Question

Cost of Production and Journal Entries

AccuBlade Castings Inc. casts blades for turbine engines. Within the Casting Department, alloy is first melted in a crucible, then poured into molds to produce the castings. On May 1, there were 1,100 pounds of alloy in process, which were 70% complete as to conversion. The Work in Process balance for these 1,100 pounds was $115,170, determined as follows:

Direct materials (1,100 x $90)	$99,000
Conversion (1,100 x 70% x $21)	16,170
	$115,170

During May, the Casting Department was charged $885,800 for 10,300 pounds of alloy and $82,520 for direct labor. Factory overhead is applied to the department at a rate of 150% of direct labor. The department transferred out 10,700 pounds of finished castings to the Machining Department. The May 31 inventory in process was 55% complete as to conversion.

a1.  Prepare the May journal entry for the Casting Department for the materials charged to production.

	Work in Process-Casting Department
	Materials-Alloy

Feedback

a1. Remember there are three different areas of inventory; materials, work in process, and finished goods.

a2.   Prepare the May journal entry for the Casting Department for the conversion costs charged to production. If an amount box does not require an entry, leave it blank.

	Work in Process-Casting Department
	Wages Payable
	Factory Overhead-Casting Department

Feedback

a2. Remember that a work in process account accumulates all costs (direct materials, direct labor, manufacturing overhead) that are added to the units in a given department. What types of costs are considered conversion costs?

a3.  Prepare the May journal entry for the Casting Department for the completed production transferred to the Machining Department.

	Work in Process-Machining Department
	Work in Process-Casting Department

Feedback

a3. Are these goods ready for finished goods inventory or do these units need to be transferred to another department first?

b.  Determine the Work in Process—Casting Department May 31 balance.
$

c.  Compute the change in the costs per equivalent unit for direct materials and conversion from the previous month (April).

	Cost per Equivalent Unit
Change in materials	Decrease	$
Change in conversion	Decrease

Answer 1

a1.

Account Titles	Debit	Credit
Work in Process-Casting Department	$      885,800
Materials-Alloy		$       885,800

a2.

Account Titles	Debit	Credit
Work in Process-Casting Department	$      213,125
Wages Payable		$          85,250
Factory Overhead-Casting Department		$       127,875	=85250*150%

Costs which are incurred to process the material in production i.e. Direct labor and manufacturing overhead

a3.

Account Titles	Debit	Credit
Work in Process-Machining Department	$   1,139,370
Work in Process-Casting Department		$    1,139,370

These units are not ready yet, transferred to another department i.e. machining department

		Material	Conversion Costs
Units to account for
Beginning Work in process	1100
Units started	10300
Total Units to account for	11400
Units accounted for
Inventory in Process, Beginning	1100	0	330
Started and completed	9600	9600	9600
Units transferred	10700	9600	9930
Equivalent units in ending WIP	700	700	385
Total units accounted for	11400
Equivalent units of production		10300	10315
	Material	Conversion Costs
Cost added during the production	$       885,800	$      206,300
Equivalent units of production	10300	10315
Cost per Equivalent unit	$            86.00	$           20.00
	Material	Conversion Costs	Total
Inventory in Process, Beginning	$         99,000	$        16,170	$       115,170
Costs incurred	$       885,800	$      206,300	$    1,092,100
Total Costs to be accounted for			$    1,207,270
	Material	Conversion Costs	Total
Costs allocated
Inventory in Process, Beginning	$         99,000	$        16,170	$       115,170
To completed beginning inventory	$                   -	$           6,600	$            6,600
Total Cost of Work in Process	$         99,000	$        22,770	$       121,770
Started and completed	$       825,599	$      192,001	$    1,017,600
Completed and Transferred	$       924,599	$      214,771	$    1,139,370
Inventory in Process, Ending	$         60,200	$           7,700	$          67,900
Total Costs accounted for			$    1,207,270

b. Work in Process—Casting Department May 31 balance = $67900

c.

Cost per Equivalent Unit
Change in materials	Decrease	$                    4
Change in conversion	Decrease	$                    1