Company is a small chemical company producing printing ink for papers and aluminium cans. The manufacturing processes involve varnish manufacture and pigment dispersal. Hoffman uses a process-costing system and has two direct-cost categories (direct materials and direct labour) and a single indirect-cost category (overhead). The amount of overhead costs (primarily fixed costs) is relatively large in its cost structure compared to direct material or direct labour. When the varnish is finished, it will be immediately transferred to the next process. Hoffman Company's fiscal year ends on 30 June, and the weighted-average methods is used for the company's process costing system.

Financial results for the first 11 months of the current fiscal year (through 31 May) are well below expectations of management, owners and creditors. The pressure to achieve the targeted profit has mounted on everyone, including the production manager whose bonus is tied with the production cost control. Halfway through June, the production manager asks the company's business partner to estimate the production results for June in the form of a production cost report. For this assignment, we focus on the final process, pigment dispersal and assume the cost from varnish manufacture is already transferred in as the Direct Materials for pigment dispersal.

Suppose you are the business partner, and the need is to prepare a estimated production cost report in June for thepigment dispersal process based on the following estimated data.

UNIT INFORMATION

1. Bottles startedandpartially completedinMay- (UNITS) Bottles 26000, Direct material 50%, direct labour 30%, OH 20%
2. Bottles started and completed during the period- (UNITS) bottles 15000, DM 100%, DL 100%, OH 100%
3. Bottles started and partially completed duringthe period- Bottles (UNITS) 8000, DM 40%, DL 60%, OH 30%

COST INFORMATION

1. Cost in Beginning WIP Inventory- DM 86000, DL 100,000 OH 160,000
2. Costs incurred during the period- DM 65000, DL 85000, OH 145,000

Armed with the preliminary production cost report for June and knowing that the production is well below capacity, the production manager decides to produce as many bottles of ink as possible for the last half of June even though sales are not expected to increase any time soon. The production manager pushes employees to get as far as possible with production, thereby increasing the percentage of completion for ending WIP Inventory. However, because the whole production process takes three weeks to complete, all of the ink produced in the last half of June will be in WIP Inventory at the end of June.

The production manager estimates that

• Bottles of ink started and partially completed during this period will increase to 23,500
• (from the initial estimate of 80,000). This is the projected ending WIP Inventory on 30
• June.
• Percentage of completion estimates for the ending WIP Inventory will increase to 80% for
• direct materials, 85% for direct labour and 90% for overhead.
• Cost incurred during the period will increase to $105,000 for direct materials, $112,000 for
• direct labour, and $160,000 for overhead.
• All bottles of ink completed and transferred out during June are sold by 30 June.