DIRECTIONS Now that you have completed the production cost reports, the controller would like you to do a few more tasks. Use the space at the left to document your responses. Complete these tasks using the assumption that the Controller has decided to utilize the Weighted Awrage Method to assign costs to units. 1) Record the journal entry that needs to be made to reflect the units completed and transferred out of the Blending Dept. during the month. 2) In addition to the transferred in costs, the Forming Dept. showed the following costs per equivalent unit on their May production cost report : Direct Material Cost/EU - $1.50 Conversion Cost/EU- $0.60 The controller wants to know the cost of making one unit of product in May, from START to FINISH. Show your calculations by listing each of the costs per EU from all of the departments that make up the total cost. FORMAT the cost per unit in dollars and cents and HIGHLIGHT the total cost per unit. 3) During the month Henkel sold 180,000 of the units it produced during May at a sales price of $30 per unit. Operating expenses for the month totaled $525,000. The controller would like you to prepare a draft of the company's income statement. She would like you to include information about the gross profit per unit, as well as the total for the month, ending with operating income. Make sure you format everything in dollars and cents. 4) At the beginning of May, the company had no beginning Finished Goods (FG) inventory and no beginning Work-in-Process (WIP) inventory in the Forming Department. All units transferred out of the Blending Dept. In May also made it completely through the Forming Dept. In May. The controller would like you to prepare an analysis of the company's ending WIP and FG inventory at May 31. a) How many units are in each Department's Ending WIP? b) What is the cost balance for each Department's Ending WIP? c) How many units are in Finished Goods Inventory? d) What is the total cost balance in Finished Goods Inventory? 5) Although the controller determined that the Company should use the Weighted Average Method to assign costs to units produced, she wants you to re- run your analysis to see what impact the using the FIFO method would have on A) total cost per unit, and ) the company's income statement for the month. (Note that Forming department unit costs would not change since there was no beginning inventory-only inventory transferred in from the Blending Department). If the FIFO method was used, would operating income be higher or lower, and by how much? How could managers inflate carnings? Finally, check the Grading Rubric worksheet to make sure you have completed all requirements. Then save your file and submit it to the dropbox I 1) Journal entry needed: Journal Entry Debit Credit 2) Total cost per unit (Weighted Average): Blending Direct Materials Blending Conversion Costs Forming Direct Materials Forming Conversion Costs Total cost per unit 3) Henkel Industries Income Statement For the Month Ending May 31 Per unit Total 1 2 3 24 25 26 Units Cost 27 28 29 30 4) Inventory Analysis WIP-Blending WIP-Forming Finished Goods 31 32 33 34 35 36 37 5A) Total cost per unit (FIFO): Blending Direct Materials Blending Conversion Costs Forming Direct Materials Forming Conversion Costs Total cost per unit 5B) 38 SB) Henkel Industries Income Statement For the Month Ending May 31 Per unit Total 3 5 5 7 8 Difference in operating income (Compute $ difference): -9 Increase or Decrease when FIFO is used? Briefly explain the reason for the difference. Also, if managers want to inflate earnings in a particular period, what can they do? Could managers manipulate earnings by changing their percentage of completion estimates? 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 55 66 67 1 Conversion EU This is a data tab only - no work required on this page! 2 Production Cost Report: Dept. 3 FLOW OF UNITS Physical Units DM EU 4 Units to account for: 5 Beginning work in process 6 Started in production 7 Total units to account for 8 9 Units accounted for: 10 Completed and transferred out 11 Ending WIP 30,000 12 Total units accounted for 13 14 FLOW OF COSTS Total DM 15 Costs to account for: 16 Beginning work in process 17 Costs added during month 18 Total costs to account for 19 20 Cost per equivalent unit 21 22 Costs accounted for: 23 Completed and transferred out 24 Ending WIP 213,200 $ 25 Total costs accounted for 136,500 $ 26 27 Conversion 76,700 B20 1 $ 1,027,250 $ 55,000 B This is a data tab only - no work required on this page! 2 May Journal Entries - Partial list 3 4 WIP-Blending $ 1,027,250 5 Raw materials inventory 6 (to record DM traced to the Blending Dept) 7 8 WIP-Blending $ 55,000 9 Wages Payable 10 (to record DL traced to the Blending Dept) 11 12 WIP-Blending $ 623,800 13 MOH 14 (to record MOH allocated to the Blending Dept) 15 16 WIP-Forming $ 55,000 17 Raw materials inventory 18 (to record DM traced to the Forming Dept) 19 20 WIP- Forming $ 850,000 21 Wages Payable 22 (to record DL traced to the Forming Dept) 23 24 WIP-Forming $ 723,200 25 MOH-Forming 26 (to record MOH allocated to the Forming Dept) 27 $ 623,800 $ 55,000 FA 850,000 $ 723,200 28 DIRECTIONS Now that you have completed the production cost reports, the controller would like you to do a few more tasks. Use the space at the left to document your responses. Complete these tasks using the assumption that the Controller has decided to utilize the Weighted Awrage Method to assign costs to units. 