Henkel Industries produces its product in two sequential departments: Blending and Forming. The old controller, who has just retired, has been manually preparing the production cost reports each month. The new controller would like you, as an intern, to develop an Excel-based production cost report for the month of MAY that will automatically calculate the cost per equivalent unit, etc., when the monthly information is dropped into a Data area of the worksheet (the data area is shown as a blue box in the following worksheets). The controller has provided you with a basic template, but needs to you finish the spreadsheet by adding formulas and cell references as needed. The only place she ever wants to type in numbers is in the blue box. Although there are two departments, the controller wants you to focus your attention on the Blending department until she is sure that your spreadsheet will provide accurate information.

As you begin to formulate the May spreadsheet, you'll need to get production and cost data for the month of May. Some of the information can be found on last month's manually-prepared production cost report, while other pieces of information can be found in the May general ledger. In addition, the production supervisor has already reported that 235,000 units were started during May and that 35,000 units were 80% of the way completed at the end of the month. During your initial plant tour, you found out that all of the direct materials were added at the very beginning of the Blending process.

Once you finish the spreadsheet, the controller has more questions and tasks for you (see the Additional Analysis worksheet after you have completed the May Production Cost Report).

The final section, the "additional analysis" section is what I need help completing. The information should be correct and should be used to complete it.

G H J K Conversion EU D E F Production Cost Report: Blending Department - MAY FLOW OF UNITS Physical Units DM EU Units to account for: Beginning work in process 25,000 Started in production 235,000 Total units to account for 260,000 100% A B 1 Department Data 2 Information about units: 3 Units in Beginning WIP 25,000 4 Started during month 235,000 5 Units in Ending WIP 35,000 6 7 Percentage of completion: 8 Direct materials 9 Conversion 80% 10 11 Costs in Beginning WIP 12 DM in beginning WIP $ 132,500 13 Conversion costs in beginning WIP $ 78,300 14 15 Cost information for the current month: 16 DM traced to Dept during the month $ 1,153,750 17 DL traced to Dept during the month $ 45,000 18 MOH allocated to dept during the mont $ 617,600 Units accounted for: Completed and transferred out Ending WIP Total units accounted for 225,000 35,000 260,000 225,000 35,000 260,000 225,000 28,000 253,000 Total DM Conversion FLOW OF COSTS Costs to account for: Beginning work in process Costs added during month Total costs to account for $ $ $ 210,800 $ 1,816,350 $ 2,027,150 $ 132,500 $ 1,153,750 $ 1,286,250 $ 78,300 662,600 740,900 Cost per equivalent unit $ 7.88 $ 4.95$ 2.93 A Costs accounted for: Completed and transferred out Ending WIP Total costs accounted for $ $ $ 1,772,004 $ 255,146 $ 2,027,150 $ 1,113,101$ 173,149 $ 1,286,250 $ 658,903 81,997 740,900 20 NOTE: The blue box contains the data you'll need 21 for completing the Production Cost Report (tan 22 box). Certain figures in the blue box must be typed 23 in. Other figures in the blue box can be cell referenced from another worksheet (= cell address). 24 25 ALL cells in the Production Cost Report (tan box) 26 should be formulas or cell-referenced to figures in 27 the blue box. DO NOT TYPE ANY FIGURES on the 28 Production Cost Report or you will lose points on 29 the assignment. Your goal is to create a Production 30 Cost Report that can be used every month by just 31 changing the data in the blue box. 32 33 Directions May Blending Dept Cost Report April Blending Dept Cost Report May Forming Dept Cost Report May General Ledger Additional A ... + E F G K L NOTE: Do NOT complete this production cost report. Select information is provided for use elsewhere in the project. A B C D 1 Production Cost Report: Blending Dept.