Chap 004

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. Managerial Accounting, 6/e 4-1

CHAPTER 4

Process 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 © 2005 The McGraw-Hill Companies, Inc. 4-2 Solutions Manual

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 .................... XXX Raw-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 .................... XXX Work-in-Process Inventory: Department A ......... XXX

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


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.

4-15 There is no direct material in the March 1 work in process for the stitching department because direct material (rawhide lacing) is added at the end of the process in that department.


SOLUTIONS TO EXERCISES EXERCISE 4-16 (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 EXERCISE 4-17 (20 MINUTES)

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

Equivalent Units

Physical Units

Percentage of

Completion with

Respect to Direct

Material

Percentage

of Completion

with Respect to Conversion

Direct Material

Conversion

Work in process, January 1.... 30,000 70% 50% Units started during the year.. 140,000 Total 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 5,000 Total units accounted for........ 170,000 ______ _______ Total equivalent units.............. 163,750 150,000


EXERCISE 4-18 (15 MINUTES)

CALCULATION OF EQUIVALENT UNITS: PETROTECH COMPANY - AMARILLO PLANT Weighted-Average Method

Equivalent Units

Physical Units

Percentage of

Completion with

Respect to Conversion

Direct Material

Conversion

Work 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 transferred out during July...................................

2,400,000

100%

2,400,000

2,400,000

Work in process, July 30 ....................... 250,000 70% 250,000 175,000 Total 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 COMPANY

Weighted-Average Method

Equivalent Units

Physical Units

Percentage of

Completion with Respect to Conversion

Direct

Material

Conversion Work in process, August 1 ..... 2,000 60% Units started during August ... 3,500 Total 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% 1,700 340 Total units accounted for........ 5,500 _____ ____ Total equivalent units.............. (1) 5,500 (2) 4,140


EXERCISE 4-20 (30 MINUTES) 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. EXERCISE 4-21 (15 MINUTES)

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

Direct Material

Conversion

Total

Work in process, February 1 ................. $ 43,200 $ 40,300 $ 83,500 Costs incurred during February............ 135,000 190,000 325,000 Total costs to account for...................... $178,200 $230,300 $408,500 Equivalent units ...................................... 16,500 47,000 Costs 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 COMPANY Weighted-Average Method

Direct Material

Conversion

Total

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 $1,247,600 Equivalent units ......................................... 6,700 1,600 Costs per equivalent unit.......................... $68* $495† $563 *$68 = $455,600 ÷ 6,700 †$495 = $792,000 ÷ 1,600



TUSCALOOSA PAPERBOARD COMPANY Weighted-Average Method

Direct Material

Conversion

Total

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

transferred out during March:

number of unitstransferred out

total cost perequivalent unit

⎛⎝⎜

⎞⎠⎟ ×

⎛⎝⎜

⎞⎠⎟ ....................... 89,000 × $3.15 $280,350

2. Cost remaining in March 31 work

in process:

Direct material (14,000* × $1.20) . $ 16,800 Conversion (8,000* × $1.95) ........ 15,600 Total ............................................... 32,400 Total costs accounted for................. $312,750 *Equivalent units in March 31 work in process: Direct

Material

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



RALEIGH TEXTILES COMPANY Weighted-Average Method

Direct Material

Conversion

Total

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

transferred out during November:

number of unitstransferred out

total cost perequivalent unit

⎛⎝⎜

⎞⎠⎟ ×

⎛⎝⎜

⎞⎠⎟ .....................

47,000 × $9.70

$455,900

2. Cost remaining in November 30

work in process:

Direct material (15,500* × $3.90) $60,450 Conversion (2,000* × $5.80)........ 11,600 Total............................................... 72,050 Total costs accounted for ................ $527,950 *Equivalent units in November 30 work in process:

Direct Material

Conversion

Total equivalent units (weighted average)........................ 62,500 49,000

Units completed and transferred out................................. (47,000) (47,000) Equivalent units in ending work in process ..................... 15,500 2,000



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

Preparation Department

Batch P25 Batch S33

Accumulated by

department

Conversion costs: Direct-labor

Manufacturing overhead

Work-in-Process Inventory: Finishing Department

Batch P25 Batch S33

Accumulated by

batch

Direct- material

costs

Work-in-Process Inventory: Packaging Department

Batch P25

Finished-Goods Inventory


EXERCISE 4-25 (CONTINUED)

2. The product cost for each basketball is computed as follows: Professional Scholastic Direct 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 4-25 (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 ............ 3,500 Raw-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



