Q34PGA - Horngren'S Financial And Managerial Accounting

Question

Bert’s Exteriors produces exterior siding for homes. The Preparation Department begins with wood, which is chopped into small bits. At the end of the process, an adhesive is added. Then the wood/adhesive mixture goes on to the Compression Department, where the wood is compressed into sheets. Conversion costs are added evenly throughout the preparation process. January data for the Preparation Department are as follows:

UNITS
Beginning work-in-process inventory	0 sheets
Started in production	3,800 sheets
Completed and transferred out to compression in January	2,900 sheets
Ending work-in-process inventory (30% of the way through the preparation process)	900 sheets
COSTS
Beginning work-in-process inventory	$0
Costs added during January
Wood	2,888
Adhesive	1,914
Direct labor	987
Manufacturing overhead allocated	2,500
Total costs	8,289

Requirements

1. Prepare a production cost report for the Preparation Department for January. The company uses the weighted-average method. (Hint: Each direct material added at a different point in the production process requires its own equivalent units of production computation.)

2. Prepare the journal entry to record the cost of the sheets completed and transferred out to the Compression Department.

3. Post the journal entries to the Work-in-Process Inventory—Preparation T-account. What is the ending balance?

Step-by-Step Solution

Answer

1. Production cost report – Preparation department

Production Cost Report For the Preparation Department
		Equivalent unit of production
UNITS	Physical units	Direct material	Conversion costs	Total
Units to account for:
Beginning WIP	0
Started in production	3,800
Total units to account for	3,800
Units accounted for:
Completed and transferred	2,900	2,900	2,900
Ending WIP	900	900	270
Total units accounted for	3,800	3,800	3,170
COSTS		Direct material	Conversion costs	Total costs
Costs to account for:
Beginning WIP		$0	$0	$0
Cost added during the period		2,888	3,487	6,375
Total cost to account for		2,888	3,487	6,375
Divided by: total EUP		3,800	3,170
Cost per equivalent unit		$0.76	$1.10
Costs accounted for:
-       Completed and transferred out		2,204 (2,900 x $0.76)	3,190 (2,900x$1.10)	5,394
-       Ending WIP		684 (900x $0.76)	297 (270x$1.10)	981
Total costs accounted for		2,888	3,487	6,375

2. The Journal entries to record the transfer out to the compression department amounting to $5,394 are shown in step 4.

3. The Work-in-process inventory – preparation T-account ending balance is $981.

 

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

The comprehensive details about the costing of products are shown in the production costing report, and it is prepared by those companies that follow the process costing system.

Step 2: Equivalent unit of production for direct material

$$\begin{gathered} \mathbf{EUP}\mathbf{ }\mathbf{for}\mathbf{ }\mathbf{directmaterial}\mathbf{=}(\mathbf{Completedunits}\mathbf{\times }\mathbf{Completion}\mathbf{\%})\mathbf{+}(\mathbf{EndingWIPunits}\mathbf{\times }\mathbf{Completion}\mathbf{\%}) \\ \mathbf{=}(\mathbf{2}\mathbf{,}\mathbf{900}\mathbf{\times }\mathbf{100}\mathbf{\%})\mathbf{+}(\mathbf{900}\mathbf{\times }\mathbf{100}\mathbf{\%}) \\ \mathbf{=}\mathbf{3}\mathbf{,}\mathbf{800} \end{gathered}$$

Step 3: Equivalent unit of production for conversion costs

$$\begin{gathered} \mathbf{EUP}\mathbf{ }\mathbf{for}\mathbf{ }\mathbf{Conversion}\mathbf{ }\mathbf{cost}\mathbf{=}(\mathbf{Completed}\mathbf{ }\mathbf{units}\mathbf{\times }\mathbf{Completion}\mathbf{\%})\mathbf{+}(\mathbf{Ending}\mathbf{ }\mathbf{WIPunits}\mathbf{\times }\mathbf{Completion}\mathbf{\%}) \\ \mathbf{=}(\mathbf{2}\mathbf{,}\mathbf{900}\mathbf{\times }\mathbf{100}\mathbf{\%})\mathbf{+}(\mathbf{900}\mathbf{\times }\mathbf{30}\mathbf{\%}) \\ \mathbf{=}\mathbf{3}\mathbf{,}\mathbf{170} \end{gathered}$$

Step 4: Journal entries

Date	Particulars	Debit ($)	Credit ($)
	WIP Inventory-Compression department	5,394
	WIP Inventory-Preparation department		5,394

Step 5: Work in process Account

Particulars	Amount ($)	Particulars	Amount ($)
Beginning WIP	0	WIP Inventory – Compression department	5,394
Wood	2,888
Direct labor	987
Manufacturing overhead allocated	2,500	Ending WIP	981