Question

Suppose that Peace Corporation, chemical manufacturing Company, has two production departments using sequential production flow: the Mixing Department and the Bottling Department. In the Mixing Department direct material consisting ingredient chemicals is added at the beginning of the production process. Direct labor and manufacturing overhead costs are incurred evenly throughout the production process. Predetermined overhead rate is used in the mixing department using direct labor cost as a cost allocation base and at 125% overheads per $1 direct labor cost. The following table presents the summary activity performed in Mixing Department during March. The direct material and conversion costs listed under beginning work in process section represent the work done during February . Work in process, March 1: 20,000 Units Direct material, 100% Complete, cost of* $50,000 Conversion costs, 10% Complete, cost of* 7,200 Balance in work in process, March 1* $57,200 Units started in March 30,000 Units Units completed during March and transferred out of the Mixing department 40,000 Units Work in process, March 31: 10,000 Units Direct material, 100% Complete Conversion costs, 50% Complete Costs incurred During March: Direct material $90,000 Conversion costs: Direct labor $86,000 Applied Manufacturing Overhead** 107,500 Total Conversion Costs $193,500 *These costs were incurred during the month of February **Overhead is allocated at 125% of Direct Labor cost Required: prepare the cost production report based on FIFO and Weighted Average method and record the necessary Entries.

Answer 1

1) Peace Corporation - Mixing Department Production Cost Report (FIFO Method) For the March Month Unit Information Units charged to production: Inventory in proces, beginning balance Materials added in March Total units accounted for by the department 20,000 30,000 50,000 Units to be assigned costs: Inventory in proces, beginning balance Started and Completed in March Transferred to next department in March Inventory in proces, ending balance Total units to be assigned costs Equivalent Units Whole Materials Conversion Units 20,000 0 18,000 20,000 20,000 20,000 40,000 20,000 38,000 10,000 10,000 5,000 50,000 30,000 43,000 100 Cost Information

Total cost for March in the department Total Equivalent units Cost per equivalent unit Materials $90,000 30,000 $3.00 Conversion $193,500 43,000 $4.50 Costs assigned to production: Materials Conversion Total $57,200 $283,500 $340,700 Inventory in proces, beginning bal. Costs incurred in current period Total costs accounted for Costs allocated to completed and partially completed units: Inventory in proces, beginning bal. To complete inventory in process, beginning bal. Cost of completed beginning bal. work in process Started and completed in March Transferred to Finished goods in March Inventory in proces, ending balance Total costs assigned by the department $81,000 $60,000 $90,000 $57,200 $81,000 (350 x $5.10] $138,200 $150,000 $288,200 $52,500 $340,700 $30,000 $22,500 Workings:

Under FIFO method, equivalent units would consist efforts required to complete the beginning inventory, efforts put for completed and transferred out goods and ending inventory. As the materials are introduced at the beginning itself, beginning inventory is 100% complete in terms of materials, 0% efforts would be required in current process or period whereas conversion costs would require the uncompleted portion of costs in current process or period. That is, it was complete 10% already and so 90% efforts would be required for conversion in current period. Units in beginning inventory Add: Units added during the period Less: Units in ending inventory Units completed and transferred out 20,000 30,000 -10,000 40,000 --> Of which 20000 units shall be from beg. inventory; Bal. 20000 units from current. Particulars Physical Units EUP Materials | EUP Conversion Conversion Materials 0% 100% 90% 100% [20000 units x 0%; 20000 units x 90%] [20000 units x 100%; 20000 units x 100%] Beginning work in process Started, Completed and transferred Transferred to next process Ending work in process Equivalent Units of Production (EUP) 20,000 20,000 40,000 10,000 50,000 20,000 20,000 10,000 30,000 18,000 20,000 38,000 5,000 43,000 100% 50% [10000 units x 100%; 10000 units x 50%]

