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Basketball Sport Ltd uses an automated process to produce basketballs. During the month of June, the company had the following activities: Beginning work in process
Basketball Sport Ltd uses an automated process to produce basketballs. During the month of June, the company had the following activities: Beginning work in process inventory 4,000 units, 20% complete Units placed in production 11,000 units Units completed 9,000 units Ending work in process inventory 6,000 units, 25% complete Cost of beginning work in process, material $3,000 Cost of beginning work in process, conversion $2,100 Costs added during June: Direct material costs $12,000 Conversion costs $10,500 Direct materials are placed into production at the beginning of the process and conversion costs are incurred evenly throughout the process. Compute the following by using weighted average method: 1. For each cost category, compute equivalent units. (3 marks) For each cost category, summarise total costs in June and calculate the cost per equivalent unit. (3 marks) Compute costs allocated to units completed and transferred out and the costs allocated to closing WIP. (3 marks) (Show all calculations) 2. If prices of materials, labour rates and costs of utilities constituting conversion costs are rising, which costing method - FIFO or weighted average - would account for more accurate costs of goods sold? Under such circumstances, which costing method would result in a lower profit? Briefly explain (2 marks)
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