Chap 008

Chapter 08 - Process Costing

8 Process Costing

Solutions to Review Questions

8-1.

Process costing is most likely to be used in industries that produce relatively homogeneous products using continuous processes.

8-2.

Using the basic cost flow equation, rearrange the terms to solve for the unknown beginning inventory. From BB + TI – TO = EB, we have:

Beginning Inventory + Current Work – Transferred Out = Ending Inventory.

Rearranging yields:

Beginning Inventory = Transferred Out + Ending Inventory – Current Work

8-3.

With FIFO costing, the units in the beginning inventory are transferred out first. These beginning inventory units carry with them the costs incurred in a previous period plus the costs incurred this period to complete the beginning inventory. The costs transferred-out will tend to be lower versus weighted-average costing during periods of rising costs. The ending work-in-process inventory will be carried at a cost that is more current, hence higher.

8-4.

Under FIFO costing, the equivalent units represent only the work done in the current period. Under weighted average, the equivalent units represent the work associated with all of the costs charged to work in process regardless of the period in which those costs were incurred (i.e., including costs from prior periods that are in beginning inventory).

8-1


8-5.

Prior department costs behave the same as direct materials, which are typically added at the start of production. They are treated separately because they represent the accumulation of costs from previous departments rather than the receipt of materials from the stores area. It is helpful to separate prior department costs from other costs because the manager of the department receiving the transferred units has no control over the costs incurred in prior departments. Thus, the prior department costs are not useful for evaluating the performance of the manager of the department receiving the units.

8-6.

Disagree. The more important individual unit costs are for decisions, the more likely it is that a company will want to use a costing system that separates costs by units. With job costing, the company can treat every unit as a separate job.

8-7.

From the inventory equation:

BB + TI – TO = EB; Therefore, TO = BB + TI – EB.

8-2


Solutions to Critical Analysis and Discussion Questions

8-8.

To assign costs to specific barrels of liquid cleaning products or similarly mass–produced items requires a considerable amount of record keeping. Assuming products are all the same, a process costing system provides sufficient information for control purposes. Record keeping is simplified since all costs in a given month are accumulated in one account and assigned at the end of the period.

8-9.

This is a fairly common problem. LIFO is usually beneficial for tax purposes when prices are rising and inventory levels are steady or rising. However, maintaining internal records on a LIFO basis is often quite burdensome. To avoid the problem, companies usually maintain their internal accounting records on a FIFO or weighted-average basis and then make an estimate of the LIFO cost of inventories. The LIFO estimate is usually done on a highly aggregated basis and employs some form of “dollar value” LIFO estimation.

A company may use LIFO for tax purposes and some other method for internal accounting purposes. This is an example of the idea of “different costs for different purposes,” which was discussed in earlier chapters.

8-10.

The results will be the same using either costing system. The important point is that job costing and process costing are both methods to assign costs incurred to services completed. When there is only one service, the method of accumulation and assignment does not affect the final cost.

8-11.

The correct answer is (b). The difference between the weighted-average and FIFO methods of process costing is how they handle beginning WIP. When there is no beginning WIP there is no difference between the two costing methods.

Answer (a) is incorrect because both methods assume units are homogeneous. Answer (c) is incorrect because amounts in beginning inventory will differ between FIFO and weighted-average. If there are no ending inventories, then the cost of goods manufactured is the sum of the current costs, which will be the same under both methods, and the costs in beginning work in process, which can differ. Answer (d) is incorrect because the cost per equivalent unit can differ and so the costs assigned to the equivalent units in ending inventory can differ.

8-3


8-12.

If the percentage completion is overstated, (a) the total equivalent units for the period will be overstated, because the work-in-process ending inventory will be assumed to have more equivalent units than it actually does. (b) The costs per equivalent unit will be understated, as the cost is divided by equivalent units that are overstated. (c) Because the equivalent units in ending work-in-process are overstated, the costs transferred-out will be understated (and the ending work-in-process costs overstated).

8-13.

The correct answer is (b). The weighted-average method of process costing combines the costs of work done in the previous period and the current period.

8-14.

(e). None of these answers are correct.

Answers (a) and (b) are incorrect because (a) ignores stages of completion and (b) double counts units started that are still in ending inventory. Answer (c) is incorrect because the ending inventory should be multiplied by the amount of work done this period, not work necessary to complete the items. Answer (d) is incorrect because for the same reason as answer (c): the ending inventory should be multiplied by the amount of work done this period, not work necessary to complete the items.

8-4


Solutions to Exercises

8-15. (20 min.) Compute Equivalent Units—Weighted-Average Method: Clean Corporation.

a.Materials

b.Conversion Costs

Units transferred out........................................... 42,000 42,000Equivalent units in ending inventory: Materials: 10% x 14,000a units....................... 1,400 EU Conversion costs: 20% x 14,000 units............ 2,800 EUTotal equivalent units for all work done to date. . 43,400 EU 44,800 EU

a14,000 units in ending inventory = 8,000 units in beginning inventory + 48,000 units started this period – 42,000 units transferred out.

8-5


8-16. (20 min.) Compute Equivalent Units—FIFO method: Clean Corporation.

Compute Equivalent Units—FIFOa.

Materialsb.

Conversion CostsTo complete beginning inventory: Materials: 50%a x 8,000 units.........................4,000 EU Conversion costs: 70%b x 8,000 units............ 5,600 EUStarted and completed during the period...........34,000 EUc 34,000 EUUnits still in ending inventory: Materials: 10% x 14,000d units.......................1,400 EU Conversion costs: 20% x 14,000 units............ 2,800 EU

39,400 EU 42,400 EU

a50% = 100% – 50% already done at the beginning of the period.

b70% = 100% – 30% already done at the beginning of the period.

c34,000 units started and completed = 42,000 units transferred out less 8,000 units from beginning inventory.

d 14,000 units in ending inventory = 8,000 units in beginning inventory + 48,000 units started this period – 42,000 units transferred out.

Alternative Method:Equivalent

units of work done this

period

=Units

transferred out

+EU

ending inventory

–EU

beginning inventory

a. Materials: 39,400 EU = 42,000 units + 1,400 EU – 4,000 EUb. Conversion Costs: 42,400 EU = 42,000 units + 2,800 EU – 2,400 EU

8-6


8-17. (15 min.) Compute Equivalent Units—Weighted Average Method: Missouri Corporation.

a.Materials

b.Conversion

CostsUnits transferred out............................................... 150,000 150,000Equivalent units in ending inventory: Materials: 100% x 100,000 units......................... 100,000 Conversion costs: 15% x 100,000 units.............. 15,000Total equivalent units for all work done to date....... 250,000 165,000

8-18. (20 min.) Compute Equivalent Units—FIFO method: Missouri Corporation.

a.Materials

b.Conversion

CostsTo complete beginning inventory: Materials: 0%b x 70,000a units............................... 0 EU Conversion costs: 40%c x 70,000 units................. 28,000 EUStarted and completed during the period.................. 80,000 EU d 80,000 EUUnits still in ending inventory: Materials: 100% x 100,000 units............................ 100,000 EU Conversion costs: 15% x 100,000 units................. 15,000 EU

180,000 EU 123,000 EU

a 70,000 units in beginning inventory= 150,000 units transferred out + 100,000 units in ending inventory

– 180,000 units started this period.

b 0% = 100% – 100% already done at the beginning of the period.

c 40% = 100% – 60% already done at the beginning of the period.

d 80,000 units started and completed = 150,000 units transferred out less 70,000 units from beginning inventory.

