Exercise 7 – Process Costing

Assistant Professor Ron Reyes

PROCESS COSTING
1. The W Company uses a process in its two producing departments. On April 1, Department B had
no units in beginning inventory. During April, 25,000 units were transferred from Department A
to Department B. On April 30, Department B had 5,000 unit of work in process, 60% complete as
to labor and 40% complete as to factory overhead. During the month, 20,000 units were
transferred from Department B to Finished Goods Inventory. Materials are added in the
beginning of the process in Department B. The following journal entries summarize April activity:

Work in Process – Department A 250,000

Work in Process – Department B 150,000
Materials 400,000

Work in Process – Department A 108,000

Work in Process – Department B 92,000
Payroll 200,000

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Work in Process – Department A 146,000

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Work in Process – Department B 154,000

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Applied Factory Overhead 300,000

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Work in Process – Department B 400,000
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Work in Process – Department A 400,000

Required: Prepare a cost of production report for Department B.

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2. S Manufacturing Company produces a product in two manufacturing departments, Molding and

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Finishing. The product is molded out of plastic in the Molding Department and then transferred
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to the Finishing Department, where parts are added to the molded plastic unit. Data related to
August operations in the Molding Department are:
Beginning Inventory Added this Period
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Costs charged to the Department

Materials P41,100 P448,800
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Direct labor 1,100 130,500

Factory overhead 12,900 184,500
During the period, 9,200 units were transferred from the Molding Department to the Finishing
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Department. The Molding Department had 1,000 units still in process at the end of July (100%
complete as to materials and 40% complete as to conversion cost) and 800 units still in process
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at the end of August (75% complete as to materials and 25% complete as to conversion cost.)

Required: Prepare a cost of production report under weighted average method and FIFO
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method.

3. H Corporation manufactures a product in three departments. The product is cut out of sheet
metal in the Cutting Department, then transferred to the forming Department where it is bent to
shape and certain parts purchased from outside vendors are added to the unit. The product is
finally transferred to the Painting Department, where it is primed painted, and packaged.

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 Exercise 7 – Process Costing
Assistant Professor Ron Reyes

Data related to September operations in the Forming Department are:

Units in beginning inventory (80% materials, 40% labor and overhead) 1,400
Units received from the Cutting Department this period 4,600
Units transferred to Painting Department this period 5,000
Units in ending inventory (60% materials, 30% labor and overhead) 1,000
Beg. Inventory Added this Period
Costs charged to the Department:
Cost from the preceding period P211,200 P703,800
Materials 59,360 203,840
Direct labor 26,020 175,380
Factory overhead 52,040 350,760

Required: Prepare a cost of production report under weighted average and FIFO methods.

4. Pop Cola Company produces a soft drink in three departments, Syrup, Carbonation, and Bottling.
Syrup, which gives the drink its flavor, is produced in the first department. The syrup is then

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transferred to the second department, where carbonated water is added to give the drink its

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fizz. After carbonated water has been added, the liquid drink is bottled for storage and transport

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to customers. A process cost system is used to account for work in process inventories. Data

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related to operations in the Carbonation Department during the month of October are:

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Units un beginning inventory (100% materials, 40% labor and overhead) 1,000
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Units received from the Syrup Department this period 2,000
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Units added to process in the Carbonation Department this period 6,000
Units transferred to Bottling Department this period 7,800
Units in ending inventory (100% materials, 25% labor and overhead) 1,200
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Beg. Inventory Added this Period

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Costs charged to the Department:

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Costs from the preceding department P11,200 P96,800

Materials 1,920 16,080
Direct labor 646 15,554
Factory overhead 1,215 31,185
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Required: Prepare a cost of production report for Carbonation Department using weighted
average method and FIFO method.

5. The Able Medicine Company manufactures an all-purpose capsule. Four direct materials are put
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into production in Department A. Department B places the units received from Department A
into quick-dissolving capsules. Raw materials (all direct) are placed into production in
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Department A as follows:
Raw material 101 (aspirin): Beginning of process.
Raw material 102 (caffeine): When units are 40% complete.
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Raw material 103 (decongestant): When units are 60% complete.

Raw material 104 (muscle relaxer): When units are 95% complete.
July data, Department A:
Units started in process 300,000
Units transferred out 250,000
Ending units in process: (30% are 45% complete, 35% are

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 Exercise 7 – Process Costing
Assistant Professor Ron Reyes

50% complete. 15% are 65% complete, 20% are 98% complete 50,000
Costs incurred:
Direct Materials: 101 P60,000,00
102 30,000,00
103 93,625,00
104 130,000,00
Conversion costs Direct Labor P812,507.50
Factory Overhead P364,227.50

Required: Prepare a cost of production report for Department A.

