Question

The assembly division of Fenton Watches, Inc., uses the weighted-average method of process costing. Consider the following data for the month of May 2014: 

* Degree of completion: direct materials, 90%; conversion costs, 40% 

**Degree of completion: direct materials, 60%; conversion , 30% S493,360 500 460 120 S3,220,00 $1,392,000 

a. Compute equivalent units for direct materials and conversion costs. Show physical units in the first column of your schedule. (Use Weighted-average method.) 

b. Suppose the assembly division of Fenton Watches, Inc uses the FIFO method of process costing instead of weighted average method. Compute equivalent units for direct materials and conversion costs. Show physical units in the first column of your schedule.

Answer 1

Solution

Part a --- Equivalent Units – Weighted Average Method

Weighted Average (Average Cost) Method

Physical Units Count

Under this method the percentage completion done in the Beginning Inventory is ignored while calculating the equivalent completed units during the current period. Beginning Inventory Units are treated as fresh units introduced for production.

Cost Accounted for:

- The cost of opening work-in-progress and cost of the current period are aggregated and the aggregate cost is divided by output in terms of completed equivalent units.

- The units of Beginning Inventory of WIP and their cost are taken in full under this method

Ending Inventory

The Ending Inventory of WIP is valued at total cost i.e. Cost added during the month/period and Cost of Beginning WIP.

	Physical Units	% material	Material - EUP	% Conversion	Conversion - EUP
Completed Units during the period	460	100%	460	100%	460
Ending Work In Process	120	60%	72	30%	36
Total	580		532		496

Under weighted Average Method

Equivalent Units of Production for Material = 532 Units

Equivalent Units of Production for Conversion = 496 Units

Part b – Equivalent Units using FIFO Method

FIFO Method in Process Costing

Physical Units Count

In FIFO method, the unit of beginning inventory is completed first and then Units received during the period is completed.

Equivalent units of Material

In FIFO method,

- First we calculate the cost per equivalent units of material and conversion by using the cost incurred during the current period i.e. current period cost and divide by equivalent units of production.

- While calculating the equivalent cost per unit of production beginning WIP cost is ignored.

Cost Accounted for:

Cost of Beginning Units is the sum of following

(i) Current Period Cost (i.e. the cost of equivalent production units part of beginning inventory completed during the period and

(ii) the cost of beginning inventory

The part of beginning inventory completed during the period is calculated by multiplying the cost of equivalent units with the completed equivalent part of beginning units during the current period

Ending Inventory

The Ending Inventory is valued at current period cost i.e. the cost added during the current period/month.

	Physical Units	% material	Material - EUP	% Conversion	Conversion - EUP
Partial Completed Units from beginning work in process	80	10%	8	60%	48
Started and completed Units during the period	380	100%	380	100%	380
Total Completed Units during the period	460
Ending Work In Process	120	60%	72	30%	36
Total	580		460		464

Under First in First Out Method

Equivalent Units of Production for Material = 460 Units

Equivalent Units of Production for Conversion = 464 Units

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