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Chapter 18: Q36PGA (page 1019)

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?

Short Answer

Expert verified

1. Production cost report

Production Cost Report

For the Testing Department


Equivalent unit of production

UNITS

Physical units

Transferred in

Conversion costs

Total

Units to account for:

  • Beginning WIP

2,000

  • Transferred in from assembly department

7,000

Total units to account for

9,000

Units accounted for:

  • Completed and transferred

4,000

4,000

4,000

  • Ending WIP

5,000

5,000

2,000

Total units accounted for

9,000

9,000

6,000

COSTS

Transferred in

Conversion costs

Total costs

Costs to account for:

Beginning WIP

$93,000

$18,000

$111,000

Cost added during the period


672,000

54,000

726,000

Total cost to account for

765,000

72,000

837,000

Divided by: total EUP


9,000

6,000


Cost per equivalent unit

$85

$12

Costs accounted for:

  • - Completed and transferred out

340,000

(4,000 x $85)

48,000

(4,000x$12)

388,000

  • - Ending WIP


425,000

(5,000x $85)

24,000

(2,000x$12)

449,000

Total costs accounted for

765,000

72,000

837,000

2. The cost per unit of completed and transferred inventory is $97.The managers calculate it to determine the product’s sales price.

Step by step solution

01

Step-by-Step Solution:Step 1: Production Cost Report

The production cost report shows the cost bifurcation of the product's manufacturing cost. It is prepared by the companies in which process costing is used. It conveys both total costs and the per-unit cost of manufactured products.

02

Equivalent unit of production for transferred in

EUPforTransferredin=(Completedunits×Completion%)+(EndingWIPunits×Completion%)=(4,000×100%)+(5,000×100%)=9,000

03

Equivalent unit of production for conversion costs

EUPforConversioncost=(Completedunits×Completion%)+(EndingWIPunits×Completion%)=(4,000×100%)+(5,000×40%)=6,000

04

Cost per EUP for the completed and transferred out to the finished goods inventory

CostperEUP=TotalcostincurredoncompletedandtransferredoutunitsNo.ofunitstransferredout=$388,0004,000=$97

Management is interested in identifying the total manufacturing cost for deciding the product’s sale price.

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Most popular questions from this chapter

Question: The Cutting Department has 6,500 units in process at the end of September that are 100% complete for direct materials and 85% complete for conversion costs. Calculate the equivalent units of production for direct materials and conversion costs.

Preparing a production cost report, second department, withbeginning WIP and transferred in costs; journal entries; FIFO method Work Problem P18-40B using the FIFO method. The Mixing Department beginningwork in process of 400 units is 80% complete as to both direct materials and conversion costs. Round equivalent unit costs to four decimal places. Round all other costs to the nearest dollar.

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.

Work Problem P18-33A using the FIFO method. The Mixing Department beginning work in process of 300 units is 40% complete as to both direct materials and conversion costs. Round equivalent unit of production costs to four decimal places. Round all other costs to the nearest whole dollar.

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.
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