SPOILED UNITS

6. A product called Aggregate is manufacture in one department of West Corporation. Materials

are added at the beginning of the process. Shrinkage of 10% to 14%, all occurring at the
beginning of the process, is considered normal. Labor and factory overhead are added

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continuously throughout the process.

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The following information relates to November production:

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Work in process, November 1 (4,000 pounds, 75% complete):

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Materials 22,800

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Labor 24,650
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Factory overhead 21,860
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November costs:
Materials (fifo costing)
Inventory, November 1, 2,000 pounds 10,000
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Purchase, November 3, 3,000 pounds 51,000

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Purchase, November 18, 10,000 pounds 51,500

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Released to production during November, 16,000 pounds

Labor 103,350
Factory overhead 93,340
Transferred out, 15,000 pounds
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Work in process, November 30, 3,000 pounds, 33-1/3%

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Complete (average costing)

Required: Prepare a cost of production report for November.

7. The D Manufacturing Company uses a process cost system. In the second department,
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Department X, spoiled units occur during operations. Inspection of spoiled units occurs when
units are 70% complete. Direct materials are added at the end of the process. Conversion costs
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are incurred evenly throughout the process. Spoiled goods are considered by management as
internal failure and charged to Factory Overhead Control account.
Data pertaining to December’s activity in Department X are shown below:
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Units Costs
Beginning in process – 90% complete 17,000
Cost from preceding department P9,110.00
Direct labor 5,377.50
Factory overhead applied 3,375.00
Received from preceding department (Dept. W) 38,000 48,640.00

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 Exercise 7 – Process Costing
Assistant Professor Ron Reyes

Added during the period:

Direct materials P38,000.00
Direct labor 30,217.50
Factory overhead applied 14,931,00

Units transferred to next department 40,000

Spoiled units 8,000
Ending units in process – 75% complete ?

Required: Prepare a cost of production report for Department X using average and FIFO
methods.

8. The Juanito Manufacturing Company produces china figurines. The Molding Department
inspects for spoiled units when units are 80% complete. Direct materials are added at the
beginning of the process, and direct labor and factory overhead are incurred evenly throughout
the process. Juanito’s data for the department are as follows:

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Beginning units in process (100% direct materials, 1/3 conversion costs) 3,390 units

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Cost of beginning work in process inventory:

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Cost prior department P56,613.00

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Direct materials 3,823.80
Conversion costs 2,202.52 P62,639.32

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Units transferred in during the period 12,150 units
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Costs transferred in during the period P202,905.00
Units transferred out 11,000 units
Ending units in process (100% direct materials, 60% conversion costs) 3,040 units
Spoiled units: Normal 800 units
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Abnormal 700 units

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Cost added during the period: Direct materials P104,490.00

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Conversion costs 68,338.20

Additional Information:
The Company’s policy is to treat the cost of normal spoiled units in productions
as a separate element of cost in the department in which the spoilage occurs.
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Required: Prepare a cost of production report for Molding Department using weighted
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average and FIFO methods.

9. Edwin Company uses average costing in accounting for its three manufacturing departments.
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Department 2 receives units from Department 1 and applies conversion costs to these units at a
uniform rate. When the units are 80% complete, they are inspected and material is then added
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to the good units. A Department 2 spoilage rate of 5% of is considered normal.

For December, the following information is available:
(a) 3,000 units were in process on December 1, estimated to be 30% complete, with cost from
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Department 1 of P15,960 and Department 2 costs of P2,726.

(b) 32,000 units were received from Department 1 at a cost of P180,000.
(c) Department 2 costs were: materials, P12,075; conversion, P96,700.
(d) 30,000 units were completed and transferred to Department 3.
(e) 4,500 units were in process December 31, estimated to be 90% complete.

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 Exercise 7 – Process Costing
Assistant Professor Ron Reyes

Required: Prepare a cost of production report.

10. M Company uses process costing. All materials are added at the beginning of the process. The
product is inspected when it is 80% converted, and spoilage is identified only at that point.
Normal spoilage is expected to be 3% of good output.
During March, 10,500 units were put into process. Current costs were P52,530 for materials;
P39,933 for labor; and P29,580 for factory overhead. The 3,000 units still in process at the end of
March were estimated to be 90% complete. A total of 7,000 units were transferred to finished
goods.

Required: Prepare a cost of production report.

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