Reference no: EM13919155
Analyze the physical flow for In the Doghouse
In the Doghouse produces wooden doghouses with shingled roofs. At the beginning of June, there were 300 units in BWIP with costs of $14,304. During the month, the company completed work on the BWIP and began production on 1,200 units. In the Doghouse incurred $96,000 in manufacturing costs during June. At the end of the month, 100 units of those started during the month were in EWIP. In the table to the below, account for the units for June.
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Physical flow for June
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Completed from BWIP
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Started and completed
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Total units completed
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EWIP
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Total units accounted for
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Solution
Step 2: Calculate the Equivalent Units for the Period
The units in BWIP and EWIP are not 100% complete. This step allows BWIP and EWIP to be stated in terms of completed units, which are called equivalent units. This step must be completed before the cost per unit can be calculated.
Under the weighted average method, BWIP is considered to be started and completed during the period when calculating equivalent units. Therefore, BWIP units are included at 100%. Under the FIFO method, the BWIP units are measured by the percentage of work required to complete those units. Therefore, the percentage of work that needs to be done to complete the units must be multiplied by the number of units in BWIP.
APPLY THE CONCEPTS: Step 2
Using the data from above, calculate the Equivalent Units for June. (Note: In the Doghouse's production manager has estimated that the units in BWIP were 80% complete at the beginning of June. The BWIP units were completed during the month. That is, 20% of the work to complete the units was done in the current period (100% - 80% = 20%). The manager has also estimated that EWIP was 40% complete at the end of month. Refer to the analysis of the physical flow.)
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Equivalent units for June
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Weighted average
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FIFO
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BWIP
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Units started and completed
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EWIP
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June equivalent units
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Solution
Step 3: Compute the Cost per Equivalent Unit
The calculation for cost per equivalent unit is a simple calculation:
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Manufacturing Costs
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Equivalent Units
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Under the weighted average method, the numerator is the sum of the manufacturing costs in BWIP and the manufacturing costs for the period. Under the FIFO method, the beginning inventory costs are excluded from this calculation. The numerator is the manufacturing costs for the current period only.
Equivalent units for the period were computed in step 2.
APPLY THE CONCEPTS: Step 3
Recall that the BWIP had costs of $14,304. During June, In the Doghouse incurred $96,000 in manufacturing costs. Complete the formula and cost per equivalent unit for the weighted average method and for the FIFO method to the below. If required, round the cost per equivalent unit amount to the nearest cent.
Compute the Weighted Average Cost per Equivalent Unit for June
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Weighted Average Cost
per Equivalent Unit =
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$
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=
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$
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Compute the FIFO Cost per Equivalent Unit for June
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FIFO Cost
per Equivalent Unit =
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=
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$
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Solution
Step 4: Valuation of Inventories
In this step, the cost of the units transferred out of the current process to Finished Goods is computed by using the information calculated in steps 2 and 3.
Recall that the weighted average method assumes that BWIP units are started and completed during the current period. Because of this assumption, BWIP costs were included in the cost per equivalent unit. Therefore, costs transferred out (to Finished Goods) are calculated by multiplying the units started and completed (step 2) times the weighted average cost per equivalent unit (step 3).
The FIFO method requires the BWIP equivalent units to be added to the units started and completed to determine the units transferred out (step 2). These units are multiplied times the FIFO cost per equivalent unit (step 3). This amount is added to the costs in BWIP to determine the costs transferred out (to Finished Goods). If required, round the cost per equivalent unit amounts to the nearest cent.
APPLY THE CONCEPTS: Step 4
Valuation of Inventories for June
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Inventory Valuation
for June
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Weighted average
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FIFO
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Finished Goods:
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BWIP equivalent units
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Started and completed
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Units transferred out
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x Cost per equivalent unit
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$
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$
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$
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$
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+ BWIP costs
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Costs transferred out
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$
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$
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EWIP:
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EWIP equivalent units
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x Cost per equivalent unit
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$
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$
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Costs in EWIP
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$
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$
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Solution
Step 5: Cost Reconciliation
The purpose of cost reconciliation is to confirm that costs have been fully allocated to inventories. The total costs to account for are the sum of the costs in BWIP and the manufacturing costs for the period. This sum is reconciled by showing that it has been allocated to Finished Goods (units transferred out) and EWIP.
APPLY THE CONCEPTS: Step 5
Cost Reconciliation for June
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Weighted average
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FIFO
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Costs to account for:
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Costs in BWIP
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$
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$
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Manufacturing costs during June
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Total costs to account for
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$
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$
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Cost reconciliation:
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Costs transferred out
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$
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$
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Costs in EWIP
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Total costs accounted for
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$
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$
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