FWF has been experiencing an increased demand for their sturdy and comfortable office chairs which can also be used as dining room chairs. In fact the demand for these chairs has increased to the point that FWF created a dedicated production line for the chairs. All resources used in making the chairs are dedicated to the chair line, including direct labor.

In the past, all overhead was placed in one cost pool and was allocated to the FWF products using machine hours as the cost driver. Now FWF management is removing the costs of the dedicated line from the plant-wide cost pool and placing the costs in a cost pool for the chairs alone.

The costs, units produced, and percentage of completion for the dedicated line appear below:

This period there were 8,500 units completed and transferred out to be stored until being sold. Of the units not finished, 40 were scrapped since management considered them to be spoiled. The remaining units not completed have progressed 75% of the way through the process.

At the beginning of the process all of the wood is added for the planned chair production. Once the chairs are sanded and varnished, each chair has a cushion attached at the 80% point. Varnish is added once the chair is sanded and cleaned. This takes place when the chairs are 25% of the way through the process.

All spoilage is detected just after the chairs are sanded and prior to being varnished. Therefore the spoilage detection point is once the chair is 25% of the way through the process.

Required for the dedicated line:

1. Determine the costs to be left in Work in Process, transferred out with good units completed, and the costs of spoiled units. Use the weighted average method.
2. Record the journal entries that are appropriate for the flow of units out of Work-in-Process.
3. Consider the ways to handle spoilage. Which method did you choose and why did you make that choice?
4. Was the move to process costing by FWF appropriate?

Costs % complete Units 1,000 $30,000 100% Work in Process: Beginning Inventory Material 1 - Wood Material 2- Varnish Material 3- Cushion Direct Labor Manufacturing Overhead for the Chair Line $0 $16,840 $60,000 0% 25% 25% 9,000 Started this period Material 1 - Wood Material 2- Varnish Material 3- Cushion Direct Labor Manufacturing Overhead for the Chair Line $270,000 $3,984 $170,000 $96,050 $288,150 Costs % complete Units 1,000 $30,000 100% Work in Process: Beginning Inventory Material 1 - Wood Material 2- Varnish Material 3- Cushion Direct Labor Manufacturing Overhead for the Chair Line $0 $16,840 $60,000 0% 25% 25% 9,000 Started this period Material 1 - Wood Material 2- Varnish Material 3- Cushion Direct Labor Manufacturing Overhead for the Chair Line $270,000 $3,984 $170,000 $96,050 $288,150