Question 2

Dream Limited manufactures ice cream. The company employs a process costing system for its manufacturing operations. All direct materials are added at the beginning of the process and conversion costs are incurred uniformly throughout the process. The company’s production quantity schedule for January is as follow:

                                                                                                            Unit (tubs)

Work in process on 1 January (55% complete as to conversion) 8,000

Units started during January 11,000

Total units to account for 19,000

Units from beginning work in process, which were completed and transferred out during January 8,000

Unit started and completed in January 6,000

Work in process on 31 January (35% complete as to conversion) 5,000

Total units to account for 19,000

Required:

1. Calculate each of the following amounts:

1. Equivalent units of direct material during January. Use the FIFO method.

2. Equivalent units of conversion during January. Use the FIFO method.

3. Equivalent units of direct material during January. Use the weighted average method.

4. Equivalent units of conversion during January. Use the weighted average method.

5. Explain the major difference between weighted average and FIFO method in process costing systems.