CHAPTER 6 PROCESS COSTING

QUESTIONS FOR WRITING AND DISCUSSION

1. In sequential processing, products pass through a series of processes, one after another (i.e., in a given sequence). In parallel processing, products pass through two or more different sequences at the same time, merging eventually at the final process. 2. Process costing collects costs by process (department) for a given period of time. Unit costs are computed by dividing these costs by the departments output measured for the same period of time. Job-order costing collects costs by job. Unit costs are computed by dividing the jobs costs by the units produced in the job. Process costing is typically used for industries where units are homogeneous and mass produced. Joborder costing is used for industries that produce heterogeneous products (often custom-made). 3. Equivalent units are the number of whole units that could have been produced, given the amount of materials, labor, and overhead used. Equivalent units are the measure of a periods output, a necessary input for the computation of unit costs in a process-costing system. 4. In calculating this periods unit cost, the weighted average method treats prior-period output and costs carried over to the current period as belonging to the current period. The FIFO method excludes any costs and output carried over from this periods unit cost computation. 5. If the per-unit cost of the prior period is the same as the per-unit cost of the current period, there will be no difference between the results of the weighted average and FIFO methods. Additionally, if no beginning work-in-process inventory exists, both the FIFO and weighted average methods give the same results. 6. Separate equivalent units must be calculated for materials and conversion costs. 7. Transferred-in units represent partially completed units and are clearly a material 12. for the Receiving Department. To complete the product (or further process it), additional materials and conversion costs are added by the Receiving Department. 8. The cost flows for the process-costing and job-order costing systems are essentially the same. Process costing requires a work-inprocess account for each process. Costs flow from one work-in-process account to another until the final process is reached. 9. The work-in-process account of the Receiving Department is debited, and the work-in-process account of the Transferring Department is credited. The finished goods account is debited, and the work-in-process account of the final department is credited upon completion of the product. 10. The first step is the preparation of a physical flow schedule. This schedule identifies the physical units that must be accounted for and provides an accounting. The second step is the equivalent unit schedule. This schedule computes the equivalent whole output for the period. The schedules computations rely on information from the physical flow schedule. The next step is computation of the unit cost. To compute the unit cost, the manufacturing costs of the period for the process are divided by the periods output. The output is obtained from the equivalent unit schedule. The fourth step uses the unit cost to value goods transferred out and those remaining in work in process. The final step checks to see if the costs assigned in step 4 equal the total costs to account for. A production report summarizes the activities and costs associated with a process for a given period. It shows the physical flow, the equivalent units, the unit cost, and the values of ending work in process and goods transferred out. The report serves the same function as a joborder cost sheet in a job-order costing system. The weighted average method uses the same unit cost for all goods transferred out.

11.

141

The FIFO method divides goods transferred out into two categories: units started and

142

completed and units from beginning work in process. The periods unit cost is used to value goods started and completed. The cost of goods transferred out from beginning work in process is obtained by (1) assigning them all costs carried over from the prior period and (2) using the current periods unit cost to value the equivalent units completed this period. 13. Automation simply reduces computations and paperwork. It also usually means more accurate and rapid calculations.

14.

Firms adopting JIT reduce inventories to insignificant levels. As a result, work-inprocess inventories are close to zero, and equivalent units of production need not be calculated. In essence, unit cost is total cost for the period divided by output. Service firms generally do not have work-inprocess inventories, and so equivalent units of production are not needed. An important factor in process costing for services is determining just what constitutes a unit of output.

15.

143

EXERCISES 61
1. 2. 3. 4. 5. b c c e d

62
1. Cutting Sewing Department $5,400 150 750 Packaging Department $ 900 1,800 3,600 6,300 $6,300 $12,600 6,300 6,300 12,600 12,600 14,625 14,625 12,600 $14,625 Department $ 225 900 900

Direct materials Direct labor Applied overhead Transferred-in cost: From cutting From sewing Total manufacturing cost

2. a. Work in ProcessSewing.................. Work in ProcessCutting........... b. Work in ProcessPackaging............. Work in ProcessSewing........... c. Finished Goods.................................... Work in ProcessPackaging...... 3. Unit cost = $14,625/600 = $24.38* per pair *Rounded

144

63
1. Equivalent units of production: Ending work in process = 1,200 0.30 = 360 Total equivalent units = 360 + 2,000 = 2,360 2. 3. Unit cost = $6,608/2,360 = $2.80 Cost of goods transferred out = $2.80 2,000 = $5,600 Cost of ending work-in-process inventory = $2.80 360 = $1,008

64
1. 2. 3. Units transferred out: 27,000 + 33,000 16,200 = 43,800 Units started and completed: 43,800 27,000 = 16,800 Physical flow schedule: Units in beginning work in process Units started during the period Total units to account for Units started and completed Units completed from beginning work in process Units in ending work in process Total units accounted for 4. Equivalent units of production: Units completed Add: Units in ending work in process: (16,200 100%) (16,200 25%) Equivalent units of output Materials 43,800 16,200 60,000 4,050 47,850 Conversion 43,800 27,000 33,000 60,000 16,800 27,000 16,200 60,000

145

65
1. Cost of ending work in process: Materials ($1.30 0) Conversion ($0.50 12,000) Total cost $ 0 6,000 $ 6,000

Cost of goods transferred out: $1.80 30,000 = $54,000 2. Physical flow schedule: Units to account for: Units in beginning WIP ? Units started ? Total units 50,000 Units accounted for: Units completed Units in ending WIP Total units 30,000 20,000 50,000

The schedule of equivalent units using the weighted average method does not give sufficient information to reconstruct the complete physical flow schedule. Units in beginning work in process are embedded in units completed.

