Work in Process Account Data for Two Months; Cost of Production Reports

Pittsburgh Aluminum Company uses a process cost system to record the costs of manufacturing rolled aluminum, which consists of the smelting and rolling processes. Materials are entered from smelting at the beginning of the rolling process. The inventory of Work in Process—Rolling on September 1 and debits to the account during September were as follows:

Bal., 400 units, 30% completed:

Direct materials (400 x $3.1)$ 1,240

Conversion (400 x 30% x $1.3)156

$ 1,396

From Smelting Department, 9,320 units$29,824

Direct labor8,672

Factory overhead4,670

During September, 400 units in process on September 1 were completed, and of the 9,320 units entering the department, all were completed except 700 units that were 90% completed. Charges to Work in Process—Rolling for October were as follows:

From Smelting Department, 10,700 units$36,380

Direct labor10,720

Factory overhead5,765

During October, the units in process at the beginning of the month were completed, and of the 10,700 units entering the department, all were completed except 500 units that were 60% completed.

Required:

1. Enter the balance as of September 1 in a four-column account for Work in Process—Rolling. Record the debits and the credits in the account for September. Construct a cost of production report and present computations for determining (a) equivalent units of production for materials and conversion, (b) costs per equivalent unit, (c) cost of goods finished, differentiating between units started in the prior period and units started and finished in September, and (d) work in process inventory. If an amount box does not require an entry, leave it blank.

ACCOUNTWork in Process-Rolling Department ACCOUNT NO.

BALANCE

DATEITEMPOST. REF.DEBITCREDITDEBITCREDIT

Sept. 1Bal., 400 units, 30% completed

Sept. 30Smelting Dept., 9,320 units at $3.2

Sept. 30Direct labor

Sept. 30Factory overhead

Sept. 30Finished goods

Sept. 30Bal., 700 units, 90% completed

If an amount is zero, enter in a zero "0". Round cost per unit answers to the nearest cent.

Pittsburgh Aluminum Company
Cost of Production Report-Rolling Department
For the Month Ended September 30

Whole UnitsEquivalent Units

Units Direct Materials (a)Conversion (a)

Units charged to production:   

Inventory in process, September 1  

Received from Smelting Department  

Total units accounted for by the Rolling Department  

Units to be assigned costs:   

Inventory in process, September 1

Started and completed in September

Transferred to finished goods in September

Inventory in process, September 30

Total units to be assigned costs

Costs

Costs Direct Materials Conversion Total Costs

Cost per equivalent unit:            

Total costs for September in Rolling Department $   $      

Total equivalent units          

Cost per equivalent unit (b) $   $      

Costs assigned to production:            

Inventory in process, September 1         $  

Costs incurred in September           

Total costs accounted for by the Rolling Department         $  

Costs allocated to completed and partially completed units:            

Inventory in process, September 1 balance (c)         $  

To complete inventory in process, September 1 (c) $   $     

Cost of completed September 1 work in process         $  

Started and completed in September (c) $        

Transferred to finished goods in September (c)         $  

Inventory in process, September 30 (d)         

Total costs assigned by the Rolling Department         $  

2. Provide the same information for October by recording the October transactions in the four-column work in process account. Construct a cost of production report, and present the October computations (a through d) listed in part (1). If an amount box does not require an entry, leave it blank.

ACCOUNTWork in Process-Rolling Department ACCOUNT NO.

Balance

DATEITEMPOST. REF.DEBITCREDITDEBITCREDIT

October 1Balance

October 31Smelting Dept., 10,700 units at $3.4

October 31Direct labor

October 31Factory overhead

October 31Finished goods

October 31Bal., 500 units, 60% completed

If an amount is zero, enter in a zero "0". Round cost per unit answers to the nearest cent.

Pittsburgh Aluminum Company
Cost of Production Report-Rolling Department
For the Month Ended October 31

Whole UnitsEquivalent Units

Units Direct Materials (a)Conversion (a)

Units charged to production:   

Inventory in process, October 1  

Received from Smelting Department  

Total units accounted for by the Rolling Department  

Units to be assigned costs:   

Inventory in process, October 1

Started and completed in October

Transferred to finished goods in October

Inventory in process, October 31

Total units to be assigned costs

Costs

Costs Direct Materials Conversion Total Costs

Cost per equivalent unit:            

Total costs for October in Rolling Department $   $      

Total equivalent units          

Cost per equivalent unit (b) $   $      

Costs assigned to production:            

Inventory in process, October 1         $  

Costs incurred in October           

Total costs accounted for by the Rolling Department         $  

Costs allocated to completed and partially completed units:            

Inventory in process, October 1 balance (c)         $  

To complete inventory in process, October 1 (c) $   $     

Cost of completed October 1 work in process         $  

Started and completed in October (c)         

Transferred to finished goods in October (c)         $  

Inventory in process, October 31 (d)         

Total costs assigned by the Rolling Department         $  

3. The cost per equivalent unit for direct materials increased  from August to October. The cost per equivalent unit for conversion costs increased  from August to October. These changes should  be investigated for their underlying causes, and any necessary corrective actions should be taken.

