Question

17-38 FIFO method (continuation of 17-36).1. Do Problem 17-36 using the FIFO method of process costing. Explain any difference between the cost per equivalent unit in the assembly department under the weighted-average method and the FIFO method.2. Should Hoffman’s managers choose the weighted-average method or the FIFO method? Explain briefly.

17-36 Weighted-average method. Hoffman Company manufactures car seats in its Boise plant. Each car seat passes through the assembly department and the testing department. This problem focuses on the assembly department. The process-costing system at Hoffman 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. Hoffman Company uses the weighted-average method of process costing. Data for the assembly department for October 2017 are as follows: a Degree of completion: direct materials,?%; conversion costs, 45%.bDegree of completion: direct materials,?%; conversion costs, 65%.Physical Units (Car Seats)Direct Materials Conversion Costs Work in process, October 1a4,000$1,248,000$ 241,650Started during October 201722,500Completed during October 201726,000Work in process, October 31b500Total costs added during October 2017$4,635,000$2,575,1251. For each cost category, compute equivalent units in the assembly department. Show physical units in the first column of your schedule.2. What issues should the manager focus on when reviewing the equivalent-unit calculations?3. For each cost category, summarize total assembly department costs for October 2017 and calculate the cost per equivalent unit.4. Assign costs to units completed and transferred out and to units in ending work in process.

Answer 1

Hoffman Company Requirement 1 Since direct materials are added at the beginning of the assembly process, the units in this department must be 100% complete with respect to direct materials. Direct materials 26500 equivalent units equivalent units Conversion costs 26325 Assembly Department of Hoffman Company for October 2017 Equivalent Units Physical Direct Conversion Flow of Production Materials Units Costs Work in process, beginning (given) 4000 Started during current period (given) 22500 To account for 26500 Completed and transferred out during current period 26000 26000 26000 Work in process, ending* (given) 500 x 100%; 500 x 65% 500 500 325 Accounted for 26500 Equivalent units of work done to date 26500 26325 Requirement 2 To show better performance, a department supervisor might report a higher degree of completion resulting in understated cost per equivalent unit and overstated operating income. If performance for the period is very good, the department supervisor may be tempted to report a lower degree of completion reducing income in the current period. This has the effect of reducing the costs carried in ending inventory and the costs carried to the following year in beginning inventory. In other words, estimates of degree of completion can help to smooth earnings from one period to the next. To guard against the possibility of bias, managers should ask supervisors specific questions about the process they followed to prepare estimates. Top management should always emphasize obtaining the correct answer, regardless of how it affects reported performance. This emphasis drives ethical actions throughout the organization. Requirement 3&4 Solution in Requirement 1 summarizes the total Assembly Department costs for October 2017, calculates cost per equivalent unit of work done to date, and assigns these costs to units completed (and transferred out) and to units in ending work in process using the weighted average method