WEIGHTED-AVERAGE METHOD Larsen Company manufactures car seats in its San Antonio
ID: 2777105 • Letter: W
Question
WEIGHTED-AVERAGE METHOD
Larsen Company manufactures car seats in its San Antonio plant. Each car seat passes through the assembly department and the testing department. This problem focuses on the assembly department. The process-costing system at Larsen Company has a single direct-cost category (direct materials) and a single indirect-cost category (conversion costs). Direct materials are added at the beginning of the process. Conversion costs are added evenly during the process. When the assembly department finishes work on each car seat, it is immediately transferred to testing. Larsen Company uses the weighted- average method of process costing. Data for the assembly department for October 2014 are as follows:
Physical Units (Car Seats)
Direct Materials
Conversion Costs
Work-in-process, October 1 *a
5,000
$1,250,000
$402,750
Started during October
20,000
Completed during October
22,500
Work-in-process, October 31 *b
2,500
Total costs added during October
$4,500,000
$2,337,500
*a Degree of completion: direct materials,?%; conversion costs, 60%.
*b Degree of completion: direct materials,?%; conversion costs, 70%.
REQUIREMENTS:
1. For each cost category, compute equivalent units in the assembly department. Show physical units in the first column of your schedule.
2. What issues should the manager focus on when reviewing the equivalent units calculation?
3. For each cost category, summarize total assembly department costs for October 2014 and calculate the cost per equivalent unit.
4. Assign costs to units completed and transferred out and to units in ending work in process.
5. Prepare a set of summarized journal entries for all October 2014 transactions affecting Work in Process— Assembly. Set up a T- account for Work in Process— Assembly and post your entries to it.
Physical Units (Car Seats)
Direct Materials
Conversion Costs
Work-in-process, October 1 *a
5,000
$1,250,000
$402,750
Started during October
20,000
Completed during October
22,500
Work-in-process, October 31 *b
2,500
Total costs added during October
$4,500,000
$2,337,500
Explanation / Answer
Ans 1 Details Physical Units Units Direct material % Direct Material Equivalent Unit Direct Material cost/unit Total Direct Material Cost Conversion % Equivalent units completed Conversion rate/unit Conversion Amt Total cost Remarks Opening WIP 5,000 100 5,000 250 1,250,000 60 3,000 134 402,750 1,652,750 As material added in the beginning, 100% material use assumed WIP finished in Oct 40 2,000 110 220,000 220,000 Started & Completed In Oct 17,500 100 17,500 225 3,937,500 100 17,500 110 1,925,000 5,862,500 WIP closing 2,500 100 2,500 225 562,500 70 1,750 110 192,500 755,000 Completed and trasferred Oct 22,500 5,187,500 2,547,750 7,735,250 Ans 2 While reviewing Equivalent unit calculation review the manager should focus on the completion % of opening and closing WIP and the total units started and produced dusring the month to have correct analysis. Ans 3. Cost Category Equivalent Units in Month Total Cost Cost /Equivalent Unit Direct Material 25,000 5,750,000 230 Conversion Cost 24,250 2,740,250 113 Ans 4. Particulars Direct Material Conversion Completed and trasferred Oct 5,187,500 2,547,750 ending WIP 562,500 192,500 Ans 5. Journal Entries Dr $ Cr $ Direct Material Inventory 4,500,000 WIP -Direct Material consumption 4,500,000 Indirect Costs(OH Control) 2,337,500 WIP ( OH applied) 2,337,500 WIP 7,735,250 Finished goods ( For testing) 7,735,250 WIP T account Details Dr $ Details Cr $ To Opening Balance WIP 1,652,750 By Transfer 7,735,250 To Ditect Materials 4,500,000 By Clsoing Bal WIP 755,000 To To Indirect Costs 2,337,500 Total 8,490,250 8,490,250
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