Chapter 6, Problem 4P

Akron Manufacturing Co. manufactures a cement-sealing compound called Seal-Rite. The process requires that the product pass through three departments. In Dept. 1, all materials are put into production at the beginning of the process; in Dept. 2, materials are put into production evenly throughout the process; and in Dept. 3, all materials are put into production at the end of the process. In each department, it is assumed that the labor and factory overhead are applied evenly throughout the process.

At the end of January, the production reports for the month show the following:

Required:

1. 1. Prepare a cost of production summary for each department for January, using the weighted average cost method.
2. 2. Prepare the journal entries to record the January transactions.
3. 3. Prepare a statement of cost of goods manufactured for the month ended January 31.

To determine

Prepare a cost of production summary for each department for the month January by using the weighted average method.

Explanation of Solution

Prepare a cost of production summary for Department 1.

A M Co.
Cost of production summary
Department 1
For the month ended January 31
Particulars	Amount($)	Amount($)
Cost of production for month:
Materials		$22,500
Labor		7,200
Factory overhead		10,800
Total costs accounted for		$40,500
Unit output for month:
Materials:
Finished and transferred to Department 2 during month		40,000
Equivalent units of work-in process, end of month $\left(10,000\text{ units, }1/3\text{ complete}\right)$		10,000
Total equivalent production		50,000
Labor and factory overhead
Finished and transferred to Department 2 during month		40,000
Equivalent units of work-in process, end of month $\left(10,000\text{ units, }1/3\text{ complete}\right)$		5,000
Total equivalent production		45,000
Unit cost for month:
Materials $\left(\frac{\$22,500}{50,000}\right)$		$0.45
Labor $\left(\frac{\$7,200}{45,000}\right)$		0.16
Factory overhead $\left(\frac{\$10,800}{45,000}\right)$		0.24
Total		$0.85
Inventory cost:
Cost of goods finished and transferred to department 2 during month $\left(40,000\times \$0.85\right)$		$34,000
Cost of work-in process, end of month:
Materials $\left(10,000\times \$0.45\right)$	$4,500
Labor $\left(10,000\times 1/2\times \$0.16\right)$	800
Factory overhead $\left(10,000\times 1/2\times \$0.24\right)$	1,200	6,500
Total production costs accounted for		$40,500

Table (1)

Prepare a cost of production summary for Department 2.

A M Co.
Cost of production summary
Department 2
For the month ended January 31
Particulars	Amount($)	Amount($)	Amount($)
Cost of goods received from dept. 1. during month			$34,000
Cost of production for month:
Materials		$23,200
Labor		14,500
Factory overhead		14,500	52,200
Total costs accounted for			$86,200
Unit output for month:
Materials, labor, and factory overhead
Finished and transferred to Department 3 during month		30,000
Finished and on hand		5,000	35,000
Equivalent units of work-in process, end of month $\left(5,000\text{ units},1/4\text{ complete}\right)$			1,250
Total equivalent production			36,250
Unit cost for month:
Materials $\left(\frac{\$23,200}{36,250}\right)$			$0.64
Labor $\left(\frac{\$14,500}{36,250}\right)$			0.4
Factory overhead $\left(\frac{\$14,500}{36,250}\right)$			0.4
Total			$1.44
Inventory cost:
Cost of goods finished and transferred to department 3 during month
Cost in department 1 $\left(30,000\times \$0.85\right)$		$25,500
Cost in department 2 $\left(30,000\times \$1.44\right)$		43,200	$68,700
Cost of goods finished and on hand:
Cost in Dept. 1 $\left(5,000\times \$.85\right)$		$4,250
Cost in Dept. 2 $\left(5,000\times \$1.44\right)$		7,200	11,450
Cost of work-in process, end of month:
Cost in dept. 1. $\left(5,000\times \$0.85\right)$		$4,250
Cost in dept. 2:
Materials $\left(5,000\times 1/4\times \$0.64\right)$	$800
Labor $\left(5,000\times 1/4\times \$0.40\right)$	500
Factory overhead $\left(5,000\times 1/4\times \$0.40\right)$	500	1,800	6,050
Total production costs accounted for			$86,200

Table (2)

Prepare a cost of production summary for Department 3.

