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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

Arabica Highland Coffee Company roasts and packs coffee beans. The process begins by placing coffee beans into the Roasting Department. From the Roasting Department, coffee beans are then transferred to the Packing Department. The following is a partial work in process account of the Roasting Department at July 31:

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Instructions

1. Prepare a cost of production report and identify the missing amounts for Work m Process—Roasting Department.

2. Assuming that the July 1 work in process inventory includes $119.400 of direct materials, determine the increase or decrease in the cost per equivalent unit for direct materials and conversion between June and July.

(a)

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 Determine: The equivalents units for production of direct materials and conversion costs for the month of January for Company AHC.

Explanation

Calculate the equivalents units for production of direct materials and conversion costs for the month of January for Company AHC as shown below:

Figure (1)

Working notes:

Calculate opening work in process inventory for conversion costs as shown below:

Opening work in process inventory for conversion costs) = 110%=90%

Calculate units started and completed in July as shown below:

Units started and completed in July = (Units received from weaving departmentEnding work in process inventory)=155,000units 36,000units=119,000units

Calculate whole ending work in process inventory in July as shown below:

Whole ending work in process inventory in July)=(Opening work in process inventory +Received from material storeroom Transferred to packing department)=30,000units +155,000units 149,000units=36,000units

Calculate ending work in process inventory for conversion costs as shown below:

Ending work in process inventory for conversion costs) = (Total units for ending work in proces inventory ×Completed percent for conversion costs)=36,000units ×45%=16,200units

Equivalent units for production is calculated by adding units of opening work in process inventory, transferred to finished goods in august, and units for ending work in process inventory. Therefore, an equivalents unit for production for direct materials is 155,000 units and equivalent units for production for conversion costs is 162,200 units.

Calculate direct materials and conversion cost equivalent cost per unit for July as shown below:

Direct material cost per unit =Total direct material costsEquivalent units for direct materials=$620,000155,000units=$4.00Per unit

Conversion cost per unit =Total conversion costsEquivalent units for conversion=$123,272162,200units=$0

(b)

To determine
Increase or decrease in the cost per equivalent per unit for direct materials and conversion cost between June and July when, work in process inventory as on July 1 includes $119,400 of direct materials.

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