Springtime Paints makes quality paint in one production department. Production begins with the blending of various chemicals, which are added at the beginning of the process, and ends with the canning of the paint. Canning occurs when the mixture reaches the 90 percent stage of completion. The gallon cans are then transferred to the Shipping Department for crating and shipment. Labor and overhead are added continuously throughout the process. Factory overhead is applied at the rate of $3 per direct labor hour.
Prior to May, when a change in the process was implemented, work in process inventories were insignificant. The change in process enables more production but results in large amounts of work in process. The company has always used the weighted average method to determine equivalent production and unit costs. Now production management is considering changing from the weighted average method to the first-in, first-out method.
The following data relate to actual production during May:
Work in process inventory, May 1
Direct material—chemicals ………………………………$45,100
Direct labor ($10 per hour) ……………………………….. 5,250
Factory overhead …………………………………………. 1,550
Costs for May
Direct material—chemicals …………………………… $228,900
Direct material—cans …………………………………….. 7,000
Direct labor ($10 per hour) ……………………………… 35,000
Factory overhead ………………………………………… 11,000
Units for May (Gallons)
Work in process inventory, May 1 (25% complete) ……………… 4,000
Sent to Shipping Department ……………………………………. 20,000
Started in May …………………………………………………… 21,000
Work in process inventory, May 31 (80% complete) ……………. 5,000
a. Prepare a cost of production report for May using the WA method.
b. Prepare a cost of production report for May using the FIFO method.
c. Discuss the advantages and disadvantages of using the WA method versus the FIFO method, and explain under what circumstances each method should be used