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Chapter 08 - Process Costing
8 Process Costing
Solutions to Review Questions 8-1. Process costing is most likely to be used in industries that produce relatively homogeneous products using continuous processes. 8-2. Using the basic cost flow equation, rearrange the terms to solve for the unknown beginning inventory. From BB + TI – TO = EB, we have: Beginning Inventory + Current Work – Transferred Out = Ending Inventory. Rearranging yields: Beginning Inventory = Transferred Out + Ending Inventory – Current Work 8-3. With FIFO costing, the units in the beginning inventory are transferred out first. These beginning inventory units carry with them the costs incurred in a previous period plus the costs incurred this period to complete the beginning inventory. The costs transferred-out will tend to be lower versus weighted-average costing during periods of rising costs. The ending work-in-process inventory will be carried at a cost that is more current, hence higher. 8-4. Under FIFO costing, the equivalent units represent only the work done in the current period. Under weighted average, the equivalent units represent the work associated with all of the costs charged to work in process regardless of the period in which those costs were incurred (i.e., including costs from prior periods that are in beginning inventory).
8-1
Chapter 08 - Process Costing
8-5. Prior department costs behave the same as direct materials, which are typically added at the start of production. They are treated separately because they represent the accumulation of costs from previous departments rather than the receipt of materials from the stores area. It is helpful to separate prior department costs from other costs because the manager of the department receiving the transferred units has no control over the costs incurred in prior departments. Thus, the prior department costs are not useful for evaluating the performance of the manager of the department receiving the units. 8-6. Disagree. The more important individual unit costs are for decisions, the more likely it is that a company will want to use a costing system that separates costs by units. With job costing, the company can treat every unit as a separate job. 8-7. From the inventory equation: BB + TI – TO = EB; Therefore, TO = BB + TI – EB.
8-2
Chapter 08 - Process Costing
Solutions to Critical Analysis and Discussion Questions 8-8. To assign costs to specific barrels of liquid cleaning products or similarly mass–produced items requires a considerable amount of record keeping. Assuming products are all the same, a process costing system provides sufficient information for control purposes. Record keeping is simplified since all costs in a given month are accumulated in one account and assigned at the end of the period. 8-9. This is a fairly common problem. LIFO is usually beneficial for tax purposes when prices are rising and inventory levels are steady or rising. However, maintaining internal records on a LIFO basis is often quite burdensome. To avoid the problem, companies usually maintain their internal accounting records on a FIFO or weighted-average basis and then make an estimate of the LIFO cost of inventories. The LIFO estimate is usually done on a highly aggregated basis and employs some form of “dollar value” LIFO estimation. A company may use LIFO for tax purposes and some other method for internal accounting purposes. This is an example of the idea of “different costs for different purposes,” which was discussed in earlier chapters. 8-10. The results will be the same using either costing system. The important point is that job costing and process costing are both methods to assign costs incurred to services completed. When there is only one service, the method of accumulation and assignment does not affect the final cost. 8-11. The correct answer is (b). The difference between the weighted-average and FIFO methods of process costing is how they handle beginning WIP. When there is no beginning WIP there is no difference between the two costing methods. Answer (a) is incorrect because both methods assume units are homogeneous. Answer (c) is incorrect because amounts in beginning inventory will differ between FIFO and weighted-average. If there are no ending inventories, then the cost of goods manufactured is the sum of the current costs, which will be the same under both methods, and the costs in beginning work in process, which can differ. Answer (d) is incorrect because the cost per equivalent unit can differ and so the costs assigned to the equivalent units in ending inventory can differ.
8-3
Chapter 08 - Process Costing
8-12. If the percentage completion is overstated, (a) the total equivalent units for the period will be overstated, because the work-in-process ending inventory will be assumed to have more equivalent units than it actually does. (b) The costs per equivalent unit will be understated, as the cost is divided by equivalent units that are overstated. (c) Because the equivalent units in ending work-in-process are overstated, the costs transferred-out will be understated (and the ending work-in-process costs overstated). 8-13. The correct answer is (b). The weighted-average method of process costing combines the costs of work done in the previous period and the current period. 8-14. (e). None of these answers are correct. Answers (a) and (b) are incorrect because (a) ignores stages of completion and (b) double counts units started that are still in ending inventory. Answer (c) is incorrect because the ending inventory should be multiplied by the amount of work done this period, not work necessary to complete the items. Answer (d) is incorrect because for the same reason as answer (c): the ending inventory should be multiplied by the amount of work done this period, not work necessary to complete the items.
8-4
Chapter 08 - Process Costing
Solutions to Exercises 8-15. (20 min.) Compute Equivalent Units—Weighted-Average Method: Clean Corporation.
Units transferred out............................................ Equivalent units in ending inventory: Materials: 10% x 14,000a units........................ Conversion costs: 20% x 14,000 units............ Total equivalent units for all work done to date... a14,000
a. Materials 42,000
b. Conversion Costs 42,000
1,400 EU 43,400 EU
2,800 EU 44,800 EU
units in ending inventory = 8,000 units in beginning inventory + 48,000 units started this period – 42,000 units transferred out.
8-5
Chapter 08 - Process Costing
8-16. (20 min.) Compute Equivalent Units—FIFO method: Clean Corporation. a. b. Compute Equivalent Units—FIFO Materials Conversion Costs To complete beginning inventory: Materials: 50%a x 8,000 units..........................4,000 EU Conversion costs: 70%b x 8,000 units............. 5,600 EU Started and completed during the period............34,000 EU c 34,000 EU Units still in ending inventory: Materials: 10% x 14,000d units........................1,400 EU Conversion costs: 20% x 14,000 units............ 2,800 EU 39,400 EU 42,400 EU
a50%
= 100% – 50% already done at the beginning of the period.
b70%
= 100% – 30% already done at the beginning of the period.
c34,000
units started and completed = 42,000 units transferred out less 8,000 units from beginning inventory. d 14,000
units in ending inventory = 8,000 units in beginning inventory + 48,000 units started this period – 42,000 units transferred out. Alternative Method: Equivalent Units units of work = transferred + done this out period a. Materials: 39,400 EU = 42,000 units + b. Conversion Costs: 42,400 EU = 42,000 units +
8-6
EU ending inventory
–
EU beginning inventory
1,400 EU 2,800 EU
– –
4,000 EU 2,400 EU
Chapter 08 - Process Costing
8-17. (15 min.) Compute Equivalent Units—Weighted Average Method: Missouri Corporation.
Units transferred out................................................ Equivalent units in ending inventory: Materials: 100% x 100,000 units.......................... Conversion costs: 15% x 100,000 units............... Total equivalent units for all work done to date.......
b. a. Conversion Materials Costs 150,000 150,000 100,000 250,000
15,000 165,000
8-18. (20 min.) Compute Equivalent Units—FIFO method: Missouri Corporation. b. Conversion Costs
a. Materials To complete beginning inventory: Materials: 0%b x 70,000a units............................... 0 Conversion costs: 40%c x 70,000 units.................. Started and completed during the period................... 80,000 Units still in ending inventory: Materials: 100% x 100,000 units............................. 100,000 Conversion costs: 15% x 100,000 units.................. 180,000
EU 28,000 80,000
EU EU
15,000 123,000
EU EU
EU d EU EU
a 70,000
units in beginning inventory = 150,000 units transferred out + 100,000 units in ending inventory – 180,000 units started this period.
b 0%
= 100% – 100% already done at the beginning of the period.
c 40%
= 100% – 60% already done at the beginning of the period.
d 80,000
units started and completed = 150,000 units transferred out less 70,000 units from beginning inventory.
Alternative Method
a. Materials: b. Conversion Costs:
Equivalent Units EU EU units of work = transferred + ending – beginning done this period out inventory inventory 180,000 EU = 150,000 units + 100,000 EU – 70,000 EU 123,000 EU = 150,000 units + 15,000 EU – 42,000 EU
8-7
Chapter 08 - Process Costing
8-19. (30 min.) Compute Equivalent Units: Bears, Inc. a. Weighted-average method:
Units transferred out......................................................... Equivalent units in ending inventory: Materials: 100% x 27,000 units.................................... Conversion costs: 60% x 27,000 units......................... Total equivalent units for all work done to date...............
Materials 180,000
Conversion Costs 180,000
27,000 207,000
16,200 196,200
b. First-in, First-out (FIFO) method:
Materials To complete beginning inventory: Materials: 0%a x 27,000 units.......................... Conversion costs: 25%b x 27,000 units........... Started and completed during the periodc.......... Units still in ending inventory: Materials: 100% x 27,000 units....................... Conversion costs: 60% x 27,000 units............
0
a 0%
EU
153,000
EU
27,000
EU
180,000
Conversion Costs
EU
6,750 EU 153,000 EU
16,200 EU 175,950 EU
= 100% – 100% already done at the beginning of the period.
b 25%
= 100% – 75% already done at the beginning of the period.
c 153,000
units started and completed
= 180,000 units transferred out less 27,000 units from beginning inventory.
