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

Exercise 34

Equivalent Units; Weighted-Average and FIFO Unit Cost Solidad Company calculates the cost for an equivalent unit of production using process costing.

Data for June
Work-in-process inventory, June 1: 30,000 units
Direct materials: 100 percent complete	$ 60,000
Conversion: 20 percent complete	24,000
Balance in work-in-process, June 1	$ 84,000
Units started during June	50,000
Units completed and transferred	60,000
Work-in-process inventory, June 30	20,000
Direct materials: 100 percent complete
Conversion: 70 percent complete
Cost incurred during June
Direct materials	$120,000
Conversion costs
Direct labor	120,000
Applied overhead	180,000
Total conversion costs	$300,000

Required

1. Compute cost per equivalent unit for both the weighted-average and FIFO methods.

2. Explain the difference between the FIFO and weighted-average unit costs.

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