Chap 004

CHAPTER 4Process Costing and Hybrid Product-Costing Systems

ANSWERS TO REVIEW QUESTIONS

4-1 In a job-order costing system, costs are assigned to batches or job orders of production. Job-order costing is used by firms that produce relatively small numbers of dissimilar products. In a process-costing system, costs are averaged over a large number of product units. Process costing is used by firms that produce large numbers of nearly identical products.

4-2 Process costing would be an appropriate product-costing system in the following industries: petroleum, food processing, lumber, chemicals, textiles, and electronics. Each of these industries is involved in the production of very large numbers of highly similar products.

4-3 Process costing could be used in the following nonmanufacturing enterprises: processing of tests in a medical diagnostic laboratory, processing of tax returns by the Internal Revenue Service, and processing of loan applications in a bank.

4-4 Product-costing systems are used for the following purposes:

(a) In financial accounting: Product costs are needed to value inventory on the balance sheet and to compute the cost-of-goods-sold expense on the income statement.

(b) In managerial accounting: Product costs are needed for planning, for cost control, and to provide managers with data for decision making.

(c) In reporting to interested organizations: Product cost information is used to report on relationships between firms and various outside organizations. For example, hospitals keep track of the costs of medical procedures that are reimbursed by insurance companies or by the federal government under the Medicare program.

4-5 An equivalent unit is a measure of the amount of productive effort applied in the production process. In process costing, costs are assigned to equivalent units rather than to physical units.

McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc.Managerial Accounting, 8/e 4-1

4-6 The following four steps are used in process costing:

(a) Analysis of physical flow of units: All of the units in the beginning and ending inventories, those started during the period, and those transferred out to finished goods are accounted for.

(b) Calculation of equivalent units: The equivalent units of activity are computed for direct material and for conversion.

(c) Computation of unit costs: The costs per equivalent unit for direct material and conversion are computed.

(d) Analysis of total costs: The cost of the goods completed and transferred out and the cost of the ending work-in-process inventory are determined.

4-7 (a) Journal entry to enter direct-material costs into Work-in-Process Inventory account:

Work-in-Process Inventory: Department A..................... XXXRaw-Material Inventory........................................... XXX

(b) Journal entry to record transfer of goods from the first to the second department in the production sequence:

Work-in-Process Inventory: Department B..................... XXXWork-in-Process Inventory: Department A.......... XXX

4-8 Transferred-in costs are the costs assigned to partially completed products that have been completed in one production department and transferred from that production department into the next department.

4-9 The $182,000 of transferred-in costs were incurred prior to January 1 and in the mixing department. The costs must have been incurred prior to January 1, because they are included in the cost of the beginning work-in-process inventory on that date. Moreover, these costs must have been incurred in the mixing department, because they have been transferred into the cooking department.

4-10 The name ''weighted-average method'' comes from the fact that the cost per equivalent unit computed under this method is a weighted average of costs incurred during the current period and costs incurred during prior periods.

McGraw-Hill/Irwin 2009 The McGraw-Hill Companies, Inc.4-2 Solutions Manual

4-11 The difference between normal and actual costing lies in the calculation of the manufacturing-overhead cost of the current period. Under actual costing, the manufacturing-overhead cost of the current period is the actual overhead cost incurred during the period. Under normal costing, the current-period manufacturing overhead is computed as the product of the predetermined overhead rate and the actual level of the cost driver used to apply manufacturing overhead.

4-12 If manufacturing overhead were applied according to some activity base (or cost driver) other than direct labor, then direct-labor costs and manufacturing-overhead costs would be accounted for separately instead of being combined into one account called "conversion costs." Thus, instead of two columns for direct-material and conversion costs, there would be three columns: direct material, direct labor, and manufacturing overhead.

4-13 Operation costing is a hybrid product-costing system that is used when conversion activities are very similar across product lines, but the direct materials differ significantly. This is often the case in batch manufacturing operations. Conversion costs are accumulated by department, and process-costing methods are used to assign these costs to products. In contrast, direct-material costs are accumulated by job order or by batch, and job-order costing is used to assign direct-material costs to products.

4-14 The departmental production report is the key document in a process-costing system rather than the job-cost sheet used in job-order costing. The departmental production report shows the analysis of the physical flow of units, the calculation of equivalent units, the computation of the cost per equivalent unit, and the analysis of the total costs incurred in the production department. The report shows the cost of the ending work-in-process inventory as well as the cost of the goods completed and transferred out of the department.


SOLUTIONS TO EXERCISES

EXERCISE 4-15 (10 MINUTES)

The general formula for all three cases is the following:

Work-in-process, beginning

+ Units started during month

– Units completed during month

= Work-in-process,ending

Using this formula, the missing amounts are:

1. 9,000 pounds

2. 12,500 yards

3. 72,000 liters


CALCULATION OF EQUIVALENT UNITS: HEALTHY LIFE STYLES, INC.Weighted-Average Method

Physical Units

Percentage of

Completion with

Respect to Direct

Material

Percentage of

Completion with

Respect to Conversion

Equivalent UnitsDirect

Material ConversionWork in process, January 1.... 30,000 70% 50%Units started during the year. . 140,000Total units to account for........ 170,000

Unit completed and transferred out during the year............. 145,000 100% 100% 145,000 145,000

Work in process, December 31 25,000 75% 20% 18,750 5,000Total units accounted for........ 170,000 ______ _______Total equivalent units.............. 163,750 150,000