Alternative MethodEquivalent

units of work done this period

=Units

transferred out

+EU

ending inventory

–EU

beginning inventory

a. Materials: 180,000 EU = 150,000 units + 100,000 EU – 70,000 EUb. Conversion Costs: 123,000 EU = 150,000 units + 15,000 EU – 42,000 EU

8-7


8-19. (30 min.) Compute Equivalent Units: Bears, Inc.

a. Weighted-average method:

MaterialsConversion

CostsUnits transferred out....................................................... 180,000 180,000Equivalent units in ending inventory: Materials: 100% x 27,000 units................................... 27,000 Conversion costs: 60% x 27,000 units........................ 16,200Total equivalent units for all work done to date............... 207,000 196,200

b. First-in, First-out (FIFO) method:

MaterialsConversion

CostsTo complete beginning inventory: Materials: 0%a x 27,000 units......................... 0 EU Conversion costs: 25%b x 27,000 units.......... 6,750 EUStarted and completed during the periodc.......... 153,000 EU 153,000 EUUnits still in ending inventory: Materials: 100% x 27,000 units....................... 27,000 EU Conversion costs: 60% x 27,000 units............ 16,200 EU

180,000 EU 175,950 EU

a 0% = 100% – 100% already done at the beginning of the period.


c 153,000 units started and completed

= 180,000 units transferred out less 27,000 units from beginning inventory.

8-8


8-20. (30 min.) Compute Equivalent Units—Ethical Issues: Aaron Company.

a. Weighted-average method:

MaterialsConversion

CostsUnits transferred out............................................... 630,000 630,000Equivalent units in ending inventory: Materials: 0% x 120,000 units............................. 0 Conversion costs: 40% x 120,000 units.............. 48,000Total equivalent units for all work done to date....... 630,000 678,000

b. First-in, First-out (FIFO) method:

a.Materials

b.Conversion

CostsTo complete beginning inventory: Materials: 0%a x 150,000 units....................... 0 EU Conversion costs: 40%b x 150,000 units........ 60,000 EUStarted and completed during the periodc.......... 480,000 EU 480,000 EUUnits still in ending inventory: Materials: 0% x 120,000 units......................... 0 EU Conversion costs: 40% x 120,000 units.......... 48,000 EU

480,000 EU 588,000 EU

a 0% = 100% – 100% already done at the beginning of the period (conversion was 60% complete).


c 480,000 units started and completed = 630,000 units transferred out less 150,000 units from beginning inventory.

c.

1. The change will reduce the unit cost for the units transferred to finished goods.

2. It is not ethical; there is no reason to believe the change reflects anything other than a desire for reporting better results.

3. It is unlikely to be successful for long. An accounting system keeps track of actual costs. If a manager postpones reporting them this period, they will be reported next period or shortly thereafter.

8-9


8-21. (20 min.) Compute Cost per Equivalent Unit—Weighted Average Method:Davenport Plant.

Physical Units

Materials Eq. Units

Flow of units: Units to be accounted for: Beginning WIP inventory................................. 270,000 Units started this period.................................. 720,000

Total units to account for............................. 990,000

Units accounted for: Completed and transferred out Materials (765,000 x 100%)........................ 765,000 765,000 Units in ending inventory: Materials (225,000 x 100%)........................ 225,000 225,000

Total units accounted for......................... 990,000 990,000

Direct MaterialsFlow of costs:Costs to be accounted for: Costs in beginning WIP inventory................................. $99,000 Current period costs..................................................... 316,800 Total costs to be accounted for................................. $415,800Cost per equivalent unit Materials ($415,800 ÷ 990,000 units) .......................... $0.42

8-10


8-22. (20 min.) Compute Cost per Equivalent Unit—FIFO method: Davenport Plant.

Physical Units

Materials Eq. Units

Flow of units: Units to be accounted for: Beginning WIP inventory......................................... 270,000 Units started this period........................................... 720,000

Total units to account for..................................... 990,000

Units accounted for: Completed and transferred out From beginning WIP inventory (270,000 x 0%) 270,000 0 Started and completed currently (495,000a x 100%)..........................................................................

495,000 495,000

Units in ending inventory: Materials (225,000 x 100%)................................. 225,000 225,000

Total units accounted for.................................. 990,000 720,000

a 495,000 units started and completed = 765,000 units transferred-out – 270,000 beginning WIP units.

Direct Materials

Flow of costs:Costs to be accounted for: Total costs to be accounted for (current period costs only).......... $316,800

Cost per equivalent unit Materials ($316,800 ÷ 720,000 units) .............................................. $ 0.44

8-11


8-23. (20 min.) Compute Equivalent Units—FIFO method: Santiago Company.

Physical Units

Conversion Eq. Units

Flow of units: Units to be accounted for: Beginning WIP inventory............................................... 45,000 Units started this period................................................ 510,000

Total units to account for........................................... 555,000

Units accounted for: Completed and transferred out From beginning WIP inventory [45,000 x (1 – 40%)] 45,000 27,000 Started and completed currently (435,000a x 100%) 435,000 435,000 Units in ending inventory: Conversion (75,000 x 70%)....................................... 75,000 52,500

Total units accounted for....................................... 555,000 514,500

a 435,000 units started and completed = 480,000 units transferred-out – 45,000 beginning WIP units.

8-12


8-24. (20 min.) Compute Cost per Equivalent Unit—Weighted-Average method: Santiago Company.

a. Physical Units Equivalent Units

Materials Eq. units

Conversion Costs Eq. units

Flow of units: Units to be accounted for: Beginning WIP inventory.................................45,000 Units started this period..................................510,000

Total units to account for.............................555,000

Units accounted for: Completed and transferred out.......................480,000 480,000 480,000 Units in ending inventory.................................75,000 Materials (75,000 x 100%).......................... 75,000 Conversion costs (75,000 x 70%)............... 52,500

Total units accounted for.............................555,000 555,000 532,500

b.Total

Direct Materials

Conversion Costs

Flow of costs:Costs to be accounted for: Costs in beginning WIP inventory.........................$ 63,000 $24,300 $38,700 Current period costs.............................................1,360,500 280,950 1,079,550

Total costs to be accounted for.........................$1,423,500 $305,250 $1,118,250

Cost per equivalent unit Materials ($305,250 ÷ 555,000 units)................... $ 0.55

Conversion costs ($1,118,250 ÷ 532,500 units)................................................................. $ 2.10

8-13


8-25. (35 min.) Compute Costs per Equivalent Unit—Weighted-Average Method: Matsui Lubricants.

Physical Units Equivalent Units

Materials Eq. units


Flow of units: Units to be accounted for: Beginning WIP inventory.................................600 Units started this period..................................4,000


Units accounted for: Completed and transferred outa.....................3,400 3,400 3,400 Units in ending inventory.................................1,200 Materials (1,200 x 40%).............................. 480 Conversion costs (1,200 x 20%)................. 240


a 3,400 units transferred out = 4,600 units to account for – 1,200 units in ending WIP inventory.

TotalDirect

MaterialsConversion

CostsFlow of costs:Costs to be accounted for: Costs in beginning WIP inventory.......... $ 1,248 $ 976 $ 272 Current period costs............................... 18,084 11,440 6,644

Total costs to be accounted for.......... $19,332 $12,416 $6,916

Cost per equivalent unit Materials ($12,416 ÷ 3,880 units).......... $ 3.20

Conversion costs ($6,916 ÷ 3,640 units)........ $ 1.90

8-14


8-26. (20 min.) Assign Costs to Goods Transferred Out and Ending Inventory—Weighted-Average Method: Matsui Lubricants.

TotalDirect

MaterialsConversion

CostsFlow of costs:Costs to be accounted for: Costs in beginning WIP inventory...................$ 1,248 $ 976 $ 272 Current period costs....................................... 18,084 11,440 6,644

Total costs to be accounted for...................$19,332 $12,416 $6,916


Conversion costs ($6,916 ÷ 3,640)................. $ 1.90

Costs accounted for: Costs assigned to units transferred out $17,340 $10,880 a $6,460 b

Cost of ending WIP inventory......................... 1,992 1,536 c 456 d

Total costs accounted for............................$19,332 $12,416 $6,916

Costs transferred out total $17,340, and costs in ending inventory total $1,992.

a $10,880 = 3,400 EU x $3.20 per EU.b $6,460 = 3,400 EU x $1.90 per EU.c $1,536 = 480 EU x $3.20 per EU.d $456 = 240 EU x $1.90 per EU.

8-15


8-27. (35 min.) Compute Costs per Equivalent Unit—FIFO Method: Matsui Lubricants.


