Chapter 3, Problem 7PSA

1.

To determine

To prepare: Process cost summary.

Explanation of Solution

Prepare production cost summary:

D. Company-Roasting Department
Process Cost Summary (FIFO method)
For the month ended Oct. 31, 20XX
Particulars			Amount ($)	Amount ($)
Cost charged to Production
Cost of work in process (beginning)
Direct materials			9,900
Conversion			110,970	120,870
Cost incurred this period
Direct materials			248,400
Conversion			1,082,970	1,331,370
Total cost				1,452,240
Unit Information	Units				Units
Units to account for:		Units accounted for
Work in process (beginning)	3,000	Completed and transferred units			22,200
Unit started this period	21,600	Work in process (ending)			2,400
Total units to account for	24,600	Total units accounted for			24,600
Equivalent Unit of Production			Direct Materials	Conversion
Work in process (beginning)			0	1,800
Started and completed in this month			19,200	19,200
Work in process (ending)			2,400	1,920
Equivalent Unit of Production			21,600	22,920
Cost per EUP
Cost of work in process (beginning)			0	0
Cost incurred this period			248,400	1,082,970
Total cost			$248,400	$1,082,970
Equivalent unit of production			21,600	22,920
Cost per EUP			$11.5	$47.25
Cost Assignment			Amount ($)	Amount ($)
Cost of work in process (beginning)				120,870
Cost of completed units
Direct materials			220,800
Conversion			992,250	1,213,050
Cost of work in process (ending)
Direct materials			27,600
Conversion			90720	118,320
Total cost				2,904,480

Table(1)

Hence, total cost of transferred goods and work in process (ending) is $1,333,920 and $118,320 respectively.

Working notes:

Calculation for EUP (direct material),

$\begin{array}{c}\text{Cost}\text{per}\text{EUP}\text{(direct}m\text{aterial)}=\frac{\text{Total}\text{cost}}{\text{Equivalent}\text{unit}\text{of}\text{production}}\\ =\frac{\$248,400}{21,600}\\ =\$11.5\end{array}$

Calculation for EUP (Conversion),

$\begin{array}{c}\text{Cost}\text{per}\text{EUP}\text{(conversion)}=\frac{\text{Total}\text{cost}}{\text{Equivalent}\text{unit}\text{of}\text{production}}\\ =\frac{\$1,082,970}{22,920}\\ =\$47.25\end{array}$

2.

To determine

To prepare: Journal entry.

Explanation of Solution

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
Oct 31	Work in Process-blending		1,333,920
	Work in Process-roasting			1,333,920
	(Being goods transferred from roasting to blendingdepartment )

Table(2)

• Work in process-blending is an asset. Since, goods is transferred from roasting to blending department, it increases work in process-blending account. Hence, debit work in process-blending account.
• Work in process-roasting is an asset. Since, goods is transferred from roasting to blending department, it decreases work in process-roasting account. Hence, credit work in process-roasting account.

3.

To determine

To explain: Effect on bonus from the underestimation of equivalent unit of production.

Explanation of Solution

If the equivalent unit of production is understated then it will increase the cost per equivalent unit of production because cost per equivalent unit of production is get by dividing total cost from equivalent unit of production.

• Since, cost per equivalent unit of production is increased, it will reduce the bonus of the department manager because higher the cost per equivalent unit of production lower will be the bonus and vice versa.
• If equivalent unit of production is lower in this month then next month equivalent unit of production will increase and this will decrease the cost per equivalent unit of production. Hence, it will increase the bonus of department manager in the next month.

Hence, it will reduce the October bonus and will increase the November bonus.