Alvis Construction Supply Company has a department that manufactures wood trusses (wood frames used in the construction industry). The following information is for the production of these trusses for the month of February: Work-in-Process Inventory, February 14,000 trusses
Direct materials: 100% complete$10,480
Conversion: 20% complete$15,258
Units started during February18,000 trusses
Units completed during February and transferred out17,000 trusses
Work-in-Process Inventory, February 29
Direct materials: 100% complete
Conversion cost: 40% complete
Costs incurred during February
Direct materials$ 59,040
Conversion$ 92,092
Required:
Using the weighted-average method, calculate the following:
1. a. Costs per equivalent unit.
b. Cost of goods completed and transferred out.
c. Costs remaining in the Work-in-Process Inventory account.
2. Assume that you are the company’s controller. The production department’s February equivalent unit cost is higher than expected. If the manager of the first department asks you to do him a favor by increasing the ending inventory completion percentage from 40 to 60% to lower the unit costs, what should you do? How much would unit cost be affected by this request?

1-a. Weighted average cost per unit = $8.81

1-b. Cost of goods completed and transferred out = $149,770

1-c. Costs remaining in the Work-in-Process Inventory account = $27,100

2-a. The request of the manager of the first department should not be granted as an accountant.

2-b. This request has made the unit cost to reduce by $0.28.

Explanation:

1-a. Calculate costs per equivalent unit.

Note: See number 1-a in the attached excel file for the calculation of costs per equivalent unit for materials and conversion.

From the attached excel file, cost per equivalent units of production (EUP) are as follows:

Material's cost per EUP = Total costs of material  / Material's EUP = $69,520 / 22,000 = $3.16

Conversion's cost per EUP = Total costs of conversion  / Conversion's EUP = $107,350 / 19,000 = $5.65

Weighted average cost per unit = Material's cost per EUP + Conversion's cost per EUP = $3.16 + $5.65 = $8.81

1.-b. Calculate cost of goods completed and transferred out.

Note: See number 1-b in the attached excel file for the calculation of costs of goods completed and transferred out.

From the attached excel file, we have:

Direct Materials' Total Cost transferred Out = $53,720

Conversion's Total Cost transferred Out = $53,720

Cost of goods completed and transferred out = Direct Materials' Total Cost transferred Out + Conversion's Total Cost transferred Out = $53,720 + $96,050 = $149,770

1-c. Calculate costs remaining in the Work-in-Process Inventory account.

Note: See number 1-c in the attached excel file for the calculation of costs remaining in the Work-in-Process Inventory account.

From the attached excel file, we have:

Costs remaining in the Work-in-Process Inventory account = Total cost of ending WIP = $27,100

2. Assume that you are the company’s controller. The production department’s February equivalent unit cost is higher than expected. If the manager of the first department asks you to do him a favor by increasing the ending inventory completion percentage from 40 to 60% to lower the unit costs, what should you do? How much would unit cost be affected by this request?

2-a. What should you do?

The request of the manager of the first department should not be granted as an accountant. This is because granting his request will a negative effect on the integrity of the accountant and the accounts prepared may not show a true and fair view that may be detected by the external auditor.

2-b. How much would unit cost be affected by this request?

Note: See number 2 in the attached excel file for the calculation of costs per equivalent unit for materials and conversion.

Initial weighted average cost per unit from part 1-a = $8.81

From part 2 of the attached excel file, cost per equivalent units of production (EUP) are as follows:

New material's cost per EUP = Total costs of material  / Material's EUP = $69,520 / 22,000 = $3.16

New conversion's cost per EUP = Total costs of conversion  / Conversion's EUP = $107,350 / 20,000 = $5.37

New weighted average cost per unit = Material's cost per EUP + Conversion's cost per EUP = $3.16 + $5.37 = $8.53

Initial weighted average cost per unit from part 1-a = $8.81

Effect on unit cost = New conversion's cost per EUP - Initial weighted average cost per unit from part 1-a = $8.53 - $8.81 = -$0.28

The negative sign in effect on unit cost of -$0.28 indicates that this request has made the unit cost to reduce by $0.28.

Workings:

w.1: Units of ending WIP = Work-in-Process Inventory, February 1 + Units started during February - Units completed during February and transferred out = 4,000 + 18,000 – 17,000 = 5,000