Question

P4-5A. Two Departments, Journal Entries with supporting Calculations-Weighted Average Method (Note: This problem includes two departments. The second may be beyond the scope of most classes. Instructors may choose to assign only the requirements related to Department 1.)

Patterson Laboratories, Inc., produces one of its products in two successive departments. All materials are added at the beginning of the process in Department 1; no materials are used in Department 2. Conversion costs are incurred evenly in both departments. Patterson uses the weighted average method for process costing. January 1, 2019, inventory account balances are as follows:

Materials inventory………………………………………………………………………………………….$30,000

Work-in-process-Department 1 (3,000 units, 30% complete)

Direct materials…………………………………………………………………………………………………4,560

Conversion costs……………………………………………………………………………………………….10,640

Work-in-process-Department 2 (3,550 units, 40% complete)……………………………43,439

Finished goods inventory (2,000 units @ $16)…………………………………………………..32,000

During January, the following transactions occurred:

1. Purchased materials on account, $90,000
2. Placed $84,000 of materials into process in Department 1. This $84,000 represents 24,000 units of materials.
3. Distributed total payroll costs: $108,116 of direct labor to Department 1, $62,700 of direct labor to Department 2, and $51,000 of indirect labor to Manufacturing Overhead.
4. Incurred other actual manufacturing overhead costs, $81,000. (Credit Other Accounts.)
5. Applied overhead to the two processing departments: $88,000 to Department 1 and $43,900 to Department 2.
6. Transferred 25,000 completed units from Department 1 to Department 2. The 2,000 units remaining in Department 1 were 20% completed with respect to conversion costs.
7. Transferred 26,000 completed units from Department 2 to finished goods inventory. The 2,550 units remaining in Department 2 were 70% completed with respect to conversion costs.
8. Sold 20,000 units on account at $27 per unit. Patterson uses weighted average inventory costing procedures for the finished goods inventory.

Required

1. Record the January transactions in general journal form for Department 1 and department 2.
2. Prepare a product cost report (with its supporting calculations) for Department 1.
3. Prepare a product cost report (with its supporting calculations) for Department 2.
4. Determine the balances remaining in the Materials Inventory account, in each work-in-process account, and in the Finished Goods Inventory account.

Answer 1

Journal entries are the first step in recording all financial transactions of the business in chronological order. from this general journal further books of accounts like a ledger, financial statements, etc. are made.

January transactions in general journal are as follows:

Date	Particulars	L.F.	Debit Amount	Credit Amount
1	Inventory		$ 90,000
	Accounts Payable			$ 90,000
	(Being inventory purchased on account)
2	Work-in-progress - Department 1		$ 84,000
	Inventory A/c			$ 84,000
	(Being inventory used in Department 1)
3	Work-in-progress - Department 1		$ 108,116
	Work-in-progress - Department 2		$ 62,700
	Manufacturing Overheads		$ 51,000
	Wages Payable			$ 221,816
4	Manufacturing Overheads		$ 81,000
	Other Accounts			$ 81,000
	(Being Manufacturing Overheads incurred)
5	Work-in-progress - Department 1		$ 88,000
	Work-in-progress - Department 2		$ 43,900
	Manufacturing Overheads			$ 131,900
	(Being Manufacturing Overheads applied in both the departments)
6	Work-in-progress - Department 1		$ 285,500
	Work-in-progress - Department 2			$ 285,500
	(To record the transfer of goods from Department 1 to department 2)
7	Finished Goods		$ 425,900
	Work-in-progress - Department 2			$ 425,900
	(To record the transfer of goods from one department to the other)

First journal entry is to record the inventory purchased on account worth $ 90,00 as given in the question. Inventory is an asset (real) account and is increasing so it is debited and it is purchased on account (that is, on credit) so the liability is increasing and so accounts payable account is credited as above.

Second journal entry is done to record the usage of inventory in department 1 as above. inventory is an asset (real) account and is decreasing so, credited and department 1 has received it so, department 1 account is debited as above.

Third Journal Entry is done to record the wages due for both departments 1 and 2 as well as manufacturing overheads being due. All due amounts are the liabilities for the company and any increase in liabilities is credited so wages payable account is credited as above and all expenses are debited as above.

