Alfombra Inc. manufactures throw rugs. The throw rug department weaves cloth and yarn into throw rugs of various sizes. Alfombra uses the weighted average method. Materials are added uniformly throughout the weaving process. In August, Alfombra switched from FIFO to the weighted average method. The following data are for the throw rug depart- ment for August: Production: Units in process, August 1, 60% complete Units completed and transferred out Units in process, August 31, 60% complete 40,000 120,000 40,000 Costs: WIP, August 1 $144,000 Current costs 604,800 Total $748,800
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Equivalent Units, Unit Cost, Weighted Average
Refer to the information for Alfombra Inc. on the previous page.
Required:
1. Prepare a physical flow analysis for the throw rug department for August.
2. Calculate equivalent units of production for the throw rug department for August.
3. Calculate the unit cost for the throw rug department for August.
4. Show that the cost per unit calculated in Requirement 3 is a weighted average of
the FIFO cost per equivalent unit in BWIP and the FIFO cost per equivalent unit
for August. (Hint: The weights are in proportion to the number of units from each
source.)
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 1 images
