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, 300 towels were in process and were 60 percent complete. The costs incurred were $576.

During the month, costs of $10,800 were incurred, 2,700 towels were started, and 150 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.

RECYCLERS, INC. Production Cost Report—FIFO Flow of Production Units Compute Equivalent Units Physical Units Conversion Costs Units to be accounted for: Beginning WIP inventory 300 Units started this period Total units to be accounted for 300 Units accounted for: Units completed and transferred out: From beginning inventory Started and completed currently Units in ending WIP inventory Total units accounted for 0 0

Costs Total Costs Conversion Costs Costs to be accounted for: Costs in beginning WIP inventory Current period costs Total costs to be accounted for $0 $0 Cost per equivalent unit: Conversion costs Costs accounted for: Costs assigned to units transferred out: Costs from beginning inventory Current costs added to complete beginning WIP inventory: Conversion costs Total costs from beginning inventory $0 Current costs of units started and completed: Conversion costs Total costs of units started and completed $0 Total costs of units transferred out $0 Costs assigned to ending WIP inventory: Conversion costs Total ending WIP inventory $0 Total costs accounted for $0 $0

b. Show the flow of costs through T-accounts. Assume that current period conversion costs are credited to various payables.

	Work in Process Various Payables Beginning inventory Beg.bal. This period's costs: End.bal. Ending inventory Finished Goods Inventory Beg.bal. End.bal.

Answer 1

Solution a:

Recyclers, Inc.
Department R
Computation of Equivalent unit (FIFO)
Particulars	Physical units	Conversion
Units to be accounted for:
Beginning WIP Inventory	300
Units started this period	2700
Total unit to be accounted for	3000
Units Accounted for:
Units completed and transferred out
From beginning inventory (40%)	300	120
Started and completed currently	2550	2550
Units in ending WIP (20%)	150	30
Total units accounted for	3000	2700

Recyclers, Inc.
Department R
Computation of Cost per Equivalent unit
Particulars	Total cost	Conversion
Current period cost	$10,800.00	$10,800.00
Equivalent units		2700
Cost per equivalent unit		$4.00

Recyclers, Inc.
Department R
Producton cost report - FIFO
Particulars	Total cost	Conversion
Cost Accounted for :
Cost assigned to unit transferred out:
Cost from beginning WIP Inventory	$576	$576
Current cost added to complete beginning WIP:
Conversion (120 * $4)	$480	$480
Total Cost from beginning inventory	$1,056	$1,056
Current cost of unit started and completed:
Conversion (2550*$4)	$10,200	$10,200
Total cost of unit started and completed	$10,200	$10,200
Total cost of unit transferred out	$11,256	$11,256
Cost assigned to ending WIP:
Conversion (30*$4)	$120	$120
Total ending WIP inventory	120	120
Total cost accounted for	$11,376	$11,376

Solution b:

Work In Process
Particulars	Debit	Particulars	Credit
Beginning Balance	$576.00	Finished goods (Units completed)	$11,256.00
This Period's cost:
Conversion	$10,800.00
Ending Inventory	$120.00

Finished Goods Inventory
Particulars	Debit	Particulars	Credit
Beg. Bal	$0.00
Work In Process	$11,256.00
End Bal.	$11,256.00

Various Payables
Particulars	Debit	Particulars	Credit
		Beg Bal.	$0.00
		Conversion	$10,800.00
		End Bal.	$10,800.00