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18. Process Cost Systems. Describe and illustrate the use of cost of production reports for decision making. 4. 1. Describe process cost systems. Journalize entries for transactions using a process cost system. Prepare a cost of production report. 2. 3. Learning Objective 1.

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18

Process Cost Systems


Describe and illustrate the use of cost of production reports for decision making.

4

1

Describe process cost systems.

Journalize entries for transactions using a process cost system.

Prepare a cost of production report.

2

3

Learning Objective 1

Learning Objective 1

Process Cost Systems

3-1

3-1

After studying this chapter, you should be able to:

Describe the nature of the adjusting process.

Describe the nature of the adjusting process.

18-2


Compare just-in-time processing with traditional manufacturing processing.

5

Process Cost Systems (continued)

18-3


1 manufacturing processing.

Describe process cost systems.

18-4


1 manufacturing processing.

Process Cost System

A process manufacturer produces products that are indistinguishable from each other using a continuous production process. The process system used by process manufacturers is called the process cost system.


1 manufacturing processing.

Comparing Job Order and Process Cost Systems

Both systems:

  • Record and summarize product costs.

  • Classify product costs as direct materials, direct labor, and factory overhead.

  • Allocate factory overhead costs to products.

  • Use perpetual inventory system for material, work in process, and finished goods.

  • Provide useful product cost information for decision making.


1 manufacturing processing.

Differences Between Job Order and Process Cost Systems


Exhibit 1 manufacturing processing.

1

Job Order and Process Cost Systems Compared

(continued)


Exhibit 1 manufacturing processing.

1

Job Order and Process Cost Systems Compared (continued)


1 manufacturing processing.

Process cost systems are used to manufacture homogeneous products. Examples are:

  • Tennis balls

  • Motor oil

  • Candy bars

  • Soft drinks


1 manufacturing processing.

In contrast, job cost systems are used to manufacture unique products or provide unique services. Examples are:

  • Custom-built homes

  • Landscape design services

  • Custom cabinets

  • Airplanes


1 manufacturing processing.

Example Exercise 18-1

Job Order vs. Process Costing

Which of the following industries would normally use job order costing systems and which would normally use process costing systems?

Home construction Computer chips

Beverages Cookies

Military aircraft Video game design and production

18-12


Follow My Example 18-1 manufacturing processing.

For Practice: PE 18-1A, PE 18-1B

1

Example Exercise 18-1 (continued)

Job Order

Process

Job Order

Process

Process

Job Order

Home construction

Beverages

Military aircraft

Computer chips

Cookies

Video game design and

production

18-13


Exhibit 2 manufacturing processing.

1

Physical Flows for a Process Manufacturer


Exhibit 3 manufacturing processing.

1

Cost Flows for a Process Manufacturer—Frozen Delight

WIP – Packaging

Materials

WIP – Mixing

(a) Direct and indirect materials

Debit Materials and credit Accounts Payable when direct and indirect materials are purchased.

(a) The cost of materials are purchased and recorded in materials.

(continued)


Exhibit 3 manufacturing processing.

DM

(b) Direct Materials

1

Cost Flows for a Process Manufacturer—Frozen Delight (continued)

WIP – Packaging

Materials

WIP – Mixing

(a) Direct and indirect materials

DM

DM

DM

(b) The cost of direct materials used by the Mixing and Packaging department are recorded in the work in process account for each department.

(continued)


Exhibit 3 manufacturing processing.

1

Cost Flows for a Process Manufacturer—Frozen Delight (continued)

WIP – Packaging

Materials

WIP – Mixing

(a) Direct and indirect materials

DL

DL

DM

DM

DM

(c) The cost of direct labor used by the Mixing and Packaging departments is recorded in process accounts for each department.

DL

(c) Direct Labor—Mixing

(continued)


Exhibit 3 manufacturing processing.