Fourth journal entry is done to record the manufacturing overheads as expense for the company so are debited as above.

Fifth journal entry is to record the application of manufacturing overheads in both the departments individually

Goods are transferred from Department 1 to Department 2 with the completion and 20% completed in department 1 are kept as closing inventory of department 1.

Next entry is to record the transfer of finished goods from department 2 to the finished goods inventory for sale and the work-in-progress for those many units of goods transferred is closed by crediting the work-in-progress account as above.

b.

Cost report for Department 1 is calculated as follows:

Number of Units Transferred
Particulars	Units
Beginning Units (given)	3,000
Units Produced	24,000
Units Transferred	25,000
Closing Inventory	2,000

Opening Inventory is given in the question as 3,000 units and produced is given as 24,000, further, units transferred from Department 1 to department 2 are given as 25,000 that is, closing inventory for department 1 is calculated as 2,000 units which is given as 20% complete.

Computation of cost for department 1 is as follows:

Computation of Cost
Particulars	Amount	Amount
Materials		$ 84,000
Conversion Cost
Direct Labor	$ 108,116
Overheads Cost	$ 88,000	$ 196,116
Total Cost		$ 280,116

Material Cost, Direct Labor Cost for Department 1 and overheads cost for department 1 is given in the question and costs given exclusively for department 1 are added as above.

Computation of Equivalent Units:

Particulars	Number of Units	%	Percentage Completion on Materials	%	Percentage completion on Conversion Cost
Beginning Inventory	3,000	0	0	70%	2,100
Units Transferred to Department 2	22,000	100%	22,000	100%	22,000
Closing Inventory	2,000	100%	2,000	20%	400
Equivalent Units Produced in January	27,000	100%	24,000		24,500
Add: Inventory		100%	3,000	30%	900
Total Equivalent Units			27,000		25,400

Product Cost Report for Department 1 is as follows:

Particulars	Direct Material Cost	Conversion Cost	Total Cost
Beginning Inventory	$ 4,560	$ 10640	$ 15,200
Current Inventory	$ 84,000	$ 196,116	$ 280,116
Total Cost	$ 88,560	$ 206,756
Total Equivalent Units	27,000	25,400
Average Cost per Equivalent Units	$ 3.28	$ 8.14

As seen above, Beginning Inventory is given in the question as $ 4,560 (Direct Material Cost) and $ 10,640 (Conversion Cost) so the total cost is $ 15,200 (Sum of Direct Material Cost and Conversion Cost)

Current Inventory $ 84,000 (Direct Material) is given and Conversion Cost is calculated in the Cost Computation for department 1 Table above.

Total Cost for Material is calculated as $ 88,560 (Sum of $ 4,560 and $ 84,000) and Conversion Cost total is calculated as $ 206,756 as above. Further, Equivalent Units are calculated in the Computation of Equivalent units table above.

The average cost per unit is calculated by diving the total cost by equivalent units as above. The Average Cost for Materials is $ 3.28 per unit (Total Cost $ 88,560 divided by 27,000 units) and the Average Cost for Conversion is $ 8.14 per unit (Total Cost $ 206,756 divided by 25,400 units) as above.

d.

the Ending Inventory remaining in each of Department 1 and Department 2 and finished goods account is calculated as follows:

Particulars	Number of units	Total Cost	% Completion	Completion Cost
Ending Inventory in Material		$ 36,000	100%	$ 6,000
Ending Inventory in Department 1	2,000	$ 280,116	20%	$ 56,023.2
Ending Inventory in Department 2	2,550	$ 106,600	70%	$ 74,620
Ending Inventory in Finished Goods	6,000	at the rate of $ 27 per unit	100%	$ 162,000

As given in the question, out of the 26,000 units transferred as finished goods from department 2, only 20,000 units were sold that is, balance 6,000 units are remaining as closing inventory with the company and since it is finished goods so, 100% of the cost is taken in the table above.

Further, Material inventory is given as 84,000 consumed when purchased was $90,000 and opening inventory is given as $ 30,000 that is, closing inventory is $ 36,000 as above.

Ending Inventory for department 1 and 2 are given in terms of units and the total cost is calculated in the tables above and percentage completion is also given so, the total cost is distributed as per the percentage completion of the ending inventory as above.