Question

P4-21 Weightecd-Average Method; Analysis of Work in Procass F-Account Weston Products manufactures an industrial cleaning compound that goes through three processing departments-Grinding, Mixing, and Cooking. All raw materials are introduced at the start of work in the Grinding Department, with conversion costs being incurred evenly throughout the grinding process. The Work in Process T-account for the Grinding Department for a recent month is given below: Work in Process-Grinding Department Inventory, May 1 (18,000 Completed and transferred lbs., 1/3 processed) 21,800 to mixıng May costs added: Raw materials (167,000 133.400 226.800 OS. Labor and overhead Inventory, May 31 (15,000 lbs., 2/3 processed) The May 1 work in process inventory consists of $14,600 in materials cost and $7,200 in labor and overhead cost. The company uses the weighted-average method to account for units and costs 1. 2. Prepare a production report for the Grinding Department for the month. What criticism can be made of the unit costs that you have computed on your production report?

Answer 1

Answer

• Requirement 1

--All the consequents to be used in Production Report are provided below along with working. Use them accordingly.

Units Reconciliation
Units to account for:	[in lbs]
Beginning WIP	18,000
Units started this period	167,000
Total Units to account for	185,000
Total Units accounted for:
Completed & Transferred out	170,000 [185000 – 15000]
Ending WIP	15,000
Total Units accounted for	185,000

EUP - Weighted Average Method	Units	% Material	EUP Materials	% Conversion	EUP – Conversion [Labor + Overhead]
Units TRANSFERRED	170,000	100%	170,000	100%	170,000
Units of ENDING WIP	15,000	100%	15,000	2/3	10,000 [15000 x 2/3]
Equivalent Units of Production			185,000 lbs		180,000 lbs

COST per EUP			Material		Conversion [labor + Overhead]
Cost of Beginning WIP			$          14,600.00		$                                    7,200.00
Cost incurred during the period			$        133,400.00		$                                226,800.00
Total Costs		Costs	$        148,000.00	Costs	$                                234,000.00
Equivalent units of production		EUP	185,000	EUP	180,000
Cost per EUP			$              0.80 per lbs		$                                      1.30 per lbs

TOTAL COST ACCOUNTED FOR
Cost of Units Transferred Out	EUP	Cost per EUP	Total Cost
- Direct Materials	170,000	$                      0.80	$        136,000.00
- Conversion	170,000	$                      1.30	$        221,000.00
Total Cost transferred Out				$            357,000.00
Cost of ending WIP	EUP	Cost per EUP	Total Cost
- Direct Materials	15,000	$                      0.80	$          12,000.00
- Conversion	10,000	$                      1.30	$          13,000.00
Total cost of ending WIP				$              25,000.00
Total costs accounted for					$                                382,000.00

Costs to be accounted for:
Cost of Beginning WIP Inventory	$           21,800.00
Cost added to production during the period	$         360,200.00
Total Cost to be accounted for	$         382,000.00
Costs accounted for as follows:
Cost of units transferred out [calculated above]	$         357,000.00
Cost of Ending WIP Inventory [calculated above]	$           25,000.00
Total Cost accounted for	$         382,000.00

---Sample Production Report [based on above]

Unit Information
Units to account for:
Units in Beginning WIP			18,000
Units started during period			167,000
Total units to account for			185,000
Equivalent Units	Physical Flow	Material	Conversion
Units completed	170,000	170,000	170,000
Units in ending WIP	15,000	15,000	10,000
Total Units accounted for	185,000	185,000	180,000
Cost Information: Calculation of unit costs
Cost to account for:	Material	Conversion	Total
Cost of Beginning WIP	$                      14,600.00	$              7,200.00	$          21,800.00
Cost added	$                    133,400.00	$         226,800.00	$        360,200.00
Total cost to account for	$                    148,000.00	$         234,000.00	$        382,000.00
Cost per Equivalent unit	$                                 0.80	$                      1.30	$                     2.10
Cost information: Cost Transferred out and Cost of Ending Inventpry
Cost accounted for:	Transferred out	Ending WIP	TOTAL
Units transferred out	$                    357,000.00		$        357,000.00
WIP Ending Inventory:			$                          -
Materials		$           12,000.00	$          12,000.00
Conversion		$           13,000.00	$          13,000.00
Total cost accounted	$                    357,000.00	$           25,000.00	$        382,000.00

• Requirement 2

--The criticism that can be made of on rates calculated above can be on the basis of method adopted to calculate the ‘equivalent units’.

--Rates (which are Cost per Equivalent units rates) calculated above are $ 0.80 per EUP (for material) and $ 1.30 per EUP (for conversion cost).

--The above mentioned rates are based on the ‘Weighted Average Method’.

--If any other method have been used, say the FIFO method, the rates would have been different.

--This would have resulted in different ‘Cost of ending inventory of WIP’ and ‘Cost of units transferred’