Materials

Eq. units


Flow of units: Units to be accounted for: Beginning WIP inventory....................................... 600 Units started this period........................................ 4,000

Total units to account for................................... 4,600

Units accounted for: Completed and transferred outa........................... 3,400 From beginning WIP inventory Materials (600 x (1 – 60%)) 240 Conversion (600 x (1 – 53%)) 282 Started and completed currently (2,800 x 100%) 2,800 2,800 Units in ending inventory...................................... 1,200 Materials (1,200 x 40%).................................... 480 Conversion costs (1,200 x 20%)....................... 240

Total units accounted for................................... 4,600 3,520 3,322


TotalDirect

MaterialsConversion

CostsFlow of costs:Costs to be accounted for: Costs in beginning WIP inventory...................$ 1,248 $ 976 $ 272 Current period costs....................................... 18,084 11,440 6,644



Conversion costs ($6,644 ÷ 3,322)................. $ 2.00

8-16


8-28. (20 min.) Assign Costs to Goods Transferred Out and Ending Inventory—FIFO Method: Matsui Lubricants.


Materials Eq. units


Flow of units: Units to be accounted for: Beginning WIP inventory.................................600 Units started this period..................................4,000


Units accounted for: Completed and transferred outa.....................3,400 From beginning WIP inventory Materials (600 x (1 – 60%)) 240 Conversion (600 x (1 – 53%)) 282 Started and completed currently (2,800 x 100%).......................................................

2,800 2,800

Units in ending inventory.................................1,200 Materials (1,200 x 40%).............................. 480 Conversion costs (1,200 x 20%)................. 240



8-17


8-28. (continued)

TotalDirect

MaterialsConversion

CostsFlow of costs:Costs to be accounted for: Costs in beginning WIP inventory...................$ 1,248 $ 976 $ 544 Current period costs.......................................18,084 11,440 6,644



Conversion costs ($13,288 ÷ 3,322)............... $ 2.00

Costs accounted for: Costs assigned to units transferred out: Costs from beginning WIP inventory...........$ 1,248 $ 976 $ 272 Current costs added to complete beginning WIP inventory.....................................1,344 Materials ($3.25 x 240) ....................... 780 Conversion costs ($2.00 x 282) .......... 564 Current costs of units started and completed:

14,700

Materials ($3.25 x 2,800) ........................ 9,100 Conversion costs ($2.00 x 2,800) ........... 5,600

Total costs transferred out..................................$ 17,292 $10,856 $6,436Cost of ending WIP inventory.............................2,040 Materials ($3.25 x 480) ........................... 1,560 Conversion costs ($2.00 x 240) .............. 480


Ending inventory is slightly higher under the FIFO method because the unit costs are higher under FIFO.

8-18


8-29. (35 min.) Compute Costs per Equivalent Unit—Weighted-Average Method: Pacific Ink.


Materials Eq. units


Flow of units: Units to be accounted for: Beginning WIP inventory.................................48,000 Units started this perioda 84,000


Units accounted for: Completed and transferred out (given)...........102,000 102,000 102,000 Units in ending inventory.................................30,000 Materials (30,000 x 80%)............................ 24,000 Conversion costs (30,000 x 40%)............... 12,000


a 84,000 units started this period = 132,000 units to account for – 48,000 units in beginning work-in-process inventory.

TotalDirect

MaterialsConversion

Costs

Flow of costs:Costs to be accounted for: Costs in beginning WIP inventory...................$ 372,480 $ 152,460 $ 220,020 Current period costs.......................................2,685,720 1,171,800 1,513,920

Total costs to be accounted for...................$3,058,200 $1,324,260 $1,733,940

Cost per equivalent unit Materials ($1,324,260 ÷ 126,000 units).......... $ 10.51

Conversion costs ($1,733,940 ÷ 114,000)...... $ 15.21

8-19


8-30. (20 min.) Assign Costs to Goods Transferred Out and Ending Inventory—Weighted-Average Method: Pacific Ink.

TotalDirect

MaterialsConversion

CostsFlow of costs:Costs to be accounted for: Costs in beginning WIP inventory...................$ 372,480 $ 152,460 $ 220,020 Current period costs.......................................2,685,720 1,171,800 1,513,920



Conversion costs ($1,733,940 ÷ 114,000)...... $ 15.21

Costs accounted for: Costs assigned to units transferred out $2,623,440 $1,072,020 a $1,551,420 b

Cost of ending WIP inventory.........................434,760 252,240 c 182,520 d

Total costs accounted for............................$3,058,200 $1,324,260 $1,733,940

Costs transferred out total $2,623,440 and costs in ending inventory total $434,760.

a $1,072,020 = 102,000 EU x $10.51 per EU.

b $1,551,420 = 102,000 EU x $15.21 per EU.

c $252,240 = 24,000 EU x $10.51 per EU.

d $182,520 = 12,000 EU x $15.21 per EU.

8-20


8-31. (35 min.) Compute Costs per Equivalent Unit—FIFO Method: Pacific Ink.


Materials Eq. units

Conversion Costs Eq.

unitsFlow of units: Units to be accounted for: Beginning WIP inventory............................ 48,000 Units started this perioda 84,000

Total units to account for........................ 132,000

Units accounted for: Completed and transferred out 102,000 From beginning WIP inventory Materials (48,000 x (1 – 30%))...... 33,600 Conversion (48,000 x (1 – 30%))... 33,600 Started and completed ......................... 54,000 54,000 Units in ending inventory............................ 30,000 Materials (30,000 x 80%)....................... 24,000 Conversion costs (30,000 x 40%).......... 12,000

Total units accounted for........................ 132,000 111,600 99,600


TotalDirect

MaterialsConversion

Costs




Conversion costs ($1,513,920 ÷ 99,600)........ $ 15.20

8-21


8-32. (20 min.) Assign Costs to Goods Transferred Out and Ending Inventory—FIFO Method: Pacific Ink.


Materials Eq. units


Flow of units: Units to be accounted for: Beginning WIP inventory................................. 48,000 Units started this perioda 84,000


Units accounted for: Completed and transferred out 102,000 To complete beginning WIP inventory Materials (48,000 x (1 – 30%))........... 33,600 Conversion (48,000 x (1 – 30%))....... 33,600 Started and completed .............................. 54,000 54,000 Units in ending inventory................................. 30,000 Materials (30,000 x 80%)............................ 24,000 Conversion costs (30,000 x 40%)............... 12,000



8-22


8-32. (continued)

TotalDirect

MaterialsConversion

Costs




Conversion costs ($1,513,920 ÷ 99,600)........ $ 15.20

Costs accounted for: Costs assigned to units transferred out: Costs from beginning WIP inventory...........$ 372,480 $ 152,460 $ 220,020 Current costs added to complete beginning WIP inventory........................863,520 Materials ($10.50 x 33,600) ....................... 352,800 Conversion costs ($15.20 x 33,600) .......... 510,720 Current costs of units started and completed:..............................................1,387,800 Materials ($10.50 x 54,000) ....................... 567,000 Conversion costs ($15.20 x 54,000) .......... 820,800

Total costs transferred out..................................$ 2,623,800 $1,072,260 $1,551,540Cost of ending WIP inventory.............................434,400 Materials ($10.50 x 24,000) ....................... 252,000 Conversion costs ($15.20 x 12,000) .......... 182,400

Total costs accounted for................................$3,058,200 $1,324,260 $1,733,940

Ending inventory is slightly lower under the FIFO method because the unit costs are lower under FIFO. This means that current costs are slightly lower than last period’s costs. Because ending WIP inventory is carried at current costs under FIFO, the ending WIP costs are lower under FIFO.

8-23


8-33. (50 min.) Production Cost Report—FIFO method: El Paso Corporation.


PriorDepartment

DepartmentNo. B



Units accounted for: Completed and transferred out From beginning WIP inventory.................... 7,500 Prior department...................................... 0 Dept. B [7,500 units x (1–20%)]............... 6,000 Started and completed currently................. 15,000 a 15,000 15,000Units in ending WIP inventory............................ 2,500 Prior department......................................... 2,500 Department B (2,500 units x 50%).............. 1,250

Total units accounted for......................... 25,000 17,500 22,250

a. 15,000 = 17,500 units started – 2,500 units in ending WIP inventory.