Feedback

Costs accumulate in each department before being transferred to finished goods. There are three types of inventory; materials, work in process, and finished goods.

Calculate equivalent units for materials and conversion costs. Calculate the cost per equivalent unit for materials and conversion costs. Calculate the costs assigned to the beginning inventory, the units started and completed, and the ending inventory. Compare the costs per equivalent unit for January through October. The costs per equivalent units for materials and conversion for January are in the September 1 work in process inventory.

10. Examples of monopolistically competitive markets include the markets for

A. postage stamps and wheat.

B. restaurant dining and laundry services

C. furniture and used cars in a large city.

D. All of the above are correct.

E. B and C, only

11. In a monopolistically competitive industry, price is

A. above marginal cost since each firm is a price setter.

B. equal to marginal cost since each firm is a price taker.

C. below marginal cost since each firm is a price taker.

D. always a fraction of marginal cost since each firm is a price setter.

E. always a fraction of marginal cost since each firm is a price taker.

12. Which of the following is true regarding the production and pricing decisions of monopolistically competitive firms? Monopolistically competitive firms choose the quantity at which marginal cost equals ________ and then use the _________ curve to determine the price that is consistent with this particular quantity.

A. average total cost; demand

B. average variable cost; demand

C. average total cost; supply

D. marginal revenue; demand

E. marginal revenue; supply

A firm’s production function is given by: F(L,K) = L^1/4K^3/4. You also know that the wage rate is $2, the price of capital is $6, and the price of the product is $216

a) In the short-run, capital is fixed at 1 unit. How many units of Labor (L) should this firm hire?

b) How much profit is the firm making in the short-run?

c) Assuming that in the long-run both capital (K) and labor (L) are variable inputs, what is the optimal combination (profit-maximizing/cost-minimizing L* and K* ) to produce the same amount of output as in the short-run?

d) What are the profits in the long-run?

e) Assume that the firm has a fixed cost of $200. Find the variable cost function, the total cost function, the marginal cost function, the average total cost function, the average fixed cost function, and the average variable cost function (hint: to answer this question, first, redo all calculations in part (c) in terms of a general level of output Q. In other words, first find L* and K* as a function of Q using the tangency condition, then find cost functions).

The XGENZ Corporation issued a 30-year, 7 percent semiannual bond 3 years ago. The bond currently sells for 93 percent of its face value. The company’s tax rate is 35 percent. a. What is the pretax cost of debt? b. What is the aftertax cost of debt? c. Which is more relevant, the pretax or the aftertax cost of debt? Why? d. Suppose the book value of the debt issue is $85 million. In addition, the company has a second debt issue on the market, a zero coupon bond with 12 years left to maturity; the book value of this issue is $35 million, and the bonds sell for 59 percent of par. (i) What is the company’s total book value of debt? (ii) The total market value? (iii) What is your best estimate of the aftertax cost of debt now?

On January 1, 2017, James Airlines contracted with Sam Aircraft to construct an airplane to Jamess specifications at a cost of $2,500,000. During 2017, James paid Sam $400,000 on January 1, and another $450,000 on September 30. On January 1, 2017, James had borrowed $360,000 at 11% to partially finance the construction. The remaining amount was paid to Sam upon delivery of the airplane on June 30, 2018.

James has approximately $1,600,000 of additional debt outstanding at December 31, 2017 at an average interest cost of 12%. And at the end of December 2018, $ 345,000 of the construction loan and $1,500,000 of the additional debt was outstanding.

What is the total capitalized cost of the airplane under construction at the end of 2017?

What is the total capitalized cost of the completed airplane at the end of 2018?

Suppose a firm can sell its product for a price of $75 (no more, no less). Suppose that the marginal cost curve and average variable cost curves cross at $100 and a quantity of 10. Assume that fixed costs are $0. At a quantity of 10, total revenue would be: 750

At a quantity of 10, variable cost would be: ________ 0 or 1,000

Since fixed costs are $0, profit at 10 units of output would therefore be: ________ -250, 0 ,750

However, if the firm chose to produce nothing, total revenue would instead be: _________ 0, 750, 75

and variable cost would be: _______ 250, -750, 0

Therefore if the firm produces nothing profit would be -250 .

The BEST course of action for this firm would be to produce: ________Nothing because P < AVC or Produce 10 units of Output

A local microbrewery has total costs of production given by the equation C(Q) = 500 + 10Q + 5Q2. The market demand for beer is given by the equation Q = 105 – (1/2)P. The firm operates in a perfectly competitive market.

a. Write the equations showing the brewery's average total cost and average variable cost, average fixed cost, and marginal cost, each as a function of quantity (Q). b. What is the break-even price and break-even quantity for this firm in the short run? c. What is the shut-down price and shut-down quantity for this firm in the short run? d. If the market price of the output is $50, how many units will this firm produce? e. Given a market price of $50, how many firms are in this market?