- APRIL 2 FLOW OF UNITS Physical Units DM EU Conversion EU 3 Units to account for: 4 Beginning work in process 5 Started in production 6 Total units to account for 7 8 Units accounted for: 9 Completed and transferred out 10 Ending WIP 25,000 11 Total units accounted for 12 13 FLOW OF COSTS Total DM Conversion 14 Costs to account for: 15 Beginning work in process 16 Costs added during month 17 Total costs to account for 18 19 Cost per equivalent unit 20 21 Costs accounted for: 22 Completed and transferred out 23 Ending WIP $ 210,800 $ 132,500 $ 78,300 24 Total costs accounted for O 25 26 27 28 29 30 31 32 33 34 35 36 37 38 Directions May Blending Dept Cost Report April Blending Dept Cost Report May Forming Dept Cost Report May General Ledger Additional A ... + E F H | J K NOTE: Do NOT complete this production cost report. Select information is provided for use elsewhere in the project. A B C D 1 Production Cost Report: Forming Dept.- MAY 2 FLOW OF UNITS Physical Units DM EU Conversion EU 3 Units to account for: 4 Beginning work in process 5 Started in production 6 Total units to account for 7 8 Units accounted for: 9 Completed and transferred out 10 Ending WIP 11 Total units accounted for 12 13 FLOW OF COSTS Total DM Conversion 14 Costs to account for: 15 Beginning work in process 16 Costs added during month 17 Total costs to account for 18 19 Cost per equivalent unit $ 1.25$ 0.80 20 21 Costs accounted for: 22 Completed and transferred out 23 Ending WIP 24 Total costs accounted for 25 26 27 28 29 30 31 32 33 34 35 36 37 38 Directions May Blending Dept Cost Report April Blending Dept Cost Report May Forming Dept Cost Report May General Ledger Additional A .. B E F G H I J K L M Use a formula to find the total operating expenses for the month. $ 45,000 $ 45,000 For Income Statement: Total Operating Expenses = $ 1,153,750 $ 1,153,750 REMEMBER: $ 617,600 $ 617,600 Asset and Expense accounts are increased through debits (first line of a journal entry; left column of numbers) Liabilities and Revenue accounts are increased through credits (second line of a journal entry; right column of numbers) $ 750,000 (Parenthetical explanation of transaction is listed below each journal entry) 750,000 $ 45,000 $ 45,000 $ 617,600 617,600 A 1 May General Journal Entries- Partial list 2 3 WIP-Blending 4 Wages Payable 5 (to record DL traced to the Blending Dept) 6 7 WIP-Blending 8 Raw materials inventory 9 (to record DM traced to the Blending Dept) 10 11 WIP-Blending 12 MOH 13 (to record MOH allocated to the Blending Dept) 14 15 WIP- Forming 16 Wages Payable 17 (to record DL traced to the Forming Dept) 18 19 WIP-Forming 20 Raw materials inventory 21 (to record DM traced to the Forming Dept) 22 23 WIP-Forming 24 MOH-Forming 25 (to record MOH allocated to the Forming Dept) 26 27 Salary Expense 28 Wages Payable 29 (to record salaries and wages of selling general and admin.staff 30 31 Rent Expense 32 Rent Payable 33 (to record monthly rent) 34 35 Insurance Expense 36 Prepaid Insurance 37 (to record Insurance on selling, general, and admin. Building) 38 39 Accounts Receivable 40 Sales Revenue 41 (to record the sale of 180,000 units at a price of $20 per unit) 42 43 Utilities Expense 44 Utilities Payable 45 (to record Insurance on selling, general, and admin. Building) 46 47 Advertising expense 48 Accounts Payable 49 (to record advertising expenses) 50 51 $ 275,000 $ 275,000 25,000 $ 25,000 30,000 $ 30,000 $ 3,600,000 $ 3,600,000 10,000 S 10,000 $ 120,000 $ 120,000 Directions May Blending Dept Cost Report April Blending Dept Cost Report May Forming Dept Cost Report May General Ledger Additional A ... C Edit A 00 D E F G B Additional analysis 1 2. 3 4 5 6 7 1) Journal entry needed WIP- Forming WIP-Blending 8 2) Total cost per unit: 9 10 11 12 13 14 15 3) 16 17 Units Sold Sales price/unit Henkel Industries Income Statement For the Month Ending May 31 Per unit Total 18 19 20 21 22 23 24 25 26 Ending Units Total Cost Reconciling UNITS in End FG Inv 27 28 29 30 Beg FG Inventory Analysis WIP Inventory- Blending WIP Inventory-Forming Finished Goods Inventory + Made |-Sold = End 5A) Total cost per unit 31 32 33 34 35 36 37 5B) Henkel Industries Income Statement For the Month Ending May 31 Per unit Total 5C) Lower or higher when 60% is used? Difference in operating income: 5D) Briefly explain the reason for the difference. 