Problem

# Prepare a Production Cost Report: Weighted-Average MethodDouglas Toys is a manufacturer th...

Prepare a Production Cost Report: Weighted-Average Method

Douglas Toys is a manufacturer that uses the weighted-average process costing method to account for costs of production. It produces a plastic toy in three separate departments: Molding, Assembling, and Finishing. The following information was obtained for the Assembling Department for the month of September.

Work in process on September 1 had 100,000 units made up of the following:

 Degree of Amount Completion Prior department costs transferred in from the Molding Department. $128,000 100% Costs added by the Assembling Department Direct materials 80,000 100% Direct labor 28,800 60% Manufacturing overhead 18,400$127,200 50% Work in process, September 1 $255,200 During September, 500,000 units were transferred in from the Molding Department at a cost of$640,000. The Assembling Department added the following costs:

 Direct materials $384,000 Direct labor 144 000 Manufacturing overhead 75,600 Total costs added$603,600

Assembling finished 400,000 units and transferred them to the Finishing Department.

At September 30, 200,000 units were still in work-in-process inventory. The degree of completion of work-in-process inventory at September 30 was as follows:

 Direct materials 90% Direct labor 70 Manufacturing overhead 35

Required

a.Prepare a production cost report using the weighted-average method.

b.Management would like to decrease the costs of manufacturing the toy. In particular, it has set the following per unit targets for this product in the Assembling Department: Materials, $0.80; labor,$0.40; and manufacturing overhead, $0.18. Has the product achieved management’s cost targets in the Assembling Department? Write a short report to management stating your answer(s). #### Step-by-Step Solution Solution 1 (a) The required production cost report should be prepared in the following manner: Working notes: 1. Work-in-process ending inventory is 90% complete for materials, 70% complete for direct labor, and 35% complete for manufacturing overheads. Therefore, equivalent units of work-in-process ending inventory for materials is 180,000, for direct labor is 140,000, and for manufacturing overheads is 70,000. 2. Cost per equivalent unit for each item has been computed by dividing total cost to be accounted for by total units to be accounted for. 3. Costs assigned to work-in-process ending inventory for each item has been computed by multiplying equivalent units by cost per equivalent unit. (b) The product has very well achieved the management’s cost targets in the Assembling Department. 1. Per unit target set by the management for the material was$0.80. The product has exactly achieved that target for materials.

2. Per unit target set by management for direct labor was $0.40. The per-unit direct labor cost achieved by the product is$0.32.

3. Per unit target set by the management for manufacturing overhead was $0.18. Per unit manufacturing overhead cost achieved by the product is$0.20, slightly more than the administration specified. However, this increase in per-unit manufacturing overhead cost has already been compensated by per unit direct labor cost.