Exercise 15: Cost assigned to work in process inventory

Learning objective:
This exercise illustrates the computation of cost assigned to work-in-process inventory under weighted average and FIFO method.

The manager of Delta Company is interested in knowing the work-in-process inventory figures. The relevant data is given below:

• Work in process beginning inventory:
  16,000 units – 100% complete as to materials and 50% complete as to conversion costs
• Cost of beginning inventory:
  materials 7,968; labor $4,296; overhead $4,296.
• Started in process:
  40,000 units
• Cost added during the period:
  materials $48,000; labor $39,936; overhead $39,936.
• Completed and transferred out:
  84,000 units
• Work in process ending inventory:
  12,000 units – 100% complete as to materials and 60% complete as to conversion cost

Required: Compute the cost assigned to work-in-process ending inventory, assuming the company uses:

1. a weighted average method
2. a FIFO method

Solution

1. Cost assigned to work in process inventory – weighted average method

Equivalent units in ending inventory:

Materials:
= 84,000 + 12,000
= 96,000 units

Labor and overhead:
= 84,000 + 12,000 × 60%
= 84,000 + 7,200
= 91,200 units

Unit cost:

*Materials:
= ($7,968 + $48,000)/96,000 units
= $0.583

**Labor:
= ($4,296 + $39,936)/91,200 units
= $0.485

***Overhead:
= ($4,296 + $39,936)/91,200 units
= $0.485

2. Cos assigned to work in process inventory – FIFO method

Equivalent units in ending inventory

Materials:
= 84,000 – 16,000 + 12,000
= 80,000 units

Labor and overhead:
= (84,000 – 16,000) + (16,000 × 50%) + (12,000 × 60%)
= 83,200 units

Units cost

*Materials:
= $48,000/80,000 units
= $0.60

**Labor:
= $39,936/83,200 units
= $0.48

***Overhead:
= $39,936/83,200 units
= $0.48