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.

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

Answer 1

a.

Production Cost Report
Flow of production units	Equivalent Units
	Physical Units	Conversion Units
Units to be accounted for:
Beginning WIP inventory	300
Units started this period	2700
Total units to be accounted for	3000
Units accounted for:
Units completed and transferred out:
From beginning inventory	300	120	[300*40%]
Started and completed currently	2550	2550	[2550*100%]
Units in ending WIP inventory	150	30	[150*20%]
Total units accounted for	3000	2700

b.

Cost of equivalent unit for current units introduced = 10800/ 2700 = $4

Work in Process
	Debit		Credit
Beginning Balance	576	Finished goods	11256
			[120units *4 + 10800+ 576]
Conversion cost	10800
Ending balance	120
	[30units*4]

Finished Goods
	Debit		Credit
Beginning Balance	0
Work in Process	11256
Ending balance	11256

Various Payables
	Debit		Credit
		Beginning Balance	0
		Conversion	10800
		Ending balance	10800