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Question

(Adapted from Institute of Management Accountants, CMA Examination, December 1992, Part 3, Question 8)
Gray Manufacturing Company makes pennants for college and university athletic teams. The company uses a
process costing system to accumulate product costs as the pennants move through the two stages of production:
cutting and silk-screening. All materials are added at the beginning of both cutting and silk-screening processes,
while conversion costs are applied evenly throughout the process.
At the beginning of September, the Cutting Department had 1,000 pennants in process that were 50% complete. The
company had incurred \$1,300 in direct materials cost and \$1,250 in conversion cost to make them. During the month
the department added \$13,195 more of direct materials and \$32,875 in conversion costs. A total of 9,150 pennants
were finished during September and transferred to the Silk-screening Department. At the end of the month, 2,000
pennants that were 30% complete, remained in the Cutting Department.

Directions:
a. Calculate the number of pennants started in the Cutting Department during September.
Here’s one way you could solve this problem:
Units
Beginning Inventory, September 1
Completed and transferred out
Ending inventory, September 30

+
=

[Figure]
[Formula]
[Figure]
[Figure]

b. Calculate the equivalent units of production for the Cutting Department for September.

c. What was the ending balance in the Cutting Departmentâ€™s Work in process Inventory account in dollars?

d. How much cost was transferred from the Cutting Department to the Silk-screening Department during September?

e. Reconcile both the physical units and the product costs for the Cutting Department in September.

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