31. Prepare Journal Entries for a Process Costing System

The example that follows illustrates how the journal entries reflect the process costing system ... the journal entry to record the overhead allocation is:. ThisbookisarchivedandwillberemovedJuly6,2022.Pleaseusetheupdatedversion. Skiptocontent ProcessCosting 31PrepareJournalEntriesforaProcessCostingSystem Calculatingthecostsassociatedwiththevariousprocesseswithinaprocesscostingsystemisonlyapartoftheaccountingprocess.Journalentriesareusedtorecordandreportthefinancialinformationrelatingtothetransactions.Theexamplethatfollowsillustrateshowthejournalentriesreflecttheprocesscostingsystembyrecordingtheflowofgoodsandcoststhroughtheprocesscostingenvironment. PurchasedMaterialsforMultipleDepartments EachdepartmentwithinRockCityPercussionhasaseparateworkinprocessinventoryaccount.Rawmaterialstotaling$33,500wereorderedpriortobeingrequisitionedbyeachdepartment:$25,000fortheshapingdepartmentand$8,500forthepackagingdepartment.TheJuly1journalentrytorecordthepurchasesonaccountis: DirectMaterialsRequisitionedbytheShapingandPackagingDepartmentsandIndirectMaterialUsed DuringJuly,theshapingdepartmentrequisitioned$10,179indirectmaterial.Similartojobordercosting,indirectmaterialcostsareaccumulatedinthemanufacturingoverheadaccount.Theoverheadcostsareappliedtoeachdepartmentbasedonapredeterminedoverheadrate.Intheexample,assumethattherewasanindirectmaterialcostforwaterof$400inJulythatwillberecordedasmanufacturingoverhead.Thejournalentrytorecordtherequisitionandusageofdirectmaterialsandoverheadis: DuringJuly,thepackagingdepartmentrequisitioned$2,000indirectmaterialandoverheadcostsforindirectmaterialtotaled$300forthemonthofJuly.Thejournalentrytorecordtherequisitionandusageofmaterialsis: DirectLaborPaidbyAllProductionDepartments DuringJuly,theshapingdepartmentincurred$15,000indirectlaborcostsand$600inindirectlabor.Thejournalentrytorecordthelaborcostsis: DuringJuly,thepackagingdepartmentincurred$13,000ofdirectlaborcostsandindirectlaborof$1,000.Thejournalentrytorecordthelaborcostsis: AppliedManufacturingOverheadtoAllProductionDepartments Manufacturingoverheadincludesindirectmaterial,indirectlabor,andothertypesofmanufacturingoverhead.Itisdifficult,ifnotimpossible,totracemanufacturingoverheadtoaspecificproduct,andyet,thetotalcostperunitneedstoincludeoverheadinordertomakemanagementdecisions. Overheadcostsareaccumulatedinamanufacturingoverheadaccountandappliedtoeachdepartmentonthebasisofapredeterminedoverheadrate.Properlyallocatingoverheadtoeachdepartmentdependsonfindinganactivitythatprovidesafairbasisfortheallocation.Itneedstobeanactivitycommontoeachdepartmentandinfluentialindrivingthecostofmanufacturingoverhead.Intraditionalcostingsystems,themostcommonactivitiesusedaremachinehours,directlaborindollars,ordirectlaborinhours.Ifthenumberofmachinehourscanberelatedtothemanufacturingoverhead,theoverheadcanbeappliedtoeachdepartmentbasedonthemachinehours.Theformulaforoverheadallocationis: RockCityPercussiondeterminedthatmachinehoursistheappropriatebasetousewhenallocatingoverhead.Theestimatedannualoverheadcostis$340,000peryear.Itwasalsoestimatedthatthetotalmachinehourswillbe34,000hours,sotheallocationrateiscomputedas: Theshapingdepartmentused700machinehours,andwithanoverheadapplicationrateof$10perdirectlaborhour,thejournalentrytorecordtheoverheadallocationis: