Chapter 18, Problem 10E

a.

To determine

Prepare a schedule showing: (1) the number of mat sets transferred from the Cutting Department to the Coating Department in May, and (2) the number of mat sets started and completed by the Cutting Department in May.

Explanation of Solution

Process Costing:

It is a method of cost accounting used by an enterprise with processes categorised by continuous production. The cost for manufacturing those products are assigned to the manufacturing department before the averaged over units are being produced.

Prepare a schedule showing: (1) the number of mat sets transferred from the Cutting Department to the Coating Department in May, and (2) the number of mat sets started and completed by the Cutting Department in May.

Particulars	Units
Flow of physical units: Cutting Department
Units in beginning inventory, May1	8,000
Units started by cutting department in May	50,000
Total units in process during May	58,000
Units in ending inventory, May 31	(10,000)
Units transferred to Coating  Department in May	48,000
Units in beginning inventory, May 1	(8,000)
Units started and completed in May	40,000

(Table 1)

Therefore, the units transferred from cutting department to the coating department is 48,000 units and the units started and completed by the cutting department during May is 40,000 units respectively.

b.

To determine

Compute the equivalent units of input resources for the Cutting Department in May.

Explanation of Solution

Compute the equivalent units of input resources for the Cutting Department in May.

Particulars	Input Resources
	Direct Materials	Conversion
To finish beginning inventory in process on May 1:
Direct materials (8,000units require 0% to complete)	0
Conversion (8,000 units require 20% to complete)		1.600
To start and complete 40,000 units in May	40,000	40,000
To start ending  inventory in process on  May 31:
Direct materials (10,000 units 100% complete)	10,000
Conversion (10,000 units 20% complete)		2,000
Equivalent units of resources in May	50,000	43,600

 (Table 2)

Therefore, the equivalent units of input resources for the Cutting Department in May are 50,000 and 43,600 units respectively.

c.

To determine

Compute the cost per equivalent unit of input resource for the Cutting Department in May.

Explanation of Solution

Compute the cost per equivalent unit of input resource for the Cutting Department in May.

(Figure 1)

Therefore, the cost per equivalent unit of input resource for the Cutting Department for the month of May is $4 and $2 per unit respectively.

d.

To determine

Prepare journal entry to transfer the cost of completed mat sets from the Cutting Department to the Coating Department in May.

Explanation of Solution

Prepare journal entry to transfer the cost of completed mat sets from the Cutting Department to the Coating Department in May.

Date	Accounts title and explanation	Debit ($)	Credit ($)
	Work in process: Coating Department  (3)	288,000
	Work in process: Cutting  Department		288,000
	(To record the transfer of 48,000 units to the  coating department in May  )

(Table 3)

• Work in process: Coating department is an asset and there is an increase in the value of an asset. Hence, debit the work in process: coating department by $288,000.
• Work in process: Cutting department is an asset and there is a decrease in the value of an asset. Hence, credit the work in process: cutting department by $288,000.

Working Notes:

Calculate the cost of direct materials during the month May:

$\begin{array}{c}\begin{array}{l}\text{Cost of direct materials}\\ \text{ during the month May}\end{array}\}\text{ = }\left(\text{Units started and completed}\right)\times \left(\begin{array}{l}\text{Cost per equivalent unit of}\\ \text{ Direct materials in May}\end{array}\right)\\ \text{=40,000}\times \$4\\ =\$160,000\end{array}$

(1)

Calculate the cost of conversion during the month May:

$\begin{array}{c}\begin{array}{l}\text{Cost of conversion}\\ \text{ during the month May}\end{array}\}\text{ = }\left(\begin{array}{l}\text{Units finished in process }+\\ \text{Units started and completed}\end{array}\right)\times \left(\begin{array}{l}\text{Cost per equivalent unit of}\\ \text{ conversion in May}\end{array}\right)\\ \text{=}\left(\text{1,600+40,000}\right)\times \$2\\ \text{=41,600}\times \$2\\ =\$83,200\end{array}$

(2)

Calculate the total cost of units transferred:

Particulars	Amount in $
Cost of beginning inventory, May 1	44,800
May direct materials cost (1)	160,000
May conversion cost (2)	83,200
Total cost of units transferred in  May	288,000

(Table 5)

(3)

To determine

Calculate the total cost assigned to the Cutting Department’s ending inventory on May 31.

Explanation of Solution

Calculate the total cost assigned to the Cutting Department’s ending inventory on May 31.

Particulars	Amount in $
Work in Process: Cutting department, May 31:
Direct materials cost  (4)	40,000
Conversion cost  (5)	4,000
Ending inventory in process, May 31	44,000

(Table 5)

Therefore, the total cost assigned to the Cutting Department’s ending inventory on May 31 is $44,000.

Working Notes:

Calculate the cost of direct materials during the month end of May 31 for cutting department:

$\begin{array}{c}\begin{array}{l}\text{Cost of direct materials}\\ \text{ during the month May 31}\end{array}\}\text{ = }\left(\begin{array}{l}\text{Units started in process for}\\ \text{the month end May 31 }\end{array}\right)\times \left(\begin{array}{l}\text{Cost per equivalent unit of}\\ \text{ Direct materials in May }\end{array}\right)\\ \text{=10,000}\times \$4\\ \text{=\$40,000}\end{array}$

(4)

Calculate the cost of conversion during the month end of May 31 for cutting department:

$\begin{array}{c}\begin{array}{l}\text{Cost of conversion}\\ \text{ during the month May 31}\end{array}\}\text{ = }\left(\begin{array}{l}\text{Units started in process for}\\ \text{the month end May 31}\end{array}\right)\times \left(\begin{array}{l}\text{Cost per equivalent unit of}\\ \text{ conversion in May}\end{array}\right)\\ \text{=2,000}\times \$2\\ \text{=\$4,000}\end{array}$

(5)