ACTG 2011 Lecture 4: Chapter 4

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maroonelk473

10 Feb 2017

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Process costing- large quantity of homogeneous products, produced for inventory, cost accumulated by process, production report (oil/paper mill) Products flow from department to department each have work in process account (fabrication->assembly->finish goods) Cost of completed unit = cost/unit (add: cost of completed units for each department) 3)end- any incomplete work will complete next period. Equivalent units of production- 2 partially completed units = 1 completed unit. Weighted average- units completed during period & units remaining in end work process. Process costing procedure (cid:1005))total units to account (cid:1006))total units accounted fo(cid:396) (cid:1007))e(cid:395)uivalent units p(cid:396)oduction (cid:862)eup(cid:863) (cid:1008))determine total cost to account 5)cost per eup 6)cost to inventories 7)reconcile cost. Production report: quantity schedule- flow of units & equivalent units, cost computation- cost per equivalent unit, cost assignment- cost to inventory.

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Weighted Average Process Costing:
Minot Processing Company manufactures one product on acontinuous basis in two departments, Processing and Finishing. Allmaterials are added at the beginning of work on the product in theProcessing Department. During December 2009, the following eventsoccurred in the Processing Department:
Units started	16,000 units
Units completed and transferred to Finishing Department	15,000 units

Costs assigned to processing:Raw materials (one unit of rawmaterials for each unit of product started)	$142,900.00
Manufacturing supplies used	18,000
Direct labor costs incurred	51,000
Supervisors' salaries	12,000
Other production labor costs	14,000
Depreciation on equipment	6,000
Other production costs	18,000

Additional information follows:
Minot uses weighted average costing and applies manufacturingoverhead to Work-in-Process at the rate of 100 percent of directlabor cost.
Ending inventory in the Processing Department consists of 3,000units that are one-third converted.
Beginning inventory contained 2,000 units, one-half converted,with a cost of $34,500 ($24,500 for materials and $10,000 forconversion).
(a) Prepare a cost of production report for theProcessing Department for December.
Minot Processing Company: Processing Department Cost of Production Report For the Month Ending December 31, 2009
Summary of units in process:
Beginning
Units started
In process
Completed
Ending
Equivalent units in process:		Materials	Conversion	Total
Units completed
Plus equivalent units in ending inventory
Equivalent units in process
Total cost to be accounted for and cost per equivalent unit in process:
Beginning work-in-process		$	$	$
Current costs
Total cost in process		$	$	$
Equivalent units in process		+	+
Cost per equivalent unit in process		$	$	$
Accounting for total costs:
Transferred out				$
Ending work-in-process:
Materials			$
Conversion
Total cost accounted for				$
(b) Prepare an analysis of all changes inWork-in-Process.
Work-in-process:
Beginning			$
Current manufacturing costs:
Direct materials		$
Direct labor
Applied overhead
Total			$
Cost of goods manufactured
Ending			$

tealbuffalo667

Dover Chemical Company manufactures specialty chemicals by a series of three processes, all materials being introduced in the Distilling Department. From the Distilling Department, the materials pass through the Reaction and Filling departments, emerging as finished chemicals.

The balance in the account Work in ProcessâFilling was as follows on January 1:

Work in ProcessâFilling Department
(4,200 units, 70% completed):
	Direct materials (4,200 x $16.2)	$68,040
	Conversion (4,200 x 70% x $10.6)	31,164
		$99,204

The following costs were charged to Work in ProcessâFilling during January:

Direct materials transferred from Reaction
	Department: 54,200 units at $16 a unit	$867,200
Direct labor		295,310
Factory overhead		283,730

During January, 53,700 units of specialty chemicals were completed. Work in ProcessâFilling Department on January 31 was 4,700 units, 40% completed.

Required:

1. Prepare a cost of production report for the Filling Department for January. If an amount is zero, enter "0". If required, round your cost per equivalent unit answers to two decimal places.

