Question 2

WEIGHTED AVERAGE METHOD, NONUNIFORM INPUTS, MULTIPLE DEPARTMENTS (LO 1, 2, 3, 4)

Benson Pharmaceuticals uses a process-costing system to compute the unit costs of the over-the-counter cold remedies that it produces. It has three departments: Picking, Encapsulating, and Bottling. In Picking, the ingredients for the cold capsules are measured, sifted, and blended. The mix is transferred out in litre containers. The encapsulating department takes the powdered mix and places it in capsules. One litre of powdered mix converts into 1,500 capsules. After the capsules are filled and polished, they are transferred to Bottling, where they are placed in bottles that are then affixed with a safety seal, lid, and label. Each bottle receives 50 capsules.

During March, the following results are available for the first two departments:

Picking Encapsulating

Beginning inventories:

Physical units 10 litres 4,000

Costs:

Materials $252 $32

Labour $282 $20

Overhead ? ?

Transferred in - $140

Current production:

Transferred out 140 litres 208,000

Ending inventory 20 litres 6,000

Costs:

Materials $3,636 $1,573

Transferred in

Labour $4,618 $1,944

Overhead ? ?

Percentage of completion:

Beginning inventory 40% 50%

Ending inventory 50% 40%

Overhead in both departments is applied as a percentage of direct labour costs. In the picking department, overhead is 200 percent of direct labour. In the encapsulating department, the overhead rate is 150 percent of direct labour.

Required:

1. Prepare a production report for the picking department using the weighted average method. Follow the five steps outlined in the chapter. Round to two decimal places for the unit cost.

2 Prepare a production report for the encapsulating department using the weighed average method Follow the five steps outlined in the chapter. Round to four decimal places for the unit cost.

3 Explain why the weighted average method is easier to use than FIFO Explain when weighted average will give about the same results as FIFO.