8-8
Chapter 08 - Process Costing
8-20. (30 min.) Compute Equivalent Units—Ethical Issues: Aaron Company. a. Weighted-average method:
Units transferred out................................................ Equivalent units in ending inventory: Materials: 0% x 120,000 units.............................. Conversion costs: 40% x 120,000 units............... Total equivalent units for all work done to date.......
Materials 630,000
Conversion Costs 630,000
0 630,000
48,000 678,000
b. First-in, First-out (FIFO) method:
a. Materials To complete beginning inventory: Materials: 0%a x 150,000 units........................ Conversion costs: 40%b x 150,000 units........ Started and completed during the periodc.......... Units still in ending inventory: Materials: 0% x 120,000 units......................... Conversion costs: 40% x 120,000 units..........
0 EU 480,000 EU
60,000 EU 480,000 EU
0 EU 480,000 EU
a 0%
b. Conversion Costs
48,000 EU 588,000 EU
= 100% – 100% already done at the beginning of the period (conversion was 60% complete).
b 40%
= 100% – 60% already done at the beginning of the period.
c 480,000
units started and completed = 630,000 units transferred out less 150,000 units from beginning inventory.
c. 1. The change will reduce the unit cost for the units transferred to finished goods. 2. It is not ethical; there is no reason to believe the change reflects anything other than a desire for reporting better results. 3. It is unlikely to be successful for long. An accounting system keeps track of actual costs. If a manager postpones reporting them this period, they will be reported next period or shortly thereafter.
8-9
Chapter 08 - Process Costing
8-21. (20 min.) Compute Cost per Equivalent Unit—Weighted Average Method: Davenport Plant.
Physical Units Flow of units: Units to be accounted for: Beginning WIP inventory................................. Units started this period................................... Total units to account for.............................. Units accounted for: Completed and transferred out Materials (765,000 x 100%)......................... Units in ending inventory: Materials (225,000 x 100%)......................... Total units accounted for..........................
Materials Eq. Units
270,000 720,000 990,000
765,000
765,000
225,000 990,000
225,000 990,000
Direct Materials Flow of costs: Costs to be accounted for: Costs in beginning WIP inventory.................................. Current period costs...................................................... Total costs to be accounted for.................................. Cost per equivalent unit Materials ($415,800 ÷ 990,000 units) ...........................
8-10
$99,000 316,800 $415,800 $0.42
Chapter 08 - Process Costing
8-22. (20 min.) Compute Cost per Equivalent Unit—FIFO method: Davenport Plant.
Physical Units Flow of units: Units to be accounted for: Beginning WIP inventory.......................................... Units started this period............................................ Total units to account for...................................... Units accounted for: Completed and transferred out From beginning WIP inventory (270,000 x 0%) Started and completed currently (495,000a x 100%)........................................................................... Units in ending inventory: Materials (225,000 x 100%).................................. Total units accounted for...................................
Materials Eq. Units
270,000 720,000 990,000
270,000 495,000
0 495,000
225,000 990,000
225,000 720,000
495,000 units started and completed = 765,000 units transferred-out – 270,000 beginning WIP units. a
Direct Materials Flow of costs: Costs to be accounted for: Total costs to be accounted for (current period costs only)........... Cost per equivalent unit Materials ($316,800 ÷ 720,000 units) ...............................................
8-11
$316,800 $ 0.44
Chapter 08 - Process Costing
8-23. (20 min.) Compute Equivalent Units—FIFO method: Santiago Company. Physical Units Flow of units: Units to be accounted for: Beginning WIP inventory............................................... Units started this period................................................. Total units to account for............................................ Units accounted for: Completed and transferred out From beginning WIP inventory [45,000 x (1 – 40%)] Started and completed currently (435,000a x 100%). Units in ending inventory: Conversion (75,000 x 70%)........................................ Total units accounted for........................................ a
Conversion Eq. Units
45,000 510,000 555,000
45,000 435,000
27,000 435,000
75,000 555,000
52,500 514,500
435,000 units started and completed = 480,000 units transferred-out – 45,000 beginning WIP units.
8-12
Chapter 08 - Process Costing
8-24. (20 min.) Compute Cost per Equivalent Unit—Weighted-Average method: Santiago Company.
a.
Physical Units
Equivalent Units Materials Conversion Eq. units Costs Eq. units
Flow of units: Units to be accounted for: Beginning WIP inventory................................. 45,000 Units started this period................................... 510,000 Total units to account for.............................. 555,000 Units accounted for: Completed and transferred out........................ 480,000 Units in ending inventory................................. 75,000 Materials (75,000 x 100%)........................... Conversion costs (75,000 x 70%)................ Total units accounted for.............................. 555,000
480,000 75,000 555,000
b. Total Flow of costs: Costs to be accounted for: Costs in beginning WIP inventory......................... $ 63,000 Current period costs.............................................. 1,360,500 Total costs to be accounted for......................... $1,423,500 Cost per equivalent unit Materials ($305,250 ÷ 555,000 units)................... Conversion costs ($1,118,250 ÷ 532,500 units)..................................................................
8-13
480,000
52,500 532,500
Direct Materials
Conversion Costs
$24,300 280,950 $305,250
$38,700 1,079,550 $1,118,250
$ 0.55 $ 2.10
Chapter 08 - Process Costing
8-25. (35 min.) Compute Costs per Equivalent Unit—Weighted-Average Method: Matsui Lubricants. Physical Units
Equivalent Units Materials Conversion Eq. units Costs Eq. units
Flow of units: Units to be accounted for: Beginning WIP inventory................................. 600 Units started this period................................... 4,000 Total units to account for.............................. 4,600 Units accounted for: Completed and transferred outa...................... 3,400 3,400 3,400 Units in ending inventory................................. 1,200 Materials (1,200 x 40%)............................... 480 Conversion costs (1,200 x 20%).................. 240 Total units accounted for.............................. 4,600 3,880 3,640 a 3,400 units transferred out = 4,600 units to account for – 1,200 units in ending WIP inventory.
Flow of costs: Costs to be accounted for: Costs in beginning WIP inventory.......... Current period costs............................... Total costs to be accounted for........... Cost per equivalent unit Materials ($12,416 ÷ 3,880 units)........... Conversion costs ($6,916 ÷ 3,640 units)
Total
Direct Materials
Conversion Costs
$ 1,248 18,084 $19,332
$ 976 11,440 $12,416
$ 272 6,644 $6,916
$ 3.20 $ 1.90
8-14
Chapter 08 - Process Costing
8-26. (20 min.) Assign Costs to Goods Transferred Out and Ending Inventory— Weighted-Average Method: Matsui Lubricants.
Total Flow of costs: Costs to be accounted for: Costs in beginning WIP inventory................... $ 1,248 Current period costs........................................ 18,084 Total costs to be accounted for....................$19,332 Cost per equivalent unit Materials ($12,416 ÷ 3,880 units).................... Conversion costs ($6,916 ÷ 3,640)................. Costs accounted for: Costs assigned to units transferred out $17,340 Cost of ending WIP inventory.......................... 1,992 Total costs accounted for.............................$19,332
Direct Materials
Conversion Costs
$ 976 11,440 $12,416
$ 272 6,644 $6,916
$ 3.20 $ 1.90 $10,880 a 1,536 c $12,416
$6,460 b 456 d $6,916
Costs transferred out total $17,340, and costs in ending inventory total $1,992. a $10,880 = 3,400 EU x $3.20 per EU. b $6,460 = 3,400 EU x $1.90 per EU. c $1,536 = 480 EU x $3.20 per EU. d $456 = 240 EU x $1.90 per EU.
8-15
Chapter 08 - Process Costing
8-27. (35 min.) Compute Costs per Equivalent Unit—FIFO Method: Matsui Lubricants. Physical Units
Flow of units: Units to be accounted for: Beginning WIP inventory....................................... Units started this period......................................... Total units to account for.................................... Units accounted for: Completed and transferred outa............................ From beginning WIP inventory Materials (600 x (1 – 60%)) Conversion (600 x (1 – 53%)) Started and completed currently (2,800 x 100%) Units in ending inventory....................................... Materials (1,200 x 40%)..................................... Conversion costs (1,200 x 20%)........................ Total units accounted for.................................... a
Equivalent Units Materials Conversion Costs Eq. units Eq. units
600 4,000 4,600 3,400 240 2,800
282 2,800
1,200 480 4,600
3,520
240 3,322
3,400 units transferred out = 4,600 units to account for – 1,200 units in ending WIP inventory.
Total Flow of costs: Costs to be accounted for: Costs in beginning WIP inventory...................$ 1,248 Current period costs........................................ 18,084 Total costs to be accounted for....................$19,332 Cost per equivalent unit Materials ($11,440 ÷ 3,520 units).................... Conversion costs ($6,644 ÷ 3,322).................
