WholesomeWholesome Dairy produces an organic butter that is sold by the pound. T
ID: 2532060 • Letter: W
Question
WholesomeWholesome
Dairy produces an organic butter that is sold by the pound. The production of the butter begins in the Churning Department.
Data for the Churning Department for
JanuaryJanuary
follows:
Units in beginning Work in Process (WIP) inventory
90,000 units
Units started during the month (all direct materials, including cream
and salt, are added at the beginning of the churning process)
1,900,000 units
Units in ending Work in Process (WIP) inventory (50% of the way
through the process)
140,000 units
Cost information is as follows:
WIP - Churning Department balance as of January 1:
Direct material cost included in beginning WIP balance
519,100
Conversion cost included in beginning WIP balance
249,800
Beginning balance, WIP, January 1
$768,900
Manufacturing costs incurred during January:
Direct materials used
$1,650,000
Direct labor
15,000
Manufacturing overhead
580,000
Total manufacturing costs entered into production during January
$2,245,000
1.
JanuaryJanuary
2.
How much did it cost to make one pound of butter in the Churning Department?
3.
How much did it cost to make a partially completed pound of butter in the Churning Department? Does this make sense? Why or why not?
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1.
Prepare a production cost report forJanuaryJanuary
for the Churning Department.2.
How much did it cost to make one pound of butter in the Churning Department?
3.
How much did it cost to make a partially completed pound of butter in the Churning Department? Does this make sense? Why or why not?
------
Explanation / Answer
UNITS TO ACCOUNT FOR: Beginning Work in Process units 90,000 Add: Units Started in Process 1,900,000 Total Units to account for: 1,990,000 UNITS TO BE ACCOUNTED FOR: Units started and completed 1,850,000 Ending Work in Process 140,000 Total Units to be accounted for: 1,990,000 Equivalent Units: Material Cost Conversion % Completion Units % Completion Units Units started and completed 100% 1,850,000 100% 1,850,000 Ending Work in Process 100% 140,000 50% 70,000 Total Equivalent units 1,990,000 1,920,000 TOTAL COST TO ACCOUNT FOR: Material Conversion Beginning work in Process 519,100 249,800 Cost Added during May 1,650,000 595,000 Total Cost to account for: 2,169,100 844,800 Total Cost to account for: 3,013,900 COST PER EQUIVALENT UNIT: Material Conversion Total cost added during the year 2,169,100 844,800 Equivalent Units 1,990,000 1,920,000 Cost per Equivalent unit 1.09 0.44 TOTAL COST ACCOUNTED FOR: Units started and Transferred out (1850000 units) Equivalent unit Cost per EU Total Cost Material 1,850,000 1.09 2016500 Conversion Cost 1,850,000 0.44 814000 Total Cost of Units completed and transferred out: 2830500 Ending Work in process (140,000 units) Equivalent unit Cost per EU Total Cost Material 140,000 1.09 152600 Conversison Cost 70,000 0.55 38500 Total cost of Ending Work in process: 191,100 Req 2: Cost per pound is $ 1.64 (i.e. 1.09+0.55) Req 3: Cost of Partially completed Butter is $ 191,100 Yes, it makes sense as the ending in process inventory has been valued on the basis of equivalent units which has been derived on the basis of a degree of completion.
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