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

Exercise 39

Prepare a Production Cost Report: Weighted-Average Method

Douglas Toys is a manufacturer that uses the weighted-average process costing method to account for costs of production. It produces a plastic toy in three separate departments: Molding, Assembling, and Finishing. The following information was obtained for the Assembling Department for the month of September.

Work in process on September 1 had 100,000 units made up of the following:

		Degree of
	Amount	Completion
Prior department costs transferred in from the Molding Department.	$128,000	100%
Costs added by the Assembling Department
Direct materials	80,000	100%
Direct labor	28,800	60%
Manufacturing overhead	18,400 $127,200	50%
Work in process, September 1	$255,200

During September, 500,000 units were transferred in from the Molding Department at a cost of $640,000. The Assembling Department added the following costs:

Direct materials	$384,000
Direct labor	144 000
Manufacturing overhead	75,600
Total costs added	$603,600

Assembling finished 400,000 units and transferred them to the Finishing Department.

At September 30, 200,000 units were still in work-in-process inventory. The degree of completion of work-in-process inventory at September 30 was as follows:

Direct materials	90%
Direct labor	70
Manufacturing overhead	35

Required

a.Prepare a production cost report using the weighted-average method.

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b.Management would like to decrease the costs of manufacturing the toy. In particular, it has set the following per unit targets for this product in the Assembling Department: Materials, $0.80; labor, $0.40; and manufacturing overhead, $0.18. Has the product achieved management’s cost targets in the Assembling Department? Write a short report to management stating your answer(s).

Step 1 of 2

(a)

The required production cost report should be prepared in the following manner:

Working notes:

1. Work-in-process ending inventory is 90% complete for materials, 70% complete for direct labor, and 35% complete for manufacturing overheads. Therefore, equivalent units of work-in-process ending inventory for materials is 180,000, for direct labor is 140,000, and for manufacturing overheads is 70,000.

2. Cost per equivalent unit for each item has been computed by dividing total cost to be accounted for by total units to be accounted for.

3. Costs assigned to work-in-process ending inventory for each item has been computed by multiplying equivalent units by cost per equivalent unit.