Chapter 3 Process Costing
66
Case Study
CS-1 LO XXXXXXXXXX
The finishing department of Diana Company produced 40,000 units of standard chairs during the month
of Fe
uary. It incu
ed $15,000 in direct materials cost; 2,500 direct labor hours paid at $10 per hour; and
manufacturing overhead applied at 150% of direct labor cost. Diana Company uses process costing to
accumulate costs. Assume there is no beginning inventory.
equired
a) Calculate the conversion costs incu
ed during the month of Fe
uary.
) Assume, that only 30,000 units were completed and transfe
ed out. The remaining 10,000 units left in ending
inventory are only 70% complete with respect to conversion costs. Direct materials are added at the beginning
of the process. Prepare a cost of production report.
Diana Company
Cost of Production report
Unit Calculations
inputs = outputs
Beginning
Cutting
Inventory
Add
Cu
ent
Month
Equals
Total
Production
Completed
Transfer Out
Add Ending
WIP
Inventory Total Outputs
Direct Materials Whole Units
% Equivalent Completed
Conversion Equivalent Units
Cost Calculations
inputs outputs
Beginning
Cutting
Inventory
Add
Cu
ent
Month
Equals
Total Cost
of Production
Cost of
Production
Per Unit
Subtract
Completed
Transfer Out
= Ending
WIP
Inventory
Check
Total Outputs
=Total Inputs
Direct Materials Units
Direct Materials Costs
Conversion Units
Direct Labo
Manufacturing Overhead
Total Conversion Cost
total
Chapter 3Process Costing
67
c) Refer to the cost of production report in part b. What are the cost per equivalent unit with respect to direct
materials and conversion costs, the total costs transfe
ed out to finished goods inventory, and the value of
inventory at the end of Fe
uary?
d) Refer to the cost of production report in part b. Provide the journal entry to record direct materials, direct
labor and manufacturing overhead. Also provide the journal entry to record the transfer of goods out of WIP
and into finished goods inventory.
Date Account title and explanation Debit Credit