Cari Colours is a manufacturer of specialized paint. All paint go through an identical manufacturing process. Every effort is made to ensure that all paint is identical and meet many demanding performance specifications. The product-costing system at the POS plant has a single direct-cost category (direct materials) and a single indirect-cost category (conversion costs). All paint passes through two departments –the Mixing Department and the Testing Department. Direct materials are added to the beginning of the process in Mixing. Conversion costs are added evenly throughout the two departments. When Mixing Department finishes work on the paint, it is immediately transferred to Testing. Cari Colors uses the Weighted-average method of process costing. Data for the Mixing Department for October 2017 are. Physical Unit (Paint) Direct Materials Costs Conversion Costs Work in process, October 1* 20 $460,000 $120,000 Started during October 2017 80 Completed during October 2017 90 Work in process, October 31† 10 Costs added during October 2017 $2,000,000 $935,000 * Degree of completion: direct materials, ? % conversion costs, 60%. † Degree of completion: direct materials, ? % conversion costs, 70%. REQUIRED 1. For each cost element, compute equivalent units of work done on October 2017 in the Mixing Department. Show physical units in the first column. 2. For each cost element, calculate cost per equivalent unit of beginning work in process and of work done in October 2017. 3. Summarize the total Mixing Department costs for October 2017, and assign these costs to units completed (and transferred out) and to units in ending work in process using the Weighted-average method. 4. Explain the concept of equivalent units by referring to the above data. 5. Explain how the cost per equivalent unit might be misleading to managers, particularly when a significant change in production is anticipated.
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.
Cari Colours is a manufacturer of specialized paint. All paint go through an identical manufacturing process. Every effort is made to ensure that all paint is identical and meet many demanding performance specifications. The product-costing system at the POS plant has a single direct-cost category (direct materials) and a single indirect-cost category (conversion costs). All paint passes through two departments –the Mixing Department and the Testing Department. Direct materials are added to the beginning of the process in Mixing. Conversion costs are added evenly throughout the two departments. When Mixing Department finishes work on the paint, it is immediately transferred to Testing. Cari Colors uses the Weighted-average method of
|
|
Physical Unit (Paint) |
Direct Materials Costs |
Conversion Costs |
|
Work in process, October 1* |
20 |
$460,000 |
$120,000 |
|
Started during October 2017 |
80 |
|
|
|
Completed during October 2017 |
90 |
|
|
|
Work in process, October 31† |
10 |
|
|
|
Costs added during October 2017 |
|
$2,000,000 |
$935,000 |
* Degree of completion: direct materials, ? % conversion costs, 60%.
† Degree of completion: direct materials, ? % conversion costs, 70%.
REQUIRED
1. For each cost element, compute equivalent units of work done on October 2017 in the Mixing Department. Show physical units in the first column.
2. For each cost element, calculate cost per equivalent unit of beginning work in process and of work done in October 2017.
3. Summarize the total Mixing Department costs for October 2017, and assign these costs to units completed (and transferred out) and to units in ending work in process using the Weighted-average method.
4. Explain the concept of equivalent units by referring to the above data.
5. Explain how the cost per equivalent unit might be misleading to managers,
particularly when a significant change in production is anticipated.
Comment -
Multiple Questions Asked.
Costing System -
A costing system is created to keep track of the costs incurred as a result of the various expenses a firm faces every day.
The system is made up of a number of forms, procedures, checks, and reports that are created and provide management with information on sales, expenses, and profitability.
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