Q21E - Horngren'S Financial And Managerial Accounting

Question

Color Explosion prepares and packages paint products. Color Explosion has two departments: Blending and Packaging. Direct materials are added at the beginning of the blending process (dyes) and at the end of the packaging process (cans). Conversion costs are added evenly throughout each process. The company uses the weighted- average method. Data from the month of May for the Blending Department are as follows:

Gallons
Beginning work-in-process inventory	0 gallons
Started in production	8,500 gallon
Completed and transferred out to packaging in may	6,500 gallon
Ending work-in-process inventory (30% of the way through the blending process)	2,000 gallon
Costs
Beginning work-in-process inventory	\(0
Costs added during May:
Direct materials	5,525
Direct labor	1,500
Manufacturing overhead allocated	2,547
Total costs added during May	\)9,572

Requirements

1. Compute the Blending Department’s equivalent units of production for direct

materials and for conversion costs.

2. Compute the total costs of the units (gallons)

a. completed and transferred out to the Packaging Department.

b. in the Blending Department ending Work-in-Process Inventory.

Step-by-Step Solution

Answer

1. The Equivalent unit of production for direct material is 8,500 units, and the conversion cost is 7,100 units.

2. a)The total cost of the completed and the transferred out units is $7,930.

    b) The total cost of the ending WIP inventory is $2,440.

Step-by-Step Solution: Step 1: Costing System

A costing system is defined as the system used by the companies to determine the cost of goods manufactured during the year. It is classified as the process and job order costing systems.

Step 2: Equivalent unit of production for direct material

$$\begin{gathered} \mathbf{EUP}\mathbf{ }\mathbf{for}\mathbf{ }\mathbf{direct}\mathbf{ }\mathbf{material}\mathbf{=}(\mathbf{Completed}\mathbf{ }\mathbf{unit}\mathbf{\times }\mathbf{Completion}\mathbf{\%})\mathbf{+}(\mathbf{WIP}\mathbf{ }\mathbf{unit}\mathbf{\times }\mathbf{Completion}\mathbf{\%}) \\ \mathbf{=}(\mathbf{6}\mathbf{,}\mathbf{500}\mathbf{\times }\mathbf{100}\mathbf{\%})\mathbf{+}(\mathbf{2}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{100}\mathbf{\%}) \\ \mathbf{=}\mathbf{8}\mathbf{,}\mathbf{500}\text{} \end{gathered}$$

Step 3: Equivalent unit of production for conversion cost

$$\begin{gathered} \mathbf{EUP}\mathbf{ }\mathbf{for}\mathbf{ }\mathbf{Conversion}\mathbf{ }\mathbf{cost}\mathbf{=}(\mathbf{Completed}\mathbf{ }\mathbf{unit}\mathbf{\times }\mathbf{Completion}\mathbf{\%})\mathbf{+}(\mathbf{WIP}\mathbf{ }\mathbf{unit}\mathbf{\times }\mathbf{Completion}\mathbf{\%}) \\ \mathbf{=}(\mathbf{6}\mathbf{,}\mathbf{500}\mathbf{\times }\mathbf{100}\mathbf{\%})\mathbf{+}(\mathbf{2}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{30}\mathbf{\%}) \\ \mathbf{=}\mathbf{7}\mathbf{,}\mathbf{100}\text{} \end{gathered}$$

Step 4: Total cost of the units completed and transferred out to the packaging department and the ending work-in-process inventory

Costs	Direct materials (1)	Conversion cost (2)	Total costs (1+2)
Cost to account for:
(A) Beginning WIP	0	0	0
(B) Cost added during the year	5,525	4,047	9,572
(C ) Total cost to account for (A+B)	5,525	4,047	9,572
(D) Divided by total EUP	8,500	7,100
(E ) Cost per equivalent units (C/D)	$0.65	$0.57
Costs accounted for:
(F) Completed and transferred out	$4,225 (6,500 x $0.65)	$3,705 (6,500x$0.57)	$7,930
Ending work-in-process	$1,300 (2,000 x $0.65)	$342 (2,000x $0.57x0.30)	$2,440
Total costs accounted for	$5,525	$4,047	$10,370