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This is an example of what are the five steps: Question 2 Pharma Company produces various medicines in capsule form. At the beginning of the
This is an example of what are the five steps:
Question 2 Pharma Company produces various medicines in capsule form. At the beginning of the month of February, it had 8,000 units that were 50% complete. These were assigned costs of $80,000. During the month, it completed 50,000 units and has 15,000 units that are 60% completed. It had production costs during the month of $850,000. 1. Complete all five steps of a production report using the weighted average method. 2. Complete all five steps of a production report using the FIFO method. Step 1: Physical Flow Analysis First, trace the physical flow of the products. You do this by reconciling the units needed to be accounted for and accounting those units. For the example it would look like: Units to Account For Units in BWIP (50% Complete) Units Started During the Period Total Units to Account for 4,000 11,000 15,000 Units Accounted For Units Started and Completed Units Completed from BWIP Units in EWIP Total Units Accounted for 6,000 4,000 5,000 15,000 Step 2: Calculate Equivalent Units Second, calculate the equivalent units. With this method you assume that all units were started and completed when calculating the equivalent units. This means you can ignore the beginning inventory when calculating EUs. Completed Units WIP (5,000 X.20) Equivalent Units 10,000 1,000 11,000 Step 3: Compute Unit Cost Third, add both the costs incurred this month, as well as the costs associated with BWIP. Then divide by the equivalent units. Costs from BWIP Costs incurred in March Total Costs 20,000 110,000 130,000 130,000/ 11,000 = $ 11.82 Step 4: Value Inventories Four, take the unit cost multiplied by the equivalent units in the individual inventories. Finished Goods (10,000 X 11.82) WIP (1,000 X 11.82) 118,200 11,820 Step 5: Cost Reconciliation Finally, reconcile the costs incurred with the costs distributed among the inventories. Finished Goods Inventory Work in Process Inventory Total Costs Accounted For 118,200 11,820 130,020 BWIP Costs incurred in March Total Costs to Account For 20,000 110,000 Note: This is a rounding error 130,000 Please note that the costs accounted for and to account for should be equal. The error here is rounding 11.81818181 etc., to 11.82Step by Step Solution
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