Question

Data--- December 1 was the start of the company’s operations. The company had no operations prior to December 1.

During December, the first month of operation--

1. Direct materials added to production totaled $55,500.

2. Direct labor costs incurred/added to production totaled $82,600.

3. Manufacturing overhead costs added to production totaled $119,000.

4. 10,000 units were 100% complete and transferred to the next department.

5. 5,000 physical units were in ending Work in Process.

6. Each unit in ending WIP inventory was 100% complete with respect to materials costs and 80% complete with respect to conversion costs.

Question -- Is the weighted average being used in this example or is FIFO being used is this example? Please explain.

Answer 1

--Since the question data mentions this being 'first month of operation', the fact whether FIFO is being used or Weighted Average method is being used does not make any difference.

--Everything, (Equivalent units, Cost per Equivalent units, Cost transferred out and Cost of ending Inventory) would all BE SAME under Weighted Average Method as well as FIFO Method. This is because there is no beginning WIP Inventory (first month).

--Under FIFO method, Equivalent units calculation considers the beginning inventory as well. Since there is no beginning inventory, the result by FIFO and Weighted Average would be same.

--It can be solved by either Weighted Average or FIFO method.

• FIFO Method

EUP - FIFO Method	Units	% Material	EUP Materials	% Conversion	EUP - Conversion
Units of ENDING WIP	5,000	100.0%	5,000	80.0%	4,000
Units STARTED & COMPLETED	10,000	100%	10,000	100%	10,000
Units of beginning WIP	-	0.00%	-	30%	-
Equivalent Units of Production			15,000		14,000
COST per EUP			Material		Conversion
Cost incurred this period			$          55,500.00		$                  201,600.00
Total Costs		Costs	$          55,500.00	Costs	$                  201,600.00
Equivalent units of production		EUP	15,000	EUP	14,000
Cost per EUP			$                3.7000		$                        14.4000
COST ASSIGNMENT & RECONCILIATION
Cost Transferred out:	EUP	Cost per EUP	Total Cost
Cost of Beginning WIP			-
Cost to complete beginning WIP-
- Direct Materials	-	3.70	-
- Conversion	-	14.40	-
Total cost to complete beginning WIP			-
Cost of Units started & completed this period:	EUP	Cost per EUP	Total Cost
- Direct Materials	10,000.00	3.70	37,000.00
- Conversion	10,000.00	14.40	144,000.00
Total costs started & Completed this period			181,000.00
Total cost of work finished this period				181,000.00
Costs of Ending WIP:	EUP	Cost per EUP	Total Cost
- Direct Materials	5,000	$                              3.70	$         18,500.00
- Conversion	4,000	$                            14.40	$          57,600.00
Total cost of ending WIP				$               76,100.00
Total costs accounted for				$             257,100.00

• Weighted Average

EUP - Weighted Average Method	Units	% Material	EUP Materials	% Conversion	EUP - Conversion
Units TRANSFERRED	10,000	100%	10,000	100%	10,000
Units of ENDING WIP	5,000	100%	5,000	80%	4,000
Equivalent Units of Production			15,000		14,000
COST per EUP			Material		Conversion
Cost of Beginning WIP			$                          -		$                                                 -
Cost incurred during the period			$          55,500.00		$                                201,600.00
Total Costs		Costs	$          55,500.00	Costs	$                                201,600.00
Equivalent units of production		EUP	15,000	EUP	14,000
Cost per EUP			$              3.70000		$                                   14.40000
TOTAL COST ACCOUNTED FOR
Cost of Units Transferred Out	EUP	Cost per EUP	Total Cost
- Direct Materials	10,000	$                      3.70	$          37,000.00
- Conversion	10,000	$                    14.40	$        144,000.00
Total Cost transferred Out				$            181,000.00
Cost of ending WIP	EUP	Cost per EUP	Total Cost
- Direct Materials	5,000	$                      3.70	$          18,500.00
- Conversion	4,000	$                    14.40	$          57,600.00
Total cost of ending WIP				$              76,100.00
Total costs accounted for					$                                257,100.00