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Chapter 18: Q16RQ (page 1006)
What is the purpose of the Costs Accounted For section of the production cost report?
The production cost report is essential for the management because it contains vital information about the goods produced and the processing department's costs incurred in manufacturing the products.
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Question: Castillo Company has three departments: Mixing, Bottling, and Packaging. At the end of the month, the production cost reports for the departments show the costs of the products completed and transferred were \(75,000 from Mixing to Bottling, \)50,000 from Bottling to Packaging, and $65,000 from Packaging to Finished Goods Inventory. Prepare the journal entries for the transfer of the costs.
Describe ways the production cost report can be used by management.
Rick Pines and Joe Lopez are the plant managers for High Mountain Lumber鈥檚 particle board division. High Mountain Lumber has adopted a just-in-time management philosophy. Each plant combines wood chips with chemical adhesives to produce particle board to order, and all product is sold as soon as it is completed. Laura Green is High Mountain Lumber鈥檚 regional controller. All of High Mountain Lumber鈥檚 plants and divisions send Green their production and cost information. While reviewing the numbers of the two particle board plants, she is surprised to find that both plants estimate their ending Work-in-Process Inventories at 75% complete, which is higher than usual. Green calls Lopez, whom she has known for some time. He admits that to ensure their division would meet its profit goal and that both he and Pines would make their bonus (which is based on division profit), they agreed to inflate the percentage completion. Lopez explains, 鈥淒etermining the percent complete always requires judgment.
Whatever the percent complete, we鈥檒l finish the Work-in-Process Inventory first thing next year.鈥�
Requirements
Smith Paper Co. produces the paper used by wallpaper manufacturers. Smith鈥檚 four-stage process includes mixing, cooking, rolling, and cutting. On March 1, the Mixing Department had 400 rolls in process. During March, the Mixing Department completed the mixing process for those 400 rolls and also started and completed the mixing process for an additional 4,100 rolls of paper. The department started but did not finish the mixing process for an additional 500 rolls, which were 20% complete with respect to both direct materials and conversion work at the end of March. Direct materials and conversion costs are incurred evenly throughout the mixing process. The Mixing Department compiled the following data for March:
Direct materials | Direct labor | Manufacturing overhead allocated | Total costs | |
Beginning inventory, Mar. 1 | \(475 | \)275 | \(300 | \)1,050 |
Costs added during March | 5,045 | 2,900 | 2,965 | 10,910 |
Total costs | \(5,520 | \)3,175 | \(3,265 | \)11,960 |
Requirements
1. Prepare a production cost report for the Mixing Department for March. The company uses the weighted-average method.
2. Journalize all transactions affecting the company鈥檚 mixing process during March. Assume labor costs are accrued and not yet paid.
Question: What are equivalent units of production?
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