Question

Cost of Production and Journal Entries

Lighthouse Paper Company manufactures newsprint. The product is manufactured in two departments, Papermaking and Converting. Pulp is first placed into a vessel at the beginning of papermaking production. The following information concerns production in the Papermaking Department for March.

Account Work in Process—Papermaking Department							Account No.
Date		Item	Debit		Credit		Balance
							Debit		Credit
Mar.	1	Bal., 8,000 units, 30% completed					15,680
	31	Direct materials, 42,700 units	59,780				75,460
	31	Direct labor	17,860				93,320
	31	Factory overhead	10,040				103,360
	31	Goods transferred, 47,700 units			?		?
	31	Bal., 3,000 units, 40% completed					?

a1. Prepare the March journal entry for the Papermaking Department for the materials charged to production.

	Work in Process-Papermaking Department
	Materials-Pulp

Feedback

a1. Remember there are three different types of inventory; materials, work in process, and finished goods.

a2. Prepare the March journal entry for the Papermaking Department for the conversion costs charged to production. If an amount box does not require an entry, leave it blank.

	Work in Process-Papermaking Department
	Wages Payable
	Factory Overhead-Papermaking Department

Feedback

a2. What types of costs are included in conversion costs? By adding these conversion costs are the units complete and ready for transfer?

a3. Prepare the March journal entry for the Papermaking Department for the completed production transferred to the Converting Department. If required, round your interim calculations to two decimal places and your final answer to the nearest dollar.

	Work in Process-Converting Department
	Work in Process-Papermaking Department

Feedback

a3. Remember that each department has a work in process account. Are these units 100% complete and ready to be sold or are they still in process?

b. Determine the Work in Process—Papermaking Department March 31 balance. If required, round your interim calculations to two decimal places and your final answer to the nearest dollar.
$

Answer 1

Date	Item	Debit	Credit	Balance
March
1	Bal., 8,000 units, 30% completed			$15,680.00
31	Direct materials, 42,700 units	$59,780.00			$75,460.00
31	Direct labor	$17,860.00			$93,320.00
31	Factory overhead	$10,040.00			$103,360.00
31	Goods transferred, 47,700 units		$100,448.68	$100,448.68
31	Bal., 3,000 units, 40% completed				$4,973.21
a)	Debit	Credit
a1)
Work in Process-Papermaking Department	$59,780.00
Materials-Pulp		$59,780.00
a2)
Work in Process-Papermaking Department	$27,900.00
Wages Payable		$17,860.00
Factory Overhead-Papermaking Department		$10,040.00
The costs are included in conversion costs are direct labour and factory overhead. By adding these conversion costs the units are complete and ready for transfer into finished goods
a3)
Work in Process-Converting Department	$100,448.68
Work in Process-Papermaking Department		$100,448.68
Cost of 47,700 transferred-out units:
Inventory in process, March 1	$15,680.00
Cost to complete March 1 inventory:(8000 x (1-30%) x $.64per unit	$3,608.31
Pounds started and completed in March (39700 x ($1.40+$.64)	$81,160.37
Transferred to Converting Department	$100,448.68
Equivalent unit and cost per equivalent unit calculations:		Equivalent Units
	Whole Units	Materials	Conversion
Inventory in process, March 1 30% completed (8000 x (1-30%))	8000.00	$0.00	2400.00
Started and completed in March (42,700 - 3000)	39700.00	39700.00	39700.00
Transferred to Converting Department in march	47700.00	39700.00	42100.00
Inventory in process, March 31 (40% completed)	3000.00	3000.00	1200.00
Total	50,700.00	42,700.00	43,300.00
Cost per equivalent unit of materials = $59780/42,700	$1.40	Per unit
Cost per equivalent unit of conversion = $27,900/ 43,300	$0.64	Per unit
Only 60% of units are completed 40% units are work in process.
b)
Work in Process
Direct materials (3,000 × $1.40)	$4,200.00
Conversion (3,000 × 40% × $0.64)	$773.21
Total	$4,973.21