1. Work-in-Process Inventory: Preparation Department ........ 1,635,000 Raw-Material Inventory ................................................. 105,000 Wages Payable............................................................... 510,000 Manufacturing Overhead .............................................. 1,020,000 2. Work-in-Process Inventory: Finishing Department ............ 1,350,000 Work-in-Process Inventory: Preparation Department 1,350,000

3. Work-in-Process Inventory: Finishing Department ............ 1,087,500 Raw-Material Inventory................................................ 37,500 Wages Payable ............................................................. 420,000 Manufacturing Overhead............................................. 630,000 4. Finished-Goods Inventory ..................................................... 600,000 Work-in-Process Inventory: Finishing Department .. 600,000


SOLUTIONS TO PROBLEMS PROBLEM 4-27 (45 MINUTES)

1. Physical flow of units: Physical Units

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

Units completed and transferred out during June .................................. 180,000 Work in process, June 30........................................................................... 50,000 Total units accounted for ........................................................................... 230,000 2. Equivalent units:

Equivalent Units

Physical Units

Percentage of

Completion with


Direct Material

Conversion

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

Units completed and transferred out 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

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


PROBLEM 4-27 (CONTINUED)

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

transferred outtotal cost perequivalent unit

⎛⎝⎜

⎞⎠⎟ ×

⎛⎝⎜

⎞⎠⎟ ........................ 180,000 × $4.00 $720,000

Cost remaining in June 30 work-in-process inventory: Direct material: number of

equivalentunits ofdirect material

cost perequivalentunit ofdirect material

⎛

⎝

⎜⎜⎜⎜

⎞

⎠

⎟⎟⎟⎟

×

⎛

⎝

⎜⎜⎜⎜

⎞

⎠

⎟⎟⎟⎟

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

50,000 × $2.35

$117,500

Conversion: number of

equivalentunits ofconversion

cost perequivalentunit ofconversion

⎛

⎝

⎜⎜⎜⎜

⎞

⎠

⎟⎟⎟⎟

×

⎛

⎝

⎜⎜⎜⎜

⎞

⎠

⎟⎟⎟⎟

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

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


PROBLEM 4-28 (45 MINUTES)

1. Physical flow of units: Physical

Units 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 2. Equivalent units:

Equivalent Units

Physical Units

Percentage of

Completion with


Direct Material

Conversion

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

Units completed and transferred 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

Total Work 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 90,000 Costs 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:

⎟⎟⎠

⎞⎜⎜⎝

⎛×⎟⎟

⎠

⎞⎜⎜⎝

⎛unit equivalent

percost total

out dtransferreunits of number ........................... 80,000 × $3.81 $304,800

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

⎟⎟⎟⎟⎟

⎠

⎞

⎜⎜⎜⎜⎜

⎝

⎛

×

⎟⎟⎟⎟⎟

⎠

⎞

⎜⎜⎜⎜⎜

⎝

⎛

materialdirect ofunit

equivalentpercost

materialdirect of units

equivalentof number

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

30,000 × $2.00

$60,000

Conversion:

⎟⎟⎟⎟⎟

⎠

⎞

⎜⎜⎜⎜⎜

⎝

⎛

×

⎟⎟⎟⎟⎟

⎠

⎞

⎜⎜⎜⎜⎜

⎝

⎛

conversionofunit

equivalentpercost

conversionof units

equivalentof number

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

10,000 × $1.81

18,100

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



1. Physical flow of units:

Physical Units

Work in process, 1/1/x4 ............................................................................ 210,000 Units started during 20x4 ......................................................................... 1,100,000 Total units to account for ......................................................................... 1,310,000 Units completed and transferred out during 20x4................................. 1,000,000 Work in process, 12/31/x4 ........................................................................ 310,000 Total units accounted for ......................................................................... 1,310,000 2. Equivalent units:

Equivalent Units

Physical Units

Percentage of

Completion with


Direct Material

Conversion

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

Units completed and transferred out during 20x4 .......................

