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Requirement 1:

Statement showing computation of equivalent units (FIFO method):

Flow of production Physical Direct Conversion

units Materials cost

% Units % units

Work in process beginning 4,000

October 1

Started during October 22,500

2017

To Account for 26,500

Completed and transferred

out during current period:

From beginning Work in 4,000 0 0 55% 2,200

process

Started and completed 22,000 100% 22,000 100% 22,000

Work in process, ending 500 100% 500 65% 325

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 Accounted for 26,500

Equivalent units of work 22,500 24,525

done in current period only

Requirement 2:

For each cost category, summarize total assembly department cost for
October 2017 and calculate the cost per equivalent unit:

Total cost to account for:

Total Direct Conversion

production materials costs
cost

Total cost added during October 2017 $7,210,125 $4,635,000 $2,575,125

Divide by: equivalent units 22,500 24,525

units units

Cost per equivalent units for work $206 per $105 per
done in current period unit unit

Requirement 3:

Assign total cost to units completed and transferred out and to units in
ending work in progress:

Total Direct materials Conversion costs

production
cost

Opening work in
progress:

From beginning 1,489,650 1,248,000 241,650

Current period cost 231,000 0 231,000

($105 per unit X

2,200)

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Total cost on opening 1,720,650
WIP

Total cost on Started and 6,842,000 4,532,000 2,310,000

completed units
($206 per unit X ($105 per unit X
22,000 units) 22,000 units)

Total cost incurred and 8,562,650

transferred out

Cost of ending WIP 137,125 103,000 34,125

($206 per unit X ($105 per unit X

500 units) 325 units)

Requirement 4:

Computation of difference in equivalent units under weighted average

method and FIFO:

Statement showing computation of equivalent units (Weighted average

method):

Flow of production Physical Direct Conversion

units Materials cost

% Units % units

Work in process beginning 4,000

October 1

Started during October 22,500

2017

To Account for 26,500

Completed and transferred 26,000 100% 26,000 100 26,000

out during current period:

Work in process, ending 500 100% 500 65% 325

Accounted for 26,500

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 Equivalent units of work 26,500 26,325
done in current period only

Total cost to account for:

Total Direct Conversion

production materials costs
cost

Cost incurred on beginning WIP 1,489,650 $1,248,000 $241,650

Total cost added during October 2017 $7,210,125 $4,635,000 $2,575,125

Total cost $8,699,775 $5,883,000 $2,816,775

Divide by: equivalent units 26,500 26,325

units units

Cost per equivalent units for work $222 per $107 per
done in current period unit unit

Assign total cost to units completed and transferred out and to units in
ending work in progress:

Total Direct materials Conversion costs

production
cost

Total cost on Started and $8,718,500 $5,883,000 $2,835,500

completed units
($222 per unit X ($107 per unit X
26,500 units) 26,500 units)

Total cost incurred and

transferred out

Cost of ending WIP $145,775 $111,000 $34,775

($222 per unit X ($107 per unit X

500 units) 325 units)

Requirement 4:

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The cost per equivalent unit varies between the two methods because each
method uses different cost as the numerator. The FIFO method uses only
current cost $7,210,125 and the weighted average method uses total cost
$8,699,775 both method uses different equivalent units in the denominator

Requirement 5:

Weighted FIFO Difference

Average

Cost of units completed and $8,699,775 $7,210,125 $1,489,650

transferred out

Work in process ending $145,775 $137,125 8,650

Total costs accounted for $8,845,550 $7347,250

Hoffman’s manager should consider the Weighted average method because

even though it shows lower operating income and higher cost of goods sold,
it saves taxes. Managers may have an incentive, however to use the FIFO
method and show higher income if the managers compensation increases
with higher operating income or if there are debt covenants that would be
violated by showing lower income. Another advantage of the FIFO method is
that it provides better information for managing the business because it
keeps accurate results.

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Hoffman Company manufactures car seats in its Boise plant. Eachcar seat passes
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