Chapter 5, Problem 2P

Dublin Brewing Co. uses the process cost system. The following data, taken from the organization’s books, reflect the results of manufacturing operations during October:

Production Costs

Work in process, beginning of period:

Costs incurred during month:

Production Data:

13,000 units finished and transferred to stockroom

Work in process, end of period, 2,000 units one-half completed

Required:

Prepare a cost of production summary for October.

To determine

Prepare a cost of production summary for October.

Explanation of Solution

Unit Cost of Production: The cost production derived in terms of corresponding units of production is called unit cost of production.

Prepare a cost of production summary for October.

Cost Elements	Amount ($)	Total cost ($)
Cost of work in process, beginning of month:
Materials	2,600
Labor	2,300
Factory overhead	1,000	5,900
Cost of production for month:
Materials	10,000
Labor	7,500
Factory overhead	6,000	23,500
Total costs to be accounted for		29,400

Table (1)

Compute the total equivalent production.

Cost Elements	Unit output
Finished and transferred to finished goods during month	13,000
Equivalent units of work in process, end of month	10,000
Total equivalent production	14,000

Table (2)

Compute the unit cost.

Cost Elements	Unit cost ($)
Cost of work in process, beginning of month:
Materials (1)	0.90
Labor (2)	0.70
Factory overhead (3)	0.50
Total	2.10

Table (3)

Working Note:

(1) Calculate the unit cost (materials).

$\begin{array}{c}\text{Unit cost}\left(\text{Material}\right)=\frac{\left(\begin{array}{l}\text{Work in process}\left(\text{material}\right)\\ +\text{Costs incurred}\left(\text{Material}\right)\end{array}\right)}{\text{Total equivalent production}}\\ =\frac{\left(\$2,600+\$10,000\right)}{14,000}\\ =\$0.90\end{array}$

(2) Calculate the unit cost (labor).

$\begin{array}{c}\text{Unit cost}\left(\text{Labor}\right)=\frac{\left(\begin{array}{l}\text{Work in process}\left(\text{labor}\right)\\ +\text{Costs incurred}\left(\text{labor}\right)\end{array}\right)}{\text{Total equivalent production}}\\ =\frac{\left(\$2,300+\$7,500\right)}{14,000}\\ =\$0.70\end{array}$

(3) Calculate the unit cost (factory overhead).

$\begin{array}{c}\text{Unit cost}\left(\text{Factory overhead}\right)=\frac{\left(\begin{array}{l}\text{Work in process}\left(\text{factory overhead}\right)\\ +\text{Costs incurred}\left(\text{factory overhead}\right)\end{array}\right)}{\text{Total equivalent production}}\\ =\frac{\left(\$1,000+\$6,000\right)}{14,000}\\ =\$0.50\end{array}$

Compute production costs.

Cost Elements	Amount ($)	Amount ($)
Costs of goods finished and transferred to finished goods during month (4)		27,300
Materials (5)	900
Labor (6)	700
Factory overhead (7)	500	2,100
Total production costs accounted for		29,400

Table (4)

Working Note:

(4) Calculate the costs of goods finished and transferred to finished goods during month.

$\begin{array}{c}\left(\begin{array}{l}\text{Costs of goods finished }\\ \text{and transferred to finished }\\ \text{goodsduring month}\end{array}\right)=\left(\begin{array}{l}\left(\begin{array}{l}\text{Number of units finished }\\ \text{and transferred to stockroom}\end{array}\right)\\ \times \text{Total unit cost}\end{array}\right)\\ =13,000\times \$2.10\\ =\$27,300\end{array}$

(5) Calculate the inventory costs (material).

$\begin{array}{c}\text{Inventory cost}\left(\text{Material}\right)=\left(\begin{array}{l}\text{Number of units}\\ \times \text{Period completed}\\ \times \text{Unit cost}\left(\text{Material}\right)\end{array}\right)\\ =2,000\times \frac{1}{2}\times \$0.90\\ =\$900\end{array}$

(6) Calculate the inventory costs (labor).

$\begin{array}{c}\text{Inventory cost}\left(\text{labor}\right)=\left(\begin{array}{l}\text{Number of units}\\ \times \text{Period completed}\\ \times \text{Unit cost}\left(\text{labor}\right)\end{array}\right)\\ =2,000\times \frac{1}{2}\times \$0.70\\ =\$700\end{array}$

(7) Calculate the inventory costs (factory overhead).

$\begin{array}{c}\text{Inventory cost}\left(\text{factory overhead}\right)=\left(\begin{array}{l}\text{Number of units}\\ \times \text{Period completed}\\ \times \text{Unit cost}\left(\text{factory overhead}\right)\end{array}\right)\\ =2,000\times \frac{1}{2}\times \$0.50\\ =\$500\end{array}$