During December, the production department of a process operations system completed and transferred to finished goods a total of 59,000 units of product. At the end of December, 15,000 additional units were in process in the production department and were 50% complete with respect to materials. The beginning inventory included materials cost of $60,100 and the production department incurred direct materials cost of $190,800 during December. Compute the direct materials cost per equivalent unit for the department using the weighted-average method.

Direct material cost per equivalent unit = $3.77

Explanation:

Under the weighted average method of valuation, to account for completed units, it is assumed that the entire degree of work required is done in the period under consideration. So there is no separation of the completed units into opening inventory and fully worked.

Cost per equivalent unit = cost / total equivalent units

To determine the direct material cost per equivalent unit, we follow the steps below

Step 1

Determine the total equivalent units

Item                   Workings                       Equivalent  unit (E.U)

Finished good     100% × 59,000   =       59,000

Closing WIP        50% ×  15,000     =         7,500

Total equivalent unit                             66,500

Step 2

Determine the cost per equivalent unit

Total direct material cost = $ (60,100 + 190,800)

                                    =  $ 250,900

Direct material cost per equivalent unit

  = 250,900/66, 500 E.U

= $3.77

Direct material cost per equivalent unit = $3.77

in 2001, dell computer became the world’s largest personal computer vendor, continuing to

gain market share and post profits in an industry struggling with slumping sales and billions of

dollars in losses. dell sells 90% of its pcs directly to the final customer, largely bypassing the

reseller channel that accounts for most of the world’s pc sales. this direct customer relationship

is the key to dell’s business model, and provides distinct advantages over the indirect sales

model. dell’s direct relationship with the customer allows it to tailor its offerings to customer

needs, offer add-on products and services, and use the internet to offer a variety of customer

services. in addition, dell’s pcs are built to customers’ specifications upon receipt of an order,

giving dell additional advantages over indirect pc vendors who must try to forecast demand and

ship products based on those forecasts. dell’s direct sales and build-to-order model has achieved

superior performance in the pc industry in terms of inventory turnover, reduced overhead, cash

conversion, and return on investment (kraemer, et al., 2000).

explanation: