Question 8.4 Pepper Potts Pottery manufactures ceramic products. All direct materials are included at the inception of the production process. For March, there was no beginning inventory in the processing plant. Direct materials totaled $155,000 for the month. Work-in-process records revealed that 2,500 tons were started in March and that 1,500 tons were finished; 500 tons were spoiled as expected. Ending work-in-process units are complete in respect to direct materials costs. Spoilage is not detected until the process is complete. Required: Determine the following: What are the costs assigned to completed units when spoilage units are recognized and when they are not recognized in the cost per equivalent unit? What are the costs transferred out if spoilage units are recognized and if they are ignored? What are the amounts allocated to the work-in-process ending inventory when spoilage units are recognized and when spoilage units are ignored?
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.
Question 8.4
Pepper Potts Pottery manufactures ceramic products. All direct materials are included at the inception of the production process. For March, there was no beginning inventory in the processing plant. Direct materials totaled $155,000 for the month. Work-in-process records revealed that 2,500 tons were started in March and that 1,500 tons were finished; 500 tons were spoiled as expected. Ending work-in-process units are complete in respect to direct materials costs. Spoilage is not detected until the process is complete.
Required:
Determine the following:
- What are the costs assigned to completed units when spoilage units are recognized and when they are not recognized in the cost per equivalent unit?
- What are the costs transferred out if spoilage units are recognized and if they are ignored?
- What are the amounts allocated to the work-in-process ending inventory when spoilage units are recognized and when spoilage units are ignored?
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