Question

1. Explain the term “Equivalent units of Production” (EUP)

2. What is the difference between the weighted average and the FIFO method as it relates to the calculation of EUPs?

3. Jackson Awards makes Trophies made of bronze, silver and gold.
The trophies are similar with the exception of the materials used during the manufacturing process. Given this information; what type of costing system would you advise the company to use?

4. Why do we account for the units as the starting place when we use the weighted average method of calculating EUPs?

5. Explain the difference between a job order and process costing system

Answer 1

Answer to Question no.1

The equivalent unit of production means converting the incomplete production unit into their equivalent completed units.

Equivalent unit of production can be calculated as follows:

Equivalent Units = {Actual numbers of units in the process of manufacturing}x{Percentage of work completed}

Answer to Question no.2

Difference between the weighted average and the FIFO method as it relates to the calculation of EUPs:

• According to the FIFO method, the units first entering the process are completed first. Thus the units completed during a period would consist partly of the units which were incomplete at the beginning of the period & partly of the units introduced during the period.
• The cost of completed units is affected by the value of the opening inventory, which is based on the cost of the previous period.
• Under the weighted average method, opening inventory of work in progress and it's cost are merged with the production while determining the equivalent units of production.

Answer to Question no. 3

Jackson Awards makes Trophies made of bronze, silver, and gold. The trophies are similar with the exception of the materials used during the manufacturing process.

process costing is used in industries where the material has passed through two or more processes for being converted into a final product & hence Jackson should apply process costing for the manufacturing of trophies.

Answer to Question no. 4

we account for the units as the starting place when we use the weighted average method of calculating EUPs as we assume the opening work in progress as current period production.

Also while making the apportionment of the cost we do not show the prior cost of opening work in progress as we considered in current period production.

Answer to Question no. 5

Difference between job order and process costing system:

• according to the job costing method, the cost is collected & accumulated according to jobs, contracts, products, or work orders. Each job is considered as a separate entity for the purpose of costing, while process costing is used in industries where the material has passed through two or more processes for being converted into a final product.
• In process costing costs are charged to the process while in job costing costs are charged to a particular job etc.
• In job costing each job or order is independent of other jobs while in process costing product lose their individual identity & they are manufactured in continuous flow.
• In job costing as production is not continuous hence more managerial attention is required in comparison to process costing.