146

66
1. Department 1: a. Units transferred to Department 2 = Total units* Ending WIP = 6,480 3,600 = 2,880 *Total units = Beginning WIP + Units started = 0 + 6,480 = 6,480 b. Units completed Add: Units in ending work in process: 3,600 100% 3,600 50% Equivalent units of output 2. Department 2: a. Units transferred out = Total units* Ending WIP = 4,080 600 = 3,480 *Total units = Beginning WIP + Units transferred in = 1,200 + 2,880 = 4,080 b. Units completed Add: Units in ending work in process: 600 0% 600 40% Equivalent units of output Materials 3,480 0 3,480 240 3,720 Conversion 3,480 Materials 2,880 3,600 6,480 1,800 4,680 Conversion 2,880

147

67
1. Physical flow schedule: Units to account for: Units in beginning work in process Units started during the period Total units to account for Units accounted for: Units completed and transferred out: Started and completed From beginning work in process Units in ending work in process Total units accounted for 2. Units completed Add: Units in ending WIP Fraction complete (40,000 20%) Equivalent units of output Unit cost = ($374,400 + $1,258,400)/208,000 = $7.85 Cost transferred out = 200,000 $7.85 = $1,570,000 Cost of ending WIP = 8,000 $7.85 = $62,800 Costs to account for: Beginning work in process Incurred during June Total costs to account for Costs accounted for: Goods transferred out Goods in ending work in process Total costs accounted for 80,000 160,000 240,000

120,000 80,000

200,000 40,000 240,000 200,000 8,000 208,000

3. 4.

5.

374,400 1,258,400 $ 1,632,800 $ 1,570,000 62,800 $ 1,632,800

148

68
Mixing Department Production Report For the Month of June 20XX (Weighted Average Method) Unit Information Physical flow: Units to account for: Units accounted for: Units in beginning WIP 80,000 Units completed Units started 160,000 Units in ending WIP Total units to account for 240,000 Total units accounted for Equivalent units: Units completed Units in ending work in process Total equivalent units 200,000 8,000 208,000

200,000 40,000 240,000

Cost Information Costs to account for: Beginning work in process Incurred during June Total costs to account for Cost per equivalent unit Costs accounted for: Transferred Out Goods transferred out ($7.85 200,000) Goods in ending WIP ($7.85 8,000) Total costs accounted for $ 1,570,000 $ 1,570,000 Ending Work in Process $62,800 $62,800 Total $ 1,570,000 62,800 $ 1,632,800 $ 374,400 1,258,400 $ 1,632,800 $ 7.85

149

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Gilroy, Inc. Department 1 Production Report (Weighted Average Method) Unit Information Physical flow: Units to account for: Units in beginning WIP Units started Total units to account for Equivalent Units: Units completed Units in ending WIP Total equivalent units *9,500 80% = 7,600 Cost Information Costs to account for: Beginning WIP Incurred during period Total costs to account for Cost per equivalent unit Materials $ 0 16,340 $ 16,340 $ 0.38 Conversion $ 0 90,420 $ 90,420 $ 2.20 Total $ 0 106,760 $ 106,760 $ 2.58 Materials 33,500 9,500 43,000 Conversion 33,500 7,600* 41,100 0 43,000 43,000 Units accounted for: Units completed Units in ending WIP Total units accounted for 33,500 9,500 43,000

Costs accounted for: Goods transferred out (33,500 $2.58) Ending WIP (9,500 $0.38) + (7,600 $2.20) Total costs accounted for

$ 86,430 20,330 $ 106,760

150

610
1. Units to account for: Units in beginning WIP 0 Units started 92,500 Total units 92,500 Materials 87,500 5,000 92,500 3,000 90,500 $ 3.00 1.40 $ 4.40 Units accounted for: Started and completed Units in ending WIP Total units Conversion 87,500 87,500 5,000 92,500

2. a. and b. Units completed Units in ending WIP: (5,000 100%) (5,000 60%) Equivalent units 3.

a. Unit materials cost: $277,500/92,500 = b. Unit conversion cost: ($50,680 + $76,020)/90,500 = c. Total unit cost Cost of units transferred out 87,500 $4.40 Cost of ending WIP (5,000 $3.00) + (3,000 $1.40) Total costs accounted for

4.

$ 385,000 19,200 $ 404,200

611
Completed Ending WIP Equivalent units
a

A 16,200a 1,000b 17,200

f

B 24,000c 0 24,000
e

C 31,000d 900e 31,900

D 60,000f 2,500g 62,500

(3,200 + 17,000 4,000) b (4,000 0.25) c (1,000 + 23,000 0) d (40,000 9,000)

(9,000 0.10) (30,000 + 40,000 10,000) g (10,000 0.25)

151

612
Completed* Add: Ending WIP* Less: Beginning WIP** Equivalent units A 16,200 1,000 960 16,240 B 24,000 0 400 23,600 C 31,000 900 0 31,900 D 60,000 2,500 22,500 40,000

*See solution to Exercise 611. **Beginning WIP for A: 3,200 0.30 = 960 Beginning WIP for B: 1,000 0.40 = 400 Beginning WIP for C: 0 0 = 0 Beginning WIP for D: 30,000 0.75 = 22,500

613
1. Physical flow schedule: Units to account for: Units in beginning work in process Units started during the period Total units to account for Units accounted for: Units completed and transferred out: Started and completed From beginning work in process Units in ending work in process (60% complete) Total units accounted for 10,000 70,000 80,000

50,000 10,000

60,000 20,000 80,000

152

613
2.

Concluded
Materials 60,000 Conversion 60,000

Units completed Add: Units in ending WIP Fraction complete (20,000 100%; 20,000 60%) Equivalent units of output 3. Unit materials cost Unit conversion cost Total unit cost

20,000 80,000 $5.00 1.13 $6.13

12,000 72,000

($49,000 + $351,000)/80,000 = ($2,625 + $78,735)/72,000 =

4.

Cost transferred out: 60,000 $6.13 = $367,800 Cost of ending WIP: Materials: 20,000 $5.00 = $100,000 Conversion: 12,000 $1.13 = 13,560 Total ending WIP cost $113,560

5.

Costs to account for: Beginning WIP Incurred during August Total costs to account for Costs accounted for: Goods transferred out Goods in ending WIP Total costs accounted for

$ 51,625 429,735 $ 481,360 $ 367,800 113,560 $ 481,360

153

614
Bath Linens Department Production Report For the Month of August 20XX (Weighted Average Method) Unit Information Physical flow: Units to account for: Units in beginning WIP Units started Total units to account for Equivalent units: Units completed Units in ending work in process Total equivalent units Materials 60,000 20,000 80,000 Conversion 60,000 12,000 72,000 Units accounted for: Units completed Units in ending WIP Total units accounted for

