A C C A 2 S B A M 1: P C: N O

ALDERSGATE COLLEGE COST ACCOUNTING 2 SCHOOL OF BUSINESS AND ACCOUNTANCY MODULE 1: PROCESS COSTING: NATURE AND OPERATIONS

Learning Activity A. Multiple Choice: Theory 1. In process cost system, costs are assigned only:

C

a. b. c. d. D

to one work in process inventory account. to work in process and finished goods inventories. to work in process, finished goods, and cost of goods sold. to work in process inventory accounts.

2.Indicate which of the following statement is not correct. a. Both a job order and a process cost system track the same three manufacturing elements - direct materials, direct labor, and manufacturing overhead. b. In a job order cost system, only one work in process is used, while in process system, multiple work in process inventory accounts are used. c. Manufacturing costs are accumulated the same way in a job order and in a process system. d. Manufacturing costs are assigned the same way in a job order and in a process system.

B

3. In making the journal entry to record raw material costs: a. b. c. d.

B

4. The analysis of the activity in a department or cost center for a period is called a: a. b. c. d.

B

the debit is to Finished Goods Inventory the debit is often to two or more work in process inventory accounts the credit is generally to two or more work in process accounts the credit is to Finished Goods Inventory

Quantity report Cost of production report Cost of goods manufactured Equivalent production

5. A cost of production report: a. b. c. d.

is an external report shows costs charged to department and costs accounted for shows equivalent units of production but not physical flow of units contains six sections

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cost cost cost cost

C

ALDERSGATE COLLEGE COST ACCOUNTING 2 SCHOOL OF BUSINESS AND ACCOUNTANCY 6. The restatement of incomplete units in terms of completed units is called: a. b. c. d.

A

Quantities produced Total production Equivalent production Approximate production

7. Purchased materials are added in the second department of a three- department process; this increases the number of units produced in the second department and would always: a. b. c. d.

D

8. Purchased materials are added in the second department of a three- department process; this does not increase the number of units produced in the second department and would: a. b. c. d.

A

Change the direct labor cost percentage in the ending work in process inventory. Cause no adjustment to the unit cost transferred in from the first department. Increase total unit costs. Decrease total ending work in process in inventory.

Not change the peso amount transferred to the next department. Decrease total work in process inventory. Increase the factory overhead portion of the ending work in process inventory. Increase total unit cost.

9. An equivalent unit of material or conversion cost is equal to: a. b. c. d.

The manufacturing costs necessary to complete one unit of production. A unit of work in process inventory. The manufacturing costs necessary to start a unit of production into work in process. Fifty percent of manufacturing costs of a unit of finished goods inventory.

10. Which statement is correct?

B

a. Units started in process (or received from preceding departments) plus units added to production will always equal to units transferred out plus units completed and still in hand plus ending units in process. b. Units added in subsequent departments will affect the transferred in equivalent unit cost in the costs to be accounted for section. c. The stage of completion of ending work in process is most often based upon the actual physical state of completion of each unit in ending work in process. d. The Cost Accounted For section of the cost of production report shows which costs were accumulated by the department. D

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ALDERSGATE COLLEGE COST ACCOUNTING 2 SCHOOL OF BUSINESS AND ACCOUNTANCY 11. An item that does not appear on a cost of production report is: a. beginning work in process inventory b. cumulative costs through the end of departmental production c. ending work in process inventory d. ending finished goods inventory MULTIPLE CHOICES- COMPUTATIONAL B. Multiple Choice: Computation D

1. Department 1 had put 95,000 units into process during the period and had ending units in process of 21,000 units. What is the number of units transferred to finished goods inventory, if Department 2's ending units in process are 12,000? a. b. c. d.

A

104,000 83,000 74,000 62,000

2. Red Company had 6,000 units in process at the beginning of the month in Department 1. During the month an additional 14,000 units were placed into process. If Red Company had 4,200 units in process at the end of the month, what is the number of units transferred to department 2, assuming all units completed in Department 1 are transferred to Department 2? a. b. c. d.

A

15,800 18,200 20,000 24,200

3. The cost of materials put into production in a department during the month totaled P188,400. By the end of the month, these materials had been used for 32,000 units, of which 29,000 were completed and transferred out and 3,000 were in process. Eighty percent of materials were added to the units in process. What is the equivalent unit production for materials? a. b. c. d.

