Process Costing: Average Costing Method and Two Time Periods
Carton Corporation produces a line of beverage cartons. 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 July and August are as follows:
|
July |
August |
|
|
Beginning work in process inventory |
||
|
Units (July: 20% complete) |
20,000 |
? |
|
Direct materials |
$20,000 |
$6,000 |
|
Conversion costs |
$30,000 |
$6,000 |
|
Production during the month |
||
|
Units started |
70,000 |
90,000 |
|
Direct materials |
$34,000 |
$59,000 |
|
Conversion costs |
$96,000 |
$130,800 |
|
Ending work in process inventory |
||
|
Units (July: 40% complete; August: |
||
|
60% complete) |
10,000 |
25,000 |
1. Using the average costing method, prepare process cost reports for July and August. (Round unit costs to two decimal places; round all other costs to the nearest dollar.)
2. From the information in the process cost report for July, 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 August with the results for July. What is the most significant change? What are some of the possible causes of this change?