Reference no: EM132748169

Problem - Tennis Sport Ltd uses an automated process to produce tennis rackets. During the month of July, the company had the following activities:

Beginning work in process inventory 4,000 units, 25% complete

Units placed in production 10,000 units

Units completed 8,000 units

Ending work in process inventory 6,000 units, 2/3 complete

Cost of beginning work in process $9,000

Costs added during July:

Direct material costs $12,000

Conversion costs $11,000

Direct materials are placed into production at the beginning of the process and conversion costs are incurred evenly throughout the process.

Required - Prepare a Production Cost Worksheet using FIFO method of costing including:

1. For each cost category, compute equivalent units.

For each cost category, summarise total costs in July and calculate the cost per equivalent unit.

Compute costs added to beginning work in process, costs allocated to units completed, total costs transferred out and the costs allocated to closing WIP. (Show all calculations)

2. If prices of materials, labour rates and costs of utilities constituting conversion costs are rising, which costing method - FIFO or weighted average - would account for more accurate costs of goods sold? Under such circumstances, which costing method would result in a lower pro?t? Brie?y explain.