1

Cost Flows for a Process Manufacturer—Frozen Delight (continued)

WIP – Packaging

Materials

WIP – Mixing

(a) Direct and indirect materials

DL

DL

DM

DM

DM

(d) The cost of factory overhead incurred for indirect materials and other factory overhead, such as depreciation, is recorded in the factory overhead accounts for each department.

(continued)


Exhibit 3 manufacturing processing.

1

Cost Flows for a Process Manufacturer—Frozen Delight (continued)

WIP – Packaging

Materials

WIP – Mixing

(a) Direct and indirect materials

DL

DL

DM

DM

DM

IM

Factory OH – Mixing

Factory OH – Packaging

(d) Factory overhead incurred

(d) Factory overhead incurred

IM

(d) Indirect materials

(continued)


Exhibit 3 manufacturing processing.

1

Cost Flows for a Process Manufacturer—Frozen Delight (continued)

WIP – Packaging

Materials

WIP – Mixing

(a) Direct and indirect materials

DL

DL

DM

DM

DM

IM

(e) The factory overhead incurred in the Mixing and Packaging departments is applied to the work in process accounts for each department.

Factory OH – Mixing

Factory OH – Packaging

(d) Factory overhead incurred

(d) Factory overhead incurred

(continued)


Exhibit 3 manufacturing processing.

1

Cost Flows for a Process Manufacturer—Frozen Delight (continued)

WIP – Packaging

Materials

WIP – Mixing

(a) Direct and indirect materials

DL

DL

DM

DM

DM

FOA

FOA

IM

Factory OH – Mixing

Factory OH – Packaging

(d) Factory overhead incurred

(d) Factory overhead incurred

FOA

FOA

FOA

(e) Factory overhead applied—Mixing

FOA

(e) Factory overhead applied—Packaging

(continued)


Exhibit 3 manufacturing processing.

1

Cost Flows for a Process Manufacturer—Frozen Delight (continued)

WIP – Packaging

Materials

WIP – Mixing

(a) Direct and indirect materials

DL

DL

DM

DM

DM

FOA

FOA

IM

(f) The cost of units completed in the Mixing Department is transferred to the Packaging Department.

Factory OH – Mixing

Factory OH – Packaging

(d) Factory overhead incurred

(d) Factory overhead incurred

FOA

FOA

(continued)


Exhibit 3 manufacturing processing.

1

Cost Flows for a Process Manufacturer—Frozen Delight (continued)

WIP – Packaging

Materials

WIP – Mixing

(f) Costs trans-ferred out

(a) Direct and indirect materials

DL

DL

DM

DM

DM

FOA

FOA

IM

CTI

Factory OH – Mixing

Factory OH – Packaging

(d) Factory overhead incurred

(d) Factory overhead incurred

FOA

FOA

CTI

(f) Costs transferred in (to packaging)

(continued)


Exhibit 3 manufacturing processing.

1

Cost Flows for a Process Manufacturer—Frozen Delight (continued)

WIP – Packaging

Materials

WIP – Mixing

(f) Costs trans-ferred out

(a) Direct and indirect materials

DL

DL

DM

DM

DM

FOA

FOA

IM

CTI

(g) The cost of units completed in the Packaging Department is transferred to Finished Goods.

Factory OH – Mixing

Factory OH – Packaging

(d) Factory overhead incurred

(d) Factory overhead incurred

FOA

FOA

(continued)


Exhibit 3 manufacturing processing.

1

Cost Flows for a Process Manufacturer—Frozen Delight (continued)

WIP – Packaging

Materials

WIP – Mixing

(f)Costs trans-ferred out

(i)Costs trans-ferred out

(a) Direct and indirect materials

DL

DL

DM

DM

DM

FOA

FOA

IM

CTI

Factory OH – Mixing

Factory OH – Packaging

(d) Factory overhead incurred

(d) Factory overhead incurred

Finished Goods

FOA

FOA

CTI

CTI

(i)Cost transferred in from WIP—Packaging

(continued)


Exhibit 3 manufacturing processing.

