Question:
Prepare a Production Cost Report and Show Cost Flows through Accounts: FIFO Method
In its Department R, Recyclers, Inc., processes donated scrap cloth into towels for sale in local thrift shops. It sells the products at cost. The direct materials costs are zero, but the operation requires the use of direct labor and overhead. The company uses a process costing system and tracks the processing volume and costs incurred in each period. At the start of the current period, 300 towels were in process and were 60 percent complete. The costs incurred were $168. During the month, costs of $10,800 were incurred, 2,700 towels were started, and 150 towels were still in process at the end of the month. At the end of the month, the towels were 20 percent complete.
Required
a. Prepare a production cost report; the company uses FIFO process costing.
b. Show the flow of costs through T-accounts. Assume that current period conversion costs are credited to various payables.
c. Management is concerned that production costs are rising and would like to hold them to less than $4.25 per unit. Has the company achieved this target? Write a short report to management stating your answer.