8-24


8-33. (continued)

TotalPrior

DepartmentDepartment

No. BFlow of costs:Costs to be accounted for: Costs in beginning WIP inventory................... $ 36,675 $29,000 $ 7,675 Current period costs....................................... 219,075 70,000 149,075

Total costs to be accounted for................... $255,750 $99,000 $156,750

Cost per equivalent unit Prior department ($70,000 ÷ 17,500 units) .... $ 4.00

Department. B ($149,075 ÷ 22,250 units) ...... $ 6.70

Costs accounted for: Costs assigned to units transferred out: Costs from beginning WIP inventory........... $ 36,675 $29,000 $ 7,675 Current costs added to complete beginning WIP inventory..................................................... 40,200 Prior department...................................... 0 Department B ($6.70 x 6,000 units) ........ 40,200 Current costs of units started and completed: 160,500 Prior department ($4.00 x 15,000)........... 60,000 Department B ($6.70 x 15,000) ............. 100,500

Total costs transferred out.................................. $237,375 $89,000 $148,375Cost of ending WIP inventory............................. 18,375 Prior department ($4.00 x 2,500) ............ 10,000 Department B ($6.70 x 1,250) ................ 8,375

Total costs accounted for............................ $255,750 $99,000 $156,750

8-25


8-34. (50 min.) Production Cost Report—Weighted-Average Method: El Paso Corporation.

a. Physical Units Equivalent Units

Prior Department

Department No. B



Units accounted for: Completed and transferred out....................... 22,500 22,500 22,500 Units in ending inventory................................. 2,500 Prior department (2,500 units x 100%)....... 2,500 Department No. B (2,500 units x 50%)........ 1,250

Total units accounted for......................... 25,000 25,000 23,750

Total Direct Materials

Conversion Costs

Flow of costs:Costs to be accounted for: Costs in beginning WIP inventory...................$ 36,675 $29,000 $ 7,675 Current period costs....................................... 219,075 70,000 149,075

Total costs to be accounted for...................$255,750 $99,000 156,750

Cost per equivalent unit Prior department ($99,000 ÷ 25,000 units)..... $ 3.96

Department No. B ($156,750 ÷ 23,750).......... $ 6.60

Costs accounted for: Costs assigned to units transferred out..........$237,600 $89,100 $148,500 Costs of ending WIP inventory........................ 18,150 9,900 8,250


b. The ending inventory is lower under the weighted-average method than under the FIFO method. Under weighted-average, the ending inventory is $18,150. This is $225 less than FIFO, which is $18,375. The difference is due to the differences in costs per equivalent unit between FIFO and weighted-average.

8-26


8-34. (continued)

c. The decision depends on the decisions that will be made using the data. If the most current cost information is desired, FIFO might be the better method. If there are random fluctuations that the company wants to smooth, weighted average might be best.

8-27


8-35. (50 min.) Operations Costing: Brokia Electronics.a.

Total

Basic(40,000 units)

Photo(30,000 units)

UrLife(10,000 units)

Materials...................... $2,240,000 $480,000 $1,200,000 $560,000

Conversion Assemblya............... $ 1,400,000 700,000 525,000 175,000 Special Packaging. . 400,000 –0– –0– 400,000 Total conversion. . $ 1,800,000 $700,000 $525,000 $ 575,000Total Product Cost

$4,040,000 $1,180,000$1,725,000 $1,135,00

0Number of Units 40,000 30,000 10,000Cost per unit $29.50 $57.50 $113.50

a Unit cost is $17.50 (= $1,400,000 ÷ 80,000 units)b.

(1)

Total

Basic(40,000 units)

Photo(30,000 units)

UrLife(10,000 units)

Materials $2,240,000 $480,000 $1,200,000 $560,000

Conversion Assemblya $ 1,400,000 300,000 750,000 350,000 Special Packaging 400,000 –0– –0– 400,000 Total conversion cost $ 1,800,000 $300,000 $750,000 $ 750,000Total Product Cost $4,040,000 $780,000 $1,950,000 $1,310,000Number of Units 40,000 30,000 10,000Cost per unit $19.50 $65.00 $131.00a Unit cost is 62.5% of material dollars (= $1,400,000 ÷ $2,240,000 material dollars)

8-28


(2) If there is a reason that conversion costs are related to material dollars (for example, because of the difficulty of working with different materials), this change might be justified. If it is done simply to shift cost to the cost-plus customer, this is not ethical.

8-36. Operation Costing: Ferdon Watches.

a.

8-29


8-36. (continued)b.

Total

Gag-Gift(5,000 units)

Commuter(10,000 units)

Sport(13,000 units)

Retirement(2,000 units)

Materials..................... $ 321,000 $15,000 $90,000 $156,000 $60,000

Conversion Assemblya.............. $120,000 $20,000 $40,000 $52,000 $ 8,000 Polishingb............... 69,000 –0– 30,000 39,000 –0– Special Finishingc.... 20,000 –0– –0– –0– 20,000 Packagingd.............. 90,000 15,000 30,000 39,000 6,000 Total conversion.. . $299,000 $35,000 $100,000 $130,000 $ 34,000Total Product Cost...... $620,000 $50,000 $190,000 $286,000 $94,000Number of Units.......... 5,000 10,000 13,000 2,000Cost per unit............... $10.00 $19.00 $22.00 $47.00

a Unit cost is $4.00 (= $120,000 ÷ 30,000 units)

b Unit cost is $3.00 (= $69,000 ÷ 23,000 units)

c Unit cost is $10.00 (= $20,000 ÷ 2,000 units)

d Unit cost is $3.00 (= $90,000 ÷ 30,000 units)

8-30


Solutions to Problems

8-37. (45 min.) Compute Equivalent Units: Multiple Choice.a. The answer is (2).

MaterialsConversion

CostsUnits transferred out...........................................790,000 a 790,000 a

EU in ending inventory: Materials 100% x 80,000 units........................80,000 EU Conversion costs 30% x 80,000 units....................................................................

24,000 EU

EU produced this period.....................................870,000 EU 814,000 EU

aUnits transferred out = units started + beg. inventory – ending inventory= 720,000 + 150,000 – 80,000= 790,000

b. The answer is (2).Prior

Department Costs

MaterialsConversion

Costs

Units transferred out...........................................330,000 a 330,000 a 330,000 a

EU in ending inventory: Prior department costs....................................40,000 EU Materialsb........................................................ –0– EU Conversion costs 65% x 40,000 units....................................................................

26,000 EU

EU produced this period.....................................370,000 EU 330,000 EU 356,000 EU

a320,000 started + 50,000 in beg. inv. – 40,000 in ending inv. = 330,000 transferred out.

bMaterials are added at the end of the process.

c. The answer is (1).EU to complete beginning inventory 70%a x 20,000 units....................................................................

14,000 EU

Started and completedb...................................... 300,000 EUEU in ending inventory 70% x 40,000 units........ 28,000 EUEU done this period............................................ 342,000 EU


b 300,000 units = 320,000 transferred out – 20,000 from beginning inventory.

8-31


8-37. (continued)

d. The answer is (4).

MaterialsConversion

CostsTo complete beginning inventory: Materials: 0%a x 40,000 units......................... 0 Conversion costs: 30%b x 40,000 units.......... 12,000 EUStarted and completed during the period...........140,000 c EU 140,000 EUUnits still in ending inventory: Materials: 100% x 32,000 units....................... 32,000 EU Conversion costs: 50% x 32,000 units............ 16,000 EUWork done in current period...............................172,000 EU 168,000 EU

a 0% = 100% – 100% already done at the beginning of the period.


c 140,000 = 180,000 transferred out – 40,000 from beginning inventory.

8-32


8-38. (30 min) FIFO Method: McKenzie Corporation.a.