CALCULATION OF EQUIVALENT UNITS: PETROTECH COMPANY - AMARILLO PLANTWeighted-Average Method

Physical Units

Percentage of

Completion with



Material ConversionWork in process, July 1.......................... 1,900,000 30%Units started during July........................ 750,000 Total units to account for....................... 2,650,000

Units completed and transferredout during July.................................... 2,400,000 100% 2,400,000 2,400,000

Work in process, July 31........................ 250,000 70% 250,000 175,000Total units accounted for....................... 2,650,000 ________ ________Total equivalent units............................. 2,650,000 2,575,000


1. 5,500 equivalent units (refer to (a) in the following table)

2. 4,140 equivalent units (refer to (b) in the following table)

CALCULATION OF EQUIVALENT UNITS: ANDROMEDA GLASS COMPANYWeighted-Average Method

Physical Units

Percentage of

Completion with Respect to Conversion

Equivalent Units

Direct Material Conversion

Work in process, August 1...... 2,000 60%Units started during August.... 3,500Total units to account for........ 5,500

Units completed and transferred out during August............ 3,800 100% 3,800 3,800

Work in process, August 31.... 1,700 20% 1,700 340Total units accounted for........ 5,500 _____ ____Total equivalent units.............. (1) 5,500 (2) 4,140



All three of these companies manufacture large amounts of relatively homogeneous products (i.e., lumber and paper). Therefore, process costing is an appropriate product-costing system.


CALCULATION OF COST PER EQUIVALENT UNIT: DULUTH GLASS COMPANYWeighted-Average Method

Direct Material Conversion Total

Work in process, February 1.................. $ 43,200 $ 40,300 $ 83,500Costs incurred during February............ 135,000 190,000 325,000 Total costs to account for...................... $178,200 $230,300 $408,500Equivalent units....................................... 16,500 47,000Costs per equivalent unit....................... $10.80* $4.90† $15.70

*$10.80 = $178,200 ÷ 16,500†$4.90 = $230,300 ÷ 47,000


CALCULATION OF COST PER EQUIVALENT UNIT: MONTANA LUMBER COMPANYWeighted-Average Method


Work in process, June 1............................ $ 74,900 $167,000 $ 241,900 Costs incurred during June...................... 380,700 625,000 1,005,700 Total costs to account for......................... $455,600 $792,000 $1,247,600Equivalent units.......................................... 6,700 1,600Costs per equivalent unit.......................... $68* $495† $563

*$68 = $455,600 ÷ 6,700†$495 = $792,000 ÷ 1,600



TUSCALOOSA PAPERBOARD COMPANYWeighted-Average Method


Work in process, March 1........................ $ 10,900 $ 28,950 $ 39,850Costs incurred during March................... 112,700 160,200 272,900 Total costs to account for........................ $123,600 $189,150 $312,750Equivalent units........................................ 103,000 97,000Costs per equivalent unit......................... $1.20 $1.95 $3.15

1. Cost of goods completed andtransferred out during March:

.................................................... 89,000$3.15

$280,350

2. Cost remaining in March 31 workin process:

Direct material (14,000*$1.20) $ 16,800Conversion (8,000*$1.95)..... 15,600Total............................................... 32,400

Total costs accounted for................. $312,750

*Equivalent units in March 31 work in process:

DirectMaterial Conversion

Total equivalent units (weighted average)....................... 103,000 97,000Units completed and transferred out................................ (89,000 ) (89,000 ) Equivalent units in ending work in process..................... 14,000 8,000



RALEIGH TEXTILES COMPANYWeighted-Average Method


Work in process, November 1................... $ 85,750 $ 16,900 $ 102,650Costs incurred during November............. 158,000 267,300 425,300 Total costs to account for......................... $243,750 $284,200 $527,950Equivalent units.......................................... 62,500 49,000Costs per equivalent unit.......................... $3.90 $5.80 $9.70

1. Cost of goods completed andtransferred out during November:

..................................................47,000$9.70 $455,900

2. Cost remaining in November 30work in process:

Direct material (15,500*$3.90) $60,450Conversion (2,000*$5.80)..... 11,600 Total............................................... 72,050

Total costs accounted for................ $527,950

*Equivalent units in November 30 work in process:

DirectMaterial Conversion

Total equivalent units (weighted average)......................... 62,500 49,000Units completed and transferred out................................. (47,000 ) (47,000 ) Equivalent units in ending work in process...................... 15,500 2,000

3. The electronic version of the Solutions Manual “BUILD A SPREADSHEET SOLUTIONS” is available on your Instructors CD and on the Hilton, 8e website: www.mhhe.com/hilton8e.


http://www.mhhe.com/hilton8e

Exercise 4-24 (45 minutes)

1. Diagram of production process:Work-in-Process Inventory:

Preparation Department

Batch P25 Batch S33

Accumulatedby

department

Conversion costs: Direct-labor

Manufacturing overhead

Work-in-Process Inventory:Finishing Department

Batch P25 Batch S33

Accumulatedby

batch

Direct-material

costs

Work-in-Process Inventory:Packaging Department

Batch P25

Finished-Goods Inventory


EXERCISE 4-24 (CONTINUED)

2. The product cost for each basketball is computed as follows:

Professional ScholasticDirect material:.....................................................................

