ch031

CHAPTER 3

PROCESS COSTING

SUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOM’S TAXONOMY

Item SO BT Item SO BT Item SO BT Item SO BT Item SO BT

True-False Statements1. 1 K 9. 4 K 17. 6 K 25. 7 K sg33. 3 C2. 1 K 10. 4 K 18. 6 C a26. 8 K sg34. 4 K3. 1 C 11. 4 K 19. 6 K a27. 8 K sg35. 5 K4. 2 C 12. 5 C 20. 6 K a28. 8 K sg36. 6 K5. 2 K 13. 5 K 21. 6 C a29. 8 K sg,a37. 8 K6. 2 K 14. 5 K 22. 6 K a30. 8 K7. 2 K 15. 5 K 23. 7 K sg31. 1 K8. 4 C 16. 5 AP 24. 7 K sg32. 2 K

Multiple Choice Questions38. 1 C 58. 5 AP 78. 6 AP 98. 6 AP a118. 8 AP39. 1 C 59. 5 AP 79. 6 AP 99. 6 AP a119. 8 AP40. 1 K 60. 5 AP 80. 6 AP 100. 6 AP a120. 8 AP41. 1 K 61. 5 K 81. 6 AP 101. 6 C a121. 8 AP42. 1 K 62. 5 AP 82. 6 AP 102. 6 AP a122. 8 AP43. 2 C 63. 5 AP 83. 6 AP 103. 6 AP a123. 8 AP44. 2 K 64. 5 AP 84. 6 AP 104. 6 AP a124. 8 AP45. 2 C 65. 5 C 85. 6 AP 105. 6 AP st125. 1 K46. 2 K 66. 5 AP 86. 6 AP 106. 6 AP sg126. 2 K47. 2 K 67. 5 AP 87. 6 AP 107. 6 AP st127. 2 K48. 2 C 68. 5 AP 88. 6 AP 108. 6 AP sg128. 5 K49. 2 K 69. 5 AP 89. 6 AP 109. 6 AP sg129. 5 K50. 4 C 70. 5 AP 90. 6 C 110. 6 AP st130. 5 K51. 4 C 71. 5 AP 91. 6 C 111. 6 AP sg131. 6 AP52. 4 C 72. 5 AP 92. 6 AP 112. 6 AP st132. 6 K53. 4 C 73. 5 AP 93. 6 K 113. 6 AP sg133. 6 C54. 4 K 74. 5 AP 94. 6 AP 114. 7 K sg134. 6 AP55. 4 C 75. 5 AP 95. 6 AP 115. 7 K st135. 6 K56. 5 AP 76. 6 AP 96. 6 AP 116. 7 K sg136. 7 K57. 5 AP 77. 6 AP 97. 6 AP a117. 8 AP

Brief Exercises137. 5 AP 140. 6 AP 143. 6 AP 146. 6 AP138. 5 AP 141. 6 AP 144. 6 AP a147. 8 AP139. 5 AP 142. 6 AP 145. 6 AP a148. 8 AP

sg This question also appears in the Study Guide.st This question also appears in a self-test at the student companion website.a This topic is dealt with in an Appendix to the chapter.

Test Bank for Managerial Accounting, Fourth Edition

SUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOM’S TAXONOMY

Exercises149. 4 AP 154. 5 AP 159. 5,6 AP 164. 6 AP 169. 7 AP150. 4 AP 155. 5 AP 160. 5,6 AP 165. 6 AP a170. 8 AP151. 4 AP 156. 5,6 AP 161. 5,6 AP 166. 7 AP a171. 8 AP152. 4 AP 157. 5,6 AN 162. 5,6 AP 167. 7 AP153. 4 AP 158. 5,6 AP 163. 6 AP 168. 7 AP

Completion Statements172. 1 K 174. 2 K 176. 5 K 178. 6 AP 180. 7 K173. 2 K 175. 4 K 177. 6 K 179. 6 K

SUMMARY OF STUDY OBJECTIVES BY QUESTION TYPE

Item Type Item Type Item Type Item Type Item Type Item Type Item Type

Study Objective 1

1. TF 3. TF 38. MC 40. MC 42. MC 172. C2. TF 31. TF 39. MC 41. MC 125. MC

Study Objective 2

4. TF 7. TF 44. MC 47. MC 126. MC 174. C5. TF 32. TF 45. MC 48. MC 127. MC6. TF 43. MC 46. MC 49. MC 173. C

Study Objective 3

33. TF

Study Objective 4

8. TF 11. TF 51. MC 54. MC 149. Ex 152. Ex9. TF 34. TF 52. MC 55. MC 150. Ex 153. Ex

10. TF 50. MC 53. MC 128. MC 151. Ex 175. C

Study Objective 5

12. TF 56. MC 62. MC 68. MC 74. MC 139. BE 159. Ex13. TF 57. MC 63. MC 69. MC 75. MC 154. Ex 160. Ex14. TF 58. MC 64. MC 70. MC 129. MC 155. Ex 161. Ex15. TF 59. MC 65. MC 71. MC 130. MC 156. Ex 162. Ex16. TF 60. MC 66. MC 72. MC 137. BE 157. Ex 176. C35. TF 61. MC 67. MC 73. MC 138. BE 158. Ex

Study Objective 6

17. TF 79. MC 89. MC 99. MC 109. MC 140. BE 159. Ex18. TF 80. MC 90. MC 100. MC 110. MC 141. BE 160. Ex19. TF 81. MC 91. MC 101. MC 111. MC 142. BE 161. Ex20. TF 82. MC 92. MC 102. MC 112. MC 143. BE 162. Ex21. TF 83. MC 93. MC 103. MC 113. MC 144. BE 163. Ex22. TF 84. MC 94. MC 104. MC 131. MC 145. BE 164. Ex36. TF 85. MC 95. MC 105. MC 132. MC 146. BE 165. Ex76. MC 86. MC 96. MC 106. MC 133. MC 156. Ex 177. C77. MC 87. MC 97. MC 107. MC 134. MC 157. Ex 178. C78. MC 88. MC 98. MC 108. MC 135. MC 158. Ex 179. C

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Process Costing

Study Objective 7

23. TF 25. TF 115. MC 136. MC 167. Ex 169. Ex24. TF 114. MC 116. MC 166. Ex 168. Ex 180. C

Study Objective a8

26. TF 29. TF 117. MC 120. MC 123. MC 148. BE27. TF 30. TF 118. MC 121. MC 124. MC 170. Ex28. TF 37. TF 119. MC 122. MC 147. BE 171. Ex

Note: TF = True-False BE = Brief Exercise C = CompletionMC = Multiple Choice Ex = Exercise

The chapter also contains one set of eight Matching questions and four Short-Answer Essay questions.

CHAPTER STUDY OBJECTIVES1. Understand who uses process cost systems. Companies that mass-produce similar

products in a continuous fashion use process cost systems. Once production begins, it continues until the finished product emerges. Each unit of finished product is indistinguishable from every other unit.

2. Explain the similarities and differences between job order cost and process cost systems. Job order cost systems are similar to process cost systems in three ways: (1) Both systems track the same cost elements—direct materials, direct labor, and manufacturing overhead. (2) Both accumulate costs in the same accounts—Raw Materials Inventory, Factory Labor, and Manufacturing Overhead. (3) Both assign accumulated costs to the same accounts—Work in Process, Finished Goods Inventory, and Cost of Goods Sold. However, the method of assigning costs differs significantly.

There are four main differences between the two cost systems: (1) A process cost system uses separate accounts for each department or manufacturing process, rather than only one work in process account used in a job order cost system. (2) A process cost system summarizes costs in a production cost report for each department. A job cost system charges costs to individual jobs and summarizes them in a job cost sheet. (3) Costs are totaled at the end of a time period in a process cost system, but at the completion of a job in a job cost system. (4) A process cost system calculates unit cost as: Total manufacturing costs for the period ÷ Units produced during the period. A job cost system calculates unit cost as: Total cost per job ÷ Units produced.

3. Explain the flow of costs in a process cost system. A process cost system assigns manufacturing costs for raw materials, labor, and overhead to work in process accounts for various departments or manufacturing processes. It transfers the costs of partially completed units from one department to another as those units move through the manufacturing process. The system transfers the costs of completed work to Finished Goods Inventory. Finally, when inventory is sold, the system transfers the costs to Cost of Goods Sold.

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4. Make the journal entries to assign manufacturing costs in a process cost system. Entries to assign the costs of raw materials, labor, and overhead consist of a credit to Raw Materials Inventory, Factory Labor, and Manufacturing Overhead, and a debit to Work in Process for each department. Entries to record the cost of goods transferred to another department are a credit to Work in Process for the department whose work is finished and a debit to the department to which the goods are transferred. The entry to record units completed and transferred to the warehouse is a credit for the department whose work is finished and a debit to Finished Goods Inventory. The entry to record the sale of goods is a credit to Finished Goods Inventory and a debit to Cost of Goods Sold.

5. Compute equivalent units. Equivalent units of production measure work done during a period, expressed in fully completed units. Companies use this measure to determine the cost per unit of completed product. Equivalent units are the sum of the units completed and transferred out plus equivalent units of ending work in process.

6. Explain the four steps necessary to prepare a production cost report. The four steps to complete a production cost report are: (1) Compute the physical unit flow—that is, the total units to be accounted for. (2) Compute the equivalent units of production. (3) Compute the unit production costs, expressed in terms of equivalent units of production. (4) Prepare a cost reconciliation schedule, which shows that the total costs accounted for equal the total costs to be accounted for.

7. Prepare a production cost report. The production cost report contains both quantity and cost data for a production department. There are four sections in the report: (1) number of physical units, (2) equivalent units determination, (3) unit costs, and (4) cost reconciliation schedule.

a8. Compute equivalent units using the FIFO method. Equivalent units under the FIFO method are the sum of the work performed to: (1) Finish the units of beginning work in process inventory, if any. (2) Complete the units started into production during the period. (3) Start, but only partially complete, the units in ending work in process inventory.

