Question

Weighted Average Method, Unit Cost, Valuing Inventories Cassien Inc. manufactures products that pass through two or more processes. During June, equivalent units were computed using the weighted average method: Units completed 53,400 Units in EWIP X Fraction complete (36,000 X 60%) 21,600 Equivalent units of output 75,000 June's costs to account for are as follows: BWIP (10,000 units, 80% complete) $50,000 Materials 90,000 Conversion costs 34,000 Total $174,000 Required: 1. Calculate the unit cost for June using the weighted average method. Round your answer to the nearest cent. $ per unit 2. Using the weighted average method, determine the cost of EWIP and the cost of the goods transferred out. If required, round your answers to the nearest dollar. Cost of ending work in process $ Cost of the goods transferred out $ 3. Cassien had just finished implementing a series of measures designed to reduce the unit cost to $2.00 and was assured that this had been achieved and should be realized for June’s production. Yet, upon seeing the unit cost for June, the president of the company was disappointed. Can you explain why the full effect of the cost reductions may not show up in June? What can you suggest to overcome this problem?

Answer 1

Answer and Explanation:

1. Unit Cost for June = Total Cost/ Equivalent Units of output

= 174,000/75,000

= $2.32 per unit

2. Cost of Ending Work in Progress = Cost per unit * Ending WIP

= 2.32 * 21,600

= $50,112

Cost of goods transferred out = Cost per unit * Units completed

= 2.32 * 53,400

= $‭123,888‬

3. By using the Weighted Average method for calculating cost, May costs will also be reflected in the cost figures. In May, the measures to reduce cost had not been implemented so the costs were still higher than anticipated for June. They will therefore pull the June costs upward such that the cost reductions will not show up in June.

This can be overcome by using a method that would reflect the cost of June alone.