Weighted Average Method

Weighted Average Method – Core Idea

Combines beginning WIP costs + current period costs and averages them over total equivalent units.

Cost per Unit (No WIP)

(Direct Materials + Direct Labour + Factory Overheads)/ Total Units Started and Completed

When WIP Exists

Use Equivalent Units of Production (EUP) to adjust for partially completed units.

Equivalent Units of Production (EUP)

Number of fully completed units that could have been produced during the period.

Steps of Weighted Average Method

1. Physical Flow of Units

2. Equivalent Units

3. Total Cost to Account For

4. Cost per Equivalent Unit

5. Total Cost per Unit/ Cost of Units Completed/ Cost of Ending WIP

6. Cost Reconciliation

Step 1 – Physical Flow of Units

Beginning WIP + Units Started = Total Units to Account For

Equivalent Units (Key Idea)

Calculate EUP separately for:

• Direct Materials

• Direct Labour

• Factory Overhead

Completed Units (EUP Rule)

Units completed = 100% complete for materials, labour, and overhead.

Ending WIP (EUP Rule)

Ending WIP = Units × % completion (for each cost component separately)

Total Equivalent Units

EUP = (Units completed × 100%) + (Ending WIP × % completion)

Total Cost to Account For

Add:

• Beginning WIP cost

• Costs incurred during the period

Cost per Equivalent Unit

(Beginning WIP cost + Current costs)/ Equivalent Units of Produtvion

Total Cost per Equivalent Unit

Sum of:

• DM cost per EUP

• DL cost per EUP

• Overhead cost per EUP

Assigning Costs

EUP × Cost per EUP =

• Cost of units completed and transferred out

• Cost of ending WIP

Reconciliation of Costs

Costs must balance:
Cost of completed units + Ending WIP = Beginning WIP + Costs incurred