Batch P25 ($42,000 ÷ 2,000)........................................... $21.00 -0- Batch S33 ($45,000 ÷ 4,000)........................................... -0- $11.25

Conversion: Preparation Department............................... 7.50 7.50 Conversion: Finishing Department................................... 6.00 6.00 *Conversion: Packaging Department................................. .50 -0- Total product cost............................................................... $35.00 $24.75

*The two production departments each worked on a total of 6,000 balls, but the Packaging Department handled only the 2,000 professional balls.

3. Journal entries:

Work-in-Process Inventory: Preparation Department........... 39,500*Raw-Material Inventory................................................... 39,500

*$39,500 = $42,000 of direct material for batch P25 – $2,500 of packaging material

Work-in-Process Inventory: Preparation Department........... 45,000*Raw-Material Inventory................................................... 45,000

*Direct-material cost for batch S33.

Work-in-Process Inventory: Preparation Department........... 45,000*Applied Conversion Costs............................................. 45,000

*$45,000 = 6,000 units$7.50 per unit

Work-in-Process Inventory: Finishing Department............... 129,500*Work-in-Process Inventory: Preparation Department 129,500

*$129,500 = $39,500 + $45,000 + $45,000


EXERCISE 4-24 (CONTINUED)

Work-in-Process Inventory: Finishing Department............... 36,000*Applied Conversion Costs............................................. 36,000

*$36,000 = 6,000 units$6.00 per unit

Work-in-Process Inventory: Packaging Department............. 66,500*Finished-Goods Inventory....................................................... 99,000†

Work-in-Process Inventory: Finishing Department..... 165,500

*$66,500 = $39,500 + (2,000$7.50) + (2,000$6.00).

These are the costs accumulated for batch P25 only.†$99,000 = $45,000 + (4,000$7.50) +

(4,000$6.00).These are the costs accumulated for batch S33 only.

Work-in-Process Inventory: Packaging Department............. 3,500Raw-Material Inventory................................................... 2,500*Applied Conversion Costs............................................. 1,000†

*Cost of packaging material for batch P25.†$1,000 = 2,000 units$.50 per unit

Finished-Goods Inventory....................................................... 70,000*Work-in-Process Inventory: Packaging Department... 70,000

*$70,000 = $66,500 + $3,500


SOLUTIONS TO PROBLEMS

PROBLEM 4-25 (45 MINUTES)

1. Physical flow of units: Physical Units

Work in process, June 1............................................................................. 40,000Units started during June.......................................................................... 190,000Total units to account for........................................................................... 230,000

Units completed and transferred out during June.................................. 180,000Work in process, June 30........................................................................... 50,000 Total units accounted for........................................................................... 230,000

2. Equivalent units:

Physical Units

Percentage of

Completion with


Equivalent Units


Work in process, June 1........... 40,000 38%Units started during June......... 190,000 Total units to account for......... 230,000

Units completed and transferredout during June.................... 180,000 100% 180,000 180,000

Work in process, June 30......... 50,000 55% 50,000 27,500 Total units accounted for......... 230,000 Total equivalent units............... 230,000 207,500

3. Costs per equivalent unit:Direct

Material Conversion TotalWork in process, June 1................ $110,500 $ 22,375 $132,875Costs incurred during June.......... 430,000 320,000 750,000 Total costs to account for............. $540,500 $342,375 $882,875Equivalent units.............................. 230,000 207,500Costs per equivalent unit.............. $2.35 $1.65 $4.00


PROBLEM 4-25 (CONTINUED)

4. Cost of goods completed and transferred out during June:

.................................................... 180,000$4.00

$720,000

Cost remaining in June 30 work-in-process inventory:

Direct material:

.................

50,000$2.35

$117,500

Conversion:

..................

27,500$1.65

45,375

Total cost of June 30 work in process......................................................... $162,875

Check: Cost of goods completed and transferred out............................... $720,000 Cost of June 30 work-in-process inventory................................... 162,875 Total costs accounted for................................................................ $882,875



1. Physical flow of units:PhysicalUnits

Work in process, April 1............................................................................. 10,000 Units started during April........................................................................... 100,000 Total units to account for........................................................................... 110,000

Units completed and transferred out during April................................... 80,000 Work in process, April 30........................................................................... 30,000 Total units accounted for...................................................................................... 110,000


PhysicalUnits

Percentage of

Completion with



Material ConversionWork in process, April 1...................10,000 20%Units started during April.................100,000 Total units to account for.................110,000

Units completed andtransferred out during April.........80,000 100% 80,000 80,000

Work in process, April 30 30,000 33 1/3% 30,000 10,000 Total units accounted for.................110,000 ______ _____ Total equivalent units....................... 110,000 90,000

3. Cost per equivalent unit:Direct

Material Conversion TotalWork in process, April 1.....................................$ 22,000 $ 4,500 $ 26,500 Costs incurred during April................................ 198,000 158,400 356,400 Total costs to account for...................................$220,000 $162,900 $382,900 Equivalent units...................................................110,000 90,000Costs per equivalent unit....................................$2.00* $1.81† $3.81

*$2.00 = $220,000 ÷ 110,000†$1.81 = $162,900 ÷ 90,000



4. Cost of goods completed and transferred out during April:

............................................................80,000$3.81

$304,800

Cost remaining in April 30 work-in-process inventory:

Direct material:

.............................

30,000$2.00

$60,000

Conversion:

.............................

