Chapter 18, Problem 7BP

a. 1

To determine

Prepare a schedule showing units started and completed in the Molding Department during June.

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 units started and completed in the Molding Department during June.

Particulars	Units
Flow of physical units: Molding Department
Units in beginning inventory, June 1	3,000
Units started in June	50,000
Units in process during June	53,000
Units in ending inventory, June 30	(1,000)
Units transferred to Finishing Department in June	52,000
Units in beginning inventory, June 1	(3,000)
Units started and completed in June	49,000

(Table 1)

Therefore, the units started and completed in the Molding Department during June is 49,000.

a. 2

To determine

Compute the equivalent units of direct materials and conversion for the Molding Department in June.

Explanation of Solution

Compute the equivalent units of direct materials and conversion for the Molding Department in June.

Particulars	Input Resources
	Direct Materials	Conversion
To finish units in process on June 1:
Direct materials (3,000 units require 30% to complete)	900
Conversion (3,000 units require 60% to complete)		1,800
To start and complete 49,000 units in June	49,000	49,000
To start units in process on June 30:
Direct materials (1,000 units 80% complete)	800
Conversion (1,000 units 20% complete)		200
Equivalent units of resources in June	50,700	51,000

 (Table 2)

Therefore, the equivalent units of direct materials and conversion for the Molding Department in June are 50,700 and 51,000 respectively.

a. 3

To determine

Calculate the cost per equivalent unit of input resource for the Molding Department during June.

Explanation of Solution

Calculate the cost per equivalent unit of input resource for the Molding Department during June.

Particulars	Direct Materials in $	Conversion Cost in $
Cost per equivalent unit in June :
Costs incurred by Molding Department in June (A)	912,600	612,000
Equivalent units in June (B)	50,700	51,000
Cost per equivalent unit in June (A÷B)	18	12

(Table 3)

Therefore, the cost per equivalent unit of input resource for the Molding Department during June is $18 per unit and $12 per unit respectively.

a. 4

To determine

Prepare journal entry to record the transfer of units from the Molding Department to the Finishing Department during June.

Explanation of Solution

Prepare journal entry to record the transfer of units from the Molding Department to the Finishing Department during June.

Date	Accounts title and explanation	Debit ($)	Credit ($)
	Work in process: Finishing Department  (4)	1,560,000
	Work in process: Molding Department		1,560,000
	(To record the transfer of 52,000 units to the Finishing department in June)

(Table 4)

• Work in process: Finishing department is an asset and there is an increase in the value of an asset. Hence, debit the work in process: finishing department by $1,560,000.
• Work in process: Molding department is an asset and there is a decrease in the value of an asset. Hence, credit the work in process: molding department by $1,560,000.

Working Notes:

Calculate the cost of beginning inventory:

$\begin{array}{c}\text{Cost of beginning inventory = }\left(\begin{array}{l}\text{ Direct materials cost carried }\\ \text{forward from molding }\\ \text{department during}\\ \text{ May 31}\end{array}\right)\times \left(\begin{array}{l}\text{Conversion cost carried }\\ \text{forward from molding }\\ \text{department during }\\ \text{May 31}\end{array}\right)\\ \text{=\$37,800+\$14,400}\\ \text{=\$52,200}\end{array}$

(1)

Calculate the cost of direct materials during the month June:

$\begin{array}{c}\begin{array}{l}\text{Cost of direct materials}\\ \text{ during the month June}\end{array}\}\text{ = }\left(\begin{array}{l}\text{Units finished in process }+\\ \text{Units started and completed}\end{array}\right)\times \left(\begin{array}{l}\text{Cost per equivalent unit of}\\ \text{ Direct materials in June }\end{array}\right)\\ \text{=}\left(\text{900+49,000}\right)\times \$18\\ \text{=49,900}\times \$18\\ =\$898,200\end{array}$

(2)

Calculate the cost of conversion during the month June:

$\begin{array}{c}\begin{array}{l}\text{Cost of conversion}\\ \text{ during the month June}\end{array}\}\text{ = }\left(\begin{array}{l}\text{Units finished in process }+\\ \text{Units started and completed}\end{array}\right)\times \left(\begin{array}{l}\text{Cost per equivalent unit of}\\ \text{ conversion in June}\end{array}\right)\\ \text{=}\left(\text{1,800+49,000}\right)\times \$12\\ \text{=50,800}\times \text{\$12}\\ =\$609,600\end{array}$

(3)

Calculate the total cost of units transferred:

Particulars	Amount in $
Cost of beginning inventory, June 1 (1)	52,200
June direct materials cost (2)	898,200
June conversion cost (3)	609,600
Total cost of units transferred	1,560,000

(Table 5)

(4)

a.5

To determine

Compute the costs assigned to ending inventory in the Molding Department on June 30.

