Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 25

Compute Costs per Equivalent Unit: Weighted-Average Method

The Matsui Lubricants plant uses the weighted-average method to account for its work-in-process inventories. The accounting records show the following information for a particular day:

Beginning WIP inventory
Direct materials	$ 976
Conversion costs	272
Current period costs
Direct materials	11,440
Conversion costs	6,644

Quantity information is obtained from the manufacturing records and includes the following:

Beginning inventory	600 units (60% complete as to materials,
	53% complete as to conversion)
Current period units started	4,000 units
Ending inventory	1,200 units (40% complete as to materials,
	20% complete as to conversion)

Required

Compute the cost per equivalent unit for direct materials and conversion costs.

Step 1 of 2

Cost per equivalent units of direct materials and conversion costs

All units cannot be wholly completed at the end of a specific period. Some units may be partially complete. Expenses (Material cost and conversion costs) might have been incurred on such units to the extent of their completion. Hence, in order to determine the actual production in a process, the concept of equivalent units is used. The partially completed units are multiplied with their percentage of completion and the resultant figure is considered as whole units produced.

First, calculate the physical units at the end of the period as follows:

Particulars	Number of units
Balance at the start of the period (a)	600
Add: Units input (b)	4,000
Less: Units transferred out (c) = (a) + (b) – (d)	3,400
Balance at the end of period (d)	1,200

Now, calculate the equivalent units using weighted average method as follows:

Particulars	Units (a)	Materials	Conversion Costs
		% of completion in the period (b)	Equivalent Units (a) × (b)	% of completion in the period (c)	Equivalent Units (a) × (c)
Work completed during the period	3,400	100%	3,400	100%	3,400
Work in process at the end	1,200	40%	480	20%	240
Total	5,600		3,880		3,640