Objective: Demonstrate application of Process Costing of a manufacturing company including the following:
- Determine Department WIP inventory
- Calculation of Equivalent Units
- Determine Finished Goods Inventory
- Calculation of COGS
- Determination of Gross Profit
Adam's Apple Company makes homemade applesauce using Grandma Adam's special recipe. The company uses a FIFO process cost system. The process starts in the Kettle Room where apples are cored, cut and added to the Kettles along with Grandma's special spices. After several hours of slow simmering, the sauce is cooled as it moves to the Canning department where the sauce is poured into jars and sealed. After the jars are sealed they move to the packing department where they are placed into boxes and moved to finished goods where they are ready for sale. During the month of March the company sold 5,000 boxes of sauce with each box holding a dozen jars. A jar of sauce sells for $4.00.
1. Create the WIPs for each department indicating the Cost of each jar as it moves through the process.
2. Using the following information, determine the Gross Profit for the month of March.
Kettle Department:
- Beginning Balance 16000 at 90% complete with Costs of $13,600
- Ending Inventory 4000 jars at 20% completion
- DM used $ 21,280
- DL used $ 8,000
- FOH allocated $ 6,560
Canning Department:
- Beginning Balance 28,000 at 30% complete with costs of $33,600
- Jars Started 50,000
- Jars Transferred to Packing62,000
- Ending Inventory was 40% completed
- DM used $ 30,000
- DL used $ 14,800
- FOH allocated $ 19,500
Packing Department:
- Beginning Balance 14,000 at 75% complete with costs of $18,990
- Ending Inventory 23,000 jars at 10% completed
- DM used $ 14000
- DL used $ 5600
- FOH allocated $ 11000
Finished Good Department:
- Beginning Balance 21,500 jars with costs of $ 47,515
- DL used $ 18,625
- FOH allocated $11,175