Cost per equivalent units of production Direct Materials Conversion Cost of beginning work in process Cost added during the period Total Materials Costs & Conversion Costs Equivalent units of Production (EUP) Cost per Equivalent units of Production $90,000 $90,000 30,000 $3.00 [Under FIFO method, it shall not be considered here] $193,500 [Conversion = $86,000 + ($86,000 x 125%) --> Labor + Overhead] $ 193,500 43,000 [As computed EUP schedule presented above] $4.50 [Materials = $90000 / 30000 units = $3; Conversion = $193500 / 43000 = $4.5] Cost of goods completed & transferred EUP Cost per EUP Totals Materials - Beginning cost Conversion - Beginning Cost Cost of goods completed & trfd from beginning $50,000 $7,200 $57,200 [Given] [Given] 20,000 38,000 $3.00 $4.50 [20000 units x $3] [38000 units x $4.5] Materials - Current Cost Labor - Current Cost Cost of goods completed & trfd from current Total Cost of goods completed & transferred $60,000 $171,000 $231,000 $288,200 [$57200 + $231000]

Cost of ending work-in-process EUP Totals Cost per EUP $3.00 $4.50 Materials Labor Total cost of ending work-in-process 10,000 5,000 $30,000 $22,500 $52,500 [10000 units x $3] [5000 units x $4.5] Peace Corporation - Mixing Department Production Cost Report (Weighted Average Method) For the March Month Unit Information Units charged to production: Inventory in proces, beginning balance Materials added in March Total units accounted for by the department 20,000 30,000 50,000 Units to be assigned costs: Equivalent Units Whole Materials Conversion Units 40,000 40,000 40,000 10,000 10,000 5,000 50,000 50,000 45,000 Transferred to next department in March Inventory in proces, ending balance Total units to be assigned costs

Cost Information Total cost for March in the department Total Equivalent units Cost per equivalent unit Materials $140,000 50,000 $2.80 Conversion $200,700 45,000 $4.46 Costs assigned to production: Materials $50,000 $90,000 Conversion $7,200 $193,500 Total $57,200 $283,500 $340,700 Inventory in proces, beginning bal. Costs incurred in current period Total costs accounted for Costs allocated to completed and partially completed units: Transferred to next department in March Inventory in proces, ending balance Total costs assigned by the department $112,000 $28,000 $178,400 $22,300 $290,400 $50,300 $340,700 Workings: Under weighted average method, equivalent units are to be calculated only for units completed & transferred out and units lying as ending work in process as it is assumed that the units once entered into the process become integral part of total units and no segregation between units transferred from beginning work in process and introduced during current process. Conversion cost includes Labor + Overheads. So,

Physical units of production: Units in beginning inventory Add: Units started during current period Less: Units in ending inventory Units completed and transferred out 20,000 30,000 -10,000 40,000 Particulars Completed and transferred Ending work in process Equivalent Units of Production (EUP) Whole Units 40,000 10,000 50,000 Materials 100% 100% EUP Materials 40,000 10,000 50,000 L % EUP- Conversion Conversion 100% 40,000 [40000 units x 100%; 40000 units x 100%] 50% 5,000 [10000 units x 100%; 10000 units x 50%] 45,000 Cost per equivalent units of production Cost of beginning work in process Cost added during the period Total Materials Costs & Conversion Costs Divided by Equivalent units of Production (EUP) | Cost per Equivalent units of Production Materials Conversion $50,000 $7,200 $90,000 $193,500 [Conversion = $86,000 + ($86,000 x 125%) --> Labor + Overhead] $140,000 $200,700 50,000 45,000 [As computed EUP schedule presented above] $2.80 $4.46 ($140000 / 50000 units = $2.8; $200700 / 45000 units = $4.46]

Cost per Cost of goods completed & transferred EUP Totals EUP Materials Conversion Total Cost of goods completed & transferred out 40,000 40,000 $2.80 $4.46 $112,000 $178,400 $290,400 [40000 units x $2.8] [40000 units x $4.46] Cost of ending work-in-process EUP Totals Cost per EUP $2.80 $4.46 Materials Conversion Total cost of ending work-in-process 10,000 5,000 $28,000 $22,300 $50,300 [10000 units x $2.8] [5000 units x $4.46]