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Process Costing

TRUE-FALSE STATEMENTS1. Process cost accounting focuses on the process involved in mass-producing products that

are very similar in nature.

2. Process cost systems are used to apply costs to a specific job, such as the manufacturing of a specialized machine.

3. A company that produces motion pictures would likely use a process cost system.

4. In a process cost system, costs are tracked through a series of connected manufacturing processes or departments, rather than by individual jobs.

5. In a process cost system, total costs are determined at the end of a month or year.

6. Separate work in process accounts are maintained for each production department or manufacturing process in a process cost system.

7. In a process cost system, materials, labor and overhead are only added in the first production department.

8. The assignment of the three manufacturing cost elements to Work in Process in a process cost system is the same as in a job order cost system.

9. Fewer materials requisitions are generally required in a process cost system than in a job order cost system.

10. In a process cost system, all labor costs incurred within a producing department are a cost of processing the raw materials.

11. A primary driver of overhead costs in continuous manufacturing operations is machine time used.

12. Equivalent units of production are used to determine the cost per unit of completed products.

13. Equivalent units of production measure the work done during a period, expressed in fully completed units.

14. Equivalent units of production is the sum of units completed and transferred out plus equivalent units of beginning work in process.

15. The weighted-average method of computing equivalent units is the most widely used method in practice.

16. There are no units in process at the beginning of the period, 1,000 units in process at the end of the period that are 40% complete, and 10,000 units transferred out during the period. Based on this information, there were 9,600 equivalent units of production during the period.

17. The first step performed in preparing a production cost report is computing the equivalent units of production.

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18. Equivalent units of production must be calculated before the unit production costs can be computed.

19. The physical units in a department are another name for the equivalent units of production.

20. Unit material cost is computed by taking total material costs charged to the department for the period and dividing by the physical units in the process during the period.

21. When equivalent units of production are different for materials and conversion costs, unit costs are computed for materials, conversion, and total manufacturing.

22. The total manufacturing cost per unit is used in costing the units completed and transferred during the period.

23. A production cost report is an internal document for management that shows production quantity and cost data for a particular job.

24. Production cost reports provide a basis for evaluating the productivity of a department.

25. Companies often use a combination of a process cost and a job order cost system, called operations costing.

a26. The FIFO method is easier to understand and use than the weighted-average method.

a27. The FIFO method is conceptually superior to the weighted-average method.

a28. When comparing the FIFO with the weighted-average method, the FIFO method provides current cost information.

a29. There are no units in ending work in process at the end of the period under the FIFO method.

a30. Companies using the weighted-average method do not complete units left over from the previous accounting periods. They start new units.

Additional True-False Questions

31. In continuous process manufacturing, generally once the production begins, it continues until the finished product emerges.

32. One similarity of process cost accounting with job order cost accounting is that both determine total manufacturing costs after each job.

33. The flow of costs in a process costing system requires that materials be added in one department, labor added in another department and manufacturing overhead in a third department.

34. When finished goods are sold, the entry to record the cost of goods sold is a debit to Finished Goods Inventory and a credit to Cost of Goods Sold.

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Process Costing

35. When there is no beginning work in process and materials are entered at the beginning of the process, equivalent units of materials are the same as the units started into production.

36. In order to compute the physical unit flow, a company must first compute unit production costs.

a37. Under the FIFO method, it is assumed that the beginning work in process is completed before new work is started.

Answers to True-False StatementsItem Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans.

1. T 7. F 13. T 19. F 25. T 31. T a37. T2. F 8. F 14. F 20. F a26. F 32. F3. F 9. T 15. T 21. T a27. T 33. F4. T 10. T 16. F 22. T a28. T 34. F5. T 11. T 17. F 23. F a29. F 35. T6. T 12. T 18. T 24. T a30. F 36. F

MULTIPLE CHOICE QUESTIONS38. A process cost accounting system is most appropriate when

a. a variety of different products are produced, each one requiring different types of materials, labor, and overhead.

b. the focus of attention is on a particular job or order.c. similar products are mass-produced.d. individual products are custom made to the specification of customers.

39. A characteristic of products that are mass-produced in a continuous fashion is thata. the products are identical or very similar in nature.b. they are grouped in batches.c. they are produced at the time an order is received.d. their costs are accumulated on job cost sheets.

40. A process cost system would be used for all of the following products excepta. chemicals.b. computer chips.c. motion pictures.d. soft drinks.

41. In a process cost system,a. a Work in Process account is maintained for each product.b. a materials requisition must identify the job on which the materials will be used.c. a Work in Process account is maintained for each process.d. one Work in Process account is maintained for all the processes, similar to a job order

cost system.

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42. Differences between a job order cost system and a process cost system include all of the following except thea. documents used to track costs.b. point at which costs are totaled.c. unit cost computations.d. flow of costs.

43. Which of these best reflects a distinguishing factor between a job order cost system and a process cost system?a. The detail at which costs are calculatedb. The time period each coversc. The number of work in process accountsd. The manufacturing cost elements included

44. Which of the following is a true statement about process cost systems?a. In process cost systems, costs are accumulated but not assigned.b. A process cost system has one work in process account for each process.c. In process cost systems, costs are summarized on job cost sheets.d. Unit costs are not computed in process cost systems.

45. Which of the following is correct regarding cost systems?

Job Order Process a. Work in process account several one for each processb. Work in process account one onec. Work in process account one one for each processd. Work in process account several one

46. In a process cost system, unit costs are determined using aa. numerator of costs of each job.b. denominator of units produced during the period.c. denominator of units produced for the job.d. denominator of units produced for the day.

47. In process cost accounting, manufacturing costs are summarized on aa. job order cost sheet.b. process order cost sheet.c. production cost report.d. manufacturing cost sheet.

48. Which of the following manufacturing cost elements occurs in a process cost system?a. Direct materialsb. Direct laborc. Manufacturing overheadd. All of these

49. In a process cost system, product costs are summarizeda. on job cost sheets.b. on production cost reports.c. after each unit is produced.d. when the products are sold.

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Process Costing

50. When manufacturing overhead costs are assigned to production in a process cost system, they are debited toa. the Finished Goods Inventory account.b. Cost of Goods Sold.c. a Manufacturing Overhead account.d. the Work in Process account.

51. A product requires processing in two departments, Department A and then Department B, before it is completed. Costs transferred out of Department A will be transferred toa. Finished Goods Inventory.b. Cost of Goods Sold.c. Work in Process—Department B.d. Manufacturing Overhead.

52. Which of the following would not appear as a debit in the Work in Process account of a second department in a two stage production process?a. Materials usedb. Overhead appliedc. Labor assignedd. Cost of products transferred out

53. Materials requisitions area. not used in process costing.b. generally used more frequently in process costing than job order costing.c. generally used less frequently in process costing than job order costing.d. used more frequently by latter stage production departments.

54. A primary driver of overhead costs in continuous manufacturing operations isa. direct labor dollars.b. direct labor hours.c. machine hours.d. machine maintenance dollars.

55. Price Manufacturing assigns overhead based on machine hours. Department A logs 1,200 machine hours and Department B shows 2,000 machine hours for the period. If the overhead rate is $5 per machine hour, the entry to assign overhead will show aa. debit to Manufacturing Overhead for $16,000.b. credit to Work in Process—Department B for $10,000.c. debit to Work in Process for $10,000.d. credit to Manufacturing Overhead for $16,000.

56. Barnes and Miller Manufacturing is trying to determine the equivalent units for conversion costs with 3,000 units of ending work in process at 80% completion and 14,000 physical units. There are no beginning units in the department. Conversion costs occur evenly throughout the entire production period. What are the equivalent units for conversion costs for the current period?a. 17,000b. 16,800c. 2,400d. 13,400

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57. 7,000 units in a process that are 70% complete are referred to asa. 7,000 equivalent units of production.b. 2,100 equivalent units of production.c. 4,900 equivalent units of production.d. 2,100 unequivalent units of production.

58. A process with no beginning work in process, completed and transferred out 45,000 units during a period and had 30,000 units in the ending work in process inventory that were 30% complete. The equivalent units of production for the period werea. 45,000 equivalent units.b. 75,000 equivalent units.c. 54,000 equivalent units.d. 22,500 equivalent units.

Use the following information for questions 59–60.

A department adds raw materials to a process at the beginning of the process and incurs conversion costs uniformly throughout the process. For the month of January, there were no units in the beginning work in process inventory; 80,000 units were started into production in January; and there were 20,000 units that were 40% complete in the ending work in process inventory at the end of January.

59. What were the equivalent units of production for materials for the month of January?a. 88,000 equivalent unitsb. 72,000 equivalent unitsc. 60,000 equivalent unitsd. 80,000 equivalent units

60. What were the equivalent units of production for conversion costs for the month of January?a. 60,000 equivalent unitsb. 72,000 equivalent unitsc. 68,000 equivalent unitsd. 80,000 equivalent units

61. Equivalent units are calculated bya. multiplying the percentage of work done by the equivalent units of output.b. dividing physical units by the percentage of work done.c. multiplying the percentage of work done by the physical units.d. dividing equivalent units by the percentage of work done.

62. Minor Company had the following department data:Physical Units

Work in process, July 1 16,000Completed and transferred out 72,000Work in process, July 31 24,000

Materials are added at the beginning of the process. What is the total number of equivalent units for materials in July?a. 72,000b. 80,000c. 112,000d. 96,000

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Process Costing

63. Corsi Company had the following department data:Physical Units

Work in process, beginning -0-Completed and transferred out 70,000Work in process, ending 7,000

Materials are added at the beginning of the process. What is the total number of equivalent units for materials during the period?a. 70,000b. 7,000c. 77,000d. 63,000

64. Gantner Company had the following department information about physical units and percentage of completion:

Physical UnitsWork in process, May 1 (60%) 36,000Completed and transferred out 90,000Work in process, May 31 (40%) 30,000

If materials are added at the beginning of the production process, what is the total number of equivalent units for materials during May?a. 126,000b. 120,000c. 116,400d. 102,000

65. It is necessary to calculate equivalent units of production in a department becausea. a physical count of units is impossible.b. some units worked on in the department are not fully complete.c. the physical units in the department are always 100% complete.d. at times a department may use a job order cost system and then switch to a process

cost system.