1,000,000

100%

1,000,000

1,000,000

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



3. Costs per equivalent unit:

Direct Material

Conversion

Total

Work in process, 1/1/x4 .................................. $ 300,000 $ 620,800a $ 920,800 Costs incurred during 20x4 ........................... 1,403,000 3,400,000b 4,803,000 Total costs to account for .............................. $1,703,000 $4,020,800 $5,723,800 Equivalent units .............................................. 1,310,000 1,148,800 Costs 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 ÷ 1,310,000

d$3.50 = $4,020,800 ÷ 1,148,800

e$4.80 = $1.30 + $3.50



4. Cost of ending inventories: Cost of goods completed and transferred out:

⎟⎟⎠

⎞⎜⎜⎝

⎛×⎟⎟

⎠

⎞⎜⎜⎝

⎛unit equivalent

percost total

out dtransferreunits of number

.................... 1,000,000 × $4.80 $4,800,000

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

⎟⎟⎟⎟⎟

⎠

⎞

⎜⎜⎜⎜⎜

⎝

⎛

×

⎟⎟⎟⎟⎟

⎠

⎞

⎜⎜⎜⎜⎜

⎝

⎛


equivalentpercost


equivalentof number

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

310,000 × $1.30

$403,000

Conversion:

⎟⎟⎟⎟⎟

⎠

⎞

⎜⎜⎜⎜⎜

⎝

⎛

×

⎟⎟⎟⎟⎟

⎠

⎞

⎜⎜⎜⎜⎜

⎝

⎛

conversionofunit

equivalentpercost

conversionof units

equivalentof number

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

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............................ $4,800,000 Cost 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 unit



1. Equivalent units:

Equivalent Units

Physical Units

Percentage of

Completion with


Direct Material

Conversion

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

Units completed and transferred out during August......................

100,000

100%

100,000

100,000

Work in process, August 31.......... 20,000 30% 20,000 6,000 Total units accounted for .............. 120,000 ______ ______ Total equivalent units .................... 120,000 106,000 2. Costs per equivalent unit: Direct

Material

Conversion

Total Total costs to account for

Equivalent units $138,000

120,000 $1,089,680

106,000

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:

⎟⎟⎠

⎞⎜⎜⎝

⎛×⎟⎟

⎠

⎞⎜⎜⎝

⎛unit equivalent

percost total


..................... 100,000 × $11.43 $1,143,000



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

⎟⎟⎟⎟⎟

⎠

⎞

⎜⎜⎜⎜⎜

⎝

⎛

×

⎟⎟⎟⎟⎟

⎠

⎞

⎜⎜⎜⎜⎜

⎝

⎛


equivalentpercost


equivalentof number

......................... 20,000 × $1.15 $23,000

Conversion:

⎟⎟⎟⎟⎟

⎠

⎞

⎜⎜⎜⎜⎜

⎝

⎛

×

⎟⎟⎟⎟⎟

⎠

⎞

⎜⎜⎜⎜⎜

⎝

⎛

conversionofunit

equivalentpercost

conversionof units

equivalentof number

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

6,000 × $10.28

61,680

Total cost of August 31 work in process..................................................... $ 84,680 Check: Cost of goods completed and transferred out .............................. $1,143,000 Cost of August 31 work-in-process inventory............................... 84,680 Total costs accounted for ................................................................ $1,227,680 5. Journal entry: Finished-Goods Inventory................................................. 1,143,000 Work-in-Process Inventory..................................... 1,143,000



1. a. Equivalents units:

Equivalent Units

Physical Units

Percentage of

Completion with


Direct Material

Conversion

Work in process, June 1 ............. 30,000 35% Units started during June ........... 34,000 Total 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 18,000 Total units accounted for............ 64,000 _____ _____ Total equivalent units.................. 64,000 58,000 b. Unit costs: Direct

Material

Conversion

Total Total costs to account for

Equivalent units $348,800

64,000 $2,844,900

58,000

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:

⎟⎟⎠

⎞⎜⎜⎝

⎛⎟⎟⎠

⎞⎜⎜⎝

⎛×

unit equivalentpercost total


40,000 × $54.50 $2,180,000

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

⎟⎟⎟⎟⎟

⎠

⎞

⎜⎜⎜⎜⎜

⎝

⎛

×

⎟⎟⎟⎟⎟

⎠

⎞

⎜⎜⎜⎜⎜

⎝

⎛


equivalentpercost


equivalentof number

24,000 × $5.45 $130,800

Conversion:

⎟⎟⎟⎟⎟

⎠

⎞

⎜⎜⎜⎜⎜

⎝

⎛

⎟⎟⎟⎟⎟

⎠

⎞

⎜⎜⎜⎜⎜

⎝

⎛

×

conversionofunit

equivalentpercost

conversionof units

equivalentof number

.............................. 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 ............................ $2,180,000 Cost of June 30 work-in-process inventory ............................... 1,013,700 Total costs accounted for.............................................................. $3,193,700 2. Journal entry: Finished-Goods Inventory............................................. 2,180,000 Work-in-Process Inventory .................................. 2,180,000