5E) If managers want to inflate earnings in a particular period, what can they do? H J K M N P R S DIRECTIONS Now that you have completed the production cost report, the controller would like you to do a few more tasks. Use the space at the left to document your responses. IMPORTANT NOTE: Every figure on this spread sheet (dollar amounts and units) should be cell referenced from elsewhere (not typed in) EXCEPT for the blue boxes (number of units sold, Sales price per unit, and WIP-Forming End units and cost). Line labels and account names will need to be typed in. To reference a cell in another worksheet, first select the cell where you want the answer and type = Then, select the cell you want to get from a different sheet, and hit the Enter button. 1) How much cost, in total, needs to get transferred to the Forming Department? Complete the journal entry with the appropriate amount 2) The controller wants to know the cost of making one unit of product in May, from START TO FINISH (including both the Blending and Forming Departments). Show your calculations by listing each of the costs per EU from all of the departments that make up the total cost (e.g., Blending DM, Blending CC, etc.). FORMAT the cost per unit in dollars and cents and HIGHLIGHT the total cost per unit (use the spilling paint bucket icon to fill in the cell with neon yellow color.) 3) The controller would like you to prepare a draft of the company's income statement. In addition, she would like to see the sales price per unit, cost per unit, and gross profit per unit. Hint: See general ledger for the information about transactions that occurred during the month. Make sure you format everything in dollars and cents. 4) At the beginning of May, the company had no Finished Goods inventory and no WIP 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. The controller wants to know the following: a) How many units are in each Department's ending WIP Inventory? b) What is the cost balance for each Department's ending WIP Inventory? c) How many units are in ending Finished Goods Inventory? (Use side purple box to figure it out.) d) What is the total cost balance in ending Finished Goods Inventory? 5) Although the production manager said that the units in WIP at the end of May were 80% of the way through the process, the controller knows that figure is somewhat subjective. She has talked to the assistant production manager, who believes the units were only about 60% complete. She wants you to run your spreadsheet using 60% as the percent of completion to see what impact the estimate has on A) total cost per unit, and B) the company's income statement for the month. IMPORTANT: BEFORE doing the analysis in Step 5, copy your May production cost report worksheet to a new tab and rename it "What-if 60%?" To do this, right click on the May tab at the bottom of the screen and choose "move or copy" then check the box, "make a copy". Then right click on the new copied spreadsheet and choose "rename". 5A) Calculate the total cost per unit, using 60% as the percentage of completion. 5B) Complete the company's income statement for the month, using 60% as the percentage of completion. 5C) Calculate the difference in operating income between the two possible percentages of completion (80% vs 60%) 5D) Briefly explain WHY the difference in income occurs. 5E) In general, if managers want to inflate earnings in a particular period, what could they do? G H J K Conversion EU D E F Production Cost Report: Blending Department - MAY FLOW OF UNITS Physical Units DM EU Units to account for: Beginning work in process 25,000 Started in production 235,000 Total units to account for 260,000 100% A B 1 Department Data 2 Information about units: 3 Units in Beginning WIP 25,000 4 Started during month 235,000 5 Units in Ending WIP 35,000 6 7 Percentage of completion: 8 Direct materials 9 Conversion 80% 10 11 Costs in Beginning WIP 12 DM in beginning WIP $ 132,500 13 Conversion costs in beginning WIP $ 78,300 14 15 Cost information for the current month: 16 DM traced to Dept during the month $ 1,153,750 17 DL traced to Dept during the month $ 45,000 18 MOH allocated to dept during the mont $ 617,600 Units accounted for: Completed and transferred out Ending WIP Total units accounted for 225,000 35,000 260,000 225,000 35,000 260,000 225,000 28,000 253,000 Total DM Conversion FLOW OF COSTS Costs to account for: Beginning work in process Costs added during month Total costs to account for $ $ $ 210,800 $ 1,816,350 $ 2,027,150 $ 132,500 $ 1,153,750 $ 1,286,250 $ 78,300 662,600 740,900 Cost per equivalent unit $ 7.88 $ 4.95$ 2.93 A Costs accounted for: Completed and transferred out Ending WIP Total costs accounted for $ $ $ 1,772,004 $ 255,146 $ 2,027,150 $ 1,113,101$ 173,149 $ 1,286,250 $ 658,903 81,997 740,900 20 NOTE: The blue box contains the data you'll need 21 for completing the Production Cost Report (tan 22 box). Certain figures in the blue box must be typed 23 in. Other figures in the blue box can be cell referenced from another worksheet (= cell address). 