A business makes one product that passes through a single process. This business
ID: 2578300 • Letter: A
Question
A business makes one product that passes through a single process.
This business uses weighted average costing. The details of the process for the last period are as follows;
Materials.................................$98,000
Labour ....................................$60,000
Production overheads..............$39,000
Units added to the process.....1000
There were 200 units of opening WIP which are valued as follows;
Materials................................$22,000
Labour ...................................$ 6,960
Production overheads............$3,000
There were 300 units of closing WIP fully completed as to materials but only 60% complete for labour and 50% complete for overheads. There were no process losses.
Required:
(a) Calculate the cost to be assigned to completed output for the period
(b) Why is it necessary to calculate equivalent units?
Explanation / Answer
Units completed and transfered out =Beginning+Started -ending WIP
= 200+ 1000-300
= 900
150 [
300*.50]
Total Cost per equivalent unit = 100+62+40 = 202
Cost assigned to completed output = units completed and transfered out *Total cost per equivalent unit
= 900 *202
= $ 181800
b)It is necessary to calculate equivalent unit as it might be possible that all of the unit started not gone through manufacturing process (that is partially completed either as to material ,labor or overhead) .so it is not correct to allocate cost incurred in the current period to units which are not gone through manufacturing process (as no cost is assigned to those units) .so it is necessary to calculate equivalent unit
material Labor overhead completed and transfered out 900 900 900 Ending WIP 300 180 [300*.60]150 [
300*.50]
Equivalent unit 1200 1080 1050 Total cost 22000+98000=120000 6960+60000=66960 3000+39000=42000 cost per equivalent unit 120000/1200=$ 100 66960/1080= 62 42000/1050=40Related Questions
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