Question

A company uses the weighted average method for inventory costing. At the start of a period the production department had 20,000 units in beginning Work in Process inventory which were 40% complete; the department completed and transferred 165,000 units. At the end of the period, 22,000 units were in the ending Work in Process inventory and are 75% complete. The production department had conversion costs in the beginning goods is process inventory of $99,000 and total conversion costs added during the period are $726,825. Compute the conversion cost per equivalent unit.

Answer 1

The cost per unit is 4.55 dollars.

Calculation

First we need to calculate equivalent production in order to determine cost per unit.

Equivalent production = Unit transfered out+ Closing units * % completion

= 165,000 + 22,000*75%

= 181,500

Now we can calculate cost per equivalent unit by dividing sum of opening inventory cost and total cost added during period with equivalant production calculated above.

Cost per equivalent = (99,000 + 726,825)/ 181,500

= 4.55

* In weighted average method for inventory valuation is opening stock lost it identity for per unit cost calculation.