Rigby Limited’s Machining Department had 20 000 units in work in process (WIP) on 1 March. These units were 40 per cent complete with respect to conversion. Direct materials are added at the beginning of the production process, while conversion costs are incurred uniformly throughout the process. An additional 40 000 units were started during March, and 10 000 units were in WIP on 31 March. The units in WIP on 31 March were 20 per cent complete with respect to conversion. Costs incurred in the Machining Department for March were as follows:
1. Using an example, explain the concept of equivalent units. Explain why an understanding of equivalent units is necessary to undertake process costing.
2. Using the weighted average method of process costing, calculate the cost of goods completed and transferred out during March and the cost of WIP at 31 March. Show all workings.
3. Construct an Excel spreadsheet to prepare March’s production report. What is the total cost of completed units if the units in WIP on 31 March are 70 per cent complete with respect to conversion.