Hobart Beverage Company uses the weighted-average method in its process costing system. Materials are included at the start of the production process but conversion costs are uniformly applied throughout the production process. The following data about the Packaging Department were taken from the company's accounting records:
- In 1 January 2016, there were 20,000 units in the work in process inventory that were 40% completed and 150,000 units in the finished goods inventory.
- The company sold 300,000 units during January.
- There were 32,000 units, which were 75% complete as to conversion costs, in the work in process inventory and 120,000 units in the finished goods inventory at the end of January.
- Cost data are summarized below:
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WIP 1 January 2016
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Cost per equivalent unit
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Direct Materials
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$ 34,900
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Materials
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$2.45
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Conversion costs
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$ 41,500
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Conversion
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$3.15
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Additional information:
Sales price per unit is $7'. Also, assume that the average total cost per unit is same for all finished units (i.e., total cost per equivalent unit).
Required:
1. How many units were transferred from the Packaging Department to the Finished Goods Department during the month?
2. What were the equivalent units of production for direct materials and conversion costs for the month of January?
3. Compute the total costs incurred in January for (a) materials and (b) conversion.
4. Compute (a) the cost of WIP Inventory as of 31 January 2016 and (b) the cost of units completed and transferred out during the month.
5. What is the cost of goods sold by taking the unit cost data from the answers to requirement 3 above?
6. Assuming conversion cost consists 40% of labour costs and that manufacturing overhead cost is 60% fixed cost, calculate how many units ABC Company must sell to breakeven during January. Show all necessary formula and computations.