Herald Ltd Manufactures Metal Sheets And Uses The Weighted A

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Heara Ltd manufactures metalsheets, and uses the weighted average method process costing. On 1 May, the Rolling Department had 3,000 units in progress, which were 50 percent completed as to conversion costs. During May, 8,000 units were completed and transferred out. The remaining work in progress on 30 May was 2,000 units, at 50 percent complete in terms of conversion rate. What is the equivalent unit of conversion?

Options:

  • A. 1,000 units
  • B. 2,000 units
  • C. 7,500 units
  • D. 9,000 units

Paper For Above instruction

The process costing method, specifically the weighted average approach, is essential in industries where production involves continuous flow, such as metal sheet manufacturing. It blends the beginning inventory costs with current period costs, providing a comprehensive view of production costs and efficiencies. This paper examines the calculation of equivalent units of conversion using the weighted average method, illustrating with an application to Heara Ltd’s production data.

Understanding the concept of equivalent units is fundamental in process costing. Equivalent units represent the number of complete units that could have been produced given the amount of work performed during a period. For conversion costs—such as labor and overhead—this calculation adjusts for the degree of completion of work-in-progress (WIP) inventories. In the case of Heara Ltd, the opening WIP was 3,000 units, 50% complete, and the closing WIP was 2,000 units, also at 50% complete. The units transferred out totaled 8,000 units, indicating the level of completed production.

The formula for calculating equivalent units of conversion under the weighted average method involves summing the units transferred out and the equivalent units in ending WIP considering their percentage of completion. Specifically:

  • Equivalent units in beginning WIP: 3,000 units x 50% = 1,500 units
  • Units started and completed during the period: 8,000 units
  • Equivalent units in ending WIP: 2,000 units x 50% = 1,000 units

Using these, the total equivalent units of conversion are calculated as:

Equivalent units in beginning WIP (to be added to current costs): 1,500 units

Total units completed and transferred out (fully complete units): 8,000 units

Equivalent units in ending WIP: 1,000 units

Therefore, the total equivalent units of conversion for May are: 8,000 (completed units) + 1,000 (ending WIP equivalent) = 9,000 units.

Hence, the correct answer is D. 9,000 units.

This calculation is critical for accurate cost allocation and performance measurement in process industries. It ensures that costs incurred are proportionally assigned based on the work performed, thereby aiding in precise cost control and management decision-making.

Conclusion

The weighted average method facilitates a simplified and effective approach to process costing, especially in industries with continuous production processes. By understanding how to compute equivalent units, managers can better analyze production efficiency, cost behavior, and profitability. In Heara Ltd’s scenario, recognizing that the total equivalent units of conversion amount to 9,000 units provides essential insight into production levels and cost allocation accuracy.

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