In the month of June, a department had 10,000 units in beginning work in process that were 70% complete. During June, 40,000 units were transferred into production from another department. At the end of June there were 5,000 units in ending work in process that were 40% complete. Materials are added at the beginning of the process, while conversion costs are incurred uniformly throughout the process.

66. How many units were transferred out of the process in June?a. 40,000 unitsb. 35,000 unitsc. 45,000 unitsd. 50,000 units

67. The equivalent units of production for materials for June werea. 45,000 equivalent units.b. 50,000 equivalent units.c. 52,000 equivalent units.d. 40,000 equivalent units.

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68. The equivalent units of production for conversion costs for June werea. 40,000 equivalent units.b. 47,000 equivalent units.c. 45,000 equivalent units.d. 50,000 equivalent units.

69. A process with no beginning work in process, completed and transferred out 10,000 units during a period and had 5,000 units in the ending work in process that were 50% complete. How much is equivalent units of production for the period for conversion costs? a. 12,500 equivalent unitsb. 15,000 equivalent unitsc. 17,500 equivalent unitsd. 7,500 equivalent units

70. A process with 800 units of beginning work in process, completed and transferred out 10,000 units during a period. There were 5,000 units in the ending work in process that were 50% complete as to conversion costs. Materials are added 80% at the beginning of the process and 20% when the units are 90% complete. How much is equivalent units of production for the period for material costs?a. 12,000 equivalent unitsb. 15,000 equivalent unitsc. 11,000 equivalent unitsd. 14,000 equivalent units

71. Hanker Company had the following department data on physical units:

Work in process, beginning 1,000Completed and transferred out 4,000Work in process, ending 800

Materials are added at the beginning of the process. What is the total number of equivalent units for materials during the period?a. 4,200b. 800c. 4,800d. 3,000

72. Super-Tech Industries had the following department information about physical units and percentage of completion:

Physical UnitsWork in process, June 1 (75%) 2,000Completed and transferred out 4,500Work in process, June 30 (50%) 3,000

If materials are added at the beginning of the production process, what is the total number of equivalent units for materials during June? a. 3,750b. 7,500c. 8,000d. 6,000

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Process Costing

73. Gloria Company had no beginning work in process. During the period, 5,000 units were completed, and there were 500 units of ending work in process. How many units were started into production?a. 5,500 b. 5,000 c. 4,500d. 500

74. Cohen Manufacturing is trying to determine the equivalent units for conversion costs with 2,000 units of ending work in process at 80% completion and 14,000 physical units that are 100% completed. There are no beginning units in the department. Materials are added at the beginning of the process, and conversion costs occur evenly throughout the entire production period. What is the equivalent units for conversion costs for the current period?a. 16,000b. 15,600c. 1,600d. 13,600

75. If beginning work in process is 2,000 units, ending work in process is 1,000 units, and the units accounted for equals 5,000 units, what must units started into production be?a. 7,000b. 6,000c. 3,000d. 4,000

76. Cinder Company had the following department information for the month:

Total materials costs $ 80,000Equivalent units of materials 10,000Total conversion costs $120,000Equivalent units of conversion costs 20,000

How much is the total manufacturing cost per unit?a. $14.00b. $6.67c. $6.00d. $8.00


Materials costs of $200,000 and conversion costs of $214,200 were charged to a processing department in the month of September. Materials are added at the beginning of the process, while conversion costs are incurred uniformly throughout the process. There were no units in beginning work in process, 100,000 units were started into production in September, and there were 8,000 units in ending work in process that were 40% complete at the end of September.

77. What was the total amount of manufacturing costs assigned to those units that were completed and transferred out of the process in September?a. $184,000b. $391,000c. $414,200d. $425,200

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78. What was the total amount of manufacturing costs assigned to the 8,000 units in the ending work in process?a. $16,000b. $7,200c. $13,600d. $23,200

79. Charley Company’s Assembly Department has materials cost at $3 per unit and conversion cost at $6 per unit. There are 9,000 units in ending work in process, all of which are 70% complete as to conversion costs. How much are total costs to be assigned to inventory?a. $37,800b. $64,800c. $56,700d. $81,000

80. Byrd Manufacturing decided to analyze certain costs for June of the current year. Units started into production equaled 14,000 and ending work in process equaled 2,000 units. With no beginning work in process inventory, how much is the conversion cost per unit if ending work in process was 25% complete and total conversion costs equaled $50,000?a. $3.13b. $12.50c. $4.00d. $2.00

81. Reed Manufacturing has recently tried to improve its analysis for its manufacturing process. Units started into production equaled 6,000 and ending work in process equaled 400 units. Reed had no beginning work in process inventory. Conversion costs are applied equally throughout production, and materials are applied at the beginning of the process. How much is the materials cost per unit if ending work in process was 25% complete and total materials costs equaled $60,000?a. $10.00b. $10.53c. $37.50d. $9.38

82. Conversion cost per unit equals $6.00. Total materials costs are $40,000. Equivalent units are 20,000. How much is the total manufacturing cost per unit?a. $8.00b. $6.00c. $10.00d. $2.00

83. Physical units are 40,000. Total conversion costs are $197,500. There are 1,000 units in ending inventory which are 50% complete as to conversion costs. How much are conversion costs per unit? a. $5.00 b. $4.93 c. $9.88d. $4.82

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Process Costing

84. Madison Industries has equivalent units of 2,000 for materials and for conversion costs. Total manufacturing costs are $200,000. Total materials costs are $150,000. How much is the conversion cost per unit?a. $10.00b. $25.00c. $100.00d. $20.00

85. Equivalent units for materials total 15,000. There were 12,000 units completed and transferred out. Equivalent units for conversion costs equals 13,500. How much are the physical units for conversion costs if ending work in process is 50% complete?a. 14,000b. 15,000c. 4,000d. 12,000

86. If equivalent units are 6,000 for conversion costs and units transferred out equals 4,000, what stage of completion should the ending work in process be for the 8,000 units remaining?a. 75%b. 25%c. 10%d. 20%


In the month of April, a department had 500 units in the beginning work in process inventory that were 60% complete. These units had $20,000 of materials costs and $15,000 of conversion costs. Materials are added at the beginning of the process and conversion costs are added uniformly throughout the process. During April, 10,000 units were completed and transferred to the finished goods inventory and there were 2,000 units that were 25% complete in the ending work in process inventory on April 30. During April, manufacturing costs charged to the department were: Materials $460,000; Conversion costs $510,000.

87. The cost assigned to the units transferred to finished goods during April wasa. $900,000.b. $905,000.c. $940,000.d. $895,000.

88. The cost assigned to the units in the ending work in process inventory on April 30 wasa. $180,000.b. $105,000.c. $80,000.d. $145,000.

89. Zibba Company enters materials at the beginning of the process. In January, there was no beginning work in process, but there were 100 units in the ending work in process inventory. The number of units completed equals the number ofa. units started.b. units started less 100.c. units started plus 100.d. equivalent units.

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90. If there are no units in process at the beginning of the period, thena. the company must be using a job order cost system.b. only one computation of equivalent units of production will be necessary.c. the units started into production will equal the number of units transferred out.d. the units to be accounted for will equal the units transferred out and the units in

process at the end of the period.

91. Which of the following is not a necessary step in preparing a production cost report?a. Compute the equivalent units of productionb. Compute the physical unit flowc. Prepare the job order cost sheetd. Prepare a cost reconciliation schedule

92. Honrad Company's Assembly Department has materials cost at $4 per unit and conversion cost at $8 per unit. There are 9,000 units in ending work in process, all of which are 70% complete as to conversion costs. How much are total costs to be assigned to inventory?a. $50,400b. $86,400c. $75,600d. $108,000

93. In a process cost system, units to be accounted for in a department are equal to thea. number of units started or transferred into the department.b. number of units transferred out of the department.c. units in the beginning inventory plus the units started or transferred into the department.d. ending inventory plus the units started or transferred into the department.

94. The total units accounted for equals units ina. beginning work in process – units transferred out.b. beginning work in process + ending work in process.c. ending work in process + units transferred out.d. ending work in process – units started into production.


Department 1 of a two department production process shows:

Units Beginning Work in Process 10,000Ending Work in Process 50,000Total units to be accounted for 120,000

95. How many units were started into production in Department 1?a. 50,000b. 70,000c. 120,000d. 110,000

96. How many units were transferred out to Department 2?a. 50,000b. 70,000c. 120,000d. 110,000

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Process Costing

97. The Assembly Department shows the following information:

Units Beginning Work in Process 20,000Ending Work in Process 50,000Units Transferred Out 90,000

How many total units are to be accounted for by the Assembly Department?a. 140,000b. 50,000c. 70,000d. 120,000

98. The last department in a production process shows the following information at the end of the period:

Units Beginning Work in Process 15,000Started into Production 105,000Ending Work in Process 30,000

How many units have been transferred out to finished goods during the period?a. 105,000b. 120,000c. 135,000d. 90,000

99. A process began the month with 3,000 units in the beginning work in process inventory and ended the month with 2,000 units in the ending work in process. If 9,000 units were completed and transferred out of the process during the month, how many units were started into production during the month?a. 8,000b. 10,000c. 9,000d. 7,000

100. If 75,000 units are started into production and 30,000 units are in process at the end of the period, how many units were completed and transferred out?a. 75,000b. 30,000c. 45,000d. 105,000

101. Total units to be accounted for less units in beginning work in process equalsa. total units accounted for.b. units transferred out.c. units started into production.d. equivalent units.

