Switch Co. manufactures a single product in two departments: Cutting and Assembly. Direct labor and overhead are added evenly throughout each process. Direct materials are added at the beginning of the cutting process. During January, the Cutting department started 250,000 units and completed and transferred 220,000 units of product to the Assembly department. The Cutting department’s 10,000 units of beginning work in process consisted of $7,500 of direct materials and $49,850 of conversion. In process in the Cutting department at month-end are 40,000 units (50% complete with respect to direct materials and 30% complete with respect to conversion). During the month, the Cutting department used direct materials of $112,500 in production and incurred conversion costs of $616,000. Required 1. Prepare the Cutting department’s process cost summary for January using the weighted-average method. 2. Prepare the journal entry dated January 31 to transfer the cost of units from Cutting to Assembly. Analysis Component 3. The cost accounting process depends on several estimates. a. Identify two major estimates that affect the cost per equivalent unit. b. In what direction might you anticipate a bias from management for each estimate in part 3a (assume that management compensation is based on maintaining low inventory amounts)? Explain your answer.
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.
Switch Co. manufactures a single product in two departments: Cutting and Assembly. Direct labor and
cutting process. During January, the Cutting department started 250,000 units and completed and transferred
220,000 units of product to the Assembly department. The Cutting department’s 10,000 units of
beginning work in process consisted of $7,500 of direct materials and $49,850 of conversion. In process
in the Cutting department at month-end are 40,000 units (50% complete with respect to direct materials
and 30% complete with respect to conversion). During the month, the Cutting department used direct
materials of $112,500 in production and incurred conversion costs of $616,000.
Required
1. Prepare the Cutting department’s
2. Prepare the
Analysis Component
3. The cost accounting process depends on several estimates.
a. Identify two major estimates that affect the cost per equivalent unit.
b. In what direction might you anticipate a bias from management for each estimate in part 3a (assume
that management compensation is based on maintaining low inventory amounts)? Explain your answer.
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