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Chapter 18: Q7RQ (page 1005)

Question: Why is the calculation of equivalent units of production needed in a process costing system?

Short Answer

Expert verified

Answer:

The equivalent units of production needed in a process costing system. It is so because the company is required to know the cost of each single unit of the product to decide the selling proce per unit.

Step by step solution

01

Process costing system

Under the process costing system, cost is calculated for the entire process of the production. It is used by the companies producing large number of similar goods.

02

Unit cost of the products

The unit cost of the product is required to be calculated. It is calculated by dividing the total cost of production with the total number of units produced during the year. Hence, the company is needed to know the equivalent units of production

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Most popular questions from this chapter

Question: The Mixing Department of Complete Foods had 62,000 units to account for in October. Of the 62,000 units, 38,000 units were completed and transferred to the next department, and 24,000 units were 20% complete. All of the materials are added at the beginning of the process. Conversion costs are added evenly throughout the mixing process and the company uses the weighted-average method.

Compute the total equivalent units of production for direct materials and

conversion costs for October.

Complete the missing amounts and labels in the T-accounts.

Work-in-process inventory 鈥� Cutting

Balance, May 1

0

Transferred out to

(A)

Direct materials

57,000

Direct labor

5,000

Manufacturing overhead

39,000

Balance, May 31

16,000

Work-in-process inventory 鈥� Finishing

Balance, May 1

11,000

Transferred out to

80,000

Transferred in from

(B)

Direct materials

21,000

Direct labor

(C )

Manufacturing overhead

18,000

Balance, May 31

68,000

Work-in-process inventory 鈥� Packaging

Balance, May 1

4,000

Transferred out to

(D)

Transferred in from

(E )

Direct material

1,000

Direct labor

9,000

Manufacturing overhead

14,000

Balance, May 31

8,000

Finished goods inventory

Balance, May 1

0

Transferred out to

(F)

Transferred in from

(G)

Balance, May 31

2,000

Cost of goods sold

Balance, May 1

0

Transferred in from

(H)

Balance, May 31

(I)

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.

Bishop Company uses the FIFO method in its process costing system. The Mixing Department started the month with 500 units in a process that was 20% complete, started in the production of 2,000 units, and transferred 2,100 units to the finished goods storage area. All materials are added at the beginning of the process, and conversion costs occur evenly. The units in process at the end of the month are 45% complete concerning conversion costs. The department incurred the following costs:

Beginning WIP

Added this month

Total

Direct materials

\(500

\)2,000

\(2,500

Conversion cost

1,250

5,450

6,700

Total

\)1,750

\(7,450

\)9,200

14A. How many units are still in process at the end of the month?

15A. Compute the equivalent production units for the Mixing Department for the current month.

16A. Determine the cost per equivalent unit for the current period for direct materials and conversion costs.

17A. Determine the cost to be transferred to the next department.

Refer to your answers from Exercise E18-21.

Requirements

1. Prepare the journal entries to record the assignment of direct materials and direct labor and the allocation of manufacturing overhead to the Blending Department. Also, prepare the journal entry to record the costs of the gallons completed and transferred out to the Packaging Department. Assume labor costs are accrued and not yet paid.

2. Post the journal entries to the Work-in-Process Inventory鈥擝lending T-account.

What is the ending balance?

3. What is the average cost per gallon transferred out of the Blending Department

into the Packaging Department? Why would the company managers want to

know this cost?
See all solutions

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