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Chapter 18: Q7RQ (page 1005)

Question: Why is the calculation of equivalent units of production needed in a process costing system?

Short Answer

Expert verified

Answer:

The equivalent units of production needed in a process costing system. It is so because the company is required to know the cost of each single unit of the product to decide the selling proce per unit.

Step by step solution

01

Process costing system

Under the process costing system, cost is calculated for the entire process of the production. It is used by the companies producing large number of similar goods.

02

Unit cost of the products

The unit cost of the product is required to be calculated. It is calculated by dividing the total cost of production with the total number of units produced during the year. Hence, the company is needed to know the equivalent units of production

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Most popular questions from this chapter

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?

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.

Question: The Jimenez Toy Company makes wooden toys. The company uses a process costing system. Arrange the company’s accounts in the order the production costs are most likely to flow, using 1 for the first account, 2 for the second, and so on.

Order

Account

Work-in-process inventory – Packaging

Cost of goods sold

Work-in-process inventory – Cutting

Work-in-process inventory – Finishing

Finished goods inventory

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)

Hartley Company has a production process that involves three processes. Units move through the processes in this order: cutting, stamping, and then polishing. The company had the following transactions in November:

1. Cost of units completed in the Cutting Department, \(17,000

2. Cost of units completed in the Stamping Department, \)30,000

3. Cost of units completed in the Polishing Department, \(35,000

4. Sales on account, \)50,000

5. Cost of goods sold is 80% of sales

Prepare the journal entries for Hartley Company.
See all solutions

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