Tamar Co. manufactures a single product in two departments: Forming and Assembly. All direct materials are added at the beginning of the forming process. Conversion costs are added evenly throughout each process. During May, the Forming department started 21,600 units, and completed and transferred 22,200 units of product to the Assembly department. The Forming department’s 3,000 units of beginning work in process consisted of $19,800 of direct materials and $221,940 of conversion costs. It has 2,400 units (100% complete with respect to direct materials and 80% complete with respect to conversion) in process at month-end. During the month, $496,800 of direct materials costs and $2,165,940 of conversion costs were charged to the Forming department. Required 1. Prepare the Forming department’s process cost summary for May using the weighted-average method. 2. Prepare the journal entry dated May 31 to transfer the cost of units to Assembly. Analysis Component 3. The costing process depends on numerous estimates. a. Identify two major estimates that determine the cost per equivalent unit. b. Assume management compensation is based on maintaining low inventory amounts. Is management more likely to overestimate or understimate the percentage complete?
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.
Tamar Co. manufactures a single product in two departments: Forming and Assembly. All direct materials
are added at the beginning of the forming process. Conversion costs are added evenly throughout each
process. During May, the Forming department started 21,600 units, and completed and transferred 22,200
units of product to the Assembly department. The Forming department’s 3,000 units of beginning work in
process consisted of $19,800 of direct materials and $221,940 of conversion costs. It has 2,400 units
(100% complete with respect to direct materials and 80% complete with respect to conversion) in process
at month-end. During the month, $496,800 of direct materials costs and $2,165,940 of conversion costs
were charged to the Forming department.
Required
1. Prepare the Forming department’s
2. Prepare the
Analysis Component
3. The costing process depends on numerous estimates.
a. Identify two major estimates that determine the cost per equivalent unit.
b. Assume
management compensation is based on maintaining low inventory amounts. Is management
more likely to overestimate or understimate the percentage complete?
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