10,000 70,000 80,000

60,000 20,000 80,000

Cost Information Costs to account for: Beginning WIP Incurred during August Total costs to account for Cost per equivalent unit Costs accounted for: Transferred Out Goods transferred out ($6.13 60,000) Goods in ending WIP: Materials ($5 20,000) Conversion costs ($1.13 12,000) Total costs accounted for $367,800 $367,800 Ending Work in Process $100,000 13,560 $113,560 Total $367,800 100,000 13,560 $481,360 Materials $ 49,000 351,000 $ 400,000 $ 5.00 Conversion $ 2,625 78,735 $ 81,360 $ 1.13 Total $ 51,625 429,735 $ 481,360 $ 6.13

154

615
1. Units transferred out Units in ending WIP Less: Units in beginning WIP Units transferred in 120,000 30,000 (40,000) 110,000 Transferred In 120,000 30,000 150,000 Materials 120,000 30,000 150,000 Conversion 120,000 18,000* 138,000

2. Units transferred out Units in ending WIP Equivalent units *(30,000 60%) 3.

Unit transferred-in cost: ($2,100 + $30,900)/150,000 = $0.22 Unit materials cost: ($1,500 + $22,500)/150,000 = $0.16 Unit conversion cost: ($3,000 + $45,300)/138,000 = $0.35 Total unit cost: $0.22 + $0.16 + $0.35 = $0.73

616
1. Physical flow schedule: Units to account for: Units in beginning work in process (75% complete) Units started during August Total units to account for Units accounted for: Units completed and transferred out: Started and completed 270,000 From beginning work in process 180,000 Units in ending work in process (25% complete) Total units accounted for 180,000 360,000 540,000

450,000 90,000 540,000

155

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2.

Concluded
270,000 45,000 22,500 337,500

Units started and completed Add: Units to complete beginning WIP (180,000 25%) Add: Units ending WIP Fraction completed (90,000 25%) Equivalent units of output FIFO unit cost = $1,501,875/337,500 = $4.45 Costs transferred out: Costs from beginning WIP Costs to complete beginning WIP (45,000 $4.45) Started and completed (270,000 $4.45) Total costs transferred out Cost of ending WIP = 22,500 $4.45 = $100,125

3. 4.

580,500 200,250 1,201,500 $ 1,982,250

5.

Costs to account for: Beginning WIP $ 580,500 Added in August 1,501,875 Total $ 2,082,375

Costs accounted for: Transferred out Ending WIP Total

$ 1,982,250 100,125 $ 2,082,375

156

617
Nogaleen Company Blending Department Production Report For the Month of August 20XX (FIFO Method) Unit Information Physical flow: Units to account for: Units in beginning work in process Units started during August Total units to account for Units accounted for: Units started and completed Units completed from beginning work in process Units in ending work in process Total units accounted for 180,000 360,000 540,000 Physical Flow 270,000 180,000 90,000 540,000 Equivalent Units 270,000 45,000 22,500 337,500

Cost Information Costs to account for: Beginning work in process Incurred during August Total costs to account for Cost per equivalent unit Costs accounted for: Transferred Out Units in beginning work in process: From prior period From current period (45,000 $4.45) Units started and completed (270,000 $4.45) Goods in ending work in process (22,500 $4.45) Total costs accounted for $ 580,500 200,250 1,201,500 $ 1,982,250 Ending Work in Process $100,125 $100,125 $ Total 580,500 200,250 1,201,500 100,125 $2,082,375 $ 580,500 1,501,875 $2,082,375 $ 4.45

157

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1. Unit cost = Unit material cost + Unit conversion cost = [($30,000 + $25,000)/11,000] + [($5,000 + $65,000)/8,000] = $5.00 + $8.75 = $13.75 per equivalent unit Cost of ending work in process: Materials: $5.00 6,000 Conversion: $8.75 3,000 Total cost

2.

$30,000 26,250 $56,250

Cost of goods transferred out = $13.75 5,000 = $68,750

619
1. Physical flow schedule: Units to account for: Units in beginning WIP Units started Total units to account for Units accounted for: Units completed: Started and completed Units in beginning WIP Units in ending WIP Total units accounted for 2,000 12,000 14,000

8,000 2,000 4,000 14,000

158

619
2.

Concluded

Unit cost = Unit material cost + Unit conversion cost = $72,000/12,000 + $96,000/10,000 = $6.00 + $9.60 = $15.60 per equivalent unit Cost of ending work in process: Materials: 4,000 $6.00 Conversion: 1,000 $9.60 Total cost Cost of goods transferred out: Units started and completed (8,000 $15.60) Units in beginning work in process: Prior period costs Current cost to finish units (1,000 $9.60) Total cost

3.

$ 24,000 9,600 $ 33,600 $124,800 30,000 9,600 $164,400

159

620
1. Physical flow schedule: Units to account for: Units in beginning WIP Units started Total *20,000 6,000 = 14,000 2. Transferred out Ending WIP Total 3. Equivalent Units Materials Conversion 18,000 18,000 2,000 500 (2,000 25%) 20,000 18,500 $0.28 0.50 $0.78 6,000 14,000* 20,000 Units accounted for: Transferred out Units in ending WIP Total 18,000 2,000 20,000

Unit materials cost: ($1,800 + $3,800)/20,000 = Unit conversion cost: ($552 + $8,698)/18,500 = Total unit cost Cost transferred out: 18,000 $0.78 = $14,040 Cost of ending WIP: (2,000 $0.28) + (500 $0.50) = $810 Cost reconciliation: Costs to account for: BWIP ($1,800 + $552) April ($3,800 + $8,698) Total $ 2,352 12,498 $ 14,850

4.

Costs accounted for: Transferred out EWIP Total

$14,040 810 $14,850

160

PROBLEMS 621
1. 2. 3. 4. 5. 6. 7. 8. b d b b a c c e Supporting computations: Units completed Units in ending WIP (24,000 90%) (24,000 40%) Equivalent units (WA) Less EU in BWIP (16,000 60%) (16,000 20%) Equivalent units (FIFO) Unit cost: FIFO: WA: Materials 92,000 21,600 113,600 (9,600) (3,200) 104,000 98,400 9,600 101,600 Conversion 92,000

$468,000/104,000 $4.50 ($468,000 + $54,560)/113,600 $4.60

$573,040/98,400 $5.82 ($573,040 + $35,560)/101,600 $5.99

EWIP: FIFO: ($4.50 21,600) + ($5.82 9,600) = $153,072 WA: ($4.60 21,600) + ($5.99 9,600) = $156,864

161

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Lister Company Assembly Department Production Report For the Month of February 20XX (Weighted Average Method) Unit Information Units to account for: Units in beginning WIP Units started Total units 24,000 56,000 80,000 Units accounted for: Units completed Units in ending WIP Total units 69,200 7,560 76,760 69,200 10,800 80,000