10,000$1.81

18,100

Total cost of April 30 work-in-process.................................................... $78,100

Check: Cost of goods completed and transferred out......................... $304,800Cost of April 30 work-in-process inventory............................. 78,100Total costs accounted for.......................................................... $382,900




Problem 4-27 (50 minutes)

1. Physical flow of units:

Physical Units

Work in process, 1/1/x4............................................................................ 210,000Units started during 20x4......................................................................... 1,100,000Total units to account for......................................................................... 1,310,000

Units completed and transferred out during 20x4................................. 1,000,000Work in process, 12/31/x4........................................................................ 310,000Total units accounted for......................................................................... 1,310,000


Physical Units

Percentage of

Completion with


Equivalent Units


Work in process, 1/1/x4............... 210,000 83%Units started during 20x4............ 1,100,000Total units to account for............ 1,310,000

Units completed and transferredout during 20x4........................ 1,000,000 100% 1,000,000 1,000,000

Work in process, 12/31/x4........... 310,000 48% 310,000 148,800Total units accounted for............ 1,310,000 ________ ________Total equivalent units.................. 1,310,000 1,148,800



3. Costs per equivalent unit:


Work in process, 1/1/x4.................................. $ 300,000 $ 620,800a $ 920,800Costs incurred during 20x4........................... 1,403,000 3,400,000b 4,803,000Total costs to account for.............................. $1,703,000 $4,020,800 $5,723,800Equivalent units.............................................. 1,310,000 1,148,800Costs per equivalent unit............................... $1.30c $3.50d $4.80e

aConversion cost = direct labor + overhead= direct labor + (100%direct labor)= 200%direct labor= 200%$310,400= $620,800

bConversion cost = 200%direct labor= 200%$1,700,000= $3,400,000

c$1.30 = $1,703,000 ÷ 1,310,000d$3.50 = $4,020,800 ÷ 1,148,800e$4.80 = $1.30 + $3.50



4. Cost of ending inventories:

Cost of goods completed and transferred out:

.................................................. 1,000,000$4.80

$4,800,000

Cost remaining in 12/31/x4 work-in-process inventory:

Direct material:

...................

310,000$1.30

$403,000

Conversion:

...................

148,800$3.50

520,800

Total cost of 12/31/x4 work in process....................................................... $923,800

Check: Cost of goods completed and transferred out............................ $4,800,000Cost of 12/31/x4 work-in-process inventory............................... 923,800 Total costs accounted for............................................................. $5,723,800

The cost of the ending work-in-process inventory is $923,800.

Ending finished-goods inventory: Of the 1,000,000 units completed during 20x4, 250,000 units remain in finished-goods inventory on December 31, 20x4. Therefore:

$4,800,000(250,000 ÷ 1,000,000) = $1,200,000*

The cost of the ending finished-goods inventory is $1,200,000.

*Also, $1,200,000 = 250,000$4.80 per unitPROBLEM 4-28 (40 MINUTES)



Physical Units

Percentage of

Completion with



Material ConversionWork in process, August 1............... 40,000 80%Units started during August............. 80,000Total units to account for................. 120,000

Units completed and transferredout during August......................... 100,000 100% 100,000 100,000

Work in process, August 31............. 20,000 30% 20,000 6,000Total units accounted for................. 120,000 ______ ______Total equivalent units....................... 120,000 106,000

2. Costs per equivalent unit:Direct

Material Conversion Total

Costs per equivalent unit $1.15 $10.28 $11.43*

*$11.43 = $1.15 + $10.28

3. Cost of goods completed and transferred out during August:

..........................................................100,000$11.43

$1,143,000



4. Cost remaining in August 31 work-in-process inventory:

Direct material:

.............................

20,000$1.15 $23,000

Conversion:

.............................

6,000$10.28 61,680

Total cost of August 31 work in process..................................................... $ 84,680

Check: Cost of goods completed and transferred out.............................. $1,143,000Cost of August 31 work-in-process inventory............................... 84,680 Total costs accounted for................................................................ $1,227,680

5. Journal entry:

Finished-Goods Inventory................................................. 1,143,000Work-in-Process Inventory..................................... 1,143,000



1. a. Equivalents units:

Physical Units

Percentage of

Completion with



Material ConversionWork in process, June 1................... 30,000 35%Units started during June................. 34,000Total units to account for................. 64,000

Units completed and transferred out during June......... 40,000 100% 40,000 40,000

Work in process, June 30................. 24,000 75% 24,000 18,000Total units accounted for................. 64,000 _____ _____Total equivalent units....................... 64,000 58,000

b. Unit costs:Direct

Material Conversion Total

Costs per equivalent unit $5.45 $49.05 $54.50*

*$54.50 = $5.45 + $49.05



c. Cost of goods completed and transferred out during June:

40,000 $54.50 $2,180,000

Cost remaining in June 30 work-in-process inventory:

Direct material:

24,000 $5.45

$130,800

Conversion:

...............................18,000 $49.05

882,900

Total cost of June 30 work in process................................................... $1,013,700

Check: Cost of goods completed and transferred out............................. $2,180,000Cost of June 30 work-in-process inventory ............................... 1,013,700Total costs accounted for.............................................................. $3,193,700

2. Journal entry:

Finished-Goods Inventory................................................ 2,180,000Work-in-Process Inventory.................................................................. 2,180,000



1. Direct material cost was $1,390,000:

JR1163................................ $ 225,000JY1065................................. 710,000DC0766................................ 455,000 Total.............................. $1,390,000

Texarkana Corporation’s total direct-labor payroll amounted to $134,274 for 6,394 hours of work ($134,274 ÷ $21 per hour). Thus, conversion cost was $575,460:

