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Chapter 18: Q7RQ (page 1005)

Question: Why is the calculation of equivalent units of production needed in a process costing system?

Short Answer

Expert verified

Answer:

The equivalent units of production needed in a process costing system. It is so because the company is required to know the cost of each single unit of the product to decide the selling proce per unit.

Step by step solution

01

Process costing system

Under the process costing system, cost is calculated for the entire process of the production. It is used by the companies producing large number of similar goods.

02

Unit cost of the products

The unit cost of the product is required to be calculated. It is calculated by dividing the total cost of production with the total number of units produced during the year. Hence, the company is needed to know the equivalent units of production

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Most popular questions from this chapter

Question: What is a production cost report?

Question: Refer to the data in Short Exercise S18-8 and your results for equivalent units of production. The Mixing Department of Complete Foods has direct materials costs of \(46,500 and conversion costs of \)23,540 for October.

Compute the cost per equivalent unit of production for direct materials and for

conversion costs.

The comparative financial statements of Norfolk Cosmetic Supply for 2018, 2017, and

2016 include the data shown here:

2018 2017 2016

Balance sheet—partial

Current Assets:

Cash

Short-term investments

Accounts Receivable, Net

Merchandise Inventory

Prepaid Expenses

Total Current Assets

Total Current Liabilities

Income statement—partial

Net Sales (all on account)

\( 70,000

140,000

280,000

355,000

70,000

915,000

560,000

5,890,000

\) 60,000

170,000

240,000

330,000

35,000

835,000

630,000

5,130,000

$ 50,000

120,000

260,000

310,000

35,000

775,000

640,000

4,210,000

Requirements

1. Compute these ratios for 2018 and 2017:

a. Acid-test ratio (Round to two decimals.)

b. Accounts receivable turnover (Round to two decimals.)

c. Days’ sales in receivables (Round to the nearest whole day.)

2. Considering each ratio individually, which ratios improved from 2017 to 2018 and

which ratios deteriorated? Is the trend favorable or unfavorable for the company?

Describe the three groups of units that must be accounted for when using the FIFO method.

Hartley Company has a production process that involves three processes. Units move through the processes in this order: cutting, stamping, and then polishing. The company had the following transactions in November:

1. Cost of units completed in the Cutting Department, \(17,000

2. Cost of units completed in the Stamping Department, \)30,000

3. Cost of units completed in the Polishing Department, \(35,000

4. Sales on account, \)50,000

5. Cost of goods sold is 80% of sales

Prepare the journal entries for Hartley Company.
See all solutions

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