Question

Question 2 Vaasa Chemicals makes a product by way of two processes- Mixing & Refining. Its process- costing system in the Mixing Department has two direct cost categories (Chemical P & Chemical Q) and one conversion costs pool. Chemical P is introduced at the start of the operations in the Mixing Department, and Chemical Q is added when the product is three- fourths completed in the Mixing Department. Conversion costs are added evenly during the process. The following data pertain to the Mixing Department for July: Units Work in process, July 1 Started production Completed and transferred out to Refining Department Ending work in process inventory (two-thirds of the way through the Mixing process) 50,000 35,000 15,000 SO Costs Beginning WIP inventory Costs added during January Chemical P Chemical Q Direct Labour Manufacturing overhead 250,000 70,000 32,000 103,000 Required: Compute the equivalent units in the Mixing Department for direct materials and for conversion costs Compute: a) the cost of the units completed and transferred out to the Refining Department b) the cost of work in process inventory as of July 31 iii) Prepare the journal entry to record the cost of the units completed and transferred out to the Refining Department. iv) Post the journal entries to the Work in Process Inventory - Mixing Department T- account. What is the ending balance?

Answer 1

Answer ;

Given that :

Units :

Work in progress inventory, July = 0

Started production = 50,000

Completed and transferred to refining department = 35,000

Ending work in progress inventory (Two third of mixing process) = 15,000

Costs :

Chemical P = 250,000

Chemical Q = 70,000

Direct labor = 32,000

Manufacturing overhead = 103,000

i)From the given data Here we are calculating the unit cost ;

First Equivalent units :

particulars	Chemical		Direct labor	Factory overhead
	P	Q
Finished and transfered	35,000	35,000	35,000	35,000
Closing inventory	= 15,000 * (2/3) = 10,000	0	10,000	10,000
Total units	= 35,000 + 10,000 = 45,000	=35,000 + 0 = 35,000	= 35,000 + 10,000 = 45,000	= 35,000 + 10,000 = 45,000

Now,Calculation for Cost per equivalent units :

Particulars	Cost	Equivalent units	Per Unit cost
Chemical P	250,000	45,0000	= 250,000 / 45,000 = 5.56
Chemical Q	70,000	35,000	= 70,000 / 35,000 = 2
Direct labor	32,000	45,000	= 32000 / 45,000 = 0.71
Factory overhead	103,000	45,000	= 103,000 / 45,000 = 2.29
Total cost of unit			= 5.56 + 2 + 0.71 + 2.29 = 10.56

Total cost of unit = 10.56

ii)a)The cost of the units completed and transferred out to the Refining Department :

Given completed and transferred out = 35,000

Therefore,

cost of the units completed and transferred out = completed and transferred out * total unit cost

= 35,000 * 10.56

= 369,600

cost of the units completed and transferred out = 369,600

b) The cost of work in process inventory as of July 31 :

Particulars	calculation=ending inventory * cost per unit	Amount
Chemical p	=10,000*5.56 = 55,600	$ 55,600
Direct labour	=10000*0.71 =7,100	$7,100
Factory overhead	=10000*2.29 =22,900	$22,900
Total cost of work in progress		=55,600 + 7,100 + 22,900 = $ 85,600

iii)Journal entry for cost of units completed and transfered out :

Particulars	Debit	Credit
Mixing work in progress To Refining work in progress inventory	$ 369,600	$ 369,600

iv)Mixing T - account :

Particulars	Debit	Credit
Opening balance	0
Raw material transfer to refining		$ 369,600
Chemical P	$ 250,000
Chemical Q	$ 70,000
Direct labour	$ 32,000
Manufacturing Overhead	$ 103,000
Closing inventory		$ 85,400
Total amount	= 250,000 + 70,000 + 32,000 + 103,000 = 455,000	= 369,600 + 85,400 = 455,000