Explanation of Solution

Compute the costs assigned to ending inventory in the Molding Department on June 30.

Particulars	Amount in $
Work in Process: Molding Department, June 30:
Direct materials cost  (5)	14,400
Conversion cost  (6)	2,400
Ending inventory in process, June 30	16,800

(Table 6)

Working Notes:

Calculate the cost of direct materials during the month end of June 30:

$\begin{array}{c}\begin{array}{l}\text{Cost of direct materials}\\ \text{ during the month June 30}\end{array}\}\text{ = }\left(\begin{array}{l}\text{Units started in process for}\\ \text{the month end June 30}\end{array}\right)\times \left(\begin{array}{l}\text{Cost per equivalent unit of}\\ \text{ Direct materials in June}\end{array}\right)\\ \text{=800}\times \$18\\ \text{=\$14,400}\end{array}$

(5)

Calculate the cost of conversion during the month end of June 30:

$\begin{array}{c}\begin{array}{l}\text{Cost of conversion}\\ \text{ during the month June 30}\end{array}\}\text{ = }\left(\begin{array}{l}\text{Units started in process for}\\ \text{the month end June 30}\end{array}\right)\times \left(\begin{array}{l}\text{Cost per equivalent unit of}\\ \text{ conversion in June}\end{array}\right)\\ \text{=200}\times \$12\\ \text{=\$2,400}\end{array}$

(6)

b. 1

To determine

Prepare a schedule showing units started and completed in the Finishing Department during June.

Explanation of Solution

Prepare a schedule showing units started and completed in the finishing Department during June.

Particulars	Units
Flow of physical units: Finishing Department
Units in beginning inventory, June 1	5,000
Units started in June	52,000
Units in process during June	57,000
Units in ending inventory, June 30	(2,000)
Units transferred to Finishing Department in June	55,000
Units in beginning inventory, June 1	(5,000)
Units started and completed in June	50,000

(Table 7)

Therefore, the units started and completed in the Finishing Department during June is 50,000

b. 2

To determine

Compute the equivalent units of direct materials and conversion for the Finishing Department in June.

Explanation of Solution

(Figure 4)

b. 3

To determine

Calculate the cost per equivalent unit of input resource for the Finishing Department during June.

Explanation of Solution

Calculate the cost per equivalent unit of input resource for the Finishing Department during June.

Particulars	Input Resources
	Molding materials  in $	Direct Materials  in $	Conversion in $
Cost per equivalent unit in June
Costs charged to Finishing Department in June (A)	1,560,000	222,000	430,400
Equivalent units in June (B)	52,000	55,500	53,800
Cost per equivalent unit in June (A÷B)	30	4	8

(Table 8)

Note:

Total cost of Molding Department $1,560,000 is transferred to the Finishing Department in June.

b.4

To determine

Prepare journal entry to record the transfer of units from the Finishing Department to Finished goods inventory during June.

Explanation of Solution

Prepare journal entry to record the transfer of units from the Finishing Department to Finished goods inventory during June.

Date	Accounts title and explanation	Debit ($)	Credit ($)
	Finished goods inventory	2,310,000
	Work in process: Finishing Department  (9)		2,310,000
	(To record the transfer of 55,000 units to the Finishing goods in June)

(Table 9)

• Finished goods inventory is an asset and there is an increase in the value of an asset. Hence, debit the finished goods inventory by $2,310,000.
• Work in process: Molding department is an asset and there is a decrease in the value of an asset. Hence, credit the work in process: molding department by $2,310,000.

