Q44PGB - Horngren'S Financial And Managerial Accounting

Question

Happy 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 April 1, 2018, consisted of 300 batches of crayons that were 30% of the way through the production process. The beginning balance in Work-in-Process Inventory—Mixing was \(27,800, which consisted of \)10,700 in direct materials costs and $17,100 in conversion costs. During April, 3,200 batches were started in production. The Mixing Department transferred 2,800 batches to the Molding Department in April, and 700 were still in process on April 30. This ending inventory was 80% of the way through the mixing process. Happy Colors uses FIFO process costing.

At April 30, before recording the transfer of costs from the Mixing Department

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

                           Work-in-process inventory – Mixing 

Balance, March 1	27,800
Direct materials	22,400
Direct labor	21,330
Manufacturing overhead	44,070

Requirements

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

equivalent unit costs to four decimal places. Round all other costs to the nearest

dollar.

2. Journalize all transactions affecting the Mixing Department during April, including the entries that have already been posted. Assume the 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	300
Started in production	3,200
Total units to account for	3,500
Units accounted for:
Completed and transferred	2,800	2,800	2,710
Ending WIP	700	700	560
Total units accounted for	3,500	3,500	3,270
COSTS		Direct materials	Conversion costs	Total costs
Costs to account for:
Beginning WIP		$10,700	$17,100	$27,800
Cost added during the period		22,400	65,400	87,800
Total cost to account for		33,100	82,500	115,600
Divided by: total EUP		3,500	3,270
Cost per equivalent unit		$9.46	$25.23
Costs accounted for:
Completed and transferred out		26,483 (2,800 x $9.46)	68,373 (2,710x$25.23)	94,856
Ending WIP		6,617 (700x $9.46)	14,127 (560x$25.23)	20,744
Total costs accounted for		33,100	82,500	115,600

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

A production cost report is a report of a manufacturing company which shows the different costs of a product if the manufacturing of that product involves various processes.

Step 2: Equivalent unit of production for direct cost

$$\begin{gathered} \mathbf{EUP}\mathbf{ }\mathbf{for}\mathbf{ }\mathbf{directmaterial}\mathbf{=}(\mathbf{Completed}\mathbf{ }\mathbf{units}\mathbf{\times }\mathbf{Completion}\mathbf{\%})\mathbf{+}(\mathbf{Ending}\mathbf{ }\mathbf{WIP}\mathbf{ }\mathbf{units}\mathbf{\times }\mathbf{Completion}\mathbf{\%}) \\ \mathbf{=}(\mathbf{2}\mathbf{,}\mathbf{800}\mathbf{\times }\mathbf{100}\mathbf{\%})\mathbf{+}(\mathbf{700}\mathbf{\times }\mathbf{100}\mathbf{\%}) \\ \mathbf{=}\mathbf{3}\mathbf{,}\mathbf{500} \end{gathered}$$

Step 3: Equivalent unit of production for conversion costs

Particulars	EUP
Opening WIP (300 x 70%)	210
Completed and transferred (2,800 – 300) x 100%	2,500
Ending WIP (700 x 80%)	560
Total EUP	3,270

Step 4: Journal Entries

Date	Particulars	Debit ($)	Credit ($)
1.	WIP inventory – Mixing department	22,400
	Raw material		22,400
2.	WIP inventory – Mixing department	21,330
	Wages payable		21,330
3.	WIP inventory – Mixing department	44,070
	Manufacturing overhead		44,070
4.	WIP inventory – Molding department	94,856
	WIP inventory – Mixing department		94,856