A company manufactures a product that passes through two production departments: molding and assembly. Direct materials are added in the assembly department when conversion is 50% complete. Conversion costs are incurred uniformly. The activity in units for the assembly department during April is as follows:
Units
Work-in-process inventory, April 1
(60% complete as to conversion costs)
5,000
Transferred in from molding department
32,000
Defective at final inspection (within normal limits)
2,500
Transferred out to finished goods inventory
28,500
Work-in-process inventory, April 30
(40% complete as to conversion costs)
6,000
The number of equivalent units for direct materials in the assembly department for April calculated on the weighted-average basis is
A. 34,000 units.
B. 28,500 units.
C. 31,000 units
D. 26,000 units.
Answer (C) is correct.
The weighted-average approach averages the costs in beginning work-in-process with those incurred during the period. Accordingly, the degree of completion of the BWIP is ignored in computing the equivalent units for direct materials. Direct materials equivalent units therefore consist of units transferred to finished goods (28,500) and units that failed inspection (2,500), or 31,000. Ending work-in-process inventory has not reached the point at which materials are added.
Why would you want to include defective units that are not being transferred (or remain in ending inventory) into Equiv units calculations?
That would throw off your totals transferred and total remaining in inventory.
Am I missing something?
BA Mathematics, UC Berkeley
Certificates in CPA and EA preparation, College of San Mateo
CMA I 420, II 470
FAR 91, AUD Feb 2015 (Gleim self-study)
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