Question

Cost of Production and Journal Entries

Lighthouse Paper Company manufactures newsprint. The product is manufactured in two departments, Papermaking and Converting. Pulp is first placed into a vessel at the beginning of papermaking production. The following information concerns production in the Papermaking Department for March.

Account Work in Process—Papermaking Department							Account No.
Date		Item	Debit		Credit		Balance
							Debit		Credit
Jan.	1	Bal., 9,300 units, 70% completed					10,602
	31	Direct materials, 49,600 units	94,240				104,842
	31	Direct labor	26,470				131,312
	31	Factory overhead	14,882				146,194
	31	Goods transferred, 55,400 units			?		?
	31	Bal., 3,500 units, 80% completed

Answer 1

Cost of Production Report
	Total units	Direct Materials	Conversion	Total
Units assigned in the production:
Jan. 1, Inventory	9,300
Units added	49,600
Total units to account	58,900
Jan. 1, Inventory (100%-70% = 30%*9,300)	9,300	-	2,790
Units started and completed (55,400 - 9,300)	46,100	46,100	46,100
Units transferred	55,400	46,100	48,890
Jan. 31 Inventory (3,500*80/100)	3,500	3,500	2,800
Total equivalent units	58,900	49,600	51,690
Total costs during the month ($26,470 + $14,882) (a)		$94,240	$41,352
Total equivalent units (b)		49,600	51,690
Cost per equivalent unit (a/b)		$1.90	$0.80
Costs assigned to the production:
Beginning WIP				$10,602
Add: Costs completed (2,790 * $0.80)				$2,232
Total costs completed in the beginning WIP				$12,834
Add: Costs incurred during the month (46,100*$1.90); (46,100*$0.80)		$87,590	$36,880	$124,470
Total cost of units transferred				$137,304
Add: Ending WIP (3,500*$1.90); (2,800*$0.80)		$6,650	$2,240	$8,890
Total costs assigned				$146,194

Journal Entries
Account Titles and Explanation	Debit	Credit
Work in Process Inventory - Papermaking Department	$94,240
Direct Materials		$94,240
(To record the usage of direct materials in the production)
Work in Process Inventory - Papermaking Department	$26,470
Direct Labor		$26,470
(To record the usage of direct labor in the production)
Work in Process Inventory - Papermaking Department	$14,882
Factory Overheads		$14,882
(To record the factory overheads)
Work in Process Inventory - Converting Department	$137,304
Work in Process Inventory - Papermaking Department		$137,304
(To record the costs transferred to next department)