Hoffman Company manufactures car seats in its Miami plant. Each car seat passes through the assembly department and the testing department. This problem focuses on the assembly department. The process- costing system at Hoffman Company has a single direct- cost category (direct materials) and a single indirect- cost category (conversion costs). Direct materials are added at the beginning of the process. Conversion costs are added evenly during the process. When the assembly department finishes work on each car seat, it is immediately transferred to testing. Hoffman Company uses the weighted- average method of process costing. Data for the assembly department for October 2013 are as follows: Physical Units car costs Direct Conversion
Materials Costs
Work in process, Oct 1 *a 4,000 $1,248,000 $241,650
Started during Oct 2017 22,500
Complete during Oct 2017 26,000
Work in process, Oct 31 *b 500
Total costs added during Oct 2017 $4,635,000 $2,575,125
a - Degree of completion: direct materials,?%; conversion costs, 45%.
b - Degree of completion: direct materials,?%; conversion costs, 65%.
1. For each cost category, compute equivalent units in the assembly department. Show physical units in the first column of your schedule.
2. What issues should the manager focus on when reviewing the equivalent-unit calculations?
3. For each cost category, summarize total assembly department costs for October 2017 and calculate the cost per equivalent unit.
4. Assign costs to units completed and transferred out and to units in ending work in process.

Hoffman Company

1. Equivalent units, using the weighted-average method:

                                            Physical      Direct             Conversion

                                               Units     Materials        

Complete during Oct 2017 26,000   26,000 (100%)  26,000 (100%)

Work in process, Oct 31 *b      500         500 (100%)        325 (65%)

Total equivalent units                        26,500              26,325

2. The manager should focus on the tendency of departmental head reporting higher degree of completion to demonstrate improved performance of their departments.  This will result in understated cost per equivalent unit and overstated operating income.

Again, when performance is too good, the departmental supervisor might be tempted to report lower degree of completion, which reduces the current period's income.  The issue is that unchecked estimates of degree of completion can help smooth earnings from one period to the next for the departments.  But this is not in the best interest of the company.

3. Cost per equivalent unit:

                                           Direct         Conversion

                                        Materials          Costs

Total production cost $5,883,000     $2,816,775

Total equivalent units       26,500           26,325

Cost per equivalent        $222                   $107

4. Assignment of cost to units completed and transferred out and ending WIP:

                                           Direct         Conversion      Total Costs

                                        Materials          Costs

Units transferred out      $5,772,000    $2,782,000    $8,554,000

                                 (26,000*$222)  (26,000*$107)

Ending WIP                          $111,000          $34,775        $145,775

                                      (500*$222)     (325*$107)

Total costs                     $5,994,000     $2,870,275    $8,699,775

Explanation:

Data for the assembly department for October 2013 are as follows:

                                            Physical      Direct         Conversion

                                               Units     Materials          Costs

Work in process, Oct 1 *a       4,000   $1,248,000      $241,650

Started during Oct 2017      22,500

Complete during Oct 2017 26,000

Work in process, Oct 31 *b      500

Total costs added during Oct 2017 $4,635,000    $2,575,125

a - Degree of completion: direct materials,?%; conversion costs, 45%.

b - Degree of completion: direct materials,?%; conversion costs, 65%.

Equivalent units, using the weighted-average method:

                                            Physical      Direct             Conversion

                                               Units     Materials        

Complete during Oct 2017 26,000   26,000 (100%)  26,000 (100%)

Work in process, Oct 31 *b      500         500 (100%)        325 (65%)

Total equivalent units                         26,500              26,325

Cost of production:

                                           Direct         Conversion   Total Costs

                                        Materials          Costs

Beginning WIP              $1,248,000       $241,650     $1,489,650

Current period            $4,635,000    $2,575,125        7,210,125

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

Cost per equivalent unit:

                                           Direct         Conversion

                                        Materials          Costs

Total production cost $5,883,000     $2,816,775

Total equivalent units       26,500           26,325

Cost per equivalent        $222                   $107

Assignment of cost to units completed and transferred out and ending WIP:

                                           Direct         Conversion      Total Costs

                                        Materials          Costs

Units transferred out      $5,772,000    $2,782,000    $8,554,000

                                 (26,000*$222)  (26,000*$107)

Ending WIP                           $111,000          $34,775        $145,775

                                      (500*$222)     (325*$107)

Total costs                     $5,994,000     $2,870,275    $8,699,775

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