Q46CT - Horngren'S Financial And Managerial Accounting

Question

Salish Craft Beers provides the following information for the Malting Department for the month of August 2018:

	UNITS	COSTS
Beginning Work-in-Process Inventory	0	\(0
Started in Production in August	26,000	54,000*
Total to Account For	26,000	\)54,000
Completed and Transferred to Packaging Department during August	21,000	?
Ending Work-in-Process Inventory (30% complete for direct materials and 60% complete for conversion work)	5,000	?
Total Accounted For	26,000	\(54,000
* Includes \)18,000 direct materials and $36,000 conversion costs

Requirements

Complete a production cost report for the Malting Department for the month of August 2018 to determine the cost of the units completed and transferred out, and the cost of the ending Work-in-Process Inventory. Assume Salish Craft Beers uses the weighted average method.

Step-by-Step Solution

Answer

	UNITS	COSTS
Beginning Work-in-Process Inventory	0	$0
Started in Production in August	26,000	54,000*
Total to Account For	26,000	$54,000
Completed and Transferred to Packaging Department during August	21,000	48,300
Ending Work-in-Process Inventory (30% complete for direct materials and 60% complete for conversion work)	5,000	5,700
Total Accounted For	26,000	$54,000
* Includes $18,000 direct materials and $36,000 conversion costs

The cost of completed and transferred units is $48,300, and for the WIP units are $5,700.

Step-by-Step Solution: Step 1: Production cost report

The companies prepare a production cost report 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 materials

$$\begin{gathered} \mathbf{EUP}\mathbf{ }\mathbf{for}\mathbf{ }\mathbf{Directmaterials}\mathbf{=}(\mathbf{Completed}\mathbf{ }\mathbf{units}\mathbf{\times }\mathbf{Completion}\mathbf{\%})\mathbf{+}(\mathbf{Ending}\mathbf{ }\mathbf{WIPunits}\mathbf{\times }\mathbf{Completion}\mathbf{\%}) \\ \mathbf{=}(\mathbf{21}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{100}\mathbf{\%})\mathbf{+}(\mathbf{5}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{30}\mathbf{\%}) \\ \mathbf{=}\mathbf{22}\mathbf{,}\mathbf{500} \end{gathered}$$

Step 3: Equivalent unit of production for conversion costs

$$\begin{gathered} \mathbf{EUP}\mathbf{ }\mathbf{for}\mathbf{ }\mathbf{Conversion}\mathbf{ }\mathbf{cost}\mathbf{=}(\mathbf{Completed}\mathbf{ }\mathbf{units}\mathbf{\times }\mathbf{Completion}\mathbf{\%})\mathbf{+}(\mathbf{EndingWIPunits}\mathbf{\times }\mathbf{Completion}\mathbf{\%}) \\ \mathbf{=}(\mathbf{21}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{100}\mathbf{\%})\mathbf{+}(\mathbf{5}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{60}\mathbf{\%}) \\ \mathbf{=}\mathbf{24}\mathbf{,}\mathbf{000} \end{gathered}$$

Step 4: Direct material cost per EUP

$\begin{array}{c}\mathbf{Cost}\mathbf{ }\mathbf{per}\mathbf{ }\mathbf{EUP}\mathbf{=}\frac{\mathrm{Total} \mathrm{Directmaterial} \mathrm{costs}}{\mathbf{EUP}\mathbf{ }\text{}\mathbf{for}\mathbf{ }\mathbf{directmaterials}}\\ \mathbf{=}\frac{\$18,000}{22,500}\\ \mathbf{=}\mathbf{\$}\mathbf{0}\mathbf{.}\mathbf{80}\end{array}$

Step 5: Conversion cost per EUP

$$\begin{gathered} \mathbf{Cost}\mathbf{ }\mathbf{perEUP}\mathbf{=}\frac{\mathrm{Total} \mathrm{Conversion} \mathrm{costs}}{\mathbf{EUP}\mathbf{ }\text{}\mathbf{for}\mathbf{ }\mathbf{Conversion}\mathbf{ }\mathbf{cost}} \\ \begin{array}{c}\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\frac{\$36,000}{24,000}\\ \mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\mathbf{\$}\mathbf{1}\mathbf{.}\mathbf{50}\end{array} \end{gathered}$$

Step 6: Total cost of completed units

$$\begin{gathered} \mathbf{Total}\mathbf{ }\mathbf{cost}\mathbf{ }\mathbf{of}\mathbf{ }\mathbf{ }\mathbf{completed}\mathbf{ }\mathbf{units}\mathbf{=}\mathbf{No}\mathbf{.}\mathbf{ofunits}\mathbf{\times }(\mathbf{Direct}\mathbf{ }\mathbf{material}\mathbf{ }\mathbf{costper}\mathbf{ }\mathbf{EUP}\mathbf{+}\mathbf{Conversion}\mathbf{ }\mathbf{cost}\mathbf{ }\mathbf{perEUP}) \\ \begin{array}{c}\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\mathbf{21}\mathbf{,}\mathbf{000}\mathbf{\times }(\mathbf{\$}\mathbf{0}\mathbf{.}\mathbf{80}\mathbf{+}\mathbf{\$}\mathbf{1}\mathbf{.}\mathbf{50})\\ =\$48,300\end{array} \end{gathered}$$

Step 7: Total cost of WIP units

$$\begin{gathered} \mathbf{Total}\mathbf{ }\mathbf{ }\mathbf{cost}\mathbf{ }\mathbf{ }\mathbf{of}\mathbf{ }\mathbf{ }\mathbf{WIP}\mathbf{ }\mathbf{units}\mathbf{=}(\mathbf{EUP}\mathbf{ }\mathbf{ }\mathbf{for}\mathbf{ }\mathbf{ }\mathbf{direct}\mathbf{ }\mathbf{material}\mathbf{\times }\mathbf{Direct}\mathbf{ }\mathbf{material}\mathbf{ }\mathbf{costper}\mathbf{ }\mathbf{EUP})\mathbf{+}(\mathbf{EUP}\mathbf{ }\mathbf{for}\mathbf{ }\mathbf{conversion}\mathbf{ }\mathbf{cost}\mathbf{\times }\mathbf{Conversion}\mathbf{ }\mathbf{costper}\mathbf{ }\mathbf{EUP}) \\ \mathbf{=}(\mathbf{1}\mathbf{,}\mathbf{500}\mathbf{\times }\mathbf{\$}\mathbf{0}\mathbf{.}\mathbf{80})\mathbf{+}(\mathbf{3}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{\$}\mathbf{1}\mathbf{.}\mathbf{50}) \\ \mathbf{=}\mathbf{\$}\mathbf{5}\mathbf{,}\mathbf{700} \end{gathered}$$