A

31,400 32,000 29,600 31,000

4. Using the data in Number 3, what is the cost per equivalent unit for materials?

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ALDERSGATE COLLEGE COST ACCOUNTING 2 SCHOOL OF BUSINESS AND ACCOUNTANCY a. P6.00 b. P5.89 c. P6.50 d. P6.36

Items 5 to 7 are based on the following data for the Finishing Department of the Lovely Company in January: Beginning inventory Units transferred in during month

-04,70 0 Units transferred to Finished Goods during 4,30 month 0 Ending work in process (25% complete as 40 to labor) 0 Labor costs incurred for month P14,080 A

5. What is the equivalent production for labor during the month? a. b. c. d.

A

6. What is the labor cost per equivalent unit? a. b. c. d.

A

4,400 4,600 4,700 4,300

P3.20 P3.06 P3.00 P3.27

7. What is the labor cost in the ending work in process? a. b. c. d.

P320 P306 P1,280 P960

Items 8 to 11 are based on the following data for the Grinding Department of the West Company in November: Beginning inventory

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-0-

ALDERSGATE COLLEGE COST ACCOUNTING 2 SCHOOL OF BUSINESS AND ACCOUNTANCY Units placed in production during month Units transferred to next department during month Ending work in process (1/3 complete as to overhead) Overhead costs incurred for month A

P282,900

8. What is the number of units in the ending work in process? a. b. c. d.

A

73,00 0 67,00 0

6,000 4,000 5,000 7,000

9. What is the equivalent production for overhead during the month? a. b. c. d.

69,000 73,000 71,000 67,000

10. What is the overhead cost in the units transferred out?

A

a. b. c. d. B

P4.10 P3.86 P3.98 P4.22

11. What is the overhead cost in the ending inventory of work in process? a. b. c. d.

P 8,200 P24,600 P 7,720 P 7,960

Use the following data in answering items 12 to 15: During the month, 3,900 units of product were started into production in a department, of which 3,700 were completed. Of the 3,700 completed units, 80 are still oil hand in the department and have not been physically transferred to the next department. There are also units still in process; they are estimated to be 65 percent complete as to labor and overhead. Labor for the month was P27, 193. A

12. What is the labor cost applicable to the units transferred to the next department?

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ALDERSGATE COLLEGE COST ACCOUNTING 2 SCHOOL OF BUSINESS AND ACCOUNTANCY a. P25,702 b. P27,193 c. P27,502 d. P20,705

A

13. What is the labor cost applicable to the units completed and still on hand? a. b. c. d.

A

14. What is the number of uncompleted units on hand? a. b. c. d.

A

P 568 PI, 420 PI, 240 P5, 680

200 300 400 500

15. What is the labor cost applicable to the uncompleted units on hand? a. b. c. d.

P923 P9,230 P1,420 P142

Questions 16 and 17 relate to Spring Company which bottles mineral water. The water is filtered in Department 1 and then flows through to Department 2 where it is bottled. The company's only direct material cost occurs in the bottling stage. The quantity schedules of Spring Company are as follows: Department 1 Units started in process Units transferred to Department 2 Units in process, end Department 2 Units received from Department 1

110,00 0 80,00 0 30,00 0

80,00 0 Units transferred to finished goods inventory 61,40 0 Units in process 18,60

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ALDERSGATE COLLEGE COST ACCOUNTING 2 SCHOOL OF BUSINESS AND ACCOUNTANCY 0 Ending units in process in both departments are 72% complete as to conversion costs. 16. Direct materials equivalent units of production far Department 1 are:

A

a. b. c. d.

0 80,000 units 101,600 units 110,000 units

17. Department 2 would have how many equivalent units of product on. on the basis of a conversion cost computation?

C

a. b. c. d.

61,400 units 68,929 units 74,792 units 80,000 units

A 18. Below is the quantity schedule for Department of Tuason Company: Units to be accounted for: Units received from Department 1 Units accounted for: Units transferred to finished goods

37,00 0 28,00 0

Units in process, end (35% complete as to conversion cost) 9,000 Cost data: Cost from preceding department Conversion costs added this period

What is the cost of units in process, end? a. b. c. d. A

P5, 850 P7, 740 PI, 890 P6, 540

19. The production data for Department 2 are as follows:

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P24,05 0 18,69 0

ALDERSGATE COLLEGE COST ACCOUNTING 2 SCHOOL OF BUSINESS AND ACCOUNTANCY Units received from preceding department 55,000 Units added to production 5,000 Units finished and transferred out 48,000 Ending units in process (direct materials, 100%, conversion costs, 70% complete) 12,000 Costs from preceding department P24,750 Costs added by department: Materials P7,2 00 Conversion costs 53,5 80 What is the total unit cost? a. b. c. d. A

