Weighted-average method, equivalent units. Consider the following data for the Assembly Division of Fenton Watches, Inc.: The Assembly Division uses the weighted-average method of process costing.
The Correct Answer and Explanation is :
To calculate the equivalent units using the weighted-average method for the Assembly Division of Fenton Watches, Inc., we follow these steps:
1. Summarize the Flow of Physical Units:
| Physical Units | Units |
|---|---|
| Beginning Work-in-Process (WIP) | 80 |
| Units Started During May | 500 |
| Total Units to Account For | 580 |
| Units Completed and Transferred Out | 460 |
| Ending Work-in-Process (WIP) | 120 |
| Total Units Accounted For | 580 |
2. Compute Equivalent Units:
Equivalent units measure the work done during a period, expressed in fully completed units. Under the weighted-average method, we consider work done to date.
- Units Completed and Transferred Out: These are 460 fully complete units for both direct materials and conversion costs.
- Ending WIP: 120 units, with 60% completion for direct materials and 30% for conversion costs.
| Equivalent Units | Direct Materials | Conversion Costs |
|---|---|---|
| Units Completed and Transferred Out | 460 × 100% = 460 | 460 × 100% = 460 |
| Ending WIP | 120 × 60% = 72 | 120 × 30% = 36 |
| Total Equivalent Units | 532 | 496 |
3. Calculate Cost per Equivalent Unit:
To find the cost per equivalent unit, divide the total costs by the equivalent units.
- Total Costs:
- Direct Materials: $3,713,360
- Conversion Costs: $1,483,040
- Cost per Equivalent Unit:
- Direct Materials: $3,713,360 ÷ 532 = $6,980
- Conversion Costs: $1,483,040 ÷ 496 = $2,990
4. Assign Costs to Units Completed and Ending WIP:
- Units Completed and Transferred Out:
- 460 units × ($6,980 + $2,990) = $4,586,200
- Ending WIP:
- Direct Materials: 72 units × $6,980 = $502,560
- Conversion Costs: 36 units × $2,990 = $107,640
- Total Ending WIP Cost: $502,560 + $107,640 = $610,200
5. Verify Total Costs Accounted For:
- Total Costs Assigned:
- Units Completed and Transferred Out: $4,586,200
- Ending WIP: $610,200
- Total: $4,586,200 + $610,200 = $5,196,400
This matches the total costs to account for, ensuring accuracy in our calculations.
In summary, the weighted-average method blends costs from previous and current periods, providing a comprehensive view of production costs. By calculating equivalent units, we allocate costs accurately between completed units and those still in process, ensuring precise inventory valuation and cost of goods sold determination.
