Question

Equivalent Units and Related Costs; Cost of Production Report; Entries

Dover Chemical Company manufactures specialty chemicals by a series of three processes, all materials being introduced in the Distilling Department. From the Distilling Department, the materials pass through the Reaction and Filling departments, emerging as finished chemicals.

The balance in the account Work in Process—Filling was as follows on January 1:

Work in Process—Filling Department
(4,900 units, 20% completed):
	Direct materials (4,900 x $10.3)	$50,470
	Conversion (4,900 x 20% x $6.6)	6,468
		$56,938

The following costs were charged to Work in Process—Filling during January:

Direct materials transferred from Reaction
	Department: 63,200 units at $10 a unit	$632,000
Direct labor		226,120
Factory overhead		217,260

During January, 62,700 units of specialty chemicals were completed. Work in Process—Filling Department on January 31 was 5,400 units, 30% completed.

Required:

1. Prepare a cost of production report for the Filling Department for January. If an amount is zero, enter "0". If required, round your cost per equivalent unit answers to two decimal places.

Dover Chemical Company
Cost of Production Report-Filling Department
For the Month Ended January 31
Unit Information
Units charged to production:
Inventory in process, January 1
Received from Reaction Department
Total units accounted for by the Filling Department
Units to be assigned costs:
		Equivalent Units
	Whole Units	Direct Materials	Conversion
Inventory in process, January 1
Started and completed in January
Transferred to finished goods in January
Inventory in process, January 31
Total units to be assigned costs
Cost Information
Cost per equivalent unit:
		Direct Materials	Conversion
Total costs for January in Filling Department		$	$
Total equivalent units
Cost per equivalent unit		$	$
Costs assigned to production:
	Direct Materials	Conversion	Total
Inventory in process, January 1			$
Costs incurred in January
Total costs accounted for by the Filling Department			$
Costs allocated to completed and partially completed units:
Inventory in process, January 1 balance			$
To complete inventory in process, January 1		$
Cost of completed January 1 work in process			$
Started and completed in January	$
Transferred to finished goods in January			$
Inventory in process, January 31
Total costs assigned by the Filling Department			$

2. Journalize the entries for (1) costs transferred from Reaction to Filling and (2) the cost transferred from Filling to Finished Goods.

(1)
(2)

3. Determine the increase or decrease in the cost per equivalent unit from December to January for direct materials and conversion costs. If required, round your answers to two decimal places.

	Increase or Decrease	Amount
Change in direct materials cost per equivalent unit		$
Change in conversion cost per equivalent unit		$

4. Discuss the uses of the cost of production report and the results of part (3).

The cost of production report may be used as the basis for allocating product costs between   and  . The report can also be used to control costs by holding each department head responsible for the units entering production and the costs incurred in the department. Any differences in unit product costs from one month to another, such as those in part (3), can be studied carefully and any significant differences investigated.

Answer 1

Solution 1:

Dover Chemical Company
Filling Department
Computation of Equivalent unit (FIFO)
Particulars	Physical units	Material	Conversion
Units to be accounted for:
Beginning WIP Inventory	4900
Units started this period	63200
Total unit to be accounted for	68100
Units Accounted for:
Units completed and transferred out
From beginning inventory Material - 0% Conversion - 80%	4900	0	3920
Started and completed currently	57800	57800	57800
Transferred to finished goods	62700	57800	61720
Units in ending WIP Material - 100% Conversion - 30%	5400	5400	1620
Total units accounted for	68100	63200	63340

Dover Chemical Company
Filling Department
Computation of Cost per Equivalent unit
Particulars	Total cost	Material	Conversion
Current period cost	$1,075,380.00	$632,000.00	$443,380.00
Equivalent units		63200	63340
Cost per equivalent unit		$10.00	$7.00

Dover Chemical Company
Filling Department
Producton cost report - FIFO
Particulars	Total cost	Material	Conversion
Cost Accounted for :
Cost assigned to unit transferred out:
Cost from beginning WIP Inventory	$56,938	$50,470	$6,468
Current cost added to complete beginning WIP:
Material	$0	$0
Conversion (3920 * 7)	$27,440		$27,440
Total Cost from beginning inventory	$84,378	$50,470	$33,908
Current cost of unit started and completed:
Material (57800*$10)	$578,000	$578,000
Conversion (57800*$7)	$404,600		$404,600
Total cost of unit started and completed	$982,600	$578,000	$404,600
Total cost of unit transferred out	$1,066,978	$628,470	$438,508
Cost assigned to ending WIP:
Material (5400*$10)	$54,000	$54,000
Conversion (1620*$7)	$11,340		$11,340
Total ending WIP inventory	$65,340	$54,000	$11,340
Total cost accounted for	$1,132,318	$682,470	$449,848

Solution 2:

Journal Entries - Dover Chemical Company
S. No.	Particulars	Debit	Credit
1	Work In Process - Filling Department Dr	$632,000.00
	To Work In Process - Reaction Department		$632,000.00
	(Being cost of goods completed in reaction transferred to Filling department)
2	Finished Goods Inventory Dr	$1,066,978.00
	To Work In Process - Filling Department		$1,066,978.00
	(Being completed units transferred to finished goods)

Solution 3:

Change in direct material cost per equivalent unit = $10 - $10.30 = $0.30 Decrease

Change in conversion cost per equivalent unit = $7 - $6.6 = $0.40 increase

Solution 4:

The cost of production report may be used as the basis for allocating product costs between completed units and Ending work in process. The report can also be used to control costs by holding each department head responsible for the units entering production and the costs incurred in the department. Any differences in unit product costs from one month to another, such as those in part (3), can be studied carefully and any significant differences investigated.