Illustration 3-10 Computation of equivalent units- Mixing Department Helpful Hint Question: When are separate unit cost computations needed for materials and conversion costs? Answer: Whenever the two types of costs do not occur in the process at the same time. Illustration 3-10 shows these computations. Two equivalent unit computations are therefore necessary: one for materials and the other for conversion costs. The ending work in process is fully complete as to materials, but only 60 percent complete as to conversion costs. The units transferred out to the Baking Department are fully complete as to both materials and conversion costs. In computing equivalent units, the beginning work in process is not part of the equivalent units of production formula. We then use the Mixing Department information to determine equivalent units. The ending work in process is 100 percent complete as to materials cost and 60 percent complete as to conversion costs. The conversion costs (labor and overhead) related to the mixing of these ingredients were incurred uniformly and are 70 percent complete. In other words, both the dry and liquid ingredients (materials) are added at the beginning of the process to make Eggo® Waffles. Conversion costs refers to the sum of labor costs and overhead costs. Illustration 3-9 indicates that the beginning work in process is 100 percent complete as to materials cost and 70 percent complete as to conversion costs. Illustration 3-9 Information for Mixing Department Information related to the Mixing Department at the end of June is provided in Illustration 3-9. In the Mixing Department dry ingredients, including flour, salt, and baking powder, are mixed with liquid ingredients, including eggs and vegetable oil, to make waffle batter. ![]() Three departments are used to produce these waffles: Mixing, Baking, and Freezing/Packaging. ![]() Kellogg Company has produced Eggo® Waffles since 1970. REFINEMENTS ON THE WEIGHTED-AVERAGE METHOD An alternative method, called the FIFO method, is discussed in the appendix to this chapter. It considers the degree of completion (weighting) of the units completed and transferred out and the ending work in process. This method of computing equivalent units is referred to as the weighted-average method. The equivalent units of production are therefore 13,500. Example 2: The Packaging Department's output during the period consists of 10,000 units completed and transferred out, and 5,000 units in ending work in process which are 70 percent completed. The equivalent units of production for the Blending Department are therefore 2,400 units (4,000 X 60%). ZlĮxample 1: The Blending Department's entire output during the period consists of ending work in process of 4,000 units which are 60 percent complete as to materials, labor, and overhead. To better understand this concept of equivalent units, consider the following two separate examples. Transferred Out + Endl"9 Work in = Production Units Completed and ^totentUml? of Equivalent Units of ![]() The formula to compute equivalent units of production is as follows. This concept is used to determine the cost per unit of completed product. Equivalent units of production measure the work done during the period, expressed in fully completed units. In a process cost system, the same idea, called equivalent units of production, is used. Illustration 3-8 Equivalent units of production formula The cost of instruction per full-time equivalent student is therefore the total cost of instruction ($9,000,000) divided by the number of full-time equivalent students (1,500), which is $6,000 ($9,000,000 ^ 1,500). ![]() Illustration 3-7 Fulltime equivalent unit computation To compute the number of full-time equivalent students per year, you would make the following computation. Part-time students take 60 percent of the classes of a full-time student during the year. Illustration 3-6 Information for full-time student example You are provided the following information. Suppose you were asked to compute the cost of instruction per full-time equivalent student at your college.
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