Equivalent units: Units completed Units in ending WIP (10,800 70%) Total equivalent units Cost Information Costs to account for: Costs in beginning WIP Costs added by department Total costs to account for Cost per equivalent unit ($475,912/76,760) Costs accounted for: Goods transferred out (69,200 $6.20) Ending work in process (7,560 $6.20) Total costs accounted for

$142,760 333,152 $475,912 $ 6.20

$429,040 46,872 $475,912

162

623
Lister Company Assembly Department Production Report For the Month of February 20XX (FIFO Method) Unit Information Units to account for: Units in beginning WIP Units started Total units 24,000 56,000 80,000 Units accounted for: Started and completed From beginning WIP From ending WIP Total units 45,200 24,000 10,800 80,000

Equivalent units: Started and completed To complete beginning WIP (24,000 40%) Units in ending WIP (10,800 70%) Total equivalent units Cost Information Costs to account for: Costs in beginning WIP Costs added by department Total costs to account for Cost per equivalent unit ($333,152/62,360) Costs accounted for: Transferred out: Units started and completed (45,200 $5.3424) Units in beginning work in process: From prior period From current period (9,600 $5.3424) Total cost transferred out Goods in ending work in process (7,560 $5.3424) Total costs accounted for

45,200 9,600 7,560 62,360

$ 142,760 333,152 $ 475,912 $ 5.3424

$ 241,476 142,760 51,287 $ 435,523 40,389 $ 475,912

163

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1. a. Physical flow schedule: Units to account for: Units in BWIP Units started Total units 20,000 510,000 530,000 Units accounted for: Started and completed From BWIP From EWIP Total units Paraffin 500,000 30,000 530,000 Pigment 500,000 30,000 530,000 480,000 20,000 30,000 530,000 Conversion 500,000 21,000* 521,000

b. Equivalent unit schedule: Units completed Units in ending WIP Total equivalent units *(30,000 70%) 2. Unit cost computation: Costs in BWIP Costs added Total costs Paraffin $ 120,000 3,060,000 $3,180,000 Pigment $ 100,000 2,550,000 $2,650,000 Conversion $ 40,000 5,170,000 $5,210,000 Total 260,000 10,780,000 $11,040,000 $

Unit cost = Unit paraffin cost + Unit pigment cost + Unit conversion cost = ($3,180,000/530,000) + ($2,650,000/530,000) + ($5,210,000/521,000) = $6 + $5 + $10 = $21 3. Ending work in process = (30,000 $6) + (30,000 $5) + (21,000 $10) = $180,000 + $150,000 + $210,000 = $540,000 Cost of goods transferred out: 500,000 $21 = $10,500,000 4. Cost reconciliation: Costs to account for: Beginning WIP $ 260,000 August costs 10,780,000 Total to account for $11,040,000 Costs accounted for: Transferred out Ending WIP Total accounted for $10,500,000 540,000 $11,040,000

164

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Keating Company Department C Production Report For the Month of January 20XX (Weighted Average Method) Unit Information Units to account for: Units in beginning WIP Units started Total units to account for Units accounted for: Physical Flow Units completed 21,000 Units in ending WIP 3,000 Total units accounted for 24,000 4,000 20,000 24,000 Equivalent Units Transferred Materials Conversion 21,000 21,000 21,000 3,000 1,000 24,000 21,000 22,000

Cost Information Transferred Costs to account for: In Beginning WIP $14,970 Incurred during January 70,350 Total costs to account for $85,320 Equivalent units Cost per equivalent unit 24,000 $ 3.555 Materials $ 0 40,635 $40,635 21,000 $ 1.935 Conversion Total $11,760 $ 26,730 87,900 198,885 $99,660 $225,615 22,000 $ 4.530 EWIP $10,665 4,530 $15,195 $ 10.02 Total $210,420 10,665 4,530 $225,615

Costs accounted for: Transferred Out Goods transferred out (21,000 $10.02) $210,420 Ending work in process: Transferred in (3,000 $3.555) Conversion (1,000 $4.53) Total costs accounted for $210,420

165

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Grace Sauces, Inc. Mixing Department Production Report For the First Quarter 20XX (FIFO Method) Unit Information Units to account for: Units in beginning WIP Units started Units to account for 36,000 180,000 216,000 Units accounted for: Units transferred out Units in ending WIP Units accounted for 184,500 31,500 216,000

Units started and completed Units in BWIP (to complete) Units in EWIP Total units accounted for

Equivalent Units Transferred In Materials Conversion 148,500 148,500 148,500 9,000 31,500 31,500 6,300 180,000 180,000 163,800 Cost Information

Costs to account for: Transferred In Materials Beginning WIP $ 45,600 $ 6,432 Incurred during quarter 230,400 33,500 Total costs to account for $276,000 $39,932 Equivalent units Cost incurred during quarter Equivalent units 180,000 $ 1.28 180,000 $ 0.186

Conversion Total $ 14,400 $ 66,432 72,640 336,540 $ 87,040 $402,972 163,800 $ 0.443 EWIP $40,320 5,859 2,791 $48,970 $ 1.909

Costs accounted for: Started/complete (148,500 $1.909) Units in beginning WIP: From prior period Current period (9,000 $0.443) Units in ending WIP: Transferred in (31,500 $1.28) Materials (31,500 $0.186) Conversion (6,300 $0.443) Total costs accounted for *Difference due to rounding.

Transferred Out $283,487 66,432 3,987 $353,906

Total $283,487 66,432 3,987 40,320 5,859 2,791 $402,876*

166

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Grace Sauces, Inc. Mixing Department Production Report For the First Quarter 20XX (Weighted Average Method) Unit Information Units to account for: Units in beginning WIP Units started Units to account for 36,000 180,000 216,000 Units accounted for: Units transferred out Units in ending WIP Units accounted for 184,500 31,500 216,000

Units completed Units in ending WIP Total units accounted for

Equivalent Units Transferred In Materials Conversion 184,500 184,500 184,500 31,500 31,500 6,300 216,000 216,000 190,800 Cost Information

Costs to account for: Transferred In Beginning WIP $ 45,600 Incurred during quarter 230,400 Total costs to account for $ 276,000 Equivalent units Cost per equivalent unit 216,000 $ 1.278

Materials $ 6,432 33,500 $ 39,932 216,000 $ 0.185

Conversion Total $ 14,400 $ 66,432 72,640 336,540 $ 86,040 $402,972 190,800 $ 0.456 EWIP $40,257 5,828 $ 1.919 Total $354,056 40,257 5,828

Costs accounted for: Goods transferred out (184,500 $1.919) Ending work in process: Transferred in (31,500 $1.278) Materials (31,500 $0.185) Conversion (6,300 $0.456) 2,873 Total costs accounted for *Difference due to rounding.

