Case Study: Process Cost Accounting at CleanWave Detergents Ltd$.$

Background:

CleanWave Detergents Ltd$.$ is a manufacturer of liquid detergents. The company operates on a continuous production basis using process costing to account for costs in its production departments. CleanWave has three main departments: Mixing, Bottling, and Packaging.

The company uses a weighted average method for its process costing and tracks direct materials, direct labor, and overheads separately. For the period under consideration, the following data are provided for the Mixing Department:

$$ Beginning work in progress $($WIP$)$: $10,000$ liters, $80\%$ complete for materials, $50\%$ complete for conversion costs $($labor and overheads$).$

$$ During the month, $100,000$ liters were started into production.

$$ Ending WIP: $5,000$ liters, $60\%$ complete for materials, $40\%$ complete for conversion costs.

$$ Total costs in the beginning WIP: Direct materials $-$ $$5,000$; Conversion costs $-$ $$7,000.$

$$ Costs added during the period: Direct materials $-$ $$50,000$; Conversion costs $-$ $$36,000.$

Conceptual Questions:

$1.$ Define process costing and explain how it differs from job$-$order costing.

$2.$ What are the key features of the weighted average method used in process costing?

$3.$ What costs are typically included in the category of direct materials in the Mixing Department at CleanWave Detergents Ltd$.?$

$4.$ Explain how conversion costs are determined and why they are important in process cost accounting.

$5.$ Calculate the equivalent units of production for materials and conversion costs in the Mixing Department for the given period.

$6.$ Why are equivalent units of production important in process costing?

$7.$ Prepare a cost reconciliation showing how costs are assigned to units completed and to the ending WIP for the Mixing Department.

$8.$ What is the total cost per equivalent unit for both materials and conversion costs?

$9.$ How are beginning WIP costs treated under the weighted average method of process costing?

$10.$ If CleanWave were using the FIFO method instead of the weighted average method, how would that affect the treatment of beginning WIP?

$11.$ What are transferred$-$in costs, and how would they be accounted for in the Bottling Department?

$12.$ Explain the difference between physical flow of units and equivalent units of production.

$13.$ What is the cost of units completed and transferred out to the Bottling Department?

$14.$ How would you handle normal and abnormal spoilage in a process cost system?

$15.$ What factors should management consider when setting the cost allocation for overheads in the Mixing Department?

$16.$ In a process cost system, how would you account for joint products or by$-$products if any were produced during the manufacturing process?

$17.$ Explain how process costing helps CleanWave Detergents Ltd$.$ in performance evaluation and cost control.

$18.$ How can CleanWave use process costing to determine pricing strategies for its detergents?

$19.$ What would be the financial impact if the company decided to change from the weighted average method to the FIFO method?

$20.$ Based on the information provided, what suggestions would you make to improve the efficiency of CleanWave$$s production process?

Calculative Questions:

$21.$ Using the weighted average method, calculate the total equivalent units for materials and conversion costs for the Mixing Department.

o Given:

$$ Beginning WIP: $10,000$ liters $(80\%$ complete for materials, $50\%$ complete for conversion costs$)$

$$ Units started: $100,000$ liters

$$ Ending WIP: $5,000$ liters $(60\%$ complete for materials, $40\%$ complete for conversion costs$)$

$22.$ Compute the cost per equivalent unit for both materials and conversion costs using the weighted average method.

o Given:

$$ Beginning WIP costs: Direct materials $-$ $$5,000$; Conversion costs $-$ $$7,000$

$$ Costs added during the month: Direct materials $-$ $$50,000$; Conversion costs $-$ $$36,000$

$23.$ Calculate the total cost assigned to units completed and transferred out from the Mixing Department to the Bottling Department.

$24.$ Determine the cost assigned to the ending WIP in the Mixing Department for materials and conversion costs.

$25.$ If CleanWave experiences a $2\%$ normal spoilage rate in the Mixing Department, calculate the total cost of spoiled units and how it should be allocated between completed units and WIP.