Weighted Average Method

used to assign the average cost of

production to a product.
includes costs in beginning
inventory and current period costs to
establish an average cost per unit

6 Steps in Process Costing
1. Calculate the total physical units to account
for
2. Calculate the physical units accounted for
3. Calculate the equivalent units of production
4. Calculate the total cost to account for
5. Calculate the cost per equivalent unit of
production
6. Assign costs to inventories
Production and Cost Information for Colorful Candles for April 2008
Candles in beginning WIP inventory (40% complete as to labor and overhead or conversion) 10,000

Candles started during current period 401,400

Candles completed and transferred to FG inventory 406,000

Candles ending WIP inventory (80% complete as to labor and overhead or conversion) 5,400

Costs of beginning WIP inventory
Direct material $11,886
Direct labor 3,600
Overhead 29,916 $ 45,402

Current period costs
Direct material $642,240
Direct labor 345,372
Overhead 975,168 1,962,780

Total Cost to account for $ 2,008,182
Example:
Step 1: Calculate the Total Physical
Units to Account For
Candles in beginning WIP inventory
Candles started during current period
Candles to account for
10,000
401,400
411,400
Step 2: Calculate the Physical Units
Accounted For
Candles completed and transferred
to FG inventory
Candles in ending WIP inventory
Candles accounted for
406,000
5,400
411,400
Step 3: Calculate the Equivalent Units
of production
DM Conversion
(Labor & Overhead)

Beginning WIP inventory(whole units)
Candles started and completed
Ending WIP inventory(candles x %complete)
Equivalent units of production
10,000
10,000
396,000
396,000
5,400 4,320
411,400 410,320
Production and Cost Information for Colorful Candles for April 2008
Candles in beginning WIP inventory (40% complete as to labor and overhead or conversion) 10,000

Candles started during current period 401,400

Candles completed and transferred to FG inventory 406,000

Candles ending WIP inventory (80% complete as to labor and overhead or conversion) 5,400

Costs of beginning WIP inventory
Direct material $11,886
Direct labor 3,600
Overhead 29,916 $ 45,402

Current period costs
Direct material $642,240
Direct labor 345,372
Overhead 975,168 1,962,780

Total Cost to account for $ 2,008,182
Step 4: Calculate the Total Cost to
Account For
DM DL OH Total

Beginning WIP inventory
Current period costs
Total cost to account for
$ 45,402
$ 11,886
1,962,780 642,240
$ 2,008,182
$ 654,126
$ 3,600
345,372
$ 348,972
$ 29,916
975,168
$ 1,005,084
Total Cost to Account For = Beginning WIP inventory + Current period costs

Production and Cost Information for Colorful Candles for April 2008
Candles in beginning WIP inventory (40% complete as to labor and overhead or conversion) 10,000

Candles started during current period 401,400

Candles completed and transferred to FG inventory 406,000

Candles ending WIP inventory (80% complete as to labor and overhead or conversion) 5,400

Costs of beginning WIP inventory
Direct material $11,886
Direct labor 3,600
Overhead 29,916 $ 45,402

Current period costs
Direct material $642,240
Direct labor 345,372
Overhead 975,168 1,962,780

Total Cost to account for $ 2,008,182
Step 5: Calculate the Cost per
Equivalent Unit of Production
Unit Cost = Total Cost incurred
Total Equivalent Units of Effort

= (Beginning WIP Inventory Cost + Current Period Cost)
WA EUP
Direct Material + Conversion = Total

Beginning WIP inventory cost
Current period costs
Total cost component
Divided by EUP(step 3)
Cost per EUP

$ 45,402 $ 11,886
1,962,780
$ 33,516
642,240 1,320,540
$ 2,008,182 $ 654,126 $ 1,354,056
411,400
$ 1.59 $ 3.30 $ 4.89
410,320
Step 6: Assign Costs to Inventories
This step assigns total production costs to
units of product by determining the cost of (1)
goods completed and transferred out during
the period and (2) units in the ending WIP
inventory.


Transferred Out = Total Units Transferred x Cost per EUP
Transferred out = 406, 000 x $4.89
= $1, 985, 340
Ending WIP Inventory cost is calculated by
multiplying the EUP for each cost component
by the component cost for EUP (computed in
step 5).
Ending WIP Inventory
Direct material (5, 400 x $1.59)
Conversion (4,320 x $3.30)
Total cost of ending WIP inventory
22,842
$ 8,586
14,256
Cost of Production Report
Summarizes the production
and cost results for a period.
Colorful Candles Cost of Production Report for the Month Ended April 30, 2008

Production Data Whole Units Direct Material Conversion
Beginning WIP inventory
Candles started
Candles to account for
Beginning WIP inventory(completed)
Started and Completed
Candles completed
Ending WIP inventory
Candles accounted for

Cost Data Total Direct material Conversion

Costs in beginning WIP inventory
Current period costs
Total cost to account for
Divided by EUP
Cost per EUP

Cost Assignment
Transferred out (406,000 x $4.89)
Ending WIP inventory
Direct material (5,400 x $1.59)
Conversion (5,400 x 80% x $3.30)
Total cost accounted for
EQUIVALENT UNITS OF
PRODUCTION
$2,008,182
22,842
10,000
401,400
411,400
10,000
10,000
10,000
396,000 396,000 396,000
406,000
5,400 4,320 5,400
411,400 411,400 410,320
$ 45,402 $ 11,886
1,962,780
$ 33,516
642,240 1,320,540
$ 2,008,182
$ 654,126
$ 1,354,056
411,400 642,240
$ 4.89 $ 1.59
$ 3.30
$ 1,985,340
$ 8,586
14,256
Thank You