Accounting

Happily Green Company, which manufactures a quality cleaner sold at premium prices, uses a single production department. Production begins with the blending of various chemicals, which are added at the beginning of the process, and ends with the bottling of the cleaner. Bottling occurs when the mixture reaches the 90 percent stage of completion.

The gallon containers are then transferred to the Shipping Department for boxing and shipment. Labor and overhead are added continuously throughout the process. Factory overhead is applied on the basis of direct labor hours at the rate of $3.00 per hour.

Prior to June, when a change in process was implemented, work in process inventories were immaterial. The change in the process enables greater production but results in material amounts of work-in-process for the first time. The company has always used the weighted average method to determine equivalent production and unit costs. Production management is considering changing from the weighted average method to the FIFO method.

The following data relate to actual production during the month of June.

Costs for June

WIP inventory, June 1 (4,000 gallons at 25% complete)

Direct materials - chemicals $45,600

Direct labor ($10 per hour) 6,250

Factory overhead 1,875

June costs added:

Direct materials - chemicals 228,400

Direct materials - bottles 7,000

Direct labor ($10 per hour) $35,000

Factory Overhead $10,500

Units for June

Gallons

WIP inventory, June 1 (25% complete) 4,000

Sent to Shipping Dept 20,000

Started in June 21,000

WIP inventory, June 30 (80% complete) 5,000

Question 1: Prepare a schedule of equivalent units for each cost element for the month of June using the weighted average method.

Question 2: Prepare a schedule of equivalent units for each cost element for the month of June using the first-in, first-out (FIFO) method.

Question 3: Calculate the cost (to the nearest cent) per equivalent unit for each cost element for the month of June using the weighted average method.

Question 4: Calculate the cost (to the nearest cent) per equivalent unit for each cost element for the month of June using the FIFO method.

Question 5: Discuss the advantages and disadvantages of using the weighted average method versus the FIFO method and explain under what circumstances each method should be used.