1

Cost Flows for a Process Manufacturer—Frozen Delight (continued)

WIP – Packaging

Materials

WIP – Mixing

(f) Costs trans-ferred out

(i) Costs trans-ferred out

(a) Direct and indirect materials

DL

DL

DM

DM

DM

FOA

FOA

IM

CTI

Factory OH – Mixing

Factory OH – Packaging

(h) The cost of units sold is transferred to Cost of Goods Sold.

(d) Factory overhead incurred

(d) Factory overhead incurred

Finished Goods

FOA

FOA

CTI

(continued)


Exhibit 3 manufacturing processing.

1

Cost Flows for a Process Manufacturer—Frozen Delight (concluded)

WIP – Packaging

Materials

WIP – Mixing

(f) Costs trans-ferred out

(i) Costs trans-ferred out

(a) Direct and indirect materials

DL

DL

DM

DM

DM

FOA

FOA

IM

CTI

Factory OH – Mixing

Factory OH – Packaging

(d) Factory overhead incurred

(d) Factory overhead incurred

Finished Goods

FOA

FOA

CTI

CGS

Cost of Goods Sold

(j) Cost transferred to Cost of Goods Sold

CGS

CGS


2 manufacturing processing.

Prepare a cost of production report.

18-28


2 manufacturing processing.

Production Report—Mixing Department

Inventory in process, July 1, 5,000 gallons:

Direct materials cost, 5,000 gallons $ 5,000

Conversion costs, 5,000 gallons, 70% completed 1,225

Total inventory in process, July 1 $ 6,225

Direct materials cost for July, 60,000 gallons $66,000

Direct labor for July 10,500

Factory overhead applied for July 7,275 83,775

Total production costs to account for $90,000

Goods transferred to Packaging in July (including

units in process on July 1), 62,000 gallons ?

Inventory in process, July 31, 3,000 gallons, 25%

complete as to conversion costs ?


2 manufacturing processing.

Step 1: Determine the Units to Be Assigned Costs

Total units (gallons) charged to production:

In process July 1 5,000 gallons

Received from materials storage 60,000 gallons

Total units accounted for by the Mixing Department 65,000 gallons


Exhibit 4 manufacturing processing.

2

July Units to Be Costed—Mixing Department


2 manufacturing processing.

Total Units to Be Assigned Costs

  • Inventory in process, July 1, completed in July 5,000 gal.

  • Started and completed in July 57,000 gal.*

  • Transferred out to the Packaging Department in July 62,000 gal.

  • Inventory in process, July 31 3,000 gal.

  • Total gallons to be assigned costs 65,000 gal.

*62,000 – 5,000


2 manufacturing processing.

Example Exercise 20-1

Example Exercise 18-2

Units to be Assigned Costs

Rocky Springs Beverage Company has two departments, Blending and Bottling. The Bottling Department received 57,000 liters from the Blending Department. During the period, the Bottling Department completed 58,000 liters, including 4,000 liters of work in process at the beginning of the period. The ending work in process was 3,000 liters. How many liters were started and completed during the period?

18-33


Follow My Example 18-2 manufacturing processing.

For Practice: PE 18-2A, PE 18-2B

2

Example Exercise 18-2 (continued)

54,000 liters started and completed (58,000 completed – 4,000 beginning work in process), or (57,000 started – 3,000 WIP)

18-34


2 manufacturing processing.

Step 2: Compute Equivalent Units of Production

Whole units are the number of units in production during a period, whether completed or not. Equivalent units of production are the portion of whole units that are complete with respect to either materials or conversion (direct labor and factory overhead) costs.


Important: manufacturing processing. Note the word “Added”

2

Frozen Delight’s Equivalent Units Computation for Materials in July

Percent Equivalent

Total Materials Units for

Whole Added Direct

Units in July Materials

Inventory in process, July 1 5,000 0% 0

Started and completed in July (62,000 – 5,000) 57,000 100% 57,000

Transferred out to Packaging Dept. 62,000 — 57,000

Inventory in process, July 31 3,000 100% 3,000

Total gallons to be assigned cost 65,000 60,000


Exhibit 5 manufacturing processing.

