Question

A manufacturer uses the weighted average method in its single department processing costing environment to account for product costs. Given the following data for May 2014, explain how the company would calculate the cost to manufacture one unit of product in April 2014 using only the following data.

Work in Process on 5.1.14	10,000 units, 100% complete with respect to direct materials, 30% complete with respect to conversion
Costs in Work in Process on 5.1.14	$30,000 in direct material costs and $1,850 in conversion costs

For the answer, the explanation should only include “words”; do not use numbers in your explanation.

Answer 1

Answer:-

Under the weighted-average method, equivalent units are calculated as the equivalent units of work done to date

In the weighted average method of process costing, the costs are averaged out and evenly applied to both units transferred out and units in closing work in process. Unlike FIFO method, which assumes costs introduced first into a department are transferred out first, weighted average method does not assume any specific order.

Not Let us Understand the steps how to calculate cost to manufacture one unit of product.

Process costing under weighted-average method involves the following steps:

1. Preparing the quantity schedule : i.e. finding units in the beginning work in process for the period, units started or units transferred-in from prior departments, units transferred out to next department or units of finished goods, and units in closing work in process.
   
2. Bringing forward the cost of units in the beginning work in process from last period. The cost should be broken up into all its components: direct materials and conversion costs ( i e..direct labor and manufacturing overheads).
   
3. Finding the costs added in the current department under different heads: direct materials, direct labor and manufacturing overheads.
   
4. Finding total cost to be accounted for under each head i.e. direct materials, direct labor and manufacturing overheads. This would involve adding the cost included in the opening work in process on account of direct materials, direct labor and manufacturing overheads to the corresponding amounts added during the period on account of the relevant cost component.
   
5. Finding total equivalent units.

   WA equivalent units =
               Units completed during the period
           + (Units in ending WIP × Percentage completed this period)

6. Finding cost per equivalent unit for each cost component by dividing the total cost for the cost component by total equivalent units for the relevant cost component.
   
7. Allocating the cost between the units transferred out and units included in the closing work in process