Lap Corporation uses the weighted-average method in its process costing system. The beginning work in process inventory in a particular department consisted of 80,000 units, 100% complete with respect to materials and 25% complete with respect to conversion costs. The total dollar value of this inventory was $226,000. During the month, 150,000 units were transferred out of the department. The costs per equivalent unit for the month were $2.00 for materials and $3.50 for conversion costs. The cost of the units completed and transferred out of the department was:
A) $681,000
B) $765,000
C) $821,000
D) $825,000

Question

Quizplus · Accepted Answer

Total units accounted for = beginning WIP inventory + units transferred out = 80,000 + 150,000 = 230,000

Cost per equivalent unit = (total cost of production during the month) / (total equivalent units)

The total cost of production during the month would be:
Materials cost = $2.00 × 230,000 equivalent units = $460,000
Conversion cost = $3.50 × 230,000 equivalent units = $805,000
Total cost of production = $1,265,000

Total equivalent units = equivalent units in beginning WIP inventory + equivalent units started and completed during the period = (80,000 units × 25% complete) + 150,000 units = 170,000 equivalent units

Cost per equivalent unit = $1,265,000 / 170,000 = $7.44 per equivalent unit

Using this cost per equivalent unit, we can calculate the cost of the units completed and transferred out of the department:
Cost of units transferred out = cost per equivalent unit × equivalent units transferred out
Cost of units transferred out = $7.44 × 150,000 units = $1,116,000

However, we need to adjust for the cost of the beginning work in process inventory:
Cost of units completed and transferred out = cost of beginning WIP inventory + cost of units started and completed during the period - cost of ending WIP inventory
Cost of units completed and transferred out = $226,000 + ($7.44 × 150,000 units) - (25% × $7.44 × 80,000 units)
Cost of units completed and transferred out = $825,000

Therefore, the cost of the units completed and transferred out of the department was $825,000, which means the best choice is D.

Lap Corporation Uses the Weighted-Average Method in Its Process Costing