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In its Department R, Recyclers, Inc., processes donated scrap cloth into towels for sale in local...

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Accounting

In its Department R, Recyclers, Inc., processes donated scrapcloth into towels for sale in local thrift shops. It sells theproducts at cost. The direct materials costs are zero, but theoperation requires the use of direct labor and overhead. Thecompany uses a process costing system and tracks the processingvolume and costs incurred in each period. At the start of thecurrent period, 300 towels were in process and were 60 percentcomplete. The costs incurred were $576. During the month, costs of$10,800 were incurred, 2,700 towels were started, and 150 towelswere still in process at the end of the month. At the end of themonth, the towels were 20 percent complete.

Required: a. Prepare a production cost report; the company usesFIFO process costing.

b. Show the flow of costs through T-accounts. Assume thatcurrent period conversion costs are credited to variouspayables.

Answer & Explanation Solved by verified expert
3.8 Ratings (730 Votes)

a.

Production Cost Report
Flow of production units Equivalent Units
Physical Units Conversion Units
Units to be accounted for:
Beginning WIP inventory 300
Units started this period 2700
Total units to be accounted for 3000
Units accounted for:
Units completed and transferred out:
From beginning inventory 300 120 [300*40%]
Started and completed currently 2550 2550 [2550*100%]
Units in ending WIP inventory 150 30 [150*20%]
Total units accounted for 3000 2700

b.

Cost of equivalent unit for current units introduced = 10800/ 2700 = $4

Work in Process
Debit Credit
Beginning Balance 576 Finished goods 11256
[120units *4 + 10800+ 576]
Conversion cost 10800
Ending balance 120
[30units*4]
Finished Goods
Debit Credit
Beginning Balance 0
Work in Process 11256
Ending balance 11256
Various Payables
Debit Credit
Beginning Balance 0
Conversion 10800
Ending balance 10800

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