Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 41

Weighted-Average Method South Atlantic Pulp Company processes wood pulp for manufacturing various paper products. The company employs a process costing system for its manufacturing operations. All direct materials are added at the beginning of the process, and conversion costs are incurred uniformly throughout the process. This is the company’s production schedule for May:

	Tons of Pulp	Percent Completed
		Materials	Conversion
Work-in-process inventory, May 1	6,000	100%	50%
Started during May	15,000
Units to account for	21,000
Units from beginning work-in-process,
which were completed and
transferred out during May	6000
Started and completed during May	12,000
Work-in-process inventory, May 31	3,000	100%	50%
Total units accounted for	21,000

The following cost data are available:

Work-in-process inventory, May 1
Direct materials	$ 88,000
Conversion	126,000
Costs incurred during May
Direct materials	220,000
Conversion	356,000

Required

1. Calculate equivalent units of direct materials and conversion during May. Use the weighted-average method.

2. Calculate the cost per equivalent unit for both direct materials and conversion during May. Use the weighted-average method.

Step 1 of 5

Under process based manufacturing units, cost flow assumption is required to be made for assigning the costs i.e. whether the inventory flows as per First in First out (FIFO), or weighted average cost method. The major 5 steps under process costing are:

a. Analyze the physical flow of production units

b. Compute equivalent units of for each manufacturing cost element

c. Determine the total costs for each manufacturing cost element

d. Calculate cost per equivalent unit each manufacturing cost element

e. Allocate total manufacturing cost to both viz., completed units and closing WIP