2

Direct Materials Equivalent Units


2 manufacturing processing.

Example Exercise 20-1

Example Exercise 18-3

Equivalent Units of Materials Cost

The Bottling Department of Rocky Springs Beverage Company had 4,000 liters in beginning work in process inventory (30% complete). During the period, 58,000 liters were completed. The ending work in process inventory was 3,000 liters (60% complete). What are the total equivalent units for direct materials if materials are added at the beginning of the process?

18-38


Follow My Example 18-3 manufacturing processing.

For Practice: PE 18-3A, PE 18-3B

2

Example Exercise 18-3 (continued)

Percent Equivalent

Total Materials Units for

Whole Added Direct

Unitsin PeriodMaterials

Inventory in process, beginning of period 4,000 0% 0

Started and completed during the period 54,000* 100% 54,000

Transferred out of Bottling (completed) 58,000 54,000

Inventory in process, end of period 3,000 100% 3,000

Total units to be assigned costs 61,000 57,000

*(58,000 – 4,000)

18-39


2 manufacturing processing.

Equivalent Units for Conversion Costs

To compute equivalent units for conversion costs, it is necessary to know how direct labor and factory overhead enter the manufacturing process.


2 manufacturing processing.

Percent

Total Conversion Equivalent

Whole Completed Units for

Units in July Conversion

Inventory in process, July 1 (70% complete) 5,000 30% 1,500

Started and completed in July (62,000 – 5,000) 57,000 100% 57,000

Transferred out to Packaging Department in July 62,000 — 58,500

Inventory in process, July 31 (25% complete) 3,000 25% 750

Total gallons to be assigned cost 65,000 59,250


Exhibit 6 manufacturing processing.

2

Conversion Equivalent Units


2 manufacturing processing.

Example Exercise 20-1

Example Exercise 18-4

Equivalent Units of Conversion Costs

The Bottling Department of Rocky Springs Beverage Company had 4,000 liters in beginning work in process inventory (30% complete). During the period, 58,000 liters were completed. The ending work in process inventory was 3,000 liters (60% complete). What are the total equivalent units for conversion costs?

18-43


Follow My Example 18-4 manufacturing processing.

For Practice: PE 18-4A, PE 18-4B

2

Example Exercise 18-4 (continued)

Percent Equivalent

Conversion Units for

Whole Completed Conver-

Unitsin Periodsion

Inventory in process, beginning of period 4,000 70% 2,800

Started and completed during the period 54,000* 100% 54,000

Transferred out of Bottling (completed) 58,000 56,800

Inventory in process, end of period 3,000 60% 1,800

Total units to be assigned costs 61,000 58,600

*(58,000 – 4,000)

18-44


Total Conversion Costs for the Period manufacturing processing.

Total Equivalent Units of Conversion Costs

Conversion Cost per Equivalent Unit

=

2

Cost per Equivalent Unit

Total Direct Materials Cost for the Period

Total Equivalent Units of Direct Materials

Direct Materials Cost per Equivalent Unit

=


2 manufacturing processing.

Step 3: Determine the Cost per Equivalent Unit

Equivalent Units from Step 2

Direct MaterialsConversion

Inventory in process, July 1 0 1,500

Started and completed in July (62,000 – 5,000)57,00057,000

Transferred out to Packaging Dept. in July 57,000 58,500

Inventory in process, July 31 3,000 750

Total gallons to be assigned costs 60,000 59,250


Conversion Cost per Equivalent Unit manufacturing processing.

$0.30 per gallon

$17,775 conversion costs

=

59,250 gallons

2

Direct Materials Cost per Equivalent Unit

$1.10 per gallon

$66,000 direct materials costs

=

60,000 direct materials equivalent units


2 manufacturing processing.

