Q27E - Horngren'S Financial And Managerial Accounting

Question

Refreshing Water Company produces premium bottled water. In the second department, the Bottling Department, conversion costs are incurred evenly throughout the bottling process, but packaging materials are not added until the end of the process. Costs in beginning Work-in-Process Inventory include transferred in costs of \(1,400, direct labor of \)700, and manufacturing overhead of \(330. March data for the Bottling Department follow:

REFRESHING WATER COMPANY WORK-IN-PROCESS INVENTORY – BOTTLING  Month ended March 31,2018
Dollars
	Units	Transferred in	Direct materials	Direct labor	Manufacturing overheads	Total costs
Beginning inventory, Mar. 1 (40% complete)	15,000	\)1,400		\(700	\)330	\(2,430
Production started	160,000	135,100	\)30,400	33,100	16,300	214,900
Transferred out	152,000
Ending inventory, Mar 31 (70% completed)	23,000

Requirements

1. Prepare a production cost report for the Bottling Department for the month of

March. The company uses the weighted-average method.

2. Prepare the journal entry to record the cost of units completed and transferred out.

3. Post all transactions to the Work-in-Process Inventory—Bottling T-account. What is the ending balance?

Step-by-Step Solution

Answer

1. Production cost report

REFRESHING WATER COMPANY Work-in-process inventory – bottling  Month ended March 31, 2018
		Equivalent units
Units	Physical units	Transferred in	Direct materials	Conversion cost
Units to account for:
Beginning work-in-process	15,000
Started in production	160,000
Total units to account for	175,000
Units accounted for:
Completed and transferred out	152,000	152,000	152,000	152,000
Ending work-in-process	23,000	23,000	0	16,100
Total units accounted for	175,000	175,000	152,000	168,100
COSTS		Transferred in	Direct materials	Conversion costs	Total costs
Costs to account for:
Beginning work-in-process		1,400		1,030	2,430
Costs added during the year		135,100	30,400	49,400	214,900
Total costs to account for		136,500	30,400	50,430	217,330
Divided by: Total EUP		175,000	152,000	168,100
Cost per equivalent units		$0.78	$0.20	$0.30
Costs accounted for:
Completed and transferred out		118,560 (152,000 x $0.78)	30,400 (152,000 x $0.20)	45,600 (152,000 x $0.30)	194,560
Ending work-in-process		17,940 (23,000 x $0.78)	0	4,830 (16,100 x $0.30)	22,770
Total costs accounted for		136,500	30,400	50,430	217,330

2. Journal entry to record the cost of units completed and transferred out.

Date	Particulars	Debit ($)	Credit ($)
	Finished goods inventory	194,560
	Work-in-process inventory		194,560

 

3. The ending balance of work-in-process inventory – Bottling T-account is $22,770.

Step-by-Step Solution: Step 1: Production Cost Report

The production cost report is prepared by the company's management using the process costing system for determining the cost of the products. It shows the detailed computation of the total cost.

Step 2: Equivalent unit of production for transferred in units

$$\begin{gathered} \mathbf{EUP}\mathbf{ }\mathbf{for}\mathbf{ }\mathbf{transferred}\mathbf{ }\mathbf{in}\mathbf{=}(\mathbf{Completed}\mathbf{ }\mathbf{units}\mathbf{\times }\mathbf{Completion}\mathbf{\%})\mathbf{+}(\mathbf{Ending}\mathbf{ }\mathbf{WIP}\mathbf{ }\mathbf{units}\mathbf{\times }\mathbf{Completion}\mathbf{\%}) \\ \mathbf{=}(\mathbf{152}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{100}\mathbf{\%})\mathbf{+}(\mathbf{23}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{100}\mathbf{\%}) \\ \mathbf{=}\mathbf{175}\mathbf{,}\mathbf{000} \end{gathered}$$

Step 3: Equivalent unit of production for direct material

$$\begin{gathered} \mathbf{EUP}\mathbf{ }\mathbf{ }\mathbf{for}\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{Direct}\mathbf{ }\mathbf{materials}\mathbf{=}(\mathbf{Completed}\mathbf{ }\mathbf{units}\mathbf{\times }\mathbf{Completion}\mathbf{\%}) \\ \mathbf{=}(\mathbf{152}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{100}\mathbf{\%}) \\ \mathbf{=}\mathbf{152}\mathbf{,}\mathbf{000} \end{gathered}$$

Step 4: Equivalent unit of production for conversion costs

$$\begin{gathered} \mathbf{EUP}\mathbf{ }\mathbf{for}\mathbf{ }\mathbf{Conversion}\mathbf{ }\mathbf{costs}\mathbf{=}(\mathbf{Completed}\mathbf{ }\mathbf{units}\mathbf{\times }\mathbf{Completion}\mathbf{\%})\mathbf{+}(\mathbf{EndingWIPunits}\mathbf{\times }\mathbf{Completion}\mathbf{\%}) \\ \mathbf{=}(\mathbf{152}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{100}\mathbf{\%})\mathbf{+}(\mathbf{23}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{70}\mathbf{\%}) \\ \mathbf{=}\mathbf{168}\mathbf{,}\mathbf{100} \end{gathered}$$

Step 5: Work-in-process inventory – Bottling T account

Particulars	Amount ($)	Particulars	Amount ($)
Beginning balance		Finished goods inventory	194,560
Transferred in	1,400
Direct labor	700
Manufacturing overhead	330
Production started
Transferred in	135,100
Direct materials	30,400
Direct labor	33,100
Manufacturing overhead	16,300	Ending balance	22,770