Transferred Out $354,056 2,873 $354,056

$48,958

$403,014*

167

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1. Department A a. Physical flow schedule: Units in beginning WIP Units started in November Total units to account for Units completed and transferred out: Started and completed From beginning WIP Units in ending WIP Total units accounted for Costs charged to the department: Beginning WIP Incurred during November Total costs b. Equivalent unit calculation: Units completed Add: Equivalent units in ending WIP Total equivalent units c. Unit cost calculation: Unit cost = Unit material cost + Unit conversion cost = $67,800/30,000 + $102,120/29,600 = $2.26 + $3.45 = $5.71 Materials 28,000 2,000 30,000 Conversion 28,000 1,600 29,600 Materials $10,000 57,800 $67,800 Conversion $ 6,900 95,220 $102,120 Total $ 16,900 153,020 $169,920 5,000 25,000 30,000 23,000 5,000 2,000 30,000

168

628

Continued

d. and e. Cost reconciliation: Total costs accounted for: Goods transferred out (28,000 $5.71)................... Costs in ending WIP: Materials (2,000 $2.26)...................................... Conversion (1,600 $3.45).................................. Total costs accounted for.............................. Costs to account for: Beginning work in process................................. Costs incurred during November....................... Total costs to account for.............................. 2. Journal entries: Work in ProcessDept. A........................ Materials Inventory............................... Work in ProcessDept. A........................ Conversion CostsDept. A................ Work in ProcessDept. B........................ Work in ProcessDept. A.................. 57,800

$ 159,880 $4,520 5,520

10,040 $ 169,920 $ 16,900 153,020 $ 169,920

57,800 95,220 95,220* 159,880 159,880

*When conversion costs are not broken into labor and overhead components, a control account for conversion costs is used. Some firms now combine overhead and direct labor costs into one category. This practice is developing because direct labor is becoming a small percentage of total manufacturing costs.

169

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3.

Continued

Department B a. Physical flow schedule: Units in beginning WIP Units started in November (transferred in) Total units to account for Units completed and transferred out: Started and completed From beginning WIP Units in ending WIP Total units accounted for Costs charged to the department: Materials $ 0 37,950 $37,950 Conversion $ 16,800 128,100 $ 144,900 Transferred In $ 45,320 159,880 $ 205,200 Total $ 62,120 325,930 $ 388,050 8,000 28,000 36,000 25,000 8,000 3,000 36,000

Beginning WIP Incurred in Nov. Total costs

b. Equivalent unit calculation: Materials 33,000 0 33,000 Conversion 33,000 1,500 34,500 Transferred In 33,000 3,000 36,000

Units completed Add: Equivalent units in EWIP Total equivalent units c. Unit cost calculation:

Unit cost = Unit material cost + Unit conversion cost + Unit transferred in cost = ($37,950/33,000) + ($144,900/34,500) + ($205,200/36,000) = $1.15 + $4.20 + $5.70 = $11.05

170

628

Concluded

d. and e. Cost reconciliation: Total costs accounted for: Goods transferred out (33,000 $11.05)................. Costs in ending WIP: Materials................................................................ Conversion (1,500 $4.20).................................. Transferred in (3,000 $5.70).............................. Total costs in ending WIP......................................... Total costs accounted for................................... Costs to account for: Beginning work in process................................. Costs incurred during November....................... Total costs to account for.............................. Journal entries for Department B: Work in ProcessDept. B.................. Work in ProcessDept. A........... Work in ProcessDept. B................... Materials Inventory........................ Work in ProcessDept. B................... Conversion CostsDept. B......... Finished Goods.................................... Work in ProcessDept. B............ 159,880

$ 364,650 $ 0 6,300 17,100 23,400 $ 388,050 $ 62,120 325,930 $ 388,050

159,880 37,950 37,950 128,100 128,100* 364,650 364,650

*Because conversion costs are not broken into labor and overhead components, a control account for conversion costs is used. Some firms are now combining overhead and direct labor costs into one category. This practice is developing because direct labor is becoming a small percentage of total manufacturing costs.

171

629
1. Department A a. Physical flow schedule: Units in beginning WIP Units started in November Total units to account for Units completed and transferred out: Started and completed From beginning WIP Units in ending WIP Total units accounted for Costs charged to the department: Beginning WIP Incurred during November Total costs b. Equivalent unit calculation: Units started and completed Equivalent units in beginning WIP Equivalent units in ending WIP Total equivalent units c. Unit cost calculation: Unit cost = Unit material cost + Unit conversion cost = ($57,800/25,000) + ($95,220/27,600) = $2.312 + $3.45 = $5.762 Materials 23,000 2,000 25,000 Conversion 23,000 3,000 1,600 27,600 Materials $10,000 57,800 $67,800 Conversion $ 6,900 95,220 $102,120 Total $ 16,900 153,020 $169,920 5,000 25,000 30,000 23,000 5,000 2,000 30,000

172

629

Continued

d. and e. Cost reconciliation: Cost of units started and completed (23,000 $5.762) Cost of units in beginning WIP: Prior-period costs................................................ Current cost to finish units (3,000 $3.45)........ Total cost of units transferred out........................... Costs in ending WIP: Materials (2,000 $2.312).................................... Conversion (1,600 $3.45).................................. Total costs in ending WIP......................................... Total costs accounted for................................... Costs to account for: Beginning WIP...................................................... Costs incurred...................................................... Total costs to account for.............................. 2. Journal entries: Work in ProcessDept. A........................ Materials Inventory............................... Work in ProcessDept. A........................ Conversion CostsDept. A................ Work in ProcessDept. B........................ Work in ProcessDept. A.................. 57,800 57,800 95,220 95,220* 159,776 159,776 $ 132,526 16,900 10,350 $ 159,776 $4,624 5,520 10,144 $ 169,920 $ 16,900 153,020 $ 169,920

*Because conversion costs are not broken into labor and overhead components, a control account for conversion costs is used. Some firms are now combining overhead and direct labor costs into one category. This practice is developing because direct labor is becoming a small percentage of total manufacturing costs.

