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Exam 3: Process Cost Systems

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Question 1

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In a process costing system, each process will have a work in process inventory account.

A) True
B) False

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Question 2

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Erin Company's inventory at December  1, and the costs charged to Work in Process-Department B during December are as follows: During December , all direct materials are transferred from Department A, the units in process at December  1 were completed, and of the 26,000 units entering the department, all were completed except 1,000 units which were 70% completed as to conversion costs.  Inventories are costed by the first-in, first-out method. Prepare a cost of production report for December .

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The cost per equivalent units of direct materials and conversion in the Bottling Department of Beverages on Jolt Company is $0.47 and $0.15, respectively. The equivalent units to be assigned costs are as follows. The beginning work in process inventory had a cost of $3,500. Determine the cost of completed and transferred out production, and the ending work in process inventory.

Department B had 3,000 units in Work in Process that were 25% completed at the beginning of the period at a cost of $12,500. 13,700 units of direct materials were added during the period at a cost of $28,700. 15,000 units were completed during the period, and 1,700 units were 95% completed at the end of the period. All materials are added at the beginning of the process. Direct labor was $32,450 and factory overhead was $18,710. The number of equivalent units of production for the period for materials, if the first-in, first-out method is used to cost inventories was

Equivalent units should be computed separately for direct materials and conversion costs.

Department E had 4,000 units in Work in Process that were 40% completed at the beginning of the period at a cost of $12,500. 14,000 units of direct materials were added during the period at a cost of $28,700. 15,000 units were completed during the period, and 3,000 units were 75% completed at the end of the period. All materials are added at the beginning of the process. Direct labor was $32,450 and factory overhead was $18,710. The number of equivalent units of production for the period for conversion if the average cost method is used to cost inventories was

Conversion costs are generally added evenly throughout the process.

Industries that typically use process cost systems include chemicals, oil, metals, food, paper, and pharmaceuticals.

Explain the concept of equivalent units. Give an example to validate your explanation.

Tough Hardware purchases raw materials and processes those purchases through a receiving/inspection process prior to stocking for production. Tough places 3 purchase orders for materials for production and receives the goods that day. The first PO is for 2,500 1/2"  × 96" milling blanks at $2.75 each. The second is for 4,000 pieces of 48" × 96" × 1" sheet steel at $15.55 each. The third PO is for five 5 gallon drums of milling lubrication oil at $475.00 per barrel. The receiving/inspection process is completed and the goods are transferred from Receiving Inventory to Raw Materials. The Receiving/Inspection Department assigns manufacturing overhead of $55.00 per purchase order as well as $2.75 per piece on metal goods and $35.00 per container on fluids. All labor is allocated through overhead. (a) Write the journal entry to purchase and receive these items to Receiving Inventory on account. (b) Assign overhead to the metal goods. (c) Assign overhead to the fluid goods. (d) Transfer all goods to Raw Materials Inventory.

Department J had no work in process at the beginning of the period; 18,000 units were completed during the period; and 2,000 units were 30% completed at the end of the period.  The following manufacturing costs were debited to the departmental work in process account during the period (Assume the company uses FIFO and rounds cost per unit to two decimal places) : Assuming that all direct materials are placed in process at the beginning of production, what is the total cost of the departmental work in process inventory at the end of the period?

Fast-Flow Paints produces mixer base paint through a two-stage process, Mixing and Packaging. The following events depict the movement of value into and out of production. Journalize each event if appropriate; if not, provide a short narrative reason as to why you choose not to journalize the action.  Nelson, the production manager, accepts an order to continue processing the current run of mixer base paint. (a) Materials worth $27,000.00 are withdrawn from raw materials inventory. Of this amount, $25,500.00 will be issued to the Mixing Department and the balance will be issued to the Maintenance Department to be used on production line machines. (b) Nelson calculates that labor for the period is $12,500.00. Of this amount, $1,750.00 is for maintenance and indirect labor.  The remainder is directly associated with mixing. (c) Nelson, who is paid a salary but earns about $35.00/hour, spends 1 hour inspecting the production line. (d) The manufacturing overhead drivers for mixing are hours of mixer time at $575.00 per hour, and material movements from materials at $125.00 per movement. An inspection of the machine timers reveals that a total of 8 hours has been consumed in making this product. An inspection of "stocking orders" indicates that only one material movement was utilized to load the raw materials. ( Note: All values have been journalized to Factory Overhead, you need only apply them to the production run.) (e) Within Fast-Flow, items are transferred between departments at a standard cost. This production run has created 4,015 gallons of mixer base paint. This paint is transferred to Packaging at a standard cost of $10.05 per gallon. (Round calculation to nearest whole dollar.) (f) Packaging draws $755.00 of materials for packaging of this production run. (g) Packaging documents that 12 hours of direct labor at $10.25 per hour were consumed in the packaging of this production run. (h) Packaging uses a cost driver of direct labor hours to allocate manufacturing overhead at the rate of $25.00 per hour. (i) Packaging transfers 4,015 gallons of packaged goods to Finished Goods Inventory at a standard cost of $10.34 per gallon. (Round calculation to nearest whole dollar.)

The estimated total factory overhead cost and total machine hours for Department 40 for the current year are $250,000 and 56,250, respectively.  During January, the first month of the current year, actual machine hours used totaled 5,100 and factory overhead cost incurred totaled $22,000. (a) Determine the factory overhead rate based on machine hours. (b) Present the entry to apply factory overhead to production in Department 40 for January. (c) What is the balance of Factory Overhead-Department 40 at January 31? (d) Does the balance of Factory Overhead-Department 40 at January 31 represent overapplied or underapplied factory overhead? Round total cost to nearest dollar value.

If 16,000 units of materials enter production during the first year of operations, 12,000 of the units are finished, and 4,000 are 75% completed, the number of equivalent units of production would be 15,000.

Department S had no work in process at the beginning of the period. It added 12,000 units of direct materials during the period at a cost of $84,000; 9,000 units were completed during the period; and 3,000 units were 30% completed as to labor and overhead at the end of the period. All materials are added at the beginning of the process. Direct labor was $49,500 and factory overhead was $9,900. The total conversion costs for the period were

The Bottling Department of Mountain Springs Water Company had 4,000 liters in beginning work in process inventory (40% complete). During the period, 66,000 liters were completed. The ending work in process inventory was 3,000 liters (70% complete). Using the FIFO method, what are the equivalent units for conversion costs?

The four steps necessary to complete a cost of production report in a process cost system are 1) allocate costs to transferred and partially completed units 2) determine the units to be assigned costs 3) determine the cost per equivalent unit 4) calculate equivalent units of production The correct ordering of the steps is:

The inventory at June 1 and costs charged to Work in Process-Department 60 during June are as follows: (a) Equivalent units of production for conversion cost (b) Conversion cost per equivalent unit (c) Total and unit cost of finished goods started in prior period and completed in the current period (d) Total and unit cost of finished goods started and completed in the current period (e) Total cost of work in process inventory, June 30

In a process cost system, the amount of work in process inventory is valued by

Stevens Company's inventory on March 1 and the costs charged to Work in Process-Department B during March are as follows: During March , all direct materials were transferred from Department A, the units in process at March  1 were completed, and of the 55,000 units entering the department, all were completed except 6,000 units which were 70% completed. Inventories are costed by the first-in, first-out method. Prepare a cost of production report for March . Round unit cost data to four decimal places and total cost to nearest cent.