Question

Grayson Company produces an industrial chemical used for cleaning and lubricating machinery. In the Mixing Department, liquid and dry chemicals are blended to form slurry. Output is measured in gallons. In the Baking Department, the slurry is subjected to high heat, and the residue appears in irregular lumps. Output is measured in pounds. In the Grinding Department, the irregular lumps are ground into a powder, and this powder is placed in 50-pound bags. Output is measured in bags produced. In April, the company reported the following data:
a. The Mixing Department transferred 50,000 gallons to the Baking Department, costing $250,000. Each gallon of slurry weighs two pounds.
b. The Baking Department transferred 100,000 pounds (irregular lumps) to the Grinding Department. At the beginning of the month, there were 5,000 gallons of slurry in process, 25 percent complete, costing $35,000 (transferred-in cost of $25,000 plus conversion cost of $10,000). No additional direct materials are added in the Baking Department. At the end of April, there was no ending work in process. Conversion costs for the month totaled $205,000. Normal loss during baking is 5 percent of good output. All transferred-in materials are lost, but since loss occurs uniformly throughout the process, only 50 percent of the conversion units are assumed to be lost.
c. The Grinding Department transferred 2,500 bags of chemicals to its finished goods warehouse. Beginning work in process for this department was 25,000 pounds, 40 percent complete with the following costs: transferred-in cost, $132,500; conversion cost, $15,000. Bags are used at the end of the process and cost $1.50 each. During bagging, normally one out of every 11 bags is torn and must be discarded. No powder is lost (the tearing occurs when the bag is being attached to a funnel). Conversion costs for the month’s production are $172,500. There is no ending work in process.
Required:
1. Using FIFO, calculate the cost per bag of chemicals transferred to the finished goods warehouse. Show all work necessary for the calculation.
2. Prepare the journal entries needed to remove spoilage from the Baking and Grinding departments.


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  • CreatedSeptember 01, 2015
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