Question

Fast Co. produces its product through a single processing department. Direct materials are added at the start of production, and conversion costs are added evenly throughout the process. The company uses monthly reporting periods for its weighted-average process costing system. The Work in Process Inventory account has a balance of \(84,300 as of October 1, which consists of \)17,100 of direct materials and \(67,200 of conversion costs.

During the month, the company incurred the following costs:

Direct material	\)144,400
Conversion	862,400

During October, the company started 140,000 units and transferred 150,000 units to finished goods. At the end of the month, the work in process inventory consisted of 20,000 units that were 80% complete with respect to conversion costs.

Required

1. Prepare the company’s process cost summary for October using the weighted-average method.

2. Prepare the journal entry dated October 31 to transfer the cost of the completed units to finished goods inventory.

Short answer

1. Cost per equivalent unit for direct material:$0.95 per unit and for conversion:$5.60 per unit.
2. The business entity transfers goods of$982,500 to finished goods ending inventory.

Step-by-step solution

Definition of Process Costing

Process costing can be defined as the method used by the business entity to determine the cost of production. It is adopted by the business entities whose product passes through various stages of production to get transferred into finished goods.

Process cost summary using the weighted average method

Calculation of physical flow of units:

Units to account for		Units accounted for
Beginning work in process	30,000	Units transferred	150,000
Units started during period	140,000	Ending work-in-process	20,000
Total units to account for	170,000	Total units accounted for	170,000

Calculation of cost to account for:

Particular	Amount $
Cost of beginning work-in-process	$84,300
Add: Incurred during month $\mathbf{(}\mathbf{\$}\mathbf{144}\mathbf{,}\mathbf{400}\mathbf{+}\mathbf{\$}\mathbf{862}\mathbf{,}\mathbf{400}\mathbf{)}$	$1,006,800
Total cost to account for	$1,091,100

Calculation of equivalent units:

Particular	Direct material	Conversion
Units transferred	150,000	150,000
Add: Ending inventory	20,000	$\mathbf{(}\mathbf{20}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{80}\mathbf{\%}\mathbf{)}$ 16,000
Equivalent units	170,000	166,000

Calculation of Total cost for material and conversion:

Particular	Direct material	Conversion
Beginning work-in-process	$17,100	$67,200
Started during period	$144,400	$862,400
Total cost	$161,500	$929,600

Calculation of cost per equivalent units:

Particular	Direct material	Conversion
Total cost	$161,500	$929,600
Equivalent units	170,000	166,000
Cost per equivalent unit	$0.95 per unit	$5.6

Calculation of cost of goods transferred to finished goods:

Particular	Amount $
Direct material$\mathbf{(}\mathbf{150}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{\$}\mathbf{0}\mathbf{.}\mathbf{95}\mathbf{)}$	$142,500
Conversion$\mathbf{(}\mathbf{150}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{\$}\mathbf{5}\mathbf{.}\mathbf{6}\mathbf{)}$	840,000
Total cost of goods transferred	$982,500

Calculation of cost of ending inventory:

Particular	Amount $
Direct material$\mathbf{(}\mathbf{20}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{\$}\mathbf{0}\mathbf{.}\mathbf{95}\mathbf{)}$	$19,000
Conversion$\mathbf{(}\mathbf{16}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{\$}\mathbf{5}\mathbf{.}\mathbf{6}\mathbf{)}$	89,600
Total cost of goods transferred	$108,600

Journal entry on 31 October for transferring the cost to finished goods inventory

Date	Accounts and Explanation	Debit ($)	Credit ($)
31 oct	Work-in-process inventory	982,500
	Finished goods inventory		982,500