102. If 80,000 units are transferred out of a department and there are 16,000 units still in process at the end of a period, the number of units that were started into production during the period isa. 96,000.b. 80,000.c. 64,000.d. 16,000.

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103. A department adds materials at the beginning of the process and incurs conversion costs uniformly throughout the process. For the month of July, there was no beginning work in process; 20,000 units were completed and transferred out; and there were 10,000 units in the ending work in process that were 40% complete. During July, $72,000 materials costs and $63,000 conversion costs were charged to the department.

The unit production costs for materials and conversion costs for July was

Materials Conversion Costsa. $2.40 $2.10b. $2.40 $2.63c. $3.00 $2.10d. $3.60 $3.15

104. Conversion cost per unit equals $6.00. Total materials costs equal $60,000. Equivalent units for materials are 20,000. How much is the total manufacturing cost per unit?a. $9.00b. $6.00c. $12.00d. $3.00

105. The following department data are available:

Total materials costs $120,000Equivalent units of materials 60,000Total conversion costs $70,000Equivalent units of conversion costs 30,000

What is the total manufacturing cost per unit?a. $2.00b. $2.33c. $4.33d. $2.11

106. Byers Company had the following department information for the month:

Total materials costs $30,000Equivalent units of materials 5,000Total conversion costs $50,000Equivalent units of conversion costs 10,000

What is the total manufacturing cost per unit?a. $5.34b. $5.00c. $6.00d. $11.00

107. Physical units are 80,000. Total conversion costs are $197,500. There are 2,000 units in ending inventory which are 50% complete as to conversion costs. How much is the conversion cost per unit?a. $2.50b. $2.47c. $2.44d. $2.41

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Process Costing

108. A department had the following information for the month:

Total materials costs $120,000Conversion cost per unit $3.00Total manufacturing cost per unit $5.00

What are the equivalent units of production for materials?a. 60,000b. 40,000c. 24,000d. Cannot be determined

109. Maisley Manufacturing decided to analyze certain costs for June of the current year. Units started into production equaled 28,000 and ending work in process equaled 4,000. With no beginning work in process inventory, how much is the conversion cost per unit if ending work in process was 25% complete and total conversion costs equaled $50,000?a. $1.57b. $6.25c. $2.00d. $1.00


Materials costs of $400,000 and conversion costs of $510,000 were charged to a processing department in the month of September. Materials are added at the beginning of the process, while conversion costs are incurred uniformly throughout the process. There were no units in beginning work in process, 20,000 units were started into production in September, and there were 5,000 units in ending work in process that were 40% complete at the end of September.

110. What was the total amount of manufacturing costs assigned to those units that were completed and transferred out of the process in September?a. $750,000b. $1,000,000c. $803,250d. $682,500

111. What was the total amount of manufacturing costs assigned to the 5,000 units in the ending work in process?a. $227,500b. $250,000c. $160,000d. $100,000

112. Snead Manufacturing has recently tried to improve its analysis for its manufacturing process. Units started into production equaled 9,000 and ending work in process equaled 600 units. Snead had no beginning work in process inventory. Conversion costs are applied equally throughout production, and materials are applied at the beginning of the process. How much is the materials cost per unit if ending work in process was 25% complete and total materials costs equaled $60,000?a. $6.67b. $7.02c. $25.00d. $6.25

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113. Madison Industries has equivalent units of 4,000 for materials and for conversion costs. Total manufacturing costs are $200,000. Total materials costs are $150,000. How much is the conversion cost per unit?a. $37.50b. $12.50c. $50.00d. $10.00

114. In a process cost system, a production cost report is prepareda. only for the first processing department.b. for all departments in the aggregate.c. for each processing department.d. only for the last processing department.

115. A production cost reporta. is prepared for each product.b. is prepared from a job cost sheet.c. will show quantity and cost data for a production department.d. will not identify a specific department if more than one department is involved in the

production process.

116. In the production cost report, the totala. physical units accounted for equals the costs accounted for.b. physical units accounted for equals the units to be accounted for.c. costs charged equals the units to be accounted for.d. costs accounted for equals the costs of the units started into production.

a117. The Cutting Department’s output during the period consists of 12,000 units completed and transferred out, and 3,000 units in ending work in process that were 25% complete as to materials and conversion costs. Beginning inventory was 1,500 units that were 25% complete as to materials and conversion costs. Under the FIFO method, what are the equivalent units of production for materials?a. 13,725b. 12,375c. 14,475d. 13,500

a118. The Wrapping Department’s output during the period consists of 10,000 units completed and transferred out, and 600 units in ending work in process that were 75% complete as to materials and conversion costs. Beginning inventory was 800 units that were 30% complete as to materials and conversion costs. Under the FIFO method, what are the equivalent units of production for materials?a. 10,690b. 11,010c. 10,450d. 10,210

Use the following information to answer questions 119–120.

Chicotti Company has 3,000 units in beginning work in process, 30% complete as to conversion costs, 25,000 units transferred out to finished goods, and 1,000 units in ending work in process 20% complete as to conversion costs. The beginning and ending inventory is fully complete as to materials costs.

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Process Costing

a119. How much are equivalent units for conversion costs if the FIFO method is used?a. 25,200b. 27,300c. 23,000d. 24,300

a120. How much are equivalent units for materials if the FIFO method is used?a. 25,200b. 26,000c. 23,000d. 29,000

a121. Schiller Company has unit costs of $5 for materials and $15 for conversion costs. There are 4,200 units in ending work in process which are 25% complete as to conversion costs, and fully complete as to materials cost. How much is the total cost assignable to the ending work in process inventory if the FIFO method is used?a. 36,750b. 84,000c. 21,000d. 15,750

a122. Solis Company uses the FIFO method to compute equivalent units. It has 2,000 units in beginning work in process, 20% complete as to conversion costs and 50% complete as to materials costs, 25,000 units started, and 3,000 units in ending work in process, 30% complete as to conversion costs, and 80% complete as to materials cost. How much are the equivalent units for materials under the FIFO method?a. 25,400b. 25,000c. 26,400d. 27,000

a123. Special Company had the following department information about physical units and percentage of completion:

Physical UnitsWork in process, May 1 (60%) 14,400Completed and transferred out 26,000Work in process, May 31 (50%) 12,000

Materials are added at the beginning of the production process. Conversion costs are added equally throughout production. What is the total number of equivalent units during May for conversion costs if the FIFO method is used?a. 52,400b. 32,000c. 23,360d. 43,760

a124. Hanker Company had the following department data on physical units:

Work in process, beginning 1,000Completed and transferred out 4,000Work in process, ending 800

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Materials are added at the beginning of the process. What is the total number of equivalent units for materials if the FIFO method is used?a. 4,200b. 3,800c. 4,800d. 3,000

Additional Multiple Choice Questions

125. A process cost system would be used by all of the following except a(n)a. chemical company.b. advertising company.c. oil company.d. computer chip company.

126. Which of the following is considered a difference between a job order cost and a process cost system?a. The manufacturing cost elementsb. Documents used to track costsc. The accumulation of the costs of materials, labor, and overheadd. The flow of costs

127. The basic similarities between job order cost and process cost systems include all of the following except thea. manufacturing cost elements.b. flow of costs.c. point at which costs are totaled.d. accumulation of the costs of materials, labor, and overhead.

128 Equivalent units of production are a measure ofa. units completed and transferred out.b. units transferred out.c. units in ending work in process.d. the work done in a period expressed in fully completed units.

129. Total physical units to be accounted for are equal to the unitsa. started (or transferred) into production.b. started (or transferred) into production plus the units in beginning work in process.c. started (or transferred) into production less the units in beginning work in process.d. completed and transferred out.

130. In computing equivalent units, ___________ is not part of the equivalent units of production formula.a. units transferred outb. beginning work in processc. ending work in processd. None of these is correct.

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Process Costing

131. In Saint-Simon, Inc., the Assembly Department started 12,000 units and completed 14,000 units. If beginning work in process was 6,000 units, how many units are in ending work in process?a. 0b. 2,000c. 4,000d. 8,000

132. The total units to be accounted for is computed by addinga. beginning units in process to units transferred out.b. ending units in process to units started into production.c. beginning units in process to units started into production.d. ending units in process to total units accounted for.

133. In the Camria Company, materials are entered at the beginning of the process. If there is no beginning work in process, but there is an ending work in process inventory, the number of equivalent units as to materials costs will bea. the same as the units started.b. the same as the units completed.c. less than the units started.d. less than the units completed.

134. For the Assembly Department, unit materials cost is $8 and unit conversion cost is $12. If there are 6,000 units in ending work in process 75% complete as to conversion costs, the costs to be assigned to the inventory area. $120,000.b. $102,000.c. $90,000.d. $108,000.

135. The total costs accounted for in a production cost report equal thea. cost of units completed and transferred out only.b. cost of units started into production.c. cost of units completed and transferred out plus the cost of ending work in process.d. cost of beginning work in process plus the cost of units completed and transferred out.

136. In a production cost report, which one of the following sections is not shown under Costs?a. Unit costsb. Costs to be accounted forc. Costs during the periodd. Units accounted for

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Answers to Multiple Choice QuestionsItem Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans.38. c 53. c 68. b 83. a 98. d 113. b 128. d39. a 54. c 69. a 84. b 99. a 114. c 129. b40. c 55. d 70. d 85. b 100. c 115. c 130. b41. c 56. d 71. c 86. b 101. c 116. b 131. c42. d 57. c 72. b 87. a 102. a a117. b 132. c43. c 58. c 73. a 88. b 103. b a118. d 133. a44. b 59. d 74. b 89. b 104. a a119. d 134. b45. c 60. c 75. c 90. d 105. c a120. c 135. c46. b 61. c 76. a 91. c 106. d a121. a 136. d47. c 62. d 77. b 92. b 107. a a122. a48. d 63. c 78. d 93. c 108. a a123. c49. b 64. b 79. b 94. c 109. c a124. b50. d 65. b 80. c 95. d 110. a 125. b51. c 66. c 81. a 96. b 111. c 126. b52. d 67. b 82. a 97. a 112. a 127. c

BRIEF EXERCISES

BE 137

Tip Top Painting Company has the following production data for January:

Beginning work in process, 0 units Units transferred out, 35,000 Units in ending work in process, 4,000, which are 30% complete for conversion costs

Materials are added only at the beginning of the process.