Working Notes:

Calculate the cost of beginning inventory:

$\begin{array}{c}\text{Cost of beginning inventory =}\left[\begin{array}{l}\left(\begin{array}{l}\text{ Molding department }\\ \text{cost carried forward }\\ \text{during May 31}\end{array}\right)+\left(\begin{array}{l}\text{ Direct materials cost carried }\\ \text{forward from finishing }\\ \text{department during}\\ \text{ May 31}\end{array}\right)\\ +\left(\begin{array}{l}\text{Conversion cost carried }\\ \text{forward from finishing }\\ \text{department during }\\ \text{May 31}\end{array}\right)\end{array}\right]\\ \text{=\$150,000+\$4,000+\$24,000}\\ \text{=\$178,000}\end{array}$

(5)

Calculate the cost of molding department during the month June:

$\begin{array}{c}\begin{array}{l}\text{Cost of molding department}\\ \text{ during the month June }\end{array}\}\text{ = }\left(\text{Units started and completed}\right)\times \left(\begin{array}{l}\text{Cost per equivalent unit of}\\ \text{ molding department in June}\end{array}\right)\\ \text{=50,000}\times \$30\\ \text{=\$1,500,000}\end{array}$

(6)

Calculate the cost of direct materials during the month June for finishing department:

$\begin{array}{c}\begin{array}{l}\text{Cost of direct materials}\\ \text{ during the month June }\end{array}\}\text{ = }\left(\begin{array}{l}\text{Units finished in process }+\\ \text{Units started and completed}\end{array}\right)\times \left(\begin{array}{l}\text{Cost per equivalent unit of}\\ \text{ Direct materials in June}\end{array}\right)\\ \text{=}\left(\text{4,000+50,000}\right)\times \$4\\ \text{=54,000}\times \$4\\ =\$216,000\end{array}$

(7)

Calculate the cost of conversion during the month June for finishing department:

$\begin{array}{c}\begin{array}{l}\text{Cost of conversion}\\ \text{ during the month June}\end{array}\}\text{ = }\left(\begin{array}{l}\text{Units finished in process }+\\ \text{Units started and completed}\end{array}\right)\times \left(\begin{array}{l}\text{Cost per equivalent unit of}\\ \text{ conversion in June }\end{array}\right)\\ \text{=}\left(\text{2,000+50,000}\right)\times \$8\\ \text{=52,000}\times \$8\\ =\$416,000\end{array}$

(8)

Calculate the total cost of units transferred:

Particulars	Amount in $
Cost of beginning inventory, June 1 (5)	178,000
June molding materials (6)	1,500,000
June direct materials cost (7)	216,000
June conversion cost (8)	416,000
Total cost of units transferred	2,310,000

(Table 10)

(9)

a.5

To determine

Compute the costs assigned to ending inventory in the Finishing Department on June 30.

Explanation of Solution

Compute the costs assigned to ending inventory in the Finishing Department on June 30.

Particulars	Amount in $
Work in Process: Finishing department, June 30:
Molding materials (10)	60,000
Direct materials cost  (11)	6,000
Conversion cost  (12)	14,400
Ending inventory in process, June 30	80,400

(Table 11)

Working Notes:

Calculate the cost of molding materials during the month end of June 30 for finishing department:

$\begin{array}{c}\begin{array}{l}\text{Cost of Molding material}\\ \text{ during the month June 30}\end{array}\}\text{ = }\left(\begin{array}{l}\text{Units started in process for}\\ \text{the month end June 30}\end{array}\right)\times \left(\begin{array}{l}\text{Cost per equivalent unit of}\\ \text{ Molding Department in June}\end{array}\right)\\ \text{=2,000}\times \$30\\ \text{=\$60,000}\end{array}$

(10)

Calculate the cost of direct materials during the month end of June 30 for finishing department:

$\begin{array}{c}\begin{array}{l}\text{Cost of direct materials}\\ \text{ during the month June 30}\end{array}\}\text{ = }\left(\begin{array}{l}\text{Units started in process for}\\ \text{the month end June 30}\end{array}\right)\times \left(\begin{array}{l}\text{Cost per equivalent unit of}\\ \text{ Direct materials in June}\end{array}\right)\\ \text{=1,500}\times \$4\\ \text{=\$6,000}\end{array}$

(11)

Calculate the cost of conversion during the month end of June 30 for finishing department:

$\begin{array}{c}\begin{array}{l}\text{Cost of conversion}\\ \text{ during the month June 30}\end{array}\}\text{ = }\left(\begin{array}{l}\text{Units started in process for}\\ \text{the month end June 30}\end{array}\right)\times \left(\begin{array}{l}\text{Cost per equivalent unit of}\\ \text{ conversion in June }\end{array}\right)\\ \text{=1,800}\times \$8\\ \text{=\$14,400}\end{array}$

(12)