Comprehensive Problem 5 Process Costing Scenario Yum Yum Coo

Comprehensive Problem 5 Process Costingscenarioyum Yum Cookies Compa

YUM YUM COOKIES Company manufactures cookies through a process involving multiple departments. Materials are initially added in the Baking Department, and after processing, the cookies are transferred to the Packing Department where additional materials are added. The finished packages are then sent to Finished Goods inventory. The task involves calculating the gross profit for July using FIFO inventory methods based on given data including inventory levels at June 30, various transactions during July, and ending work-in-process (WIP) and finished goods inventory levels as of July 31.

In order to determine the July gross profit, a comprehensive analysis is necessary, covering the calculation of costs assigned to production, inventory valuation, and revenue recognition. This process requires an understanding of process costing, specifically FIFO (First-In, First-Out) method, which allocates the earliest costs of inventory first, matching costs with revenue accurately and providing an accurate picture of profitability for the period.

We begin by examining the prior inventory figures and transactions during July to establish the flow of costs. The June 30 inventory is used as the starting point, with opening balances for raw materials, work-in-process, and finished goods. July transactions include purchases of raw materials, production activity, labor and overhead costs, and activity in both departments. The completion levels of WIP inventory at July 31 are also vital for proper valuation.

Analysis of Beginning Inventory and July Transactions

The June 30 beginning inventory includes raw materials valued at $235,000, and work-in-process (WIP) inventory in the Baking Department with no work-in-process, while the Packing Department has 6,000 cases at 80% completion valued at $95,000. Finished goods inventory comprises 20,000 cases valued at $300,000. During July, raw materials worth $520,000 were purchased, and materials requisitioned from both departments amounted to significant amounts, with the Baking Department requisitioning $225,000 in direct materials and $25,000 in indirect materials. The Packing Department requisitioned $40,250 in direct materials and $9,750 in indirect materials. Labor costs and overheads were also incurred in both departments.

Calculation of Costs Incurred During July

To perform a detailed cost analysis, we allocate direct materials, labor, and manufacturing overhead to the production process. The direct materials for baking and packing are combined with associated labor (DL and IL) and allocated overheads, including depreciation, prepaid expenses, and other miscellaneous costs. These figures enable us to compute the total manufacturing costs incurred during July and assign them to the units produced.

Work-in-Progress and Finished Goods Inventory Valuation

At July 31, the Baking Department has 5,000 cases at 40% completion, and the Packing Department has 5,000 cases at 10% completion. Using FIFO, the earliest costs of beginning inventory are recognized first, and then costs of units started during the period are allocated based on the stage of completion. The valuation of ending WIP inventories involves calculating equivalent units for direct materials and conversion costs, then assigning costs accordingly.

Computing Cost of Goods Sold and Gross Profit

With the total costs assigned to units sold and remaining inventory, we calculate the cost of goods sold (COGS) based on the units sold in July, which are 47,000 cases at $42 per case. The FIFO method ensures the earliest costs are matched with sales, providing an accurate COGS figure. Subtracting COGS from total sales revenue yields the gross profit for July.

Conclusion

Accurately determining the July gross profit requires meticulous calculation of inventory flows, allocation of costs using FIFO, and precise valuation of inventory at the beginning and end of the period. The combination of direct costs, overheads, and inventory adjustments provides a comprehensive view of profitability, reflecting the true economic performance of YUM YUM COOKIES during July.

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