Direct labor……………………………….…….. $134,274Overhead applied (6,394 hours x $69)…….. 441,186 Total………………………………………….. $575,460

2. Goods completed during April cost $2,002,000 (26,000 units x $77) as the following calculations show:

PhysicalUnits

PercentageOf

CompletionWith


Equivalent Units DirectMaterial Conversion

Work in process, April 1………………. 3,000 80%Units started during April…………….. 27,000Total units to account for…………….. 30,000

Units completed and transferred out during April…………………….. 26,000 100% 26,000 26,000Work in process, April 30…………….. 4,000 45% 4,000 1,800 Total units accounted for……………... 30,000Total equivalent units………………….. 30,000 27,800



DirectMaterial Conversion Total

Work in process, April 1…………………… $ 230,000 $ 63,940 $ 293,940Costs incurred during April………………. 1,390,000 575,460 1,965,460 Total costs to account for…………………. $1,620,000 $639,400 $2,259,400Equivalent units……………………………... 30,000 27,800Cost per equivalent unit…………………… $54a $23b $77c

a$1,620,000 ÷ 30,000 = $54b$639,400 ÷ 27,800 = $23c$54 + $23 = $77

3. The cost of the ending work-in-process inventory is $257,400:

Direct material (4,000 x $54)…….. $216,000Conversion cost (1,800 x $23)….. 41,400 Total……………………………. $257,400

4. (a) No material would be added during May. All material is introduced at the start of the manufacturing process, and these units were begun in April.

(b) Since the work-in-process inventory is 45% complete at the end of April, 55% of the conversion would be done in May.

5. Given that the ending work-in-process inventory is at the 45% stage of completion, these units would not have reached the 75% point in April where TH55 is added. Therefore, there would be zero equivalent units with respect to part TH55 in the ending work-in-process inventory.



The missing amounts are shown below. A completed production report follows.

Work in process, October 1 (in units)................................................................... 10,000Units completed and transferred out during October......................................... 75,000Total equivalent units: conversion........................................................................ 78,500

Work in process, October 1: conversion.............................................................. $ 30,225Costs incurred during October: direct material................................................... 600,000Cost per equivalent unit: conversion.................................................................... 11.85Cost of goods completed and transferred out during October.......................... 1,556,250Cost remaining in ending work-in-process inventory: direct material.............. 44,500

PRODUCTION REPORT: FANTASIA FLOUR MILLING COMPANYWeighted-Average Method

Percentageof

Completionwith Equivalent Units

Physical Respect to DirectUnits Conversion Material Conversion

Work in process, October 1.......... 10,000 15%Units started during October........ 70,000Total units to account for.............. 80,000

Units completed and transferredout during October.............. 75,000 100% 75,000 75,000

Work in process, October 31........ 5,000 70% 5,000 3,500Total units accounted for.............. 80,000 _____ _____Total equivalent units.................... 80,000 78,500




Work in process, October 1.......... $112,000 $ 30,225 $ 142,225Costs incurred during October..... 600,000 900,000 1,500,000Total costs to account for............. $712,000 $930,225 $1,642,225Equivalent units.............................. 80,000 78,500Costs per equivalent unit.............. $8.90* $11.85† $20.75**

*$8.90 = $712,000 ÷ 80,000†$11.85 = $930,225 ÷ 78,500**$20.75 = $8.90 + $11.85



Cost of goods completed and transferred out during October:

.......................................................... 75,000$20.75 $1,556,250

Cost remaining in October 31 work-in-process inventory:

Direct material:

........................ 5,000$8.90 $44,500

Conversion:

......................... 3,500$11.85 41,475

Total cost of October 31 work-in-process......................................................... $85,975

Check: Cost of goods completed and transferred out....... $1,556,250Cost of October 31 work-in-process inventory..... 85,975Total costs accounted for....................................... $1,642,225



1. The ending work-in-process inventory consisted of 400 units (200 + 800 – 600).

2. The cost of goods completed during June totaled $57,000 (600 units x $95):

PhysicalUnits

PercentageOf

CompletionWith


Equivalent Units__________________ DirectMaterial Conversion

________ __________ ______ __________Work in process, June 1………………. 200 25%Units started during June…………….. 800 Total units to account for……………... 1,000

Units completed and transferredduring June………………………….. 600 100% 600 600

Work in process, June 30……………... 400 75% 400 300 Total units accounted for……………… 1,000Total equivalent units………………….. 1,000 900

DirectMaterial Conversion Total_______ __________ ______

Work in process, June 1…………………… $12,000 $ 6,000 $18,000Costs incurred during June………………. 43,000 30,000 73,000 Total costs to account for…………………. $55,000 $36,000 $91,000Equivalent units……………………………... 1,000 900Cost per equivalent unit……………………. $55a $40b $95c

a$55,000 ÷ 1,000 = $55b$36,000 ÷ 900 = $40c$55 + $40 = $95

Finished-Goods Inventory…………………………… 57,000Work-in-Process Inventory…………………. 57,000

3. The cost of the June 30 work-in-process inventory is $34,000:

Direct material (400 x $55)……... $22,000Conversion cost (300 x $40)…….. 12,000 Total……………………………… $34,000



4. Equivalent units measure the amount of manufacturing activity (i.e., for direct material or conversion) that has been applied to a batch of physical units. If, for example, a company has 1,000 physical units in process that are 30% complete as to conversion, the firm has done the equivalent amount of conversion activity as would be required to do all of the conversion work for 300 units (1,000 x 30%).