Example Exercise 20-1

Example Exercise 18-5

Cost per Equivalent Unit

The cost of direct materials transferred into the Bottling Department of Rocky Springs Beverage Company is $22,800. The conversion cost for the period in the Bottling Department is $8,790. The total equivalent units for direct materials and conversion are 57,000 and 58,600 liters, respectively. Determine the direct materials and conversion cost per equivalent unit.

18-48


Follow My Example 18-5 manufacturing processing.

For Practice: PE 18-5A, PE 18-5B

2

Example Exercise 18-5 (continued)

$22,800

57,000 liters

Equivalent units of materials:

= $0.40 per liter

$8,790

58,600 liters

Equivalent units of conversion:

= $0.15 per liter

18-49


2 manufacturing processing.

Step 4: Allocate Costs to Units Transferred Out and Partially Completed Units

Direct Conver- Materials sion Total

Costs Costs Costs

Inventory in process, July 1, balance $6,225

Equivalent units for completing the July 1 in-process inventory 0 1,500

Equivalent unit cost × $1.10× $0.30

Cost of completed July 1 in- process inventory 0 $450 450

Cost of July 1 in-process inventory transferred to Packaging Department$6,675


2 manufacturing processing.

Costs Associated With the Units Started and Completed

Direct Materials Conversion Total Costs Costs Costs

Units started and completed in July 57,000 57,000

Equivalent unit cost × $1.10× $0.30

Cost to complete the units started and completed in July $62,700 $17,100 $79,800


2 manufacturing processing.

Costs Associated With the Partially Completed Units in the Ending Inventory

Direct Materials Conversion Total Costs Costs Costs

Equivalent units in ending inventory 3,000 750

Equivalent unit cost × $1.10× $0.30

Cost to ending inventory $ 3,300 $ 225 $3,525


Total Gallons Costs manufacturing processing.

Inventory in process, July 1,

completed in July 5,000 gallons $ 6,675

Started and completed in July 57,000 79,800

Transferred out to the Packaging

Department in July 62,000 gallons $86,475

Inventory in process, July 31 3,000 3,525

Total 65,000 gallons $90,000

2

Summary


2 manufacturing processing.

Example Exercise 20-1

Example Exercise 18-6

Cost of Units Transferred Out and Ending Work in Process

The cost per equivalent unit of direct materials and conversion in the Bottling Department of Rocky Springs Beverage Company is $0.40 and $0.15, respectively. The equivalent units to be assigned cost are as follows:

Direct

MaterialsConversion

Inventory in process, beginning of period 0 2,800

Started and completed during the period 54,00054,000

Transferred out of Bottling (completed) 54,000 56,800

Inventory in process, end of period 3,000 1,800

Total units to be assigned costs 57,000 58,600

The beginning work in process inventory had a cost of $1,860. Determine the cost of units transferred out and the ending work in process inventory.

18-54


Follow My Example 18-6 manufacturing processing.

For Practice: PE 18-6A, PE 18-6B

2

Example Exercise 18-6 (continued)

Direct

MaterialsConversionTotal

Inventory in process, balance $ 1,860

Inventory in process, beginning of period 0 + 2,800 × $0.15 420

Started and completed during the period 54,000 × $0.40 + 54,000 × $0.15 29,700

Transferred out of Bottling (completed) $31,980

Inventory in process, end of period 3,000 × $0.40 + 1,800 × $0.15 1,470

Total costs assigned by the Bottling Department $33,450

Completed and transferred out of production $31,980

Inventory in process, ending $ 1,470

18-55


2 manufacturing processing.

Cost of Production Report

A cost of production report is normally prepared for each processing department at periodic intervals. The report summarizes the following production quantity and cost data:

  • The units for which the department is accountable and the deposition of these units.

  • The production costs incurred by the department and the allocation of those costs between completed and partially completed units.


Exhibit 7 manufacturing processing.