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

JR1163 ................................ $ 225,000 JY1065 ................................ 710,000 DC0766 ............................... 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……………………………….…….. $134,274 Overhead 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:

Physical Units

Percentage Of

Completion With


Equivalent Units Direct Material Conversion

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

26,000

100%

26,000

26,000

Work in process, April 30…………….. 4,000 45% 4,000 1,800 Total units accounted for……………... 30,000 Total equivalent units………………….. 30,000 27,800



Direct Material

Conversion

Total

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

a$1,620,000 ÷ 30,000 = $54 b$639,400 ÷ 27,800 = $23 c$54 + $23 = $77 3. The cost of the ending work-in-process inventory is $257,400:

Direct material (4,000 x $54)…….. $216,000 Conversion 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).................................................................... 10,000 Units completed and transferred out during October ......................................... 75,000 Total equivalent units: conversion ........................................................................ 78,500 Work in process, October 1: conversion .............................................................. $ 30,225 Costs incurred during October: direct material ................................................... 600,000 Cost per equivalent unit: conversion .................................................................... 11.85 Cost of goods completed and transferred out during October .......................... 1,556,250 Cost remaining in ending work-in-process inventory: direct material .............. 44,500

PRODUCTION REPORT: FANTASIA FLOUR MILLING COMPANY Weighted-Average Method

Percentage of Completion with Equivalent Units Physical Respect to Direct Units Conversion Material Conversion

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

Units completed and transferred out during October ............. 75,000 100% 75,000 75,000 Work in process, October 31........ 5,000 70% 5,000 3,500 Total units accounted for.............. 80,000 _____ _____ Total equivalent units.................... 80,000 78,500



Direct Material Conversion Total Work in process, October 1.......... $112,000 $ 30,225 $ 142,225 Costs incurred during October .... 600,000 900,000 1,500,000 Total costs to account for............. $712,000 $930,225 $1,642,225 Equivalent units ............................. 80,000 78,500 Costs 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:

⎟⎟⎠

⎞⎜⎜⎝

⎛⎟⎟⎠

⎞⎜⎜⎝

⎛×

unit equivalentpercost total

out dtransferreunits of number ............................... 75,000 × $20.75 $1,556,250

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

⎟⎟⎟⎟⎟

⎠

⎞

⎜⎜⎜⎜⎜

⎝

⎛

×

⎟⎟⎟⎟⎟

⎠

⎞

⎜⎜⎜⎜⎜

⎝

⎛


equivalentpercost


equivalentof number

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

Conversion:

⎟⎟⎟⎟⎟

⎠

⎞

⎜⎜⎜⎜⎜

⎝

⎛

×

⎟⎟⎟⎟⎟

⎠

⎞

⎜⎜⎜⎜⎜

⎝

⎛

conversionofunit

equivalentpercost

conversionof units

equivalentof number

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

Total cost of October 31 work-in-process ......................................................... $85,975 Check: Cost of goods completed and transferred out ...... $1,556,250 Cost of October 31 work-in-process inventory .... 85,975 Total 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):

Physical Units

Percentage Of

Completion With


Equivalent Units __________________ Direct Material Conversion

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

during June…………………………..

600

100%

600

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

Direct

Material

Conversion

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

a$55,000 ÷ 1,000 = $55 b$36,000 ÷ 900 = $40 c$55 + $40 = $95 Finished-Goods Inventory…………………………… 57,000 Work-in-Process Inventory…………………. 57,000

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

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


PROBLEM 4-34 (CONTINUED) 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

of Completion with Respect Tax to Returns Conversion (physical (labor and Equivalent Units units) overhead) Labor Overhead

Returns in process, February 1 .... 300 20% Returns started in February .......... 900 Total returns to account for .......... 1,200 Returns completed during 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 £ 7,500 Costs incurred during February .................. 90,000 51,000 141,000 Total costs to account for ............................ £93,500 £55,000 £148,500 Equivalent units............................................. 1,100 1,100 Costs per equivalent unit ............................. £85.00 £50.00 £135.00

2. Cost of returns in process on February 28: Labor: equivalent units × cost per equivalent unit 300 × £85.00........................................................ £25,500 Overhead: equivalent units × cost per equivalent unit 300 × £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.................................................................................. 55,000 Units completed and transferred out during January ......................................... 60,000 Total equivalent units: conversion ........................................................................ 66,000 Work in process, January 1: conversion .............................................................. $ 110,600 Costs incurred during January: direct material ................................................... 400,000 Cost per equivalent unit: conversion .................................................................... 14.10 Cost of goods completed and transferred out during January .......................... 1,320,000 Cost remaining in ending work-in-process inventory: direct material .............. 158,000

