Question

For all Problems, assume the weighted-average method is to be used unless you are told otherwise.

Preparing a production cost report, second department, with beginning WIP and transferred in costs; journal entries; FIFO method

Happy Colors manufactures crayons in a three-step process: mixing, molding packaging. The Mixing Department combines the direct materials of paraffin wax and pigments. The heated mixture is pumped to the Molding Department, where it is poured into molds. After the molds cool, the crayons are removed from the molds and are transferred to the Packaging Department, where paper wrappers are added and the crayons are boxed.

In the Mixing Department, the direct materials are added at the beginning of the process and the conversion costs are incurred evenly throughout the process. Work in process of the Mixing Department on April 1, 2018, consisted of 300 batches of crayons that were 30% of the way through the production process. The beginning balance in Work-in-Process Inventory—Mixing was 527,800, which consisted of 310 TM in direct materials costs and $17,100 in conversion costs. During April, 3,200 batches were started in production. The Mixing Department transferred 2,800 batches to the Molding Department in April, and 700 were still in process on April 30. This ending inventory was 80% of the way through the mixing process. Happy Colors uses FIFO process costing.

At April 30, before recording the transfer of costs from the Mixing Department the Molding Department, the Happy Colors general ledger included the following account:

Requirements

1. Prepare a production cost report for the Mixing Department for April. Round equivalent unit costs to four decimal places. Round all other costs to the nearest dollar.

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2. Journalize all transactions affecting the Mixing Department during April, including the entries that have already been posted. Assume the labor costs are accrued and not yet paid.

Answer 1

Preparation of Production Cost Report:

A process department prepares a report stating the production costs, the equivalent units of production and assignment of the costs to the processing and completed units. This report is called as Production cost report.

Follow the steps to prepare a production cost report as stated below:

Step 1: Calculate the total number of physical units accounted for.

Step 2: Compute the equivalent units of production. It is the output.

Step 3: Compute the cost per equivalent unit.

Step 4: Assign costs to the processing and completed units.

1.

Prepare the Production cost report for the month of October as follows:

Therefore, the total cost for the mixing department is .

Journal Entries in Process Costing System:

Costs in the Process costing system are accumulated in the following accounts:

1. Raw Materials Inventory.

2. Work-in-Process Inventory.

3. Manufacturing Overhead.

The production cost reports are prepared at the end of every month. The costs are assigned to the units at that time. The cost relating to the units completed in each process are transferred from the Work-in-Process Inventory account to the Finished Goods Inventory account and the Cost of Goods Sold.

Journal entries:

Journal entry records the financial transactions of a business in a journal book. All the business transactions are recorded in the chronological order using the double entry system of accounting.

Debit and Credit Rules:

Debit will increase the expenses and asset accounts and credit will decrease them.

Credit will increase the revenues, liabilities and equity accounts and debit will decrease them.

Rules of accounting:

Personal Account – Debit the receiver and credit the giver.

Real Account - Debit the assets and credit the liabilities.

Nominal Account – Debit all the expenses and losses and credit the incomes or profits.

2.

Prepare the journal entries to record the assignment of costs to the Mixing department as follows:

Write the Journal Entry for the Raw Material Used in the Production as follows:

Explanation:

Raw Materials Inventory is an asset and its balance is decreasing. So, the account is credited. Work-in-Process Inventory is an asset and its balance is increasing. So the account is debited.

Write the Journal Entry for the Labor Costs Incurred in the Production as follows:

Explanation:

Wages Payable is a liability and its balance is increasing. So, the account is credited. Work-in-Process Inventory is an asset and its balance is increasing. So the account is debited.

Write the Journal Entry for the Manufacturing Overhead allocated to the Production as follows:

Explanation:

Manufacturing Overhead is a liability and its balance is increasing. So, the account is credited. Work-in-Process Inventory is an asset and its balance is increasing. So the account is debited.

Write the Journal Entry for the Transfer of Inventory from one department to the other as follows:

Explanation:

Work-in-Process Inventory is an asset and its balance is decreasing. So, the account is credited. Finished goods inventory is an asset and its balance is increasing. So the account is debited.