Michael’s Pottery makes decorative garden pieces using three consecutive processes: Moulding, Baking & Spraying. Quality control check takes place during the process, at which point, rejected units are separated from good units. The following details relate to production for the month of October 2020, for the Baking Department. i) Work-in-process, October 1: -0- ii) Transfer from Moulding: 2,000 units valued at $336.40 each iii) Other manufacturing costs incurred during October: Direct material added Direct Manufacturing Wages Manufacturing Overhead Applied $202,120 $212,840 $306,160 iv) Normal losses are estimated to be 5% of the units transferred in during the period. Losses from the Baking Department are deemed to be scrap and sold at $382 each. v) At inspection 300 decorative pieces were rejected as scrap. These units had reached the following degree of completion: From Moulding Direct material added Conversion costs 100% 40% 12½% vi) 1,200 pieces were completed and transferred out to the Spraying Department. vii) Work-in-process at the end of October had reached the following degree of completion: From Moulding Direct material added Conversion costs 100% 70% 55% Direct materials added and conversion costs are incurred uniformly throughout the process. Required: (a) Prepare a statement of equivalent production to determine the equivalent units for direct materials (From Moulding & Direct Material Added), and conversion costs and the cost per equivalent unit for direct materials and conversion costs. (b) Calculate the: - Total cost of units completed and transferred to the Spraying Department - Cost of abnormal losses - Cost of ending work-in-process inventory in the Baking Department (c) Prepare Michael Pottery’s Work-In-Process Inventory – Baking Department T-account, clearly showing the ending balance.
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.
Michael’s Pottery makes decorative garden pieces using three consecutive processes: Moulding, Baking &
Spraying. Quality control check takes place during the process, at which point, rejected units are separated from
good units.
The following details relate to production for the month of October 2020, for the Baking Department.
i) Work-in-process, October 1: -0-
ii) Transfer from Moulding: 2,000 units valued at $336.40 each
iii) Other
Direct material added
Direct Manufacturing Wages
Manufacturing
$202,120
$212,840
$306,160
iv) Normal losses are estimated to be 5% of the units transferred in during the period. Losses from the
Baking Department are deemed to be scrap and sold at $382 each.
v) At inspection 300 decorative pieces were rejected as scrap. These units had reached the following
degree of completion:
From Moulding
Direct material added
Conversion costs
100%
40%
12½%
vi) 1,200 pieces were completed and transferred out to the Spraying Department.
vii) Work-in-process at the end of October had reached the following degree of completion:
From Moulding
Direct material added
Conversion costs
100%
70%
55%
Direct materials added and conversion costs are incurred uniformly throughout the process.
Required:
(a) Prepare a statement of equivalent production to determine the equivalent units for direct materials
(From Moulding & Direct Material Added), and conversion costs and the cost per equivalent unit for
direct materials and conversion costs.
(b) Calculate the:
- Total cost of units completed and transferred to the Spraying Department
- Cost of abnormal losses
- Cost of ending work-in-process inventory in the Baking Department
(c) Prepare Michael Pottery’s Work-In-Process Inventory – Baking Department T-account, clearly showing
the ending balance.
(d) State the
wages and manufacturing overhead applied to the Baking Department. Also give the journal entries to
record the cost of goods completed and transferred to the Spraying Department.
(e) Given that 25% of the unexpected losses were because of pilferage, prepare the abnormal spoilage
statement, clearly showing Michael Pottery’s true loss.
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