P1.4825 P1.52 P1.07 P1.450

20. The RC Corporation manufactures toy cars. In Department 1, the body of the toy car is formed out of plastic. In Department 2 four rubber wheels are placed on each car at the end of the process. Below is the activity of Department 2 for May: Units transferred in Cost transferred in Costs incurred by Department 2 Direct materials Conversion costs Units in process, end

15,000 P13,500

P.02 each rubber wheel P14,210 3,000 (2/3 complete as to conversion costs, no direct materials What is the total cost of completed units transferred out to Department 2? a. b. c. d. D

P21, 935 P23, 940 P21, 915 P23, 220

21. Below are data pertaining to Department 2 of Magdalo Company that uses a process cost system: Units received from Department 1 Units added to production Units transferred to finished goods Ending units in process

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500,000 100,000 530,000 10% are 30% complete

ALDERSGATE COLLEGE COST ACCOUNTING 2 SCHOOL OF BUSINESS AND ACCOUNTANCY

Costs transferred in Cost added by department Direct materials Conversion costs

40% are 60% complete 15% are 75% complete 35% are 85% complete P300,000 P559,350 P606,480

Direct materials are added at the 62% stage of production and conversion costs are added evenly throughout the process. No beginning work in process inventory exists. What is the cost of ending work in process inventory? a. b. c. d. A

P119,630 P 84,630 P191.630 P126,630

22. Production data taken from the Costs to be Accounted For section of the Cost Schedule of Oakwook Company with two production departments is as follows:

Unit cost: Direct materials Direct labor Overhead Equivalent production: Direct labor Overhead

Department 1

Department 2

P4.2 9 2.93 1.17

P3.19 1.20

20,000 20,000

If Department 1 transferred 32,000 units to Department 2, what is the total cost to be accounted for? a. P356,280 b. P255,600 c. P419,716 d. P 87,800 23. Department 3 of the Peninsula Company has the following pieces of data included in its C cost of production report:

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ALDERSGATE COLLEGE COST ACCOUNTING 2 SCHOOL OF BUSINESS AND ACCOUNTANCY Quantities: Units transferred in from Department 2

54,000

Units added to production

24,330

Units in process, end

?

Total Cost

Unit Cost

Costs to be accounted for: Costs from preceding department Costs added by department: Direct materials Conversion costs

P391,500

P7.25

P80,000 P150,000

P1.23 P2.50

Cost accounted for: Transferred to finished goods

P509,221

Additional data: Ending units in process in Department 3 are 100% complete as to direct materials and 45% complete as to conversion costs.

What is the amount of total costs accounted for? a. b. c. d. A

P556,321 P601,321 P656,321 P701.321

24. National Electronics manufactures microchips in large quantities. Each microchip undergoes assembly and testing. The total assembly costs during January 2008 is as follows: Direct materials used Conversion costs Total manufacturing costs

P 720,000 760,000 P1,480,00 0

Assume there was no beginning inventory on January 1, 2008. During January, 10,000 microchips were placed into production and all 10,000 were fully completed at the end of the month.

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ALDERSGATE COLLEGE COST ACCOUNTING 2 SCHOOL OF BUSINESS AND ACCOUNTANCY What is the unit cost of an assembled microchip in January? a. b. c. d.

P148 P158 P150 P145

A 25. Using the data in Number 24, assume that during February 10,000 microchips are placed into production. Further assume the same total assembly costs for January are also incurred in February, but only 9,000 microchips are fully completed at the end of the month. All direct materials have been added to the remaining 1,000 microchips. However, on average, these remaining 1,000 microchips are only 50% complete as to conversion costs. What are the unit costs for direct materials and conversion costs for February? Direct Materials a. P72 b. P70 c. P72 d. P70 A

Conversion Costs P80 P80 P80 P85

26. Viagra Chemicals has a Mixing Department and a Refining Department. Its process costing system in the Mixing Department has two direct materials cost categories (Chemical P and Chemical Q) and one conversion costs pool. The following data pertain to the Mixing Department for July, 2008: Units :

Work in process, July 1 Units started Completed and transferred out

Cost s:

Chemical P Chemical Q Conversion costs

0 50,000 35,000 P250,00 0 70,000 135,00 0

Chemical P is introduced at the start of operations in the Mixing Department, and Chemical Q is added when the product is three- fourths completed in the Mixing

