Cornerstones of Managerial Accounting 6th Edition by Maryanne Mowen,Don Hansen ,Dan Heitger

Exercise 31

Equivalent Units, Unit Cost, Weighted Average
Alfombra Inc. manufactures throw rugs. The throw-rug department weaves cloth and yarn into throw rugs of various sizes. Alfombra uses the weighted average method. Materials are added uniformly throughout the weaving process. In August, Alfombra switched from FIFO to the weighted average method. The following data are for the throw-rug department for August:

Refer to the information for Alfombra Inc. above.
Required:
1. Prepare a physical flow analysis for the throw-rug department for August.
2. Calculate equivalent units of production for the throw-rug department for August.
3. Calculate the unit cost for the throw-rug department for August.
4. Show that the cost per unit calculated in Requirement 3 is a weighted average of the FIFO cost per equivalent unit in BWIP and the FIFO cost per equivalent unit for August. ( Hint : The weights are in proportion to the number of units from each source.)