Question

Hello! I would like to ask regarding cost accounting, specifically process cost system. It is about the case 2. In computing the equivalent units of production. Is the Beginning inventory Included? thank you

E6-1 puting equivalent units of production Using the data given for Cases 1-3 the average cost method, com given for Cases 1-3 below, and assuming the use of not method, compute the separate equivalent units of tion-one for materials and one for labor and overhead- under each of the following assumptions (labor and factory over- head are applied evenly during the process in each assumption): Assumptions: a. All materials go into production at the beginning of the process. b. All materials go into production at the end of the process. (Note that this would have to be a department subsequent to the first department for all materials to be added at the end of the process.) c. At the beginning of the process, 75% of the materials go into production and 25% go into production when the process is one-half completed. Note that you will have three sol Vill have three solutions for each of the following cases: Case 1-Started in proces in process, end of completed. process 5,000 units; finished 3,000 units; work end of period, 2,000 units, three-fourths Case 2 - Opening inven in process 40,000 un cess, end of perio entory 5,000 units, three-fifths completed; started its; finished 39,000 units; work in pro- d of period, 6,000 units, one-fourth completed.

Answer 1

The answer is explains the computation of equivalent units under Case -2
Equivalent units under process costing will include the following:
(i) Units from beginning work in process
(ii) Units started and completed during the period
(iii) Units in ending work in process
In Weighted average method for computing equivalent units we consider the
following two items
(i) Units completed and transferred
(ii) Units in ending work in progress
The units completed and transferred includes the following two items
(i) Units from beginning work in process
(ii) Units started and completed during the period
The process account would show as under
Units in Beg.WIP			5,000	Units Completed and Transferred
Units Started this period			40,000	Units from Beg.WIP			5,000
				Units Started and Completed			34,000
				Total units completed and transferred			39,000
				Units in End. WIP			6,000
			45,000				45,000
The equivalent units under the three situations would be as under
a.
				Materials		Conversion Costs
Units Completed and transferred				39,000		39,000
Units in Ending WIP
Materials - 100% completed				6,000
Conversion Costs - one fourth completed						1,500
Equivalent Unts				45,000		40,500
b.
				Materials		Conversion Costs
Units Completed and transferred				39,000		39,000
Units in Ending WIP
Materials - 0% completed				-
Conversion Costs - one fourth completed						1,500
Equivalent Unts				39,000		40,500
Since,materials is go into production when the units are 100% complete,hence the
completion % for materials would be 0%
c.
				Materials		Conversion Costs
Units Completed and transferred				39,000		39,000
Units in Ending WIP
Materials - 75% completed				4,500
Conversion Costs - one fourth completed						1,500
Equivalent Unts				43,500		40,500
75% of materials go into production at the beginning and the balance 25% when the units
are one half complete.Since, the units are only one fourth complete,the completion% for
materials would be 75%
The only difference between FIFO method and Average costing method is that in FIFO
method only the costs introduced in current period are considered and hence the units in
the beginning WIP are shown separately at their equivalent units whereas the average
cost method considers the total cost ( costs in the current period and the costs at the
beginning) and hence the units in the beginning WIP are not shown separately.