The table depicts the journal entry for Operation 1 for conversion costs. The details of the table are as follows:
1. Conversion costs control: 24,400
2. Various accounts, such as wages payable control and accumulated depreciation
The actual conversion costs for Operation 1 in March 2020—assumed to be $24,400, including the actual costs incurred for Work Order 423 and Work Order 424—are entered into a Conversion Costs Control account:
The table depicts the journal entry for Operation 1 for conversion costs. The details of the table are as follows:
1. Conversion costs control: 24,400
2. Various accounts, such as wages payable control and accumulated depreciation
Summary journal entries for assigning costs to polyester blazers (Work Order 424) follow. Entries for wool blazers are similar. Of the $3,000 of direct materials for Work Order 424, $2,975 are used in Operation 1, and the remaining $25 of materials are used in another operation. The journal entry to record direct materials used for the 100 polyester blazers is shown below:
The table depicts the journal entry to record direct materials used for the 100 polyester blazers. The details of the table are as follows:
1. Work in process, Operation 1: 2,975
2. Materials inventory control: 2,975
The journal entry to record the allocation of conversion costs to products uses the budgeted rate of $11.60 per blazer times the 100 polyester blazers processed, or $1,160:
The table depicts the journal entry to record the allocation of conversion costs to products. The details of the table are as follows:
1. Work in process, Operation 1: 1,160
2. Conversion costs allocated: 1,160
The journal entry to record the transfer of 100 polyester blazers (at a cost of ) from Operation 1 to Operation 3 (polyester blazers do not go through Operation 2) is as follows:
The table depicts the journal entry to record the transfer of 100 polyester blazers from Operation 1 to Operation 3. The details of the table are as follows:
1. Work in process, Operation 1: 4,135
2. Work in process, Operation 3: 4,135
After posting these entries, the Work in Process, Operation 1, account appears as follows:
The table depicts T-account for work in process: Operation 1. The details of the table are as follows:
1. Direct materials: 2,975
2. Conversion costs allocated: 1,160
3. Transferred to Operation 3: 4,135
4. Ending inventory, March 31: 0
The costs of the blazers are transferred through the operations in which blazers are worked on and then to finished goods in the usual manner. Costs are added throughout the fiscal year in the Conversion Costs Control account and the Conversion Costs Allocated account. Any overallocation or underallocation of conversion costs is disposed of in the same way as overallocated or underallocated manufacturing overhead in a job-costing system, that is, using either the adjusted allocation-rate, proration, or writeoff to cost of goods sold approach (see Chapter 4, Adjusted Allocation-Rate Approach).
Managers find operation costing useful in cost management because operation costing focuses on control of physical processes, or operations, of a given production system. For example, in clothing manufacturing, managers are concerned with fabric waste, how many fabric layers can be cut at one time, and so on. Operation costing measures, in financial terms, how well managers have controlled physical processes.