This answer results from dividing the total costs ($45,800) by the total number of units worked on (2,500). However, the polyester dresses were not completed. Only 700 of the polyester dresses were completed, whikle another 800 were still in production at month end. The polyester dresses still in production were only 25% complete as to conversion costs, so the conversion costs associated with those 800 incomplete dresses should be counted as costs for the equivalent of 200 (25%) completely finished dresses. Since all of the conversion costs for those dresses have not yet been incurred, to count each of the polyester dresses in ending WIP inventory as a full unit would underestimate the cost of production per dress. See correct answer for a full explanation.
This answer results from adding the total cost of the polyester material ($22,500) and 60% of the total conversion costs ($7,980) to calculate a total cost for the polyester dresses of $30,480; and then dividing that cost by 1,500 polyester dresses. The problem is that not all of the polyester dresses were completed as to conversion costs during the month. The costs associated with this month produced 700 completed polyester dresses and another 800 that were only 25% complete as to conversion costs at month end. Since more costs will need to be added next month to complete the polyester dresses, this underestimates the total cost to produce a completed polyester dress. See correct answer for a full explanation.
The total cost of one polyester dress is the cost per equivalent unit of $15 for direct materials plus $7 for conversion costs, or $22. Those amounts can be calculated by setting up a table similar to the following. Note that since there is no Beginning WIP Inventory, in order to calculate the EUP and allocate the costs, it is not necessary to know whether the company uses the weighted average or the FIFO cost flow assumption. The results would be the same under both methods. Direct Materials Direct Materials Conversion Costs Cotton Dresses Polyester Dresses Both Dresses ————————— ————————— ————————— Units Started & Completed-Cotton 1,000 1,000 Units Started & Completed-Polyester 700 700 EWIP-Polyester only -0- 800 200 ———— ———— ———— Total EUP 1,000 1,500 1,900 Total Costs $10,000 $22,500 $13,300 Cost Per Equivalent Unit $10 $15 $7
This is the cost of one cotton dress and one polyester dress, not the cost of one polyester dress. See correct answer for full explanation.
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