8-16
Direct Materials
$ 976 11,440 $12,416
Conversion Costs
$ 272 6,644 $6,916
$ 3.25 $ 2.00
Chapter 08 - Process Costing
8-28. (20 min.) Assign Costs to Goods Transferred Out and Ending Inventory— FIFO Method: Matsui Lubricants. Physical Units
Flow of units: Units to be accounted for: Beginning WIP inventory................................. 600 Units started this period................................... 4,000 Total units to account for.............................. 4,600 Units accounted for: Completed and transferred outa...................... 3,400 From beginning WIP inventory Materials (600 x (1 – 60%)) Conversion (600 x (1 – 53%)) Started and completed currently (2,800 x 100%)........................................................ Units in ending inventory................................. 1,200 Materials (1,200 x 40%)............................... Conversion costs (1,200 x 20%).................. Total units accounted for.............................. 4,600
Equivalent Units Materials Conversion Costs Eq. units Eq. units
240 282 2,800
2,800
480 3,520
240 3,322
3,400 units transferred out = 4,600 units to account for – 1,200 units in ending WIP inventory. a
8-17
Chapter 08 - Process Costing
8-28. (continued) Total Flow of costs: Costs to be accounted for: Costs in beginning WIP inventory................... $ 1,248 Current period costs........................................ 18,084 Total costs to be accounted for.................... $19,332 Cost per equivalent unit Materials ($22,880 ÷ 3,520 units).................... Conversion costs ($13,288 ÷ 3,322)............... Costs accounted for: Costs assigned to units transferred out: Costs from beginning WIP inventory........... $ 1,248 Current costs added to complete beginning WIP inventory..................................... 1,344 Materials ($3.25 x 240) ........................ Conversion costs ($2.00 x 282) ........... Current costs of units started and 14,700 completed: Materials ($3.25 x 2,800) ......................... Conversion costs ($2.00 x 2,800) ........... Total costs transferred out.................................. $ 17,292 Cost of ending WIP inventory.............................. 2,040 Materials ($3.25 x 480) ............................ Conversion costs ($2.00 x 240) .............. Total costs accounted for............................. $19,332
Direct Materials
$ 976 11,440 $12,416
Conversion Costs
$ 544 6,644 $6,916
$ 3.25 $ 2.00
$ 976
$ 272
780 564
9,100 $10,856
5,600 $6,436
1,560 $12,416
480 $6,916
Ending inventory is slightly higher under the FIFO method because the unit costs are higher under FIFO.
8-18
Chapter 08 - Process Costing
8-29. (35 min.) Compute Costs per Equivalent Unit—Weighted-Average Method: Pacific Ink. Physical Units
Flow of units: Units to be accounted for: Beginning WIP inventory.................................48,000 Units started this perioda 84,000 Total units to account for.............................. 132,000 Units accounted for: Completed and transferred out (given)............ 102,000 Units in ending inventory.................................30,000 Materials (30,000 x 80%)............................. Conversion costs (30,000 x 40%)................ Total units accounted for.............................. 132,000
Equivalent Units Materials Conversion Costs Eq. units Eq. units
102,000
102,000
24,000 126,000
12,000 114,000
84,000 units started this period = 132,000 units to account for – 48,000 units in beginning work-in-process inventory. a
Total Flow of costs: Costs to be accounted for: Costs in beginning WIP inventory................... $ 372,480 Current period costs........................................ 2,685,720 Total costs to be accounted for.................... $3,058,200 Cost per equivalent unit Materials ($1,324,260 ÷ 126,000 units)........... Conversion costs ($1,733,940 ÷ 114,000)......
8-19
Direct Materials
Conversion Costs
$ 152,460 1,171,800 $1,324,260
$ 220,020 1,513,920 $1,733,940
$ 10.51 $ 15.21
Chapter 08 - Process Costing
8-30. (20 min.) Assign Costs to Goods Transferred Out and Ending Inventory— Weighted-Average Method: Pacific Ink.
Total
Direct Materials
Flow of costs: Costs to be accounted for: Costs in beginning WIP inventory................... $ 372,480 $ 152,460 Current period costs........................................ 2,685,720 1,171,800 Total costs to be accounted for.................... $3,058,200 $1,324,260 Cost per equivalent unit Materials ($1,324,260 ÷ 126,000 units)........... $ 10.51 Conversion costs ($1,733,940 ÷ 114,000)...... Costs accounted for: Costs assigned to units transferred out $2,623,440 $1,072,020 a Cost of ending WIP inventory..........................434,760 252,240 c Total costs accounted for............................. $3,058,200 $1,324,260
Conversion Costs
$ 220,020 1,513,920 $1,733,940
$ 15.21 $1,551,420 b 182,520 d $1,733,940
Costs transferred out total $2,623,440 and costs in ending inventory total $434,760. a
$1,072,020 = 102,000 EU x $10.51 per EU.
b
$1,551,420 = 102,000 EU x $15.21 per EU.
c
$252,240 = 24,000 EU x $10.51 per EU.
d
$182,520 = 12,000 EU x $15.21 per EU.
8-20
Chapter 08 - Process Costing
8-31. (35 min.) Compute Costs per Equivalent Unit—FIFO Method: Pacific Ink. Physical Units
Flow of units: Units to be accounted for: Beginning WIP inventory............................ Units started this perioda Total units to account for......................... Units accounted for: Completed and transferred out From beginning WIP inventory Materials (48,000 x (1 – 30%))....... Conversion (48,000 x (1 – 30%))... Started and completed .......................... Units in ending inventory............................ Materials (30,000 x 80%)........................ Conversion costs (30,000 x 40%)........... Total units accounted for......................... a
Equivalent Units Materials Conversion Eq. units Costs Eq. units
48,000 84,000 132,000 102,000 33,600 54,000
33,600 54,000
30,000 24,000 132,000
111,600
12,000 99,600
84,000 units started this period = 132,000 units to account for – 48,000 units in beginning work-in-process inventory.
Total Flow of costs: Costs to be accounted for: Costs in beginning WIP inventory................... $ 372,480 Current period costs........................................ 2,685,720 Total costs to be accounted for.................... $3,058,200 Cost per equivalent unit Materials ($1,171,800 ÷ 111,600 units)........... Conversion costs ($1,513,920 ÷ 99,600)........
8-21
Direct Materials
Conversion Costs
$ 152,460 1,171,800 $1,324,260
$ 220,020 1,513,920 $1,733,940
$ 10.50 $ 15.20
Chapter 08 - Process Costing
8-32. (20 min.) Assign Costs to Goods Transferred Out and Ending Inventory— FIFO Method: Pacific Ink. Physical Units
Flow of units: Units to be accounted for: Beginning WIP inventory................................. 48,000 Units started this perioda 84,000 Total units to account for..............................132,000 Units accounted for: Completed and transferred out 102,000 To complete beginning WIP inventory Materials (48,000 x (1 – 30%))............ Conversion (48,000 x (1 – 30%))........ Started and completed ............................... Units in ending inventory................................. 30,000 Materials (30,000 x 80%)............................. Conversion costs (30,000 x 40%)................ Total units accounted for..............................132,000
Equivalent Units Materials Conversion Eq. units Costs Eq. units
33,600 54,000 24,000 111,600
84,000 units started this period = 132,000 units to account for – 48,000 units in beginning work-in-process inventory. a
8-22
33,600 54,000
12,000 99,600
Chapter 08 - Process Costing
8-32. (continued) Total Flow of costs: Costs to be accounted for: Costs in beginning WIP inventory................... $ 372,480 Current period costs........................................ 2,685,720 Total costs to be accounted for.................... $3,058,200 Cost per equivalent unit Materials ($1,171,800 ÷ 111,600 units)........... Conversion costs ($1,513,920 ÷ 99,600)........ Costs accounted for: Costs assigned to units transferred out: Costs from beginning WIP inventory........... $ 372,480 Current costs added to complete beginning WIP inventory........................863,520 Materials ($10.50 x 33,600) ........................ Conversion costs ($15.20 x 33,600) ........... Current costs of units started and completed:............................................... 1,387,800 Materials ($10.50 x 54,000) ........................ Conversion costs ($15.20 x 54,000) ........... Total costs transferred out.................................. $ 2,623,800 Cost of ending WIP inventory..............................434,400 Materials ($10.50 x 24,000) ........................ Conversion costs ($15.20 x 12,000) ........... Total costs accounted for................................ $3,058,200
Direct Materials
Conversion Costs
$ 152,460 1,171,800 $1,324,260
$ 220,020 1,513,920 $1,733,940
$ 10.50 $ 15.20
$ 152,460
$ 220,020
352,800 510,720
567,000 $1,072,260
820,800 $1,551,540
252,000 $1,324,260
182,400 $1,733,940
Ending inventory is slightly lower under the FIFO method because the unit costs are lower under FIFO. This means that current costs are slightly lower than last period’s costs. Because ending WIP inventory is carried at current costs under FIFO, the ending WIP costs are lower under FIFO.
