Q37PGA - Horngren'S Financial And Managerial Accounting

Question

Cheerful Colors manufactures crayons in a three-step process: mixing, molding, and packaging. The Mixing Department combines the direct materials of paraffin wax and pigments. The heated mixture is pumped to the Molding Department, where it is poured into molds. After the molds cool, the crayons are removed from the molds and are transferred to the Packaging Department, where paper wrappers are added and the crayons are boxed.

In the Mixing Department, the direct materials are added at the beginning of the

process and the conversion costs are incurred evenly throughout the process. Work in process of the Mixing Department on March 1, 2018, consisted of 800 batches of crayons that were 10% of the way through the production process. The beginning balance in Work-in-Process Inventory—Mixing was \(32,800, which consisted of \)14,000 in direct materials costs and $18,800 in conversion costs. During March, 5,200 batches were started in production. The Mixing Department transferred 3,000 batches to the Molding Department in March, and 3,000 were still in process on March 31. This ending inventory was 80% of the way through the mixing process. Cheerful Colors uses FIFO process costing.

At March 31, before recording the transfer of costs from the Mixing Department

to the Molding Department, the Cheerful Colors general ledger included the following account:

Work-in-process inventory – Mixing 

Balance, March 1	32,800
Direct materials	42,000
Direct labor	24,610
Manufacturing overhead	65,830

Requirements

1. Prepare a production cost report for the Mixing Department for March. Round

equivalent unit of production costs to four decimal places. Round all other costs to the nearest whole dollar.

2. Journalize all transactions affecting the Mixing Department during March, including the entries that have already been posted. Assume labor costs are accrued and not yet paid.

Step-by-Step Solution

Answer

1. Production cost report

HAPPY COLORS MANUFACTURES
		Equivalent unit of production
UNITS	Physical units	Direct material	Conversion costs	Total
Units to account for:
Beginning WIP	800
Started in production	5,200
Total units to account for	6,000
Units accounted for:
Completed and transferred	3,000	3,000	2,920
Ending WIP	3,000	3,000	2,400
Total units accounted for	6,000	6,000	5,320
COSTS		Direct materials	Conversion costs	Total costs
Costs to account for:
Beginning WIP		$14,000	$18,800	$32,800
Cost added during the period		42,000	90,440	132,440
Total cost to account for		56,000	109,240	165,250
Divided by: total EUP		6,000	5,320
Cost per equivalent unit		$9.333	$20.53
Costs accounted for:
-       Completed and transferred out		28,000 (3,000 x $9.333)	59,957 (2,920x$20.53)	87,957
-       Ending WIP		28,000 (3,000x $9.333)	49,283 (2,400x$20.53)	77,283
Total costs accounted for		56,000	109,240	165,250

 

2. The journal entries to show the transaction affecting the mixing department are shown in step  4.

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

Production cost report shows the different types of costs of a product, and this report is prepared by those manufacturing companies that involve some processes during production.

Step 2: Equivalent unit of production for direct cost

$$\begin{gathered} \mathbf{EUP}\mathbf{ }\mathbf{for}\mathbf{ }\mathbf{direct}\mathbf{ }\mathbf{material}\mathbf{=}(\mathbf{Completed}\mathbf{ }\mathbf{units}\mathbf{\times }\mathbf{Completion}\mathbf{\%})\mathbf{+}(\mathbf{Ending}\mathbf{ }\mathbf{WIPunits}\mathbf{\times }\mathbf{Completion}\mathbf{\%}) \\ \mathbf{=}(\mathbf{3}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{100}\mathbf{\%})\mathbf{+}(\mathbf{3}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{100}\mathbf{\%}) \\ \mathbf{=}\mathbf{6}\mathbf{,}\mathbf{000} \end{gathered}$$

Step 3: Equivalent unit of production for conversion costs

Particulars	EUP
Opening WIP (800 x 90%)	720
Completed and transferred (3,000 – 800) x 100%	2,200
Ending WIP (3,000 x 80%)	2,400
Total EUP	5,320

Step 4: Journal Entries

Date	Particulars	Debit ($)	Credit ($)
1.	WIP inventory – Mixing department	42,000
	Raw material		42,000
2.	WIP inventory – Mixing department	24,610
	Wages payable		24,610
3.	WIP inventory – Mixing department	65,830
	Manufacturing overhead		65,830
4.	WIP inventory – Molding department	87,957
	WIP inventory – Mixing department		87,957