A M Co.
Cost of production summary
Department 3
For the month ended January 31
Particulars	Amount($)	Amount($)	Amount($)
Cost of goods received from dept. 2. during month			$68,700
Cost of production for month:
Materials		$19,600
Labor		11,800
Factory overhead		8,850	40,250
Total costs accounted for			$108,950
Unit output for month:
Materials:
Finished and transferred to finished goods during the month			28,000
Equivalent units of work-in process, end of month			0
Total equivalent production			28,000
Labor and factory overhead:
Finished and transferred to finished goods during the month			28,000
Equivalent units of work-in process, end of month $\left(2,000\text{ units},3/4\text{ completed}\right)$			1,500
Total equivalent production			29,500
Unit cost for month:
Materials $\left(\frac{\$19,600}{28,000}\right)$			$0.70
Labor $\left(\frac{\$11,800}{29,500}\right)$			0.4
Factory overhead $\left(\frac{\$8,850}{29,500}\right)$			0.3
Total			$1.40
Inventory cost:
Cost of goods finished and transferred to finished during month
Cost in department 1 $\left(28,000\times \$0.85\right)$		$23,800
Cost in department 2 $\left(28,000\times \$1.44\right)$		40,320
Cost in department 3 $\left(28,000\times \$1.40\right)$		39,200	$103,320
Cost of work-in process, end of month:
Cost in dept. 1. $\left(5,000\times \$0.85\right)$		$1,700
Cost in dept. 2: $\left(2,000\times \$1.44\right)$		2,880
Cost in dept. 3:
Materials	0
Labor $\left(2,000\times 3/4\times \$0.40\right)$	$600
Factory overhead $\left(2,000\times 3/4\times \$0.30\right)$	450	1,050	5,630
Total production costs accounted for			$108,950

Table (3)

Summary from cost of production reports:

Particulars	Amount($)	Amount($)
Materials:
Dept. 1	$22,500
Dept. 2	23,200
Dept. 3	19,600	$65,300
Labor:
Dept. 1	$7,200
Dept. 2	14,500
Dept. 3	11,800	33,500
Factory overhead:
Dept. 1	$10,800
Dept. 2	14,500
Dept. 3	8,850	34,150
Total production costs for January		$ 132,950
Deduct work in process, end of month:
Dept. 1	$6,500
Dept. 2 $\left(\$11,450+\$6,050\right)$	17,500
Dept. 3	5,630	29,630
Cost of production, goods fully manufactured during January		$103,320

Table (4)

To determine

Prepare the journal entry to record the transaction.

Explanation of Solution

Prepare the journal entry to record the transaction.

Particulars	Post ref.	Debit($)	Credit($)
Work in process Dept. 1		22,500
Work in process Dept. 2		23,200
Work in process Dept. 3		19,600
Materials			65,300
(To record the materials transaction)
Work in process Dept. 1		7,200
Work in process Dept. 2		14,500
Work in process Dept. 3		11,800
Payroll			33,500
(To record the payroll transaction)
Work in process Dept. 1		10,800
Work in process Dept. 2		14,500
Work in process Dept. 3		8,850
Factory overhead			34,150
(To record the factory overhead)
Work in process Dept. 2		34,000
Work in process Dept. 1			34,000
(To record the goods transferred to department 2)
Work in process Dept. 3		68,700
Work in process Dept. 2			68,700
(To record the goods transferred to department 3)
Finished goods		1,03,320
Work in process Dept. 3			1,03,320
(To record the goods transferred to finished goods)

Table (5)

To determine

Prepare a statement of cost of goods manufactured for the January month.

Explanation of Solution

Prepare a statement of cost of goods manufactured.

A M Co.
Statement of cost of goods manufactured
For the month end January
Particulars	Amount($)
Materials	$65,300
Labor	33,500
Factory overhead	34,150
Total manufacturing cost	$132,950
Add: Work in process inventory, January 1	0
	$132,950
Less: Work in process inventory, January 31	29,630
Cost of goods manufactured during the month	$103,320

Table (6)