1) Record the journal entry that needs to be made to reflect the units completed and transferred out of the Blending Dept. during the month. 2) In addition to the transferred in costs, the Forming Dept. showed the following costs per equivalent unit on their May production cost report : Direct Material Cost/EU - $1.50 Conversion Cost/EU- $0.60 The controller wants to know the cost of making one unit of product in May, from START to FINISH. Show your calculations by listing each of the costs per EU from all of the departments that make up the total cost. FORMAT the cost per unit in dollars and cents and HIGHLIGHT the total cost per unit. 3) During the month Henkel sold 180,000 of the units it produced during May at a sales price of $30 per unit. Operating expenses for the month totaled $525,000. The controller would like you to prepare a draft of the company's income statement. She would like you to include information about the gross profit per unit, as well as the total for the month, ending with operating income. Make sure you format everything in dollars and cents. 4) At the beginning of May, the company had no beginning Finished Goods (FG) inventory and no beginning Work-in-Process (WIP) inventory in the Forming Department. All units transferred out of the Blending Dept. In May also made it completely through the Forming Dept. In May. The controller would like you to prepare an analysis of the company's ending WIP and FG inventory at May 31. a) How many units are in each Department's Ending WIP? b) What is the cost balance for each Department's Ending WIP? c) How many units are in Finished Goods Inventory? d) What is the total cost balance in Finished Goods Inventory? 5) Although the controller determined that the Company should use the Weighted Average Method to assign costs to units produced, she wants you to re- run your analysis to see what impact the using the FIFO method would have on A) total cost per unit, and ) the company's income statement for the month. (Note that Forming department unit costs would not change since there was no beginning inventory-only inventory transferred in from the Blending Department). If the FIFO method was used, would operating income be higher or lower, and by how much? How could managers inflate carnings? Finally, check the Grading Rubric worksheet to make sure you have completed all requirements. Then save your file and submit it to the dropbox I 1) Journal entry needed: Journal Entry Debit Credit 2) Total cost per unit (Weighted Average): Blending Direct Materials Blending Conversion Costs Forming Direct Materials Forming Conversion Costs Total cost per unit 3) Henkel Industries Income Statement For the Month Ending May 31 Per unit Total 1 2 3 24 25 26 Units Cost 27 28 29 30 4) Inventory Analysis WIP-Blending WIP-Forming Finished Goods 31 32 33 34 35 36 37 5A) Total cost per unit (FIFO): Blending Direct Materials Blending Conversion Costs Forming Direct Materials Forming Conversion Costs Total cost per unit 5B) 38 SB) Henkel Industries Income Statement For the Month Ending May 31 Per unit Total 3 5 5 7 8 Difference in operating income (Compute $ difference): -9 Increase or Decrease when FIFO is used? Briefly explain the reason for the difference. Also, if managers want to inflate earnings in a particular period, what can they do? Could managers manipulate earnings by changing their percentage of completion estimates? 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 55 66 67 1 Conversion EU This is a data tab only - no work required on this page! 2 Production Cost Report: Dept. 3 FLOW OF UNITS Physical Units DM EU 4 Units to account for: 5 Beginning work in process 6 Started in production 7 Total units to account for 8 9 Units accounted for: 10 Completed and transferred out 11 Ending WIP 30,000 12 Total units accounted for 13 14 FLOW OF COSTS Total DM 15 Costs to account for: 16 Beginning work in process 17 Costs added during month 18 Total costs to account for 19 20 Cost per equivalent unit 21 22 Costs accounted for: 23 Completed and transferred out 24 Ending WIP 213,200 $ 25 Total costs accounted for 136,500 $ 26 27 Conversion 76,700 B20 1 $ 1,027,250 $ 55,000 B This is a data tab only - no work required on this page! 2 May Journal Entries - Partial list 3 4 WIP-Blending $ 1,027,250 5 Raw materials inventory 6 (to record DM traced to the Blending Dept) 7 8 WIP-Blending $ 55,000 9 Wages Payable 10 (to record DL traced to the Blending Dept) 11 12 WIP-Blending $ 623,800 13 MOH 14 (to record MOH allocated to the Blending Dept) 15 16 WIP-Forming $ 55,000 17 Raw materials inventory 18 (to record DM traced to the Forming Dept) 19 20 WIP- Forming $ 850,000 21 Wages Payable 22 (to record DL traced to the Forming Dept) 23 24 WIP-Forming $ 723,200 25 MOH-Forming 26 (to record MOH allocated to the Forming Dept) 27 $ 623,800 $ 55,000 FA 850,000 $ 723,200 28