24 25 ALL cells in the Production Cost Report (tan box) 26 should be formulas or cell-referenced to figures in 27 the blue box. DO NOT TYPE ANY FIGURES on the 28 Production Cost Report or you will lose points on 29 the assignment. Your goal is to create a Production 30 Cost Report that can be used every month by just 31 changing the data in the blue box. 32 33 Directions May Blending Dept Cost Report April Blending Dept Cost Report May Forming Dept Cost Report May General Ledger Additional A ... + E F G K L NOTE: Do NOT complete this production cost report. Select information is provided for use elsewhere in the project. A B C D 1 Production Cost Report: Blending Dept.- APRIL 2 FLOW OF UNITS Physical Units DM EU Conversion EU 3 Units to account for: 4 Beginning work in process 5 Started in production 6 Total units to account for 7 8 Units accounted for: 9 Completed and transferred out 10 Ending WIP 25,000 11 Total units accounted for 12 13 FLOW OF COSTS Total DM Conversion 14 Costs to account for: 15 Beginning work in process 16 Costs added during month 17 Total costs to account for 18 19 Cost per equivalent unit 20 21 Costs accounted for: 22 Completed and transferred out 23 Ending WIP $ 210,800 $ 132,500 $ 78,300 24 Total costs accounted for O 25 26 27 28 29 30 31 32 33 34 35 36 37 38 Directions May Blending Dept Cost Report April Blending Dept Cost Report May Forming Dept Cost Report May General Ledger Additional A ... + E F H | J K NOTE: Do NOT complete this production cost report. Select information is provided for use elsewhere in the project. A B C D 1 Production Cost Report: Forming Dept.- MAY 2 FLOW OF UNITS Physical Units DM EU Conversion EU 3 Units to account for: 4 Beginning work in process 5 Started in production 6 Total units to account for 7 8 Units accounted for: 9 Completed and transferred out 10 Ending WIP 11 Total units accounted for 12 13 FLOW OF COSTS Total DM Conversion 14 Costs to account for: 15 Beginning work in process 16 Costs added during month 17 Total costs to account for 18 19 Cost per equivalent unit $ 1.25$ 0.80 20 21 Costs accounted for: 22 Completed and transferred out 23 Ending WIP 24 Total costs accounted for 25 26 27 28 29 30 31 32 33 34 35 36 37 38 Directions May Blending Dept Cost Report April Blending Dept Cost Report May Forming Dept Cost Report May General Ledger Additional A .. B E F G H I J K L M Use a formula to find the total operating expenses for the month. $ 45,000 $ 45,000 For Income Statement: Total Operating Expenses = $ 1,153,750 $ 1,153,750 REMEMBER: $ 617,600 $ 617,600 Asset and Expense accounts are increased through debits (first line of a journal entry; left column of numbers) Liabilities and Revenue accounts are increased through credits (second line of a journal entry; right column of numbers) $ 750,000 (Parenthetical explanation of transaction is listed below each journal entry) 750,000 $ 45,000 $ 45,000 $ 617,600 617,600 A 1 May General Journal Entries- Partial list 2 3 WIP-Blending 4 Wages Payable 5 (to record DL traced to the Blending Dept) 6 7 WIP-Blending 8 Raw materials inventory 9 (to record DM traced to the Blending Dept) 10 11 WIP-Blending 12 MOH 13 (to record MOH allocated to the Blending Dept) 14 15 WIP- Forming 16 Wages Payable 17 (to record DL traced to the Forming Dept) 18 19 WIP-Forming 20 Raw materials inventory 21 (to record DM traced to the Forming Dept) 22 23 WIP-Forming 24 MOH-Forming 25 (to record MOH allocated to the Forming Dept) 26 27 Salary Expense 28 Wages Payable 29 (to record salaries and wages of selling general and admin.staff 30 31 Rent Expense 32 Rent Payable 33 (to record monthly rent) 34 35 Insurance Expense 36 Prepaid Insurance 37 (to record Insurance on selling, general, and admin. Building) 38 39 Accounts Receivable 40 Sales Revenue 41 (to record the sale of 180,000 units at a price of $20 per unit) 42 43 Utilities Expense 44 Utilities Payable 45 (to record Insurance on selling, general, and admin. Building) 46 47 Advertising expense 48 Accounts Payable 49 (to record advertising expenses) 50 51 $ 275,000 $ 275,000 25,000 $ 25,000 30,000 $ 30,000 $ 3,600,000 $ 3,600,000 10,000 S 10,000 $ 120,000 $ 120,000 Directions May Blending Dept Cost Report April Blending Dept Cost Report May Forming Dept Cost Report May General Ledger Additional A ... C Edit A 00 D E F G B Additional analysis 1 2. 