Physical Units

Equivalent Units Conversion

Costs Flow of units Units to be accounted for: Beginning WIP inventory.................................300,000 Units started this period..................................1,620,000

Total units to account for.........................1,920,000

Units accounted for: Completed and transferred out From beginning WIP inventory....................300,000 (300,000 x 20%)...................................... 60,000 Started and completed currently.................900,000 900,000 Units in ending WIP inventory.........................720,000 (720,000 x 50%)...................................... 360,000

Total units accounted for......................1,920,000 1,320,000

Conversion CostsFlow of costs:Costs to be accounted for: Costs in beginning WIP inventory............................. $ 387,000 Current period costs................................................. 2,178,000

Total costs to be accounted for............................. $2,565,000

Cost per equivalent unit ($2,178,000 ÷ 1,320,000) ..... $ 1.65

Costs accounted for:

Costs assigned to units transferred out: Costs from beginning WIP inventory..................... $ 387,000 Current costs added to complete beginning WIP inventory: Conversion costs ($1.65 x 60,000) ................... 99,000 Current costs of units started and completed: Conversion costs ($1.65 x 900,000) .................... 1,485,000

Total costs transferred out........................................ $1,971,000Cost of ending WIP inventory: Conversion costs ($1.65 x 360,000) ................. 594,000 (Answer)

Total costs accounted for...................................... $2,565,000

8-33


8-38. (continued)

b.

Cost per unit for the previous period is $1.6125 [= $387,000 ÷ (300,000 equiv. units x 80%)]Cost per unit for the current period is $1.65 as calculated in (a) above.

8-34


8-39.

(50 min.) Prepare A Production Cost Report—Weighted Average Method: Douglas Toys.

a.Douglas Toys

Assembling DepartmentProduction Cost Report—Weighted Average

FLOW OF PRODUCTION UNITS(Section 1)Physical units

Units to be accounted for: Beginning WIP inventory.................................100,000 Units started this period..................................500,000

Total units to be accounted for...........................600,000

(Section 2)COMPUTE EQUIVALENT UNITS

Prior department costs

Materials LaborManufacturingoverhead

Units accounted for: Units completed and transferred out: From beginning inventory............................100,000 Started and completed currently.................300,000

Total transferred out....................................400,000 400,000 400,000 400,000 400,000 Units in ending WIP inventory.........................200,000 200,000 180,000 (90%) 140,000 (70%) 70,000 (35%)

Total units accounted for....................................600,000 600,000 580,000 540,000 470,000

8-35


8-39. (continued)DETAILS

Total costsPrior

department costs

Materials LaborManufacturing

overhead

Costs to be accounted for: (Section 3) Costs in beginning WIP inventory................... $ 255,200 $128,000 $ 80,000 $ 28,800 $18,400 Current period costs....................................... 1,243,600 640,000 384,000 144,000 75,600Total costs to be accounted for.......................... $1,498,800 $768,000 $464,000 $172,800 $94,000

Cost per equivalent unit: (Section 4) Prior department costs ($768,000 600,000). $1.28

Materials ($464,000 580,000)....................... $0.80

Labor ($172,800 540,000)............................ $0.32

Manufacturing overhead ($94,000 470,000) $0.20

Costs accounted for: (Section 5) Costs assigned to units transferred out: Prior department costs ($1.28 x 400,000)... $512,000 $512,000 Materials ($0.80 x 400,000)........................ 320,000 $ 320,000 Labor ($0.32 x 400,000).............................. 128,000 $128,000 Manufacturing overhead ($0.20 x 400,000) 80,000 $80,000 Total costs of units transferred out................. $1,040,000Costs assigned to ending WIP inventory: Prior department costs ($1.28 x 200,000)... $256,000 256,000 Materials ($0.80 x 180,000)........................ 144,000 144,000 Labor ($0.32 x 140,000).............................. 44,800 44,800 Manufacturing overhead ($0.20 x 70,000). . 14,000 14,000 Total ending WIP inventory............................. $458,800Total costs accounted for................................... $1,498,800 $768,000 $464,000 $172,800 $94,000

8-39. (continued)

8-36


b. The report to management should include the following items: Materials: The $0.80 per unit goal set by management is currently being achieved by the Assembling Dept. Labor: Equivalent unit labor costs per unit ($.32) is below management’s goal of $0.40. Manufacturing overhead: overhead costs per unit ($0.20) is slightly higher than management’s goal of $0.18.

8-37


8-40.

(50 min.) Prepare a Production Cost Report—FIFO Method: Douglas Toys.

a. Douglas Toys

Assembling DepartmentProduction Cost Report—FIFO

FLOW OF PRODUCTION UNITS(Section 1)


Physical units

Prior department

costs Materials LaborManufacturing

overheadUnits to be accounted for: Beginning WIP inventory.................................100,000 Units started this period..................................500,000Total units to be accounted for...........................600,000

Units accounted for: Units completed and transferred out: From beginning inventory............................100,000 –0– –0– 40,000 (40%) a 50,000 (50%) b

Started and completed currently.................300,000 300,000 300,000 300,000 300,000 Units in ending WIP inventory.........................200,000 200,000 180,000 (90%) 140,000 (70%) 70,000 (35%)Total units accounted for....................................600,000 500,000 480,000 480,000 420,000



8-38


8-40. (continued)

COSTS DETAILS

Total Costs Priordepartment costs Materials Labor

Manufacturingoverhead

Costs to be accounted for: (Section 3) Costs in beginning WIP inventory................... $ 255,200 $128,000 $ 80,000 $ 28,800 $18,400

Current period costs....................................... 1,243,600 640,000 384,000 144,000 75,600

Total costs to be accounted for.......................... $1,498,800 $768,000 $464,000 $172,800 $94,000

Cost per equivalent unit: (Section 4)

Prior department costs ($640,000 500,000) $1.28

Materials ($384,000 480,000)..................... $0.80

Labor ($144,000 480,000)............................ $0.30

Manufacturing overhead ($75,600 420,000) $0.18

8-39


8-40. (continued)Details

Total CostsPrior

department costs

Materials LaborManufacturing

overhead

Costs accounted for: (Section 5) Costs assigned to units transferred out: Costs from beginning WIP inventory........... $ 255,200 $128,000 $ 80,000 $ 28,800 $18,400 Current costs added to complete beginning WIP inventory: Prior department costs............................. –0– –0– Materials.................................................. –0– –0– Labor ($0.30 x 40,000)............................ 12,000 12,000 Manufacturing overhead ($0.18 x 50,000) 9,000 9,000 Total costs from beginning inventory.......... $276,200Current costs of units started and completed: Prior department costs ($1.28 x 300,000)... 384,000 384,000 Materials ($0.80 x 300,000)........................ 240,000 240,000 Labor ($0.30 x 300,000).............................. 90,000 90,000 Manufacturing overhead ($0.18 x 300,000) 54,000 54,000 Total costs of units started and completed..... $768,000Total costs of units transferred out..................... $1,044,200Costs assigned to ending WIP inventory: Prior department costs ($1.28 x 200,000)...... $256,000 256,000 Materials ($0.80 x 180,000)............................ 144,000 144,000 Labor ($0.30 x 140,000)................................. 42,000 42,000 Manufacturing overhead ($0.18 x 70,000)...... 12,600 12,600Total ending WIP inventory................................ $454,600Total costs accounted for................................... $1,498,800 $768,000 $464,000 $172,80

0$94,000

8-40


8-40. (continued)

b. The report to management should include the following items:

Materials: The equivalent unit materials cost per unit ($0.80) is the same as management’s goal of $0.80.

Labor: Equivalent unit labor costs per unit ($0.30) is below management’s goal of $0.40.

Manufacturing overhead: Overhead costs per unit ($0.18) is equal to management’s goal of $0.18.

