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Chapter 18: Q18RQ (page 1006)

Explain the additional journal entries required by process costing systems that are not needed in job order costing systems.

Short Answer

Expert verified

The journal entry which is required in process costing system but not required in the job order costing system is:

Date

Particulars

Debit ($)

Credit ($)

WIP Inventory – Department 1

XXX

WIP Inventory – Department 2

XXX

(Transfer of units from one department to another department)

Step by step solution

01

Step-by-Step Solution:Step 1: Process Costing System

A process costing system is used to determine the manufacturing cost of the product, which passes from more than one process. It determines the cost of manufacturing for every process.

02

The separate journal entry passed in the process costing system

Journal entry passed when the inventory completed in the department transferred to another department. It is recorded by debiting the WIP inventory of the department receiving the units and crediting the WIP inventory of the department transferring the units.

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Most popular questions from this chapter

Roan Paper Co. produces the paper used by wallpaper manufacturers. Roan’s four-stage process includes mixing, cooking, rolling, and cutting. On March 1, the Mixing Department had 300 rolls of paper in process. During March, the Mixing Department completed the mixing process for those 300 rolls and also started and completed the mixing process for an additional 4,200 rolls of paper. The department started but did not finish the mixing process for an additional 500 rolls, which were 20% complete with respect to both direct materials and conversion work at the end of March. Direct materials and conversion costs are

incurred evenly throughout the mixing process.

The Mixing Department compiledthe following data for March:

Direct materials

Direct labor

Manufacturing overhead allocated

Total costs

Beginning inventory, Mar. 1

\(350

\)245

\(200

\)795

Costs added during March

4,940

3,000

3,225

11,165

Total costs

\(5,290

\)3,245

\(3,425

\)11,960

Requirements

1. Prepare a production cost report for the Mixing Department for March. The company uses the weighted-average method.

2. Journalize all transactions affecting the company’s mixing process during March. Assume 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

Miller Company sells several products. Sales reports show that the sales volume of its most popular product has increased the past three quarters while overall profits have decreased. How might production cost reports assist management in making decisions about this product?

Rick Pines and Joe Lopez are the plant managers for High Mountain Lumber’s particle board division. High Mountain Lumber has adopted a just-in-time management philosophy. Each plant combines wood chips with chemical adhesives to produce particle board to order, and all product is sold as soon as it is completed. Laura Green is High Mountain Lumber’s regional controller. All of High Mountain Lumber’s plants and divisions send Green their production and cost information. While reviewing the numbers of the two particle board plants, she is surprised to find that both plants estimate their ending Work-in-Process Inventories at 75% complete, which is higher than usual. Green calls Lopez, whom she has known for some time. He admits that to ensure their division would meet its profit goal and that both he and Pines would make their bonus (which is based on division profit), they agreed to inflate the percentage completion. Lopez explains, “Determining the percent complete always requires judgment.

Whatever the percent complete, we’ll finish the Work-in-Process Inventory first thing next year.”

Requirements

  1. How would inflating the percentage completion of ending Work-in-Process Inventory help Pines and Lopez get their bonus?
  2. The particle board division is the largest of High Mountain Lumber’s divisions. If Green does not correct the percentage completion of this year’s ending Work-in-Process Inventory, how will the misstatement affect High Mountain Lumber’s financial statements?
  3. Evaluate Lopez’s justification, including the effect, if any, on next year’s financial statements.
  4. Address the following: What is the ethical issue? What are the options? What are the potential consequences? What should Green do?

Collins Company has the following data for the Assembly Department for August:

Unit in process at the beginning of august

900

Units started in august

2,000

Units completed and transferred

2,100

Units in process at the end of august

800

Conversion costs are added evenly throughout the process. The company uses the weighted-average method. Compute the equivalent units of production for direct materials and conversion costs for each independent scenario:

1. Units in process at the end of August are 20% complete; materials are added at the beginning of the process.

2. Units in process at the end of August are 80% complete; materials are added at the beginning of the process.

3. Units in process at the end of August are 20% complete; materials are added at the end of the process.

4. Units in process at the end of August are 80% complete; materials are added at the halfway point.
See all solutions

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