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 $576. 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.

Units to be accounted for:

beginning     300 units

started        2700 units

total           3,000 units

Equivalent units  

                physical    materials  conversion

beginning       300          300       (60%) 240

start-comp   2,550       2,550             2,550

ending            150           150        (20%)  30

total              3,000      2,700             2,640

Cost to be accounted for:

                  materials      conversion

beginning           0                576

incurred              0           10,800

Total                 zero          11,376

Equivalent unis cost

materials zero

conversion: $10,800 / 2,640 = 4.09

Cost assigned for:

beginning inventory  

576 + 60 x 4.09 =

576 + 245.40 = 821,4

transferred units

2,550 units x 4.09 = 10,429.5

ending units

30 units x 4.09 = 122,70

total cost assigned for 11.373,6

(the difference between this amount and the total cost to be accounted for is due to rounding)

Explanation:

We count the physical units

then, we solve for the equivalent untis

(started and completed + completed ending + missing beginning

then, we solve for equivalent unit cost:

cost incurred during the period divided among equivalent units

last, we made the cost assignment.

u = 30

continuing your method

= +

subtract from both sides

= - thus

= -

= ⇒ u = 30

answer; ///global;