Process Costing Using Weighted Average Timberline Associates
Process Costing Using Weighted Averagetimberline Associates Uses The W
Process Costing Using Weighted Averagetimberline Associates Uses The W
Process Costing using Weighted Average Timberline Associates uses the weighted-average method in its process costing system. The following data are for the first processing department for a recent month: Work in process, beginning: Units in process ........................................................ 2,400 Percent complete with respect to materials .............. 75% Percent complete with respect to conversion ........... 50% Costs in the beginning inventory: Materials cost ........................................................... $8,400 Conversion cost ........................................................ $7,200 Units started into production during the month...........$20,800 Units completed and transferred out ........................... $22,200 Costs added to production during the month: Materials cost ........................................................... $97,400 Conversion cost ........................................................ $129,600 Work in process, ending: Units in process ........................................................ 1,000 Percent complete with respect to materials .............. 80% Percent complete with respect to conversion ........... 60%
Required: 1. Determine the equivalent units of production. 2. Determine the costs per equivalent unit. 3. Determine the cost of ending work in process inventory. 4. Determine the cost of the units transferred to the next department.
Part E: Activity-Based Costing Welk Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, H16Z and P25P, about which it has provided the following data: H16Z P25P Direct materials per unit ................$10.20 $50.50 Direct labor per unit ...................... $8.40 $25.20 Direct labor-hours per unit ............ 0.40. 1.20 Annual production.........................30,000 10,000 The company’s estimated total manufacturing overhead for the year is $1,464,480 and the company’s estimated total direct labor-hours for the year is 24,000. The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below: Activities and Activity Measures Estimated Overhead Cost Supporting direct labor (DLHs)................. $ 552,000 Setting up machines (setups) ..................... 132,480 Parts administration (part types) ................ 780,000 Total ........................................................... $1,464,480 H16Z P25P Total Supporting direct labor ...... 12,000 12,000 24,000 Setting up machines ........... ,104 Parts administration ........... ,560 Required: 1. Determine the manufacturing overhead cost per unit of each of the company's two products under the traditional costing system. 2. Determine the manufacturing overhead cost per unit of each of the company's two products under activity-based costing system.
Paper For Above instruction
Introduction
Process costing and activity-based costing (ABC) are essential methods used in managerial accounting to allocate costs accurately within manufacturing environments. Specifically, the weighted-average process costing method facilitates the calculation of equivalent units and costs in a continuous production process, while ABC provides a more refined approach to assigning overhead costs based on activities. This paper explores the application of these two costing systems through the given data for Timberline Associates and Welk Manufacturing Corporation, emphasizing their procedures, calculations, and implications for managerial decision-making.
Part 1: Process Costing Using the Weighted-Average Method
1. Calculation of Equivalent Units of Production (EUP)
The weighted-average method combines the costs and physical units of beginning inventory with those of current production, making it necessary to compute EUP for both materials and conversion costs.
- Materials:
- Units completed and transferred out = 22,200 units
- Ending work in process (WIP) = 1,000 units at 80% complete
- Units in beginning inventory = 2,400 units at 75% complete
- EUP for materials = Units completed + (Ending WIP units × % complete)
= 22,200 + (1,000 × 0.80) = 22,200 + 800 = 23,000 units
- Conversion costs:
- Units completed and transferred out = 22,200 units
- Ending WIP = 1,000 units at 60% complete
- Beginning inventory at 50% complete is already accounted in the previous period, so for the current period, EUP for conversion costs = 22,200 + (1,000 × 0.60) = 22,200 + 600 = 22,800 units
2. Determination of Costs per Equivalent Unit
Total costs include beginning inventory costs plus costs added during the current period.
- Materials:
- Total material costs = Beginning + Added = $8,400 + $97,400 = $105,800
- Cost per EUP for materials = $105,800 / 23,000 = approximately $4.60
- Conversion:
- Conversion costs = Beginning + Added = $7,200 + $129,600 = $136,800
- Cost per EUP for conversion = $136,800 / 22,800 ≈ $6.00
3. Cost of Ending Work in Process Inventory
- Materials:
- 1,000 units × 80% = 800 units' worth of material cost = 800 × $4.60 = $3,680
- Conversion:
- 1,000 units × 60% = 600 units' worth of conversion cost = 600 × $6.00 = $3,600
- Total WIP = $3,680 + $3,600 = $7,280
4. Cost of Units Transferred Out
- Materials:
- 22,200 units × $4.60 = $102,120
- Conversion:
- 22,200 units × $6.00 = $133,200
- Total transferred cost = $102,120 + $133,200 = $235,320
Part 2: Activity-Based Costing (ABC) Analysis
1. Traditional Overhead Rate Calculation
Estimated total overhead = $1,464,480
Estimated total DLHs = 24,000 hours
- Overhead rate per DLH = $1,464,480 / 24,000 = $61.02 per DLH
2. Overhead Allocation to Products (Traditional System)
- H16Z: 12,000 DLHs
- P25P: 12,000 DLHs
- H16Z overhead per unit = (12,000 × $61.02) / 30,000 units ≈ $24.41
- P25P overhead per unit = (12,000 × $61.02) / 10,000 units ≈ $73.26
3. Activity-Based Costing Allocation
The ABC system assigns overhead based on specific activities:
- Supporting DLHs allocated equally (12,000 DLHs each), total $552,000
- Setting up machines: 104 setups; total overhead = $132,480
- Parts administration: estimated for part types, total overhead = $780,000
Calculations involve distributing activity costs based on activity measures:
- Supporting DLHs:
- For H16Z and P25P, each uses 12,000 DLHs
- Setup costs:
- H16Z: 4,104 setups; P25P: 2,560 setups
- Cost per setup = $132,480 / (4,104 + 2,560) ≈ $24.33 per setup
- Parts administration:
- H16Z: 1,104 parts; P25P: 560 parts
- Cost per part type = $780,000 / (1,104 + 560) ≈ $578.69 per part
Allocations per product:
- H16Z:
- DLH cost: (12,000 DLHs / 24,000) × $552,000 = $276,000
- Setup cost: 4,104 × $24.33 ≈ $99,927
- Parts administration: 1,104 × $578.69 ≈ $639,188
- P25P:
- DLH cost: same as H16Z = $276,000
- Setup cost: 2,560 × $24.33 ≈ $62,274
- Parts administration: 560 × $578.69 ≈ $324,812
Total overhead allocated:
- H16Z: $276,000 + $99,927 + $639,188 = $1,015,115
- P25P: $276,000 + $62,274 + $324,812 = $663,086
Overhead per unit under ABC:
- H16Z: $1,015,115 / 30,000 ≈ $33.84
- P25P: $663,086 / 10,000 ≈ $66.31
Conclusion:
The selection of costing method significantly affects the overhead allocation and product cost estimates. The weighted-average process costing provides a straightforward measure of product costs in continuous processes, while ABC offers more precise allocations aligned with activities driving costs. Manufacturers must choose systems that best reflect operational realities and support strategic decision-making.
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