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DELAWARE COMPANY produces yarn made from imported wool

Economics

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DELAWARE COMPANY

produces yarn made from imported wool.  It is done in three processes:  processing, spinning and finishing.  Raw wool is processed, spun, and finished before being shipped out to knitting and weaving companies. In the processing department, material is added in the beginning of processing, and conversion costs are added evenly throughout processing.  The company uses normal costing to apply overhead to production.

 

In the Processing Department (the first department), they began the month of August with 10,000 units in process which were 70 percent complete as to conversion (labor and overhead). It started 70,000 units into production during the month of August of which 20,000 remained in ending Work in Process inventory which were 40 percent complete as to conversion costs. The cost data for the Production Department is as follows:

 

				MAT'L	CONV	TOTAL
BWIP				$10,000	$3,500	$13,500
CURRENT ADDED				126,000	30,500	156,500
TOTAL COSTS				$136,000	$34,000	$170,000

 

Required

1. Prepare a production cost report for the month of August using the FIFO method, as follows:

1. Reconcile the physical units (units to account for and units accounted for)
2. Determine costs to account for
3. Compute equivalent units of production
4. Compute cost per equivalent unit
5. Determine the cost of goods transferred and ending work-in-process inventory

2. ke the appropriate journal entries for the following events:

1. Record raw materials used
2. Record conversion costs incurred (assume $4,500 in direct labor and $26,000 of overhead).
3. Record cost of goods completed and transferred.

3. Answer the following questions:

1. What is process costing?  What are the typical characteristics of a company that should use a process costing system?
2. What is meant by the term “continuous processing”?  Give an example.
3. What are the primary differences between job costing and process costing?
4. What is an equivalent unit?  Why is it necessary in process costing?  Why don’t we use equivalent units in job costing?
5. Why is it necessary to compute separate per-unit costs for materials and conversion costs?
6. In the case above, how would the cost per unit be different if beginning WIP inventory for the month was only 50% complete, instead of 70%?

4. NOW ASSUME that there was no BEGINNING WIP at the start of August; that is, assume that all 80,000 of the units worked on were started in August, (including the 10,000 of BWIP).  This means all costs shown above, including the $13,500 - were also incurred in the current period – August.  Repeat requirement 1 using this assumption

1. What was the new cost per unit?
2. Why was this different?
3. Is this an okay assumption to make?  Explain why or why not.