Process Costing
Miller Restorations uses process costing in its paint manufacturing operations. Bill Miller has been examining a production cost report for the month of June and cannot understand it. He comes to you for an explanation. Compute ending working-in-process inventories in Department A and Department B using the data below, and explain the steps and calculations in detail. Bill Miller also wants to implement several automated processes in the future. Explain the effect of automation on the process costing system.
The following data are available for the month of June:
a. Materials purchased, $800,000.
b. Materials used: Direct materials: Department A $250,000, Department B $230,000.
Indirect materials: $20,000.
c. Factory payroll incurred, $600,000: Direct labor: Department A $300,000, Department B $200,000. Indirect labor: $100,000.
d. Other factory overhead incurred, $30,000: Power and light $2,000, Depreciation $20,000, Property tax $5,000, Insurance $3,000.
e. Factory overhead cost was allocated equally to Department A and Department B.
f. Department A completed and transferred to department B $600,000.
g. Department B completed and transferred to Finished Goods Inventory account $1,000,000.