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Chapter 18: Q24RQ (page 1006)
When might it be beneficial for a company to use the FIFO method? When is the weighted-average method more practical?
The FIFO method is beneficial when the cost changes significantly, and the weighted average method is beneficial when the cost is not changing significantly.
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Ocean Worthy uses three processes to manufacture lifts for personal watercraft: forming a lift’s parts from galvanized steel, assembling the lift, and testing the completed lift. The lifts are transferred to Finished Goods Inventory before shipment to marinas across the country.
Ocean Worthy’s Testing Department requires no direct materials. Conversion costs are incurred evenly throughout the testing process. Other information follows for the month of August:
UNITS | |
Beginning work-in-process inventory | 2,000 units |
Transferred in from assembling department during the period | 7,000 units |
Completed during the period | 4,000 units |
Ending work in process inventory (40% complete for conversion work) | 5,000 units |
COSTS | |
Beginning work in process inventory (transferred in costs, \(93,400, conversion costs, \)18,100) | $111,500 |
Transferred in from the assembly department during the period | 672,000 |
Conversion cost added during the period | 54,000 |
The cost transferred into Finished Goods Inventory is the cost of the lifts transferred out of the Testing Department. Ocean Worthy uses weighted-average
process costing.
Requirements
1. Prepare a production cost report for the Testing Department.
2. What is the cost per unit for lifts completed and transferred out to Finished Goods Inventory? Why would management be interested in this cost?
Carla Carpet manufactures broadloom carpet in seven processes: spinning, dyeing, plying, spooling, tufting, latexing, and shearing. In the Dyeing Department, direct materials (dye) are added at the beginning of the process. Conversion costs are incurred evenly throughout the process. Information for November 2018 follows:
UNITS | |
Beginning work-in-process inventory | 70 rolls |
Transferred in from spinning department during November | 550 rolls |
Completed during November | 480 rolls |
Ending work in process inventory (80% complete for conversion work) | 140 rolls |
COSTS | |
Beginning work in process inventory (transferred in costs, \(4,000, Materials costs, \)1,400 conversion costs, \(5,300) | \)10,700 |
Transferred in from the spinning department | 23,280 |
Material costs added during November | 14,100 |
Coversion cost added during November (manufacturing wages, \(8,725; manufacturing overhead allocated, \)43,991) | 52,716 |
Requirements
1. Prepare the November production cost report for Carla’s Dyeing Department.
The company uses the weighted-average method.
2. Journalize all transactions affecting Carla’s Dyeing Department during November, including the entries that have already been posted. Assume labor costs are accrued and not yet paid.
Question: If a company began the month with 50 units in process, started another 600 units during the month, and ended the month with 75 units in process, how many units were completed?
Question: The Mixing Department’s production cost report for May shows \(12,500 in total costs, of which \)2,500 will remain in the department assigned to the units still in process at the end of the month. Prepare the journal entry to record the transfer of costs from the Mixing Department to the Packaging Department.
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?
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