Purchase Solution

# Disposition Cost

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In the lamination department, varnish is added when the goods are 60% complete as to overhead. The units that are spoiled during processing are found upon inspection at the end of production. Spoilage is considered discrete.

Production Data For March
Beg.Inv.(80% complete as to labor,
70% complete as to overhead): 1,000 units

Transferred in during month 7,450 units

End. Inv.(40% complete as to labor
20% complete as to Overhead) 1,500 units

Normal Spoilage(found in final inspec) 100 units

Abnormal Spoilage(Found @ 30%completion
of direct labor & 15% of conversion) 200 units

All other units were transferred to finished Goods.

Cost Data For March
BWIP Inventory:
Prior Department Costs \$7,510
Varnish 950
Direct Labor 2,194
_________
\$16,176
Current Period Costs:
Prior department costs \$68,540
Varnish 7,015
Direct labor 23,000
__________
\$155,337
_________
Total costs to account for \$171,513

REQUIRED: Determine the proper disposition of the March costs for the Laminating Department using the Weighted Average Method.

##### Solution Summary

This solution determines the proper cost of disposition (spoilage) using a weighted average method.

##### Solution Preview

Number of complete units made and transferred = 1,000 + 7,450 - 1,500 - 100 - 200 = 6,650.
<br>
<br>The number of units with prior department costs = 1,000 + 7,450 = 8,450.
<br>The total prior department costs = \$7,510 + \$68,540 = \$76,050.
<br>The prior department cost per unit = \$76,050 / 8,450 = \$9.00.
<br>
<br>Equivalent full labor units = 1,000 + 7,450 - (0.6 * 1,500) - (0.7 * 200) = 7,410.
<br>This is calculated as follows: there are 1,000 + 7,450 = 8,450 ...

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