173

629
3.

Continued

Department B a. Physical flow schedule: Units in beginning WIP Units started in November (transferred in) Total units to account for Units completed and transferred out: Started and completed From beginning WIP Units in ending WIP Total units accounted for Costs charged to the department: Materials Beginning WIP $ 0 Incurred during Nov. 37,950 Total costs $37,950 b. Equivalent unit calculation: Materials 25,000 8,000 0 33,000 Conversion 25,000 4,000 1,500 30,500 Transferred In 25,000 0 3,000 28,000 Conversion $ 16,800 128,100 $ 144,900 Transferred In $ 45,320 159,776 $ 205,096 Total $ 62,120 325,826 $ 387,946 8,000 28,000 36,000 25,000 8,000 3,000 36,000

Units started and completed Equivalent units in BWIP Equivalent units in EWIP Total equivalent units

c. Unit cost calculation: Unit cost = Unit material cost + Unit conversion cost + Unit transferred in cost = $37,950/33,000 + $128,100/30,500 + $159,776/28,000 = $1.15 + $4.20 + $5.706 = $11.056

174

629

Concluded
$ 276,400 62,120 9,200 16,800 $ 364,520

d. and e. Cost reconciliation: Cost of units started and completed (25,000 $11.056) Cost of units in beginning WIP: Prior-period costs................................................ Current cost to finish units: Materials (8,000 $1.15)................................. Conversion (4,000 $4.20)............................. Total costs of goods transferred out...................... Costs in ending WIP: Conversion (1,500 $4.20).................................. $ 6,300 Transferred in (3,000 $5.706)............................ 17,118 Total costs in ending WIP......................................... Total costs accounted for................................... 387,938* Costs to account for: Beginning work in process................................. Costs incurred during November....................... Total costs to account for.............................. 387,946* *Difference due to rounding. Journal entries for Department B: Work in ProcessDept. B.................. Work in ProcessDept. A........... Work in ProcessDept. B.................. Materials Inventory........................ Work in ProcessDept. B.................. Conversion CostsDept. B......... Finished Goods.................................... Work in ProcessDept. B........... 159,776 159,776 37,950 37,950 128,100 128,100* 364,520 364,520

23,418 $

$ 62,120 325,826 $

*As before, a control account for conversion cost is used to combine overhead and direct labor cost into one category.

175

630
Benson Pharmaceuticals Picking Department Production Report For the Month of March 20XX (Weighted Average Method) Unit Information Units to account for: Units in beginning WIP Units started Total units to account for Units accounted for: Units completed Units in ending WIP Total units accounted for *(20 50%) Cost Information Costs to account for: Beginning WIP Incurred during March Total costs to account for Equivalent units Cost per equivalent unit Costs accounted for: Goods transferred out (140 $122.30) Ending work in process: Materials (20 $24.30) Conversion (10 $98.00) Total costs accounted for Materials $ 252 3,636 $3,888 160 $24.30 Transferred Out $17,122 $17,122 Conversion* $ 846 13,854 $ 14,700 150 $ 98.00 Ending Work in Process $ 486 980 $1,466 $122.30 Total $17,122 486 980 $18,588 Total $ 1,098 17,490 $18,588 Physical Flow 140 20 160 10 150 160 Equivalent Units Materials Conversion 140 140 20 10* 160 150

*Conversion is labor plus 200 percent of labor (overhead).

176

630

Concluded
Benson Pharmaceuticals Encapsulating Department Production Report For the Month of March 20XX (Weighted Average Method) Unit Information

Units to account for: Units in beginning WIP Units started Total units to account for Units accounted for: Units completed Units in ending WIP Total units accounted for *(6,000 40%) Physical Flow 208,000 6,000 214,000

4,000 210,000 214,000 Trans. In 208,000 6,000 214,000 Equivalent Units Materials Conversion 208,000 208,000 6,000 2,400* 214,000 210,400

Cost Information Costs to account for: Beginning WIP Incurred during March Total costs to account for Equivalent units Cost per equivalent unit Trans. In $ 140 17,122 $ 17,262 214,000 $ 0.0807 Materials $ 32 1,573 $ 1,605 214,000 $ 0.0075 Conversion* $ 50 4,860 $ 4,910 210,400 $ 0.0233 $0.1115 Total $23,192 484 45 56 $23,777 Total $ 222 23,555 $23,777

Costs accounted for: Goods transferred out (208,000 $0.1115) Ending work in process: Trans. in (6,000 $0.0807) Materials (6,000 $0.0075) Conversion (2,400 $0.0233) Total costs accounted for

Transferred Out $23,192 $23,192

Ending Work in Process $484 45 56 $585

*Conversion is labor plus 150 percent of labor (overhead).

177

631
Benson Pharmaceuticals Picking Department Production Report For the Month of March 20XX (FIFO Method) Unit Information Units to account for: Units in beginning WIP Units started Total units to account for Units accounted for: Units started and completed Units in BWIP (to complete) Units in EWIP Total units accounted for *(10 60%) **(20 50%) Cost Information Costs to account for: Beginning WIP Incurred during March Total costs to account for Equivalent units Cost incurred during March Equivalent units Costs accounted for: Units started and comp. (130 $119.13) Units in beginning WIP: From prior period From current period (6 $94.89) Ending work in process: Materials (20 $24.24) Conversion (10 $94.89) Total costs accounted for $24.24 Transferred Out $15,487 1,098 569 $17,154 $ 94.89 Ending Work in Process $ 485 949 $1,434 $119.13 Total $15,487 1,098 569 485 949 $18,588 Materials $ 252 3,636 $ 3,888 150 Conversion $ 846 13,854 $ 14,700 146 Total $ 1,098 17,490 $ 18,588 Physical Flow 130 10 20 160 10 150 160 Equivalent Units Materials Conversion 130 130 6* 20 10** 150 146

178

631

Concluded
Benson Pharmaceuticals Encapsulating Department Production Report For the Month of March 20XX (FIFO Method) Unit Information

Units to account for: Units in beginning WIP Units started Total units to account for Units accounted for: Units started and completed Units in BWIP (to complete) Units in EWIP Total units accounted for *(4,000 50%) Physical Flow 204,000 4,000 6,000 214,000

