Question

Builder Products, Inc., uses the weighted-average method in its process costing system. It manufactures a caulking compound that goes through three processing stages prior to completion. Information on work in the first department, Cooking, is given below for May Production datat pounds in process, May 11 materials 100% complete ; 73,000 r ion 9 productioe out complete 33,000 conversion 90% complete Pounds started into production during May Pounds completed and transferred out Pounds in process, May 31; materiala 808 complete 380,000 conversion 20% complete Cost data: Nork in process inventory, May 1t Materials cost Conversion cost $111,600 55,800 Cost added during May Materials cost Conversion cost $580,320 $306,810 Required 1. Compute the equivalent units of production for materials and conversion for May 2. Compute the cost per equivalent unit for materials and conversion for May 3. Compute the cost of ending work in process inventory for materials, conversion, and in total for May. 4. Compute the cost of units transferred out to the next department for materials, conversion and in total for May. 5. Prepare a cost reconciliation report for May.

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

Ending Inventory

The Ending Inventory of WIP is valued at total cost i.e. Cost added during the month/period and Cost of Beginning WIP.

Part 1 – Equivalent units of production (EUP) - Weighted Average Method

	Units	% Material	EUP - Materials	% Conversion	EUP - Conversion
Units Completed and Transferred Out (beginning 73,000 + Started into production during may 380,000 – Ending 33,000)	420000	100%	420000	100%	420000
Ending Work In Process	33000	80%	26400	20%	6600
Equivalent units of production			446400		426600

Part 2 –

Cost per equivalent unit of production
		Materials		Conversion
Cost incurred during the period
Cost of beginning work in process inventory		$111,600		$55,800
Costs added during the period		$580,320		$306,810
Total Costs	Costs	$691,920	Costs	$362,610
Equivalent Units of Production	EUP	446400	EUP	426600
Cost per Equivalent Unit of production		$1.55		$0.85

Part 3 –

Cost of ending goods in process	EUP	Cost per EUP	Total Cost
Direct materials	26400	$1.55	$40,920
Conversion Costs	6600	$0.85	$5,610
Total cost of ending goods in process			$46,530

Part 4 –

Cost Assignment to units transferred out
Cost of units transferred out:	EUP	Cost per EUP	Total Cost
Direct materials	420000	$1.55	$651,000
Direct labor	420000	$0.85	$357,000
Total costs transferred out			$1,008,000

Part 5 –

Cost Reconciliation	Total Cost
Cost of beginning work in process inventory
Materials Cost	$111,600
Conversion Cost	$55,800
Cost added to production during the period
Materials Cost	$580,320
Conversion Cost	$306,810
Total Cost to be accounted for	$1,054,530
Costs accounted for as follows:
Cost of ending work in process inventory (Refer Part 3)	$46,530
Cost of units transferred out (Refer Part 4)	$1,008,000
Total costs accounted for	$1,054,530

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