InstructionsCompute equivalent units of production for both materials and conversion costs.

Solution 137 (4 min.)

Equivalent Units QUANTITIES Physical Units Materials Conversion Costs

Units to be accounted forWork in process, January 1 0Started into production 39,000

Total units 39,000

Units accounted for Transferred out 35,000 35,000 35,000Work in process, January 31 4,000 4,000 1,200 (4,000 × 30%)

Total units 39,000 39,000 36,200

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Process Costing

BE 138

Tip Top Painting Company has the following production data for March:

Beginning work in process, 2,000 units Units transferred out, 42,000 Units in ending work in process, 6,000, which are 80% complete for conversion costs


InstructionsCompute equivalent units of production for both materials and conversion costs.



Units to be accounted forWork in process, March 1 2,000Started into production 46,000

Total units 48,000

Units accounted forTransferred out 42,000 42,000 42,000Work in process, March 31 6,000 6,000 4,800 (6,000 × 80%)

Total units 48,000 48,000 46,800

BE 139

The Kirkland Department of Delta Manufacturing began the month of December with beginning work in process of 4,000 units that are 100% complete as to materials and 30% complete as to conversion costs. Units transferred out are 10,000 units. Ending work in process contains 1,000 units that are 100% complete as to materials and 60% complete as to conversion costs.

InstructionsCompute the equivalent units of production for materials and conversion costs for the month of December.



Units to be accounted forWork in process, December 1 4,000Started into production 7,000

Total units 11,000

Units accounted forTransferred out 10,000 10,000 10,000Work in process, December 31 1,000 1,000 600 (1,000 × 60%)

Total units 11,000 11,000 10,600

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BE 140

White Supplies’ total material costs are $50,000 and total conversion costs are $65,000. Equivalent units of production for materials are 10,000, and 3,250 for conversion costs.

InstructionsCompute the unit costs for materials, conversion costs, and total manufacturing costs for the month.


COSTSUnit costs Materials Conversion Costs Total

Costs incurred $50,000 $65,000 $115,000Equivalent units 10,000 3,250Unit costs $ 5.00 $ 20.00 $25.00

BE 141

Apoly Manufacturing Company has the following production data for January.

Ending Work in Process

BeginningWork in Process

Units Started into Production Units

% Complete as toConversion Cost

-0- 6,500 700 30%

InstructionsCompute the physical units for January.


Beginning work in process -0-Started into production 6,500Total units to be accounted for 6,500

Transferred out 5,800Ending work in process 700Total units accounted for 6,500

BE 142

Sandusky Widget Company has the following production data for March.

Ending Work in Process

MonthBeginning

Work in ProcessUnits

Transferred Out Units% Complete as toConversion Cost

March 1,200 5,100 800 20%

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Process Costing

BE 142 (cont.)

InstructionsCompute the physical units for March.


Beginning work in process 1,200Started into production 4,700Total units to be accounted for 5,900


BE 143

Sequal Company has the following production data for June: units transferred out 46,000, and ending work in process 4,000 units that are 100% complete for materials and 30% complete for conversion costs. Unit materials cost is $5 and unit conversion cost is $11.

InstructionsDetermine the costs to be assigned to the units transferred out and the units in ending work in process.


Work in process, June 30Materials (4,000 × $5) $20,000Conversion costs (4,000 × 30% × $11) 13,200

Total cost of work in process $ 33,200

Units transferred out (46,000 × $16) $736,000

BE 144

Tomlinson Company has the following production data for May: Beginning work in process, 0 units Units started, 62,000 Ending work in process, 7,000 units that are 100% complete for materials and 60% complete

for conversion costs Unit materials cost, $7 Unit conversion cost, $10


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Work in process, May 31Materials (7,000 × $7) $49,000Conversion costs (7,000 × 60% × $10) 42,000

Total cost of work in process $91,000

Units transferred out (55,000 × $17) $935,000

BE 145

Dirt Cleaners, Inc. has the following production data for January:

Transferred out 50,000 unitsEnding work in process 6,000 units

The units in ending work in process are 100% complete for materials and 60% complete for conversion costs. There is no beginning work in process. Materials cost is $10 per unit and conversion costs are $11 per unit.



Cost Reconciliation ScheduleCosts accounted for

Transferred out (50,000 × $21) $1,050,000Work in process, June 30

Materials (6,000 × $10) $ 60,000Conversion costs (3,600* × $11) 39,600 99,600

Total costs $1,149,600*(6,000 x 60%)

BE 146

Production costs chargeable to the Sanding Department in July for Joyful Art are $12,500 for materials, $26,000 for labor, and $10,000 for manufacturing overhead. Equivalent units of production are 25,000 for materials and 18,000 for conversion costs.

InstructionsCompute the unit costs for materials and conversion costs.

3 - 28

Process Costing


COSTS

Unit costs Materials Conversion Costs Total Costs in July $12,500 $36,000 $48,500Equivalent units 25,000 18,000

Unit costs $0.50 $2.00 $ 2.50

aBE 147

Tip Top Painting Company has the following production data for March:Beginning work in process, 2,000 units, which are 30% complete for conversion costsUnits transferred out, 42,000Units in ending work in process, 6,000, which are 80% complete for conversion costs


InstructionsCompute equivalent units of production for both materials and conversion costs using the FIFO method.



Units to be accounted forWork in process, March 1 2,000Started into production 46,000

Total Units 48,000

Units accounted forWork in process, March 1 2,000 0 1,400 (2,000 × 70%)Transferred out 40,000 40,000 40,000Work in process, March 31 6,000 6,000 4,800 (6,000 × 80%)

Total units 48,000 46,000 46,200

aBE 148

The Kirkland Department of Delta Manufacturing began the month of December with beginning work in process of 4,000 units that are 100% complete as to materials and 20% complete as to conversion costs. Units transferred out are 10,000 units. Ending work in process contains 1,000 units that are 100% complete as to materials and 60% complete as to conversion costs.

InstructionsCompute equivalent units of production for both materials and conversion costs for the month of December using the FIFO method.

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aSolution 148 (5 min.)


Units to be accounted forWork in process, December 1 4,000Started into production 7,000

Total Units 11,000

Units accounted forWork in process, December 1 4,000 0 3,200 (4,000 × 80%)Transferred out 6,000 6,000 6,000Work in process, December 31 1,000 1,000 600 (1,000 × 60%)

Total units 11,000 7,000 9,800

EXERCISESEx. 149

Baez Manufacturing Company produces a product in two departments: (1) Mixing and (2) Finishing. The company uses a process cost accounting system.

(a) Purchased raw materials for $50,000 on account.

(b) Raw materials requisitioned for production were:Direct materials

Mixing department $20,000Finishing department 14,000

(c) Incurred labor costs of $80,000.

(d) Factory labor used:Mixing department $48,000Finishing department 32,000

(e) Manufacturing overhead is applied to the product based on machine hours used in each department:

Mixing department—600 machine hours at $45 per machine hour.Finishing department—500 machine hours at $30 per machine hour.

(f) Units costing $66,000 were completed in the Mixing Department and were transferred to the Finishing Department.

(g) Units costing $60,000 were completed in the Finishing Department and were transferred to finished goods.

(h) Finished goods costing $30,000 were sold on account for $45,000.

InstructionsPrepare the journal entries to record the preceding transactions for Baez Manufacturing Company.

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Process Costing

Solution 149 (20–28 min.)

(a) Raw Materials Inventory................................................................ 50,000Accounts Payable................................................................. 50,000

(Purchase of raw materials on account)

(b) Work in Process—Mixing............................................................... 20,000Work in Process—Finishing.......................................................... 14,000

Raw Materials Inventory....................................................... 34,000(To record materials used in production)

(c) Factory Labor................................................................................. 80,000Wages Payable..................................................................... 80,000

(To record payroll liability)

(d) Work in Process—Mixing............................................................... 48,000Work in Process—Finishing.......................................................... 32,000

Factory Labor........................................................................ 80,000(To assign factory labor to production)

(e) Work in Process—Mixing (600 × $45)........................................... 27,000Work in Process—Finishing (500 × $30)....................................... 15,000

Manufacturing Overhead...................................................... 42,000(To assign overhead to processes)

(f) Work in Process—Finishing.......................................................... 66,000Work in Process—Mixing...................................................... 66,000

(To record transfer of units to the Finishing Department)

(g) Finished Goods Inventory.............................................................. 60,000Work in Process—Finishing.................................................. 60,000

(To record transfer of units to finished goods)

(h) Accounts Receivable..................................................................... 45,000Sales..................................................................................... 45,000

(To record sale of finished goods on account)

Cost of Goods Sold........................................................................ 30,000Finished Goods Inventory..................................................... 30,000

(To record cost of goods sold)

Ex. 150

Sanders Company has two production departments: Fabricating and Finishing. Beginning inventories are: Work in Process—Fabricating, $6,030; Work in Process—Finishing, $4,100; and Finished Goods, $5,600. During the month the following transactions occurred:

1. Purchased $45,000 of raw materials on account.

2. Incurred $65,000 of factory labor. Wages are unpaid.

3. Incurred $50,000 of manufacturing overhead; $44,000 was paid and the remainder is unpaid.

4. Requisitioned materials for Fabricating, $10,000 and Finishing, $8,000.

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Ex. 150 (cont.)

