Question

In a weighted average process costing system what is the effect when the cost of materials used during the period is overestimated?

a. The only effect is to understate the cost of goods completed and transferred out.
b. The only effect is to understate the cost of ending work in process.
c. There will be no effect on process cost.
d. None of the above.

Answer 1

In a weighted average process costing system, overestimating the cost of materials used during the period will result in a. understating the cost of goods completed and transferred out.

Step-by-step explanation:

In a weighted average process costing system, if the cost of materials used during the period is overestimated, it will have the effect of a. understating the cost of goods completed and transferred out.

This is because in a weighted average method, the cost of goods completed and transferred out is calculated by dividing the total costs (including materials) by the equivalent units of production.

If the cost of materials is overestimated, it will result in higher total costs, leading to a lower cost per equivalent unit and thus underestimating the cost of goods completed and transferred out.