Q41PGB - Horngren'S Financial And Managerial Accounting

Question

Bergeron’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	3,900 sheets
Completed and transferred out to compression in January	2,700 sheets
Ending work-in-process inventory (25% of the way through the preparation process)	1,200 sheets
COSTS
Beginning work-in-process inventory	\(0
Costs added during January
Wood	3,120
Adhesive	1,836
Direct labor	990
Manufacturing overhead allocated	2,100
Total costs	\)8,046

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 unit 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	3,900
Total units to account for	3,900
Units accounted for:
Completed and transferred	2,700	2,700	2,700
Ending WIP	1,200	1,200	300
Total units accounted for	3,900	3,900	3,000
COSTS		Direct material	Conversion costs	Total costs
Costs to account for:
Beginning WIP		$0	$0	$0
Cost added during the period		3,120	3,090	6,210
Total cost to account for		3,120	3,090	6,210
Divided by: total EUP		3,900	3,000
Cost per equivalent unit		$0.80	$1.03
Costs accounted for:
Completed and transferred out		2,160 (2,700 x $0.80)	2,781 (2,700x$1.03)	4,941
Ending WIP		960 (1,200x $0.80)	309 (300x$1.03)	1,269
Total costs accounted for		3,120	3,090	6,210

2. The Journal entries to record the transfer out to the compression department amounting to $4,941 are shown in step 4.

3. The Work-in-process inventory – preparation T-account ending balance is $1,269

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

If a manufacturing company has various processes in the production process, that company needs to prepare a report known as a production cost report.

Step 2: Equivalent unit of production for direct material

$$\begin{gathered} \mathbf{EUP}\mathbf{ }\mathbf{for}\mathbf{ }\mathbf{directmaterial}\mathbf{=}(\mathbf{Completed}\mathbf{ }\mathbf{units}\mathbf{\times }\mathbf{Completion}\mathbf{\%})\mathbf{+}(\mathbf{EndingWIPunits}\mathbf{\times }\mathbf{Completion}\mathbf{\%}) \\ \begin{array}{c}\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}(\mathbf{2}\mathbf{,}\mathbf{700}\mathbf{\times }\mathbf{100}\mathbf{\%})\mathbf{+}(\mathbf{1}\mathbf{,}\mathbf{200}\mathbf{\times }\mathbf{100}\mathbf{\%})\\ \mathbf{=}\mathbf{3}\mathbf{,}\mathbf{900}\\ \end{array} \end{gathered}$$

Step 3: Equivalent unit of production for conversion costs

$$\begin{gathered} \mathbf{EUP}\mathbf{ }\mathbf{for}\mathbf{ }\mathbf{Conversion}\mathbf{ }\mathbf{cost}\mathbf{=}(\mathbf{Completed}\mathbf{ }\mathbf{units}\mathbf{\times }\mathbf{Completion}\mathbf{\%})\mathbf{+}(\mathbf{Ending}\mathbf{ }\mathbf{WIP}\mathbf{ }\mathbf{units}\mathbf{\times }\mathbf{Completion}\mathbf{\%}) \\ \mathbf{=}(\mathbf{2}\mathbf{,}\mathbf{700}\mathbf{\times }\mathbf{100}\mathbf{\%})\mathbf{+}(\mathbf{1}\mathbf{,}\mathbf{200}\mathbf{\times }\mathbf{25}\mathbf{\%}) \\ \mathbf{=}\mathbf{3}\mathbf{,}\mathbf{000} \end{gathered}$$

Step 4: Journal entries

Date	Particulars	Debit ($)	Credit ($)
	WIP Inventory-Compression department	4,941
	WIP Inventory-Preparation department		4,941

Step 5: T- account of Work-in-process inventory

Particulars	Amount ($)	Particulars	Amount ($)
Beginning WIP	0	WIP Inventory – Compression department	4,941
Wood	3,120
Direct labor	990
Manufacturing overhead allocated	2,100	Ending WIP	1,269