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

Exercise 48

Weighted-Average Method Sosna Company has a department that manufactures wood trusses (wood frames used in the construction industry). The following information is for the production of these trusses for the month of February:

Work-in-process inventory, February 1	5,000 trusses
Direct materials cost: 100 percent complete	$100,000
Conversion: 20 percent complete	$135,000
Units started during February	12,000 trusses
Units completed during February and transferred out	13,000 trusses
Work-in-process inventory, February 29
Direct materials: 100 percent complete
Conversion cost: 40 percent complete
Costs incurred during February
Direct materials	$ 50,000
Conversion	$ 95,000

Required Using the weighted-average method, calculate the following:

1. Costs per equivalent unit.

2. Cost of goods completed and transferred out.

3. Cost remaining in the ending work-in-process inventory.

4. Assume that you are the company’s controller. The production department’s February unit cost is higher than standard cost. If the manager of the first department asks you to do him a favor by increasing the ending inventory completion percentage from 40 to 60 percent to lower the unit costs, what should you do? How much would unit cost be affected by this request?

Step 1 of 16

FIFO Method:

FIFO stands for First-in-first-out. It is a method of inventory valuation where it is assumed that the inventory first purchase is also first sold. This means that there will be less chance of nay obsolete inventory as the oldest inventory will be sold at first and latest inventory will be sold last. The same thing applies in a production process, where raw material first purchased is put to the production process first.