5. Used factory labor for Finishing, $52,000 and Fabricating, $13,000.

6. Applied $45,000 of overhead based on machine hours used in each department. The Finishing Department used twice as many machine hours as did Fabricating.

InstructionsJournalize the transactions for the month.


1. Raw Materials Inventory................................................................... 45,000Accounts Payable.................................................................... 45,000

2. Factory Labor................................................................................... 65,000Wages Payable........................................................................ 65,000

3. Manufacturing Overhead.................................................................. 50,000Accounts Payable.................................................................... 6,000Cash........................................................................................ 44,000

4. Work in Process—Fabricating.......................................................... 10,000Work in Process—Finishing............................................................. 8,000

Raw Materials Inventory.......................................................... 18,000


Factory Labor........................................................................... 65,000


Manufacturing Overhead......................................................... 45,000

Ex. 151

The Pasta Factory manufactures spaghetti sauce through two production departments: Cooking and Packaging. For the month of February, the work in process accounts show the following debits:

Cooking PackagingBeginning work in process $ -0- $ 6,000Materials 40,000 21,000Labor 21,000 9,000Overhead 25,000 14,000Costs transferred in 50,000

InstructionsJournalize the February transactions that involved the work in process accounts.

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Process Costing


Work in Process—Cooking..................................................................... 40,000Work in Process—Packaging................................................................. 21,000

Raw Materials Inventory................................................................ 61,000


Factory Labor................................................................................. 30,000


Manufacturing Overhead............................................................... 39,000

Work in Process—Packaging................................................................. 50,000Work in Process—Cooking............................................................ 50,000

Ex. 152

Benson Industries uses a process cost system. Products are processed first by Department A, second by Department B, and then they are transferred to the finished goods warehouse. Shown below is the cost information for Department B during the month of October:

Costs of units transferred in $120,000Manufacturing costs added in Department B:

Direct materials $40,000Direct labor 11,000Manufacturing overhead 19,000 70,000

Total costs charged to Department B in October $190,000

The cost of work in process in Department B at October 1 is $25,000, and the cost of work in process at October 31 has been determined to be $30,000.

InstructionsPrepare journal entries to record for the month of October:(a) The transfer of production from Department A to B.(b) The manufacturing costs incurred by Department B.(c) The transfer of completed units from Department B to the finished goods warehouse.


(a) Work in Process—Dept. B.............................................................. 120,000Work in Process—Dept. A....................................................... 120,000

(b) Work in Process—Dept. B.............................................................. 70,000Factory Labor........................................................................... 11,000Raw Materials Inventory.......................................................... 40,000Manufacturing Overhead......................................................... 19,000

(c) Finished Goods Inventory ($25,000 + $190,000 – $30,000)........... 185,000Work in Process—Dept. B....................................................... 185,000

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Ex. 153

Hardy Company manufactures a single product by a continuous process, involving two production departments. The records indicate that $120,000 of direct materials were issued to and $200,000 of direct labor was incurred by Department 1 in the manufacture of the product. The factory overhead rate is $15 per machine hour; machine hours were 6,000 in Department 1. Work in process in the department at the beginning of the period totaled $35,000; and work in process at the end of the period was $25,000.

InstructionsPrepare entries to record(a) The flow of costs into Department 1 for

(1) direct materials(2) direct labor(3) overhead

(b) The transfer of production costs to Department 2.


(a) (1) Work in Process—Dept. 1.................................................... 120,000Raw Materials Inventory.............................................. 120,000

(2) Work in Process—Dept. 1.................................................... 200,000Factory Labor............................................................... 200,000

(3) Work in Process—Dept. 1.................................................... 90,000Manufacturing Overhead (6,000 × $15)....................... 90,000

(b) Work in Process—Dept. 2............................................................. 420,000*Work in Process—Dept. 1.................................................... 420,000

*$35,000 + $120,000 + $200,000 + $90,000 – $25,000 = $420,000

Ex. 154

Muffy Painting Company has the following production data for March.

Ending Work in ProcessBeginning Units % Complete as to

Month Work in Process Transferred Out Units Conversion CostMarch 2,000 42,000 8,000 80%

InstructionsCompute equivalent units of production for March for both materials and conversion costs. Materials are entered at the beginning of the process.

3 - 34

Process Costing


Equivalent Units Quantities Physical Units Materials Conversion CostsUnits to be accounted for

Work in process, March 1 2,000Started into production 48,000

Total units 50,000

Units accounted forTransferred out 42,000 42,000 42,000Work in process, March 31 8,000 8,000 6,400 (8,000 × 80%)

Total units 50,000 50,000 48,400

Ex. 155

The Nitrogen Fixation Department of Tomco Manufacturing began the month of December with beginning work in process of 4,000 units that are 100% complete as to materials and 30% complete as to conversion costs. Units transferred out are 10,000 units. Ending work in process contains 3,000 units that are 100% complete as to materials and 60% complete as to conversion costs.

InstructionsCompute the equivalent units of production for materials and conversion costs for the month of December.


Equivalent Units Quantities Physical Units Materials Conversion CostsUnits to be accounted for

Work in process, December 1 4,000Started into production 9,000

Total units 13,000

Units accounted forTransferred out 10,000 10,000 10,000Work in process, December 31 3,000 3,000 1,800 (3,000 × 60%)

Total units 13,000 13,000 11,800

Ex. 156

At Crenshaw Company, materials are entered at the beginning of each process. Work in process inventories, with the percentage of work done on conversion, and production data for its Painting Department in selected months are as follows:

Beginning Work In Process Ending Work In ProcessPercentage Units Completed Percentage

Month Units Completed and Transferred Out Units CompletedJuly -0- — 10,000 500 90%Sept. 2,500 20% 9,000 4,000 70%

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Ex. 156 (cont.)

Instructions(a) Compute the physical units for July.(b) Compute the equivalent units of production for materials and conversion costs for

September.


(a) COMPUTATION OF PHYSICAL UNITS July

Beginning work in process -0-Started into production 10,500Total units to be accounted for 10,500


(b) COMPUTATION OF EQUIVALENT UNITS Equivalent Units

Units accounted for Physical Units Materials Conversion CostsTransferred out 9,000 9,000 9,000Work in process, Sept. 30 4,000 4,000 2,800 (4,000 × .70)

Total equivalent units 13,000 13,000 11,800

Ex. 157

Watts Company adds materials at the beginning of the process and conversion costs are incurred uniformly throughout the process.

InstructionsComplete the following calculation of equivalent units for materials and conversion costs.

Equivalent Units Physical Units Materials Conversion Costs

Completed and transferred out 40,000

Ending work in processMaterials

Conversion costs, 75% complete 18,000

Total units

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Process Costing



Completed and transferred out 40,000 40,000 40,000Ending work in process

Materials 24,000* 24,000*Conversion costs—75% complete 18,000

Total units 64,000 58,000

*18,000 ÷ .75

Ex. 158

The general ledger of Oates Company has the following work in process account.

WORK IN PROCESS—FINISHING

6/1 Balance 8,000 6/30 Transferred out ?6/30 Materials 1,8006/30 Labor 2,4006/30 Overhead 3,3506/30 Balance ?

Production records show that there were 2,000 units in beginning inventory, 50% complete; 5,000 units started, and 4,500 units transferred out. The beginning work in process had conversion costs of $3,700. The units in ending inventory were 60% complete. Materials are added at the beginning of the process.

InstructionsAnswer the following questions.(a) How many units are in process at June 30?(b) What is the unit conversion cost for June?(c) What is the conversion cost in the June 30 inventory?


(a) Work in process, June 1 2,000Started into production 5,000Units to be accounted for 7,000Less: Transferred out 4,500Work in process, June 30 2,500

(b) Conversion costs Physical Units Equivalent UnitsTransferred out 4,500 4,500Work in process, June 30 2,500 1,500 (2,500 × .60)Total 7,000 6,000

Unit conversion cost = $1.58 ($3,700 + $5,750) ÷ 6,000 = $1.58

(c) Conversion cost in June 30 inventory: 1,500 × $1.58 = $2,370

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Ex. 159

The Assembly Department uses a process cost accounting system and a weighted-average cost flow assumption. The department adds materials at the beginning of the process and incurs conversion costs uniformly throughout the process. During July, $190,000 of materials costs and $133,000 in conversion costs were charged to the department. The beginning work in process inventory was $108,000 on July 1, comprised of $80,000 of materials costs and $28,000 of conversion costs.

Other data for the month of July are as follows:

Beginning work in process inventory, 7/1 25,000 units (40% complete)Units completed and transferred out 90,000 unitsEnding work in process inventory, 7/31 10,000 units (20% complete)

InstructionsAnswer the following questions and show computations to support your answers.

1. How many physical units have to be accounted for in July?

2. What are the equivalent units of production for materials and for conversion costs for the month of July?

3. What is the total cost assigned to the 90,000 units that were transferred out of the process in July?

4. What is the total cost of the July 31 inventory?


1. Units transferred out 90,000Work in process, July 31 10,000Units accounted for 100,000

2. Equivalent units of production: Equivalent Units

Physical Units Materials Conversion CostsTransferred out 90,000 90,000 90,000Work in process, July 31 10,000 10,000 2,000*

Total 100,000 100,000 92,000

*(10,000 × .20)

3. Materials cost per unit = $2.70 ($270,000* ÷ 100,000 units)Conversion cost per unit = $1.75 ($161,000** ÷ 92,000 units)

Total unit cost $4.45

*($80,000 + $190,000) **($28,000 + $133,000)

Total cost assigned to units transferred out: 90,000 × $4.45 = $400,500

4. Total cost of July 31 inventory: (10,000 × $2.70) + (2,000 × $1.75) = $30,500

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Process Costing

Ex. 160

The Finishing Department of Edwards Manufacturing has the following production and cost data for July:

1. Transferred out, 3,000 units.2. Started 5,000 units that are 40% completed at July 31.3. Materials added, $32,000; conversion costs incurred, $12,500.

