Q33PGA - Horngren'S Financial And Managerial Accounting

Question

Roan Paper Co. produces the paper used by wallpaper manufacturers. Roan’s four-stage process includes mixing, cooking, rolling, and cutting. On March 1, the Mixing Department had 300 rolls of paper in process. During March, the Mixing Department completed the mixing process for those 300 rolls and also started and completed the mixing process for an additional 4,200 rolls of paper. The department started but did not finish the mixing process for an additional 500 rolls, which were 20% complete with respect to both direct materials and conversion work at the end of March. Direct materials and conversion costs are

incurred evenly throughout the mixing process. 

The Mixing Department compiled the following data for March:

	Direct materials	Direct labor	Manufacturing overhead allocated	Total costs
Beginning inventory, Mar. 1	\(350	\)245	\(200	\)795
Costs added during March	4,940	3,000	3,225	11,165
Total costs	\(5,290	\)3,245	\(3,425	\)11,960

Requirements

1. Prepare a production cost report for the Mixing Department for March. The company uses the weighted-average method.

2. Journalize all transactions affecting the company’s mixing process during March. Assume labor costs are accrued and not yet paid.

Step-by-Step Solution

Answer

1. Production cost report

Production Cost Report for the Mixing Department
		Equivalent unit of production
UNITS	Physical units	Direct material	Conversion costs	Total
Units to account for:
Beginning WIP	300
Started in production	4,700
Total units to account for	5,000
Units accounted for:
Completed and transferred	4,500	4,500	4,500
Ending WIP	500	100	100
Total units accounted for	5,000	4,600	4,600
COSTS		Direct material	Conversion costs	Total costs
Costs to account for:
Beginning WIP		$350	$445	$795
Cost added during the period		4,940	6,225	11,165
Total cost to account for		5,290	6,670	11,960
Divided by: total EUP		4,600	4,600
Cost per equivalent unit		$1.15	$1.45
Costs accounted for:
-       Completed and transferred out		5,175 (4,500 x $1.15)	6,525 (4,500x$1.45)	11,700
-       Ending WIP		115 (100x $1.15)	145 (100x$1.45)	260
Total costs accounted for		5,290	6,670	11,960

 

2. The Journal entries to show the transactions affecting the company’s mixing process during March are shown in step 4.

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

Production cost report is prepared by the companies using the process costing system while determining the total manufacturing cost. It shows the detailed costing of the products.

Step 2: Equivalent unit of production for direct material

$$\begin{gathered} \mathbf{EUP}\mathbf{ }\mathbf{for}\mathbf{ }\mathbf{direct}\mathbf{ }\mathbf{material}\mathbf{=}(\mathbf{Completed}\mathbf{ }\mathbf{units}\mathbf{\times }\mathbf{Completion}\mathbf{\%})\mathbf{+}(\mathbf{Ending}\mathbf{ }\mathbf{WIPunits}\mathbf{\times }\mathbf{Completion}\mathbf{\%}) \\ \mathbf{=}(\mathbf{4}\mathbf{,}\mathbf{500}\mathbf{\times }\mathbf{100}\mathbf{\%})\mathbf{+}(\mathbf{100}\mathbf{\times }\mathbf{20}\mathbf{\%}) \\ \mathbf{=}\mathbf{4}\mathbf{,}\mathbf{600} \end{gathered}$$

Step 3: Equivalent unit of production for conversion costs

$$\begin{gathered} \mathbf{EUP}\mathbf{ }\mathbf{for}\mathbf{ }\mathbf{Conversion}\mathbf{ }\mathbf{cost}\mathbf{=}(\mathbf{Completed}\mathbf{ }\mathbf{units}\mathbf{\times }\mathbf{Completion}\mathbf{\%})\mathbf{+}(\mathbf{EndingWIPunits}\mathbf{\times }\mathbf{Completion}\mathbf{\%}) \\ \mathbf{=}(\mathbf{4}\mathbf{,}\mathbf{500}\mathbf{\times }\mathbf{100}\mathbf{\%})\mathbf{+}(\mathbf{100}\mathbf{\times }\mathbf{20}\mathbf{\%}) \\ \mathbf{=}\mathbf{4}\mathbf{,}\mathbf{600} \end{gathered}$$

Step 4: Journal entries

Date	Particulars	Debit ($)	Credit ($)
1.	WIP Inventory-Mixing department	4,940
	Raw material		4,940
2.	WIP inventory-Mixing department	3,000
	Wages payable		3,000
3.	WIP inventory – mixing department	3,225
	Manufacturing overhead		3,225
4.	WIP inventory-cooking department	11,700
	WIP inventory – mixing department		11,700