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ALDERSGATE COLLEGE COST ACCOUNTING 2 SCHOOL OF BUSINESS AND ACCOUNTANCY Department. Conversion costs are added evenly during the process. The ending work in process in the Mixing Department is two-thirds complete. What is the cost of goods completed and transferred to the Refining Department during July? a. b. c. d. A

P350,000 P400,000 P300,000 P450.000

27. Using the data in Number 26, what is the cost of work in process as of July 31, 2008? a. b. c. d.

P105,000 P120,000 P115,000 P150,000

Posttest Problem 1: Quantity Schedule Problem 10-1: The JAG Manufacturing Company has five processing departments. An examination of its cost of production report reveals the following incomplete data: Departments 1 Quantities Units started in process Units received from preceding dept. Units transferred to next dept. Units transferred to finished goods Ending units in process

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2

3

10,00 0 -

4,00 3,000 0 4,00 3,000 2,400 0 -

6,000

1,00 0

600

4

5

2,40 0 2,10 0 300

2,10 0 1,60 0 500

ALDERSGATE COLLEGE COST ACCOUNTING 2 SCHOOL OF BUSINESS AND ACCOUNTANCY Required: Complete the quantity schedule by replacing the letters with the correct unit amount. Assume that the process is sequential (i.e. the output of Department 1 is the input of Department 2, etc.) and that no beginning work in process inventory exists. Problem 2: Equivalent Units of Production Problem 10-2: The JGG Toy Company manufactures a wide variety of plastic toys. All direct materials are added at the beginning of Department A, Department A, B, and C add direct labor and overhead evenly throughout the process. January's quantity schedules are:

A

Departme nt B

C

Units to account for: Started in process

25,00 0

Received from preceding department Units accounted for: Transferred to next department Transferred to finished goods Ending units in process

Total

15,000

15,00 0

12,000

10,00

3,000

12,000

9,000 3,000

(75% complete)

(50% complete)

(50% complete)

25,000

15,000

12,000

Required: Determine the equivalent units of production for both direct materials and conversion costs for each department.

Problem 3: Equivalent Units of Production

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ALDERSGATE COLLEGE COST ACCOUNTING 2 SCHOOL OF BUSINESS AND ACCOUNTANCY Tanny Company produces a finished product requiring direct materials to be added at uneven intervals during production. Direct materials are added only in Department A. The schedule of when direct materials are added in Department A is as follows: Stage Production Percentage Completed 10 40 75 90

of

Percentage of Direct Materials Added 20% 30 30 20

Conversion costs are added evenly throughout the process. Following are the August data for Department A:

Beginning units in process Units started in process Ending units in process (25% were 35% complete, 30% were 55% complete, 25% were 80% complete, and 20% were 95% complete)

10,0 00

Required: Compute equivalent units of production for Department A for both direct materials and conversion costs for the month of August.

Problem 4: Cost of Production Report Data for Department 2 for the month of July, 2008 follows: Beginning units in process Units transferred in

-013,00 0 Costs transferred in P16,12 0 Ending units in process (45% complete as to conversion 2,000 costs) Direct materials P2,86 0

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ALDERSGATE COLLEGE COST ACCOUNTING 2 SCHOOL OF BUSINESS AND ACCOUNTANCY Conversion costs

9,996

Materials added in Department 2 did not increase the number of units. Required: Prepare a cost of production report for Department 2.

Problem 5: Cost of Production Report The AMG Plastic Co. has two processing departments. All direct materials are added in Department 1 at the beginning of the process. Conversion costs are incurred evenly throughout both processes. Data for January, 2008 are shown below: Department 1 Units started in process Units transferred to next department Units transferred to finished goods inventory Ending units in process

Costs added by department: Direct materials Direct labor Manufacturing overhead (applied)

75,000 60,000 55,000 15,000 5,00 (60% 0 (80% complete) complete) P300,00 0 172,500 86,250

No beginning work-in-process inventory exists. Required: Prepare a cost of production report for both departments. Problem 6: Cost of Production Report

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Department 2

P162.250 81,125

ALDERSGATE COLLEGE COST ACCOUNTING 2 SCHOOL OF BUSINESS AND ACCOUNTANCY The Camay Soap Corporation requires three processing departments to produce its soap. All direct materials are introduced into production at the beginning of Department 1. Departments 1 through 3 add conversion costs evenly throughout the process. A cost accountant obtained the following information for December 2008: Department 1 Units started in process Units transferred to the next department Units transferred to finished goods Ending units in process - % of completion for Conversion costs Costs added by department: Direct materials Direct labor Factory overhead (applied)

Department 2 Departmen t3

150,000 125,000

115,000 112,000

40%

10%

P21,000 8,100 16,200

90%

P11,600 23,200

Required: Prepare a cost of production report for each department.

