Managerial accounting company uses a process costing system. Its Assembly Depart

Question

Managerial accounting

company uses a process costing system. Its Assembly Department's beginning inventory nsisted of 30,000 units, 75% complete with respect to direct labor and overhead. The department completed and transferred out 127,500 units this period. The ending inventory consists of 20.000 units that are 25% camplete with respect to direct labor and overhead. All direct materials are added at the beginning of the process. The department incurred direct labor costs of $24,000 and overhead costs of $32,000 for the period. Assuming the weighted average method, the direct labor cost per equivalent unit (rounded to the nearest cent) is:

Explanation / Answer

Calculation of direct labour cost per equivalent unit under weighed average method:

From the given information, Beginning inventory = 30,000 units

                                 and Units completed     = 127,000 units

                                Units to account for       = 157,000 units

                      Whereas, Units transferred      =   127,000 units

                                  Closing inventory =    20,000 units

                              Units acccounted for = 147,000 units.

Generally, Units to account for should equals to Units accounted for.

If any difference arises, then the difference must be abnormal loss. Here, abnormal loss = 10,000 units

Now, calculation of equivalent units:

                  Transferred units@ 100% = 127,000 units

                     Abnormal loss @ 25% = 2,500 units [10000*25%]

                    Closing inventory @ 25% = 5,000 units [20000*25%]

                        Equivalent units =         134,500 units

Whereas, Total direct labour cost = $ 32,000

                 This impies cost per equivalent unit = $ 0.237 per unit [32,000/134,500]

                                                                  = $ 0.24 per unit

Assumption: Since, there is no information of normal loss, the difference of units is considered as abormal loss

                   and percentage of abnormal loss completion is assumed as perentage of closing inventory.

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