Question

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Dairy produces an organic butter that is sold by the pound. The production of the butter begins in the Churning Department.

Data for the Churning Department for

JanuaryJanuary

follows:

Units in beginning Work in Process (WIP) inventory

90,000 units

Units started during the month (all direct materials, including cream

and salt, are added at the beginning of the churning process)

1,900,000 units

Units in ending Work in Process (WIP) inventory (50% of the way

through the process)

140,000 units

Cost information is as follows:

WIP - Churning Department balance as of January 1:

Direct material cost included in beginning WIP balance

519,100

Conversion cost included in beginning WIP balance

249,800

Beginning balance, WIP, January 1

$768,900

Manufacturing costs incurred during January:

Direct materials used

$1,650,000

Direct labor

15,000

Manufacturing overhead

580,000

Total manufacturing costs entered into production during January

$2,245,000

1.	Prepare a production cost report for JanuaryJanuary for the Churning Department.
2.	How much did it cost to make one pound of butter in the Churning Department?
3.	How much did it cost to make a partially completed pound of butter in the Churning Department? Does this make sense? Why or why not? ------

Answer 1

UNITS TO ACCOUNT FOR:
Beginning Work in Process units				90,000
Add: Units Started in Process				1,900,000
Total Units to account for:				1,990,000
UNITS TO BE ACCOUNTED FOR:
Units started and completed				1,850,000
Ending Work in Process				140,000
Total Units to be accounted for:				1,990,000
Equivalent Units:
			Material Cost		Conversion
			% Completion	Units	% Completion	Units
Units started and completed			100%	1,850,000	100%	1,850,000
Ending Work in Process			100%	140,000	50%	70,000
Total Equivalent units				1,990,000		1,920,000
TOTAL COST TO ACCOUNT FOR:
			Material		Conversion
Beginning work in Process			519,100		249,800
Cost Added during May			1,650,000		595,000
Total Cost to account for:			2,169,100		844,800
Total Cost to account for:					3,013,900
COST PER EQUIVALENT UNIT:
			Material		Conversion
Total cost added during the year			2,169,100		844,800
Equivalent Units			1,990,000		1,920,000
Cost per Equivalent unit			1.09		0.44
TOTAL COST ACCOUNTED FOR:
Units started and Transferred out (1850000 units)
			Equivalent unit	Cost per EU	Total Cost
Material			1,850,000	1.09	2016500
Conversion Cost			1,850,000	0.44	814000
Total Cost of Units completed and transferred out:					2830500
Ending Work in process (140,000 units)
			Equivalent unit	Cost per EU	Total Cost
Material			140,000	1.09	152600
Conversison Cost			70,000	0.55	38500
Total cost of Ending Work in process:					191,100
Req 2:
Cost per pound is $ 1.64 (i.e. 1.09+0.55)
Req 3:
Cost of Partially completed Butter is $ 191,100
Yes, it makes sense as the ending in process inventory has been valued on the basis of equivalent units
which has been derived on the basis of a degree of completion.