Question

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

Accounts	Beginning Balances
Cash	$	50,900
Raw materials inventory		14,700
Production supplies		100
Work in process inventory (370,000 units)		44,400
Common stock	$	110,100

1. Baird Cola issued additional common stock for $56,000 cash.
2. The company purchased raw materials and production supplies for $38,590 and $600, respectively, in cash.
3. The company issued $41,180 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 2,400 hours of labor during Year 2, consisting of 2,200 hours for direct labor and 200 hours for indirect labor. The average wage was $9.20 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 $1,520, 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 $540.

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

Calculation of Closing WIP of Mixing Department:

Particulars Units

Opening WIP 370000

Add: Input 600000

Total 970000

Less: Units completed 700000

Closing WIP 270000

Statement of Equivalent Production of Mixing department in Year 2
Inputs	Outputs	Units	Equivalent Production of
(Units)			Materials, Labour & Overhead
			%	Units
370000	Opening WIP	370000	70	259000
600000	Completely processed during Year 2
	(700000-370000)	330000	100	330000
	Closing WIP	270000	30	81000
970000	Total	970000		670000
Note: In the absence of details of % completion of opening WIP, it is assumed that opening
WIP has similar % completion like closing WIP i.e. @ 30%.

Statement of Product Cost per Equivalent Unit				In $
		Materials	Labour	Overhead
	Cost incurred during Year 2	41180	20240	171620
	Equivalent Units	670000	670000	670000
	Cost per unit	0.06	0.03	0.26
	Total Cost per unit			0.35
Consumption in Year 2
		Raw	Production	Common
		Materials	Supplies	Stock
Opening Stock		14700	100	110100
Purchase		38590	600	56000
Total		53290	700	166100
Less: Issued for production		41180	160	166100
Closing Stock		12110	540	0
Consumption of production supplies is computed by deducting closing stock from Opening plus purchase
Assunmed that common stock is part of Indirect Materials and there is no closing stock at the end of Year 2
Overheads:
Indirect Materials :
Production Supplies		160
Common Stock		166100	166260
Indirect Labour			1840
Indirect Expenses			3520
			171620
Calculation of Total Cost allocated between closing wip and finished goods transferred from Mixing Department
Cost of Finished Production				In $
Opening wip				44400
Cost addded to complete opening wip		259000 @ .35		90086
Current production		330000 @ .35		114781
Total				249267
Cost of Closing WIP		81000 @ .35		28173

Details of Transaction of Mixing Department in T-accounts

Dr.			Mixing Department Year 2				Cr.
Particulars			$	Particulars			$
Opening WIP			44400	Transferred of Finished Goods			249267
Consumption :				Closing WIP			28173
Raw Material			41180
Production Supplies			160
Common Stock			166100
Direct Labour			20240
Indirect Labour			1840
Indirect Expenses			1520
Over absorption of Overhead			2000
Total			277440	Total			277440