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

Exercise 29

Compute Costs per Equivalent Unit: Weighted-Average Method

Pacific Ink had beginning work-in-process inventory of $372,480 on October 1. Of this amount, $152,460 was the cost of direct materials and $220,020 was the cost of conversion. The 48,000 units in the beginning inventory were 30 percent complete with respect to both direct materials and conversion costs.

During October, 102,000 units were transferred out and 30,000 remained in ending inventory. The units in ending inventory were 80 percent complete with respect to direct materials and 40 percent complete with respect to conversion costs. Costs incurred during the period amounted to $1,171,800 for direct materials and $1,513,920 for conversion.

Required

Compute the cost per equivalent unit for direct materials and for conversion costs using the weighted-average method.

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)	48,000
Add: Units input (b) = (a) + (b) – (d)	84,000
Less: Units transferred out (c)	102,000
Balance at the end of period (d)	30,000

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	102,000	100%	102,000	100%	102,000
Work in process at the end	30,000	80%	24,000	40%	12,000
Total	132,000		126,000		114,000