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

Exercise 34

Prepare a Production Cost Report: Weighted-Average Method

Refer to the information in Exercise 8-33.

Required

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

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b.Is the ending inventory higher using FIFO or the weighted-average method? Why?

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c.Would you recommend that El Paso use the FIFO method or the weighted-average method? Explain.

Step 1 of 5

Production Cost Report:

The cost of production report is a report providing information to the reader on the number of units/equivalent units produced and various expenses incurred during the period. It also incorporates the calculations necessary for calculating cost per equivalent unit.

a.

Calculation of total units to be considered in production process:

Calculation of equivalent units to be considered in production process:

Equivalent units are calculated on the basis of percentage of completion of units in the department during the period.

Calculation of total costs incurred:

Total costs incurred in each department are calculated by adding cost incurred on beginning WIP inventory and costs incurred in current period.

Calculation of cost per equivalent unit:

Equivalent cost per unit is calculated on dividing total costs incurred in each department by total equivalent units in respective departments.

Allocation of costs to the units:

Costs are allocated to units produced on the basis of equivalent cost per unit.