Builder Products Inc. uses the weighted average method in its process costing system to account for the costs associated with manufacturing a caulking compound that passes through three stages of processing before completion.
The weighted average method combines the costs of beginning inventory with the costs incurred during the current period to find an average cost per unit. This approach helps in smoothing out price fluctuations and provides a simple way to calculate costs for units that are partially finished.
In the case of the caulking compound, each of the three processing stages will have its own costs for materials, labor, and overhead. At the end of each period, the costs from these stages will be summed up, and any units that are still in progress will be included in the total cost calculation based on their percentage of completion. This way, Builder Products Inc. can accurately allocate costs to the finished products and determine the cost of goods sold.
Overall, using the weighted average method enables Builder Products Inc. to maintain a clear and fair pricing strategy for consumers, while also ensuring that all operational costs are properly accounted for across each stage of production.