Concept explainers
Benson Pharmaceuticals uses a process-costing system to compute the unit costs of the over-the-counter cold remedies that it produces. It has three departments: mixing, encapsulating, and bottling. In mixing, the ingredients for the cold capsules are measured, sifted, and blended (with materials assumed to be uniformly added throughout the process). The mix is transferred out in gallon containers. The encapsulating department takes the powdered mix and places it in capsules (which are necessarily added at the beginning of the process). One gallon of powdered mix converts into 1,500 capsules. After the capsules are filled and polished, they are transferred to bottling, where they are placed in bottles that are then affixed with a safety seal, lid, and label. Each bottle receives 50 capsules.
During March, the following results are available for the first two departments:
Overhead in both departments is applied as a percentage of direct labor costs. In the mixing department, overhead is 200% of direct labor. In the encapsulating department, the overhead rate is 150% of direct labor.
Required:
- 1. Prepare a production report for the mixing department using the weighted average method. Follow the five steps outlined in the chapter. (Note: Round to two decimal places for the unit cost.)
- 2. Prepare a production report for the encapsulating department using the weighted average method. Follow the five steps outlined in the chapter. (Note: Round to four decimal places for the unit cost.)
- 3. CONCEPTUAL CONNECTION Explain why the weighted average method is easier to use than FIFO. Explain when weighted average will give about the same results as FIFO.
1.
Present a production report for the mixing department using weighted average method.
Explanation of Solution
Weighted Average Method:
Weighted average method is an inventory valuation method. In this method, cost is divided by equivalent units to obtain unit cost. This unit cost is used to value the inventory units.
Step 1: Physical flow analysis:
Particulars | Units |
Units to account for: | |
Units in beginning WIP | 10 |
Add: Units started during the period1 | 150 |
Units to account for | 160 |
Units accounted for: | |
Units completed and transferred | 140 |
Add: Units in ending WIP | 20 |
Units accounted for | 160 |
Table (1)
Step 2: Computation of equivalent units:
Particulars | Units |
Units completed and transferred | 140 |
Equivalent units from ending inventory | 10 |
Equivalent units | 150 |
Table (2)
Step 3: Computation of unit cost:
Particulars | Amount ($) |
Cost of beginning inventory: | |
Material | 252 |
Labor | 282 |
Overhead | 564 |
Total cost of beginning inventory (A) | 1,098 |
Cost incurred: | |
Material | 3,636 |
Labor | 4,618 |
Overhead | 9,236 |
Total cost incurred (B) | 17,490 |
Total manufacturing cost | 18,588 |
Unit cost |
123.92 |
Table (3)
Step 4: Valuation of inventories:
Particulars | Amount ($) |
Cost of goods transferred | 17,348.8 |
Cost of ending WIP | 1239.2 |
Total value | 18,588 |
Table (4)
Step 5: Cost reconciliation:
Particulars | Amount ($) |
Cost of goods transferred | 17,348.8 |
Cost of ending WIP | 1239.2 |
Total value | 18,588 |
Total cost of beginning inventory | 1,098 |
Total cost incurred | 17,490 |
Total manufacturing cost | 18,588 |
Table (5)
Working Notes:
1. Computation of units started during the period:
2.
Present a production report for the encapsulating department using weighted average method.
Explanation of Solution
Step 1: Physical flow analysis:
Particulars | Units |
Units to account for: | |
Units in beginning WIP | 4,000 |
Add: Units started during the period1 | 210,000 |
Units to account for | 214,000 |
Units accounted for: | |
Units completed and transferred | 208,000 |
Add: Units in ending WIP | 6,000 |
Units accounted for | 214,000 |
Table (6)
Step 2: Computation of equivalent units:
Particulars | Units |
Units completed and transferred | 208,000 |
Equivalent units from ending inventory | 2,400 |
Equivalent units | 210,400 |
Table (7)
Step 3: Computation of unit cost:
Particulars | Amount ($) |
Cost of beginning inventory: | |
Material | 32 |
Labor | 20 |
Overhead | 30 |
Transferred in | 140 |
Total cost of beginning inventory (A) | 222 |
Cost incurred: | |
Material | 1,573 |
Transferred in | 17,348.8 |
Labor | 1,944 |
Overhead | 2,916 |
Total cost incurred (B) | 23,781.8 |
Total manufacturing cost | 24,003.8 |
Unit cost |
0.1141 |
Table (8)
Step 4: Valuation of inventories:
Particulars | Amount ($) |
Cost of goods transferred | 23,732.8 |
Cost of ending WIP | 273.84 |
Total value | 24,006.64 |
Table (9)
Step 5: Cost reconciliation:
Particulars | Amount ($) |
Cost of goods transferred | 23,732.8 |
Cost of ending WIP | 273.84 |
Total value | 24,006.64 |
Total cost of beginning inventory | 222 |
Total cost incurred | 23,781.8 |
Total manufacturing cost | 24,003.8 |
Table (10)
Working Notes:
1.
Computation of units started during the period:
3.
Discuss whether or not weighted average method is easier than FIFO. Also, discuss the situation in which weighted average will give about the same results as FIFO.
Explanation of Solution
It is easier to compute unit cost in case of weighted average method, because all equivalent units are categorized in one class.
Weighted average would provide similar result from FIFO, in case, costs are not much fluctuating and are similar from previous periods.
