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a.
Prepare a production cost report using the weighted-average method.
a.
Explanation of Solution
Weighted average cost method:
Weighted average cost method is the method to find out the equivalent units in the
Compute the total units of prior department, materials, labor and manufacturing
| Particulars | Physical units | Prior department | Materials | Labor | Manufacturing overhead |
| Beginning work-in-process inventory | 75,000 | ||||
| Units started this period | 375,000 | ||||
| Total units | 450,000 | ||||
| Completed and transferred out | |||||
| Beginning work-in-process inventory | 75,000 | ||||
| Started and currently completed | 225,000 | ||||
| Total transferred out | 300,000 | 300,000 | 300,000 | 300,000 | 300,000 |
| Units in ending work-in-process inventory | 150,000 | 150,000 | 135,000(1) | 105,000(2) | 52,500(3) |
| Total units | 450,000 | 450,000 | 435,000 | 405,000 | 352,500 |
Table: (1)
Compute the cost per equivalent unit for prior department, materials, labor and manufacturing overhead:
| Particulars | Total | Prior department | Materials | Labor | Manufacturing overhead |
| Costs in beginning work-in-process inventory | $ 382,800 | $ 192,000 | $ 120,000 | $ 43,200 | $ 27,600 |
| Add: Current period costs | $ 1,865,400 | $ 960,000 | $ 576,000 | $ 216,000 | $ 113,400 |
| Total costs | $ 2,248,200 | $ 1,152,000 | $ 696,000 | $ 259,200 | $ 141,000 |
| Cost per equivalent unit: | |||||
| Prior department | $ 2.56(4) | ||||
| Materials | $ 1.60(5) | ||||
| Labor | $ 0.64(6) | ||||
| Manufacturing overhead | $ 0.40(7) |
Table: (2)
Compute the transferred out, ending inventory and total costs for prior department, materials, labor and manufacturing overhead:
| Particulars | Total | Prior department | Materials | Labor | Manufacturing overhead |
| Transferred out: | |||||
| Prior department | $ 768,000 | $768,000(8) | |||
| Materials | $ 480,000 | $480,000(9) | |||
| Labor | $ 192,000 | $192,000(10) | |||
| Manufacturing overhead | $ 120,000 | $120,000(11) | |||
| Total costs | $ 1,560,000 | ||||
| Work-in-process ending inventory | |||||
| Prior department | $ 384,000 | $384,000(12) | |||
| Materials | $ 216,000 | $216,000(13) | |||
| Labor | $ 67,200 | $67,200(14) | |||
| Manufacturing overhead | $ 21,000 | $21,000(15) | |||
| Total ending work-in-process inventory | $ 688,200 | ||||
| Total costs | $ 2,248,200 | $ 1,152,000 | $ 696,000 | $ 259,200 | $ 141,000 |
Table: (3)
Working note 1:
Compute the units in ending work-in-process inventory:
Working note 2:
Compute the units in ending work-in-process inventory:
Working note 3:
Compute the units in ending work-in-process inventory:
Working note 4:
Compute the cost per equivalent unit:
Working note 5:
Compute the cost per equivalent unit:
Working note 6:
Compute the cost per equivalent unit:
Working note 7:
Compute the cost per equivalent unit:
Working note 8:
Compute the transferred out costs:
Working note 9:
Compute the transferred out costs:
Working note 10:
Compute the transferred out costs:
Working note 11:
Compute the transferred out costs:
Working note 12:
Compute the costs assigned to ending work-in-process inventory:
Working note 13:
Compute the costs assigned to ending work-in-process inventory:
Working note 14:
Compute the costs assigned to ending work-in-process inventory:
Working note 15:
Compute the costs assigned to ending work-in-process inventory:
b.
Determine whether the targets assigned by the management have been achieved or not. Write a short report on the same.
b.
Explanation of Solution
Cost per equivalent unit:
Total amount accounted for and total units accounted are considered Compute the cost per equivalent unit.
Computed cost per equivalent units:
| Particulars | Cost per equivalent unit |
| Materials | $ 1.60 |
| Labor | $ 0.64 |
| Manufacturing overhead | $ 0.40 |
Table: (4)
Targeted cost per equivalent units:
| Particulars | Cost per equivalent unit |
| Materials | $ 1.60 |
| Labor | $ 0.80 |
| Manufacturing overhead | $ 0.36 |
Table: (5)
Relevance of reported computed result and targeted result for materials, labor and manufacturing overhead:
Only the target determined by the management for materials has been achieved. For labor and manufacturing overhead, the cost per equivalent unit has not achieved. The targeted cost per equivalent unit for labor was $0.80 but the actual cost per equivalent unit has been computed to $0.64. Thus, the target has been achieved and reduced further when computed using weighted-average method for labor.
And, the target set by the management for manufacturing overhead was $0.36 and the cost per equivalent unit has been computed to $0.40. The target has not been met by 11% difference approximately.
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Chapter 8 Solutions
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