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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

Blue Ribbon Flour Company manufactures flour by a series of three processes, beginning in the Milling Department. From the Milling Department, the materials pass through the Sifting and Packaging departments, emerging as packaged refined flour.

The balance in the account Work in Process—Sifting Department was as follows on May 1:

Work in Process—Sifting Department (1,500 units, 75% completed)     $3,400

The following costs were charged to Work in Process—Sifting Department during May:

Direct materials transferred from Milling Department: 18,300 units $32,600
Direct labor 14,560
Factory overhead 7,490

During May, 18,000 units of flour were completed and transferred to finished goods. Work in Process—Sifting Department on May 31 was 1,800 units, 75% completed.

Instructions

Prepare a cost of production report for the Sifting Department for May, 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 Determine: The cost of production report for sifting department during the month of May using average cost method of Company BRF.

Explanation

To calculate the cost of production report for sifting department during the month of May using average cost method of Company BRF as shown below:

Figure (1)

Working notes:

Calculate ending work in process inventory units as shown below:

Ending work in process inventory units) =(Ending work in process inventory whole units ×Percentage completed)=1,800×75%=1,350

Calculate total costs for may in sifting department as shown below:

Total costs for May in sifting department =$3,400+$32,600+$14,560&

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