17-1 Try It

Big Band Corporation produces a semiconductor chip used in communications. The direct materials are added at the start of the production process, while conversion costs are added uniformly throughout the production process. Big Band had no inventory at the start of June. During the month, it incurred direct materials costs of $935,750 and conversion costs of $4,554,000. Big Band started 475,000 chips and completed 425,000 of them in June. Ending inventory was 50% complete as to conversion costs.

Compute (a) the equivalent units of work done in June, and (b) the total manufacturing cost per chip. Allocate the total costs between the completed chips and those in ending inventory

(a)

475,000 physical units
425,000 completed
50,000 [100% | 50%] incomplete [(Direct Materials) | (Conversion Costs)]
50,000 Equivalent Units in Direct Materials (incompleted)
25,000 Equivalent Units in Conversion Costs (incompleted)
475,000 Equivalent Units in Direct Materials (total)
450,000 Equivalent Units in Conversion Costs (total)

(b)

$935,750 Direct Materials Cost / 475,000 Equivalent Units
$4,554,000 Conversion Costs / 450,000 Equivalent Units
$1.97 / Equivalent Unit (Direct Materials)
$10.12 / Equivalent Unit (Conversion Costs)

Completed:
(1.97+10.12)*425,000=$5,138,250
Incomplete:
50,000*1.97+25,000*10.12=$351,500

Double Check:
$5,135,250+$351,500=$5,489,750
$935,750+$4,554,000=$5,489,750