
Concept explainers
1.
To prepare:
1.

Explanation of Solution
Prepare production cost summary:
B. Company-Cutting Department | |||||
Process Cost Summary (FIFO method) | |||||
For the month ended Oct. 31, 20XX | |||||
Particulars | Amount ($) | Amount ($) | |||
Cost charged to Production | |||||
Cost of work in process (beginning) | |||||
Direct materials | 16,800 | ||||
Conversion | 97,720 | 114,520 | |||
Cost incurred this period | |||||
Direct materials | 223,200 | ||||
Conversion | 1,233,960 | 1,457,160 | |||
Total cost | 1,571,680 | ||||
Unit Information | Units | Units | |||
Units to account for: | Units accounted for | ||||
Work in process (beginning) | 10,000 | Completed and transferred units | 220,000 | ||
Unit started this period | 250,000 | Work in process (ending) | 40,000 | ||
Total units to account for | 260,000 | Total units accounted for | 260,000 | ||
Equivalent Unit of Production | Direct Materials | Conversion | |||
Work in process (beginning) | 2,500 | 4,000 | |||
Started and completed in this month | 210,000 | 210,000 | |||
Work in process (ending) | 20,000 | 12,000 | |||
Equivalent Unit of Production | 232,500 | 226,000 | |||
Cost per EUP | |||||
Cost of work in process (beginning) | 0 | 0 | |||
Cost incurred this period | 223,200 | 1,233,960 | |||
Total cost | $223,200 | $1,233,960 | |||
Equivalent unit of production | 232,500 | 226,000 | |||
Cost per EUP | $0.96 | $5.46 | |||
Cost Assignment | Amount ($) | Amount ($) | |||
Cost of work in process (beginning) |
| 114,520 | |||
Cost of completed units |
| ||||
Direct materials | 204,000 | ||||
Conversion | 1,168,440 | 1,372,440 | |||
Cost of work in process (ending) | |||||
Direct materials | 19,200 |
| |||
Conversion | 65,520 | 84,720 | |||
Total cost | 1,571,680 |
Table(1)
Hence, total cost of transferred goods and work in process (ending) is $1,486,960 and $81,160 respectively.
Working notes:
Calculation for EUP (direct material),
Calculation for EUP (Conversion),
2.
To prepare:
2.

Explanation of Solution
Date | Account Title and Explanation | Post ref | Debit ($) | Credit ($) |
Mar. 31 | Work in Process-blending | 1,486,960 | ||
Work in Process-cutting | 1,486,960 | |||
(Being goods transferred from cutting to blendingdepartment ) |
Table(2)
- Work in process-blending is an asset. Since, goods is transferred from cutting to blending department, it increases work in process-blending account. Hence, debit work in process-blending account.
- Work in process-cutting is an asset. Since, goods is transferred from cutting to blending department, it decreases work in process-cutting account. Hence, credit work in process-cutting account.
3.
To explain: Effect on bonus from the overestimation of equivalent unit of production.
3.

Explanation of Solution
If the equivalent unit of production is overstated then it will decrease the cost per equivalent unit of production because cost per equivalent unit of production is get by dividing total cost from equivalent unit of production.
- Since, cost per equivalent unit of production is decreased, it will increase the bonus of the department manager because higher the cost per equivalent unit of production lower will be the bonus and vice versa.
- If equivalent unit of production is higher in this month then next month equivalent unit of production will decrease and this will increase the cost per equivalent unit of production. Hence, it will decrease the bonus of department manager in the next month.
Hence, it will increase the bonus of plant manager for the month of March and decrease the bonus of the next month.
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Chapter 3 Solutions
Managerial Accounting
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