Chapter 16: Q16QS (page 746)
Question: Refer to the information in QS 16-10. Assign costs to the assembly department’s output—specifically, the units transferred out to the painting department and the units that remain in process in the assembly department at month-end. Use the FIFO method.
Total cost accounted for $24,270.
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The following partially completed process cost summary describes the July production activities of Ashad Company. Its production output is sent to its warehouse for shipping. All direct materials are added to products when processing begins. Beginning work in process inventory is 20% complete with respect to conversion. Prepare its process cost summary using the weighted-average method.
Equivalent units of production | Direct material | Conversion |
Units transferred out | 32,000 EUP | 32,000 EUP |
Units of ending work-in-process | 2,500 EUP | 1,500 EUP |
Equivalent units of production | 34,500 EUP | 33,500 EUP |
Cost per EUP | Direct material | Conversion |
Cost of beginning work-in-process | \(18,550 | \)2,280 |
Cost incurred in this period | 357,500 | 188,670 |
Total costs | \(376,050 | \)190,950 |
Units in beginning work-in-process (all completed during July) | 2,000 | |
Units started this period | 32,500 | |
Units completed and transferred out | 32,000 | |
Units in ending work-in-process | 2,500 |
Belda Co. makes organic juice in two departments: cutting and blending. Direct materials are added at the beginning of each process, and conversion costs are added evenly throughout each process. The company uses the FIFO method of process costing. During March, the cutting department completed and transferred 220,000 units to the blending department. Of the units completed, 10,000 were from beginning inventory and the remaining 210,000 were started and completed during the month. Beginning work in process was 75% complete with respect to direct materials and 60% complete with respect to conversion. The company has 40,000 units (50% complete with respect to direct materials and 30% complete with respect to conversion) in process at month-end. Information on the cutting department’s costs of beginning work in process inventory and costs added during the month follows.
Cost | Direct Materials | Conversion |
Of beginning work in process inventory | \( 16,800 | \) 97,720 |
Added during the month | 223,200 | 1,233,960 |
Required
Analysis Component
3. The company provides incentives to department managers by paying monthly bonuses based on their success in controlling costs per equivalent unit of production. Assume that the production department overestimates the percentage of completion for units in ending inventory with the result that its equivalent units of production for March are overstated. What impact does this error have on bonuses paid to the managers of the production department? What impact, if any, does this error have on these managers’ April bonuses?
For each of the following products and services, indicate whether it is more likely produced in a process operation (P) or in a job order operation (J).
1. Tennis courts
2. Organic juice
3. Audit of financial statements
4. Luxury yachts
5. Vanilla ice cream
6. Tennis balls
Hotwax completed products costing $275,000 and transferred them to finished goods. Prepare its journal entry to record the transfer of units from production to finished goods inventory.
This chapter’s opener featured Jeff Kearl and his company Stance.
Required
1. Sock makers like Stance typically use several different processes, including knitting, design imprinting, washing and drying, inspection, and packaging/shipping. What are some benefits of using separate process cost summary reports for each process?
2. Jeff tries to order raw materials just-in-time for their use in production. How does holding raw materials inventories increase costs? If the items are not used in production, how can they impact profits? Explain.
3. How can companies like Stance use yield to improve their production processes?
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