4,000 210,000 214,000 Trans. In 204,000 6,000 210,000 Equivalent Units Materials Conversion 204,000 204,000 2,000* 6,000 2,400 210,000 208,400

Cost Information Costs to account for: Trans. In Beginning WIP $ 140 Incurred during March 17,154 Total costs to account for $ 17,294 Equivalent units Cost incurred during March Equivalent units $0.0817 $0.0075 $0.0233 $0.1125 Total $22,950 222 47 490 45 56 $23,810 210,000 Materials $ 32 1,573 $ 1,605 210,000 Conversion $ 50 4,860 $ 4,910 208,400 Total $ 222 23,587 $23,809

Costs accounted for: Units started and completed (204,000 $0.1125) $22,950 Units in BWIP from prior period 222 Current period (2,000 $0.0233) 47 Ending work in process: Transferred in (6,000 $0.0817) Materials (6,000 $0.0075) Conversion (2,400 $0.0233) Total costs accounted for $23,219

Transferred Out

Ending Work in Process $490 45 56 $591

179

632
1. a. Molding Units to account for: Beginning WIP Started b. Assembly Units to account for: Beginning WIP Started c. Packaging Units to account for: Beginning WIP Started 150 900 1,050 Units accounted for: Transferred out Ending WIP 1,050 0 1,050 0 1,300 1,300 Units accounted for: Transferred out Ending WIP 900 400 1,300 500 1,000 1,500 Units accounted for: Transferred out Ending WIP 1,300 200 1,500

2.

Equivalent units: Molding Mat. Conv. 1,300 1,300 200 40 1,500 1,340 Assembly Tr. In Mat. Conv. 900 900 900 400 160 160 1,300 1,060 1,060 Molding $ 5.00 6.50 $11.50 Tr. In 1,050 0 1,050 Packaging Mat. Conv. 1,050 1,050 0 0 1,050 1,050 Packaging $13.06 2.65 3.05 $18.76

Trans. out EWIP

3. Unit prior department cost Unit materials cost Unit conversion cost Total unit cost

Assembly $11.50 0.46 1.10 $13.06

Molding: Unit materials cost: ($2,500 + $5,000)/1,500 = $5.00 Unit conversion cost: ($1,050 + $7,660)/1,340 = $6.50

180

632

Concluded

Assembly: Unit transferred-in cost: (0 + $14,950)/1,300 = $11.50 Unit materials cost: (0 + $487.60)/1,060 = $0.46 Unit conversion cost: (0 + $1,166)/1,060 = $1.10 Packaging: Unit transferred-in cost: ($1,959 + $11,754)/1,050 = $13.06 Unit materials cost: ($375 + $2,407.50)/1,050 = $2.65 Unit conversion cost: ($225 + $2,977.50)/1,050 = $3.05 4. Molding: Transferred out: (1,300 $11.50) = $14,950 Ending WIP: (200 $5) + (40 $6.50) = $1,260 Assembly: Transferred out: (900 $13.06) = $11,754 Ending WIP: (400 $11.50) + (160 $1.56) = $4,849.60 Packaging: Transferred out: (1,050 $18.76) = $19,698 Ending WIP: 0 5. Costs to account for: Molding Assembly Packaging Costs accounted for: Molding Assembly Packaging Trans. Out $14,950.00 11,754.00 19,698.00 + EWIP $1,260.00 4,849.60 0.00 = Total $16,210.00 16,603.60 19,698.00 BWIP $3,550.00 0.00 2,559.00 + Current $12,660.00 16,603.60 17,139.00 = Total $16,210.00 16,603.60 19,698.00

181

633
1. Equivalent units: Molding Mat. Conv. Started and completed BWIP EWIP 800 0 200 1,000 800 350 40 1,190 Assembly Tr. In Mat. Conv. 900 0 400 1,300 900 0 160 1,060 900 0 160 1,060 Packaging Tr. In Mat. Conv. 900 0 0 900 900 0 0 900 900 75 0 975

2.

Molding: Unit materials cost: Unit conversion cost: Total unit cost Assembly: Unit transferred-in cost: Unit materials cost: Unit conversion cost: Total unit cost Packaging: Unit transferred-in cost: Unit materials cost: Unit conversion cost: Total unit cost

$5,000/1,000 $7,660/1,190

= =

$ 5.000 6.437 $11.437 $11.500 0.460 1.100 $13.060 $13.060 2.675 3.054 $18.789

$14,950/1,300 $487.60/1,060 $1,166/1,060

= = =

$11,754/900 $2,407.50/900 $2,977.50/975

= = =

3.

Molding: Transferred out: Started and completed (800 $11.437) Prior-period cost Complete beginning WIP (350 $6.437) Total transferred out Ending WIP: (200 $5) + (40 $6.437)

$ 9,149.60 3,550.00 2,252.95 $ 14,952.55 $ 1,257.48

182

633

Concluded

Assembly: Transferred out: Started and completed (900 $13.06) Prior-period cost Complete beginning WIP Total transferred out Ending WIP: (400 $11.50) + (160 $1.56) Packaging: Transferred out: Started and completed (900 $18.789) Prior period cost Complete beginning WIP (75 $3.054) Total transferred out Ending WIP: 4. Cost reconciliation: Costs to account for: Molding Assembly Packaging Costs accounted for: Molding Assembly Packaging Trans. Out $14,952.55 11,754.00 19,698.15 + EWIP $1,257.48 4,849.60 0.00 BWIP $3,550.00 0.00 2,559.00 + Current $12,660.00 16,603.60 17,139.00

$ 11,754.00 0.00 0.00 $ 11,754.00 $ 4,849.60

$ 16,910.10 2,559.00 229.05 $ 19,698.15 $ 0

Total $16,210.00 16,603.60 19,698.00 Total $16,210.03* 16,603.60 19,698.15*

*Difference due to rounding.

