Chapter 18: Q2RQ (page 1005)
Question: What types of companies use process costing systems?
Answer:
The companies that produce the goods in large quantity or are engaged in producing similar products, use the process costing system.
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Smith Paper Co. produces the paper used by wallpaper manufacturers. Smith’s four-stage process includes mixing, cooking, rolling, and cutting. On March 1, the Mixing Department had 400 rolls in process. During March, the Mixing Department completed the mixing process for those 400 rolls and also started and completed the mixing process for an additional 4,100 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 compiled the following data for March:
Direct materials | Direct labor | Manufacturing overhead allocated | Total costs | |
Beginning inventory, Mar. 1 | \(475 | \)275 | \(300 | \)1,050 |
Costs added during March | 5,045 | 2,900 | 2,965 | 10,910 |
Total costs | \(5,520 | \)3,175 | \(3,265 | \)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: What is a production cost report?
Question: Describe the flow of costs through a process costing system.
Dee Electronics makes game consoles in three processes: assembly, programming, and packaging. Direct materials are added at the beginning of the assembly process. Conversion costs are incurred evenly throughout the process. The Assembly Department had no Work-in-Process Inventory on October 31. In mid-November, Dee Electronics started production on 100,000 game consoles. Of this number, 90,000 game consoles were assembled during November and transferred out to the Programming Department. The November 30 Work-in-Process Inventory in the Assembly Department was 35% of the way through the assembly process. Direct materials costing \(399,000 were placed in production in Assembly during November, direct labor of \)139,000 was assigned, and manufacturing overhead of $130,280 was allocated to that department.
Requirements
1. Prepare a production cost report for the Assembly Department for November.
The company uses the weighted-average method.
2. Prepare a T-account for Work-in-Process Inventory—Assembly to show its activity during November, including the November 30 balance.
Blue Ridge Mountain Manufacturing had the following transactions related to manufacturing overhead for the year:
1. Incurred manufacturing overhead costs
a. \(5,000 in indirect materials
b. \)12,500 in indirect labor (credit Wages Payable)
c. \(30,600 in machinery depreciation
d. \)20,400 in other indirect costs that were paid in cash
2. Allocated manufacturing overhead (use a compound entry)
a. \(30,000 to the Mixing Department
b. \)37,000 to the Packaging Department
Requirements
1. Prepare the journal entries for Blue Ridge Mountain Manufacturing.
2. Determine the amount of overallocated or underallocated manufacturing overhead by posting the transactions to the Manufacturing Overhead account. Assume the balance in Manufacturing Overhead on January 1 is $0. Prepare the adjusting entry.
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