Chapter 11, Problem 7PSA

Problem 16-7A^A FIFO: Process cost summary, equivalent units, cost estimates C2 C3 C4 P4

Dengo Co. makes a trial mix in two departments: roasting and blending. Direct materials are added at the beginning of each process, and conversion costs are added evenly throughout each process. The company uses the FIFO method of process costing. During October, the roasting department completed and transferred 22,200 units to be blending department. Of the units completed, 3,000 were from beginning inventory and the remaining 19,200 were started and completed during the month. Beginning work in process was 100% complete with respect to direct materials and 40% complete with respect to conversion. The company has 2,400 units (100% complete with respect to direct materials and 80% complete with respect to conversion) in process at month-end. Information on the roasting department’s costs of beginning work in process inventory and costs added during the month follow.

Cost	Direct Materials	Conversion
Of beginning work in process inventory	$ 9,900	$ 110,970
Added during the month	248,400	1,082,970

Required

1. Prepare the roasting department’s process cost summary for October using the FIFO method.
Check (1) EUP for conversion, 22,920

2. Prepare the journal entry dated October 31 to transfer the cost of completed units to the blending department.
(2) Cost transferred out to blending, $1,333,920

Analysis Component

The company provides incentives to department managers by paying monthly bonuses based on their success in controlling costs per equivalent unit of production. Assume that a production department underestimates the percentage of completion for units in ending inventory with the result that its equivalent units of production for October are understated. What impact does this error have on the October bonuses paid to the department’s managers? What impact, if any, does this error have on November Bonuses?