Process Costing: Average Costing Method and Two Time Periods
Lid Corporation produces a line of beverage lids. The production process has been automated, so the product can now be produced in one operation rather than in the three operations that were needed before the company purchased the automated machinery. All direct materials are added at the beginning of the process, and conversion costs are incurred uniformly throughout the process. Operating data for May and June are as follows:
|
May |
June |
|
|
Beginning work in process inventory |
||
|
Units (May: 40% complete) |
220,000 |
? |
|
Direct materials |
$ 3,440 |
$ 400 |
|
Conversion costs |
$ 6,480 |
$ 420 |
|
Production during the month |
||
|
Units started |
24,000,000 |
31,000,000 |
|
Direct materials |
$45,000 |
$93,200 |
|
Conversion costs |
$66,000 |
$92,796 |
|
Ending work in process inventory |
||
|
Units (May: 70% complete; June: |
||
|
60% complete) |
200,000 |
320,000 |
1. Using the average costing method, prepare process cost reports for May and June. (Round unit costs to three decimal places; round all other costs to the nearest dollar.)
2. From the information in the process cost report for May, identify the amount that should be transferred out of the Work in Process Inventory account, and state where those dollars should be transferred.
3. Compare the product costing results for June with the results for May. What is the most significant change? What are some of the possible causes of this change?