Chapter 4, Problem 33P

The following data pertain to the Hercules Tire and Rubber Company for the month of May.

Additional Information:

1. a. Direct material is added at the beginning of the production process, and conversion activity occurs uniformly throughout the process.
2. b. Hercules uses weighted-average process costing.
3. c. The May 1 work in process was 20 percent complete as to conversion.
4. d. The May 31 work in process was 60 percent complete as to conversion.

Required: Compute the missing amounts, and prepare the firm’s May production report.

To determine

Calculate the missing amounts, and prepare the production report during the month of May.

Explanation of Solution

Process Costing: Process costing is method of cost accounting in which all the costs that are incurred production process are recorded. Output of one process becomes input for next process. This method is used to apply cot to similar products that are mass-produced in uninterrupted manner.

Calculate opening work in process during the month of May.

$\begin{array}{c}\text{Opening work in process inventory =}\text{Total units accounted for }-\text{Units started }\\ \text{=}\text{75,000}\text{units }-\text{60,000}\text{units}\\ \text{=}\text{15,000}\text{units}\end{array}$

Therefore, opening work in process inventory during the month of May is 15,000 units.

Calculate units completed and transferred out during May.

$\begin{array}{c}\begin{array}{l}\text{Units completed}\\ \text{ and transferred out}\end{array})\text{ = }\left(\begin{array}{l}\text{Total units accounted for }-\\ \text{Ending work in process inventory}\end{array}\right)\\ \text{=}\text{75,000}\text{units }-\text{10,000}\text{units}\\ \text{=}\text{65,000}\text{units}\end{array}$

Therefore, units completed and transferred out during May is 65,000 units.

Calculate equivalent units for conversion.

Particulars	Physical Units	Conversion	Workings
Units completed and transferred out	65,000	65,000	(65,000 × 100%)
Add: Ending work in process	10,000	6,000	(10,000 × 60%)
Equivalent units of production	75,000	71,000

Table (1)

Calculate opening work in process for conversion costs.

$\begin{array}{c}\begin{array}{l}\text{Opening work in }\\ \text{process for conversion}\end{array})\text{ = }\left(\begin{array}{l}\text{Total costs for opening work in process}\\ -\text{Opening work in process for direct materials}\end{array}\right)\\ \text{= \$172,500}-\$135,000\\ =\$37,500\end{array}$

Therefore, opening work in process for conversion is $37,500.

Calculate cost incurred during the period of May for direct materials.

$\begin{array}{c}\begin{array}{l}\text{Cost incurred during the period}\\ \text{ for Direct materials}\end{array})\text{ =}\left(\begin{array}{l}\text{Total cost incurreed }-\text{Cost incurred}\\ \text{ during the period of conversion}\end{array}\right)\\ \text{=}\text{\$1,402,250}-\$832,250\\ =\$570,000\end{array}$

Calculate cost per equivalent unit for direct materials.

$\begin{array}{c}\begin{array}{l}\text{Cost per eqivalent per}\\ \text{ unit for conversion cost}\end{array})\text{ =}\left(\begin{array}{l}\text{Total cost per unit }-\text{Equivalent}\\ \text{ cost per unit for direct materials}\end{array}\right)\\ \text{=}\text{\$21}\text{.65}\text{per unit}-\$9.40\text{per unit}\\ \text{=}\text{\$12}\text{.25}\text{per unit}\end{array}$

Therefore, cost per equivalent per unit for conversion cost is $12.25 per unit.

Calculate cost of goods completed and transferred out during the period of May.

$\begin{array}{c}\begin{array}{l}\text{Cost of goods completed}\\ \text{ and transferred out}\end{array})\text{ = }\left(\begin{array}{l}\text{Total cost accounted for }-\text{Total }\\ \text{cost for ending work in process }\end{array}\right)\\ \text{=}\text{\$1,574,750}-\$167,500\\ =\$1,407,250\end{array}$

Therefore, total cost of goods completed and transferred out during the period of May is $1,407,250.

Calculate the cost of ending work in process inventory for direct materials.

$\begin{array}{c}\begin{array}{l}\text{Cost of ending work in process }\\ \text{inventory for direct materials}\end{array})\text{ =}\left(\begin{array}{l}\text{Total cost for ending work in process }-\\ \text{Total cost for ending conversion costs}\end{array}\right)\\ \text{=}\text{\$167,500}-\$73,500\\ =\$94,000\end{array}$

Therefore, cost of ending work in process inventory for direct materials cost is $94,000.

Prepare production cost report during the period of May month.

PRODUCTION COST REPORT - COMPANY HT &R
Units	Physical Units	Direct Materials	Conversion
Opening work in process, May	15,000
Units started during May	60,000
Total units accounted for	75,000
Units completed and transferred out	65,000	65,000	65,000
Ending work in process, May	10,000	10,000	6,000
Total units accounted for	75,000
Total equivalent units		75,000	71,000
Cost per unit	Direct  Materials	Conversion	Total
Opening work in process, May	$135,000	$37,500	$172,500
Cost incurred during May	$570,000	$832,250	$1,402,250
Total costs accounted for	$705,000	$869,750	$1,574,750
Equivalent units	75,000	71,000
Cost per equivalent unit	$9.40	$12.25	$21.65
Costs
Opening work in process inventory, May	$135,000	$37,500	$172,500
Units started during April	$570,000	$832,250	$1,402,250
Total costs accounted for	$705,000	$869,750	$1,574,750
Cost of goods completed and transferred out	$611,000	$796,250	$1,407,250
Ending work in process inventory	$94,000	$73,500	$167,500
Total costs accounted for	$705,000	$869,750	$1,574,750

Table (2)