Weighted Average Method: Costs assigned to the opening work in process inventory are added to costs incurred during the period and these totals are divided by equivalent production figures to secure average unit cost figures, the opening work in process inventory of departments other than the first must be split into two parts (1) That part of the opening inventory that consists of work which was done in preceding departments. (2) That part of the opening inventory which represents costs added by the department itself.
In Weighted Average Method, The portion of the work in process inventory representing the cost of work done in preceding departments is entered in the section of the cost report titled “Cost from preceding department. It is added to the cost of transfers received during the current period from the preceding department. An average unit cost for work done in preceding departments is then computed. The other portion of the inventory which represents costs added by the Refining Department is entered as a departmental cost to be added to other departmental costs incurred during the period. Average unit costs are then computed.
The cost of production report of the Refining Department illustrates both of the above-mentioned procedures. The analysis of the opening work in process of this department lists 3,000 units in process with a cost of $5,400 from the preceding department, a labor cost of $910, and $800 for factory overhead. The following costs are assumed for the month of February: labor, $34,050; and factory overhead, $30,018. Thirty-six thousand units were completed and transferred to the Finishing Department; 4,000 units are in process, 50 percent complete as to labor and factory overhead; 1,000 units were lost in process