Exercise 16: Cost of production report – materials added in 3rd department
Learning objective:
This exercise illustrates a situation where the materials are added in the last department, which increases the number of units to double.
All Well Company produces a product known as Product V5. This product is processed through three different processing departments. Additional materials are added in the 3rd Department, as a result of which the number of units is doubled in this department.
The following data belongs to Department 3 for April, 2020:
Quantity:
- Units received from Department 2: 10,000 units
- Units transferred to finished goods storeroom: 16,000
- Units still in process at the end of April: 4,000 units
Cost:
- Cost transferred in from Department 2 during April: $15,000
- Cost added by Department 3 during April:
– Materials: $4,400
– Labor: $4,500
– Factory overhead: $3,600
There was no work in process inventory on April 1, 2020. A weighted average costing method is used.
Required: Using the data provided by All Well Company, Prepare a cost of production report for April for Department 3.
Solution
*Adjusted unit cost for units transferred in:
As the number of units has increased in Department 3, the unit cost of the preceding department needs to be adjusted as follows:
= Cost from department 2/(Units received from department 2 + Units added by department 3)
= $15,000/(10,000 units + 10,000 units)
= $0.75 per unit
Equivalent units and unit cost:
Equivalent units:
Materials:
= 16,000 + 4,000
= 20,000 units
Labor and overhead:
= 16,000 + (4,000 × 50%)
= 16,000 + 2,000
= 18,000 units
Unit cost:
Materials:
= $4,400/20,000 units
= $0.22 per equivalent unit
Labor:
= $4,500/18,000 units
= $0.25 per equivalent unit
Manufacturing overhead:
= $3,600/18,000 units
= $0.20
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