Materials are entered at the beginning of the process. Conversion costs are incurred uniformly during the process.

Instructions(a) Compute the equivalent units of production for materials and conversion costs for the month

of July.

(b) Compute unit costs and prepare a cost reconciliation schedule.


(a) Equivalent Units Physical Units Materials Conversion Costs

Transferred Out 3,000 3,000 3,000Work in Process, July 31 5,000 5,000 2,000*

Total 8,000 8,000 5,000

*(5,000 × .40)

(b) Materials cost per unit = $4.00 ($32,000 ÷ 8,000 units)Conversion cost per unit = 2.50 ($12,500 ÷ 5,000 units)

$6.50


Transferred out (3,000 × $6.50) $19,500Work in process, July 31

Materials (5,000 × $4.00) $20,000Conversion costs (2,000 × $2.50) 5,000 $25,000

Total costs $44,500

Ex. 161

Massey Corporation uses a process cost system and the weighted-average cost flow assumption. Production begins in the Fabricating Department where materials are added at the beginning of the process and conversion costs are incurred uniformly throughout the process. On March 1, the beginning work in process inventory consisted of 20,000 units which were 60% complete and had a cost of $125,000, $95,000 of which were materials costs. During March, the following occurred:

Materials added $230,000Conversion costs incurred $129,000Units completed and transferred out in March 50,000Units in ending work in process March 31 (20% complete) 15,000

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Ex. 161 (cont.)

InstructionsAnswer the following questions and show the computations that support your answers.

1. What are the equivalent units of production for materials and conversion costs in the Fabricating Department for the month of March?

2. What are the costs assigned to the ending work in process inventory on March 31?

3. What are the costs assigned to units completed and transferred out during March?


1. Equivalent units of production: Equivalent Units

Physical Units Materials Conversion CostsTransferred out 50,000 50,000 50,000Work in process, March 31 15,000 15,000 3,000*

Total 65,000 65,000 53,000

*(15,000 × .20)

2. Materials unit cost $5 ($325,000* ÷ 65,000 units)Conversion unit cost 3 ($159,000** ÷ 53,000 units)

Total unit cost $8

*($95,000 + $230,000) **[($125,000 – $95,000) + $129,000]

Costs assigned to work in process, March 31Materials costs $75,000 (15,000 units × $5)Conversion costs 9,000 (3,000 units × $3)

Total $84,000

3. Costs assigned to units completed and transferred out: 50,000 × $8 = $400,000

Ex. 162

Given below are the production data for Department No. 1 for the first month of operation:Costs charged to Department 1:

Materials $12,000Labor 2,800Overhead 12,400

During this first month of operations, 4,000 units were started into production; 3,500 units were transferred out; and the remaining 500 units are 100% completed with respect to materials and 60% complete with respect to conversion costs.

InstructionsCompute the following:(a) Unit materials cost.(b) Equivalent units of conversion costs.(c) Unit conversion cost.(d) Total cost of 500 units in process at end of month.(e) Total cost of 3,500 units transferred out.

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(a) Unit materials cost: $12,000 ÷ 4,000 equivalent units for materials = $3.00.

(b) Equivalent units of conversion costs: 3,500 completed + (60% × 500) = 3,800 equivalent units of conversion costs.

(c) Unit conversion cost: ($2,800 + $12,400) ÷ 3,800 equivalent units = $4.00.

(d) Total cost of 500 units in work in processMaterials, 500 × $3.00 = $1,500Conversion costs, 300 × $4.00 = 1,200

Total $2,700

(e) Total cost of 3,500 transferred out units: 3,500 × ($3.00 + $4.00) = $24,500.

Ex. 163

Grey Building Supplies' total materials costs are $40,000 and total conversion costs are $39,000. Equivalent units of production for materials are 10,000, and 6,500 for conversion costs.

InstructionsCompute the unit costs for materials, conversion costs, and total manufacturing costs for the month.


COSTSUnit Costs Materials Conversion Costs Total

Costs incurred $40,000 $39,000 $79,000Equivalent units 10,000 6,500Unit costs $4.00 $6.00 $10.00

Ex. 164

Glazer, Inc. has the following production data for June:

Transferred out 50,000 unitsEnding work in process 6,000 units

The units in work in process are 100% complete for materials and 60% complete for conversion costs. Materials costs are $8 per unit and conversion costs are $11 per unit.


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Transferred out (50,000 × $19) $ 950,000Work in process, June 30

Materials (6,000 × $8) $48,000Conversion costs (3,600* × $11) 39,600 87,600

Total costs $1,037,600*(6,000 × 60%)

Ex. 165

Production costs chargeable to the Sanding Department in July in Magnum Company are $20,000 for materials, $17,000 for labor, and $10,000 for manufacturing overhead. Equivalent units of production are 25,000 for materials and 18,000 for conversion costs.

InstructionsCompute the unit costs for materials and conversion costs.

Solution 165 (6-8 min.)


Costs in July $20,000 $27,000 $47,000Equivalent units 25,000 18,000Unit costs $0.80 $1.50 $2.30

Ex. 166

Poole Manufacturing Company uses a process cost system. The Molding Department adds materials at the beginning of the process and conversion costs are incurred uniformly throughout the process. Work in process on May 1 was 75% complete and work in process on May 31 was 40% complete.

InstructionsComplete the Production Cost Report for the Molding Department for the month of May using the above information and the information below.

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Process Costing

Ex. 166 (cont.)

POOLE MANUFACTURING COMPANYMolding Department

Production Cost ReportFor the Month Ended May 31, 2008

Equivalent Units QUANTITIES Physical Units Materials Conversion CostsUnits to be accounted for

Work in process, May 1 16,000Started into production 50,000

Total units 66,000

Units accounted forTransferred out 46,000Work in process, May 31 20,000

Total units 66,000


Costs in May $198,000 $135,000 $333,000Equivalent units Unit costs $ $ $

Costs to be accounted forWork in process, May 1 $ 83,000Started into production 250,000

Total costs $333,000


Transferred out $Work in process, May 31

Materials $Conversion costs


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POOLE MANUFACTURING COMPANYMolding Department

Production Cost ReportFor the Month Ended May 31, 2008


Work in process, May 1 16,000Started into production 50,000

Total units 66,000

Units accounted forTransferred out 46,000 46,000 46,000Work in process, May 31 20,000 20,000 8,000 (20,000 × 40%)

Total units 66,000 66,000 54,000


Costs in May $198,000 $135,000 $333,000Equivalent units 66,000 54,000Unit costs $ 3.00 $ 2.50 $ 5.50

Costs to be accounted forWork in process, May 1 $ 83,000Started into production 250,000



Transferred out (46,000 × $5.50) $253,000Work in process, May 31

Materials (20,000 × $3.00) $ 60,000Conversion costs (8,000 × $2.50) 20,000 80,000


Ex. 167

Baker Winery manufactures fine wine in two departments, Fermenting and Bottling. In the Fermenting Department, grapes are aged in casks for a period of 30 days. In the Bottling Department, the wine is bottled and then sent to the finished goods warehouse. Labor and overhead are incurred uniformly through both processes. Materials are entered at the beginning of both processes. Cost and production data for the Fermenting Department for December 2008 are presented below:

Cost dataBeginning work in process inventory $ 37,000 ($30,000 of materials cost)Materials 390,000Conversion costs 153,000


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Process Costing

Ex. 167 (cont.)

Production dataBeginning work in process (gallons) 10,000 (40%)Gallons started into production 130,000Ending work in process (gallons) 16,000 (25%)

Instructions(a) Compute the equivalent units of production.

(b) Determine the unit production costs.

(c) Determine the costs to be assigned to units transferred out and ending work in process.


(a) Equivalent Units Physical Units Materials Conversion Costs

Transferred out 124,000* 124,000 124,000Ending work in process 16,000 16,000 4,000 (16,000 × .25)Total 140,000 140,000 128,000

*(10,000 + 130,000) – 16,000

(b) Unit Production Costs:

Materials $3.00 ($420,000* ÷ 140,000)Conversion costs 1.25 ($160,000** ÷ 128,000)Total unit cost $4.25

*($30,000 + $390,000) **[($37,000 – $30,000) + $153,000]

(c) Costs assigned to units transferred out and ending work in process:

Total Costs AssignedTransferred out (124,000 × $4.25) $527,000Ending work in process

Materials (16,000 × $3.00) $48,000Conversion costs (4,000 × $1.25) 5,000 53,000

$580,000

Ex. 168

The Assembly Department of Lynn Company has the following production and cost data at the end of May, 2008.

Production: 35,000 units started into production; 25,000 units transferred out and 10,000 units 100% completed as to materials and 40% completed as to conversion costs.

Manufacturing Costs: Materials added at beginning of process, $70,000; labor, $100,000; overhead $74,000.

InstructionsPrepare a production cost report for the month of May.

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LYNN COMPANYAssembly Department—Production Cost Report

For the Month Ended May 31, 2008


QUANTITIESUnits to be accounted for

Work in process, May 1 0Started into production 35,000

Total units 35,000

Units accounted forTransferred out 25,000 25,000 25,000Work in process, May 31 10,000 10,000 4,000

Total units accounted for 35,000 35,000 29,000


Costs in May $70,000 $174,000 $244,000Equivalent units 35,000 29,000Unit costs $2.00 $6.00 $8.00

Costs to be accounted forWork in process, May 1 $ 0Started into production 244,000



Transferred out (25,000 × $8) $200,000Work in process, May 31

Materials (10,000 × $2) 20,000Conversion Costs (4,000 × $6) 24,000 44,000


Ex. 169

Bunker Company—Perth Division is a new state of the art production facility that manufactures landing gear for airplanes. The ending September 30th work in process is comprised of labor and overhead and is approximately 60% complete. All materials are assumed to be 100% complete. Total materials costs during the period totaled $910,000.

InstructionsAs the new plant accountant, you are asked to complete the production cost report which appears as follows:

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Process Costing

Ex. 169 (cont.)

