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ADMS 1000 Study Guide - Final Guide: Weighted Arithmetic Mean, Compulsory Education, Canadian Coast GuardPremium

Administrative Studies
Course Code
ADMS 1000
Keith Lehrer
Study Guide

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York University
ADMS 1000
FALL 2018
Final Exam
Study Guide

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Section 1: Compute and apply costs
We computed the equivalent units of production for materials and for conversion at
Tropic Breeze Fans.
We will compute the cost per equivalent unit for materials and for conversion.
We will then use these costs to value ending work in process and finished goods
Exhibit 6–6 displays all of the data concerning May’s operations in the Electrics and
Testing Department that we will need to complete these tasks.
Cost per Equivalent UnitWeighted-Average Method In the weighted-average method,
the cost per equivalent unit is computed
Note that the numerator is the sum of the cost of beginning work in process inventory
and the cost added during the period.
Thus, the weighted-average method blends together costs from the prior and current
That is why it is called the weighted-average method
It averages together units and costs from both the prior and current periods.
Applying costsweighted-average method
o The costs per equivalent unit are used to value units in ending inventory and
units that are transferred to the next department.
o For example, each unit transferred out of Tropic Breeze’s Electrics and Testing
Department to the Inspection and Packing Department will carry with it a cost of
$149 ($76.25 for materials cost and $72.75 for conversion cost).
o Since 4,800 units were transferred out in May to the next department, the total
cost assigned to these units is $715,200 (4,800 units × $149 per unit).
o In each case, the equivalent units are multiplied by the cost per equivalent unit to
determine the cost assigned to the units.
o This is done for each cost categoryin this case, materials and conversion.
o The equivalent units for the units completed and transferred out are simply the
number of units transferred to the next department because they would not have
been transferred unless they were complete.
o The $715,200 cost of the units transferred to the next department, Inspection and
Packing, is accounted for in that department as “costs transferred in.”
o It is treated in the process costing system as just another category of costs, like
materials or conversion costs.
o The only difference is that the costs transferred in are always 100% complete
with respect to the work done in the Inspection and Packing Department.
o When the products are completed in this last department, their costs are
transferred to finished goods.
o Exhibit 67 displays a production report for the Electrics and Testing Department
costs calculated on the previous pages.
o The production activity in units is displayed in the Quantity Schedule.
o This schedule summarizes the activity for the month of May and is used to begin
the calculation of equivalent units of production.

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o The schedule of costs per equivalent unit summarizes the production costs for
the month of May plus the beginning work in process for May.
o These costs are used together with the equivalent units from the quantity
schedule to compute the weighted unit costs.
o Finally, the production report is completed by computing the cost reconciliation.
o The total costs to be accounted for are tested against the total of the cost of units
transferred to the next department and the work in process costs at May 31 to
ensure all costs have been properly accounted for.
o It is worth noting at this point the relationship of the costs reflected in the
production report to the schedules of cost of goods manufactured presented and
the work in process general ledger account. Exhibit 511 will help you picture the
o Exhibit 68 provides an example calculation of the cost of goods manufactured
for Tropic Breeze Fans.
o The cost of the beginning work in process inventory, $15,175, is the beginning
general ledger balance for work in process.
o The total manufacturing costs of $719,500 represent the cost of raw material
used, the cost of direct labour used, and the manufacturing overhead applied
during May.
o These three types of costs, at $719,500, increase the Work in Process account
for May.
o The cost of goods manufactured is $715,200, which represents what is
transferred out of work in process for May, leaving the ending work in process
balance in the general ledger of $19,475.
o A careful tracing of the description of these costs to the schedule of costs of
goods manufactured as shown in Exhibit 511 will help you visualize how the
costs from the production report for process costs link to the general ledger.
Operation costing
o The costing systems represent the two ends of a continuum.
o On one end, we have job-order costing, which is used by companies that
produce many different itemsgenerally to customer specifications.
o On the other end, we have process costing, which is used by companies that
produce basically homogeneous products in large quantities.
o Between these two extremes, there are many hybrid systems that include
characteristics of both job-order and process costing.
o One of these hybrids is called operation costing.
o Operation costing is used in situations where products have some common
characteristics and also some individual characteristics.
o Shoes, for example, have common characteristics in that all styles involve cutting
and sewing that can be done on a repetitive basis, using the same equipment
and following the same basic procedures.
o Shoes also have individual characteristicssome are made of expensive
leathers and others may be made using inexpensive synthetic materials.
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