production shrinkage in process costing;average cost.coastal petroleum inc.uses a process cost system with an average cost flow assumption to account for the production of its only product.
The product is manufactured in two departments. Units of product are started in the Cracking Department and then transferred to the Refining Department, where they are completed.
Because of the intense heat applied in the Cracking Department, some of the production volume is lost to evaporation. Because the department is capital intensive,the cost of direct labor is small relative to overhead. Consequently, labor and overhead are treated as one element of cost in the Cracking Department (that is, conversion cost).
Data related to May operations in the Cracking Department are:
Units in beginning inventory………………………………………5000
Units started in process this period……………………………….55000
Units transferred to the Refining Department this period………..49000
Units in ending inventory(100%materials,70%conversion cost)…6000
Beginning Added
Inventory This Period
Costs charged to the department:
Materials……………………………… $1900 $20100
Conversion cost………………………. 360 7620
Required:
(1) Prepare a cost of production report for the Cracking Department for May.
(2) Prepare the general journal entry to record the transfer of cost out of the Cracking Department this month.
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