8-41


8-41. (60 min.) Prepare a Production Cost Report and Adjust Inventory Balances—Weighted Average Method: Elmhurst Parts.

a.Elmhurst Parts

Production Cost Report—Weighted AverageFlow Of Production Units

(Section 1)Physical units

Units to be accounted for: Beginning WIP inventory................................. 80,000 Units started this period.................................. 400,000

Total units to be accounted for........................... 480,000


Materials Labor Overhead

Units accounted for: Units completed and transferred out: From beginning inventory............................ 80,000 Started and completed currently................. 280,000 Total transferred out.................................... 360,000 360,000 360,000 360,000 Units in ending WIP inventory......................... 120,000 120,000 48,000 (40%) 48,000 (40%)

Total units accounted for.................................... 480,000 480,000 408,000 408,000

8-42


8-41. (continued)

Costs Details

Total costs Materials Labor Overhead

Costs to be accounted for: (Section 3) Costs in beginning WIP inventory................... $ 1,222,800 $ 240,000 $ 546,000 $ 436,800 Current period costs....................................... 5,534,400 1,560,000 2,208,000 1,766,400Total costs to be accounted for.......................... $6,757,200 $1,800,000 $2,754,000 $2,203,200

Cost per equivalent unit: (Section 4) Materials ($1,800,000 480,000)................. $3.75

Labor ($2,754,000 408,000)....................... $6.75

Overhead ($2,203,200 408,000)................ $5.40

Costs accounted for: (Section 5) Costs assigned to units transferred out: Materials ($3.75 x 360,000)........................ $1,350,000 $1,350,000 Labor ($6.75 x 360,000).............................. 2,430,000 $2,430,000 Overhead ($5.40 x 360,000)....................... 1,944,000 $1,944,000 Total costs of units transferred out................. 5,724,000Costs assigned to ending WIP inventory: Materials ($3.75 x 120,000)........................ 450,000 450,000 Labor ($6.75 x 48,000)................................ 324,000 324,000 Overhead ($5.40 x 48,000)......................... 259,200 259,200 Total ending WIP inventory............................. 1,033,200Total costs accounted for................................... $6,757,200 $1,800,000 $2,754,000 $2,203,200

8-43


8-41. (continued)

b. Adjustment required:Work in Process

Finished Goods

Per problem statement.......................................$793,152 $337,560Correct................................................................1,033,200 318,000 a

Difference...........................................................($240,048) $ 19,560

Journal entry:

Work in Process..............................................240,048 Finished Goods...........................................19,560 Cost of Goods Sold.....................................220,488

Additional computations:

a20,000 units of finished-goods inventory ($3.75 + 6.75 + 5.40) = $318,000

c. Income would have been understated.Work in process would have been understated.Finished goods would have been overstated.

8-44


8-42. (40 min.) Prepare a Production Cost Report and Show Cost Flows Through Accounts—FIFO method: Recyclers, Inc.

Recyclers, Inc.Production Cost Report—FIFO

a.FLOW OF PRODUCTION UNITS (Section 2)

Compute Equivalent Units

(Section 1)Physical units

Conversion costs

Units to be accounted for: Beginning WIP inventory................................. 300 Units started this period.................................. 2,700Total units to be accounted for........................... 3,000

Units accounted for: Units completed and transferred out: From beginning inventory............................ 300 120 (40%)a Started and completed currently................. 2,550 2,550 Units in ending WIP inventory......................... 150 30 (20%)Total units accounted for.................................... 3,000 2,700


8-45


8-42. (continued)COSTS Total costs Conversion

costsCosts to be accounted for: (Section 3) Costs in beginning WIP inventory...................... $ 168 $ 168 Current period costs........................................... 10,800 10,800Total costs to be accounted for............................. $10,968 $10,968

Cost per equivalent unit: (Section 4) Conversion costs ($10,800 2,700)................... $4.00

Costs accounted for: (Section 5) Costs assigned to units transferred out: Costs from beginning inventory...................... $ 168 $ 168 Current costs added to complete beginning WIP inventory: Conversion costs ($4.00 x 120).................. 480 480 Total costs from beginning inventory................. $ 648 Current costs of units started and completed: Conversion costs ($4.00 x 2,550)................... 10,200 10,200 Total costs of units started and completed........ $10,200 Total costs of units transferred out..................... $10,848 Costs assigned to ending WIP inventory: Conversion costs ($4.00 x 30)........................ 120 120 Total ending WIP inventory................................ $ 120Total costs accounted for...................................... $10,968 $10,968

b. Work in ProcessBeginning inventory: Conversion costs 168 This period's costs: Conversion costs 10,800 10,848a To Finished Goods InventoryEnding inventory 120

All costs have been accounted for.Various Payables Finished Goods Inventory

10,800 10,848

a$10,848 = $648 + $10,200

c. The company’s target has been achieved. Production costs total $4.00 per unit, less than management’s target of $4.25.

8-46


8-43. (60 min.) FIFO Process Costing: Pantanal, Inc.

Pantanal, Inc.Assembling Department

Production Cost Report—FIFOFLOW OF PRODUCTION UNITS

(Section 1)(Section 2)

COMPUTE EQUIVALENT UNITS

Physical unitsPrior

department costs Materials Conversion

Units to be accounted for: Beginning WIP inventory................................. 10,000 Units started this period..................................102,000Total units to be accounted for...........................112,000

Units accounted for: Units completed and transferred out: From beginning inventory............................ 10,000 –0– 4,000 (40)% a 6,000 (60%) b

Started and completed currently................. 86,000 86,000 86,000 86,000 Units in ending WIP inventory......................... 16,000 16,000 14,400 (90%) 8,000 (50%)Total units accounted for....................................112,000 102,000 104,400 100,000



8-47


8-43. (continued)

COSTS DETAILS

Total Costs

Priordepartment

costs Materials ConversionCosts to be accounted for: (Section 3) Costs in beginning WIP inventory................... $323,400 $ 98,000 $ 164,400 $ 61,000 Current period costs....................................... 3,306,600 2,142,000 939,600 225,000Total costs to be accounted for.......................... $3,630,000 $2,240,000 $1,104,000 $286,000

Cost per equivalent unit: (Section 4) Prior department costs ($2,142,000 102,000) $21.00

Materials ($939,600 104,400)....................... $9.00

Conversion ($225,000 100,000)................... $2.25

8-48


8-43. (continued)

Details

Total Costs

Prior department

costs Materials ConversionCosts accounted for: (Section 5) Costs assigned to units transferred out: Costs from beginning WIP inventory.................................. $ 323,400 $ 98,000 $ 164,400 $ 61,000 Current costs added to complete beginning WIP inventory: Prior department costs.................................................... –0– –0– Materials ($9.00 x 4,000)............................................... 36,000 36,000 Conversion ($2.25 x 6,000)............................................ 13,500 13,500 Total costs from beginning inventory.................................. $ 372,900Current costs of units started and completed: Prior department costs ($21.00 x 86,000).......................... $1,806,000 1,806,000 Materials ($9.00 x 86,000).................................................. 774,000 774,000 Conversion ($2.25 x 86,000).............................................. 193,500 193,500 Total costs of units started and completed............................. $2,773,500Total costs of units transferred out............................................ $3,146,400Costs assigned to ending WIP inventory: Prior department costs ($21.00 x 16,000).............................. $ 336,000 336,000 Materials ($9.00 x 14,400)..................................................... 129,600 129,600 Conversion ($2.25 x 8,000).................................................... 18,000 18,000Total ending WIP inventory........................................................ $ 483,600Total costs accounted for........................................................... $3,630,000 $2,240,000 $1,104,000 $286,000

8-49


8-44. (40 min.) Solving For Unknowns—FIFO Method.

a. The cost per equivalent unit is obtained by dividing the ending inventory costs by the equivalent units in ending inventory;

$87,000 ÷ 10,000 = $8.70 per EU

Equivalent units worked this period are the sum of the equivalent units to:

(a) complete the beginning inventory

(b) start and complete some units, and

(c) to start the ending inventory

which, for the problem are: 42,000 + 60,000 + 10,000 = 112,000

The total costs incurred are the cost per equivalent unit times the equivalent units worked this period, that is 112,000 $8.70 = $974,400.

b.

Units started and completed equals the units transferred out (units completed this period) less the units started in a previous period (beginning inventory):

40,000 units transferred out–5,000 units in beginning inventory35,000 units started and completed.

c.