PRODUCTION REPORT: CANANDAIGUA CARPET COMPANY Weighted-Average Method

Equivalent Units

Physical Units

Percentage of

Completion with


Direct Material

Conversion

Work in process, January 1............. 25,000 25% Units started during January........... 55,000 Total 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



Direct Material

Conversion

Total

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

⎟⎟⎠

⎞⎜⎜⎝

⎛×⎟⎟

⎠

⎞⎜⎜⎝

⎛unit equivalent

percost total


........................... 60,000 × $22.00 $1,320,000

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

⎟⎟⎟⎟⎟

⎠

⎞

⎜⎜⎜⎜⎜

⎝

⎛

×

⎟⎟⎟⎟⎟

⎠

⎞

⎜⎜⎜⎜⎜

⎝

⎛


equivalentpercost


equivalentof number

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

20,000 × $7.90

$ 158,000

Conversion:

⎟⎟⎟⎟⎟

⎠

⎞

⎜⎜⎜⎜⎜

⎝

⎛

×

⎟⎟⎟⎟⎟

⎠

⎞

⎜⎜⎜⎜⎜

⎝

⎛

conversionofunit

equivalentpercost

conversionof units

equivalentof number

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

6,000 × $14.10

84,600

Total cost of January 31 work in process................................................ $242,600 Check: Cost of goods completed and transferred out... $1,320,000 Cost 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 20x5 Percentage of Completion with Equivalent Units Physical Respect to Direct Units Conversion Material Conversion

Work in process, November 1 ...... 5,000 70% Units started during November.... 17,000 Total units to account for ............. 22,000 Units completed and transferred out during November.......... 16,000 100% 16,000 16,000 Work in process, November 30 6,000 30% 6,000 1,800 Total units accounted for.............. 22,000 ____ _ _ ____ Total equivalent units.................... 22,000 17,800 Direct Material Conversion Total Work in process, November 1 ...... $ 31,600 $ 55,220 $ 86,820 Costs incurred during November 85,000* 210,000† 295,000 Total costs to account for............. $116,600 $265,220 $381,820 Equivalent units ............................. 22,000 17,800 Costs 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:

⎟⎟⎠

⎞⎜⎜⎝

⎛×⎟⎟

⎠

⎞⎜⎜⎝

⎛unit equivalent

percost total


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

Cost remaining in November 30 work-in-process inventory Direct material:

⎟⎟⎟⎟⎟

⎠

⎞

⎜⎜⎜⎜⎜

⎝

⎛

×

⎟⎟⎟⎟⎟

⎠

⎞

⎜⎜⎜⎜⎜

⎝

⎛


equivalentpercost


equivalentof number

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

Conversion

⎟⎟⎟⎟⎟

⎠

⎞

⎜⎜⎜⎜⎜

⎝

⎛

×

⎟⎟⎟⎟⎟

⎠

⎞

⎜⎜⎜⎜⎜

⎝

⎛

conversionofunit

equivalentpercost

conversionof units

equivalentof number

............................................ 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............. 85,000 Raw-Material Inventory ............................................ 85,000 b. Work-in-Process Inventory: Mixing Department............. 70,000 Wages 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 ........ 323,200 Work-in-Process Inventory: Mixing Department... 323,200



1. Conversion cost per unit in department I:

*produced unitsoverhead ingmanufactur labordirect +

=

500,2000,2500,5

$460,000 $76,000 ++

+=

uni per $53.60= 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:

*produced unitsoverhead ingmanufactur labordirect +

=

2,5002,000

$136,000$44,000++

=

unit per $40.00= *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 per

unit in department I + conversion cost per unit in department I

$53.6010,000

$900,000+=

sheet per $143.60=



4. Cost of an unetched, colored glass sheet: = cost per clear

glass sheet + direct material per unit in department II + conversion cost per

unit in department II $40.00

4,500$144,000$143.60 ++=

sheet per $215.60= 5. Cost of an etched, colored glass sheet: = cost per unetched

colored glass sheet + conversion cost per unit in department III

2,500

$147,500$76,000$215.60 ++=

sheet per $305.00= PROBLEM 4-39 (40 MINUTES)

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 Finish Units produced..................... 32,000 22,000 10,000 4,000 Material costs ....................... $288,000 $ 66,000 $22,500 $18,000 Unit material cost.......... 9.00 3.00 2.25 4.50 Conversion 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 Costs

