Question
In: Accounting
Atlantic Manufacturing Company uses process costing. All materials are added at the beginning of the process....
Atlantic Manufacturing Company uses process costing. All materials are added at the beginning of the process. The normal spoilage rate is calculated as 10% of good units completed. The cost of the beginning work-in-process in the month of May is $3,000,000, including $1,600,000 of input of materials, 100,000 units, and $1,400,000 for conversion costs. The beginning work-in-process is 70% complete. During May, the input includes $7,400,000 for materials, 800,000 units started and $4,190,000 for conversion costs. There were 700,000 good units finished. In addition, the ending work-in-process in May is 100,000 units with 60% complete. All spoilage occurred when all processing was complete, at the final inspection.
Required:
1. Using each of the weighted-average and FIFO methods, calculate (for May):
(a) The dollar value of abnormal spoilage.
(b) The cost of the good units finished.
(c) The cost of ending work-in-process inventory
2. Using only the FIFO numbers from 1. above, prepare the journal entries to record the cost of materials, conversion costs, good units transferred out of the process and abnormal spoilage for the month of May.
Solutions
Expert Solution
Weighted-average method
| Atlantic Manufacturing Company | |||||
| Department production Report | |||||
| Weighted average Method | |||||
| Month ended May 31 | |||||
| Summary of Physical units | |||||
| Units in beginning WIP inventory | 100,000 | ||||
| Units started during month | 800,000 | ||||
| Total unit to be accounted for | 900,000 | ||||
| Normal spoilage (700000*10%) | 70,000 | ||||
| Abnormal spoilage (900000-70000-700000-100000) | 30,000 | ||||
| Units completed and transferred out | 700,000 | ||||
| Units in ending WIP inventory | 100,000 | ||||
| Total unit accounted for | 900,000 | ||||
| Equivalent Units of production | |||||
| Particulars | Physical units | Direct material | Conversion Cost | ||
| % | units | % | units | ||
| units in beginning WIP inventory | 100000 | 100% | 100000 | 100% | 100000 |
| Normal spoilage | 70000 | 100% | 70000 | 100% | 70000 |
| Abnormal spoilage | 30000 | 100% | 30000 | 100% | 30000 |
| Units in Started and completed (700000-100000) | 600000 | 100% | 600000 | 100% | 600000 |
| units in ending WIP inventory | 100000 | 100% | 100000 | 60% | 60000 |
| Equivalent Units of production | 900000 | 860000 | |||
| Summary of cost to be accounted | |||||
| Direct material | Conversion Cost | Total | |||
| Cost in beginning WIP | $ 1,600,000 | $ 1,400,000 | $ 3,000,000 | ||
| Cost incurred during Month (Add) | $ 7,400,000 | $ 4,190,000 | $ 11,590,000 | ||
| total cost to be accounted for | $ 9,000,000 | $ 5,590,000 | $ 14,590,000 | ||
| cost per Equivalent Unit | |||||
| total cost to be accounted for | $ 9,000,000 | $ 5,590,000 | |||
| Divided by: Equivalent Units of production | 900,000 | 860,000 | |||
| Cost per Equivalent Unit | $ 10.00 | $ 6.50 | $ 16.50 | ||
| Assign costs to units transferred out and units in ending WIP inventory | |||||
| cost assigned to units transferred out | |||||
| units completed and transferred out | 700,000 | 700,000 | |||
| Cost per Equivalent Unit | $ 10.00 | $ 6.50 | |||
| cost assigned to units transferred out | $ 7,000,000 | $ 4,550,000 | $ 11,550,000 | ||
| Add: Normal spoilage | |||||
| units completed and transferred out | 70,000 | 70,000 | |||
| Cost per Equivalent Unit | $ 10.00 | $ 6.50 | |||
| Add: Normal spoilage | $ 700,000 | $ 455,000 | $ 1,155,000 | ||
| cost assigned to units transferred out (Answer B) | $ 12,705,000 | ||||
| Abnormal spoilage | |||||
| units completed and transferred out | 30,000 | 30,000 | |||
| Cost per Equivalent Unit | $ 10.00 | $ 6.50 | |||
| Cost allocated to Abnormal spoilage (Answer A) | $ 300,000 | $ 195,000 | $ 495,000 | ||
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materials are added at the beginning of the process. The company
uses weighted average method in measuring unit costs. There are
100,000 units in the beginning work-in-process in the month of May
(The company started its production in late April and did not
finish producing any unit). The conversion work is 70%
complete.
The costs of beginning WIP are $1,250,000, including
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The cost of the beginning work-in-process in the
month
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100,000 units, and $1,400,000 for conversion costs. The beginning
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