Operation Costing: Unit Costs and Journal Entries Jacson Company produces two brands of a popular pain medication: regular strength and extra strength. Regular strength is produced in tablet form, and extra strength is produced in capsule form. All direct materials needed for each batch are requisitioned at the start. The work orders for two batches of the products are shown below, along with some associated cost information: Work Order 122 Work Order 121 (Regular Strength) (Extra Strength) Direct materials (actual costs): 9,000 15,000 Applied conversion costs: Mixing ? Tableting $5,000 Encapsulating $6,000 Bottling ? Batch size (bottles of 100 units) 12,000 18,000 In the Mixing Department, conversion costs are applied on the basis of direct labor hours. Budgeted conversion costs for the department for the year were $60,000 for direct labor and $190,000 for overhead. Budgeted direct labor hours were 5, It takes one minute of labor time to mix the ingredients needed for a 100-unit bottle (for either product). In the Bottling Department, conversion costs are applied on the basis of machine hours. Budgeted conversion costs for the department for the year were $400,000. Budgeted machine hours were 20,000. It takes one-half minute of machine time fill a bottle of 100 units. Required: 1. What are the conversion costs applied in the Mixing Department for each batch? Mixing Regular Strength $ Extra Strength What are the conversion costs applied in the Bottling Department for each batch? Bottling Regular Strength Fxtra Strength Required: 1. What are the conversion costs applied in the Mixing Department for each batch? Mixing Regular Strength Extra Strength What are the conversion costs applied in the Bottling Department for each batch? Bottling Regular Strength $ Extra Strength 2. Calculate the cost per bottle for the regular and extra strength pain medications. If required, round your answers to the nearest cent. Unit cost Regular Strength Extra Strength Feedback Check My Work 1. Many firms produce products that make the same demands on conversion inputs but different demands on direct materials inputs. A hybrid costing approach is used because each batch uses different doses of direct materials but make the same demands on the conversion resources of individual processes (operations). 2. Conversion costs are budgeted for each department, and a single conversion rate is computed for each department using a unit-based activity driver such as direct labor hours or machine hours. 3. Prepare the journal entries that record the costs of the 12,000 regular strength batch as it moves through the various operations. Work in Process-Mixing o o Materials Inventory To record requisitions of materials for mixing. 3. Prepare the journal entries that record the costs of the 12,000 regular strength batch as it moves through the various operations. Work in Process-Mixing Materials Inventory To record requisitions of materials for mixing. To record the application of overhead and the incurrence of direct labor for mixing. o o To record the transfer of cost of goods completed from mixing to tableting. To record the application of overhead and the incurrence of direct labor for tableting. To record the transfer of cost of goods completed from tableting to bottling. To record the application of overhead and the incurrence of direct labor for bottling. o To record the transfer of cost of goods completed from bottling to finished goods. 4. Suppose that the direct materials are requisitioned by each department as needed for a batch. For the 12,000 regular strength batch, direct materials are requisitioned for the Mixing and Bottling departments. Assume that the amount of cost split evenly between the two departments. How will this change the journal entries made in Requirement 3? Indicate below what the journal entries would be in this case. 4. Suppose that the direct materials are requisitioned by each department as needed for a batch. For the 12,000 regular strength batch, direct materials are requisitioned for the Mixing and Bottling departments. Assume that the amount of cost split evenly between the two departments. How will this change the journal entries made in Requirement 3? Indicate below what the journal entries would be in this case. To record requisitions of materials for mixing. To record the application of overhead and the incurrence of direct labor for mixing. To record the transfer of cost of goods completed from mixing to tableting. 0 0 0 0 0 I To record the application of overhead and the incurrence of direct labor for tableting. To record the transfer of cost of goods completed from tableting to bottling. To record requisitions of materials for bottling. To record the application of overhead and the incurrence of direct labor for bottling. To record the application of overhead and the incurrence of direct labor for mixing. 