Production Shrinkage in a Process Cost System Using an Average Cost Flow Assumption. Coastal Petroleum Inc. uses a process cost system with an average cost flow assumption to account for the production of its only product. The product is manufactured in two departments. Units of product are started in the Cracking Department and then transferred to the Refining Department, where they are completed. Because of the intense heat applied in the Cracking Department, some of the production volume is lost to evaporation. Since the department is capital intensive, the cost of direct labor is small relative to overhead. Consequently, labor and overhead are treated as one element of cost in the Cracking Department (that is, conversion cost). Data related to May operations in the Cracking Department are: LO6 Units in beginninginventory.

Units started in process thisperiod.

Units transferred to the Refining Department this period.

Units in ending inventory (100% materials, 70% conversion cost)

Costs charged to the department:

Materials.

Conversioncost.

Required:

(1) Prepare a cost of production report for the Cracking Department based on the data presented for May.

(2) Prepare the appropriate general journal entry to record the transfer of cost out of the Cracking Department this month.