Question

Fast Co. produces its product through a single processing department. Direct materials are added at the start of production, and conversion costs are added evenly throughout the process. The company uses monthly reporting periods for its weighted average process costing system. The Work in Process Inventory account has a balance of $85,300 as of October 1, which consists of $17,400 of direct materials and $67,900 of conversion costs. During the month the company incurred the following costs: Direct materials Conversion $136.950 819 320 During October, the company started 141,000 units and transferred 151,000 units to finished goods. At the end of the month, the work in process inventory consisted of 20,500 units that were 80% complete with respect to conversion costs. Required: 1. Prepare the company's process cost summary for October using the weighted average method. 2. Prepare the journal entry dated October 31 to transfer the cost of the completed units to finished goods inventory.

Answer 1

Solution:

Weighted Average (Average Cost) Method

Physical Units Count

Under this method the percentage completion done in the Beginning Inventory is ignored while calculating the equivalent completed units during the current period. Beginning Inventory Units are treated as fresh units introduced for production.

Cost Accounted for:

- The cost of opening work-in-progress and cost of the current period are aggregated and the aggregate cost is divided by output in terms of completed equivalent units.

- The units of Beginning Inventory of WIP and their cost are taken in full under this method

Total Costs to account for:
Beginning work in process	$85,300
Cost incurred during the month (136,950+819,320)	$956,270
Total Costs to account for:	$1,041,570
Total costs accounted for	$1,041,570
Difference due to rounding cost/unit	$0
Equivalent units of production (EUP) - Weighted Average Method
	Units	% Material	EUP - Materials	% Conversion	EUP - Conversion
Units Completed and Transferred Out	151000	100%	151000	100%	151000
Ending Work In Process	20500	100%	20500	80%	16400
Total Units			171500		167400
Cost per equivalent unit of production			Materials		Labor
Cost related to beginning work in process			$17,400		$67,900
Cost incurred during the October month			$136,950		$819,320
Total Costs		Costs	$154,350	Costs	$887,220
Equivalent Units of Production		EUP	171500	EUP	167400
Cost per Equivalent Unit of production			$0.90		$5.30
Total Costs accounted for:
Cost of units transferred out:	EUP	Cost per EUP	Total Cost
Direct materials	151000	$0.90	$135,900
Conversion	151000	$5.30	$800,300
Total costs transferred out			$936,200
Cost of ending goods in process:
Direct materials	20500	$0.90	$18,450
Conversion	16400	$5.30	$86,920
Total cost of ending goods in process			$105,370
Total cost accounted for			$1,041,570

Journal Entry to transfer of goods to finished goods inventory

Date	General Journal	Debit	Credit
Oct.31	Finished Goods Inventory	$936,200
	Work In Process Inventory		$936,200
	(To transfer completed units from Work in process to Finished Goods Inventory)

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