Chapter 16: Process Costing Demonstration

To compute the Equivalent Units of Production (EUP) using the weighted average method, let’s follow the steps provided. Here, we will calculate EUP for both direct materials and conversion costs based on the given data. Step-by-Step Calculation Given Information: 1. Beginning Work in Process (WIP) Inventory: o Units: 8,000 o Direct Materials Completion: 100% o Conversion Completion: 40% 2. Units Started During the Month: 56,000 3. Units Completed and Transferred Out: 58,000 4. Ending Work in Process Inventory: o Units: 6,000 o Direct Materials Completion: 80% o Conversion Completion: 70% Step 1: Determine Total Units to Account For • Total Units to Account For = Beginning WIP Units + Units Started During the Month o Total = 8,000 + 56,000 = 64,000 Step 2: Compute Equivalent Units of Production (EUP) for Direct Materials The weighted average method includes all units in production, regardless of when they were started, so we’ll consider completed units and ending WIP in our calculations. 1. Units Completed and Transferred Out (Direct Materials): o Since all completed units are 100% complete for direct materials, the EUP for completed units is 58,000. 2. Ending Work in Process Inventory (Direct Materials): o Units = 6,000 o Percentage Complete for Direct Materials = 80% o EUP for Ending WIP (Direct Materials) = 6,000 × 80% = 4,800 3. Total EUP for Direct Materials: o Total EUP (Direct Materials) = Units Completed + Ending WIP o Total EUP (Direct Materials) = 58,000 + 4,800 = 62,800 Step 3: Compute Equivalent Units of Production (EUP) for Conversion Costs 1. Units Completed and Transferred Out (Conversion): Since all completed units are 100% complete for conversion, the EUP for completed units is 58,000. 2. Ending Work in Process Inventory (Conversion): o Units = 6,000 o Percentage Complete for Conversion = 70% o EUP for Ending WIP (Conversion) = 6,000 × 70% = 4,200 3. Total EUP for Conversion Costs: o Total EUP (Conversion) = Units Completed + Ending WIP o Total EUP (Conversion) = 58,000 + 4,200 = 62,200 o Summary of Equivalent Units of Production (EUP) • • Direct Materials EUP: 62,800 Conversion Costs EUP: 62,200 These EUP calculations allow the company to assign costs accurately to units in process, whether completed or partially complete at the end of the period. To compute the Cost per Equivalent Unit (EUP) and assign costs to units using the weighted-average method, we need to follow these steps. Step-by-Step Calculation Step 3: Compute Cost per Equivalent Unit 1. Gather EUP Data (from Step 2) o Direct Materials EUP: 120,000 o Conversion EUP: 105,000 2. Production Cost Data (Exhibit 16.8) o Beginning Work in Process Costs:  Direct Materials: $90,000  Conversion: $80,000 o Costs Added This Period:  Direct Materials: $270,000  Conversion: $405,000 3. Calculate Total Costs for Each Category o Total Direct Materials Cost = Beginning WIP (Direct Materials) + Costs Added This Period (Direct Materials)  Total Direct Materials Cost = $90,000 + $270,000 = $360,000 o Total Conversion Cost = Beginning WIP (Conversion) + Costs Added This Period (Conversion)  Total Conversion Cost = $80,000 + $405,000 = $485,000 4. Compute Cost per Equivalent Unit for Each Category o Cost per EUP for Direct Materials = Total Direct Materials Cost / Direct Materials EUP  Cost per EUP (Direct Materials) = $360,000 / 120,000 = $3.00 o Cost per EUP for Conversion = Total Conversion Cost / Conversion EUP  Cost per EUP (Conversion) = $485,000 / 105,000 = $4.62 So, the cost per equivalent unit is: o o Direct Materials: $3.00 Conversion: $4.62 Step 4: Assign and Reconcile Costs Now, using the cost per EUP from Step 3, we assign costs to the units completed and transferred out and to the ending work in process inventory. 1. Cost of Units Completed and Transferred Out o Direct Materials Cost = EUP (Completed Units) × Cost per EUP (Direct Materials)  Direct Materials Cost = 100,000 EUP × $3.00 = $300,000 o Conversion Cost = EUP (Completed Units) × Cost per EUP (Conversion)  Conversion Cost = 100,000 EUP × $4.62 = $462,000 o Total Cost of Units Completed and Transferred Out = Direct Materials + Conversion  Total = $300,000 + $462,000 = $762,000 2. Cost of Ending Work in Process Inventory o Direct Materials Cost = EUP (Ending WIP) × Cost per EUP (Direct Materials)  Direct Materials Cost = 20,000 EUP × $3.00 = $60,000 o Conversion Cost = EUP (Ending WIP) × Cost per EUP (Conversion)  Conversion Cost = 5,000 EUP × $4.62 = $23,100 o Total Cost of Ending Work in Process Inventory = Direct Materials + Conversion  Total = $60,000 + $23,100 = $83,100 Reconciliation of Total Costs The total costs assigned to units should equal the total production costs: • Total Costs Assigned = Cost of Units Completed and Transferred Out + Cost of Ending WIP o Total = $762,000 + $83,100 = $845,100 This matches the total production costs given, ensuring all costs are accounted for accurately. Summary: • • Cost per EUP o Direct Materials: $3.00 o Conversion: $4.62 Total Cost Assigned o Units Completed and Transferred Out: $762,000 o Ending Work in Process Inventory: $83,100