Process Costing

EXERCISE -A

NEMO TILE

TILE-FORMING DEPARTMENT

MONTH ENDED MAY 31

Information about units:

Beginning work in proces, May 1 2,000

Started in production during May 18,000

Completed and trasferred to Finishing Department during May 16,000

Ending work in process, May 31 (25% complete as to direct materials, 55% complete as to conversion cost) 4,000

Information about costs:

Beginning work in proces, May 1 (consists of $800 of direct materials cost and $4,000 of conversion costs) $4,800

Direct materials used in May 6,000

Conversion costs incurred in May 32,400

Required:

1. Use the steps of process costing (below) to calculate the cost that should be assigned to:

a. units completed and transferred out

b. units still in ending work in process inventory.

2. Prepare the journal entry needed at month-end to transfer the costs associated with the formed tiles to the next department, Tile Finishing.

Steps to do:

1. Summarize the flow of physical units.

2. Compute output in terms of equivalent units.

3. Summarize total costs to account for.

4. Compute the cost per equivalent unit.

5. Assign total costs to completed and to units in ending work in process inventory

Solution:

Step 1. Summarize the flow of physical units.

Flow of Production Flow of Physical units Direct materials Conversion costs

Units to account for:

Beg. WIP May 1

Started in production during May

Total physical units to account for

Step 2

Units accounted for:

Completed and transferred out in May

ending work in process, May 31

Total Physical units accounted for

Total Equivalent Units

3. Summarize total costs to account for. Direct materials Conversion costs Total

Beg. WIP, May 1

Cost Added during May

Total costs to account for

4. Compute the cost per equivalent unit.

Direct materials Conversion costs

Total costs to account for

Divided by total equivalent units

Cost per equivalent unit

5. Assign total costs to completed and to units in ending work in process inventory

Direct materials Conversion costs Total

Units completed and transferred out (16,000)

Units in ending work in process inventory (4000)

Direct materials (1000*.40)

Conversion costs (2200*2)

Total cost of ending WIP Inventory

Total costs accounted for

Journal Entry meeded to tramsfer costs is as follows:

WIP Inventory - Finishing

WIP Inventory - Tile Forminf

This problem extends the Exercise A to a second department. During May, Nemo Tile reports the following in its Finishing Departments:

Drimo Tile: Finishing Department Data for May

Information about units:

Beginning work in proces, May 1 (20% complete as to direct materials, 70% complete as to conversion cost) 4,000

Transferred in from TileForming Department during May 16,000

Completed and trasferred out to Finished Goods Inventory during May 15,000

Ending work in process, May 31 (36% complete as to direct materials, 80% complete as to conversion cost) 5,000

Information about costs:

Beginning work in proces, May 1 (transferred in costs, $10,000; direct materials costs $488; conversion costs, $5,530 $16,018

Transferred in from Tile-Forming Department during May (Exercise A-5) -

Finishing Department direct materials added during May 6,400

Finishing Department conversion added during May 24,300

Required:

Required:

1. Use the steps of process costing to assign the Finishing Department's total costs to account for to units completed and units in ending WIP Inventory.

2. Prepare the journal entry to transfer the appropriate amount of cost tp finished good inventory

3. What is the cost of making one unit of product from strat to finish?

1. Summarize the flow of physical units.

Flow of Production Flow of Physical units Transferred -in Direct materials Conversion costs

Units to account for:

Beg. WIP May 1

Transferred in from Tile-Forming Department during May

Total physical units to account for

Step 2

Units accounted for:

Completed and transferred out in May

Ending work in process, May 31

Total Physical units accounted for

Total Equivalent Units

3. Summarize total costs to account for. Transferred-In costs Direct materials Conversion costs Total

Beg. WIP, May 1

Cost Added during May

Total costs to account for

4. Compute the cost per equivalent unit.

Transferred-In costs Direct materials Conversion costs Total

Total costs to account for

Divided by total equivalent units

Cost per equivalent unit

5. Assign total costs to completed and to units in ending work in process inventory

Transferred -in Direct materials Conversion costs Total

Units completed and transferred out to Finished Goods Inventory (15,000)

Units in ending work in process inventory, May 31

Transferred -in costs (5000)

Direct Materials (1800*.41)

Conversion costs (4000*1.57)

Total cost of ending WIP Inventory

Total costs accounted for

Required #2

Journal Entry meeded to tramsfer costs is as follows:

Finished good Inventory

WIP Inventory - Finishing Dept.

To record transferred of cost out of the finishing department.

Required #3