Q23E - Horngren'S Financial And Managerial Accounting

Question

Shea Winery in Pleasant Valley, New York, has two departments: Fermenting and Packaging. Direct materials are added at the beginning of the fermenting process (grapes) and at the end of the packaging process (bottles). Conversion costs are added evenly throughout each process. The company uses the weighted-average method. Data from the month of March for the Fermenting Department are as follows:

Gallons
Beginning work-in-process inventory	500 gallons
Started in production	8,600 gallon
Completed and transferred out to packaging in march	7,900 gallon
Ending work-in-process inventory (80% of the way through the blending process)	1,200 gallon
Costs
Beginning work-in-process inventory
Direct materials	\(540
Direct labor	195
Manufacturing overhead allocated	210
Cost added during march
Direct materials	9,288
Direct labor	3,305
Manufacturing overhead allocated	3,378
Total cost added during march	\)15,971

Requirements

1. Compute the Fermenting 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 Fermenting Department ending Work-in-Process Inventory.

Step-by-Step Solution

Answer

1. The Equivalent unit of production for direct material is 9,100 units, and  the conversion cost is 8,860 units.

2. a)The total cost of the completed and the transferred out units is $14,852. 

    b) The total cost of the ending WIP inventory is $2,064.

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

 Companies use the costing system to calculate the cost of goods manufactured during the year.. It is categorized as the process and job order costing systems.

Step 2: Equivalent unit of production for direct material

$$\begin{gathered} \mathbf{EUP}\mathbf{ }\mathbf{for}\mathbf{ }\mathbf{direct}\mathbf{ }\mathbf{material}\mathbf{=}(\mathbf{Completed}\mathbf{ }\mathbf{unit}\mathbf{\times }\mathbf{Completion}\mathbf{\%})\mathbf{+}(\mathbf{WIPunit}\mathbf{\times }\mathbf{Completion}\mathbf{\%})\text{} \\ \mathbf{=}(\mathbf{7}\mathbf{,}\mathbf{900}\mathbf{\times }\mathbf{100}\mathbf{\%})\mathbf{+}(\mathbf{1}\mathbf{,}\mathbf{200}\mathbf{\times }\mathbf{100}\mathbf{\%}) \\ \mathbf{=}\mathbf{9}\mathbf{,}\mathbf{100} \end{gathered}$$

Step 3: Equivalent unit of production for conversion cost

$$\begin{gathered} \mathbf{EUP}\mathbf{ }\mathbf{for}\mathbf{ }\mathbf{Conversion}\mathbf{ }\mathbf{cost}\mathbf{=}(\mathbf{Completed}\mathbf{ }\mathbf{unit}\mathbf{\times }\mathbf{Completion}\mathbf{\%})\mathbf{+}(\mathbf{WIPunit}\mathbf{\times }\mathbf{Completion}\mathbf{\%}) \\ \mathbf{=}(\mathbf{7}\mathbf{,}\mathbf{900}\mathbf{\times }\mathbf{100}\mathbf{\%})\mathbf{+}(\mathbf{1}\mathbf{,}\mathbf{200}\mathbf{\times }\mathbf{80}\mathbf{\%}) \\ \mathbf{=}\mathbf{8}\mathbf{,}\mathbf{860}\text{} \end{gathered}$$

Step 4: The 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	540	405	945
(B) Cost added during the year	9,288	6,683	15,971
(C ) Total cost to account for (A+B)	9,828	7,088	16,916
(D) Divided by total EUP	9,100	8,860
(E ) Cost per equivalent units (C/D)	$1.08	$0.80
Costs accounted for:
(F) Completed and transferred out	$8,532 (7,900 x $1.08)	$6,320 (7,900x$0.80)	$14,852
Ending work-in-process	$1,296 (1,200 x $1.08)	$768 (1,200x $0.80x0.80)	2,064
Total costs accounted for	$9,828	$7,088	$16,916