Question

Pottle Ice Cream uses a mixing department and a freezing department to produce its ice cream. Its process costing system in the mixing department has two direct materials cost categories (ice cream mix and flavourings) and one conversion cost pool.

The following data pertain to the mixing department for April 2018:

Work-in-process, 1 April                                                                    0

Started in April                                                                          10 000 litres

Completed and transferred to freezing                                           8 500 litres

Costs:

Ice cream mix                                                                         $27 000

Flavourings                                                                              $4 080

Conversion costs                                                                     $53 700

The ice cream mix is introduced at the start of operations in the mixing department, and the flavourings are added when the product is 40% completed in the mixing department. Conversion costs are added evenly during the process. The ending work-in-process in the mixing department is 30% complete.

Required

5. Prepare and explain the journal entries for the transfer of goods to the freezing department and complete the WIP ledger account for April 2018

6. Give three industries that use process-costing system

Answer 1

1.

Account titles	Debit	Credit
Finished goods inventory - Mixing department	78030
Work in process inventory - freezing department		78030

2.

Work in process - mixing department
Direct materials	4050
Conversion costs	2700
Balance	6750

Units to account for		Equivalent units
WIP, beginning inventory	0	Materials	Conversion
Started during the month	10000
Total physical units accounted for	10000
Units processed
Transferred out	8500	8500	8500
Ending WIP	1500	1500	450
Total physical units accounted for	10000
Total equivalent units		10000	8950

Units to account for	Units	% of completion	Equivalent units Materials	% of completion	Flavourings	% of completion	Conversion costs
Completed	8500	100%	8500	100%	8500	100%	8500
WIP,ending	1500	100%	1500	-	0	30%	450
Total			10000		8500		8950

Cost per equivalent unit
Costs	Materials	Flavourings cost	Conversion costs	Total
Beginning WIP	0	0	0	0
Costs added during the current month	27000	4080	53700	84780
Total costs to account for	27000	4080	53700	84780
Divided by :Total EUP	10000	8500	8950
Cost per equivalent unit	2.7	0.48	6.0

	Direct Materials	Flavourings	Conversion costs	Total
a. Completed and transferred out
Equivalent units	8500	8500	8500
Multiply by :Cost per equivalent unit	2.7	0.48	6.0
Equivalent costs allocated	22950	4080	51000	78030
b. Ending work in process
Equivalent units	1500	0	450
Multiply by :Cost per equivalent unit	2.7	0.48	6.0
Equivalent costs allocated	4050	0	2700	6750
Total costs accounted for				84780

3. Three industries that use process costing are:

(I) Food industry

(ii) Chemicals industry

(iii) Oil and petroleum industry