Papyrutech Corporation produces fine papers in three production departments—Pulping, Drying, and Finishing. In the Pulping Department, raw materials such as wood fiber and rag cotton are mechanically and chemically treated to separate their fibers. The result is a thick slurry of fibers. In the Drying Department, the wet fibers transferred from the Pulping Department are laid down on porous webs, pressed to remove excess liquid, and dried in ovens. In the Finishing Department, the dried paper is coated, cut, and spooled onto reels. The company uses the weighted-average method in its process costing system. Data for October for the Drying Department follow:
No materials are added in the Drying Department. Pulping cost represents the costs of the wet fibers transferred in from the Pulping Department. Wet fiber is processed in the Drying Department in batches; each unit in the above table is a batch, and one batch of wet fibers produces a set amount of dried paper that is passed on to the Finishing Department.
Required:
1. Determine the equivalent units for October for pulping and conversion.
2. Compute the costs per equivalent unit for October for pulping and conversion.
3. Determine the total cost of ending work in process inventory and the total cost of units transferred to the Finishing Department in October.
To answer these questions, we need to understand the concept of equivalent units and the weighted-average method in process costing.
Equivalent units represent the number of complete units that could have been produced given the amount of resources actually used. In other words, it accounts for both completed units and partially completed units.
1. To determine the equivalent units for pulping and conversion in October, we need to calculate the equivalent units for each process separately.
For pulping:
- The units started and completed during the month were 9,000.
- The ending work in process inventory is 3,000 units that are 40% complete.
Equivalent units for pulping = Units completed + (Ending work in process inventory x Percentage complete)
= 9,000 + (3,000 x 40%)
= 9,000 + 1,200
= 10,200
For conversion:
- The units started and completed during the month were 9,000.
- The ending work in process inventory is 3,000 units that are 50% complete.
Equivalent units for conversion = Units completed + (Ending work in process inventory x Percentage complete)
= 9,000 + (3,000 x 50%)
= 9,000 + 1,500
= 10,500
Therefore, the equivalent units for pulping in October are 10,200 and for conversion are 10,500.
2. To compute the costs per equivalent unit for pulping and conversion in October, we divide the total costs incurred by the equivalent units.
For pulping:
- The total cost for pulping is $145,800.
- The equivalent units for pulping are 10,200.
Cost per equivalent unit for pulping = Total cost for pulping / Equivalent units for pulping
= $145,800 / 10,200
= $14.31 per unit
For conversion:
- The total cost for conversion is $166,500.
- The equivalent units for conversion are 10,500.
Cost per equivalent unit for conversion = Total cost for conversion / Equivalent units for conversion
= $166,500 / 10,500
= $15.86 per unit
Therefore, the costs per equivalent unit for pulping in October is $14.31 and for conversion is $15.86.
3. To determine the total cost of ending work in process inventory and the total cost of units transferred to the Finishing Department in October, we multiply the cost per equivalent unit by the equivalent units.
For pulping:
- The ending work in process inventory for pulping is 3,000 units that are 40% complete.
- The cost per equivalent unit for pulping is $14.31.
Total cost of ending work in process inventory for pulping = Ending work in process inventory x Percentage complete x Cost per equivalent unit
= 3,000 x 40% x $14.31
= $17,172
For conversion:
- The total units transferred to the Finishing Department for conversion are 9,000.
- The cost per equivalent unit for conversion is $15.86.
Total cost of units transferred to the Finishing Department for conversion = Units transferred x Cost per equivalent unit
= 9,000 x $15.86
= $142,740
Therefore, the total cost of ending work in process inventory for pulping in October is $17,172 and for conversion is $142,740.