Question

Hoffman Company manufactures car seats in its Boise plant. Each car seat passes through the assembly department and the testing department. This problem focuses on the assembly department.

The​ process-costing system at Hoffman Company has a single​ direct-cost category​ (direct materials) and a single​ indirect-cost category​ (conversion costs). Direct materials are added at the beginning of the process. Conversion costs are added evenly during the process. When the assembly department finishes work on each car​ seat, it is immediately transferred to testing. Hoffman Company uses the FIFO method of process costing

Data for the assembly department for October 2017 are as follows:

   

	Physical Units	Direct	Conversion
	(Car Seats)	Materials	Costs

Work in​ process, October 1a	4,000	$1,248,000	$241,650
Started during October 2017	22,500
Completed during October 2017	26,000
Work in​ process, October 31b	500
Total costs added during October 2017		$4,635,000	$2,575,125

a Degree of​ completion: direct​ materials, ?%; conversion​ costs,45​%.
b Degree of​ completion: direct​ materials, ?%; conversion​ costs, 65​%.

		Total	Direct	Conversion
		Production Costs	Materials	Costs
Completed and transferred out		$8,554,000	$5,772,000	$2,782,000
Work in process, ending		145,775	111,000	34,775
Total costs accounted for		$8,699,775	$5,883,000	$2,816,775

		Direct Materials	Conversion Costs
Costs incurred to date		$5,883,000	$2,816,775
Divide by equivalent units of work done to date		26,500	26,325
Cost per equivalent unit for work done to date		$222	$107

Requirement 1. For each cost​ category, compute equivalent units in the assembly department. Show physical units in the first column of your schedule. ​(For amounts with a 0​ balance, make sure to enter​ "0" in the appropriate​ cell.)

		Equivalent Units
	Physical	Direct	Conversion
Flow of Production	Units	Materials	Costs
Work in process beginning	4000
Started during current period	22500
To account for	26500
Completed and transferred out during current period:
From beginning work in process	4000	0	2200
Started and completed	22000	22000	22000
Work in process, ending	500	500	500
Accounted for	26500
Equivalent units of work done in current period only		22500	24525

Requirement 2. For each cost​ category, summarize total assembly department costs for October 2017 and calculate the cost per equivalent unit.
Begin by summarizing the total costs to account for.

		Total	Direct	Conversion
		Production Costs	Materials	Costs
Work in process, beginning		1489650	1248000	241650
Costs added in current period		7210125	4635000	2575125
Total costs to account for		8699775	5883000

Next calculate cost per equivalent unit for direct materials and conversion costs.

		Direct	Conversion
		Materials	Costs
Costs added in current period		4635000	2575125
Divide by	equivalent units of work done in current period	22500	24525
Cost per equivalent unit for work done in current period		206

Requirement 3. Assign total costs to units completed and transferred out and to units in ending work in process.

Begin by calculating the total from beginning​ inventory, then calculate the total costs accounted for. ​(Abbreviation used; WIP​ = work in process. For amounts with a​ $0 balance, make sure to enter​ "0" in the appropriate​ cell.)

		Total	Direct	Conversion
		Production Costs	Materials	Costs
Completed and transferred out:
Total from beginning inventory

Total costs of units completed and transferred out
Total costs accounted for

Requirement 4. Explain any difference between the cost per equivalent unit in the assembly department under the​ weighted-average method and the FIFO method.

The cost per equivalent unit ▼(differs/ is the same) between the two methods because each method uses ▼

(different/ the same) costs as the numerator of the calculation. The FIFO method uses ▼(costs from the beginning work-in-process as well as costs added during the current period/ only the beginning work-in-process costs / only the costs added during the current period) and the​ weighted-average method uses ▼ (costs from the beginning work-in-process as well as costs added during the current period. / only the beginning work-in-process costs. / only the costs added during the current period.) Both methods use ▼(different / the same) equivalent units in the denominator.

Requirement 5. Should Hoffman​'s managers choose the​ weighted-average method or the FIFO​ method? Explain briefly.
Begin by completing the table below that summarizes the costs assigned to units completed and those still in process under the​ weighted-average and FIFO​ process-costing methods.

	Weighted-average	FIFO	Difference
Cost of units completed and transferred out
Work in process, ending
Total costs accounted for

Hoffman​'s managers should consider the ▼ (FIFO / weighted-average) method because even though it shows ▼ (lower / higher) operating income and ▼ (lower / higher) cost of goods​ sold, it ▼ (lower / higher) taxes. Managers may have an​ incentive, however, to use the ▼( FIFO / weighted-average) method and show higher income if the​ managers' compensation increases with ▼ ( lower / higher) operating income or if there are debt covenants that would be violated by showing ▼ ( lower / higher) income. Another advantage of the FIFO method is that it provides better information for managing the business because it keeps ▼ ( separate the costs of the current period from costs incurred in previous periods. / smootsh the cost per equivalent unit.)

Answer 1

UNITS TO ACCOUNT FOR:
Beginning Work in Process units		4,000
Add: Units Started in Process		22,500
Total Units to account for:		26,500
UNITS TO BE ACCOUNTED FOR:
Units started and completed		26,000
Ending Work in Process		500
Total Units to be accounted for:		26,500
Equivalent Units:
			Material Cost	Conversion
			% Completion	Units	% Completion	Units
Units started and completed	100%	26,000	100%	26,000
Ending Work in Process	100%	500	65%	325
Total Equivalent units		26,500		26,325
TOTAL COST TO ACCOUNT FOR:
			Material		Conversion
Beginning work in Process	1,248,000		241,650
Cost Added during May	4,635,000		2,575,125
Total Cost to account for:	5,883,000		2,816,775
Total Cost to account for:			8,699,775
COST PER EQUIVALENT UNIT:
			Material		Conversion
Total cost added during the year	5,883,000		2,816,775
Equivalent Units		26,500		26,325
Cost per Equivalent unit	222.00		107.00
TOTAL COST ACCOUNTED FOR:
Units started and Transferred out (26000 units)
			Equivalent unit	Cost per EU	Total Cost
Material			26,000	222	5772000
Conversion Cost		26,000	107	2782000
Total Cost of Units completed and transferred out:	8554000
Ending Work in process (500 units)
			Equivalent unit	Cost per EU	Total Cost
Material			500	222	111000
Conversison Cost		325	107	34775
Total cost of Ending Work in process:		145,775
Journal entries:
S.no.	Accounts title and explanations	Debit $	Credit $
a.	Work n process inventory-assembly Dr.	4635000
	Raw material inventory		4635000
b.	Work in process-Assembly Dr.	2575125
	Conversion cost			2575125
c.	Work in Process Inventory-Testing Dr.	8554000
	Work in process inventory-Assembly	8554000
Work in Process-Assembly Account
Balance		1,489,650	WIP-Testing		8,554,000
Raw material inventory	4,635,000
Conversion cost	2,575,125
Balance		145,775