Problem 2: Cost assigned to work in process inventory

The manager of Delta Company is interested to know 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 cost assigned to work in process inventory ending inventory assuming the Delta 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

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