Chapter 6, Problem 65P

Seacrest Company uses a process-costing system. The company manufactures a product that is processed in two departments: A and B. As work is completed, it is transferred out. All inputs are added uniformly in Department A. The following summarizes the production activity and costs for November:

Required:

1. 1. Using the weighted average method, prepare the following for Department A: (a) a physical flow schedule, (b) an equivalent unit calculation, (c) calculation of unit costs (Note: Round to four decimal places.), (d) cost of EWIP and cost of goods transferred out, and (e) a cost reconciliation.
2. 2. CONCEPTUAL CONNECTION Prepare journal entries that show the flow of manufacturing costs for Department A. Use a conversion cost control account for conversion costs. Many firms are now combining direct labor and overhead costs into one category. They are not tracking direct labor separately. Offer some reasons for this practice.

To determine

Make a physical flow schedule for department A.

Explanation of Solution

Physical Flow Schedule:

The schedule which is made with the objective to determine the production of physical units is known as physical flow schedule. It considers all units in process which can be related to any completion stage.

Prepare physical flow schedule of Company J:

Physical Flow Schedule
Units to account for:	Units
Units in BWIP	5,000
Add: Units started	25,000
Total units account for	30,000
Units accounted for:
Units started and completed that are transferred.	28,000
Add: Units in EWIP $\left(30,000-28,000\right)$	2,000
Total units accounted for	30,000

Table (1)

Therefore, the units accounted for and units to account for are 30,000 units.

To determine

Compute equivalent unit of production with help of equivalent unit schedule of Company J.

Answer to Problem 65P

The equivalent units of production are 29,600units.

Explanation of Solution

Prepare equivalent unit schedule of Department A:

Particulars	Units
Units completed	28,000
Add: Units in EWIP $\left(2,000\times 0.8\right)$	1,600
Total equivalent unit	29,600

Table (2)

Therefore, equivalent units of production are 29,600 units.

To determine

Compute unit cost of Department A.

Answer to Problem 65P

The unit cost for Department A is $5.7405.

Explanation of Solution

Use the following formula to calculate unit cost for Department A:

$\begin{array}{c}\text{Unit cost}=\frac{\text{Cost of BWIP}+\text{Costs added during month}}{\text{Equivalent units }}\\ =\frac{\$16,900+\$153,020}{29,600\text{ units}}\\ =\$5.7405\end{array}$

Therefore, the unit cost is $5.7405

To determine

Compute total cost of goods transferred out and cost of EWIP.

Answer to Problem 65P

The total cost of goods transferred out and cost of EWIP are $160,734 and $9,185 respectively.

Explanation of Solution

Use the following formula to calculate total cost of goods transferred out:

$\begin{array}{c}\text{Cost of goods transferred out}=\left(\text{Units completed}\times \text{Unit cost}\right)\\ =\left(28,000\text{ units}\times \$5.7405\right)\\ =\$160,734\end{array}$

Therefore, total cost of goods transferred out is $160,734.

Use the following formula to calculate cost of EWIP:

$\begin{array}{c}\text{Cost of EWIP}=\left(\text{Units in EWIP}\times \text{Units cost }\right)\\ =\left(1,600\text{ units}\times \$5.7405\right)\\ =\$9,185\end{array}$

Therefore, cost of EWIP is $9,185.

To determine

Make cost reconciliation for Department A.

Explanation of Solution

Prepare cost reconciliation for Department A:

Costs to account for	Amount($)	Cost accounted for	Amount($)
Cost of BWIP	16,900	Transferred out	160,734
Cost of the period	153,020	Cost of EWIP	9,185
Total cost	169,920		169,919

Table (3)

Therefore, total cost of $169,920 has been reconciled (the difference of $1 is due to differences in rounding off certain amounts).

To determine

Journalize the transactions that show the flow of manufacturing costs for department A. State the reasons for firms combining direct labor and overhead costs into one category.

Explanation of Solution

Pass journal entry to record cost of direct materials incurred as shown below:

Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
	Work in Process		57,800
	Raw materials			57,800
	(To record cost of direct materials incurred during the period )

Table (1)

Work in process is debited as cost has increased, so this account is debited and raw materials account is credited.

Pass journal entry to record conversion cost incurred as shown below:

Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
	Work in Process		95,220
	Conversion cost			95,220
	(To record conversion cost incurred during the period )

Work in process is debited as cost has increased, so this account is debited and conversion cost is credited.

Pass journal entry to record transfer cost from department A to department B as shown below:

Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
	Work in Process-Department B		160,734
	Work in Process-Department A			160,734
	(To record cost transferred from department A to department B )

The cost transferred from department A increases the cost of department B. This is the reason to debit the work in process of department B.

Cost is transferred from department A to department B. This is the reason that the amount of department A cost decreases. Therefore balance of work in process of department A is credited.

Direct labor is treated as any other overhead cost by some firms as direct labor carry out functions of other overhead costs such as inspection and maintenance. Another reason for merging these cost could be that fraction of direct labor cost acquires only small proportion of total manufacturing cost.