Current units started equals units transferred out minus beginning inventory plus ending inventory or, in equation form:

Current units started = TO – BB + EB= 9,500 – 4,000 + 3,000= 8,500 units

8-50


8-44. (continued)d. Equivalent units = Beginning inventory

x (1 – percentage of completion of beginning inventory)+ 100% of units started and completed+ ending inventory times its percentage of completion

= 5,600 equivalent units

Let X be the unknown percentage of completion. Then,5,600 = 1,000 (1 – X) + 4,500 + (3,000 x 30%)5,600 = 1,000 – 1,000X + 5,400

collecting terms:5,600 – 5,400 – 1,000 = –1,000X

800 = 1,000XX = 80%

Also, using BB = TO + EB – TI= (4,500 + 1,000) + 900 – 5,600= 800 units

800 = 1,000XX = 80%

8-51


8-45. (50 min.) Solving For Unknowns—Weighted-Average Method.

a. First, we compute the cost of ending inventory:

BB + TI (current work) = TO + EB$11,400 + $108,600 = $115,200 + EB

EB = $120,000 – $115,200= $4,800

Equivalent units in ending inventory equals $4,800 divided by the cost per equivalent unit.

Costs per equivalent unit is the $115,200 transferred out costs divided by the units transferred out:

$115,200 ÷ 28,800 units = $4 per E.U

Cost assigned to ending inventory is based on the relationship:

$4,800 = Equivalent units in EB times $4.00 and solving for EU in EB

EU in EB = $4,800 ÷ $4= 1,200 EU

b. The materials cost per equivalent unit is:$26,880 ÷ 12,800 units transferred out = $2.10 per EU

Since ending inventory contains direct materials cost of $5,040, it must contain

2,400 ( = $5,040 ÷ $2.10) equivalent units.

If the inventory is 25% complete with respect to direct materials costs, then these 2,400 equivalent units represent 25% of the physical count of units in the ending inventory. Therefore, since 2,400 EU = .25 (units in EB)

Thenunits in EB = 2,400 ÷ .25

= 9,600

8-52


8-45. (continued)

c. The inventory equation yields:

BB + TI = TO + EB

Given the information in the problem, we can compute the right hand side. There are 4,800 (24,000 x 20%) equivalent units in ending inventory at a cost of $18,000. The cost per equivalent unit is $3.75 (or $18,000 4,800 EU).

The right hand side of the equation is the total equivalent units represented by all costs in the account (72,000 EU) times the cost per equivalent unit ($3.75). The resulting $270,000 and the beginning inventory cost of $56,800 are entered in the equation:

$56,800 + TI = $270,000and solving for TI:

TI = $270,000 – $56,800= $213,200

d. Units transferred out equals beginning inventory plus current work minus ending inventory. In equation form:

TO= BB + TI (current work) – EB= 12,300 + 10,500 – 10,000= 12,800

Of the 12,800 units transferred out, 12,300 were from the beginning inventory. Therefore, 500 units were started and completed. That is, 12,800 completed this period less 12,300 started in a prior period equals the 500 started and completed this period.

8-53


8-46. (50 min.) Operation Costing—Work-in-Process Inventory: Washington, Inc.

The solution to this problem is to apply process costing methods for the conversion costs and then add the cost of materials for each product. Because there is no beginning work-in-process inventory, FIFO and weighted-average process costing gives the same results.

a.

The material costs per unit are:

ProductMaterial

CostNumber of

UnitsUnit Material

Cost

X-10.......... $75,000 ÷ 500 = $ 150X-20.......... 135,000 ÷ 300 = 450X-40.......... 240,000 ÷ 200 = 1,200

The conversion costs per equivalent unit are:

Department A:

Physical Units

Conversion CostsEquivalent Units

Flow of units: Units to be accounted for: Beginning WIP inventory.................................–0– Units started this perioda 1,000


Units accounted for: Completed and transferred outb 840 840 Units in ending inventoryc 160 Conversion costs (160 x 25%).................... 40

Total units accounted for.............................1,000 880

a 1,000 units = 500 X-10 + 300 X-20 + 200 X-40

b 840 units = 400 X-10 + 260 X-20 + 180 X-40

c 160 units = 1,000 units started – 840 units transferred out.

8-54


8-46. (continued)

TotalConversion

CostsFlow of costs:Costs to be accounted for: Costs in beginning WIP inventory...................$ –0– $ –0– Current period costs.......................................264,000 264,000

Total costs to be accounted for...................$ 264,000 $ 264,000

Cost per equivalent unit Conversion costs ($264,000 ÷ 880)................ $ 300

Department B:

Physical Units


Flow of units: Units to be accounted for: Beginning WIP inventory.................................–0– Units started this perioda 440

Total units to account for.............................440

Units accounted for: Completed and transferred outb 390 390 Units in ending inventoryc 50 Conversion costs (50 x 60%)...................... 30

Total units accounted for.............................440 420

a 440 units = 260 X-20 + 180 X-40

b 390 units = 225 X-20 + 165 X-40

c 50 units = 440 units started – 390 units transferred out.

TotalConversion



Cost per equivalent unit Conversion costs ($42,000 ÷ 420).................. $ 100

8-55


8-46. (continued)

Cost of units transferred to finished goods:

ProductUnit

Material Cost

Unit Department

A Cost

Unit Department

B CostUnit Cost

X-10.......... $150 + $ 300 + $ –0– = $ 450X-20.......... 450 + 300 + 100 = 850X-40.......... 1,200 + 300 + 100 = 1,600

b.

Work-in-Process Ending Inventory Balances are:

Department A:

Material cost Number of Units

Unit Cost Total Cost

X-10......................... 100 $150 $ 15,000X-20......................... 40 450 18,000X-30......................... 20 1,200 24,000

Total material cost...... $ 57,000

Conversion costs........ 40 300 12,000Total........................... $ 69,000

Department B:



X-20......................... 35 $450 15,750X-30......................... 15 1,200 18,000


Conversion costs........ From Dept. A........... 50 300 15,000 From Dept. B........... 30 100 3,000Total........................... $ 51,750

8-56


8-47. (50 min.) Operation Costing—Work-in-Process Inventory: Miller Outdoor Equipment.

The solution to this problem is to apply process costing methods for the conversion costs and then add the cost of materials for each product. Because there is no beginning work-in-process inventory, FIFO and weighted-average process costing gives the same results.

a.

The material costs per unit are:

ProductMaterial

CostNumber of

UnitsUnit Material

Cost

Rookie....... $12,000 ÷ 600 = $ 20Novice....... 11,520 ÷ 480 = 24Hiker.......... 8,700 ÷ 290 = 30Expert........ 7,500 ÷ 150 = 50

The conversion costs per equivalent unit are:

Stitching Department:

Physical Units


Flow of units: Units to be accounted for: Beginning WIP inventory.................................–0– Units started this perioda 1,520


Units accounted for: Completed and transferred outb 1,380 1,380 Units in ending inventoryc 140 Conversion costs (140 x 40%).................... 56

Total units accounted for.............................1,520 1,436

a 1,520 units = 600 Rookie + 480 Novice + 290 Hiker + 150 Expert

b 1,380 units = 540 Rookie + 450 Novice + 270 Hiker + 120 Expert

c 140 units = 1,520 units started – 1,380 units transferred out.

8-57


8-47. (continued)

TotalConversion



Cost per equivalent unit Conversion costs ($50,260 ÷ 1,436)............... $ 35

Customizing Department:

Physical Units


Flow of units: Units to be accounted for: Beginning WIP inventory.................................–0– Units started this perioda 840

Total units to account for.............................840

Units accounted for: Completed and transferred outb 790 790 Units in ending inventoryc 50 Conversion costs (50 x 20%)...................... 10

Total units accounted for.............................840 800

a 840 units = 450 Novice + 270 Hiker + 120 Expert

b 790 units = 440 Novice + 250 Hiker + 100 Expert

c 50 units = 840 units started – 790 units transferred out.