Equivalent units are needed to state manufacturing activity on a common measurement scale. One cannot add completed units to units in process. Such a combination is like adding apples and oranges, as some units are complete and some are incomplete. Instead, these units are first converted to equivalent units, and the latter are then used in unit-cost calculations.



1. a. Equivalent units:Percentage

ofCompletion

with RespectTax to

Returns Conversion(physical (labor and Equivalent Units

units) overhead) Labor OverheadReturns in process, February 1...... 300 20%Returns started in February............ 900 Total returns to account for............ 1,200

Returns completedduring February......................... 800 100% 800 800

Returns in process, February 28.... 400 75% 300 300 Total returns accounted for............ 1,200 ____ ____ Total equivalent units of activity.... 1,100 1,100

b. Costs per equivalent unit: Labor Overhead Total

Returns in process, February 1................... £ 3,500 £ 4,000 £ 7,500Costs incurred during February.................. 90,000 51,000 141,000 Total costs to account for............................ £93,500 £55,000 £148,500Equivalent units............................................. 1,100 1,100Costs per equivalent unit............................. £85.00 £50.00 £135.00

2. Cost of returns in process on February 28:

Labor: equivalent unitscost per equivalent unit300£85.00.................................................... £25,500

Overhead: equivalent unitscost per equivalent unit300£50.00.................................................... 15,000

Total cost of returns in process on February 28.......................................... £40,500



The missing amounts are shown below. A completed production report follows.

Units started during January................................................................................. 55,000Units completed and transferred out during January......................................... 60,000Total equivalent units: conversion........................................................................ 66,000

Work in process, January 1: conversion.............................................................. $ 110,600Costs incurred during January: direct material................................................... 400,000Cost per equivalent unit: conversion.................................................................... 14.10Cost of goods completed and transferred out during January.......................... 1,320,000Cost remaining in ending work-in-process inventory: direct material.............. 158,000

PRODUCTION REPORT: CANANDAIGUA CARPET COMPANYWeighted-Average Method

Physical Units

Percentage of

Completion with



Material ConversionWork in process, January 1.............. 25,000 25%Units started during January........... 55,000Total units to account for................. 80,000

Units completed and transferred out during January....................... 60,000 100% 60,000 60,000

Work in process, January 31............ 20,000 30% 20,000 6,000 Total units accounted for................. 80,000 _____ _____ Total equivalent units....................... 80,000 66,000




Work in process, January 1................................ $232,000 $110,600 $ 342,600Costs incurred during January.......................... 400,000 820,000 1,220,000 Total costs to account for................................... $632,000 $930,600 $1,562,600Equivalent units................................................... 80,000 66,000Costs per equivalent unit.................................... $7.90 $14.10 $22.00

*$7.90 = $632,000 ÷ 80,000†$14.10 = $930,600 ÷ 66,000**$22.00 = $7.90 + $14.10

Cost of goods completed and transferred out during January:

............................................................60,000$22.00

$1,320,000

Cost remaining in January 31 work-in-process inventory:

Direct material:

.............................

20,000$7.90 $ 158,000

Conversion:

.............................

6,000$14.10 84,600

Total cost of January 31 work in process................................................ $242,600

Check: Cost of goods completed and transferred out... $1,320,000Cost of January 31 work-in-process inventory. . 242,600 Total costs accounted for..................................... $1,562,600


1. PRODUCTION REPORT: MIXING DEPARTMENT(Weighted-Average Method)

November 20x5Percentage

of


Completionwith Equivalent Units

Physical Respect to DirectUnits Conversion Material Conversion

Work in process, November 1....... 5,000 70%Units started during November.... 17,000Total units to account for.............. 22,000

Units completed and transferredout during November.......... 16,000 100% 16,000 16,000

Work in process, November 30 6,000 30% 6,000 1,800Total units accounted for.............. 22,000 ____ _ _ ____Total equivalent units.................... 22,000 17,800


Work in process, November 1....... $ 31,600 $ 55,220 $ 86,820Costs incurred during November. 85,000 * 210,000 † 295,000 Total costs to account for............. $116,600 $265,220 $381,820 Equivalent units.............................. 22,000 17,800Costs per equivalent unit.............. $5.30 $14.90 $20.20

*$85,000 = $16,000 + $44,000 + (5,000 ÷ 12,000)($60,000)†$210,000 = $70,000 + (1.50)($70,000) + $35,000



Cost of goods completed and transferred out during November:

..........................................................16,000$20.20 $323,200

Cost remaining in November 30 work-in-process inventory

Direct material:

............................. 6,000$5.30 $31,800

Conversion

.........................1,800$14.90 26,820

Total cost of November 30 work in process...................................................... $58,620

Check: Cost of goods completed and transferred out......... $323,200 Cost of November 30 work-in-process inventory. . . 58,620 Total costs accounted for.......................................... $381,820

2. a. Work-in-Process Inventory: Mixing Department............. 85,000Raw-Material Inventory............................................ 85,000

b. Work-in-Process Inventory: Mixing Department............. 70,000Wages Payable.......................................................... 70,000

c. Work-in-Process Inventory: Mixing Department............. 140,000*Manufacturing Overhead......................................... 140,000

*$140,000 = (1.50)($70,000) + ($35,000)

d. Work-in-Process Inventory: Finishing Department........ 323,200Work-in-Process Inventory: Mixing Department.. . 323,200



1. Conversion cost per unit in department I:

t

*Note that all of the products sold after processing in departments I, II, or III were produced orginally in department I.