BUNKER COMPANY—Perth DivisionAssimilation DepartmentProduction Cost Report

For the Month Ended September 30, 2008


Work in process, September 1 300Started into production 1,000

Total units 1,300

Units accounted forTransferred out 900 900 900Work in process, September 30 400 400

Total units 1,300 1,300


Costs in September $910,000 $ $1,195,000Equivalent units Unit costs $ $ 250 $

Costs to be accounted forWork in process, Sept. 1 $ 263,400Started into production

Total costs $


Transferred out $Work in process, SeptemberMaterials $Conversion costs 60,000

Total costs $1,195,000

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Solution 169 (10-15 min.)

BUNKER COMPANY—Perth DivisionAssimilation DepartmentProduction Cost Report

For the Month Ended September 30, 2008


Work in process, September 1 300Started into production 1,000

Total units 1,300

Units accounted forTransferred out 900 900 900Work in process, September 30 400 400 240

Total units 1,300 1,300 1,140


Costs in September $910,000 $285,000 $1,195,000Equivalent units 1,300 1,140 Unit costs $ 700 $ 250 $950

Costs to be accounted forWork in process, Sept. 1 $ 263,400Started into production 931,600



Transferred out (900 × $950) $ 855,000Work in process, SeptemberMaterials (400 × $700) $280,000Conversion costs (240 × $250) 60,000 340,000


aEx. 170

At Oxley Company, materials are entered at the beginning of each process. The company uses the FIFO method for process costing. Work in process inventories, with the percentage of work done on conversion, and production data for its Finishing Department for March are as follows:

Beginning Work in Process Ending Work in ProcessPercentage Units Completed Percentage

Month Units Completed and Transferred Out Units CompletedMarch 1,400 60% 11,000 500 90%

Instructions(a) Compute the physical units for March.(b) Compute the equivalent units of production for materials and conversion costs for March.

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Process Costing

aSolution 170 (5–7 min.)

(a) COMPUTATION OF PHYSICAL UNITSBeginning work in process 1,400Started into production 10,100Total units to be accounted for 11,500


(b) COMPUTATION OF EQUIVALENT UNITS Equivalent Units

Units accounted for Physical Units Materials Conversion CostsWork in process, March 1 1,400 0 560 (1,400 × .40)Transferred out 9,600 9,600 9,600Work in process, March 30 500 500 450 (500 × .90)

Total equivalent units 11,500 10,100 10,610

aEx. 171

Taco Ranch uses a process cost system and the FIFO cost flow assumption. Production begins in the Crafting Department where materials are added at the beginning of the process and conversion costs are incurred uniformly throughout the process. On November 1, the beginning work in process inventory consisted of 10,000 units, which were 60% complete and had a cost of $190,000, $100,000 of which were materials costs. During November, the following occurred:

Materials added $225,000Conversion costs incurred $45,000Units completed and transferred out in November 40,000Units in ending work in process November 30 (20% complete) 25,000

InstructionsAnswer the following questions and show the computations that support your answers:(a) What are the equivalent units of production for materials and conversion costs in the Crafting

Department for the month of November?(b) What are the costs assigned to the ending work in process inventory on November 30?(c) What are the costs assigned to units completed and transferred out during November?

aSolution 171 (10–12 min.)

(a) Equivalent units of production: Equivalent Units

Physical Units Materials Conversion CostsWork in process, November 1 10,000 0 4,000 (10,000 × .40)Transferred out 30,000 30,000 30,000Work in process, November 30 25,000 25,000 5,000 (25,000 × .20)

Total 65,000 55,000 39,000

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aSolution 171 (cont.)

(b) Materials unit cost $4,09 ($225,000 ÷ 55,000 units)Conversion unit cost 1.15 ($45,000 ÷ 39,000 units)

Total unit cost $5,24

Costs to be accounted forWork in process, November 1 $190,000Started in production 270,000


Costs assigned to work in process, November 30Materials costs $102,250 (25,000 units × $4.09)Conversion costs 5,750 (5,000 units × $1.15)

Total $108,000

(c) Costs assigned to units completed and transferred out:Transferred out

Work in Process, November 1 $190,000Cost to complete beginning work in process 4,600 (4,000 × $1.15)

Total costs $194,600Units started and completed 157,200 (30,000 × $5.24)Total costs transferred out $351,800

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Process Costing

COMPLETION STATEMENTS

172. Process cost systems are used to apply costs to similar products that are ____________

in a ____________ fashion.

173. Separate _________________ accounts are maintained for each production department

or manufacturing process in a process cost system.

174. In a process cost system, manufacturing costs are summarized in a ________________

report for each department.

175. A primary driver of overhead costs in continuous manufacturing operations is

_______________.

176. Equivalent units of production measure the work done during the period, expressed in fully

________________ units.

177. Unit production costs are expressed in terms of _____________ units of production.

178. If a processing department has 27,000 units in process at the beginning of the period,

completes and transfers out 80,000 and has 18,000 units in process at the end of the

period, then the number of units started into production during the period was

______________ units.

179. A cost reconciliation schedule is prepared to assign total costs to units ______________,

and to the units in the _________________ work in process.

180. The production cost report is an internal document that shows production quantity and

______________ for a production department.

Answers to Completion Statements172. mass-produced, continuous173. work in process174. production cost175. machine hours176. completed177. equivalent178. 71,000179. transferred out, ending180. cost data

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MATCHING181. Match the items in the two columns below by entering the appropriate code letter in the

space provided.

A. Total manufacturing cost per unit E. Cost reconciliation scheduleB. Equivalent units of production F. Units transferred outC. Total units accounted for G. Unit production costsD. Production cost report H. Physical units

____ 1. A summary of both production quantity and cost data for a production department.

____ 2. Shows that the total costs accounted for equal the total costs to be accounted for.

____ 3. Work done during a period expressed in fully completed units.

____ 4. Costs expressed in terms of equivalent units of production.

____ 5. Actual units to be accounted for during a period, irrespective of any work performed.

____ 6. Units transferred out during the period plus units in ending work in process.

____ 7. Unit materials costs plus unit conversion costs.

____ 8. Total units accounted for minus units in ending work in process.

Answers to Matching1. D 5. H2. E 6. C3. B 7. A4. G 8. F

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Process Costing

SHORT-ANSWER ESSAY QUESTIONSS-A E 182

Why do some companies need a cost accounting system while others do not? What are the determining characteristics or factors that influence the type of cost accounting system that is appropriate for a company?

Solution 182

Companies need a cost accounting system only if they need to measure, record, and report the costs of manufacturing products. The two basic types of cost accounting systems are job order costing and process costing. A job order cost system is appropriate when production consists of batches of unique products (jobs). A process cost system is used to apply costs to similar products that are mass-produced in a continuous fashion.

S-A E 183

The production cost report summarizes the activities that have taken place in a department or process over a period of time. Identify the major types of information found on a production cost report, and indicate who in the business organization uses this type of information and for what purpose the information is used.

Solution 183

The types of information found in a production cost report are units to be accounted for and units accounted for, unit costs, and costs to be accounted for and costs accounted for. Production cost reports provide a basis for evaluating the productivity of a department and so are used by production managers. In addition, the cost data can be used by middle management to assess whether unit costs and total costs are reasonable. When the quantity and cost data are compared with predetermined goals, top management can also ascertain whether current performance is meeting planned objectives. Of course, the information in the report is also used for recordkeeping and income determination by the accounting department.

S-A E 184 (Ethics)

Dolly's Dream Homes, Inc. manufactures doll houses in a continuous process. Various customizing features and furnishings are added at the end of the process to create the various models that are sold. The basic design and floor plans of all the houses are identical, however.

During the most recent month, the lumber used in trimming the houses was inadvertently recorded as direct materials. At month end, when the error was discovered, Betty Gray, the accountant, was told by the accounting manager, Donna Foxx, not to bother with correcting the error, because the dollar amount of the error was not "worth it." Betty believes that the dollar amount is not as important as the quality of the reports. She wonders whether she would be committing an unethical act if she were to make the changes anyway, despite her superior's telling her not to.

Required:1. Who are the stakeholders in this situation?2. Was it unethical for the company to ask that the error not be corrected? Explain briefly.3. Would it be unethical for Betty to correct the error? Explain briefly.

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Solution 184

1. The stakeholders include: Betty Gray and Donna Foxx Dolly's Dream Homes possibly the present customer, or future customers

2. The company was not unethical in asking that the error not be corrected because it was too small in dollar amount to be considered material. In fact, ignoring small errors improves efficiency.

3. Betty would be failing in the obedience due to her superior if she went ahead and corrected the error. Whether it would be a serious fault depends upon how easily the error could be corrected. The superior probably would not care, either way, if the dollar amount is small and the correction procedure is minor. However, just letting the matter drop would be better.

S-A E 185 (Communication)

Lawrence Leather Goods recently instituted just-in-time management of its inventories. The accounting department carefully modified all its reports to reflect these changes.

Required:Prepare a short memo to production department managers, briefly explaining the primary changes they will see on the production cost report.

Solution 185

TO: Managers in all Production Departments

FROM: Accounting

RE: JIT and reporting

Congratulations on a job well done, in instituting JIT! You are already realizing many of the benefits of efficient handling of inventory. Another of the benefits you will enjoy is simplified reporting.

In the production cost reports you have been provided, there have been separate categories for materials and conversion costs. In some cases, there were several kinds of materials. JIT has allowed us to simplify this, and now there is only one column, for Raw and In Process.

You may remember that each category was also adjusted for beginning and ending inventories. Since we no longer will have routine levels of inventory, we will be able to simplify this part of the reporting as well. We will now report only this month's use of materials, for example, and only the costs added to work in process costs this month, and only finished goods completed this period. If adjustments are needed for ending inventories, we will make them at the end of the year as a single adjustment.

Please contact the accounting department if you have further questions.

(signed)

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