0 To record the transfer of cost of goods completed from mixing to tableting. To record the application of overhead and the incurrence of direct labor for tableting. o To record the transfer of cost of goods completed from tableting to bottling. To record requisitions of materials for bottling. ] To record the application of overhead and the incurrence of direct labor for bottling. o To record the transfer of cost of goods completed from bottling to finished goods. Feedback Check My Work 4. Consider the basics of Operation Costing, conversion costs usually stay the same but materials can differ. An example of journal entries showing the flow of costs is illustrated above Exhibit 6.5. Operation Costing: Unit Costs and Journal Entries Jacson Company produces two brands of a popular pain medication: regular strength and extra strength. Regular strength is produced in tablet form, and extra strength is produced in capsule form. All direct materials needed for each batch are requisitioned at the start. The work orders for two batches of the products are shown below, along with some associated cost information: Work Order 122 Work Order 121 (Regular Strength) (Extra Strength) Direct materials (actual costs): 9,000 15,000 Applied conversion costs: Mixing ? Tableting $5,000 Encapsulating $6,000 Bottling ? Batch size (bottles of 100 units) 12,000 18,000 In the Mixing Department, conversion costs are applied on the basis of direct labor hours. Budgeted conversion costs for the department for the year were $60,000 for direct labor and $190,000 for overhead. Budgeted direct labor hours were 5, It takes one minute of labor time to mix the ingredients needed for a 100-unit bottle (for either product). In the Bottling Department, conversion costs are applied on the basis of machine hours. Budgeted conversion costs for the department for the year were $400,000. Budgeted machine hours were 20,000. It takes one-half minute of machine time fill a bottle of 100 units. Required: 1. What are the conversion costs applied in the Mixing Department for each batch? Mixing Regular Strength $ Extra Strength What are the conversion costs applied in the Bottling Department for each batch? Bottling Regular Strength Fxtra Strength Required: 1. What are the conversion costs applied in the Mixing Department for each batch? Mixing Regular Strength Extra Strength What are the conversion costs applied in the Bottling Department for each batch? Bottling Regular Strength $ Extra Strength 2. Calculate the cost per bottle for the regular and extra strength pain medications. If required, round your answers to the nearest cent. Unit cost Regular Strength Extra Strength Feedback Check My Work 1. Many firms produce products that make the same demands on conversion inputs but different demands on direct materials inputs. A hybrid costing approach is used because each batch uses different doses of direct materials but make the same demands on the conversion resources of individual processes (operations). 2. Conversion costs are budgeted for each department, and a single conversion rate is computed for each department using a unit-based activity driver such as direct labor hours or machine hours. 3. Prepare the journal entries that record the costs of the 12,000 regular strength batch as it moves through the various operations. Work in Process-Mixing o o Materials Inventory To record requisitions of materials for mixing. 3. Prepare the journal entries that record the costs of the 12,000 regular strength batch as it moves through the various operations. Work in Process-Mixing Materials Inventory To record requisitions of materials for mixing. To record the application of overhead and the incurrence of direct labor for mixing. o o To record the transfer of cost of goods completed from mixing to tableting. To record the application of overhead and the incurrence of direct labor for tableting. To record the transfer of cost of goods completed from tableting to bottling. To record the application of overhead and the incurrence of direct labor for bottling. o To record the transfer of cost of goods completed from bottling to finished goods. 4. Suppose that the direct materials are requisitioned by each department as needed for a batch. For the 12,000 regular strength batch, direct materials are requisitioned for the Mixing and Bottling departments. Assume that the amount of cost split evenly between the two departments. How will this change the journal entries made in Requirement 3? Indicate below what the journal entries would be in this case. 4. Suppose that the direct materials are requisitioned by each department as needed for a batch. For the 12,000 regular strength batch, direct materials are requisitioned for the Mixing and Bottling departments. Assume that the amount of cost split evenly between the two departments. How will this change the journal entries made in Requirement 3? Indicate below what the journal entries would be in this case. To record requisitions of materials for mixing. To record the application of overhead and the incurrence of direct labor for mixing. To record the transfer of cost of goods completed from mixing to tableting. 0 0 0 0 0 I To record the application of overhead and the incurrence of direct labor for tableting. To record the transfer of cost of goods completed from tableting to bottling. To record requisitions of materials for bottling. To record the application of overhead and the incurrence of direct labor for bottling. To record the application of overhead and the incurrence of direct labor for mixing. 0 To record the transfer of cost of goods completed from mixing to tableting. To record the application of overhead and the incurrence of direct labor for tableting. o To record the transfer of cost of goods completed from tableting to bottling. To record requisitions of materials for bottling. ] To record the application of overhead and the incurrence of direct labor for bottling. o To record the transfer of cost of goods completed from bottling to finished goods. Feedback Check My Work 4. Consider the basics of Operation Costing, conversion costs usually stay the same but materials can differ. An example of journal entries showing the flow of costs is illustrated above Exhibit 6.5