Spoilage and Shrinkage in a Process Cost System Using an Average Cost Flow Assumption. Hometown Brewery Company uses a process cost system with an average cost flow assumption to account for the produc¬ tion of its only product. Ingredients are mixed and then brewed in the first department (called the Mixing and Brewing Department), after which the product is transferred to the Canning Department, where the liquid brew is put in cans and cases for storage and transport. The brewing process requires the application of heat and results in some normal shrinkage of volume in the Mixing and Brewing Department. During processing in the Canning Department, some cans and some brew are spoiled. Spoilage in the Canning Department occurs at the 80-percent stage of conversion, and the lost units are complete as to materials. The production shrinkage in the Mixing and Brewing Department is viewed as part of the normal production process and is not measured; how¬ ever, spoilage in the Canning Department is viewed as an internal failure cost and charged to Factory Overhead Control. Data related to January operations are: LO6 Units in beginninginventory.

Units started in process in Mixing and Brewing Department this period Units transferred from Mixing and Brewing to Canning Department.

Units transferred to Finished Goods Inventory this period.

Units spoiled in process thisperiod.

Units in ending inventory:

Mixing and Brewing (100% materials, 40% labor and overhead).

Canning (100% materials, 50% labor and overhead).

Mixing and Brewing Canning 4,000 36,000 2,000 28,000 28,000 25,000 6,000 4,000 6,000 1,000 Cost in beginning inventory:

Cost from preceding department..

Materials.

Labor.

Factoryoverhead.

Cost added during the current period:

Materials.

Labor.

Factoryoverhead.

Mixing and Brewing Canning

$ 600

$ 550 190 88 75 128 150 4,840 1,520 824 786 1,088 1,572 Required:

(1) Prepare a January cost of production report for each department.

(2) Assuming the company uses a separate ledger account for each producing department, prepare the appro¬ priate general journal entry to record the transfer of cost out of each department during January.