Question

Thornton Cola Corporation produces a new soft drink brand, Sweet Spring, using two production departments: mixing and bottling. Thornton’s beginning balances and data pertinent to the mixing department’s activities for Year 2 follow:

Accounts	Beginning Balances
Cash	$	52,600
Raw materials inventory		14,200
Production supplies		100
Work in process inventory (360,000 units)		43,200
Common stock	$	110,100

1. Thornton Cola issued additional common stock for $55,000 cash.
2. The company purchased raw materials and production supplies for $34,590 and $600, respectively, in cash.
3. The company issued $36,660 of raw materials to the mixing department for the production of 600,000 units of Sweet Spring that were started in Year 2. A unit of soft drink is the amount needed to fill a bottle.
4. The mixing department used 2,100 hours of labor during Year 2, consisting of 1,900 hours for direct labor and 200 hours for indirect labor. The average wage was $9.60 per hour. All wages were paid in Year 2 in cash.
5. The predetermined overhead rate was $1.60 per direct labor hour.
6. Actual overhead costs other than indirect materials and indirect labor for the year amounted to $980, which was paid in cash.
7. The mixing department completed 700,000 units of Sweet Spring. The remaining inventory was 30 percent complete.
8. The completed soft drink was transferred to the bottling department.
9. The ending balance in the Production Supplies account was $560.

Required

1. Determine the number of equivalent units of production.

2. Determine the product cost per equivalent unit.

3. Calculate the total cost allocated between the ending work in process inventory and units transferred to the bottling department.

4. Record the transactions in T-accounts.

Answer 1

1. Computation of Equivalent Units of Production

Opening Inventory = 360,000 Units

(+) Production = 600,000 Units

Total Units = 960,000 Units

(-) Units Completed = 700,000 Units

Closing Inventory = 260,000 Units

Equivalent Units of Production = 700,000 Units

2. Product Cost per equivalent Units

Raw Material Purchased = 44,530 ( 14,200*70% + 34,590)

Production Supplies Purchased = 110 (100*70%+600-560)

Work in progress inventory = 66,900 (43,200*70% + 36,660)

Wages (9.6*2100) = 20,160

Overhead Cost (1900*1.6) = 3,040

Actual Overhead = 980

Total Cost = 135,720

Equivalent Units = 700,000 Units

Cost/Unit = $0.194

3. Cost Allocation between ending work in process inventory and units transferred to the bottling department

Cost Allocation for ending work in progress = 260,000*30%*0.194

= 15,132

Cost Allocation for units transferred to the bottling department = 700,000* 0.194

= 135,800

4. Recording of transactions in T-Account

Accounts Closing Balances ($)

Cash Balance (52,600- 20,160) = 32,440

Raw Material Inventory (14,200+34,590-36,660) = 12,130

Production Supplies (given) = 560

Work in process Inventory (260,000 Units) = 15,132 (260,000*30%*0.194)

Common Stock (110,100 + 55,000) = 165,100