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Trusses Inc. manufactures wooden roof support frames used in one specific roof type of residential construction. Direct Materials are added at the beginning of the manufacturing process and Conversion Costs are added evenly throughout the process. Management has determined that with respect to conversion costs, beginning and ending inventory is 20% and 40% complete, respectively. The following information is for the production of trusses for the month of February:
WIP Inventory, February 1 4,000 trusses
Direct materials: $10,480
Conversion Costs: 20% complete $15,258
Units started during February 18,000 trusses
Units competed during February & Transferred Out 17,000 trusses
Costs incurred during February
Direct materials: $59,040
Conversion Costs $92,092
Required:
Using the weighted-average method, calculate the following:
Cost per equivalent unit (16 points)
Cost of goods completed and transferred out (12 points)
Costs assigned to ending inventory (12 points)
Using the FIFO method, calculate the following:
Cost per equivalent unit (4 points)
Cost of goods completed and transferred out (3 points)
Costs assigned to ending inventory (3 points)
Given Information
WIP Inventory February 1 4,000 trusses
Direct Materials $10,480
Conversion Cost: 20% Complete $15,258
Units Started during February 18,000 trusses
Units Completed during February 19,000 trusses
Cost Incurred during February
Direct Material $59,040
Conversion Costs $92,092
To calculate the weighted average cost, divide the total cost of goods purchased/produced by the number of units available for sale. You'll need the total amount of beginning inventory and recent purchases to find the cost of goods available for sale.
Using Weighted-Average Method
a. Cost per equivalent unit = Cost of goods purchased or produced / Number of goods available for sale
= ( Direct Material + Conversion Costs ) / ( WIP Inventory + Units produced in February )
= ( $10,480 + $59,040 + $15,258 + $92,092 ) / ( 4,000 + 18,000)
= $176,870 / 22,000
= $8.09
b. Cost of goods completed and transferred
Units Completed and transferred out = 17,000 trusses
Cost per unit = $8.09
Cost of goods completed and transferred = 17,000 * $8.09 = $137,530
c. Cost assigned to ending inventory
Closing Inventory = Opening Inventory + Produced New Units - Units Transferred out
= 4,000 + 18,000 - 17,000
= 5,000 units
Cost per unit = $8.09
The cost assigned to ending inventory = 5000 Units * $8.09 = $40,450
Explanation
for step 1
In accounting, the Weighted Average Cost (WAC) method of inventory valuation uses a weighted average to determine the amount that goes into COGS and inventory. The weighted average cost method divides the cost of goods available for sale by the number of units available for sale.
FIFO
Using FIFO method
a. Cost per equivalent unit = Production cost / Equivalent units
Production cost = Costs added during the period
= $10,480 + $15,258 + $59,040 + $92,092
= $176,870
Equivalent units = Equivalent units for each cost component = (100% − A) × B + C + D × E
= ( 100% - 20% ) * 4,000 + 18,000 + ( 40% * 1000 )
= 80% * 4,000 + 18,000 + 400
= 3,200 + 18,400
= 21,600 Units
Cost per equivalent unit = $176,870 / 21,600
= $8.19
b. Cost of goods completed and transferred out
Units Completed and transferred out = 17,000 trusses
Cost per unit = $8.19
Cost of goods completed and transferred = 17,000 * $8.19 = $139,230
c. Cost assigned to ending inventory
Closing Inventory = Opening Inventory + Produced New Units - Units Transferred out
= 4,000 + 18,000 - 17,000
= 5,000 units
Cost per unit = $8.19
The cost assigned to ending inventory = 5000 Units * $8.19 = $40,950
Explanation
for step 2
Equivalent units for each cost component = (100% − A) × B + C + D × E
Where,
A = percentage of completion at the end of last period
B = units in opening work in process
C = units added/started and transferred out
D = percentage of completion of units in closing work in process
E = units in closing work in process
FINAL ANSWER
Using the weighted-average method, calculate the following:
a. Cost per equivalent unit = $8.09
b. Cost of goods completed and transferred out = $137,530
c. Costs assigned to ending inventory = $40,450
Using the FIFO method, calculate the following:
a. Cost per equivalent unit = $8.19
b. Cost of goods completed and transferred out = $139,230
c. Costs assigned to ending inventory = $40,950