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Chapter 18: Q.18-10RQ (page 1006)

Question: What are the four steps in preparing a production cost report?

Short Answer

Expert verified

Answer:

. The four steps procedure to prepare the production cost report includes:

1. Summarize the flow of physical units

2. Compute output in terms of equivalent units of production

3. Compute the cost per equivalent unit of production

4. Assign cost to units completed and units in process.

Step by step solution

01

Summarize the flow of physical units

The flow of physical units is classified as the First-in-first-out, last-in-first-out or weighted average. The company is required to summarize the flow of physical unit while determining the costing of material used in production.

02

Compute the output in terms of equivalent unit of production

The company should calculate the number of unit produced at the end of the manufacturing process to determine the per unit cost incurred by the company.

03

Compute the cost per equivalent unit of production

The cost per equivalent unit of production is identified by the management to decide over the selling price and the profit margin of the company.

04

Assign cost to units completed and units in process

Once the cost per unit is identified, the company assign this cost to the finished goods units and the work in process units.

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Most popular questions from this chapter

Cheerful Colors manufactures crayons in a three-step process: mixing, molding, and packaging. The Mixing Department combines the direct materials of paraffin wax and pigments. The heated mixture is pumped to the Molding Department, where it is poured into molds. After the molds cool, the crayons are removed from the molds and are transferred to the Packaging Department, where paper wrappers are added and the crayons are boxed.

In the Mixing Department, the direct materials are added at the beginning of the

process and the conversion costs are incurred evenly throughout the process. Work in process of the Mixing Department on March 1, 2018, consisted of 800 batches of crayons that were 10% of the way through the production process. The beginning balance in Work-in-Process Inventory—Mixing was \(32,800, which consisted of \)14,000 in direct materials costs and $18,800 in conversion costs. During March, 5,200 batches were started in production. The Mixing Department transferred 3,000 batches to the Molding Department in March, and 3,000 were still in process on March 31. This ending inventory was 80% of the way through the mixing process. Cheerful Colors uses FIFO process costing.

At March 31, before recording the transfer of costs from the Mixing Department

to the Molding Department, the Cheerful Colors general ledger included the following account:

Work-in-process inventory – Mixing

Balance, March 1

32,800

Direct materials

42,000

Direct labor

24,610

Manufacturing overhead

65,830

Requirements

1. Prepare a production cost report for the Mixing Department for March. Round

equivalent unit of production costs to four decimal places. Round all other costs to the nearest whole dollar.

2. Journalize all transactions affecting the Mixing Department during March, including the entries that have already been posted. Assume labor costs are accrued and not yet paid.

Question: Evergreen Orange manufactures orange juice. Last month’s total manufacturing costs for the Tampa operation included:

Direct materials

$450,000

Direct labor

32,000

Manufacturing overhead

125,000

What was the conversion cost for Evergreen Orange’s Tampa operation last month?

Question: What are equivalent units of production?

The Finishing Department started the month with 500 units in process, received 2,000 units from the Assembly Department, and transferred 2,100 units to the finished goods storage area. All direct materials are added at the beginning of the process. The units in process at the end of the month are 45% complete concerning conversion costs. The department uses the weighted-average method. The Finishing Department incurred the following costs:

Beginning WIP

Added this month

Total

Transferred in

\(6,250

\)25,000

\(31,250

Direct materials

500

2,000

2,500

Conversion cost

1,250

5,590

6,840

Total

\)8,000

\(32,590

\)40,590

8. How many units are still in process at the end of the month?

9. Compute the equivalent units of production for the Finishing Department.

10. Determine the cost per equivalent unit for transfer, direct materials, and conversion costs.

11. Determine the cost to be transferred to Finished Goods Inventory.

Most companies using a process costing systems have to calculate more than one EUP. Why? How many do they have to calculate?
See all solutions

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