Plastic Sheets

Standard Model

Deluxe Model

Executive Model

Material costs: Extrusion ....................... $9.00 $9.00 $9.00 $9.00 Form ............................... 3.00 3.00 3.00 Trim ................................ 2.25 2.25 Finish.............................. 4.50 Conversion costs: Extrusion ....................... 18.375 18.375 18.375 18.375 Form ............................... 9.00 9.00 9.00 Trim ................................ 10.35 10.35 Finish.............................. _ _ _ 15.75 Total unit cost ...................... $27.375 $39.375 $51.975 $72.225 Units 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 Costs

Plastic sheets $ 273,750 Standard model 472,500 Deluxe model 311,850 Executive model 288,900 Total $1,347,000 2. Journal entries: Work-in-Process Inventory: Extrusion .............................. 876,000 Raw-Material Inventory ............................................. 288,000 Applied Conversion Costs ....................................... 588,000 Finished-Goods Inventory .................................................. 273,750 Work-in-Process Inventory: Extrusion.................... 273,750 Work-in-Process Inventory: Forming ................................ 866,250 Work-in-Process Inventory: Extrusion.................... 602,250 Raw-Material Inventory ............................................. 66,000 Applied Conversion Costs ....................................... 198,000



Finished-Goods Inventory .................................................. 472,500 Work-in-Process Inventory: Forming...................... 472,500 Work-in-Process Inventory: Trimming .............................. 519,750 Work-in-Process Inventory: Forming...................... 393,750 Raw-Material Inventory ............................................. 22,500 Applied Conversion Costs ....................................... 103,500 Finished-Goods Inventory .................................................. 311,850 Work-in-Process Inventory: Trimming.................... 311,850 Work-in-Process Inventory: Finishing............................... 288,900 Work-in-Process Inventory: Trimming.................... 207,900 Raw-Material Inventory ............................................. 18,000 Applied Conversion Costs ....................................... 63,000 Finished-Goods Inventory .................................................. 288,900 Work-in-Process Inventory: Finishing .................... 288,900



1. Conversion costs:

Rolling Molding Punching Dipping Direct 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:

Ceralam Sheets

Non

Sold after

reflective Ceralam

Relective Ceralam

Total

Rolling Housings Housings Costs Direct 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 1,500 Unit cost.................................... $310 $610 $800

aNumber of units × rolling cost per unit ($150) bNumber of units × molding cost per unit ($140) cNumber of units × punching cost per unit ($160) dNumber of units × dipping cost per unit ($150) 3. Journal entries: Work-in-Process Inventory: Rolling .................................... 3,100,000 Raw-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 after

rolling × $310 per unit

Cost of Goods Sold ............................................................... 1,860,000* Finished-Goods Inventory.......................................... 1,860,000 *$1,860,000 = cost of ceralam sheets sold after

rolling

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 ceralam

housings sold after punching

Work-in-Process Inventory: Dipping ................................... 915,000* Work-in-Process Inventory: Punching...................... 915,000 *$915,000 = cost remaining in Work-in-Process

Inventory: Punching

= $1,800,000 + $640,000 – $1,525,000 Work-in-Process Inventory: Dipping ................................... 285,000 Raw-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 housings

sold after dipping × $800 per unit

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



1. a. Cost of units completed and transferred to finished-goods inventory during February:

Units completed and transferred out .............................................. 5,950 Total cost per equivalent unit .......................................................... × $16.00 Cost of units completed and transferred out ................................. $95,200 b. To compute the cost of the Finishing Department's work-in-process inventory

on February 28, first determine the number of units in ending work-in-process inventory, as follows:

Work-in-process inventory, February 1 (in units) .......................... 700 Add: Units transferred in .................................................................. 7,000 Units to account for........................................................................... 7,700 Less: Units transferred to finished goods...................................... 5,950 Work-in-process inventory, February 28 (in units) ........................ 1,750 Then compute the transferred-in, direct-material, and conversion costs in the

February 28 work-in-process inventory:

Input

Equivalent

Units

Cost per Equivalent

Unit

Cost Transferred-in ........................ 1,750 × $6.00 = $10,500 Direct material........................ 1,750 × $3.00 = 5,250 Conversion............................. 1,750 × 30% × $7.00 = 3,675 Total cost of February 28 work-in-process inventory .................. $19,425 2. Equivalent units of transferred-in costs ................................................... 7,700 Transferred-in cost per equivalent unit..................................................... × $6.00 Total transferred-in cost ............................................................................. $46,200 Deduct: Transferred-in cost in February 1 work-in-process inventory . 14,500 Total cost transferred in from the Assembly Department....................... $31,700 Journal entry to record transfer: Work-in-Process Inventory: Finishing Department ............. 31,700 Work-in-Process Inventory: Assembly Department ..... 31,700


SOLUTIONS TO CASES CASE 4-42 (60 MINUTES)

PRODUCTION REPORT: AGRITECH, INC. - MIXING DEPARTMENT Weighted-Average Method

Equivalent Units

Physical Units

Percentage of

Completion with


Direct Material

Conversion

Work in process, September 1 ........ -0- — Units started during September...... 38,000 Total units to account for ................ 38,000 Units completed and transferred

out during September .................