8-23
Chapter 08 - Process Costing
8-33. (50 min.) Production Cost Report—FIFO method: El Paso Corporation.
Physical Units
Equivalent Units Prior Department No. B Department
Flow of units: Units to be accounted for: Beginning WIP inventory................................. Units started this period................................... Total units to account for.............................. Units accounted for: Completed and transferred out From beginning WIP inventory..................... Prior department....................................... Dept. B [7,500 units x (1–20%)]............... Started and completed currently.................. Units in ending WIP inventory............................. Prior department.......................................... Department B (2,500 units x 50%)............... Total units accounted for..........................
7,500 17,500 25,000
7,500 0 15,000 2,500
a
15,000 2,500
25,000
17,500
a. 15,000 = 17,500 units started – 2,500 units in ending WIP inventory.
8-24
6,000 15,000
1,250 22,250
Chapter 08 - Process Costing
8-33. (continued) Total Flow of costs: Costs to be accounted for: Costs in beginning WIP inventory................... $ 36,675 Current period costs........................................ 219,075 Total costs to be accounted for.................... $255,750 Cost per equivalent unit Prior department ($70,000 ÷ 17,500 units) .... Department. B ($149,075 ÷ 22,250 units) ...... Costs accounted for: Costs assigned to units transferred out: Costs from beginning WIP inventory........... $ 36,675 Current costs added to complete beginning WIP inventory...................................................... 40,200 Prior department....................................... Department B ($6.70 x 6,000 units) ........ Current costs of units started and completed: 160,500 Prior department ($4.00 x 15,000)........... Department B ($6.70 x 15,000) .............. Total costs transferred out.................................. $237,375 Cost of ending WIP inventory.............................. 18,375 Prior department ($4.00 x 2,500) ............ Department B ($6.70 x 1,250) ................. Total costs accounted for............................. $255,750
8-25
Prior Department
$29,000 70,000 $99,000
Department No. B
$ 7,675 149,075 $156,750
$ 4.00 $ 6.70
$29,000
$ 7,675
0 40,200 60,000 $89,000
100,500 $148,375
10,000 $99,000
8,375 $156,750
Chapter 08 - Process Costing
8-34. (50 min.) Production Cost Report—Weighted-Average Method: El Paso Corporation. a.
Physical Units
Flow of units: Units to be accounted for: Beginning WIP inventory................................. 7,500 Units started this period................................... 17,500 Total units to account for.............................. 25,000 Units accounted for: Completed and transferred out........................ 22,500 Units in ending inventory................................. 2,500 Prior department (2,500 units x 100%)........ Department No. B (2,500 units x 50%)........ Total units accounted for.......................... 25,000 Total Flow of costs: Costs to be accounted for: Costs in beginning WIP inventory...................$ 36,675 Current period costs........................................ 219,075 Total costs to be accounted for....................$255,750 Cost per equivalent unit Prior department ($99,000 ÷ 25,000 units)..... Department No. B ($156,750 ÷ 23,750).......... Costs accounted for: Costs assigned to units transferred out...........$237,600 Costs of ending WIP inventory........................ 18,150 Total costs accounted for.............................$255,750
Equivalent Units Prior Department Department No. B
22,500
22,500
2,500 25,000
1,250 23,750
Direct Materials
Conversion Costs
$29,000 70,000 $99,000
$ 7,675 149,075 156,750
$ 3.96 $ 6.60 $89,100 9,900 $99,000
$148,500 8,250 $156,750
b. The ending inventory is lower under the weighted-average method than under the FIFO method. Under weighted-average, the ending inventory is $18,150. This is $225 less than FIFO, which is $18,375. The difference is due to the differences in costs per equivalent unit between FIFO and weighted-average.
8-26
Chapter 08 - Process Costing
8-34. (continued) c. The decision depends on the decisions that will be made using the data. If the most current cost information is desired, FIFO might be the better method. If there are random fluctuations that the company wants to smooth, weighted average might be best.
8-27
Chapter 08 - Process Costing
8-35. (50 min.) Operations Costing: Brokia Electronics. a.
Materials.......................
Basic Photo (40,000 (30,000 units) units) $480,000 $1,200,000
Total $2,240,000
UrLife (10,000 units) $560,000
Conversion Assemblya............... $ 1,400,000 700,000 525,000 175,000 Special Packaging... 400,000 –0– –0– 400,000 Total conversion... $ 1,800,000 $700,000 $525,000 $ 575,000 Total Product Cost $4,040,000 $1,180,000 $1,725,000 $1,135,000 Number of Units 40,000 30,000 10,000 Cost per unit $29.50 $57.50 $113.50 a
Unit cost is $17.50 (= $1,400,000 ÷ 80,000 units)
b. (1)
Materials
Total $2,240,000
Basic Photo (40,000 (30,000 units) units) $480,000 $1,200,000
UrLife (10,000 units) $560,000
Conversion Assemblya $ 1,400,000 300,000 750,000 350,000 Special Packaging 400,000 –0– –0– 400,000 Total conversion cost $ 1,800,000 $300,000 $750,000 $ 750,000 Total Product Cost $4,040,000 $780,000 $1,950,000 $1,310,000 Number of Units 40,000 30,000 10,000 Cost per unit $19.50 $65.00 $131.00 a Unit cost is 62.5% of material dollars (= $1,400,000 ÷ $2,240,000 material dollars)
8-28
Chapter 08 - Process Costing
(2) If there is a reason that conversion costs are related to material dollars (for example, because of the difficulty of working with different materials), this change might be justified. If it is done simply to shift cost to the cost-plus customer, this is not ethical.
8-36. Operation Costing: Ferdon Watches. a.
8-29
Chapter 08 - Process Costing
8-36. (continued) b.
Materials..................... Conversion Assemblya............... Polishingb................ Special Finishingc.... Packagingd.............. Total conversion. . . Total Product Cost...... Number of Units.......... Cost per unit................
Gag-Gift Commuter Sport Retirement (5,000 (10,000 (13,000 (2,000 Total units) units) units) units) $ 321,000 $15,000 $90,000 $156,000 $60,000
$120,000 69,000 20,000 90,000 $299,000 $620,000
$20,000 –0– –0– 15,000 $35,000 $50,000 5,000 $10.00
a
Unit cost is $4.00 (= $120,000 ÷ 30,000 units)
b
Unit cost is $3.00 (= $69,000 ÷ 23,000 units)
c
Unit cost is $10.00 (= $20,000 ÷ 2,000 units)
d
Unit cost is $3.00 (= $90,000 ÷ 30,000 units)
8-30
$40,000 $52,000 30,000 39,000 –0– –0– 30,000 39,000 $100,000 $130,000 $190,000 $286,000 10,000 13,000 $19.00 $22.00
$ 8,000 –0– 20,000 6,000 $ 34,000 $94,000 2,000 $47.00
Chapter 08 - Process Costing
Solutions to Problems 8-37. (45 min.) Compute Equivalent Units: Multiple Choice. a. The answer is (2). Conversion Materials Costs Units transferred out............................................ 790,000 a 790,000 a EU in ending inventory: Materials 100% x 80,000 units........................ 80,000 EU Conversion costs 30% x 80,000 24,000 EU units..................................................................... EU produced this period...................................... 870,000 EU 814,000 EU aUnits
transferred out = units started + beg. inventory – ending inventory = 720,000 + 150,000 – 80,000 = 790,000 b. The answer is (2). Prior Department Materials Costs Units transferred out............................................ 330,000 a 330,000 a EU in ending inventory: Prior department costs.................................... 40,000 EU Materialsb......................................................... –0– EU Conversion costs 65% x 40,000 units..................................................................... EU produced this period...................................... 370,000 EU 330,000 EU a320,000
330,000 a
26,000 EU 356,000 EU
started + 50,000 in beg. inv. – 40,000 in ending inv. = 330,000 transferred out.
bMaterials
are added at the end of the process.
c. The answer is (1). EU to complete beginning inventory 70%a x 20,000 units..................................................................... Started and completedb...................................... EU in ending inventory 70% x 40,000 units........ EU done this period............................................. a70%
Conversion Costs
14,000 EU 300,000 EU 28,000 EU 342,000 EU
= 100% – 30% already done at the beginning of the period.
b 300,000
units = 320,000 transferred out – 20,000 from beginning inventory.
8-31
Chapter 08 - Process Costing
8-37. (continued) d. The answer is (4). Materials To complete beginning inventory: Materials: 0%a x 40,000 units.......................... 0 Conversion costs: 30%b x 40,000 units........... Started and completed during the period............140,000 c EU Units still in ending inventory: Materials: 100% x 32,000 units....................... 32,000 EU Conversion costs: 50% x 32,000 units............ Work done in current period................................172,000 EU a 0%
Conversion Costs
12,000 EU 140,000 EU
16,000 EU 168,000 EU
= 100% – 100% already done at the beginning of the period.
b
30% = 100% – 70% already done at the beginning of the period.
c
140,000 = 180,000 transferred out – 40,000 from beginning inventory.
