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Chapter 18: Q.18-5TI (page 986)

Question: Castillo Company has three departments: Mixing, Bottling, and Packaging. At the end of the month, the production cost reports for the departments show the costs of the products completed and transferred were \(75,000 from Mixing to Bottling, \)50,000 from Bottling to Packaging, and $65,000 from Packaging to Finished Goods Inventory. Prepare the journal entries for the transfer of the costs.

Short Answer

Expert verified

Answer

Date

Particulars

Debit ($)

Credit ($)

1.

Work in process inventory-Bottling

75,000

Work in process inventory-mixing

75,000

2.

Work in process inventory-packaging

50,000

Work in process inventory-Bottling

50,000

3.

Finished goods inventory

65,000

Work in process inventory-packaging

65,000

Step by step solution

01

Transferring of under processing units from one depart to oter department

The units under processing is transferred from one department to other department by debiting the recieiving department WIP account and by crediting the transferring department WIP account.

02

Transferring of WIP account to finished goods inventory

When the WIP inventory are completely processed and ready for sale, it is transferred to the finished goods inventory account by debiting the finished goods inventory account and by crediting the work in process inventory account.

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Most popular questions from this chapter

Miller Company sells several products. Sales reports show that the sales volume of its most popular product has increased the past three quarters while overall profits have decreased. How might production cost reports assist management in making decisions about this product?

Question: Refer to Short Exercises S18-8 and S18-9. Use Complete Foods’s costs per equivalent unit of production for direct materials and conversion costs that you calculated in Short Exercise S18-9.

Calculate the cost of the 38,000 units completed and transferred out and the

24,000 units, 20% complete, in the ending Work-in-Process Inventory.

Rick Pines and Joe Lopez are the plant managers for High Mountain Lumber’s particle board division. High Mountain Lumber has adopted a just-in-time management philosophy. Each plant combines wood chips with chemical adhesives to produce particle board to order, and all product is sold as soon as it is completed. Laura Green is High Mountain Lumber’s regional controller. All of High Mountain Lumber’s plants and divisions send Green their production and cost information. While reviewing the numbers of the two particle board plants, she is surprised to find that both plants estimate their ending Work-in-Process Inventories at 75% complete, which is higher than usual. Green calls Lopez, whom she has known for some time. He admits that to ensure their division would meet its profit goal and that both he and Pines would make their bonus (which is based on division profit), they agreed to inflate the percentage completion. Lopez explains, “Determining the percent complete always requires judgment.

Whatever the percent complete, we’ll finish the Work-in-Process Inventory first thing next year.”

Requirements

  1. How would inflating the percentage completion of ending Work-in-Process Inventory help Pines and Lopez get their bonus?
  2. The particle board division is the largest of High Mountain Lumber’s divisions. If Green does not correct the percentage completion of this year’s ending Work-in-Process Inventory, how will the misstatement affect High Mountain Lumber’s financial statements?
  3. Evaluate Lopez’s justification, including the effect, if any, on next year’s financial statements.
  4. Address the following: What is the ethical issue? What are the options? What are the potential consequences? What should Green do?

Billy Davidson operates Billy’s Worm Farm in Mississippi. Davidson raises worms for fishing. He sells a box of 20 worms for \(12.60. Davidson has invested \)400,000 in the worm farm. He had hoped to earn a 24% annual rate of return (net income divided by total assets), which works out to a 2% monthly return on his investment. After looking at the farm’s bank balance, Davidson fears he is not achieving this return. To evaluate the farm’s performance, he prepared the following production cost report. The Finished Goods Inventory is zero because the worms ship out as soon as they reach the required size. Monthly operating expenses total \(2,000 (in addition to the costs below).

BILLY’S WORM FARM

Production cost report – BROODING DEPARTMENT

Month Ended June 30, 2018


Equivalent units

Units

Physical units

Transferred in

Direct materials

Conversion costs

Units to account for:

Beginning WIP

9,000

Transferred in

21,000

Total units to account for

30,000

Units accounted for:

Completed and transferred out

20,000

20,000

20,000

20,000

Ending WIP

10,000

10,000

6,000

3,600

Total units accounted for

30,000

30,000

26,000

23,600

COSTS

Transferred in

Direct materials

Conversion costs

Total costs

Cost to account for:

Beginning WIP

\)21,000

\(39,940

\)5,020

\(65,960

Cost added during period

46,200

152,460

56,340

255,000

Total cost to account for

67,200

192,400

61,360

320,960

Divided by total EUP

30,000

26,000

23,600

Cost per equivalent units

\)2.24

\(7.40

\)2.60

Costs accounted for:

Completed and transferred out

\(44,800

\)148,000

\(52,000

\)244,800

Ending WIP

22,400

44,400

9,360

76,160

Total costs accounted for

\(67,200

\)192,400

\(61,360

\)320,960

Requirements

Billy Davidson has the following questions about the farm’s performance during June.

1. What is the cost per box of worms sold? (Hint: This is the unit cost of the boxes completed and shipped out of brooding.)

2. What is the gross profit per box?

3. How much operating income did Billy’s Worm Farm make in June?

4. What is the return on Davidson’s investment of \(400,000 for the month of

June? (Compute this as June’s operating income divided by Davidson’s \)400,000

investment, expressed as a percentage.)

5. What monthly operating income would provide a 2% monthly rate of return?

What sales price per box would Billy’s Worm Farm have had to charge in June to

achieve a 2% monthly rate of return?

Happy 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 April 1, 2018, consisted of 300 batches of crayons that were 30% of the way through the production process. The beginning balance in Work-in-Process Inventory—Mixing was \(27,800, which consisted of \)10,700 in direct materials costs and $17,100 in conversion costs. During April, 3,200 batches were started in production. The Mixing Department transferred 2,800 batches to the Molding Department in April, and 700 were still in process on April 30. This ending inventory was 80% of the way through the mixing process. Happy Colors uses FIFO process costing.

At April 30, before recording the transfer of costs from the Mixing Department

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

Work-in-process inventory – Mixing

Balance, March 1

27,800

Direct materials

22,400

Direct labor

21,330

Manufacturing overhead

44,070

Requirements

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

equivalent unit costs to four decimal places. Round all other costs to the nearest

dollar.

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