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Chapter 6 Solutions
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- Healthway uses a process-costing system to compute the unit costs of the minerals that it produces. It has three departments: Mixing, Tableting, and Bottling. In Mixing, at the beginning of the process all materials are added and the ingredients for the minerals are measured, sifted, and blended together. The mix is transferred out in gallon containers. The Tableting Department takes the powdered mix and places it in capsules. One gallon of powdered mix converts to 1,600 capsules. After the capsules are filled and polished, they are transferred to Bottling where they are placed in bottles, which are then affixed with a safety seal and a lid and labeled. Each bottle receives 50 capsules. During July, the following results are available for the first two departments (direct materials are added at the beginning in both departments): Overhead in both departments is applied as a percentage of direct labor costs. In the Mixing Department, overhead is 200 percent of direct labor. In the Tableting Department, the overhead rate is 150 percent of direct labor. Required: 1. Prepare a production report for the Mixing Department using the weighted average method. Follow the five steps outlined in the chapter. Round unit cost to three decimal places. 2. Prepare a production report for the Tableting Department. Materials are added at the beginning of the process. Follow the five steps outlined in the chapter. Round unit cost to four decimal places.arrow_forwardReducir, Inc., produces two different types of hydraulic cylinders. Reducir produces a major subassembly for the cylinders in the Cutting and Welding Department. Other parts and the subassembly are then assembled in the Assembly Department. The activities, expected costs, and drivers associated with these two manufacturing processes are given below. Note: In the assembly process, the materials-handling activity is a function of product characteristics rather than batch activity. Other overhead activities, their costs, and drivers are listed below. Other production information concerning the two hydraulic cylinders is also provided: Required: 1. Using a plantwide rate based on machine hours, calculate the total overhead cost assigned to each product and the unit overhead cost. 2. Using activity rates, calculate the total overhead cost assigned to each product and the unit overhead cost. Comment on the accuracy of the plantwide rate. 3. Calculate the global consumption ratios. 4. Calculate the consumption ratios for welding and materials handling (Assembly) and show that two drivers, welding hours and number of parts, can be used to achieve the same ABC product costs calculated in Requirement 2. Explain the value of this simplification. 5. Calculate the consumption ratios for inspection and engineering, and show that the drivers for these two activities also duplicate the ABC product costs calculated in Requirement 2.arrow_forwardLacy, Inc., produces a subassembly used in the production of hydraulic cylinders. The subassemblies are produced in three departments: Plate Cutting, Rod Cutting, and Welding. Materials are added at the beginning of the process. Overhead is applied using the following drivers and activity rates: Other data for the Plate Cutting Department are as follows: Required: 1. Prepare a physical flow schedule. 2. Calculate equivalent units of production for: a. Direct materials b. Conversion costs 3. Calculate unit costs for: a. Direct materials b. Conversion costs c. Total manufacturing 4. Provide the following information: a. The total cost of units transferred out b. The journal entry for transferring costs from Plate Cutting to Welding c. The cost assigned to units in ending inventoryarrow_forward
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In the pattern department, blocks of wood are fed into a machine that is set to shape the handles. Different patterns are possible, depending on the machines setting. After coming out of the machine, the handles are cleaned and smoothed. They then pass to the finishing department, where they are sprayed with the final finishes. In final assembly, the limbs and handles are assembled into different models using purchased parts such as pulley assemblies, weight-adjustment bolts, side plates, and string. Golding, since its inception, has been using process costing to assign product costs. A predetermined overhead rate is used based on direct labor dollars (80% of direct labor dollars). Recently, Golding has hired a new controller, Karen Jenkins. After reviewing the product-costing procedures, Karen requested a meeting with the divisional manager, Aaron Suhr. The following is a transcript of their conversation: Karen: Aaron, I have some concerns about our cost accounting system. 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If there is a significant difference, go ahead and adjust the costing system. After the meeting, Karen decided to collect cost data on the two models: the Deluxe model and the Econo model. She decided to track the costs for one week. At the end of the week, she had collected the following data from the pattern department: a. There were a total of 2,500 bows completed: 1,000 Deluxe models and 1,500 Econo models. b. There was no BWIP; however, there were 300 units in EWIP: 200 Deluxe and 100 Econo models. Both models were 80% complete with respect to conversion costs and 100% complete with respect to materials. c. The pattern department experienced the following costs: d. On an experimental basis, the requisition forms for materials were modified to identify the dollar value of the materials used by the Econo and Deluxe models: Required: 1. Compute the unit cost for the handles produced by the pattern department, assuming that process costing is totally appropriate. Round unit cost to two decimal places. 2. Compute the unit cost of each handle, using the separate cost information provided on materials. Round unit cost to two decimal places. 3. Compare the unit costs computed in Requirements 1 and 2. Is Karen justified in her belief that a pure process-costing relationship is not appropriate? Describe the costing system that you would recommend. 4. In the past, the marketing manager has requested more money for advertising the Econo line. Aaron has repeatedly refused to grant any increase in this products advertising budget because its per-unit profit (selling price minus manufacturing cost) is so low. Given the results in Requirements 1 through 3, was Aaron justified in his position?arrow_forwardGolding Manufacturing, a division of Farnsworth Sporting, Inc., produces two different models of bows and eight models of knives. The bow-manufacturing process involves the production of two major subassemblies: the limbs and the handle. 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