Bell Computers, LTD.

, located in Liverpool, England, assembles a standardized personal computer from parts it purchases from various suppliers. The production process consists of several steps, starting with assembly of the mother circuit board, which contains the central processing unit. This assembly takes place in the CPU Assembly Department. The company recently hired a new accountant who prepared the following partial production report for the department for January using the weightedaverage method: Quantity Schedule: Units to be accounted for: Work in process, January 01 may1 10,000 5000 (Materials 90% complete; Conversion 80% complete) Started into production 58,000 29000 Total units 68,000 34000

Units accounted for as follows: Completed and transferred out 60,000 30000 Work in Process, January 31 May31 8,000 4000 (Materials 75% complete; Conversion 50% complete) Total units 68,000 34000 Total Cost: Cost to be accounted for: Work in Process, January 01 May1 26,800 13400 Cost added in the department 175,600 87800 Total cost 202,400 101200 Cost Reconciliation: Cost accounted for as follows: Completed and transferred out 186,000 93000 Work in Process, January 31 May 31 16,400 8200 Total cost 202,400 101200 The companys management would like some additional information about Januarys operation in the CPU Assembly Department. (The currency in England is the pound, which is denoted by the symbol .) Required: 1. How many units were stared and completed during January? 2. What were the equivalent units for January for material and conversion costs? 3. What were the costs per equivalent unit for January? The following additional data are available concerning the departments cost: Particular Total Material

 Conversion Work in Process, January 01 may1 26,800 9000 18,0004400 8,80013400 Cost added during January may 175,60057000 114,00030800 61,60087800 4. Verify the accountants ending work in process inventory figure (16,400) given in the report. 5. What criticism can be made of the unit costs that have been computed using weighted Average Method by the company and which method is superior for computing unit cost under process costing based on your criticism?

Answer: 1: Units started during January = Started 58,000 + Remaining Material WIP (10,000*10 % )+Conversion (10,000* 20 %) = 58,000 + 1000 + 2000 = 61,000 Units started during January = 61,000

Units Completed during January = 60,000 (Qty. Schedule)

2: Equivalent Units for January = completed units + closing WIP units + Abnormal loss units Material = 60,000 + ( 8,000* 75 % ) = 66,000 Conversion = 60,000 + ( 8,000* 50 % ) = 64,000 Material = 66,000 equivalent units Conversion = 64,000 equivalent units

3: Cost per equivalent units for January = opening WIP cost + cost added during the year / Eq.Units Material = 18,000 + 114,000 = 132,000 / 66,000 = 2.0 eq.unit Conversion = 8,800 + 61,600 = 70,400 / 64,000 = 1.10 per eq.unit Material = 2.0 equivalent unit Conversion = 1.10 per equivalent unit

4: Verification of ending WIP fig: Material = 8,000 * 75 % = 6,000 * 2.0 = 12,000 Conversion = 8,000 * 50 % = 4,000 * 1.10 = 4,200 Verified 16,400

5: Criticism : The unit cost calculated above using weighted average method ignores the percentage of completion of units which already have been completed up to some extent in the last period i.e., it does not take into account the opening WIP adjustment while computing cost per unit. The weighted average method; opening stock values are added to current costs to provide an overall average cost per equivalent unit. In practice the FIFO method is little used, for two main reasons: 1. It is more complicated to operate. 2. In process costing, it seems unrealistic to relate costs for the previous period to the current period of activities. It is therefore concluded that weighted average method best suited for several reasons.