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, 200 towels were in process and were 60 percent complete. The costs incurred were $499.

During the month, costs of $25,800 were incurred, 4,300 towels were started, and 100 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 weighted-average process costing.

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

Answer 1

a.

	Physical units	Material	Conversion
Work in Process Beginning	200
Started during the period	4300
To account for	4500
Units transferred	4400	4400	4400
Work in Process Ending	100	100	20
Accounted for	4500
Equivalent units		4500	4420
	Material	Conversion	Total
Cost of Beginning Work in Process	$                     -	$                    499	$                 499
Cost added during the period	$                     -	$               25,800	$            25,800
Total Cost	$                     -	$               26,299	$            26,299
Equivalent units of Production	4500	4420
Cost per equivalent unit	$                     -	$                   5.95	$                5.95
	Material	Conversion	Total
Ending work in Process Inventory
Equivalent units of Production	100	20
Cost per equivalent unit	$                     -	$                   5.95
Cost of Ending work in Process Inventory	$                     -	$                    119	$                 119
	Material	Conversion	Total
Units Completed and transferred out
Units transferred to next department	4400	4400
Cost per equivalent unit	$                     -	$                   5.95
Cost of units transferred out	$                     -	$              26,180	$           26,180
Total Costs Accounted for	$                     -	$              26,299	$           26,299
Reconciliation
Costs to be accounted for :
Cost of beginning work in process inventory	$                  499
Costs added to the production during the year	$            25,800
Total Costs to be accounted for	$            26,299
Cost of Ending work in Process Inventory	$                  119
Cost of units transferred out	$            26,180
Total Costs accounted for	$            26,299

b.

Work in Process
Beg Bal	$                  499	$            26,180	Finished Goods
Various Payables	$            25,800
End Bal	$                  119
Finished Goods Inventory
Beg Bal	$                     -
Work in Process	$            26,180
End Bal	$            26,180