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Production Cost Report

Weighted Average Method

Durall Company manufactures a plastic gasket that is used in automobile engines. The gaskets go through three processing departments: mixing, forming, and stamping. The company's accountant (who is very inexperienced) has prepared a summary of production and costs for the forming department as follows for October:
Forming department costs:

Work in process inventory, October 1, 8,000 units; all
Materials added; 7/8 complete as to conversion costs .......................... $22,420*
Costs transferred in from the mixing department ...................................... 81,480
Material added during October (added when processing is
50% complete in forming department) .................................................. 27,600
Conversion costs added during October .................................................... 96,900
Total departmental costs ............................................................................................ $228,400
Forming department costs assigned to:
Units completed and transferred to the stamping department,
100,000 units at $2.284 each .................................................................. $228,400
Work in process inventory, October 31, 5,000 units,
2/5 complete as to conversion costs ....................................................... -
Total departmental costs assigned ............................................................................. $228,400

* Consists of cost transferred in, $8,820: materials cost, $3,400; and conversion costs, $10,200
After mulling over the data above, Durall's president commented, "I can't understand what's happening here. Despite a concentrated effort at cost reduction, our unit cost actually went up in the forming department last month. With that kind of performance, year-end bonuses are out of the question for the people in that department."
The company uses the weighted average method to account for units and costs.

REQUIRED
1. Prepare a revised production report for the forming department for October showing how much cost should have been assigned to the units completed and transferred to the stamping department and to the ending work in process inventory.

2. Explain to the president why the unit cost figure appearing on the report prepared by the accountant is so high.

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Durall Company manufactures a plastic gasket that is used in automobile engines. The gaskets go through three processing departments: mixing, forming, and stamping. The company's accountant (who is very inexperienced) has prepared a summary of production and costs for the forming department as follows for October:
Forming department costs:

Work in process inventory, October 1, 8,000 units; all
Materials added; 7/8 complete as to conversion costs .......................... $22,420*
Costs transferred in from the mixing department ...................................... 81,480
Material added during October (added when processing is
50% complete in forming department) ...

Solution Summary

The solution explains the preparation of a production cost report using the weighted average method.

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