Question

AccuBlade Castings Inc. casts blades for turbine engines. Within the Casting Department, alloy is first melted in a crucible, then poured into molds to produce the castings. On May 1, there were 900 pounds of alloy in process, which were 40% complete as to conversion. The Work in Process balance for these 900 pounds was $102,960, determined as follows:

Direct materials (900 x $110) $99,000
Conversion (900 x 40% x $11) 3,960
$102,960

During May, the Casting Department was charged $901,000 for 8,500 pounds of alloy and $33,920 for direct labor. Factory overhead is applied to the department at a rate of 150% of direct labor. The department transferred out 8,700 pounds of finished castings to the Machining Department. The May 31 inventory in process was 20% complete as to conversion.

a. Prepare the following May journal entries for the Casting Department:
1. The materials charged to production
2. The conversion costs charged to production
3. The completed production transferred to the Machining Department

b. Determine the Work in Process—Casting Department May 31 balance.
c. Compute and evaluate the change in the costs per equivalent unit for direct materials and conversion from the previous month (April).

Answer 1

a. Journal Entries: 1. Materials Charged to Production: Debit Work in Process - Casting Department by $901,000; Credit Raw Materials Inventory by $901,000. 2. Conversion Costs Charged to Production: Debit Work in Process - Casting Department by $12,780; Credit Factory Overhead Control by $12,780. 3. Completed Production Transferred to the Machining Department: Debit Finished Goods Inventory by $143,040; Credit Work in Process - Casting...

Step-by-step explanation:

a. Journal Entries:

Materials Charged to Production: Debit Work in Process - Casting Department by $901,000; Credit Raw Materials Inventory by $901,000.

Conversion Costs Charged to Production: Debit Work in Process - Casting Department by $12,780; Credit Factory Overhead Control by $12,780.

Completed Production Transferred to the Machining Department: Debit Finished Goods Inventory by $143,040; Credit Work in Process - Casting Department by $143,040.

b. Work in Process - Casting Department May 31 Balance:

The May 31 balance in the Work in Process - Casting Department can be calculated as follows:

May 1 balance + Cost added during May - Cost transferred out = May 31 balance

May 1 balance = $102,960

Cost added during May = Direct materials + Conversion costs + Factory overhead

 = $99,000 (direct materials) + $3,960 (conversion costs) + ($33,920 × 150%) (factory overhead)

 = $99,000 + $3,960 + $50,880 = $153,840

Cost transferred out = Cost of 8,700 pounds of finished castings

 = 8,700 lbs × ($901,000/8,500 lbs) = $92,647.06

May 31 balance = $102,960 + $153,840 - $92,647.06 = $164,152.94

c. Change in Costs per Equivalent Unit:

The costs per equivalent unit for direct materials and conversion can be calculated as follows:

Previous month (April):

Total cost of beginning work in process = $102,960

Equivalent units of production = 900 pounds × 40%

Cost per equivalent unit for direct materials = $99,000 / (900 pounds × 40%) = $275

Cost per equivalent unit for conversion = $3,960 / (900 pounds × 40%) = $11

Current month (May):

Total cost added during May = Direct materials + Conversion costs + Factory overhead

 = $99,000 (direct materials) + $3,960 (conversion costs) + ($33,920 × 150%) (factory overhead)

 = $99,000 + $3,960 + $50,880 = $153,840

Equivalent units of production = pounds started in May + pounds in process at the end of May

 = 8,500 pounds + (900 pounds × 20%) = 9,300 pounds

Cost per equivalent unit for direct materials = $99,000 / 9,300 pounds = $10.65

Cost per equivalent unit for conversion = $3,960 / 9,300 pounds = $0.43

Evaluation:

Direct Materials: The cost per equivalent unit for direct materials decreased from $275 in April to $10.65 in May.

This indicates a significant decrease in the cost of direct materials per pound.

Conversion: The cost per equivalent unit for conversion decreased from $11 in April to $0.43 in May.

This also indicates a significant decrease in the cost of conversion per pound.