38,000

100%

38,000

38,000 Work in process, September 30 ...... -0- — -0- -0- Total units accounted for................. 38,000 _____ _____ Total equivalent units....................... 38,000 38,000 Direct

Material

Conversion

Total Work in process, September 1 ........................... -0- -0- -0- Costs incurred during September ..................... $304,000 $95,000 $399,000 Total costs to account for................................... $304,000 $95,000 $399,000 Equivalent units ................................................... 38,000 38,000 Costs per equivalent unit.................................... $8.00 $2.50 $10.50 Cost of goods completed and transferred out of the Mixing Department

during September:

⎟⎟⎠

⎞⎜⎜⎝

⎛×⎟⎟

⎠

⎞⎜⎜⎝

⎛unit equivalent

percost total


........................... 38,000 × $10.50 $399,000

Cost remaining in September 30 work-in-process inventory in the

Mixing Department .........................................................................................

-0- Check: Cost of goods completed and transferred out ............. $399,000 Cost of September 30 work-in-process inventory........ -0- Total costs accounted for ............................................... $399,000


CASE 4-42 (CONTINUED)

PRODUCTION REPORT: AGRITECH, INC. - SATURATING DEPARTMENT Weighted-Average Method

Equivalent Units

Physical Units

Percentage of

Completion with


Transferred in

Conversion

Work in process, September 1 ................. 2,000 40% Units transferred in during September.... 38,000 Total units to account for ......................... 40,000 Units completed and transferred out during September ..........................

37,000*

100%

37,000

37,000

Work in process, September 30 ............... 3,000 40% 3,000 1,200 Total units accounted for.......................... 40,000 _____ _____ Total equivalent units................................ 40,000 38,200 *37,000 = 40,000 − 3,000 Transferred

In

Conversion

Total Work in process, September 1 ........................... $ 41,000 $ 24,600 $ 65,600 Costs incurred during September ..................... 399,000* 90,000 489,000 Total costs to account for................................... $440,000 $114,600 $554,600 Equivalent units ................................................... 40,000 38,200 Costs per equivalent unit.................................... $11.00 $3.00 $14.00 *Cost of goods completed and transferred out of Mixing Department during September, under the weighted-average method.



Cost of goods completed and transferred out of the Saturating Department during September:

⎟⎟⎠

⎞⎜⎜⎝

⎛×⎟⎟

⎠

⎞⎜⎜⎝

⎛unit equivalent

percost total


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

37,000 × $14.00

$518,000

Cost remaining in September 30 work-in-process inventory in the

Saturating Department:

Transferred-in costs:

⎟⎟⎟⎟⎟

⎠

⎞

⎜⎜⎜⎜⎜

⎝

⎛

×

⎟⎟⎟⎟⎟

⎠

⎞

⎜⎜⎜⎜⎜

⎝

⎛

unitequivalent

percost in-dtransferre

cost in-dtransferreof units

equivalentof number

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

3,000 × $11.00

$33,000

Direct material: None Conversion:

⎟⎟⎟⎟⎟

⎠

⎞

⎜⎜⎜⎜⎜

⎝

⎛

×

⎟⎟⎟⎟⎟

⎠

⎞

⎜⎜⎜⎜⎜

⎝

⎛

unitequivalent

percost conversion

conversionof units

equivalentof number

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

1,200 × $3.00

3,600

Total cost of September 30 work in process .......................................... $36,600 Check: Cost of goods completed and transferred out ............. $518,000 Cost of September 30 work-in-process inventory........ 36,600 Total costs accounted for ............................................... $554,600


CASE 4-43 (45 MINUTES)

1. Equivalent units of material........................................................................... 8,500 Equivalent units of conversion ..................................................................... 8,260 2. Cost per equivalent unit of material ............................................................. $6.00 Cost per equivalent unit of conversion........................................................ $7.00 3. October 31 work-in-process inventory......................................................... $3,520 Cost 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 PLANT

