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Chapter 18: Q17RQ (page 1006)
What are transferred in costs? When do they occur?
The transferred in cost means the total cost of the product of one department, which is transferred to another department for further processing. It occurs when the manufacturing of a product passes through more than one process.
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PepsiCo, Inc. is a global food and beverage company that manufactures brands such as Frito-Lay, Gatorade, Pepsi-Cola, Quaker, and Tropicana. One of the products PepsiCo, Inc. manufactures is Mountain Dew. The first process in manufacturing Mountain Dew consists of clarifying the water to remove impurities such as organic materials and bacteria. The clarification process involves mixing the water with aluminum sulfate (an indirect material) to remove the impurities.
Assume PepsiCo uses the weightedaverage method of process costing.
Requirements
1. During the month of June, the Clarification Department incurred the following costs in processing 100,000 liters:
Wages of workers operating the clarification equipment | $20,000 |
Manufacturing overhead allocated to clarification | 24,000 |
Water | 160,000 |
PepsiCo had no beginning Work-In-Process Inventory in the Clarification Department in June. Compute the June conversion costs in the Clarification Department.
2. Assume that water is added at the beginning of the clarification process and conversion costs are added evenly throughout the process. The Clarification Department completed and transferred out 60,000 liters during June. The 40,000 liters remaining in Clarification’s ending Work-in-Process Inventory were 100% complete for direct materials and 60% complete for conversion costs. Compute the equivalent units of production for direct materials and conversion costs for the Clarification Department.
3. Compute the cost per equivalent unit for direct materials and conversion costs for the Clarification Department.
Question: Describe the flow of costs through a process costing system.
Complete the missing amounts and labels in the T-accounts.
Work-in-process inventory – Cutting
Balance, May 1 | 0 | Transferred out to | (A) |
Direct materials | 57,000 | ||
Direct labor | 5,000 | ||
Manufacturing overhead | 39,000 | ||
Balance, May 31 | 16,000 |
Work-in-process inventory – Finishing
Balance, May 1 | 11,000 | Transferred out to | 80,000 |
Transferred in from | (B) | ||
Direct materials | 21,000 | ||
Direct labor | (C ) | ||
Manufacturing overhead | 18,000 | ||
Balance, May 31 | 68,000 |
Work-in-process inventory – Packaging
Balance, May 1 | 4,000 | Transferred out to | (D) |
Transferred in from | (E ) | ||
Direct material | 1,000 | ||
Direct labor | 9,000 | ||
Manufacturing overhead | 14,000 | ||
Balance, May 31 | 8,000 |
Finished goods inventory
Balance, May 1 | 0 | Transferred out to | (F) |
Transferred in from | (G) | ||
Balance, May 31 | 2,000 |
Cost of goods sold
Balance, May 1 | 0 | ||
Transferred in from | (H) | ||
Balance, May 31 | (I) |
Bert’s Exteriors produces exterior siding for homes. The Preparation Department begins with wood, which is chopped into small bits. At the end of the process, an adhesive is added. Then the wood/adhesive mixture goes on to the Compression Department, where the wood is compressed into sheets. Conversion costs are added evenly throughout the preparation process. January data for the Preparation Department are as follows:
UNITS | |
Beginning work-in-process inventory | 0 sheets |
Started in production | 3,800 sheets |
Completed and transferred out to compression in January | 2,900 sheets |
Ending work-in-process inventory (30% of the way through the preparation process) | 900 sheets |
COSTS | |
Beginning work-in-process inventory | $0 |
Costs added during January | |
Wood | 2,888 |
Adhesive | 1,914 |
Direct labor | 987 |
Manufacturing overhead allocated | 2,500 |
Total costs | 8,289 |
Requirements
1. Prepare a production cost report for the Preparation Department for January. The company uses the weighted-average method. (Hint: Each direct material added at a different point in the production process requires its own equivalent units of production computation.)
2. Prepare the journal entry to record the cost of the sheets completed and transferred out to the Compression Department.
3. Post the journal entries to the Work-in-Process Inventory—Preparation T-account. What is the ending balance?
Brian’s Frozen Pizzas uses FIFO process costing. Selected production and cost data follow for April 2018.
Prepping department | |
Units to account for: | |
Beginning work-in-process, March 31 | 20,000 |
Started in April | 45,000 |
Total units to account for | 65,000 |
Units accounted for: | |
Completed and transferred out during April: | |
From beginning work-in-process inventory | 20,000 |
Started and completed during April | 30,000 |
Ending work-in-process, April 30 | 15,000 |
Total units accounted for | 65,000 |
Requirements
1. Calculate the following:
a. On March 31, the Prepping Department beginning Work-in-Process Inventory was 75% complete for materials and 55% complete for conversion costs. This means that for the beginning inventory % of the materials and % of the conversion costs were added during April.
b. On April 30, the Prepping Department ending Work-in-Process Inventory was 60% complete for materials and 85% complete for conversion costs. This means that for the ending inventory % of the materials and % of the conversion costs were added during April.
2. Use the information in the table and the information in Requirement 1 to compute the equivalent units of production for direct materials and conversion costs for the Prepping Department.
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