Final answer:
The method that combines partially completed units from beginning inventory with current period production is the weighted average method. The best production method based on the least cost is Method 1, both before and after the cost of labor increases, although Method 2 becomes equally cost-effective after the increase if minimizing labor is a priority.
Step-by-step explanation:
When computing equivalent units of production, the method that combines partially completed units in beginning inventory with current period production is the weighted average method. This method blends the beginning inventory costs with the costs of the current period to compute a cost per unit.
To determine the best production method considering labor and capital costs, we need to calculate the total cost of each method. For Method 1, at $100/unit for labor and $400/unit for capital, the cost is (50 units of labor × $100) + (10 units of capital × $400) which equals $9,000. For Method 2, it's (20 × $100) + (40 × $400) which equals $18,000. Finally, for Method 3, it's (10 × $100) + (70 × $400) which equals $29,000. Therefore, the best production method based on the lowest cost is Method 1.
If the cost of labor rises to $200/unit, we recalculate the total costs: For Method 1, it's (50 × $200) + (10 × $400) = $18,000. For Method 2, it's (20 × $200) + (40 × $400) = $18,000. For Method 3, it's (10 × $200) + (70 × $400) = $30,000. Method 1 and Method 2 are now equal in cost, but since Method 2 uses less labor, it might be preferable if the increased labor cost is a concern.