Question

Waterway Manufacturing is trying to determine the equivalent units for conversion costs with 2700 units of ending Work in Process at 70% completion and 15500 physical units that are 100% complete as to materials. There are no beginning units in the department. Materials are added at the beginning of the process, and conversion costs occur evenly throughout the entire production period. What are the equivalent units for conversion costs for the current period if the weighted-average method is used?

18200

17390

1890

14690

Answer 1

The weighted average method to calculate equivalent units of production combines units and costs from the current period with units and costs from the prior period. The calculation is different for a weighted average. Here is the weighted average formula:

Total equivalent units for a cost component = A + B × C

Where
A = units transferred out to the next department/finished goods
B = units in closing work in process
C = percentage of completion with respect to the relevant cost component

Using the formula given in the first section (Number of partially completed units × percentage of completion = equivalent units), the equivalent units of production are transferred to the next department of finished goods plus the equivalent units in the department's ending work-in-process inventory.

Units of product in work-in-process inventory are assumed to be partially completed; otherwise, the units would not be in work-in-process inventory. Process costing requires partially completed units in ending work-in-process inventory to be converted to the equivalent completed units (called equivalent units). Equivalent units are calculated by multiplying the number of physical (or actual) units on hand by the percentage of completion of the units. If the physical units are 100 percent complete, equivalent units will be the same as the physical units. However, if the physical units are not 100 percent complete, the equivalent units will be less than the physical units.

Formula: Equivalent units = Number of physical units × Percentage of completion

For example: You’ve mixed enough sugar to make 600,000 units of candy. Assume that ending work in process is 25 percent complete for all components of production (material, labor, and overhead). The table below shows the computation of equivalent units.

Equivalent Units of Production

Units Complete Equivalent Units

Completed and 600,000 100% 600,000

transferred

Work in process, 600,000 25% 150,000

ending

Equivalent units 750,000

Using the formula mentioned above,

Equivalent units = Number of physical units × Percentage of completion

= 2,700units*70% + 15,500units*100%

= 1,890units + 15,500units

= 17,390units(C)