Thefinishingdepartmentused910machinehours,andwithanoverheadapplicationrateof$10perdirectlaborhour,thejournalentrytorecordtheoverheadallocationis: TransferredCostsofFinishedGoodsfromtheShapingDepartmenttothePackagingDepartment Whentheunitsaretransferredfromtheshapingdepartmenttothepackagingdepartment,theyaretransferredat$3.97perunit,ascalculatedpreviously.Theamounttransferredfromtheshapingdepartmentisthesameamountlistedontheproductioncostreportin(Figure).Thejournalentryis: TransferredGoodsfromthePackagingDepartmenttoFinishedGoods Thecomputationofinventoryforthepackagingdepartmentisshownin(Figure). InventoryComputationforPackagingDepartment.(attribution:CopyrightRiceUniversity,OpenStax,underCCBY-NC-SA4.0license) Thevalueoftheinventorytransferredtofinishedgoodsintheproductioncostreportisthesameasinthejournalentry: RecordingtheCostofGoodsSoldOutoftheFinishedGoodsInventory Eachunitisapackageoftwodrumsticksthatcost$8.40tomakeandsellsfor$24.99.Therearetwotransactionswhenrecordingasale.Oneentryistotransfertheinventoryfromfinishedgoodsinventorytocostofgoodssoldandisatthecostoftheproduct.Thesecondtransactionistorecordthesaleatthesalesprice.Thecompoundentrytorecordbothtransactionsforthesaleof500unitsonaccountis: TheimportanceofproperlyrecordingtheproductionprocessisillustratedinthisreportonworkinprocessinventoryfromInventoryOps.com. KeyConceptsandSummary Traditionaljournalentriesshowthepurchaseofmaterialandtheincurringofoverheadcosts. Eachdepartmentrecordsthetransferofmaterialfromthestoreroomintoproduction,itsdirectlaborcosts,theapplicationofoverhead,andthetransferofgoodstothenextdepartmentorfinishedgoods. Thevalueoftheinventorytransferredtothenextdepartmentortofinishedgoodsequalstheamountlistedastransferredontheproductioncostreport. (Figure)Thejournalentrytorecordthe$500ofworkinprocessendinginventorythatconsistsof$300ofdirectmaterials,$50ofmanufacturingoverhead,and$150oddirectlaboriswhichofthefollowing? (Figure)Assigningindirectcoststodepartmentsiscompletedby________. applyingthepredeterminedoverheadrate debitingthemanufacturingcostsincurred applyingthecoststomanufacturingoverhead applyingthecoststoworkinprocessinventory C (Figure)Inaprocesscostingsystem,whichaccountshowstheoverheadassignedtothedepartment? costofgoodssold finishedgoodsinventory rawmaterialinventory workinprocessinventory (Figure)Inaprocesscostsystem,factorydepreciationexpenseincurredisdebitedto________. finishedgoodsinventory workinprocessinventory manufacturingoverhead costofgoodssold C (Figure)Matcheachtermwithitsdescription. A.conversioncosts i.totalofdirectmaterialcostsanddirectlaborcosts B.costofgoodssold ii.manufacturingcostsoftheitemssold C.costofproductionreport iii.numberofunitsproducedifeachunitwasproducedsequentially D.costperequivalentunit iv.totalofdirectlaborcosts,indirectlaborcosts,indirectmaterialcosts,andmanufacturingoverhead E.equivalentunitsofproduction v.wherecostsinaprocesscostsystemarereportedbeforebeingappliedtotheproduct F.manufacturingdepartment vi.detailedlistingofthetotalcostsoftheproductincludingthevalueofworkinprocess G.primecosts vii.costofmaterialsorconversionforaspecificdepartmentduringproduction H.transferredoutcosts viii.productofthetotalcostperunitandthenumberofunitscompletedandtransferredduringthetimeperiod