Problem 3: Cost of production report – materials added in 3rd department

Problem 3 (a)

All Well Company Produces a product known as Product-V5. This product is processed through three different processing departments. Materials are added in 3rd Department, as a result of which, the number of units is doubled.

The following data belongs to Department 3 for April, 2020:

Quantity:

• Units received from Department 2: 10,000 units
• Units transferred to finished goods store room area: 16,000
• Units still in process at the end of April: 4,000 units

Cost:

• Cost transferred in from Department 2 during April: $15,000
• Cost added by Department 3 during April:
  Materials: $4,400
  Labor: $4,500
  Factory overhead: $3,600

There was no work in process inventory on April 1, 2020. A weighted average costing method is used.

Required: Using the data provided by All Well Company, Prepare a cost of production report for April for Department 3.

Solution

Adjusted unit cost for units transferred in:
As the number of units has increased in department 3, the unit cost of preceding department needs to be adjusted as follows:

= Cost from department 2/(Units received from department 2 + Units added by department 3)
= $15,000/(10,000 units + 10,000 units)
= $0.75 per unit

Equivalent units and unit cost:

Equivalent units:

Materials:
= 16,000 + 4,000
= 20,000 units

Labor and overhead:
= 16,000 + (4,000 × 50%)
= 16,000 + 2,000
= 18,000 units

Unit cost:

Materials:
= $4,400/20,000 units
= $0.22 per equivalent unit

Labor:
= $4,500/18,000 units
= $0.25 per equivalent unit

Manufacturing overhead:
= $3,600/18,000 units
= $0.20

Problem 3 (b)