2

Cost of Production Report for Frozen Delight’s Mixing Department—FIFO

Step 1

Step 2


Exhibit 7 manufacturing processing.

2

Cost of Production Report for Frozen Delight’s Mixing Department—FIFO (continued)

Step 3

Step 4


3 manufacturing processing.

Journalize entries for transactions using a process cost system.

18-59


3 manufacturing processing.

Journal Entries for Frozen Delight

a. Purchased materials, including milk, cream, sugar, packaging, and indirect materials on account, $88,000.


3 manufacturing processing.

b. Milk, cream, and sugar were requisitioned by the Mixing Department, $66,000. Another $8,000 of packaging materials was requisitioned by the Packaging Department. Indirect materials for the Mixing and Packaging Department were $4,125 and $3,000, respectively.


3 manufacturing processing.

c. Direct labor in the Mixing and Packaging departments was $10,500 and $12,000, respectively.


3 manufacturing processing.

d. Equipment depreciation for the Mixing and Packaging departments was $3,350 and $1,000, respectively.


3 manufacturing processing.

e. The factory overhead applied to Mixing and Packaging was $7,275 and $3,500, respectively.


3 manufacturing processing.

f. The amount of costs transferred from the Mixing Department to the Packaging Department was $86,475 per the cost of production report in Exhibit 7.


3 manufacturing processing.

g. The goods transferred out of the Packaging Department to Finished Goods according to the Packaging Department cost of production report was $106,000.


3 manufacturing processing.

h. The cost of goods sold out of the finished goods inventory of $107,000.


3 manufacturing processing.

Ending Inventories for Frozen Delight

July 31

Materials $ 6,875

Work in Process—Mixing Dept. 3,525

Work in Process—Packaging Department 7,725

Finished Goods 4,000

Total inventories $22,125


Exhibit 8 manufacturing processing.

3

Frozen Delight’s Cost Flows


3 manufacturing processing.

Example Exercise 20-1

Example Exercise 18-7

Process Cost Journal Entries

The cost of materials transferred into the Bottling Department of Rocky Springs Beverage Company is $22,800, with $20,000 from the Blending Department, plus an additional $2,800 from the materials storeroom. The conversion cost for the period in the Bottling Department is $8,790 ($3,790 factory overhead applied and $5,000 direct labor). The total cost transferred to Finished Goods for the period was $31,980. The Bottling Department had a beginning inventory of $1,860.

  • Journalize (1) the cost of transferred-in materials, (2) conversion costs, and (3) the costs transferred out to Finished Goods.

  • Determine the balance of Work in Process—Bottling at the end of the period.

18-70


Follow My Example 18-7 manufacturing processing.

For Practice: PE 18-7A, PE 18-7B

3

Example Exercise 18-7 (continued)

  • 1. Work in Process—Bottling 22,800

    • Work in Process—Blending 20,000

    • Materials 2,800

  • 2. Work in Process—Bottling 8,790

    • Factory Overhead—Bottling 3,790

    • Wages Payable 5,000

  • 3. Finished Goods 31,980

    • Work in Process—Bottling 31,980

b. $1,470 ($1,860 + $22,800 + $8,790 – $31,980)

18-71


4 manufacturing processing.

Describe and illustrate the use of cost of production reports for decision making.

18-72


$5,000 manufacturing processing.

5,000 gallons

Direct Materials Cost per Equivalent Unit

=

Direct Materials Cost per Equivalent Unit

$1.00 per gallon

=

4

Frozen Delight

Total Direct Materials Cost for the Period

Total Equivalent Units of Direct Materials

Direct Materials Cost per Equivalent Unit

=


$1,225 manufacturing processing.

(5,000 × 70%) gallons

Conversion Cost per Equivalent Unit

=

Conversion Cost per Equivalent Unit

$0.35 per gallon

=

4

Frozen Delight

Total Conversion Costs for the Period

Total Equivalent Units of Conversion Costs

Conversion Cost per Equivalent Unit

=


4 manufacturing processing.

