required:

  1. 1. Prepare a physical flow schedule.
  2. 2. Calculate equivalent units of production.
  3. 3. Compute unit cost.
  4. 4. Calculate the cost of goods transferred to finishing at the end of the month. Calculate the cost of ending inventor).
  5. 5. CONCEPTUAL CONNECTION Assume that the masks are inspected at the end of the molding process. Of the 45,000 units inspected, 2,500 are rejected as faulty and are discarded. Thus, only 42,500 units are transferred to the finishing department. The manager of Mimasca considers all such spoilage as abnormal and does not want to assign any of this cost to the 42.500 good units produced and transferred to finishing. Your task is to determine the cost of this spoilage of 2,500 units and then to discuss how you would account for this spoilage cost. Now suppose that the manager feels that this spoilage cost is just part of the cost of producing the good units transferred out. Therefore, he wants to assign this cost to the good production. Explain how this would be handled. (Hint: Spoiled units are a type of output, and equivalent units of spoilage can be calculated.)

1.

Expert Solution
Check Mark
To determine

Make a physical flow schedule for molding department of Company MI.

Explanation of Solution

Physical Flow Schedule:

The schedule which is made with the objective to determine the production of physical units is known as physical flow schedule. It considers all units in process which can be related to any completion stage.

Prepare physical flow schedule of Company MI:

Physical Flow Schedule
Units to account for:Units
Units in BWIP15,000
Add: Units started135,000
Total units account for50,000
  
Units accounted for: 
Units transferred out45,000
Units in ending work in process5,000
Total units accounted for50,000

Table (1)

Therefore, the units accounted for and units to account for are 50,000 units.

Working Note:

1. Calculation of units started is given below:

Units started=TotalunitsUnitsinbeginningWIP=50,000 units15,000 units=35,000 units

So, units started are 35,000 units.

2.

Expert Solution
Check Mark
To determine

Compute equivalent unit of production of Company MI.

Answer to Problem 61P

The equivalent units of production are 46,250 units.

Explanation of Solution

Use the following formula to calculate equivalent unit of production:

Equivalent units of production=(Units complete+(Units in EWIP×Fraction complete))=(45,000 units+(5,000 units×.25))=46,250 units

Therefore, equivalent units of production are 46,250 units.

3.

Expert Solution
Check Mark
To determine

Compute unit cost of Company MI.

Answer to Problem 61P

The total unit cost for Company MI is $0.60.

Explanation of Solution

Use the following formula to calculate unit cost for Company MI:

Unit cost=Cost of BWIP+Costs added during monthEquivalent units =$1,656+$26,09446,250 units=$0.60

Therefore, the unit cost is $0.60.

4.

Expert Solution
Check Mark
To determine

Compute cost of goods transferred to finishing goods. Also, compute cost of ending inventory

Answer to Problem 61P

Cost of goods transferred to finishing is $27,000 and ending inventory cost is $750.

Explanation of Solution

Use the following formula to compute cost of goods transferred in the end to finishing goods:

Costofgoodstransferredout=Unittransferred×Unitcost=45,000×0.6=$27,000

Therefore, cost of goods transferred out is $27,000.

Use the following formula to compute ending inventory cost:

Endinginventorycost=(UnitsinEWIP×Fractioncomplete)×Unitcost=(5,000×0.25)×0.6=$750

Therefore, ending inventory cost is $750.

5.

Expert Solution
Check Mark
To determine

Compute cost of spoilage of 2,500 units and state how this cost would be treated. Manager wants to assign this cost to good production. Discuss how this would be handled.

Explanation of Solution

First compute equivalent units after considering spoiled units as it should be shown on the equivalent unit schedule. Use the following formula to calculate equivalent unit after accounting spoiled units:

Equivalent units of production=Unitstransferred+Spoiledunits+(Units in EWIP×Fraction complete)=42,500 units+2,500+(5,000 units×.25)=46,250 units

Therefore, equivalent units of production are 46,250 units.

Now compute cost of spoilage as shown below:

Spoilagecost=Spoiledunits×Unitcost=2,500×0.6=$1,500

Note: unit cost of $0.6 will remain the same.

Therefore, cost of spoilage is $1,500.

Treatment of spoilage cost depends on if it is normal or abnormal. In case cost is normal, it will be included in cost of goods transferred out. If cost is abnormal, it will be treated as loss for the period and not assigned to production.

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Chapter 6 Solutions

Managerial Accounting: The Cornerstone of Business Decision-Making

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