Abraham Company uses process costing to account for its production costs. The company has two production processes. Conversion is added evenly throughout each process. Direct materials are added at the beginning of the first process. Additional information for the first process follows. During September, the first process transferred 80,000 units of product to the next process. Beginning work in process consisted of 2,000 units that were 100% complete with respect to direct materials and 85% complete with respect to conversion. Of the units completed, 2,000 were from beginning work in process and 78,000 units were started and completed during the period. Beginning work in process had $58,000 of direct materials and $86,400 of conversion cost. At the end of September, the work in process inventory consists of 8,000 units that are 25% complete with respect to conversion. The direct materials cost added in September is $712,000, and conversion cost added is $1,980,000. The company uses the weighted-average method. Required For the first process: 1. Determine the equivalent units of production with respect to (a) conversion and (b) direct materials. 2. Compute both the conversion cost and the direct materials cost per equivalent unit. 3. Compute both conversion cost and direct materials cost assigned to (a) units completed and transferred out and (b) ending work in process inventory. Analysis Component 4. Assume that an error is made in determining the percentage of completion for units in ending inventory in the first process. Instead of being 25% complete with respect to conversion, they are actually 75% complete. Write a one-page memo to the plant manager describing how this error affects its September financial statements.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Abraham Company uses
processes. Conversion is added evenly throughout each process. Direct materials are added at the
beginning of the first process. Additional information for the first process follows.
During September, the first process transferred 80,000 units of product to the next process. Beginning
work in process consisted of 2,000 units that were 100% complete with respect to direct materials and 85%
complete with respect to conversion. Of the units completed, 2,000 were from beginning work in process and
78,000 units were started and completed during the period. Beginning work in process had $58,000 of direct
materials and $86,400 of conversion cost. At the end of September, the work in process inventory consists of
8,000 units that are 25% complete with respect to conversion. The direct materials cost added in September
is $712,000, and conversion cost added is $1,980,000. The company uses the weighted-average method.
Required
For the first process:
1. Determine the equivalent units of production with respect to (a) conversion and (b) direct materials.
2. Compute both the conversion cost and the direct materials cost per equivalent unit.
3. Compute both conversion cost and direct materials cost assigned to (a) units completed and transferred
out and (b) ending work in process inventory.
Analysis Component
4. Assume that an error is made in determining the percentage of completion for units in ending inventory
in the first process. Instead of being 25% complete with respect to conversion, they are actually
75% complete. Write a one-page memo to the plant manager describing how this error affects its
September financial statements.
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