Problem 7: Cost of Production Report The October data for CPA Company are shown below: Department 1 Units started in process Units received from previous department Units transferred to finished goods inventory Units completed but not transferred Ending units in process

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Department 2

25,000 15,000 7,000

10,000 (80% direct materials, 65%

1,000 7,000 (75% conversion costs)

P8,029 16,058

ALDERSGATE COLLEGE COST ACCOUNTING 2 SCHOOL OF BUSINESS AND ACCOUNTANCY conversion costs) Costs added by department: Direct materials Direct labor Manufacturing overhead (applied)

P12,650 13,545 5,160

P9,805 6,625

Required: a. Prepare a separate cost of production report for Departments 1 and 2. b. If finished goods inventory had a beginning balance of P25,000 and an ending balance of P3,300, what amount was charged to cost of goods sold? Problem 8: Equivalent Production and Computation of Cost The Nature Medicine Co. manufactures an all purpose tablet. Four direct materials are put into production in Department A. Department B places the units received from Department A into quick-dissolving tablets. Raw materials (all direct) are placed into production in Department A as follows:

Raw materials 101 (aspirin): Beginning of process Raw materials 102 (caffeine): When units are 40% complete Raw materials 103 (decongestant): When units are 60% complete Raw materials 104 (muscle relaxer): When units are 95% complete

July Data, Department A: Units started in process Units transferred out

300,00 0 250,00 0

Ending units in process (30% are 45% complete, 35% are 50% complete, 15% are 65% complete, 20% are 98% 50,00 complete) 0 Cost incurred: Direct materials: 101 6,000.00 102 3,000.00 103 9,362.50 104 13,000.00 Conversion 117,763.50 Required: 1. Compute the units of equivalent production for materials and conversion costs.

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ALDERSGATE COLLEGE COST ACCOUNTING 2 SCHOOL OF BUSINESS AND ACCOUNTANCY 2. Compute the cost of ending work in process inventory. Problem 9: Cost of Production Report and Journal Entries to Record Production Cost Problem 10-9: The department production report of Peninsula' Company for August is summarized below: Assembl y Departme nt

Finishin g Departm ent

2,00 0 01,86 0 0-

-0-

Quantity: Started in Production-Current Month Transferred in From Prior Department Transferred out to Next Department Transferred out to Finished goods State of Completion of Ending WIP Materials Labor Overhead

Complete 75 % 75%

1,860 -01,800

40% 10% 40%

Costs allocated to the departments are presented below:

Assembly Department Finishing Department

Materials P30,000 68,000

Labor P29,670 13,671

Overhead P18,830 7,825

Required: 1. Prepare a cost of production report for each department. Round total costs to the nearest peso. 2. Prepare journal entries to record the allocation of costs to production. 3. Prepare journal entries to record the transfer of goods from the Assembly Department to the Finishing Department. 4. Prepare journal entries to record the completion of goods and the transfer to Finished Goods. Problem 10: Cost of Production Report and Journal Entries.

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ALDERSGATE COLLEGE COST ACCOUNTING 2 SCHOOL OF BUSINESS AND ACCOUNTANCY The departmental heads of Glorieta Factories, Inc., have submitted the monthly production reports for June, 2008. These reports have been summarized as follows: Trimming Department

Assembly Department

6,000 -05,400

-05,400 5,400

600

400

Finishing Departme nt

Quantity: Started in Process Transferred in Transferred out Work in Process - End

Stage of Completion of Work in Process - End: Materials Complete

95%

Labor

60%

75%

Overhead

60%

85%

-05,000 4,80 0 20 0

80 % 90 % 80 %

Costs are allocated as follows:

Trimming Department Assembly Department Finishing Department

Materials Labor Overhead P33,60 P18,50 P9,217 0 0 14,84 14,84 7,120 0 0 6,40 10,32 4,960 0 0

Required: 1. Prepare the cost of production report. Round total costs to the nearest peso. 2. Prepare journal entries to record the following: a. To charge materials, labor, and overhead to production. b. To record the transfer of goods from the Trimming Department to the Assembly Department. c. To record the transfer of goods from the Assembly Department to the Finishing Department. d. To record the completion of goods and their transfer to Finished Goods.

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