
1.
Prepare a process cost summary.
1.

Explanation of Solution
Process cost summary: Process cost summary is prepared separately for each production department or for each process. A process cost summary describes the costs charged to each department, determines the costs assigned to each department outputs and reports the equivalent units of production achieved by each department. It is also known as production report.
Prepare process cost summary for Company T using weighted average method.
Company T | ||
Process Cost Summary – Weighted average method | ||
For Month Ended May 31 | ||
Costs Charged to Production | ||
Particulars | Amount | Amount |
Costs of beginning work in process | ||
Direct material | $19,800 | |
Conversion | $221,940 | $241,740 |
Costs incurred this period | ||
Direct materials | $496,800 | |
Conversion | $2,165,940 | $2,662,740 |
Total costs to account for | $2,904,480 | |
Unit cost information | (In Units) | |
Units to account for | ||
Beginning work in process | 3,000 | |
Units started this period (Refer Working Note 1) | 21,600 | |
Total units to account for | 24,600 | |
Units accounted for | ||
Completed & transferred out | 22,200 | |
Ending work in process | 2,400 | |
Total units accounted for | 24,600 | |
Equivalent units of production | Direct Materials (EUP) | Conversion (EUP) |
Units completed and transferred out | 22,200 | 22,200 |
Ending work in process | ||
Direct materials | 2,400 | |
Conversion | 1,920 | |
Equivalent units of production | 24,600 EUP | 24,120 EUP |
Cost per EUP | Direct Materials | Conversion |
Cost of beginning work in process | $19,800 | $221,940 |
Cost incurred during this period | $496,800 | $2,165,940 |
Total cost (A) | $516,600 | $2,387,880 |
Equivalent units of production (B) | 24,600 EUP | 24,120 EUP |
Cost per EUP (C) | $21.00 per EUP | $99.00 per EUP |
Cost assignment and reconciliation | ||
Particulars | Amount | Amount |
Cost transferred out | ||
Direct materials | $466,200 | |
Conversion | $2,197,800 | $2,664,000 |
Costs of ending work in process | ||
Direct materials | $50,400 | |
Conversion | $190,080 | $240,480 |
Total costs accounted for | $2,904,480 |
Table (1)
Working Note:
1. Determine the units started during the period.
2.
Prepare
2.

Explanation of Solution
Prepare journal entries.
Date | Account title and explanation | Post. Ref. | Amount $ | |
Debit | Credit | |||
May 31 | Finished goods Inventory | 2,664,000 | ||
Work in Process Inventory | 2,664,000 | |||
(To record the transfer of finished goods.) |
Table (2)
To record the transfer of finished goods:
- Finished goods inventory is an asset account. Transfer of units to finished goods inventory from production increases the asset account by $2,664,000. Thus it, is debited.
- Work in process inventory is an asset account. Transfer of units from production to finished goods inventory decreases the asset account by $2,664,000. Thus it, is credited.
3.(a)
Ascertain the two major estimates that determine the cost per equivalent unit.
3.(a)

Explanation of Solution
Cost per equivalents units of production: Cost per equivalents units of production refers to the costs incurred for each equivalent unit produced.
The two estimates for determining the cost per equivalent unit are as follows:
1.
2. Percentage of completion for materials and conversion.
3.(b)
Ascertain the anticipated bias of management for each estimate in part 3a and explain the reasons.
3.(b)

Explanation of Solution
The management might require an overhead allocation rate that would minimize the amount of overhead applied to the respective production process and analyst would possibly under estimate the percentage of completion. In case the materials are added at the beginning of the process then, it would be difficult to manage.
In general, the management would reduce the equivalent units for conversion by under estimating the percentage of completion that would lower the dollar value assigned to the components of ending inventory.
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