8-32
Chapter 08 - Process Costing
8-38. (30 min) FIFO Method: McKenzie Corporation. Equivalent Units a. Physical Conversion Units Costs Flow of units Units to be accounted for: Beginning WIP inventory................................. 300,000 Units started this period................................... 1,620,000 Total units to account for.......................... 1,920,000 Units accounted for: Completed and transferred out From beginning WIP inventory..................... 300,000 (300,000 x 20%)....................................... 60,000 Started and completed currently.................. 900,000 900,000 Units in ending WIP inventory......................... 720,000 (720,000 x 50%)....................................... 360,000 Total units accounted for...................... 1,920,000 1,320,000 Conversion Costs Flow of costs: Costs to be accounted for: Costs in beginning WIP inventory.............................. Current period costs.................................................. Total costs to be accounted for..............................
$ 387,000 2,178,000 $2,565,000
Cost per equivalent unit ($2,178,000 ÷ 1,320,000) ......
$ 1.65
Costs accounted for: Costs assigned to units transferred out: Costs from beginning WIP inventory...................... Current costs added to complete beginning WIP inventory: Conversion costs ($1.65 x 60,000) ................... Current costs of units started and completed: Conversion costs ($1.65 x 900,000) ..................... Total costs transferred out......................................... Cost of ending WIP inventory: Conversion costs ($1.65 x 360,000) ................. Total costs accounted for.......................................
8-33
$ 387,000
99,000 1,485,000 $1,971,000 594,000 (Answer) $2,565,000
Chapter 08 - Process Costing
8-38. (continued) b. Cost per unit for the previous period is $1.6125 [= $387,000 ÷ (300,000 equiv. units x 80%)] Cost per unit for the current period is $1.65 as calculated in (a) above.
8-34
Chapter 08 - Process Costing
8-39.
(50 min.) Prepare A Production Cost Report—Weighted Average Method: Douglas Toys. a. Douglas Toys Assembling Department Production Cost Report—Weighted Average FLOW OF PRODUCTION UNITS (Section 1) Physical units
Units to be accounted for: Beginning WIP inventory................................. 100,000 Units started this period................................... 500,000 Total units to be accounted for............................ 600,000 (Section 2) COMPUTE EQUIVALENT UNITS Prior department Materials Labor costs Units accounted for: Units completed and transferred out: From beginning inventory............................ 100,000 Started and completed currently.................. 300,000 Total transferred out..................................... 400,000 Units in ending WIP inventory......................... 200,000 Total units accounted for..................................... 600,000
400,000 200,000 600,000
8-35
400,000 180,000 580,000
400,000 (90%) 140,000 (70%) 540,000
Manufacturing overhead
400,000 70,000 (35%) 470,000
Chapter 08 - Process Costing
8-39. (continued)
Total costs Costs to be accounted for: (Section 3) Costs in beginning WIP inventory................... Current period costs........................................ Total costs to be accounted for........................... Cost per equivalent unit: (Section 4) Prior department costs ($768,000 ÷ 600,000). Materials ($464,000 ÷ 580,000)....................... Labor ($172,800 ÷ 540,000)............................ Manufacturing overhead ($94,000 ÷ 470,000) Costs accounted for: (Section 5) Costs assigned to units transferred out: Prior department costs ($1.28 x 400,000). . . Materials ($0.80 x 400,000)......................... Labor ($0.32 x 400,000)............................... Manufacturing overhead ($0.20 x 400,000). Total costs of units transferred out.................. Costs assigned to ending WIP inventory: Prior department costs ($1.28 x 200,000). . . Materials ($0.80 x 180,000)......................... Labor ($0.32 x 140,000)............................... Manufacturing overhead ($0.20 x 70,000)... Total ending WIP inventory............................. Total costs accounted for.................................... 8-39. (continued)
$ 255,200 1,243,600 $1,498,800
DETAILS Prior department costs $128,000 640,000 $768,000
Materials
Labor
$ 80,000 384,000 $464,000
$ 28,800 144,000 $172,800
Manufacturing overhead
$18,400 75,600 $94,000
$1.28 $0.80 $0.32 $0.20
$512,000 320,000 128,000 80,000 $1,040,000
$512,000
$256,000 144,000 44,800 14,000 $458,800 $1,498,800
256,000
8-36
$ 320,000 $128,000 $80,000
144,000 44,800 14,000 $768,000
$464,000
$172,800
$94,000
Chapter 08 - Process Costing
b. The report to management should include the following items: Materials: The $0.80 per unit goal set by management is currently being achieved by the Assembling Dept. Labor: Equivalent unit labor costs per unit ($.32) is below management’s goal of $0.40. Manufacturing overhead: overhead costs per unit ($0.20) is slightly higher than management’s goal of $0.18.
8-37
Chapter 08 - Process Costing
8-40.
(50 min.) Prepare a Production Cost Report—FIFO Method: Douglas Toys.
a. Douglas Toys Assembling Department Production Cost Report—FIFO FLOW OF PRODUCTION UNITS
(Section 2) COMPUTE EQUIVALENT UNITS
(Section 1) Physical units Units to be accounted for: Beginning WIP inventory................................. 100,000 Units started this period................................... 500,000 Total units to be accounted for............................ 600,000 Units accounted for: Units completed and transferred out: From beginning inventory............................ 100,000 Started and completed currently.................. 300,000 Units in ending WIP inventory......................... 200,000 Total units accounted for..................................... 600,000
Prior department costs
–0– 300,000 200,000 500,000
a40%
= 100% – 60% already done at the beginning of the period.
b50%
= 100% – 50% already done at the beginning of the period.
8-38
Materials
–0– 300,000 180,000 480,000
Labor
40,000 300,000 (90%) 140,000 480,000
(40%) a (70%)
Manufacturing overhead
50,000 (50%) b 300,000 70,000 (35%) 420,000
Chapter 08 - Process Costing
8-40. (continued) COSTS
DETAILS Total Costs
Costs to be accounted for: (Section 3) Costs in beginning WIP inventory................... Current period costs........................................ Total costs to be accounted for........................... Cost per equivalent unit: (Section 4) Prior department costs ($640,000 ÷ 500,000) Materials ($384,000 ÷ 480,000)..................... Labor ($144,000 ÷ 480,000)............................ Manufacturing overhead ($75,600 ÷ 420,000)
$ 255,200 1,243,600 $1,498,800
Prior department costs $128,000 640,000 $768,000
Materials $ 80,000 384,000 $464,000
Labor $ 28,800 144,000 $172,800
Manufacturing overhead $18,400 75,600 $94,000
$1.28 $0.80 $0.30 $0.18
8-39
Chapter 08 - Process Costing
8-40. (continued) Details Total Costs Costs accounted for: (Section 5) Costs assigned to units transferred out: Costs from beginning WIP inventory........... $ 255,200 Current costs added to complete beginning WIP inventory: Prior department costs............................. –0– Materials................................................... –0– Labor ($0.30 x 40,000)............................. 12,000 Manufacturing overhead ($0.18 x 50,000) 9,000 Total costs from beginning inventory........... $276,200 Current costs of units started and completed: Prior department costs ($1.28 x 300,000). . . 384,000 Materials ($0.80 x 300,000)......................... 240,000 Labor ($0.30 x 300,000)............................... 90,000 Manufacturing overhead ($0.18 x 300,000). 54,000 Total costs of units started and completed...... $768,000 Total costs of units transferred out...................... $1,044,200 Costs assigned to ending WIP inventory: Prior department costs ($1.28 x 200,000)....... $256,000 Materials ($0.80 x 180,000)............................. 144,000 Labor ($0.30 x 140,000).................................. 42,000 Manufacturing overhead ($0.18 x 70,000)...... 12,600 Total ending WIP inventory................................. $454,600 Total costs accounted for.................................... $1,498,800
8-40
Prior department costs
$128,000
Materials
Labor
$ 80,000 $ 28,800
Manufacturing overhead
$18,400
–0– –0– 12,000 9,000
384,000 240,000 90,000 54,000
256,000 144,000 42,000 12,600 $768,000
$464,000 $172,800
$94,000
Chapter 08 - Process Costing
8-40. (continued) b.
The report to management should include the following items: Materials: The equivalent unit materials cost per unit ($0.80) is the same as management’s goal of $0.80. Labor: Equivalent unit labor costs per unit ($0.30) is below management’s goal of $0.40. Manufacturing overhead: Overhead costs per unit ($0.18) is equal to management’s goal of $0.18.