2. Conversion cost per unit in department II:

*Note that all of the products sold after processing in departments II and III were colored in department II.

3. Cost of a clear glass sheet:

=direct material perunit in department I +

conversion cost perunit in department I



4. Cost of an unetched, colored glass sheet:

=cost per clearglass sheet +

direct materialper unit in department II +

conversion cost perunit in department II

5. Cost of an etched, colored glass sheet:

=cost per unetched

colored glass sheet +conversion cost perunit in department III


1. The unit costs and total costs for each of the products manufactured by Plattsburg Plastics Corporation during the month of March are calculated as follows:

Extrusion Form Trim FinishUnits produced..................... 32,000 22,000 10,000 4,000Material costs........................ $288,000 $ 66,000 $22,500 $18,000

Unit material cost.......... 9.00 3.00 2.25 4.50Conversion costs*................ 588,000 198,000 103,500 63,000

Unit conversion cost..... 18.375 9.00 10.35 15.75

*Direct labor and manufacturing overhead.



Unit CostsPlastic Sheets

Standard Model

Deluxe Model

Executive Model

Material costs:Extrusion........................ $9.00 $9.00 $9.00 $9.00

Form................................ 3.00 3.00 3.00Trim................................. 2.25 2.25Finish.............................. 4.50

Conversion costs:Extrusion........................ 18.375 18.375 18.375 18.375Form................................ 9.00 9.00 9.00Trim................................. 10.35 10.35Finish.............................. _ _ _ 15.75

Total unit cost....................... $27.375 $39.375 $51.975 $72.225Units produced.....................

10,000 12,000 6,000 4,000

Total product cost*............... $273,750 $472,500 $311,850 $288,900

*Total costs accounted for:

Product Total

Product CostsPlastic sheets $ 273,750Standard model 472,500Deluxe model 311,850Executive model 288,900 Total $1,347,000

2. Journal entries:

Work-in-Process Inventory: Extrusion.............................. 876,000Raw-Material Inventory............................................. 288,000Applied Conversion Costs....................................... 588,000

Finished-Goods Inventory.................................................. 273,750Work-in-Process Inventory: Extrusion.................... 273,750

Work-in-Process Inventory: Forming................................ 866,250Work-in-Process Inventory: Extrusion.................... 602,250Raw-Material Inventory............................................. 66,000Applied Conversion Costs....................................... 198,000



Finished-Goods Inventory.................................................. 472,500Work-in-Process Inventory: Forming...................... 472,500

Work-in-Process Inventory: Trimming.............................. 519,750Work-in-Process Inventory: Forming...................... 393,750Raw-Material Inventory............................................. 22,500Applied Conversion Costs....................................... 103,500

Finished-Goods Inventory.................................................. 311,850Work-in-Process Inventory: Trimming.................... 311,850

Work-in-Process Inventory: Finishing............................... 288,900Work-in-Process Inventory: Trimming.................... 207,900Raw-Material Inventory............................................. 18,000Applied Conversion Costs....................................... 63,000

Finished-Goods Inventory.................................................. 288,900Work-in-Process Inventory: Finishing.................... 288,900



1. Conversion costs:

Rolling Molding Punching DippingDirect labor.................................... $ 600,000 $224,000 $256,000 $ 90,000 Manufacturing overhead............... 900,000 336,000 384,000 135,000 Total conversion cost.................... $1,500,000 $560,000 $640,000 $225,000

Total units produced: Rolling only............................. 10,000 Rolling, molding, punching 4,000 4,000 Rolling, molding, punching,

and dipping 1,500

Conversion cost per unit.............. $150 $140 $160 $150



2. Product costs:

CeralamSheets NonSoldafter

reflectiveCeralam

RelectiveCeralam Total

Rolling Housings Housings CostsDirect material:

Ceralam sheets.................... $ 960,000 $ 400,000

$ 240,000

$1,600,000

Chemical dip........................ 60,000 60,000

Conversion costs:Rolling.................................. 900,000a 375,000a 225,000a 1,500,000

Molding................................. 350,000b 210,000b 560,000 Punching.............................. 400,000c 240,000c 640,000 Dipping................................. _______ ________ 225,000d 225,000

Total cost..................................... $1,860,000 $1,525,000

$1,200,000

$4,585,000

Units manufactured.................... 6,000 2,500 1,500Unit cost...................................... $310 $610 $800

aNumber of unitsrolling cost per unit ($150)bNumber of unitsmolding cost per unit ($140)cNumber of unitspunching cost per unit ($160)dNumber of unitsdipping cost per unit ($150)

3. Journal entries:

Work-in-Process Inventory: Rolling.................................................3,100,000Raw-Material Inventory........................................................... 1,600,000*Applied Conversion Costs...................................................... 1,500,000†

*$1,600,000 = direct-material cost for ceralam sheets†$1,500,000 = conversion cost in rolling operation



Finished-Goods Inventory.................................................................1,860,000*Work-in-Process Inventory: Rolling...................................... 1,860,000

*$1,860,000 = 6,000 ceralam sheets sold afterrolling$310 per unit

Cost of Goods Sold............................................................................1,860,000*Finished-Goods Inventory...................................................... 1,860,000