TotalConversion



Cost per equivalent unit Conversion costs ($24,000 ÷ 800).................. $ 30

8-58


8-47. (continued)

Cost of units transferred to finished goods:

ProductUnit

Material Cost

Stitching Department

Unit Cost

Customizing Department

Unit CostUnit Cost

Rookie....... $20 + $ 35 + $ –0– = $ 55Novice....... 24 + 35 + 30 = 89Hiker.......... 30 + 35 + 30 = 95Expert........ 50 + 35 + 30 = 115

b.

Work-in-Process Ending Inventory Balances are:

Stitching Department:



Rookie..................... 60 $20 $ 1,200Novice..................... 30 24 720Hiker........................ 20 30 600Expert...................... 30 50 1,500


Conversion costs........ 56* 35 1,960Total........................... $ 5,980

* 140 units, 40% complete.

8-59


8-47. (continued)

Customizing Department:



Novice................................. 10 $24 240Hiker................................... 20 30 600Expert................................. 20 50 1,000

Total material cost................. $ 1,840

Conversion costs................... From Stitching..................... 50 35 1,750 From Customizing............... 10* 30 300 Total conversion costs..... $2,050Total....................................... $ 3,890

* 50 units, 20% complete.

8-60


8-48. (50 min.) Process Costing and Ethics – Increasing Production to Boost Profits: Pacific Siding, Inc.

a. The CEO and CFO expect to produce profits by reducing the unit cost of each sold. This will occur because of the fixed overhead costs. (Recall “most of the overhead costs are fixed.”) Because each unit transferred out in March will have a lower unit costs, reported costs of goods sold will be lower. Therefore, profit will be higher.

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8-48. (continued)

b. See the revised data entry section and production cost report below:

Data Entry Section Unit Information Percent Complete Units (board Direct Direct feet) materials labor Overhead Units in beginning WIP inventory (all completed this period) 250,000 n/a n/a n/a Units started and completed during the period 140,000 100% 100% 100% Units started and partially completed during the period 225,000 80% 85% 90%

Direct Direct Cost Information materials labor Overhead Costs in beginning WIP inventory $76,000 $90,000 $150,000 Costs incurred during the period $95,000 $102,000 $150,000

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8-48. (continued)Revised Production Cost Report

Month Ending March 31

Step 1: Summary of Physical Units and Equivalent Unit Calculations

Physical

Units to be accounted for Units

Units in beginning WIP inventory 250,000

Units started during the period 365,000

Total units to be accounted for 615,000

Equivalent Units

Direct Direct

Units accounted for materials labor Overhead

Units completed and transferred out 390,000 390,000 390,000 390,000

Units in ending WIP inventory 225,000 180,000 191,250 202,500

Total units accounted for 615,000 570,000 581,250 592,500

Step 2: Summary of Costs to be Accounted for

Direct Direct

Costs to be accounted for materials labor Overhead Total

Costs in beginning WIP inventory $76,000 $90,000 $150,000 $316,000

Costs incurred during the period 95,000 102,000 150,000 347,000

Total costs to be accounted for $171,000 $192,000 $300,000 $663,000

Step 3: Calculation of Cost per Equivalent Unit

Direct Direct

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materials labor Overhead Total

Total costs to be accounted for (a) $171,000 $192,000 $300,000

Total equivalent units accounted for 570,000 581,250 592,500

Cost per equivalent unit (a) / (b) $0.3000 $0.3303 $0.5063 $1.1367

Step 4: Assign Costs to Units Transferred Out and Units in Ending WIP Inventory

Direct Direct

materials labor Overhead Total

Costs assigned to units transferred out $117,000 $128,826 $197,468 $443,294

Costs assigned to ending WIP inventory 54,000 63,174 102,532 219,706

Total costs accounted for $171,000 $192,000 $300,000 $663,000

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8-48. (continued)

c. The costs assigned to units transferred out has decreased from $541,621 to $443,294, or $98,327. Because all the units transferred out will be sold before the end of March, profits will be $98,327 higher than originally planned.

d. This is not ethical. The reason for the production increase was solely to manipulate income and distort results for the year. There is no indication that the increase in production was to meet much larger demand.

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Solutions to Integrative Cases

8-49. (70 min.) Show Cost Flows—FIFO Method: Vermont Co.

Work in ProcessBeginning Balance 716,000 Transferred out:Current work: materials (given) 300,400

716,000a From beginning inventory From current work

conversion (given) 1,287,000 240,320a materials833,976b conversion costs

Ending Balance 513,104

Additional computations:

a $240,320 = 40,000 EU transferred x ($300,400 ÷ 50,000 EU for materials)(40,000 EU = 50,000 – 10,000 in ending inventory)

b $833,976 = 40,500 EU transferred out x ($1,287,000 ÷ 62,500 EU for conversion costs; 40,500 EU = 62,500 – 22,000 in ending inventory)

Finished GoodsTransferred in 1,790,296 a 1,432,237 To Cost of Goods Sold (80%)Balance 358,059

aFrom total credits in Work in Process.

Cost of Goods SoldFrom Finished Goods 1,432,237 Overapplied overhead

(See explanation below)55,000

Overhead applied in beginning WIP inventory is 125% of direct labor costs (i.e., $325,000 ÷ $260,000). Since the application rate has not changed, the ratio of applied overhead to total conversion costs found in the beginning inventory should also hold for conversion costs this period.

For this period, 1.25 D.L. + D.L. = $1,287,0002.25 D.L. = $1,287,000

D.L. = $572,000So, total conversion costs – direct labor = overhead applied

$1,287,000 – $572,000 = $715,000

Based on the balance in the manufacturing overhead account, actual overhead is $660,000. Therefore, overhead is overapplied by $55,000 (i.e., $715,000 – $660,000).

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8-49. (continued)

The journal entry to assign the overapplied overhead to cost of goods sold is:Overapplied overhead........................................55,000

Cost of goods sold.................................. 55,000

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8-50. (45 min.) Job Costing, Process Costing, Choosing a Costing Method: Bouwens Corporation.

This problem is computationally straight-forward, but requires the student to think about the use of the costs from the costing system and how to best reflect the production costs for a single product for two customer types.

a. The “job” costs for each product are the unit costs in each building:

M-Solv

(B-155)

C-Solv

(B-159)

Materials costs..................... $14,000 $ 40,000

Conversion costs................. 30,000 120,000

Total costs....................... $44,000 $160,000

Units produced.................... 2,000 10,000

Unit cost............................... $22 $16

b. The “process” costs for each product are the unit costs for both buildings divided by total production:

M-Solv

(B-155)

C-Solv

(B-159) Total

Materials costs..................... $14,000 $ 40,000 $ 54,000

Conversion costs................. 30,000 120,000 150,000

Total costs....................... $44,000 $160,000 $204,000

Units produced.................... 2,000 10,000 12,000

Unit cost............................... $17

c. Neither method best reflects the costs for the individual products. Jill is correct the military requires the use of a “special” chemical and the costs assigned to M-Solv should reflect this. This suggests that the “job” system in requirement (a) is correct. On the other hand, Jack is correct that the assignment of labor is not caused by product requirements. This suggests that the process system in requirement (b) is correct. The best system would be similar to an operations system where we accounted for the material cost by product and the conversion costs on a factory-wide basis.

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8-50. (continued)

d. Compute the unit costs for materials and conversion costs separately.

M-Solv

(B-155)

C-Solv

(B-159)

Materials costs..................... $14,000 $ 40,000

Units produced.................... 2,000 10,000

Unit cost (materials)............. $7 $4

Then compute conversion costs for the factory:

M-Solv

(B-155)

C-Solv

(B-159) Total

Conversion costs................. 30,000 120,000 $150,000

Units produced.................... 2,000 10,000 12,000

Unit cost (conversion).......... $12.50

Now, compute the unit product cost:

M-Solv

(B-155)

C-Solv

(B-159)

Unit materials costs............. $7.00 $4.00

Conversion costs................. 12.50 12.50

Total costs....................... $19.50 $16.50

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Chap 008

Documents

current costs

process inventory

process costs o

accumulation of costs

beginning inventory

prior department costs

process costing solutions

fifo costing