Reference no: EM133050153

Problem - Kristina Company, which manufactures quality paint sold at premium prices, uses a single production department Production begins with the blending of various chemicals, which are added at the beginning of the process, and ends with the canning of the paint. Canning occurs when the mixture reaches the 90% stage of completion. The gallon cans are then transferred to the Shipping Department for crating and shipment. Labor and overhead are added continuously throughout the process.

Prior to May, when a change in the process was implemented, WIP inventories were insignificant. The change in the process enables greater production but results in material amounts of WIP for the first time. The company has always used the WA method to determine equivalent production and unit costs. Now, production management is considering changing from the WA method to the FIFO method.

Spoilage is detected when the mixture reaches the 60% stage of completion. Normal spoilage is equal to 2% of units transferred out.

The following data relate to actual production during the month of May:

COSTS FOR MAY

Work-in-process inventory, May 1 (4,000 litres 25% complete):

Direct materials-chemicals $45,600

Direct labor 6,250

Factory overhead 18,750

May costs added:

Direct materials-chemicals 228,400

Direct materials-cans 7,000

Direct labor 35,000

Factory overhead 105,000

UNITS FOR MAY - Litres

Work-in-process inventory, May 1 (25% complete) 4,000

Sent to Shipping Department 19,350

Started in May 21,000

Work-in-process inventory, May 31 (80% complete) 5,000

Required - Calculate the cost of units transferred out and the cost of abnormal spoilage using (a) FIFO and (b) weighted average.