Essence Company manufactures a high end after shave lotion, called Eternity, in 10 ounce plastic bottles. Because the market for after shave lotion is highly competitive, the company is very concerned about keeping its costs under control. Eternity is manufactured through three processes: mixing, filling, and corking. Materials are added at the beginning of each of the processes, and labor and overhead are incurred uniformly throughout each process. The company uses a weighted average method to cost its product. A partially completed production cost report for the month of May for the Mixing Department is shown below.
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ESSENCE COMPANY |
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Equivalent Units |
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QUANTITIES |
Physical |
Materials |
Conversion |
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Units to be accounted for |
Step 1 |
Step 2 |
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Work in process, May 1 |
1,000 |
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Started into production |
2,000 |
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Total units |
3,000 |
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Units accounted for |
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Transferred out |
2,200 |
? |
? |
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Work in process, May 31 |
800 |
? |
? |
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Total units |
3,000 |
? |
? |
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COSTS |
Materials |
Conversion |
Total |
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Unit costs Step 3 |
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Costs in May |
(a) |
? |
? |
? |
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Equivalent units |
(b) |
? |
? |
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Unit costs [(a) (b)] |
? |
? |
? |
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Costs to be accounted for |
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Work in process, May 1 |
$ 56,300 |
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Started into production |
119,320 |
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Total costs |
$175,620 |
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COST RECONCILIATION SCHEDULE Step 4 |
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Costs accounted for |
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Transferred out |
? |
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Work in process, May 31 |
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Materials |
? |
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Conversion costs |
? |
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Total costs |
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Additional information: |
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Work in process, May 1, 1000 units |
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Materials cost, 1,000 units (100% complete) |
$49,100 |
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Conversion costs, 1,000 units (70% complete) |
7,200 |
$56,300 |
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Materials cost for May, 2,000 units |
$100,000 |
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Conversion costs for May |
$19,320 |
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Work in process, May 31, 800 units, 100% complete as to materials and 50% |
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complete as to conversion costs. |
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Instructions
(a) Prepare a production cost report for the Mixing Department for the month of May.
(b) Prepare the journal entry to record the transfer of goods from the Mixing Department to the Filling Department.
(c) Explain why Essence Company is using a process cost system to account for its costs.