Question

Equivalent Units and Related Costs; Cost of Production Report; Entries

Dover Chemical Company manufactures specialty chemicals by a series of three processes, all materials being introduced in the Distilling Department. From the Distilling Department, the materials pass through the Reaction and Filling departments, emerging as finished chemicals.

The balance in the account Work in Process—Filling was as follows on January 1:

Work in Process—Filling Department
(4,500 units, 80% completed):
	Direct materials (4,500 x $14.5)	$65,250
	Conversion (4,500 x 80% x $9.4)	33,840
		$99,090

The following costs were charged to Work in Process—Filling during January:

Direct materials transferred from Reaction
	Department: 58,100 units at $14.2 a unit	$825,020
Direct labor		274,180
Factory overhead		263,420

During January, 57,600 units of specialty chemicals were completed. Work in Process—Filling Department on January 31 was 5,000 units, 40% completed.

Required:

1. Prepare a cost of production report for the Filling Department for January. If an amount is zero, enter "0". If required, round your cost per equivalent unit answers to two decimal places.

Dover Chemical Company
Cost of Production Report-Filling Department
For the Month Ended January 31
Unit Information
Units charged to production:
Inventory in process, January 1
Received from Reaction Department
Total units accounted for by the Filling Department
Units to be assigned costs:
		Equivalent Units
	Whole Units	Direct Materials	Conversion
Inventory in process, January 1
Started and completed in January
Transferred to finished goods in January
Inventory in process, January 31
Total units to be assigned costs
Cost Information
Cost per equivalent unit:
		Direct Materials	Conversion
Total costs for January in Filling Department		$	$
Total equivalent units
Cost per equivalent unit		$	$
Costs assigned to production:
	Direct Materials	Conversion	Total
Inventory in process, January 1			$
Costs incurred in January
Total costs accounted for by the Filling Department			$
Costs allocated to completed and partially completed units:
Inventory in process, January 1 balance			$
To complete inventory in process, January 1		$
Cost of completed January 1 work in process			$
Started and completed in January	$
Transferred to finished goods in January			$
Inventory in process, January 31
Total costs assigned by the Filling Department			$

Feedback

1. Calculate equivalent units for materials and conversion costs. Calculate the cost per equivalent unit for materials and conversion costs. Calculate the costs assigned to the beginning inventory, the units started and completed, and the ending inventory.

2. Journalize the entries for (1) costs transferred from Reaction to Filling and (2) the cost transferred from Filling to Finished Goods.

(1)	Work in Process-Filling Department
	Work in Process-Reaction Department
(2)	Finished Goods
	Work in Process-Filling Department

Feedback

2. Remember that there are three types of inventory; materials, work in process, and finished goods. What costs are captured in the work in process account? Are these units 100% complete or are they being transferred to another department?

3. Determine the increase or decrease in the cost per equivalent unit from December to January for direct materials and conversion costs. If required, round your answers to two decimal places.

	Increase or Decrease	Amount
Change in direct materials cost per equivalent unit	Decrease	$
Change in conversion cost per equivalent unit	Increase	$

4. Discuss the uses of the cost of production report and the results of part (3).

The cost of production report may be used as the basis for allocating product costs between   and  . The report can also be used to control costs by holding each department head responsible for the units entering production and the costs incurred in the department. Any differences in unit product costs from one month to another, such as those in part (3), can be studied carefully and any significant differences investigated.

Feedback

3 and 4. Compare the costs per equivalent unit for December and January. Review the benefits of the cost of production report.

Answer 1

Solution 1:

Dover Chemical Company
Cost of Production Report-Filling Department
For the Month Ended January 31
Unit Information
Units charged to production:
Inventory in process, January 1			4500
Received from Reaction Department			58100
Total units accounted for by the Filling Department			62600
Units to be assigned costs:
		Equivalent Units
	Whole Units	Direct Materials	Conversion
Inventory in process, January 1	4500	0	900
Started and completed in January	53100	53100	53100
Transferred to finished goods in January	57600	53100	54000
Inventory in process, January 31	5000	5000	2000
Total units to be assigned costs	62600	58100	56000
Cost Information
Cost per equivalent unit:
		Direct Materials	Conversion
Total costs for January in Filling Department		$825,020.00	$537,600.00
Total equivalent units		58100	56000
Cost per equivalent unit		$14.20	$9.60
Costs assigned to production:
	Direct Materials	Conversion	Total
Inventory in process, January 1	$65,250.00	$33,840.00	$99,090.00
Costs incurred in January	$825,020.00	$537,600.00	$1,362,620.00
Total costs accounted for by the Filling Department	$890,270.00	$571,440.00	$1,461,710.00
Costs allocated to completed and partially completed units:
Inventory in process, January 1 balance	$65,250.00	$33,840.00	$99,090.00
To complete inventory in process, January 1	$0.00	$8,640.00	$8,640.00
Cost of completed January 1 work in process	$65,250.00	$42,480.00	$107,730.00
Started and completed in January	$754,020.00	$509,760.00	$1,263,780.00
Transferred to finished goods in January	$819,270.00	$552,240.00	$1,371,510.00
Inventory in process, January 31	$71,000.00	$19,200.00	$90,200.00
Total costs assigned by the Filling Department	$890,270.00	$571,440.00	$1,461,710.00

Solution 2:

Journal Entries - Dover Chemical Company
S. No.	Particulars	Debit	Credit
1	Work In Process - Filling Department Dr	$825,020.00
	To Work In Process - Reaction Department		$825,020.00
	(Being cost of goods completed in reaction transferred to Filling department)
2	Finished Goods Inventory Dr	$1,371,510.00
	To Work In Process - Filling Department		$1,371,510.00
	(Being completed units transferred to finished goods)

Solution 3:

Particulars	Increase or Decrease	Amount
Change in direct materials cost per equivalent unit ($14.20 - $14.50)	Decrease	$0.30
Change in conversion cost per equivalent unit ($9.60 - $9.40)	Increase	$0.20

Solution 4:

The cost of production report may be used as the basis for allocating product costs between work in process and Transferred out goods. The report can also be used to control costs by holding each department head responsible for the units entering production and costs incurred in the department. Any differences in unit product costs from one month to another such as those in part (3) can be studied carefully and any significant differences investigated.