8/12/2019 Weighted Average Inventory Valuation

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Anurup Upadhyay

ACCT 1618 Professor Kathy Boeger

7/22/14

Weighted-Average Method

Under the weighted-average method, the cost per equivalent unit for a specific cost category is

computed by adding the cost of beginning work in process inventory and the cost added during the

period and then dividing the result by the equivalent units of production (pp. 148).

Equivalent units of production = Number of partially completed units * Percentage completion (pp. 148)

Equivalent units of production = Units of transferred to the next department or to finished goods +

Equivalent units in ending work in process inventory (pp. 148)

Cost per equivalent unit = Cost of beginning WIP inventory + Cost added during the period (pp. 150)

Equivalent units of production

For example, lets assume the following:

Data for Februarys operations at ABC Manufacturing, Inc.:

Work in process, beginning 3,000

Completion with respect to materials 50%

Completion with respect to conversion 40%

Units of production started in the month 1,500

Units completed and transferred to next department 3,500

Ending work in process 1,000

Completion with respect to materials 30%

Completion with respect to conversion 25%

Cost in the beginning inventory:

Materials Cost $10,000

Conversion Cost $5,000

Costs added to production during the period:

Materials Cost $350,000

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Conversion Cost $200,000

Based on the information above,

Equivalent Units of Production (pp. 149)

Former Department Materials Conversion

Units transferred to next department 3,500 3,500

Ending work in process:

Materials: 30% of 1000 300

Conversion: 25% of 1000 250

Equivalent units of production 3,800 3,750

Now,

Cost Per Equivalent Units (pp. 151)

Materials Conversion

Costs of beginning work in process inventory $10,000 $5,000

Costs added during current period $350,000 $200,000

Total Costs $360,000 $205,000

Equivalent units of production (from above) 3800 3750

Cost per equivalent unit $94.74 $54.67

Now, in order to determine the costs for ending work in process inventory and cost of units completed

and transferred out, the equivalent units under these categories are multiplied by the cost per

equivalent unit (pp. 151). The continuation of the problem above is as follows:

Costs of Ending Work in Process Inventory and the Units Transferred Out (pp. 151)

Materials Conversion Total

Ending work in process inventory:

Materials: $94.74 * 300 $28,421

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Conversion: $54.67 * 250 $13,667 $42,088

Units completed and transferred out:

Materials: $94.74 * 3500 $331,579

Conversion: $54.67 * 3500 $191,333 $522,912

TOTALS $360,000 $205,000 $565,000

Moving on to the cost reconciliation report, the costs assigned to ending work in process inventory to

the units transferred out reconcile with the costs invested in beginning work in process inventory and

the costs to production during the month (pp. 152).

Cost Reconciliation (p. 152)

Costs to be accounted for:

Cost of beginning work in process inventory $15,000

Costs added to production during the period $550,000

Total costs to be accounted for $565,000

Costs accounted for as follows:

Cost of ending work in process inventory $42,088

Cost of units transferred out $522,912

Total cost accounted for $565,000