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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Cost of production report: average cost method

The increases to Work in Process—Roasting Department for Highlands Coffee company for May as well as information concerning production are as follows:

Work in process. May 1,1,150 pounds 40% completed $ 1,700
Coffee beans added during May, 10,900 pounds 28,600
Conversion costs during May 12,504
Work in process. May 31,800 pounds. 80% completed
Goods finished during May, 11,250 pounds

Prepare a cost of production report, using the average cost method.

To determine

Process costs

It is a method of cost accounting, which is used where the production is continuous, and the product needs various processes to complete. This method is used to ascertain the cost of the product at each process or stage of production.

Equivalents units for production

The activity of a processing department in terms of fully completed units is known as equivalent units. It includes the completed units of direct materials and conversion cost of beginning work in process, units completed and transferred out, and ending work in process.

Production cost report

A production cost report is a comprehensive report prepared for each department separately at the end of a particular period, which represents the physical flow and cost flow of product for the concerned department.

To Prepare: The production cost report for May using average cost method of Company HC.

Explanation

Calculate production cost report for May using average cost method of Company HC as shown below:

Figure (1)

Working notes:

Calculate units for ending work in process inventory as shown below:

Ending work in process inventoryunits ) = (Whole units for ending work in process × Completed percentage)=800units ×80%=640units

Calculate total costs for May in Roasting department as shown below:

Total costs for May =(Opening work in process inventory costs + Direct material costs + Conversion costs)=$1,700+$28,600+$12,504=$42,804

Calculate costs incurred in May as shown below:

Costs incurred in May=(Received from material storeroom costs +<

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