Comprehensive Problem 5: Perfect Pies We Bake

Comprehensive Problem 5: Perfect Pies We Bake Perfect Piescompany Make

Perfect Pies We Bake Perfect Pies Company uses a process cost system to produce fruit pies. The process involves multiple departments: the mixing department, rolling department, filling department, baking department, packaging department, and finished goods. During October, the company sold $83,000 worth of pies at $10 each. For each department, information is provided regarding beginning and ending inventory quantities, costs incurred, and the status of inventory completion. The task is to determine the gross profit for October based on this data, which includes calculating cost flows through each department, the cost of goods sold, and the total revenue from sales.

Paper For Above instruction

The calculation of gross profit for Perfect Pies involves determining the total manufacturing costs incurred during October, the cost of pies completed and transferred to finished goods, and subsequently computing the gross profit by subtracting the cost of goods sold from total sales revenue. This process requires detailed analysis of each department's costs, work in process inventories, and the flow of units through each stage of production under a process costing system.

Firstly, to prepare the gross profit, we need to determine the total production costs incurred in October across all departments, including direct materials, direct labor, and factory overhead. These costs are attributed to the units processed during the period, considering the units in beginning and ending inventory and the units completed and transferred out.

The process begins with the mixing department, where costs include direct materials, direct labor, and factory overhead. Since the beginning inventory is zero, the costs incurred during the period are associated entirely with the current month's production. The mixing department produces a certain number of pies, which then move to the rolling department. The ending inventory in this department reflects partially completed pies, and its costs need to be allocated based on the degree of completion.

Similarly, the rolling department begins with 1,600 pies that are 70% complete, incurs additional costs, and processes new pies. Once these pies are completed, they move to the filling department. The filling department has beginning inventory of 3,000 pies at 20% completion, and incurs its own costs. Ending inventory in each department remains partially complete and thus a portion of costs must be allocated accordingly.

Next, in the baking department, pies are fully processed, and the costs for this stage are recorded, including the labor, overhead, and transfer costs from the prior departments. The packaging department then adds finishing touches and incurs additional costs. The final step involves measuring the costs of completed pies that are transferred to finished goods inventory.

For the purpose of calculating gross profit, the total costs of goods manufactured and ready for sale are determined by summing the costs of the pies transferred to finished goods. The cost of ending finished goods inventory (unsold pies at the end of October) also needs to be calculated based on the units remaining in inventory and their degree of completion.

The total sales revenue during October, based on 8,300 pies sold at $10 each, amounts to $83,000. The cost of goods sold (COGS) comprises the costs of the pies sold, which are derived from the production costs less the ending inventory of finished goods.

The gross profit is then calculated as:

Gross Profit = Sales Revenue - Cost of Goods Sold

Given the extensive data and process costing details, the actual calculation would involve meticulous computation steps: calculating equivalent units for each department, determining departmental costs per equivalent unit, assigning costs to units transferred out and ending inventories, and finally computing COGS. In this analysis, simplifying assumptions, such as using average costs per equivalent unit across departments, can be employed for the estimation, but detailed step-by-step calculations would be necessary for precise results.

In conclusion, the gross profit for October is obtained by subtracting the cost of goods sold derived from the detailed departmental cost flow analysis from the total sales revenue of $83,000. This process provides insights into the company's profitability from its fruit pie production, reflecting both the costs incurred during the process and the sales performance in the period.

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