Question

World Class Steaks is a meat processing firm based in Texas. It has two departments: preparation (prep) and shipping. For the prep department conversion costs are added evenly during the process and the first direct material, meat, is added at the beginning of the process. A second material, seasoning, is added at 90% point in the process. All completed units are transferred to the shipping department. In the shipping department, an additional material, packaging, is added to the product at the 20% point in the process. Completed units are transferred to finished goods. Additional information for both departments is presented below:

Preparation Department

Beginning Inventory contained 7,200 units (45% complete), meat - $10,632 and conversion $2,778.

Units started were 60,000; Units completed were 49,200. Ending Inventory is 70% complete with respect to conversion.

Within the Preparation Department, the following transactions occurred:

1. Meat purchased for $125,000 on account. Seasoning purchased for $15,000 for cash.
2. $111,000 of meat was put into process; seasoning used was $12,000.
3. Direct labor incurred was $50,000; Manufacturing Overhead incurred was $39,664.
4. Conversion is applied to production.
5. Completed product was transferred to the Shipping Department.

Shipping Department

Beginning Inventory contained 25,200 units (70% complete), transferred in $93,240,

                                                                                                packaging $10,000,

                                                                                                conversion $46,950

Ending Inventory contained 16,800 units (25% complete).

Within the Shipping Department, the following transactions occurred:

1. Packaging was purchased for $15,250.
2. $11,250 of packaging was used.
3. Direct labor incurred was $40,000; Manufacturing Overhead incurred was $41,690.
4. Conversion is applied to production.
5. Completed product was transferred to Finished Goods.

Finally,

1. 35,000 packages were sold for $6 each.
2. Selling and Administrative expense is $40,000

REQUIRED:

1. Prepare an Income Statement for World Class Steaks.
2. Journalize all entries.

Answer 1

Assuming FIFO method of Inventory valuation is used in all the departments. World Class Steaks Cost of Production Report-Preparation Department Equivalent Units Direct Materials-Seasoning Physical units Direct Materials-Meat Conversion costs e.u e.u o% e.u 7200 60000 67200 UNITS Units to account for Units in Beginning WIP Units started Total units to acount for Units accounted for: Transferred to Shipping Out of Beginning WIP Out of current production Total Inventory in Process, ending Total units acccounted for 55% 0% 100% 100% 100% 7200 42000 49200 18000 67200 7200 42000 49200 100% 42000 42000 18000 60000 3960 42000 45960 12600 58560 100% 0% 70% 49200 Materials-Meat Materials-Seasoning Conversion costs Total Costs COSTS Costs to account for: Current production costs Equivalent units Cost per equivalent unit $ $ 2,12,664 1,11,000 60,000 1.85 12,000 49,200 0.24 89,664 $ 58,560 1.53 $ $ $ Costs accounted for: Completed and Transferred out Ending Inventory in Process Total costs acccounted for 77,700 33,300 1,11,000 1,000 $ $ $ 12,000 - 12,000 12,000 $ $ $ $ 70,372 $ 19,292 $ 89,664 $ 1,60,072 52,592 2,12,664 Costs for transferred to Next Dept. Current production cost (+) Beginning WIP costs (10632+2778) $ 1,60,072 13,410 1,73,482 Active Go to

World Class Steaks Cost of Production Report-Shipping Department Equivalent Units Direct Materials-Packaging Physical units Transferred-in Conversion costs e.u e.u e.u 25200 49200 74400 UNITS Units to account for Units in Beginning WIP Units started Total units to acount for Units accounted for: Transferred to Shipping Out of Beginning WIP Out of current production Total Inventory in Process, ending Total units acccounted for 0% 100% 0% 100% 30% 100% 25200 32400 57600 16800 74400 32400 32400 16800 49200 32400 32400 16800 49200 7560 32400 39960 4200 44160 100% 100% 25% Transferred-in Materials-Packaging Conversion costs Total Costs COSTS Costs to account for: Current production costs Equivalent units Cost per equivalent unit $ $ $ 2,66,422 1,73,482 49,200 3.53 11,250 49,200 0.23 81,690 44,160 1.85 $ $ Costs accounted for: Completed and Transferred out Ending Inventory in Process Total costs acccounted for 1,14,244 59,238 1,73,482 $ $ $ 7,409 $ 3,841 $ 11,250 $ 73,921 $ 7,769 $ 81,690 $ 1,95,573 70,849 2,66,422 Costs for transferred to Finished goods Current production cost (+) Beginning WIP costs (93240+10000+46950) $ $ 1,95,573 1,50,190 3,45,763 $ Activ

Journal Particulars Material-Meat Accounts Payable (Purchase of material on account) (in $) Debit 1,25,000 (in $) Credit $ 1,25,000 $ 15,000 Material-Seasoning Cash (Purchase of material on cash) $ 15,000 $ 1,23,000 Work in Process-Preparation Material-Meat Material-Seasoning (Material used in Preparation Dept.) 1,11,000 12,000 89,664 $ Work in Process-Preparation Direct Labor Manufacturing OH (Direct labor and Manufacturing OH applied) 50,000 39,664 $ IS 1,73,482 Work in Process-Shipping Work in Process-Preparation (Completed product transferred to Shipping Dept.) 1,73,482 15,250 Material-Packaging Cash (Purchase of material on cash) 15,250 11,250 Work in Process-Shipping Material-Packaging (Material used in Shipping Dept.) 11,250

$ 81,690 Work in Process-Shipping Direct Labor Manufacturing OH (Direct labor and Manufacturing OH applied) 40,000 41,690 $ 3,45,763 Finished Goods Work in Process-Shipping (Completed product transferred to Finished goods) 3,45,763 2,10,000 Accounts Receivable (35000*6) Sales (units sold) 2,10,000 2,10,099 Cost of Goods sold (345763*35000/57600) Finished Goods (Cost of units sold transfer) 2,10,099 Selling and Administrative expenses 40,000 Cash $ 40,000 (Paid selling and administrative expenses in cash) World Class Steaks Budgeted Income Statement Particulars Sales (-) Cost of Goods sold Gross Profit/(loss) (-) Selling and Administrative expenses Net Income/(Loss) Amount 2,10,000 -2,10,099 $ -99 -40,000 -40,099