BDB Company manufactures its one product by a process that requires two departments. The production starts in Department A and is completed in Department B. Direct materials are added at the beginning of the process in Department A. Additional direct materials are added when the process is 50% complete in Department B. Conversion costs are incurred proportionally throughout the production processes in both departments. On April 1, Department A had 500 units in Work-in-Process estimated to be 30% complete for conversion; Department B had 300 units in Work-in-Process estimated to be 40% complete for conversion. During April, Department A started 2,000 units and completed 2,100 units; Department B completed 2,000 units. The ending Work-in-Process Inventory on April 30 in Department A is estimated to be 50% complete for conversion, and the ending Work-in-Process Inventory in Department B is estimated to be 70% complete for conversion. The cost sheet for Department A shows that the units in the beginning Work-in-Process Inventory had $2,750 in direct materials costs and $1,494 in conversion costs. The production costs incurred in April were $18,000 for direct materials and $21,000 for conversion. Department B’s beginning Work-in-Process Inventory on April 1 was $6,100, of which $4,200 was transferred-in costs; it incurred $37,920 in direct materials costs and $24,434 in conversion costs in April. BDB Company uses the weighted-average method for Departments A and B. Required: 1. Prepare a production cost report for Department A. 2. Prepare a production cost report for Department B.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
BDB Company manufactures its one product by a process that requires two departments. The production starts in Department A and is completed in Department B. Direct materials are added at the beginning of the process in Department A. Additional direct materials are added when the process is 50% complete in Department B. Conversion costs are incurred proportionally throughout the production processes in both departments.
On April 1, Department A had 500 units in Work-in-Process estimated to be 30% complete for conversion; Department B had 300 units in Work-in-Process estimated to be 40% complete for conversion. During April, Department A started 2,000 units and completed 2,100 units; Department B completed 2,000 units. The ending Work-in-Process Inventory on April 30 in Department A is estimated to be 50% complete for conversion, and the ending Work-in-Process Inventory in Department B is estimated to be 70% complete for conversion.
The cost sheet for Department A shows that the units in the beginning Work-in-Process Inventory had $2,750 in direct materials costs and $1,494 in conversion costs. The production costs incurred in April were $18,000 for direct materials and $21,000 for conversion. Department B’s beginning Work-in-Process Inventory on April 1 was $6,100, of which $4,200 was transferred-in costs; it incurred $37,920 in direct materials costs and $24,434 in conversion costs in April.
BDB Company uses the weighted-average method for Departments A and B.
Required:
1. Prepare a production cost report for Department A.
2. Prepare a production cost report for Department B.
Process costing: It is a type of costing method, where the direct costs are accumulated and indirect costs are allocated to products manufactured in bulk quantity. This method is used where the products are manufactured under the various processes and in large batches.
Equivalent units: These are semi completed units which were expressed as fully completed units. For instance, 1,000 units which were 50% complete were as good as 500 units 100% complete. Here, 500 units were equivalent units.
Direct materials: It is the basic input required to manufacture the finished products. The direct/raw materials are processed by incurring conversion costs and other overhead to convert them into finished products.
Direct labor: It is the cost of salaries and wages incurred directly to produce a product. This cost is incurred to convert the raw materials into finished product.
Weighted average cost method: Under this method, the costs of manufacturing are averaged out and are applied evenly to the units completed and transferred out and the units of closing work-in process.
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