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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

Work in process account data for two months; cost of production reports

Pittsburgh Aluminum Company uses a process cost system to record the costs of manufacturing rolled aluminum, which consists of the smelting and rolling processes. Materials are entered from smelting at the beginning of the rolling process. The inventory of Work in Process—Rolling on September 1 and debits to the account during September were as follows:

Bal, 2,600 units, ¼ completed:  
Direct materials (2,600 × $15.50) $40,300
Conversion (2,600 × ¼ × $8.50) 5,525
  $45,825
From Smelting Department. 28,900 units 462,400
Direct labor 158,920
Factory overhead 101,402

During September, 2,600 units in process on September 1 were completed, and of the 28,900 units entering the department, all were completed except 2,900 units that were 4/5 completed.

Charges to Work in Process—Rolling for October were as follows:

From Smelting Department, 31,000 units $511,500
Direct labor 162,850
Factory overhead 104,494

During October, the units in process at the beginning of the month were completed, and of the 31,000 units entering the department, all were completed except 2,000 units that were 2/5 completed.

Instructions

1. Enter the balance as of September 1 in a four-column account for Work in Process—Rolling. Record the debits and credits in the account for September. Construct a cost of production report and present computations for determining (a) equivalent units of production for materials and conversion; (b) cost per equivalent unit; (c) cost of goods finished, differentiating between units started in the prior period and units started and finished in September; and (d) work in process inventory.

2. Provide the same information for October by recording the October transactions in the four-column work in process account. Construct a cost of production report and present the October computations (a through d) listed in part (1).

3. Comment on the change in costs per equivalent unit for August through October for direct materials and conversion cost.

(1-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 cot 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 equivalents units for production of direct materials and conversion cost of Company PA.

Explanation

Prepare the equivalent units for production of direct materials and conversion cost of Company PA as shown below:

Figure (1)

Working notes:

Calculate opening work in process inventory for conversion percentage to complete as shown below:

Opening work in process inventory for Conversion)=114=34=75%

Calculate units started and completed in September as shown below:

Units started and completed in September=(Received from Smelting Department Ending work in process inventory)=28,900units 2,900units=26,000units

Calculate ending work in process inventory units as shown below:

Ending work in process inventory for conversion =2,900units&#

(1-b)

To determine

To Prepare: The cost per equivalent unit for direct material and conversion cost of Company PA.

(1-c)

To determine

To Prepare: The cost of goods finished, between units stared in the prior period and units started and finished in September of Company PA.

(1-d)

To determine

To Prepare: The ending work in process inventory cost and production cost report of the month September for the Company PA.

 (2-a)

To determine

To Prepare: The equivalents units for production of direct materials and conversion cost during the month of October for Company PA.

(1-b)

To determine

To Prepare: The cost per equivalent unit for direct material and conversion cost during the month of October for Company PA.

(1-c)

To determine

To Prepare: The cost of goods finished, between units stared in the prior period and units started and finished in October of Company PA.

(1-d)

To determine

To Prepare: The ending work in process inventory cost and production cost report of the month October for the Company PA.

(3)

To determine

To Mention: The change in cost per equivalent unit for August through October for direct materials and conversion costs.

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