Costing and Profit Equation

In Task 1, you will prepare a production cost report and journal entries; in Task 2, you will explore expected level of profit using profit equation and CVP analysis; and in Task 3, you will prepare an income statement using full costing and variable costing.

Task 1: Production Cost Report

Kao Tiles, Inc. is a specialized producer of ceramic tiles. Its production process involves highly skilled workers and top-quality ceramic craftsmen. Work in Process is relatively large because each tile is in process for up to three weeks because of art, mold work, and drying time. The following information relates to the month of October:

		Completion
Data	Units	Direct Materials	Conversion Costs
Beginning	5,000	65%	35%
Started and Completed	6,000
Ending	7,000	75%	50%

Note: A unit is 1 ceramic tile

Cost Information	Beginning Work in Process	Cost Added in October
Direct material	$170,000	$422,000
Direct labor	$160,000	$1,055,000
Manufacturing overhead	$50,000	$107,500

Based on this information, perform the following tasks:

a.Prepare a production cost report for the month of October.

b.Prepare the journal entries to recognize the transfer of the units completed and transferred to finished goods during October.