Dover Chemical Company
Cost of Production Report-Filling Department
For the Month Ended January 31
Unit Information
Units charged to production:
Inventory in process, January 1
Received from Reaction Department
Total units accounted for by the Filling Department
Units to be assigned costs:
		Equivalent Units
	Whole Units	Direct Materials	Conversion
Inventory in process, January 1
Started and completed in January
Transferred to finished goods in January
Inventory in process, January 31
Total units to be assigned costs
Cost Information
Cost per equivalent unit:
		Direct Materials	Conversion
Total costs for January in Filling Department		$	$
Total equivalent units
Cost per equivalent unit		$	$
Costs assigned to production:
	Direct Materials	Conversion	Total
Inventory in process, January 1			$
Costs incurred in January
Total costs accounted for by the Filling Department			$
Costs allocated to completed and partially completed units:
Inventory in process, January 1 balance			$
To complete inventory in process, January 1		$
Cost of completed January 1 work in process			$
Started and completed in January	$
Transferred to finished goods in January			$
Inventory in process, January 31
Total costs assigned by the Filling Department			$

Feedback

1. Calculate equivalent units for materials and conversion costs. Calculate the cost per equivalent unit for materials and conversion costs. Calculate the costs assigned to the beginning inventory, the units started and completed, and the ending inventory.

2. Journalize the entries for (1) costs transferred from Reaction to Filling and (2) the cost transferred from Filling to Finished Goods.

(1)	Work in Process-Filling Department
	Work in Process-Reaction Department
(2)	Finished Goods
	Work in Process-Filling Department

Feedback

2. Remember that there are three types of inventory; materials, work in process, and finished goods. What costs are captured in the work in process account? Are these units 100% complete or are they being transferred to another department?

3. Determine the increase or decrease in the cost per equivalent unit from December to January for direct materials and conversion costs. If required, round your answers to two decimal places.

	Increase or Decrease	Amount
Change in direct materials cost per equivalent unit	Decrease	$
Change in conversion cost per equivalent unit	Increase	$

4. Discuss the uses of the cost of production report and the results of part (3).

The cost of production report may be used as the basis for allocating product costs between Work in Process and Finished Goods . The report can also be used to control costs by holding each department head responsible for the units entering production and the costs incurred in the department. Any differences in unit product costs from one month to another, such as those in part (3), can be studied carefully and any significant differences investigated.

GroFast Company manufactures a high-quality fertilizer, which isused primarily by commercial veg-etable growers. Two departmentsare involved in the production process. In the Mixing Department,various chemicals are entered into production. After processing,the Mixing Department transfers a chemical called Chemgro to theFinishing Department. There the product is completed, packaged, andshipped under the brand name Vegegro.

Various chemicals----->MixingDept.----->Chemgro----->FinishingDept.----->Vegegro----->

In the Mixing Department, the raw material is added at thebeginning of the process. Labor and overhead are appliedcontinuously throughout the process. All direct departmentaloverhead is traced to the departments, and plant overhead isallocated to the departments on the basis of direct-labor. Theplant overhead rate for 20x2 is $.40 per direct-labor dollar.

The following information relates to production during November20x2 in the Mixing Department.

a. Work in process, November 1 (4,000 pounds, 75 percentcomplete as to conversion):

Raw material.............................................................................................................................................................$22,800

Direct labor at $5.00 per hour.................................................................................................................................24,650

Departmental overhead...........................................................................................................................................12,000

Allocated plant overhead.........................................................................................................................................9,860

b. Raw material:

Inventory, November 1, 2,000 pounds................................................................................................................$10,000

Purchases, November 3, 10,000 pounds............................................................................................................51,000

Purchases, November 18, 10,000 pounds..........................................................................................................51,500

Released to production during November, 16,000 pounds

c. Direct-labor cost, $103,350

d. Direct departmental overhead costs, $52,000

e. Transferred to Finishing Department, 15,000 pounds

f. Work in process, November 30, 5,000 pounds, 20 percentcomplete

The company uses weighted-average process costing to accumulateproduct costs. However, for raw-material inventories, the firm usesthe FIFO (i.e., first in, first out) inventory method.

Required: 1. Prepare a production report for the MixingDepartment for November 20x2. The report should show:

a. Equivalent units of production by cost factor (i.e., directmaterial and conversion).

b. Cost per equivalent unit for each cost factor. (Round youranswers to the nearest cent.)

c. Cost of Chemgro transferred to the Finishing Department.

d. Cost of the work-in-process inventory on November 30, 20x2,in the Mixing Department.

2. Prepare journal entries to record the following events:

a. Release of direct material to production during November.

b. Incurrence of direct-labor costs in November.

c. Application of overhead costs for the Mixing Department(direct departmental and allocated plant overhead costs.)

d. Transfer of Chemgro out of the Mixing Department.

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ACTG 2011 Lecture 4: Chapter 4

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