Chapter 18: Q17RQ (page 1006)
What are transferred in costs? When do they occur?
The transferred in cost means the total cost of the product of one department, which is transferred to another department for further processing. It occurs when the manufacturing of a product passes through more than one process.
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Describe some ways managers use production cost reports to make business decisions.
Question: What types of companies use process costing systems?
For each of the following products or services, indicate if the cost would most likely be determined using a job order costing system or a process costing system.
a. Soft drinks
b. Automobile repairs
c. Customized furniture
d. Aluminum foil
e. Lawn chairs
f. Chocolate candy bars
g. Hospital surgery
h. Pencils
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?
Question: The Mixing Department of Complete Foods had 62,000 units to account for in October. Of the 62,000 units, 38,000 units were completed and transferred to the next department, and 24,000 units were 20% complete. All of the materials are added at the beginning of the process. Conversion costs are added evenly throughout the mixing process and the company uses the weighted-average method.
Compute the total equivalent units of production for direct materials and
conversion costs for October.
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