A.iv;B.ii;C.vi;D.vii;E.iii;F.v;G.i;H.viii. (Figure)Howismanufacturingoverheadhandledinaprocesscostsystem? (Figure)Howarepredeterminedoverheadratesusedinprocesscosting? Priortothenewyear,acompanycomputestheestimatesoftheannualoverheadperdepartmentdividedbytheestimateddriverforthatdepartment.Adriveristhemeasurethatincreasesthecostofoverheadandiscommonlydirectlaborhours,directlaborcost,ormachinehours.Theresultisthepredeterminedoverheadrate.Costsareaccumulatedinanaccountcalledmanufacturingoverhead.Attheendofeachperiod,theoverheadisremovedfromtheoverheadaccountandappliedtothedepartment. (Figure)Overheadisassignedtothemanufacturingdepartmentattherateof$10permachinehour.Therewere3,500machinehoursduringOctoberintheshapingdepartmentand2,500inthepackagingdepartment.Preparethejournalentrytoapplyoverheadtothemanufacturingdepartments. (Figure)Preparethejournalentrytorecordthefactorywagesof$28,000incurredforasingleproductiondepartmentassumingpaymentwillbemadeinthenextpayperiod. (Figure)Preparethejournalentrytorecordthetransferof3,000unitsfromthepackagingdepartmenttofinishedgoodsifthematerialcostperunitis$4andtheconversioncostperunitis$5.50. (Figure)Preparethejournalentrytorecordthesaleof2,000unitsthatcost$8perunitandsoldfor$15perunit. (Figure)Overheadisassignedtothemanufacturingdepartmentattherateof$5permachinehour.Therewere3,000machinehoursusedinthemoldingdepartment.Preparethejournalentrytoapplyoverheadtothemanufacturingdepartment. (Figure)Preparethejournalentrytorecordthefactorywagesof$25,000incurredintheprocessingdepartmentand$15,000incurredintheproductiondepartmentassumingpaymentwillbemadeinthenextpayperiod. (Figure)Preparethejournalentrytorecordthetransferof3,500unitsfromtheseparationdepartmenttothemashdepartmentifthematerialcostperunitis$2andtheconversioncostperunitis$5. (Figure)Preparethejournalentrytorecordthesaleof700unitsthatcost$5perunitandsoldfor$15perunit. (Figure)SelectedinformationfromSkylarStudiosshowsthefollowing: Preparejournalentriestorecordthefollowing: rawmaterialpurchased directlaborincurred depreciationexpense(hint:thisispartofmanufacturingoverhead) rawmaterialsused overheadappliedonthebasisof$0.50permachinehour thetransferfromdepartment1todepartment2 (Figure)Loanstarhad100unitsinbeginninginventorybeforestarting950unitsandcompleting800units.Thebeginningworkinprocessinventoryconsistedof$2,000inmaterialsand$5,000inconversioncostsbefore$8,500ofmaterialsand$11,200ofconversioncostswereaddedduringthemonth.TheendingWIPinventorywas100%completewithregardtomaterialsand40%completewithregardtoconversioncosts.Preparethejournalentrytorecordthetransferofinventoryfromthemanufacturingdepartmenttothefinishedgoodsdepartment. (Figure)SelectedinformationfromHernandezCorporationshowsthefollowing: Preparejournalentriestorecordthefollowing: rawmaterialpurchased directlaborincurred depreciationexpense(hint:thisispartofmanufacturingoverhead) rawmaterialsused overheadappliedonthebasisof$0.50permachinehour thetransferfromdepartment1todepartment2 (Figure)Rexarhad1,000unitsinbeginninginventorybeforestarting9,500unitsandcompleting8,000units.Thebeginningworkinprocessinventoryconsistedof$5,000inmaterialsand$8,500inconversioncostsbefore$16,000ofmaterialsand$18,500ofconversioncostswereaddedduringthemonth.TheendingWIPinventorywas100%completewithregardtomaterialsand40%completewithregardtoconversioncosts.Preparethejournalentrytorecordthetransferofinventoryfromthemanufacturingdepartmenttothefinishedgoodsdepartment. (Figure)Whatisdifferentbetweenthejournalentriesforprocesscostingandthatofjobordercosting? 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