CMA Study Group

Kimbeth Manufacturing uses a process cost system to manufacture dust density sensors for the mining industry. The following information pertains to operations for the month of May.

                                                                                                Units

Beginning work-in-process inventory, may 1                         16,000

Started in production during may                                           100,000

Completed production during may                                         92,000

Ending work-in-process inventory, may 31                            24,000

The beginning inventory was 60 percent complete for materials and 20 percent complete for conversion costs. The ending inventory was 90 percent complete for materials and 40 percent complete for conversion costs.

Costs pertaining to the month of May are as follows:

• Beginning inventory costs are: materials, $54,560; direct labor, $20,320; and factory overhead, $15,240.
• Costs incurred during May are: materials used, $468,000; direct labor, $182,880; and factory overhead, $391,160.

Using the weighted average method, the total cost of the units in the ending work in process inventory at May 31 is

156,960

155,328

154,800

153,168

Hi  I-Chih,

I couldn't get to any of those answers, so I looked up the problem in my Gleim book and found the exact same one.  But these answers go with the FIFO method not the weighted average method.  Which one do you need help calculating?

Lisa

I need help on weight average method because I got the question from CMA practice test. Thanks !!

Hi,

Above calculation is all correct except for the last part.

EI Value should be = (21,600 * $4.60) + (9,600 * $6.00) = $156,960

WAM - Material WAM - Conversion BWIP 16000 16000 Start 76000 76000 EWIP 24000*90/100 = 21600 24000*40/100 9600 ------- -------- 113,600 101,600 -------- -------- Material cost 54560+468000 522560/113600=4.6 Conversion cost 20320+15240+182880+391160 = 609600/101600 = 6 Total cost unit in ending work in progress 21600*4.6+9600*6 156,960 answer a is correct

Hi , All

I agree with samina Saif

Answer ( A ) is correct

Total Cost = $ 156,960

The total cost of the units in the ending work in process inventory at May 31 is:

1- EU

Started & completed    92000 DM       92000 conv.

Ending WIP                  21600 DM       9600 conv.

Total EU                      113600 DM      101600 conv.

2-  Costs:

B. WIP DM & conv.         54560            35560

During period                 468000          574040

Total cost                       522560         609600

EU                                  113600          101600

Cost/EU                           4.6                 6.0

3- Ending WIP total cost

DM                                 21600 * 4.6 = 99360

Conversion                      9600 * 6.0 = 57600

Total costs = 99360 + 57600 = $156960

  Then the answer is a.

 

Page 184 of Gleim's Part 1 book states "The final step is the valuation of ending inventory.  Physical, not equivalent, units are used."   In this case, the physical ending inventory consisted of 24,000 units.  As I stated earlier.  The choices I-Chih presented are for FIFO calculations not weighted-average.  This is an actual case from pages 206 through 208 in the same book.

Lisa,

I believe valuation of ending inventory should be based on equivalent units and not physical units. If we were to apply the unit cost of production on the physical units we will end up overstating its value. As you know, unit production cost is arrived at by dividing the total of beginning (materials) cost and current production (materials) cost by equivalent units (of materials). It, then, follows, that unit cost should also be based on equivalent units for valuation purposes.

What do you reckon?

Hi Lisa,

Thats actually a little confusing. I myself was confused for a min. but i would like to refer you to page no. 207 of Gleim's Part 1 book Question # 27 just go through the answer of it and as Gleim also explains why the other answers in multiple choice are wrong just read the reasoning for choice D it clearly states that 156,960 is the Ending WIP amount as per weighted average method. Secondly WIP units are partially completed only thus it would be wrong if we charge full cost amount for them by multiplying  it with actual # of units in WIP.

Okay.  You guys are completely right.  What do you think Gleim is talking about on page 184?  If it's a typo, it's a big one.

Lisa,

Not everything provided in the book is correct because this is the first edition and it should include so wrong answers, explanations, etc. so you need to thing about everything you read then correct it if you find it wrong or communicate IMA for corrections.

This is the best you can do to demonstrate everything.

Good luck