Hoffman Company manufactures car seats in its Boise plant. Each car seat passes through the assembly department and the testing department. This problem focuses on the assembly department.

The process-costing system at Hoffman Company has a single direct-cost category (direct materials) and a single indirect-cost category (conversion costs). Direct materials are added at the beginning of the process. Conversion costs are added evenly during the process. When the assembly department finishes work on each car seat, it is immediately transferred to testing. Hoffman Company uses the FIFO method of process costing

Data for the assembly department for October 2017 are as follows:

	Physical Units	Direct	Conversion
	(Car Seats)	Materials	Costs

Work in process, October 1a	4,000	$1,248,000	$241,650
Started during October 2017	22,500
Completed during October 2017	26,000
Work in process, October 31b	500
Total costs added during October 2017		$4,635,000	$2,575,125

a Degree of completion: direct materials, ?%; conversion costs,45%. b Degree of completion: direct materials, ?%; conversion costs, 65%.

		Total	Direct	Conversion
		Production Costs	Materials	Costs
Completed and transferred out		$8,554,000	$5,772,000	$2,782,000
Work in process, ending		145,775	111,000	34,775
Total costs accounted for		$8,699,775	$5,883,000	$2,816,775

		Direct Materials	Conversion Costs
Costs incurred to date		$5,883,000	$2,816,775
Divide by equivalent units of work done to date		26,500	26,325
Cost per equivalent unit for work done to date		$222	$107

Requirement 1. For each cost category, compute equivalent units in the assembly department. Show physical units in the first column of your schedule. (For amounts with a 0 balance, make sure to enter "0" in the appropriate cell.)

		Equivalent Units
	Physical	Direct	Conversion
Flow of Production	Units	Materials	Costs
Work in process beginning	4000
Started during current period	22500
To account for	26500
Completed and transferred out during current period:
From beginning work in process	4000	0	2200
Started and completed	22000	22000	22000
Work in process, ending	500	500	500
Accounted for	26500
Equivalent units of work done in current period only		22500	24525

Requirement 2. For each cost category, summarize total assembly department costs for October 2017 and calculate the cost per equivalent unit. Begin by summarizing the total costs to account for.

		Total	Direct	Conversion
		Production Costs	Materials	Costs
Work in process, beginning		1489650	1248000	241650
Costs added in current period		7210125	4635000	2575125
Total costs to account for		8699775	5883000

Next calculate cost per equivalent unit for direct materials and conversion costs.

		Direct	Conversion
		Materials	Costs
Costs added in current period		4635000	2575125
Divide by	equivalent units of work done in current period	22500	24525
Cost per equivalent unit for work done in current period		206

Requirement 3. Assign total costs to units completed and transferred out and to units in ending work in process.

Begin by calculating the total from beginning inventory, then calculate the total costs accounted for. (Abbreviation used; WIP = work in process. For amounts with a $0 balance, make sure to enter "0" in the appropriate cell.)

		Total	Direct	Conversion
		Production Costs	Materials	Costs
Completed and transferred out:
Total from beginning inventory

Total costs of units completed and transferred out
Total costs accounted for

Requirement 4. Explain any difference between the cost per equivalent unit in the assembly department under the weighted-average method and the FIFO method.

The cost per equivalent unit (differs/ is the same) between the two methods because each method uses

(different/ the same) costs as the numerator of the calculation. The FIFO method uses (costs from the beginning work-in-process as well as costs added during the current period/ only the beginning work-in-process costs / only the costs added during the current period) and the weighted-average method uses (costs from the beginning work-in-process as well as costs added during the current period. / only the beginning work-in-process costs. / only the costs added during the current period.) Both methods use (different / the same) equivalent units in the denominator.

Requirement 5. Should Hoffman's managers choose the weighted-average method or the FIFO method? Explain briefly. Begin by completing the table below that summarizes the costs assigned to units completed and those still in process under the weighted-average and FIFO process-costing methods.

	Weighted-average	FIFO	Difference
Cost of units completed and transferred out
Work in process, ending
Total costs accounted for

Hoffman's managers should consider the (FIFO / weighted-average) method because even though it shows (lower / higher) operating income and (lower / higher) cost of goods sold, it (lower / higher) taxes. Managers may have an incentive, however, to use the ( FIFO / weighted-average) method and show higher income if the managers' compensation increases with ( lower / higher) operating income or if there are debt covenants that would be violated by showing ( lower / higher) income. Another advantage of the FIFO method is that it provides better information for managing the business because it keeps ( separate the costs of the current period from costs incurred in previous periods. / smootsh the cost per equivalent unit.)