183

634
Lean Jeans, Inc. Inspection Department Production Report For the Month of December 20XX (Weighted Average Method) Unit Information Units to account for: Units in beginning WIP Units transferred in from Assembly Total units to account for Physical Flow 3,800b 900 4,700 700a 4,000 4,700 Equivalent Units Prior Dept. Materials 3,800b 3,800b 900c 0 4,700d 3,800

Units accounted for: Units completed Units in ending WIP Total units

Conversion 3,800b 450e 4,250

Cost Information Costs to account for: Beginning WIP Incurred in December Total cost Unit cost Costs accounted for: Goods transferred out Ending WIP: Prior department Materials Conversion Total costs accounted for Prior Dept. $ 11,900 68,000f $ 79,900 $ 17.00 Materials $ 0g 57h $ 57 $ 0.015i Conversion $ 210 4,040 $4,250 $ 1.00 Total $12,110 72,097 $84,207 $18.015j Total $68,457k 15,300l 450m $84,207

Transferred Out $68,457k $68,457k

Ending Work in Process $15,300l 450m $15,750

Explanation of superscripted numbers follows on the next page.

184

634
a b

Concluded

4,700 4,000 = 700 4,700 900 = 3,800. If 3,800 units are complete, they must be 100 percent complete with respect to all cost categories.

All units transferred in must be 100 percent complete with respect to prior department costs. Therefore, if there are 900 units in ending WIP, there are 900 equivalent units for transferred-in costs. 3,800 + 900 = 4,700 4,250 3,800 = 450 Because materials are added at the end of the process, beginning work in process must be zero percent complete with respect to materials. $57 $0 = $57

d e f

$79,900 $11,900 = $68,000

h i j

($57/3,800) = $0.015 $17.00 + $0.015 + $1.00 = $18.015 3,800 $18.015 = $68,457 450 $1.00 = $450 900 $17.00 = $15,300

k l

185

MANAGERIAL DECISION CASES 635

1. Garys proposal requires Donna to falsify the equivalent unit calculation so that income and assets can be inflated and reported incorrectly. Falsification of the production report would be a violation of at least two major ethical standards: integrity and objectivity. Falsification does not allow the organization to attain its legitimate and ethical objectives. Moreover, if Donna agrees to the proposal, she would be taking action that would discredit her profession. Finally, Donna has an ethical obligation to communicate information fairly and objectively, disclosing all information that would be needed for the loan officer to fairly assess the merits of the companys request for a loan. Clearly, Donna should not agree to falsify the production report. Donna has an obligation to report Gary to a superior only if an actual ethical problem exists. If Gary decides that the course of action he is suggesting is not really in his or the companys best interests, then no ethical problem exists, and no action by Donna is needed. If Gary insists on his idea of falsification of the divisions reports, Donna should attempt to resolve the conflict by appealing to Garys immediate supervisor (and on up, if necessary, until a satisfactory resolution is achieved). If no satisfactory resolution is possible, then Donna should resign and submit an informative memo to a representative of the organization. In this situation, the ethical dilemma is complicated by two factors: Donnas age and a low likelihood of resolution by appealing to higher-level authorities. Donnas age may make it more difficult to find alternative employment (at least at the same level and pay), and it may mean possible forfeiture of retirement benefits. Many students will likely respond that Donna should still resign (assuming that resolution is not likely), recommending the ideal outcome. While Donnas ultimate resignation is the right choice if resolution fails, students should realize that ethical behavior may often carry with it some very significant personal sacrifices. It could be argued, however, that the costs of unethical behavior are even greater. Another possibility is to encourage Donna to see a lawyer. She has the option of fighting back, and at her age (with retirement benefits at stake), a good offense may be her best defense.

2.

3.

4.

186

636
1. Unit cost computation: Physical flow schedule: Units in beginning WIP Units started Total units to account for Units completed and transferred out: Started and completed From beginning WIP Units in ending WIP Total units accounted for Costs charged to the department: Beginning WIP Incurred during the period Total costs *$82,200 = $45,667 1.8 Equivalent unit calculation: Units completed Equivalent units in ending WIP Total equivalent units *(300 80%) Unit cost = Unit material cost + Unit conversion cost = ($114,000/2,800) + ($82,200/2,740) = $40.71 + $30 = $70.71 2. Because conversion activity is the same for both bows, only the materials cost will differ. Thus, the unit materials cost is computed and then added to the unit conversion cost obtained in Requirement 1. Econo Model Physical flow schedule: Units in beginning WIP Units started Total units to account for Units completed and transferred out: Started and completed From beginning WIP Units in ending WIP Total units accounted for
187

0 2,800 2,800 2,500 0 300 2,800 Conversion $ 0 82,200* $ 82,200 Total $ 0 196,200 $ 196,200

Materials $ 0 114,000 $ 114,000

Materials 2,500 300 2,800

Conversion 2,500 240* 2,740

0 1,600 1,600 1,500 0 100 1,600

Materials cost charged to the department: Beginning WIP Incurred during the period Total costs Equivalent unit calculation: Units completed Add: Equivalent units in ending WIP Total equivalent units Unit cost calculation: Unit cost = Unit material cost + Unit conversion cost = ($30,000/1,600) + $30.00 = $18.75 + $30.00 = $48.75 Deluxe Model Physical flow schedule: Units in beginning WIP Units started Total units to account for Units completed and transferred out: Started and completed From beginning WIP Units in ending WIP Total units accounted for Materials cost charged to the department: Beginning WIP Incurred during the period Total costs Equivalent unit calculation: Units completed Add: Equivalent units in ending WIP Total equivalent units Unit cost calculation: Unit cost = Unit material cost + Unit conversion cost = ($84,000/1,200) + $30 = $70 + $30 = $100 Unit cost for Econo model: $ 48.75 Materials 1,000 200 1,200 Materials $ 0 84,000 $ 84,000 0 1,200 1,200 1,000 0 200 1,200 Materials 1,500 100 1,600 Materials $ 0 30,000 $ 30,000

3.

188

Unit cost for Deluxe model: Unit cost for both together:

$100.00 $ 70.71

Using pure process costing understates the cost of the Deluxe model and overstates the cost of the Econo model. The error is large, and so Karen seems to be justified in her belief that a pure process-costing relationship is not appropriate. Process costing could be used for all departments other than the Pattern Department. In the Pattern Department, process-costing procedures can be used for conversion costs, but the cost of materials should be tracked by batch. 4. The profitability of the Econo line was being understated by nearly $22, while that of the Deluxe line was overstated by a little more than $29, producing an erroneous $51 difference in profitability under the current process-costing system. This could easily be enough of a difference to make the marketing managers request for additional advertising dollars a sound one. It is quite possible that Aaron was wrong in not granting the requestwrong because he was using inaccurate cost information. This example illustrates the importance of an accurate costing system.

637
Answers will vary.

RESEARCH ASSIGNMENT

189