Holland Beverage Company


4 manufacturing processing.

Holland Beverage Company


4 manufacturing processing.

Yield

In addition to unit costs, managers of process manufacturers are also concerned about yield trends. The Yield is computed as follows:

Quantity of Material Output Quantity of Material Input

Yield =


Quantity of Material Output Quantity of Material Input manufacturing processing.

Yield =

900 pounds 1,000 pounds

Yield =

4

Assume that 1,000 pounds of sugar enter the Packaging Department and 980 pounds of sugar were packed. The yield is 98% as computed below.

Yield = 98%


4 manufacturing processing.

Example Exercise 20-1

Example Exercise 18-8

Using Process Costs for Decision Making

The cost of energy consumed in producing good units in the Bottling Department of Rocky Springs Beverage Company was $4,200 and $3,700 for March and April, respectively. The number of equivalent units produced in March and April was 70,000 and 74,000 liters, respectively. Evaluate the cost of energy between the two months.

18-79


$3,700 manufacturing processing.

74,000 liters

Energy cost per liter, April:

= $0.05

Follow My Example 18-8

For Practice: PE 18-8A, PE 18-8B

4

Example Exercise 18-8 (continued)

$4,200

70,000 liters

Energy cost per liter, March:

= $0.06

The cost of energy has appeared to improve by 1 cent per liter between March and April.

18-80


5 manufacturing processing.

Compare just-in-time processing with traditional manufacturing processing.

18-81


5 manufacturing processing.

JIT organizes manufacturing cells that perform several manufacturing steps. Workers are cross-trained to perform more than one task. This provides flexibility and worker pride and involvement in the final product.


Exhibit 9 manufacturing processing.

5

Traditional Production Line


Exhibit 10 manufacturing processing.

5

Just-in-Time Production Line


Appendix: manufacturing processing.

Average Cost Method

18-85


S&W Ice Cream Company manufacturing processing.

S&W Ice Cream Company mixes direct materials in refrigerated vessels and has two manufacturing departments, Mixing and Packaging.


Mixing Department, July 2010 manufacturing processing.

Work in process inventory, July 1,

5,000 gallons (70% completed) $ 6,200

Direct materials cost incurred in July,

60,000 gallons 68,000

Direct labor cost incurred in July 10,500

Factory overhead applied in July 6,405

Total production costs to account for $89,105

Goods transferred to Packaging in July (including units in process on July 1), 62,000 gallons

Work in process inventory, July 31, 3,000 gallons, 25% completed as to conversion costs


Total gallons to account for: manufacturing processing.

Work in process, July 1 5,000 gallons

Received from materials storeroom 60,000

Total units to account for by the

Packaging Department 65,000 gallons

Total gallons to be assigned costs:

Units transferred to the Packaging

Department in July 62,000 gallons

Work in process inventory, July 31 3,000

Total gallons to be assigned cost 65,000 gallons

Step 1


Equivalent units completed and manufacturing processing.

transferred to the Packaging

Department during July 62,000 gallons

Equivalent units in ending work in

process, July 31 (3,000 × 25%) 750

Total equivalent units 62,750 gallons

Total Production Costs

Total Equivalent Units

Cost per Equivalent Unit =

$89,105

62,750

Cost per Equivalent Unit =

Steps 2 and 3

= $1.42


Step 4 manufacturing processing.

Transferred out to the Packaging

Department (62,000 gallons × $1.42) $88,040 Work in process inventory, July 31

(3,000 × 25% × $1.42) 1,065

Total production costs assigned $89,105


Exhibit 11 manufacturing processing.

Cost of Production Report for S&W Mixing Department – Average Cost

Step 1

Step 2

(continued)


Exhibit 11 manufacturing processing.

Cost of Production Report for S&W’s Mixing Department – Average Cost (continued)

Step 3

Step 4


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