Question

The Company uses a single department production process.  Materials are added at the start of the production process and labor and overhead are added as indicated. The Company records have the following information for the month of November:

UNITS:
Beginning WIP:  2/3 complete for labor; 1/3 complete for overhead                                    12,000 units

Units started in process                                                                                               40,000 units

Units completed                                                                                                          44,000 units

Ending WIP:  50% complete for labor; 25% complete for overhead                           8,000 units

PRODUCTION COSTS:

Work in Process, Beginning of the Month:
Materials                                          $ 32,000
Labor                                                  20,000
Overhead                                              9,400               61,400

Current Month Costs:
Materials                                          $ 280,000
Labor                                                  160,000
Overhead                                            147,000           587,000

                                    Total Costs:                        $   648,400

REQUIRED:

1. Prepare a Cost of Production Summary using the weighted average method.  Also, prepare the appropriate journal entry to transfer completed goods at month end.
   
2. Prepare a Cost of Production Summary using the FIFO method.  Also, prepare the appropriate journal entry to transfer completed goods at month end.                                      

Answer 1

Answer :-

1) Weighted average method :-

Step 1 =

Equivalent Production of units	Equivalent unit
	Whole units	Material	Labor	Overhead
Beginning work - in - progess	12,000
Units started in process	40,000
Total units to be accounted for	52,000
Units to be accounted for :-
Units completed and tranferred	44,000	44,000	44,000	44,000
Ending work - in - progess	8,000	8,000	4,000	2,000
Equivalent units	52,000	52,000	48,000	46,000

Working note :-

Ending Work-in-progress for material,labor,overhead are :-

Material (8,000 x 100%) = 8,000

Labor (8,000 x 50% ) = 4,000

Overhead (8,000 x 25% ) = 2,000

Step 2 =

Cost per equivalent unit :-

	Material	Labor	Overhead
Beginning WIP cost	32,000	20,000	9,400
Current month cost	280,000	160,000	147,000
Total cost (A)	312,000	180,000	156,000
Equivalent unit (B)	52,000	48,000	46,000
Cost per equivalent unit (A/B)	$6.00	$3.75	$3.40

[ Equivalent unit (B) = From step 1 ]

Step 3 =

Production cost sheet =

	Total	Material	Labor	Overhead
Total cost to be accounted =
Beginning work - in - progess	61,000
Current month cost	587,000
Total cost to be accounted =	648,400
Cost accounted =
Completed and transferred goods
Material = 44,000 x 6	264,000	264,000	-	-
Labor = 44,000 x 3.75	165,000	-	165,000	-
Overhead = 44,000 x 3.40	149,600	-	-	149,600
Total Cost of goods transferred	578,600
Cost Assigned of ending WIP
Material = 8,000 x 6	48,000	48,000	-	-
Labor = 4,000 x 3.75	15,000	-	15,000	-
Overhead = 2,000 x 3.40	6,800	-	-	6,800
Ending Work-in-progress	69,800
Total cost (578,600 + 69,800 )	648,400

Step 4 =

Journal entry to transfer completed goods at month end =

	Debit	Credit
Finished Goods	578,600
Work in progress		578,600
(To record the goods transferred )

2) FIFO =

Step 1 =

Equivalent Production of units	Equivalent unit
	Whole units	Material	Labor	Overhead
Beginning work - in - progess	12,000
Units started in process	40,000
Total units to be accounted for	52,000
Units to be accounted for :-
Units completed and tranferred :
Beginning work - in - progess	12,000		4,000	8,000
Units started and transferred (44,000 - 12,000)	32,000	32,000	32,000	32,000
Units Completed and transferred	44,000	32,000	36,000	40,000
Ending work - in - progess	8,000	8,000	4,000	2,000
Equivalent units	52,000	40,000	40,000	42,000

Working note :-

= Beginning work-in-progress for labor , overhead are :-

Labor [12,000 x (1-2/3)] = 4,000

Overhead [12,000 x ( 1-1/3)] = 8,000

= Ending Work-in-progress for material,labor,overhead are :-

Material (8,000 x 100%) = 8,000

Labor (8,000 x 50% ) = 4,000

Overhead (8,000 x 25% ) = 2,000

Step 2 =

Cost per equivalent unit :-

	Material	Labor	Overhead
Cost added during the month (A)	280,000	160,000	147,000
Equivalent unit (B)	40,000	40,000	42,000
Cost per equivalent unit (A/B)	$7.00	$4.00	$3.50

Step 3 =

Production cost sheet =

	Total	Material	Labor	Overhead
Total cost to be accounted =
Beginning work - in - progess	61,000
Current month cost	587,000
Total cost to be accounted =	648,400
Cost accounted =
Cost from beginning WIP inventory	61,400
ADD : Current cost added to beginning WIP inventory
Material	-	-	-	-
Labor = 4,000 x 4	16,000	-	16,000	-
Overhead = 8,000 x 3.50	28,000	-	-	28,000
Total Cost from beginning WIP inventory	105,400
Current cost of units started and transferred
Material = 32,000 x 7	224,000	224,000	-	-
Labor = 32,000 x 4	128,000	-	128,000	-
Overhead = 32,000 x 3.50	112,000	-	-	112,000
Total Cost of units started and completed	464,000
Total Cost of units transferred (105,400 + 464,000)	569,400
Cost assigned to ending WIP inventory :
Material = 8,000 x 7	56,000	56,000	-	-
Labor = 4,000 x 4	16,000	-	16,000	-
Overhead = 2,000 x 3.50	7,000	-	-	7,000
Ending WIP	79,000
Total cost (569,400+ 79,000 )	648,400

Step 4 =

Journal entry to transfer completed goods at month end =

	Debit	Credit
Finished Goods	569,400
Work in progress		569,400
(To record the goods transferred )