8-41
Chapter 08 - Process Costing
8-41. (60 min.) Prepare a Production Cost Report and Adjust Inventory Balances—Weighted Average Method: Elmhurst Parts. a. Elmhurst Parts Production Cost Report—Weighted Average Flow Of Production Units (Section 1) Physical units Units to be accounted for: Beginning WIP inventory................................. 80,000 Units started this period................................... 400,000 Total units to be accounted for............................ 480,000 (Section 2) COMPUTE EQUIVALENT UNITS Materials Labor Overhead Units accounted for: Units completed and transferred out: From beginning inventory............................ Started and completed currently.................. Total transferred out..................................... Units in ending WIP inventory......................... Total units accounted for.....................................
80,000 280,000 360,000 120,000 480,000
360,000 120,000 480,000
8-42
360,000 48,000 408,000
(40%)
360,000 48,000 (40%) 408,000
Chapter 08 - Process Costing
8-41. (continued) Costs Total costs Costs to be accounted for: (Section 3) Costs in beginning WIP inventory................... Current period costs........................................ Total costs to be accounted for........................... Cost per equivalent unit: (Section 4) Materials ($1,800,000 ÷ 480,000).................. Labor ($2,754,000 ÷ 408,000)....................... Overhead ($2,203,200 ÷ 408,000)................ Costs accounted for: (Section 5) Costs assigned to units transferred out: Materials ($3.75 x 360,000)......................... Labor ($6.75 x 360,000)............................... Overhead ($5.40 x 360,000)........................ Total costs of units transferred out.................. Costs assigned to ending WIP inventory: Materials ($3.75 x 120,000)......................... Labor ($6.75 x 48,000)................................. Overhead ($5.40 x 48,000).......................... Total ending WIP inventory............................. Total costs accounted for....................................
$ 1,222,800 5,534,400 $6,757,200
Materials
Details Labor
$ 240,000 $ 546,000 1,560,000 2,208,000 $1,800,000 $2,754,000
Overhead $ 436,800 1,766,400 $2,203,200
$3.75 $6.75 $5.40
$1,350,000 2,430,000 1,944,000 5,724,000
$1,350,000
450,000 324,000 259,200 1,033,200 $6,757,200
450,000
8-43
$2,430,000 $1,944,000
324,000 259,200 $1,800,000 $2,754,000
$2,203,200
Chapter 08 - Process Costing
8-41. (continued) b. Adjustment required: Work in Process Per problem statement........................................ $793,152 Correct................................................................. 1,033,200 Difference............................................................ ($240,048) Journal entry:
Finished Goods $337,560 318,000 a $ 19,560
Work in Process............................................... 240,048 Finished Goods............................................19,560 Cost of Goods Sold...................................... 220,488 Additional computations: a20,000
units of finished-goods inventory ($3.75 + 6.75 + 5.40) = $318,000
c. Income would have been understated. Work in process would have been understated. Finished goods would have been overstated.
8-44
Chapter 08 - Process Costing
8-42. (40 min.) Prepare a Production Cost Report and Show Cost Flows Through Accounts—FIFO method: Recyclers, Inc. Recyclers, Inc. Production Cost Report—FIFO a. FLOW OF PRODUCTION UNITS (Section 2) Compute Equivalent Units (Section 1) Conversion Physical units costs Units to be accounted for: Beginning WIP inventory................................. 300 Units started this period................................... 2,700 Total units to be accounted for............................ 3,000 Units accounted for: Units completed and transferred out: From beginning inventory............................ 300 120 (40%)a Started and completed currently.................. 2,550 2,550 Units in ending WIP inventory......................... 150 30 (20%) Total units accounted for..................................... 3,000 2,700 a40%
= 100% – 60% already done at the beginning of the period.
8-45
Chapter 08 - Process Costing
8-42. (continued) COSTS
Total costs
Costs to be accounted for: (Section 3) Costs in beginning WIP inventory....................... Current period costs............................................ Total costs to be accounted for.............................. Cost per equivalent unit: (Section 4) Conversion costs ($10,800 ÷ 2,700)................... Costs accounted for: (Section 5) Costs assigned to units transferred out: Costs from beginning inventory....................... Current costs added to complete beginning WIP inventory: Conversion costs ($4.00 x 120)................... Total costs from beginning inventory.................. Current costs of units started and completed: Conversion costs ($4.00 x 2,550)................... Total costs of units started and completed......... Total costs of units transferred out..................... Costs assigned to ending WIP inventory: Conversion costs ($4.00 x 30)........................ Total ending WIP inventory................................. Total costs accounted for....................................... b.
$ 168 10,800 $10,968 $4.00
$ 168
$ 168
480 $ 648
480
10,200 $10,200 $10,848
10,200
120 $ 120 $10,968
120 $10,968
Work in Process
Beginning inventory: Conversion costs 168 This period's costs: Conversion costs 10,800 Ending inventory 120 All costs have been accounted for. Various Payables 10,800 a$10,848
$ 168 10,800 $10,968
Conversion costs
10,848a
To Finished Goods Inventory
Finished Goods Inventory 10,848
= $648 + $10,200
c. The company’s target has been achieved. Production costs total $4.00 per unit, less than management’s target of $4.25.
8-46
Chapter 08 - Process Costing
8-43. (60 min.) FIFO Process Costing: Pantanal, Inc. Pantanal, Inc. Assembling Department Production Cost Report—FIFO FLOW OF PRODUCTION UNITS
(Section 2) COMPUTE EQUIVALENT UNITS
(Section 1)
Prior Physical units department costs Units to be accounted for: Beginning WIP inventory................................. 10,000 Units started this period...................................102,000 Total units to be accounted for............................112,000 Units accounted for: Units completed and transferred out: From beginning inventory............................ 10,000 Started and completed currently.................. 86,000 Units in ending WIP inventory......................... 16,000 Total units accounted for.....................................112,000
–0– 86,000 16,000 102,000
a40%
= 100% – 60% already done at the beginning of the period.
b60%
= 100% – 40% already done at the beginning of the period.
8-47
Materials
4,000 86,000 14,400 104,400
(40)% a (90%)
Conversion
6,000 86,000 8,000 100,000
(60%) b (50%)
Chapter 08 - Process Costing
8-43. (continued) COSTS
DETAILS
Total Costs Costs to be accounted for: (Section 3) Costs in beginning WIP inventory................... Current period costs........................................ Total costs to be accounted for........................... Cost per equivalent unit: (Section 4) Prior department costs ($2,142,000 ÷ 102,000) Materials ($939,600 ÷ 104,400)....................... Conversion ($225,000 ÷ 100,000)...................
$323,400 3,306,600 $3,630,000
Prior department costs $ 98,000 2,142,000 $2,240,000
Materials $ 164,400 939,600 $1,104,000
Conversion $ 61,000 225,000 $286,000
$21.00 $9.00 $2.25
8-48
Chapter 08 - Process Costing
8-43. (continued) Details
Costs accounted for: (Section 5) Costs assigned to units transferred out: Costs from beginning WIP inventory................................... Current costs added to complete beginning WIP inventory: Prior department costs..................................................... Materials ($9.00 x 4,000)................................................ Conversion ($2.25 x 6,000)............................................. Total costs from beginning inventory................................... Current costs of units started and completed: Prior department costs ($21.00 x 86,000)........................... Materials ($9.00 x 86,000)................................................... Conversion ($2.25 x 86,000)............................................... Total costs of units started and completed............................. Total costs of units transferred out............................................. Costs assigned to ending WIP inventory: Prior department costs ($21.00 x 16,000)............................... Materials ($9.00 x 14,400)....................................................... Conversion ($2.25 x 8,000)..................................................... Total ending WIP inventory......................................................... Total costs accounted for............................................................
