Cassiopeia, Inc. produces and sells two different pillow lines: Fluffy & Firm. The company produces these products in a joint process across two departments (sewing and assembly). The sewing department is highly automated with the use of sewing machines and robotic arms that move materials from station to station. The assembly department requires more labor intensive activities. The assembly department is not automated, because the robots have not been programmed to properly handle the delicate stuffing materials. In fact, the robots would shove the stuffing directly through the fabric. Prior to Black Friday (peak pillow season), Cassiopeia engineers attempted to reprogram some of the robots to stuff pillows and save money on overtime, but were still unsuccessful. The following is a listing of some of the costs incurred at Cassiopeia: Materials (direct & indirect) Fabric, stuffing (polyester fiber fill) or foam, thread, zipper/button/Velcro closing, tags with care instructions & material information Labor (direct & indirect): cutting, sewing, assemble pillow (turn material right side out, stuff, then close), testing pillow (QC), supervisors, marketing, accounting, sales, etc. Overhead: rent, insurance, electricity, garbage removal, etc.

Would Job Costing or Process Costing be more appropriate for this company?

Choose option A or B depending on which you believe is more appropriate for this company.

OPTION A: JOB COSTING

Assume that Cassiopeia sets prices on a cost-plus basis where profit is equal to 10% of costs. Cassiopeia uses a job order costing system based on normal costs. Overhead is applied in the sewing department at a predetermined rate of $90 per machine hour (MH). Overhead is applied in the assembly department at a predetermined rate of $10 per direct labor hour (DLH). The following transactions occurred during the prior month:

Direct material was purchased on account: $80,000.

Direct material was issued to the sewing department for use in the two jobs: Fluffy $8,000 & Firm $14,000. Direct material was issued to the assembly department as follows: Fluffy $500 & Firm $1,200.

Payroll records indicated the following direct labor costs incurred:

Job Description	Sewing Department	Assembly Department
Fluffy	$1,000	$2,400
Firm	$3,000	$3,500

The following indirect costs were incurred in each department:

Indirect Cost	Sewing Department	Assembly Department
Labor	$4,200	$4,500
Utilities	$5,900	$2,300
Depreciation	$10,300	$3,600

Utilities and labor costs were accrued at the time of the journal entry.

Overhead was applied based on the predetermined rates in effect in each department. The sewing department had 55 MHs (20 MHs for the Fluffy pillows & 35 MHs for the Firm pillows) for the month. The assembly department had 150 DLHs (40 DLHs for the Fluffy pillows & 110 DLHS for the Firm pillows) for the month.

The fluffy pillows were completed and sold on account in the amount of the cost-plus contract. The firm pillows were only partially complete.

It is company policy to assign underapplied or overapplied overhead in accordance with the guidelines provided in the textbook. What was the amount of the underapplied or overapplied overhead? Was it underapplied or overapplied? Was it a material or immaterial amount?

Record the journal entries for transactions 1-7.

Determine the total cost assigned to the Fluffy pillows and Firm pillows as of the end of the period.

Option B: PROCESS COSTING

Assume that Cassiopeia's sewing department uses weighted average costing; the percentage of completion of overhead in this department is unrelated to direct labor. The assembly department uses FIFO costing; overhead is applied in this department on a direct labor basis. For the month, the following production data and costs were gathered:

Sewing Department: Units

Beginning WIP Inventory (100% complete for DM; 40% complete for DL; 30% complete for OH) 250

Units Started 8,800

Ending WIP Inventory (100% complete for DM; 70% complete for DL; 90% complete for OH) 400

Sewing Department: Costs	DM	DL	OH	Total
Beginning WIP Inventory	$3,755	$690	$250	$4,695
Current Period	100,320	63,606	27,681	191,607
Total Costs	$104,075	$64,296	$27,931	$196,302

Assembly Department: Units

Beginning WIP Inventory (100% complete for transferred in; 15% complete for DM; 40% for conversion) 100

Units transferred in 8,650

Ending WIP Inventory (100% complete for transferred in; 30% complete for DM; 65% complete for conversion) 200

Assembly Department: Costs	Transferred In	DM	Conversion	Total
Beginning Inventory	$2,176	$30	$95	$2,301
Current Period	188,570	15,471	21,600	225,641
Total Costs	$190,746	$15,501	$21,695	$227,942

Prepare a separate cost of production report for the sewing & assembly departments

Prepare journal entries for the assembly department for the month