Compute the equivalent units of production for the first department for June, assuming that the company uses the weighted-average method of accounting for units and costs.
The Colorado Company manufactures a product that goes through three processing departments. During June, the department has the following activity and inventory information:
Work in process at the beginning of June: 80,000 units, 65% materials complete, 45% conversion complete.
Work in process at the end of June: 65,000 units, 75% materials complete, 65% conversion complete.
Units started during June: 325,000 units.
Units transferred to the next department during June: 340,000 units.
The goal is to compute the equivalent units of production (EUP) for June using the weighted-average method, which combines units and costs from the beginning inventory with current period activity.
Introduction
In process costing, equivalent units of production (EUP) are used to assign costs to units completed and units in ending inventory. The weighted-average method simplifies this process by averaging the costs of beginning inventory with the costs incurred during the current period. This approach ensures that all units, whether beginning inventory or started during the period, receive an equal treatment in terms of cost allocation.
Calculating Equivalent Units of Production
Step 1: Determine units to be accounted for
The units to be accounted for include beginning inventory units and units started during the period:
Units in beginning inventory: 80,000 units
Units started during June: 325,000 units
Total units to account for: 80,000 + 325,000 = 405,000 units.
Step 2: Determine units accounted for
Units transferred out: 340,000 units
Units in ending inventory: 65,000 units
Total units accounted for: 340,000 + 65,000 = 405,000 units, which matches the units to be accounted for, confirming the consistency of the data.
Step 3: Compute equivalent units for materials and conversion costs
Using the weighted-average method, the EUP are calculated as follows:
Materials
Units transferred out: 340,000 units
Ending work in process: 65,000 units × 75% completion = 48,750 equivalent units
Beginning inventory units (80,000 units): since these were already 65% complete at the start of the period, all units are considered as started and completed during the period for the purpose of the weighted-average method. Thus, these are included in the units transferred out and in the ending inventory calculations.
Conversion Costs
Units transferred out: 340,000 units
Ending work in process: 65,000 units × 65% completion = 42,250 equivalent units
Beginning inventory units (80,000 units): 45% complete at the start of June, but since we are using the weighted-average method, these are averaged with current costs, and the total units are considered as part of the units transferred out and in ending inventory.
Final Calculation of Equivalent Units
Materials
Equivalent units for materials:
Units transferred out: 340,000
Ending inventory: 48,750
Total equivalent units for materials: 340,000 + 48,750 = 388,750 units.
Conversion Costs
Equivalent units for conversion costs:
Units transferred out: 340,000
Ending inventory: 42,250
Total equivalent units for conversion costs: 340,000 + 42,250 = 382,250 units.
Conclusion
Therefore, for June, using the weighted-average method, the total equivalent units of production are approximately 388,750 units for materials and 382,250 units for conversion costs. These figures will be used in cost allocation and further financial analysis of the company's production process.
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