*$1,860,000 = cost of ceralam sheets sold afterrolling

Work-in-Process Inventory: Molding...............................................1,240,000*Work-in-Process Inventory: Rolling....................................... 1,240,000

*$1,240,000 = cost remaining in Work-in-Process Inventory: Rolling= $3,100,000 – $1,860,000

Work-in-Process Inventory: Molding...............................................560,000*Applied Conversion Costs...................................................... 560,000

*$560,000 = conversion cost in molding operation

Work-in-Process Inventory: Punching.............................................1,800,000*Work-in-Process Inventory: Molding..................................... 1,800,000

*$1,800,000 = cost remaining in Work-in-Process Inventory: Molding= $1,240,000 + $560,000

Work-in-Process Inventory: Punching.............................................640,000*Applied Conversion Costs...................................................... 640,000

*$640,000 = conversion cost in punching operation


Finished-Goods Inventory.................................................................1,525,000*Work-in-Process Inventory: Punching.................................. 1,525,000


*$1,525,000 = 2,500 nonreflective ceralam housings sold after punching$610 per unit

Cost of Goods Sold............................................................................1,525,000*Finished-Goods Inventory...................................................... 1,525,000

*$1,525,000 = cost of nonreflective ceralamhousings sold after punching

Work-in-Process Inventory: Dipping................................................915,000*Work-in-Process Inventory: Punching.................................. 915,000

*$915,000 = cost remaining in Work-in-ProcessInventory: Punching

= $1,800,000 + $640,000 – $1,525,000

Work-in-Process Inventory: Dipping................................................285,000Raw-Material Inventory........................................................... 60,000*Applied Conversion Costs...................................................... 225,000†

*$60,000 = direct-material cost for chemical dip†$225,000 = conversion cost in dipping operation

Finished-Goods Inventory.................................................................1,200,000*Work-in-Process Inventory: Dipping..................................... 1,200,000

*$1,200,000 = 1,500 reflective ceralam housingssold after dipping$800 per unit

Cost of Goods Sold............................................................................1,200,000Finished-Goods Inventory...................................................... 1,200,000


SOLUTION TO CASE

CASE 4-39 (45 MINUTES)

1. Equivalent units of material.......................................................................................8,500



Equivalent units of conversion.................................................................................8,260

2. Cost per equivalent unit of material.........................................................................$6.00Cost per equivalent unit of conversion....................................................................$7.00

3. October 31 work-in-process inventory.....................................................................$3,520Cost of goods completed and transferred out........................................................$105,300

4. Weighted-average unit cost of completed leather belts.........................................$13.00

These answers are supported by the following process-costing schedules. The firm's cost per belt used for planning and control, $11.50, is substantially lower than the actual cost per belt incurred in October, $13.00. Management should investigate this situation to determine whether production costs can be reduced. If not, then the cost used for planning and control purposes should be changed to reflect the firm's actual experience.

CALCULATION OF EQUIVALENT UNITS: LYCOMING LEATHER CO. - HARRISBURG PLANTWeighted-Average Method

Physical Units

Percentage of

Completion with



Material ConversionWork in process, October 1.............. 500 30%Units started during October........... 8,000Total units to account for................. 8,500

Units completed and transferred out during October.......................... 8,100 100% 8,100 8,100

Work in process, October 31............ 400 40% 400 160 Total units accounted for................. 8,500Total equivalent units....................... 8,500 8,260


CASE 4-39 (CONTINUED)

CALCULATION OF COSTS PER EQUIVALENT UNIT: HARRISBURG PLANTWeighted-Average Method


Work in process, October 1................................ $ 2,000 $ 2,500 $ 4,500Costs incurred during October.......................... 49,000 55,320 104,320 Total costs to account for................................... $51,000 $57,820 $108,820Equivalent units................................................... 8,500 8,260Costs per equivalent unit.................................... $6.00 $7.00 $13.00

ANALYSIS OF TOTAL COSTS: HARRISBURG PLANTWeighted-Average Method

Cost of goods completed and transferred out during October:

..........................................................8,100$13.00 $105,300

Cost remaining in October 31 work-in-process inventory:

Direct material:

.............................

400$6.00 $2,400

Conversion:

.............................

160$7.00 1,120

Total cost of October 31 work in process................................................ $3,520


CASE 4-39 (CONTINUED)

Check: Cost of goods completed and transferred out....... $105,300Cost of October 31 work-in-process inventory...... 3,520 Total costs accounted for........................................ $108,820

5. If the units were 50 percent complete as of October 31, there would be 8,300 equivalent units with respect to conversion. (To see this, just change the 160 in the right-hand column of the equivalent-units part of the table in the solution to requirement (4) to 200. This changes the last number in the right-hand column from 8,260 to 8,300.)

Now the unit cost of conversion drops from $7.00, as currently computed, to $6.97 (rounded, $57,820 ÷ 8,300). Thus, the unit cost drops from $13.00 to $12.97 (rounded).

As controller, Jeff Daley has an ethical obligation to refuse his friend's request to alter the estimate of the percentage of completion. What Daley can do is to help Murray think of some legitimate ways to bring about real cost reductions. Several ethical standards for management accountants (listed in Chapter 1) apply in this situation. Among the relevant standards are the following:

Competence:

Prepare complete and clear reports and recommendations after appropriate analyses of relevant and reliable information.

Objectivity:

Communicate information fairly and objectively.

Disclose fully all relevant information that could reasonably be expected to influence an intended user's understanding of the reports, comments, and recommendations presented.


Chap 004

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