Question

Requirements 1. Prepare the journal entries to record the assignment of direct materials and direct labor and the allocation of manufacturing overhead to the Fermenting Department. Assume labor costs are accrued and not yet paid. Also prepare the journal entry to record the cost of the gallons completed and transferred out to the Packaging Department. 2. Post the journal entries to the Work-in-Process Inventory—Fermenting T-account. What is the ending balance? 3. What is the average cost per gallon transferred out of the Fermenting Department into the Packaging Department? Why would Shea Winery's managers want to know this cost? Print Print Done Done Gallons Beginning Work-in-Process Inventory 500 gallons Started in production Completed and transferred out to Packaging in March Ending Work-in-Process Inventory (80% of the way through the fermenting process) 8,600 gallons 7,900 gallons 1,200 gallons

Answer 1

Equivalent units = Units transferred + Units in ending WIP x Completion
Material = 7900 + 1200 x 100% = 9100 units
Conversion = 7900 + 1200 x 80% = 8860 units

Cost per equivalent unit = (Beginning Cost + Cost added) / Equivalent units
Material = ($540+9288)/9100 = $1.08 per unit
Conversion = ($195+210+3305+3378)/8860 = $0.8 per unit

1.

Account Titles	Debit	Credit
Work in Process Inventory-Fermenting Department	$        15,971
Raw Material Inventory		$      9,288
Wages Payable		$      3,305
Manufacturing Overhead		$      3,378
Work in Process Inventory-Packaging Department	$        14,852
Work in Process Inventory-Fermenting Department		$    14,852

2.

Work in Process Inventory-Fermenting Department
	Debit	Credit
Beginning Balance	$             945
Direct Material	$          9,288	$    14,852	Work in Process Inventory-Packaging Department
Direct Labor	$          3,305
Manufacturing Overhead	$          3,378
Ending Balance	$          2,064

3.
Average Cost per gallon = $1.88 per gallon
It is important for managers to know this to assess the cost of the product as per stages of completion, control avoidable costs and setting prices for the products.