Weighted-Average Method

Equivalent Units

Physical Units

Percentage of

Completion with


Direct Material

Conversion

Work in process, October 1............. 500 30% Units started during October........... 8,000 Total 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................. 8,500 Total equivalent units....................... 8,500 8,260



CALCULATION OF COSTS PER EQUIVALENT UNIT: HARRISBURG PLANT Weighted-Average Method

Direct Material

Conversion

Total

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

ANALYSIS OF TOTAL COSTS: HARRISBURG PLANT Weighted-Average Method

Cost of goods completed and transferred out during October:

⎟⎟⎠

⎞⎜⎜⎝

⎛×⎟⎟

⎠

⎞⎜⎜⎝

⎛unit equivalent

percost total


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

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

⎟⎟⎟⎟⎟

⎠

⎞

⎜⎜⎜⎜⎜

⎝

⎛

×

⎟⎟⎟⎟⎟

⎠

⎞

⎜⎜⎜⎜⎜

⎝

⎛


equivalentpercost


equivalentof number

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

400 × $6.00

$2,400

Conversion:

⎟⎟⎟⎟⎟

⎠

⎞

⎜⎜⎜⎜⎜

⎝

⎛

×

⎟⎟⎟⎟⎟

⎠

⎞

⎜⎜⎜⎜⎜

⎝

⎛

conversionofunit

equivalentpercost

conversionof units

equivalentof number

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

160 × $7.00

1,120

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



Check: Cost of goods completed and transferred out ... $105,300 Cost 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.


CURRENT ISSUES IN MANAGERIAL ACCOUNTING ISSUE 4-44 “DUPONT TRIES TO UNCLOG A PIPELINE: CAN IT MOVE NEW PRODUCTS OUT OF THE LAB FASTER?” BUSINESS WEEK, JANUARY 27, 2003, P. 103, 104, AMY BARRETT.

DuPont is likely to employ a process costing system, calculating costs by department. Such systems are widely used in repetitive production environments (as found in the chemicals industry) where large volumes of identical or very similar products are manufactured in a continuous flow. R&D is a long-term investment; it is aimed at developing new products to maintain the company’s competitive advantages. For external reporting purposes, under financial accounting standards, R & D costs are expensed as period costs. For internal reporting purposes (managerial accounting), R&D costs should be allocated to the various processes that are being supported by the R & D effort. One way of doing this would be to incorporate R&D costs into the process costing system as a form of applied overhead.

ISSUE 4-45 “INTERNATINAL PAPER SHUTTING PLANTS TO CUT SUPPLY,” THE WALL STREET JOURNAL, OCTOBER 19, 2000, ALLANNA SULLIVAN.

Process costing would be appropriate for International Paper. Process costing is used in repetitive production environments (such as the paper industry), where large numbers of identical or very similar products are manufactured in a continuous flow. Shutting down inefficient or underused factories should help International Paper reduce its product costs.

ISSUE 4-46 “BOTTLED UP: PROFIT AREN’T FLOWING LIKE THEY USED TO AT PACKAGED-GOODS COMPANIES, GREEN KETCHUP AND TUNA IN A POUCH SAVE HEINZ?” FORTUNE, SEPETMBER 18,2000, JULIE CRESWELL.

Heinz is a food processor and manufactures large quantities of relatively homogeneous products. Thus, process costing would be an appropriate product costing system for Heintz.

Heinz has recently begun to compete for more noticeable and attractive shelve space, and, after years of neglect, the company has begun to market and package to reflect the


growing demographic changes in America. By bringing on the StarKist Tuna in a Pouch it has recognized that eating habits have changed in America. The green ketchup in an EZ Squirt bottle is an attempt to gain a young audience because eating habits begin early. Fruit and Vegetable Wash is a new product offering.

ISSUE 4-47 “THERE’S A NEW ECONOMY OUT THERE, AND IT LOOKS NOTHING LIKE THE OLD ONE,” THE WALL STREET JOURNAL, JANURARY 1, 2000, THOMAS PETZINGER, JR.

Managerial accounting information would serve the same five objectives described in Chapter 1 in the new business world discussed in the article. There would, however, be less integration across those functions if companies are broken up into smaller, more independent businesses.

Managerial accounting information would be just as valuable to companies under the suggested future for the structure of business.

Product costing systems would serve the same role in the “new economy,” but probably would concentrate more on the outsourcing and supply chain management functions.

Chap 004

Documents

process costing

product costs

conversion costs

manufacturingoverhead

directmaterial costs

directlabor costs

actual costing

production process