Chapter 20, Problem 7APSA

To determine

Introduction:

In process costing Calculation of Equivalent units can be done either by FIFO basis or Weighted average basis.

To Determine:

Prepare Roasting department’s process cost summary.

Explanation of Solution

Solution and Explanation:

Dengo Co ( Roasting Department)
PROCESS COST SUMMARY (FIFO BASIS)
		DIRECT MATERIAL
DETAILS	NO OF UNITS	% COMPLETE	EQUIVALENT UNIT	COST $
OPENING BALANCE	3,000	100%	3,000	9,900
COST INCURRED DURING THE MONTH				248,400
				258,300
OPENING UNITS COMPLETED AND TRANSFERRED	3,000	0%	-
UNITS COMPLETED AND TRANSFERRED	19,200	100%	19,200
CLOSING WORK IN PROGRESS	2,400	100%	2,400
			21,600
Per Unit cost of Equivalent units				11.50
COST OF OPENING UNITS			-	9,900.00
COST OF UNITS COMPLETED AND TRANSFERRED				220,800
COST OF WORK IN PROGRESS				27,600
TOTAL				258,300
		CONVERSION COST			TOTAL MATERIAL AND CONVERSION
DETAILS	NO OF UNITS	% COMPLETE	EQUIVALENT UNIT	COST
OPENING BALANCE	3,000	40%	1,200	110,970	120,870
COST INCURRED DURING THE MONTH				1,082,970	1,331,370
				1,193,940	1,452,240
OPENING UNITS COMPLETED AND TRANSFERRED	3,000	60%	1,800
UNITS COMPLETED AND TRANSFERRED	19,200	100%	19,200
WORK IN PROGRESS	2,400	80%	1,920
			22,920
Per Unit cost of Equivalent units			=082970/22920	47.25
OPENING UNITS COMPLETED AND TRANSFERRED				196,020	205,920
COST OF UNITS COMPLETED AND TARNSFERRED				907,200	1,128,000
COST OF WORK IN PROGRESS				90,720	118,320
TOTAL				1,193,940	1,452,240

Conclusion

Conclusion

Process cost summary is given above.

To determine

Introduction:

In process costing Calculation of Equivalent units can be done either by FIFO basis or Weighted average basis.

To Determine:

Journal entries to record transfer to Blending Department

Answer to Problem 7APSA

Solution

Date	Account Head	$	$
Oct-31	Blending Department Production Cost Account	1,333,920
	Roasting department Production cost Account		1,333,920

Roasting department costs transferred to Blending department for completed units.

Explanation of Solution

Explanation:

Dengo Co ( Roasting Department)
PROCESS COST SUMMARY (FIFO BASIS)
		DIRECT MATERIAL
DETAILS	NO OF UNITS	% COMPLETE	EQUIVALENT UNIT	COST $
OPENING BALANCE	3,000	100%	3,000	9,900
COST INCURRED DURING THE MONTH				248,400
				258,300
OPENING UNITS COMPLETED AND TRANSFERRED	3,000	0%	-
UNITS COMPLETED AND TRANSFERRED	19,200	100%	19,200
CLOSING WORK IN PROGRESS	2,400	100%	2,400
			21,600
Per Unit cost of Equivalent units				11.50
COST OF OPENING UNITS			-	9,900.00
COST OF UNITS COMPLETED AND TRANSFERRED				220,800
COST OF WORK IN PROGRESS				27,600
TOTAL				258,300
		CONVERSION COST			TOTAL MATERIAL AND CONVERSION
DETAILS	NO OF UNITS	% COMPLETE	EQUIVALENT UNIT	COST
OPENING BALANCE	3,000	40%	1,200	110,970	120,870
COST INCURRED DURING THE MONTH				1,082,970	1,331,370
				1,193,940	1,452,240
OPENING UNITS COMPLETED AND TRANSFERRED	3,000	60%	1,800
UNITS COMPLETED AND TRANSFERRED	19,200	100%	19,200
WORK IN PROGRESS	2,400	80%	1,920
			22,920
Per Unit cost of Equivalent units			=082970/22920	47.25
OPENING UNITS COMPLETED AND TRANSFERRED				196,020	205,920
COST OF UNITS COMPLETED AND TARNSFERRED				907,200	1,128,000
COST OF WORK IN PROGRESS				90,720	118,320
TOTAL				1,193,940	1,452,240

Conclusion

Conclusion

Journal Entry is as given below:

Date	Account Head	$	$
Oct-31	Blending Department Production Cost Account	1,333,920
	Roasting department Production cost Account		1,333,920

Roasting department costs transferred to Blending department for completed units.

To determine

Introduction:

In process costing Calculation of Equivalent units can be done either by FIFO basis or Weighted average basis.

To Determine:

Determine impact on costs if ending WIP degree of completion is understated.

Answer to Problem 7APSA

Solution:

Oct Bonus will be lower and Nov Bonus will be higher.

Explanation of Solution

Explanation:

When Degree of completion of closing WIP is understated – the Equivalent units are also understated. The entire cost of October is divided over a smaller base and therefore cost of units transferred to next process is stated at higher costs. The closing Work in progress cost is lower than its correct value. Since the department managers are paid bonuses linked to lower costs and since October costs were reported higher – the bonuses are likely to be lower than the actual entitlement.

However since October cost of WIP is lower – it will result in lower cost in the Month of November and other thing being equal – November Bonus will be higher as the Nov cost is likely to be lower.

Conclusion

Conclusion

Underestimate of degree of completion of units in closing inventory will result in lowering of Equivalent units and will lead to higher cost of production for Units completed and transferred to next process. This Will result in lower Bonus to managers in Oct Month which is likely to get compensated in following month.