8-49
Total Costs
Prior department costs
Materials
Conversion
$ 323,400
$ 98,000
$ 164,400
$ 61,000
–0– 36,000 13,500 $ 372,900
–0–
$1,806,000 774,000 193,500 $2,773,500 $3,146,400
1,806,000
$ 336,000 129,600 18,000 $ 483,600 $3,630,000
336,000
36,000 13,500
774,000 193,500
129,600 18,000 $2,240,000
$1,104,000
$286,000
Chapter 08 - Process Costing
8-44. (40 min.) Solving For Unknowns—FIFO Method. a. The cost per equivalent unit is obtained by dividing the ending inventory costs by the equivalent units in ending inventory; = $8.70 per EU
$87,000 ÷ 10,000
Equivalent units worked this period are the sum of the equivalent units to: (a)
complete the beginning inventory
(b)
start and complete some units, and
(c)
to start the ending inventory which, for the problem are: 42,000 + 60,000 + 10,000 = 112,000
The total costs incurred are the cost per equivalent unit times the equivalent units worked this period, that is 112,000 × $8.70 = $974,400. b. Units started and completed equals the units transferred out (units completed this period) less the units started in a previous period (beginning inventory): 40,000 –5,000 35,000
units transferred out units in beginning inventory units started and completed.
c. Current units started equals units transferred out minus beginning inventory plus ending inventory or, in equation form: Current units started
= TO – BB + EB = 9,500 – 4,000 + 3,000 = 8,500 units
8-50
Chapter 08 - Process Costing
8-44. (continued) d. Equivalent units = Beginning inventory x (1 – percentage of completion of beginning inventory) + 100% of units started and completed + ending inventory times its percentage of completion = 5,600 equivalent units Let X be the unknown percentage of completion. Then, 5,600 = 1,000 (1 – X) + 4,500 + (3,000 x 30%) 5,600 = 1,000 – 1,000X + 5,400 collecting terms: 5,600 – 5,400 – 1,000 = –1,000X 800 = 1,000X X = 80%
Also, using BB
= = = 800 = X =
TO + EB – TI (4,500 + 1,000) + 900 – 5,600 800 units 1,000X 80%
8-51
Chapter 08 - Process Costing
8-45. (50 min.) Solving For Unknowns—Weighted-Average Method. a. First, we compute the cost of ending inventory:
BB + TI (current work) = $11,400 + $108,600 = EB = =
TO + EB $115,200 + EB $120,000 – $115,200 $4,800
Equivalent units in ending inventory equals $4,800 divided by the cost per equivalent unit. Costs per equivalent unit is the $115,200 transferred out costs divided by the units transferred out: $115,200 ÷ 28,800 units
= $4 per E.U
Cost assigned to ending inventory is based on the relationship: $4,800 = Equivalent units in EB times $4.00 and solving for EU in EB EU in EB
= $4,800 ÷ $4 = 1,200 EU
b. The materials cost per equivalent unit is: $26,880 ÷ 12,800 units transferred out
= $2.10 per EU
Since ending inventory contains direct materials cost of $5,040, it must contain 2,400 ( = $5,040 ÷ $2.10) equivalent units. If the inventory is 25% complete with respect to direct materials costs, then these 2,400 equivalent units represent 25% of the physical count of units in the ending inventory. Therefore, since 2,400 EU = .25 (units in EB) Then units in EB = 2,400 ÷ .25 = 9,600
8-52
Chapter 08 - Process Costing
8-45. (continued)
c. The inventory equation yields: BB + TI = TO + EB Given the information in the problem, we can compute the right hand side. There are 4,800 (24,000 x 20%) equivalent units in ending inventory at a cost of $18,000. The cost per equivalent unit is $3.75 (or $18,000 ÷ 4,800 EU). The right hand side of the equation is the total equivalent units represented by all costs in the account (72,000 EU) times the cost per equivalent unit ($3.75). The resulting $270,000 and the beginning inventory cost of $56,800 are entered in the equation: $56,800 + TI = $270,000 and solving for TI: TI = $270,000 – $56,800 = $213,200 d. Units transferred out equals beginning inventory plus current work minus ending inventory. In equation form: TO = BB + TI (current work) – EB = 12,300 + 10,500 – 10,000 = 12,800 Of the 12,800 units transferred out, 12,300 were from the beginning inventory. Therefore, 500 units were started and completed. That is, 12,800 completed this period less 12,300 started in a prior period equals the 500 started and completed this period.
8-53
Chapter 08 - Process Costing
8-46. (50 min.) Operation Costing—Work-in-Process Inventory: Washington, Inc. The solution to this problem is to apply process costing methods for the conversion costs and then add the cost of materials for each product. Because there is no beginning work-in-process inventory, FIFO and weighted-average process costing gives the same results. a. The material costs per unit are:
Product
Material Cost
X-10........... X-20........... X-40...........
$75,000 135,000 240,000
Number of Units ÷ ÷ ÷
500 300 200
Unit Material Cost = = =
$ 150 450 1,200
The conversion costs per equivalent unit are: Department A: Physical Units
Conversion Costs Equivalent Units
Flow of units: Units to be accounted for: Beginning WIP inventory.................................–0– Units started this perioda 1,000 Total units to account for.............................. 1,000 Units accounted for: Completed and transferred outb 840 Units in ending inventoryc 160 Conversion costs (160 x 25%)..................... Total units accounted for.............................. 1,000
a
1,000 units = 500 X-10 + 300 X-20 + 200 X-40
b
840 units = 400 X-10 + 260 X-20 + 180 X-40
c
160 units = 1,000 units started – 840 units transferred out.
8-54
840 40 880
Chapter 08 - Process Costing
8-46. (continued)
Total Flow of costs: Costs to be accounted for: Costs in beginning WIP inventory................... $ –0– Current period costs........................................ 264,000 Total costs to be accounted for.................... $ 264,000 Cost per equivalent unit Conversion costs ($264,000 ÷ 880)................
Conversion Costs
$ –0– 264,000 $ 264,000 $ 300
Department B: Physical Units
Conversion Costs Equivalent Units
Flow of units: Units to be accounted for: Beginning WIP inventory................................. –0– Units started this perioda 440 Total units to account for.............................. 440 Units accounted for: Completed and transferred outb 390 Units in ending inventoryc 50 Conversion costs (50 x 60%)....................... Total units accounted for.............................. 440
390 30 420
a
440 units = 260 X-20 + 180 X-40
b
390 units = 225 X-20 + 165 X-40
c
50 units = 440 units started – 390 units transferred out.
Total Flow of costs: Costs to be accounted for: Costs in beginning WIP inventory................... $ –0– Current period costs........................................ 42,000 Total costs to be accounted for.................... $ 42,000 Cost per equivalent unit Conversion costs ($42,000 ÷ 420)..................
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Conversion Costs
–0– 42,000 $ 42,000 $
$ 100
Chapter 08 - Process Costing
8-46. (continued)
Cost of units transferred to finished goods:
Product
X-10........... X-20........... X-40...........
Unit Material Cost
Unit Department A Cost
$150 + 450 + 1,200 +
Unit Department B Cost
$ 300 300 300
+ + +
$ –0– 100 100
b. Work-in-Process Ending Inventory Balances are: Department A: Material cost X-10......................... X-20......................... X-30......................... Total material cost...... Conversion costs........ Total............................
Number of Units 100 × 40 × 20 ×
Unit Cost $150 450 1,200
×
300
Number of Units 35 × 15 ×
Unit Cost $450 1,200
× ×
300 100
40
Total Cost $ 15,000 18,000 24,000 $ 57,000 12,000 $ 69,000
Department B: Material cost X-20......................... X-30......................... Total material cost...... Conversion costs........ From Dept. A........... From Dept. B........... Total............................
50 30
8-56
Total Cost 15,750 18,000 $ 33,750
15,000 3,000 $ 51,750
Unit Cost
= = =
$ 450 850 1,600
Chapter 08 - Process Costing
8-47. (50 min.) Operation Costing—Work-in-Process Inventory: Miller Outdoor Equipment. The solution to this problem is to apply process costing methods for the conversion costs and then add the cost of materials for each product. Because there is no beginning work-in-process inventory, FIFO and weighted-average process costing gives the same results. a. The material costs per unit are:
Product
Material Cost
Rookie....... Novice....... Hiker.......... Expert........
$12,000 11,520 8,700 7,500
Number of Units ÷ ÷ ÷ ÷
600 480 290 150
Unit Material Cost = = = =
$ 20 24 30 50
The conversion costs per equivalent unit are: Stitching Department: Physical Units Flow of units: Units to be accounted for: Beginning WIP inventory.................................–0– Units started this perioda 1,520 Total units to account for.............................. 1,520 Units accounted for: Completed and transferred outb 1,380 Units in ending inventoryc 140 Conversion costs (140 x 40%)..................... Total units accounted for.............................. 1,520
Conversion Costs Equivalent Units
1,380 56 1,436
a
1,520 units = 600 Rookie + 480 Novice + 290 Hiker + 150 Expert
b
1,380 units = 540 Rookie + 450 Novice + 270 Hiker + 120 Expert
c
140 units = 1,520 units started – 1,380 units transferred out.
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Chapter 08 - Process Costing
8-47. (continued)
Total
Conversion Costs
Flow of costs: Costs to be accounted for: Costs in beginning WIP inventory................... $ –0– Current period costs........................................ 50,260 Total costs to be accounted for.................... $ 50,260 Cost per equivalent unit Conversion costs ($50,260 ÷ 1,436)...............
$ –0– 50,260 $ 50,260 $ 35
Customizing Department: Physical Units
Conversion Costs Equivalent Units
Flow of units: Units to be accounted for: Beginning WIP inventory................................. –0– Units started this perioda 840 Total units to account for.............................. 840 Units accounted for: Completed and transferred outb 790 Units in ending inventoryc 50 Conversion costs (50 x 20%)....................... Total units accounted for.............................. 840
790 10 800
a
840 units = 450 Novice + 270 Hiker + 120 Expert
b
790 units = 440 Novice + 250 Hiker + 100 Expert
c
50 units = 840 units started – 790 units transferred out.