3 4 5 6 7 1) Journal entry needed WIP- Forming WIP-Blending 8 2) Total cost per unit: 9 10 11 12 13 14 15 3) 16 17 Units Sold Sales price/unit Henkel Industries Income Statement For the Month Ending May 31 Per unit Total 18 19 20 21 22 23 24 25 26 Ending Units Total Cost Reconciling UNITS in End FG Inv 27 28 29 30 Beg FG Inventory Analysis WIP Inventory- Blending WIP Inventory-Forming Finished Goods Inventory + Made |-Sold = End 5A) Total cost per unit 31 32 33 34 35 36 37 5B) Henkel Industries Income Statement For the Month Ending May 31 Per unit Total 5C) Lower or higher when 60% is used? Difference in operating income: 5D) Briefly explain the reason for the difference. 5E) If managers want to inflate earnings in a particular period, what can they do? H J K M N P R S DIRECTIONS Now that you have completed the production cost report, the controller would like you to do a few more tasks. Use the space at the left to document your responses. IMPORTANT NOTE: Every figure on this spread sheet (dollar amounts and units) should be cell referenced from elsewhere (not typed in) EXCEPT for the blue boxes (number of units sold, Sales price per unit, and WIP-Forming End units and cost). Line labels and account names will need to be typed in. To reference a cell in another worksheet, first select the cell where you want the answer and type = Then, select the cell you want to get from a different sheet, and hit the Enter button. 1) How much cost, in total, needs to get transferred to the Forming Department? Complete the journal entry with the appropriate amount 2) The controller wants to know the cost of making one unit of product in May, from START TO FINISH (including both the Blending and Forming Departments). Show your calculations by listing each of the costs per EU from all of the departments that make up the total cost (e.g., Blending DM, Blending CC, etc.). FORMAT the cost per unit in dollars and cents and HIGHLIGHT the total cost per unit (use the spilling paint bucket icon to fill in the cell with neon yellow color.) 3) The controller would like you to prepare a draft of the company's income statement. In addition, she would like to see the sales price per unit, cost per unit, and gross profit per unit. Hint: See general ledger for the information about transactions that occurred during the month. Make sure you format everything in dollars and cents. 4) At the beginning of May, the company had no Finished Goods inventory and no WIP 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. The controller wants to know the following: a) How many units are in each Department's ending WIP Inventory? b) What is the cost balance for each Department's ending WIP Inventory? c) How many units are in ending Finished Goods Inventory? (Use side purple box to figure it out.) d) What is the total cost balance in ending Finished Goods Inventory? 5) Although the production manager said that the units in WIP at the end of May were 80% of the way through the process, the controller knows that figure is somewhat subjective. She has talked to the assistant production manager, who believes the units were only about 60% complete. She wants you to run your spreadsheet using 60% as the percent of completion to see what impact the estimate has on A) total cost per unit, and B) the company's income statement for the month. IMPORTANT: BEFORE doing the analysis in Step 5, copy your May production cost report worksheet to a new tab and rename it "What-if 60%?" To do this, right click on the May tab at the bottom of the screen and choose "move or copy" then check the box, "make a copy". Then right click on the new copied spreadsheet and choose "rename". 5A) Calculate the total cost per unit, using 60% as the percentage of completion. 5B) Complete the company's income statement for the month, using 60% as the percentage of completion. 5C) Calculate the difference in operating income between the two possible percentages of completion (80% vs 60%) 5D) Briefly explain WHY the difference in income occurs. 5E) In general, if managers want to inflate earnings in a particular period, what could they do