Work in Process Inventory Accounts in Process Costing Systems E 3. Gilbert, Inc.

Question

Work in Process Inventory Accounts in Process Costing Systems

E 3. Gilbert, Inc., which uses a process costing system, makes a chemical used as
a food preservative. The manufacturing process involves Departments A and B.
The company had the following total costs and unit costs for completed production
last month, when it manufactured 10,000 pounds of the chemical. Neither
Department A nor Department B had any beginning or ending work in process
inventories.
                                                     Total Cost              Unit Cost
Department A
     Direct materials                         $10,000                  $1.00
     Direct labor                                   2,600                    0.26
     Overhead                                       1.300                    0.13
Total costs                                       $13,900                  $1.39

Department B
    Direct materials                            $ 3,000                   $0.30
    Direct labor                                        700                     0.07
    Overhead                                         1,000                   0.10
Total costs                                        $ 4,700                   $0.47
Totals                                               $18,600                   $1.86

1. How many Work in Process Inventory accounts would Gilbert use?

2. What dollar amount of the chemical’s production cost was transferred from Department A to Department B last month?

3. What dollar amount was transferred from Department B to the Finished Goods Inventory account?

4. What dollar amount is useful in determining a selling price for 1 pound of the chemical?

Explanation / Answer

1. Glibert has to use two works in process inventory accounts, one for Department - A and second for Department - B. But in this problem there is no any work in process inventory. Here total 10,000 units manufactured in one month only and there is no any beginning and ending work in process inventory. 2. Total department - A cost ($13,900) has to transfer to Department - B. Here $13,900 is chemical production cost of department - A. Total cost Unit cost Direct materials $10,000 $1.00 Direct labor $2,600 $0.26 Overhead $1,300 $0.13 Chemical production cost of - Dept A $13,900 $1.39 3. $18,600 ($13,900 + $4,700) has to transfer from Department - B to the finished goods Inventory account. 4. $1.86 is total cost of manufacturing of the chemical for one unit from the both departments. Thus we have to fix selling price per pound (Unit) is greater than total cost ($1.86). Hope it helps you.... Total cost Unit cost Direct materials $10,000 $1.00 Direct labor $2,600 $0.26 Overhead $1,300 $0.13 Chemical production cost of - Dept A $13,900 $1.39

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