Total Flow of costs: Costs to be accounted for: Costs in beginning WIP inventory................... $ –0– Current period costs........................................ 24,000 Total costs to be accounted for.................... $ 24,000 Cost per equivalent unit Conversion costs ($24,000 ÷ 800)..................
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Conversion Costs
–0– 24,000 $ 24,000 $
$ 30
Chapter 08 - Process Costing
8-47. (continued)
Cost of units transferred to finished goods:
Product
Unit Material Cost
Rookie....... Novice....... Hiker.......... Expert........
$20 24 30 50
Stitching Department Unit Cost + + + +
Customizing Department Unit Cost
$ 35 35 35 35
+ + + +
$ –0– 30 30 30
b. Work-in-Process Ending Inventory Balances are: Stitching Department: Material cost Rookie..................... Novice...................... Hiker........................ Expert...................... Total material cost...... Conversion costs........ Total............................
Number of Units 60 30 20 30
× × × ×
Unit Cost $20 24 30 50
56*
×
35
* 140 units, 40% complete.
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Total Cost $ 1,200 720 600 1,500 $ 4,020 1,960 $ 5,980
Unit Cost
= = = =
$ 55 89 95 115
Chapter 08 - Process Costing
8-47. (continued) Customizing Department: Material cost Novice ........................................... Hiker ........................................... Expert ........................................... Total material cost.................. Conversion costs.................... From Stitching..................... From Customizing............... Total conversion costs..... Total.......................................
Number of Units 10 ×
Unit Cost $24
20
×
30
600
20
×
50
1,000
Total Cost 240
$ 1,840
50 10*
* 50 units, 20% complete.
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× ×
35 30
1,750 300 $2,050 $ 3,890
Chapter 08 - Process Costing
8-48. (50 min.) Process Costing and Ethics – Increasing Production to Boost Profits: Pacific Siding, Inc.
a. The CEO and CFO expect to produce profits by reducing the unit cost of each sold. This will occur because of the fixed overhead costs. (Recall “most of the overhead costs are fixed.”) Because each unit transferred out in March will have a lower unit costs, reported costs of goods sold will be lower. Therefore, profit will be higher.
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Chapter 08 - Process Costing
8-48. (continued) b. See the revised data entry section and production cost report below: Data Entry Section Unit Information
Percent Complete Units (board feet) 250,000 140,000 225,000
Units in beginning WIP inventory (all completed this period) Units started and completed during the period Units started and partially completed during the period
Cost Information Costs in beginning WIP inventory Costs incurred during the period
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Direct materials n/a 100% 80%
Direct labor n/a 100% 85%
Overhead n/a 100% 90%
Direct materials $76,000 $95,000
Direct labor $90,000 $102,000
Overhead $150,000 $150,000
Chapter 08 - Process Costing
8-48. (continued) Revised Production Cost Report Month Ending March 31 Step 1: Summary of Physical Units and Equivalent Unit Calculations Physical Units to be accounted for
Units
Units in beginning WIP inventory
250,000
Units started during the period
365,000
Total units to be accounted for
615,000 Equivalent Units
Units accounted for
Direct
Direct
materials
labor
Overhead
Units completed and transferred out
390,000
390,000
390,000
390,000
Units in ending WIP inventory
225,000
180,000
191,250
202,500
615,000
570,000
581,250
592,500
Total units accounted for
Step 2: Summary of Costs to be Accounted for Costs to be accounted for Costs in beginning WIP inventory Costs incurred during the period Total costs to be accounted for
Direct
Direct
materials
labor
$76,000 95,000
Overhead
Total
$90,000 $150,000 $316,000 102,000
150,000
347,000
$171,000 $192,000 $300,000 $663,000
Step 3: Calculation of Cost per Equivalent Unit Direct
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Direct
Chapter 08 - Process Costing materials Total costs to be accounted for (a) Total equivalent units accounted for Cost per equivalent unit (a) / (b)
labor
Overhead
Total
$171,000 $192,000 $300,000 570,000 $0.3000
581,250 $0.3303
592,500 $0.5063
$1.1367
Step 4: Assign Costs to Units Transferred Out and Units in Ending WIP Inventory
Costs assigned to units transferred out Costs assigned to ending WIP inventory Total costs accounted for
Direct
Direct
materials
labor
Overhead
Total
$117,000 $128,826 $197,468 $443,294 54,000
63,174
102,532
219,706
$171,000 $192,000 $300,000 $663,000
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Chapter 08 - Process Costing
8-48. (continued) c. The costs assigned to units transferred out has decreased from $541,621 to $443,294, or $98,327. Because all the units transferred out will be sold before the end of March, profits will be $98,327 higher than originally planned. d. This is not ethical. The reason for the production increase was solely to manipulate income and distort results for the year. There is no indication that the increase in production was to meet much larger demand.
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Chapter 08 - Process Costing
Solutions to Integrative Cases 8-49. (70 min.) Show Cost Flows—FIFO Method: Vermont Co.
Beginning Balance Current work: materials (given) conversion (given) Ending Balance
Work in Process 716,000 Transferred out: 716,000a From beginning inventory 300,400 From current work 1,287,000 240,320a materials 833,976b conversion costs 513,104
Additional computations: a $240,320
= 40,000 EU transferred x ($300,400 ÷ 50,000 EU for materials) (40,000 EU = 50,000 – 10,000 in ending inventory)
b $833,976
= 40,500 EU transferred out x ($1,287,000 ÷ 62,500 EU for conversion costs; 40,500 EU = 62,500 – 22,000 in ending inventory)
Transferred in Balance aFrom
Finished Goods 1,790,296 a 1,432,237 To Cost of Goods Sold 358,059
(80%)
total credits in Work in Process.
From Finished Goods
Cost of Goods Sold 1,432,237 Overapplied overhead 55,000 (See explanation below)
Overhead applied in beginning WIP inventory is 125% of direct labor costs (i.e., $325,000 ÷ $260,000). Since the application rate has not changed, the ratio of applied overhead to total conversion costs found in the beginning inventory should also hold for conversion costs this period. For this period, 1.25 D.L. + D.L. = $1,287,000 2.25 D.L. = $1,287,000 D.L. = $572,000 So, total conversion costs – direct labor = overhead applied $1,287,000 – $572,000 = $715,000 Based on the balance in the manufacturing overhead account, actual overhead is $660,000. Therefore, overhead is overapplied by $55,000 (i.e., $715,000 – $660,000).
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Chapter 08 - Process Costing
8-49. (continued) The journal entry to assign the overapplied overhead to cost of goods sold is: Overapplied overhead......................................... 55,000 Cost of goods sold................................... 55,000
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Chapter 08 - Process Costing
8-50. (45 min.) Job Costing, Process Costing, Choosing a Costing Method: Bouwens Corporation. This problem is computationally straight-forward, but requires the student to think about the use of the costs from the costing system and how to best reflect the production costs for a single product for two customer types. a. The “job” costs for each product are the unit costs in each building: M-Solv
C-Solv
(B-155)
(B-159)
Materials costs.....................
$14,000
$ 40,000
Conversion costs.................
30,000
120,000
Total costs........................
$44,000
$160,000
Units produced.....................
2,000
10,000
Unit cost...............................
$22
$16
b. The “process” costs for each product are the unit costs for both buildings divided by total production: M-Solv
C-Solv
(B-155)
(B-159)
Total
Materials costs.....................
$14,000
$ 40,000
$ 54,000
Conversion costs.................
30,000
120,000
150,000
Total costs........................
$44,000
$160,000
$204,000
Units produced.....................
2,000
10,000
12,000
Unit cost...............................
$17
c. Neither method best reflects the costs for the individual products. Jill is correct the military requires the use of a “special” chemical and the costs assigned to M-Solv should reflect this. This suggests that the “job” system in requirement (a) is correct. On the other hand, Jack is correct that the assignment of labor is not caused by product requirements. This suggests that the process system in requirement (b) is correct. The best system would be similar to an operations system where we accounted for the material cost by product and the conversion costs on a factory-wide basis.
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Chapter 08 - Process Costing
8-50. (continued) d. Compute the unit costs for materials and conversion costs separately.
M-Solv
C-Solv
(B-155)
(B-159)
Materials costs.....................
$14,000
$ 40,000
Units produced.....................
2,000
10,000
Unit cost (materials).............
$7
$4
Then compute conversion costs for the factory: M-Solv
C-Solv
(B-155)
(B-159)
Total
Conversion costs.................
30,000
120,000
$150,000
Units produced.....................
2,000
10,000
12,000
Unit cost (conversion)..........
$12.50
Now, compute the unit product cost: M-Solv
C-Solv
(B-155)
(B-159)
Unit materials costs..............
$7.00
$4.00
Conversion costs.................
12.50
12.50
Total costs........................
$19.50
$16.50
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