Question

Problem 8-58 (Static) Prepare a Production Cost Report and Show Cost Flows through Accounts: FIFO Method (LO 8-4, 5)

In its Department R, Recyclers, Inc., processes donated scrap cloth into towels for sale in local thrift shops. It sells the products at cost. The direct materials costs are zero, but the operation requires the use of direct labor and overhead. The company uses a process costing system and tracks the processing volume and costs incurred in each period. At the start of the current period, 300 towels were in process and were 60 percent complete. The costs incurred were $576.

During the month, costs of $10,800 were incurred, 2,700 towels were started, and 150 towels were still in process at the end of the month. At the end of the month, the towels were 20 percent complete.

Required:

a. Prepare a production cost report; the company uses FIFO process costing.

b. Show the flow of costs through T-accounts. Assume that current period conversion costs are credited to various payables.

Answer 1

a.

		Conversion Costs
Units to account for
Beginning Work in process	300
Units started	2700
Total Units to account for	3000
Units accounted for
Inventory in Process, Beginning	300	120
Started and completed	2550	2550
Units transferred	2850	2670
Equivalent units in ending WIP	150	30
Total units accounted for	3000
Equivalent units of production		2700
	Conversion Costs
Cost added during the production	$      10,800
Equivalent units of production	2700
Cost per Equivalent unit	$           4.00
	Conversion Costs
Inventory in Process, Beginning	$            576
Costs incurred	$      10,800
Total Costs to be accounted for	$      11,376
Costs allocated
Inventory in Process, Beginning	$            576
To completed beginning inventory	$            480
Total Cost of Work in Process	$         1,056
Started and completed	$      10,200
Transferred to Finished Goods	$      11,256
Inventory in Process, Ending	$            120
Total Costs accounted for	$      11,376

2.

Work in Process Inventory
Beg Bal	$            576
Conversion Costs	$      10,800	$        11,256	Finished Goods
End Bal	$            120

Finished Goods Inventory
Beg Bal	$           -
Work in Process Inventory	$ 11,256	$           -	Finished Goods
End Bal	$ 11,256

Conversion Costs
Beg Bal	$                -
Various Payables	$      10,800	$        10,800	Work in Process Inventory
End Bal	$                -