Question

Burleson Company manufactures car seats in its Denver plant. Each car seat passes through the assembly department and the testing department. This problem focuses on the assembly department. A (Click the icon to view information about Burleson Company's process-costing system.) Data for the assembly department for October 2017 are as follows: (Click the icon to view the assembly department data.) (Click the icon to view the weighted average cost per equivalent unit data and total costs accounted for.) i More Info - X Read the requirements. ent. Show physical Data Table - X be appropriate cell.) The process-costing system at Burleson Company has a single direct-cost category (direct materials) and a single indirect-cost category (conversion costs). Direct materials are added at the beginning of the process. Conversion costs are added evenly during the process. When the assembly department finishes work on each car seat, it is immediately transferred to testing. Burleson Company uses the EIE method of process costina Conversion Costs $602,700 i Reference Physical Units Direct (Car Seats) Materials Work in process, October 18 5,600 $1,590,400 Started during October 2017 24,000 Completed during October 2017 26,500 Work in process, October 31b 3,100 Total costs added during October 2017 $5,040,000 a Degree of completion: direct materials, ?%, conversion costs, 70%. Degree of completion direct materials, ?%, conversion costs, 80%. $2,556,120 i Requirements - X Print Done Direct Conversion Materials Costs Costs incurred to date $ 6,630,400 $ 3,158,820 Divide by equivalent units of work done to date 29,600 28,980 $ 224 $ Cost per equivalent unit for work done to date 109 Total Direct Conversion Production Costs Materials Costs Completed and transferred out $ 8,824,500 $ 5,936,000 $ 2,888,500 Work in process, ending 964,720 694,400 2 70.320 Total costs accounted for 9,789,220 $ 6,630,400 $ 3,158,820 1. For each cost category, compute equivalent units in the assembly department. Show physical units in the first column of your schedule. 2. For each cost category, summarize total assembly department costs for October 2017 and calculate the cost per equivalent unit. 3. Assign total costs to units completed and transferred out and to units in ending work in process. 4. Explain any difference between the cost per equivalent unit in the assembly department under the weighted average method and the FIFO method. 5. Should Burleson's managers choose the weighted average method or the FIFO method? Explain briefly. Print Done Clear All

Answer 1

FIFO Equivalent Units Physical Direct Conversion Units | Materials Costs 5600 24000 29600 Flow of Production Work in process, beginning Started during current period To account for Completed and transferred out during Current Period From beginning work in process Started and completed Work in process ,ending Total units accounted for Equivalent units of production 5600 20900 3100 29600 20900 3100 1680 20900 2480 24000 25060 Requirement 2 Total Production Costs 2193100 7596120 9789220 Cost of beginning goods in process Costs incurred this period Total costs to account for Direct Materials 1590400 5040000 6630400 Conversion Costs 602700 2556120 3158820 Costs added in current period = EUP Cost per EUP 5040000 24000 210 2556120 25060 102

1590400 602700 171360 Completed and transferred out Work in Process, beginnng Costs added to beginning WIP in Current Period Total from beginning inventory Started and completed this period: Total Costs of units completed and transferred out Work in process ,ending Total costs accounted for 2193100 171360 2364460 6520800 8885260 903960 9789220 4389000 2131800 651000 651000 252960 252960

Requirement 4 The Cost per Equivalent unit differs between the two methods because each method uses different costs as the numerator of the calculation. The FIFO method uses only the costs added during the current period. The weighted average method uses Costs from the beginning work in process as well as costs added during the current period. Both methods use different equivalent units in the denominator. Requirement 5 Costs of units completed and transferred out Work in process ,ending Total costs accounted for Weighted Average 8824500 964720 9789220 FIFO 8885260 903960 9789220 Difference 60760 903960 100 101 102 Berrian's managers should consider the FIFO method because even though it shows lower operating income and higher cost ofgoods sold, it lower taxes. Managers may have an incentive , however to use the weighted average method and show higher income of the managers' compensation increases with higher operating income or if there are debt covenants that would be violated by showing lower income. Another advantage of the FIFO method is that it provides better information for managing the business because it keeps seprate the costs of the current period from costs incurred in previous periods.