Question

In its Department R, Recyclers, Inc., processes donated scrap cloth into towels for sale in local thrift shops. It sells the products at cost. The direct materials costs are zero, but the operation requires the use of direct labor and overhead. The company uses a process costing system and tracks the processing volume and costs incurred in each period. At the start of the current period, 450 towels were in process and were 60 percent complete. The costs incurred were $160.

During the month, costs of $15,600 were incurred, 3,900 towels were started, and 225 towels were still in process at the end of the month. At the end of the month, the towels were 20 percent complete.

Required:

a. Prepare a production cost report: the company uses FIFO process costing. (Round "Cost per equivalent unit" to 2 decimal places.)

b. Show the flow of costs through T-accounts. Assume that current period conversion costs are credited to various payables.

Answer 1

ANSWER

a.

Production Cost Report
Flow of production units	Equivalent Units
	Physical Units	Conversion Units
Units to be accounted for:
Beginning WIP inventory	450
Units started this period	3,900
Total units to be accounted for	4350
Units accounted for:
Units completed and transferred out:
From beginning inventory	450	180	[450 *40%]
Started and completed currently	3675	3675	[3675*100%]
Units in ending WIP inventory	225	45	[150*20%]
Total units accounted for	4350	3900

b.

Cost of equivalent unit for current units introduced = 15,600 / 3,900 = $4

Work in Process
	Debit		Credit
Beginning Balance	160	Finished goods	15,580
			[(180 units *4 )+ 15,600 + 160]
Conversion cost	15,600
Ending balance	180
	[45 units*4]

Finished Goods
	Debit		Credit
Beginning Balance	0
Work in Process	15,580
Ending balance	15,580

Various Payable
	Debit		Credit
		Beginning Balance	0
		Conversion	15,600
		Ending balance	15,600

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