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, 250 towels were in process and were 60 percent complete. The costs incurred were $170.

During the month, costs of $22,000 were incurred, 4,400 towels were started, and 125 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 FIFO 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) Computation of Equivalent Unit (FIFO) :-

Particulars	Total Units	Conversion Units
Units to be accounted for :-
Beginning WIP Inventory	250
Units Started this period	4400
Total Units to be Accounted for	4650
Units Accounted For :-
Units Completed and transferred out
Beginning Inventory	250	100
	(250*100%)	(250*40%)
Started and Completed Currently(4400-125)	4275	4275
	(4275*100%)	(4275*100%)
Ending Inventory	125	25
	(125*100%)	(125*20%)
Total Units Accounted for	(250+4275+125)=4650	(100+4275+25)=4400
Equivalent Units	4650 units	4400 units

Cost Per Equivalent Units :-

Particulars	Total Cost	Conversion Cost
Cost (A)	$22000	$22000
Equivalent Units (B)		4400
Cost Per Equivalent Unit (A/B)		$5

Production Cost Report :-

Particulars	Total Cost	Conversion
Cost Accounted For :-
Cost assigned to unit transferred out :-
Beginning WIP inventory Cost	$170	$170
Cost for Beginning WIP complete (100*$5)	$500	$500
Total Cost from beginning Inventory (A)	$670	$670
Cost of Completed Units (4275*$5) (B)	$21375	$21375
Total Cost of Unit Transferred Out (C)=(A+B)	$22045	$22045
Cost of Ending WIP Inventory (25*$5) (D)	$125	$125
Total Cost Accounted For (C+D)	$22170	$22170

b) T-Accounts

Work in Process :-

Particulars	Debt($)	Particulars	Credit($)
Beginning Balance	170	Finished Goods	22045
Current Cost	22000	Ending Balance	125
	22170		22170

Finished Goods Inventory :-

Particulars	Debit($)	Particulars	Credit($)
Beginning Balance	0
Work in Process	22045	Ending Balance	22045
	22045		22045

Various Payable ;-

Particulars	Debit($)	Particulars	Credit($)
		Beginning Balance	0
Ending Balance	22000	Conversion Cost	22000
	22000		22000