1. Process costing collects costs by process (department) for a given period of time. Unit
costs are computed by dividing these costs by the department’s output measured for the
same period of time. Job-order costing collects costs by job. Unit costs are computed by
dividing the job’s costs by the units produced in the job. Process costing is typically used
for industries where units are homogeneous and mass-produced. Job-order costing is used
for industries that produce heterogeneous products (often custom-made).
2. In sequential processing, products pass through a series of processes, one after another
(i.e., in a given sequence). In parallel processing, products pass through two or more
different sequences at the same time, merging eventually at the final process.
3. The cost flows for process-costing and job-order costing systems are essentially the same.
Process costing requires a work-in-process account for each process/producing department.
Costs flow from one work-in-process account to another until the final process is reached.
4. The work-in-process account of the receiving department is debited, and the work-in-process
account of the transferring department is credited. The finished goods account is debited,
and the work-in-process account of the final department is credited upon completion
of the product.
5. Service firms generally do not have work-in-process inventories, and so equivalent units of
production are not needed. An important factor in process costing for services is determining
just what constitutes a unit of output.
6. Firms adopting JIT reduce inventories to very low levels. As a result, work-in-process
inventories are close to zero, and equivalent units of production need not be calculated.
In essence, unit cost is total cost for the period divided by output.
7. Equivalent units are the number of whole units that could have been produced, given the amount
of materials, labor, and overhead used. Equivalent units are the measure of a period’s output,
a necessary input for the computation of unit costs in a process-costing system.
8. In calculating this period’s unit cost, the weighted average combines the work and costs in
beginning inventory with current-period costs and work to calculate this period’s unit cost. The
FIFO method excludes any costs and output carried over from the prior period’s unit cost
computation; hence, only current work and costs are used to calculate this period’s unit cost.
9. If the per-unit cost of the prior period is the same as the per-unit cost of the current period,
there will be no difference between the results of the weighted average and FIFO methods.
Additionally, if no beginning work-in-process inventory exists, both the FIFO and weighted
average methods give the same results.
6 PROCESS COSTING
DISCUSSION QUESTIONS
6-1
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CHAPTER 6 Process Costing
10. The first step is the preparation of a physcial flow schedule. This schedule identifies the physical
units that must be accounted for and provides an accounting for these units. The second step is
the equivalent unit schedule. This schedule computes the equivalent whole output for the period.
The schedule’s computations rely on information from the physical flow schedule. The third step is
computation of the unit cost. To compute the unit cost, the manufacturing costs of the period for the
process are divided by the period’s output. The output is obtained from the equivalent unit schedule.
The fourth step uses the unit cost to value goods transferred out and those remaining in work in
process. The final step checks to see if the costs assigned in Step 4 equal the total costs to account
for.
11. A production report summarizes the activities and costs associated with a process for a given
period. It shows the physical flow, the equivalent units, the unit cost, and the values of ending
work in process and goods transferred out. The report serves the same function as a job-order
cost sheet in a job-order costing system.
12. Separate equivalent units must be calculated for each category of materials and for conversion
costs.
13. Transferred-in units represent partially completed units and are clearly a material for the
receiving department. To complete the product (or further process it), additional materials
and conversion costs are added by the receiving department.
14. The weighted average method uses the same unit cost for all goods transferred out. The FIFO
method divides goods transferred out into two categories: units started and completed and
units from beginning work in process. The period’s unit cost is used to value goods started
and completed. The cost of goods transferred out from beginning work in process is obtained
by (1) assigning them all costs carried over from the prior period and (2) using the current
period’s unit cost to value the equivalent units completed this period.
6-2
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CHAPTER 6 Process Costing
6-1. d
6-2. c
6-3. b
6-4. d
6-5. d
6-6. b 0 + 2,300 units + (500 units × 0.4) = 2,500 units
6-7. b $46,000/[0 + 2,300 units + (500 units × 0.4)] = $18.40
6-8. a $18.40 × 2,300 units transferred = $42,320
(see M.C. 6-7 for calculation of $18.40)
6-9. c $18.40 × (500 units × 0.40) = $3,680
(see M.C. 6-7 for calculation of $18.40)
6-10. d 100,000 units transferred + (25,000 units × 0.40) = 110,000 units
6-11. e 100,000 units transferred + (25,000 units × 0.80) = 120,000 units
6-12. c ($112,500 + $450,000)/125,000 units = $4.50 per unit
100,000 units transferred × $4.50 = $450,000
6-13. c ($100,000 + $550,000)/100,000 units = $6.50
6-14. e (25,000 × 0.20) + 80,000 + (25,000 × 0.60) = 100,000 units
6-15. b (25,000 × 0.80) + 80,000 + (25,000 × 0.80) = 120,000 units
6-16. d $720,000/120,000 units = $6.00
6-17. b $450,000/125,000 EU = $3.60 per unit
100,000 units transferred × $3.60 per unit = $360,000
6-18. a
6-19. c
6-20. d
MULTIPLE-CHOICE QUESTIONS
6-3
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CHAPTER 6 Process Costing
BE 6-21
Mixing Cooking Packaging
1. Direct materials……………………… $ 825,000 $ 379,500 $ 330,000
Direct labor…………………………… 120,000 75,000 180,000
Applied overhead…………………… 225,000 82,500 332,500
Transferred-in cost…………………… — 1,170,000 1,707,000
Total cost…………………………… $1,170,000 $1,707,000 $2,549,500
2.
Debit
Work in Process—Cooking 1,170,000
Work in Process—Mixing 1,170,000
Work in Process—Packaging 1,707,000
Work in Process—Cooking 1,707,000
Finished Goods 2,549,500
Work in Process—Packaging 2,549,500
BE 6-22
Equivalent Units
Units completed………………………………………………
EWIP (0.40 × 16,800)…………………….……………………
Output…………………………………………………………
BE 6-23
1. Equivalent Units
Units completed……………………………………………
EWIP (0.60 × 112,500)…………………….………………
Output……………………………………………………
Unit Cost = $2,295,000/382,500………………..………
2. Cost of goods tranferred out ($6 × 315,000)….………
Cost of EWIP ($6 × 67,500)…………….………………
BRIEF EXERCISES: SET A
112,000
Journal
Date Description Credit
$1,890,000
405,000
6,720
118,720
315,000
67,500
382,500
$6.00
6-4
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CHAPTER 6 Process Costing
BE 6-24
1. Equivalent
Units
Units completed…………………………………………………………… 720,000
EWIP (0.40 × 225,000)……………………………………………………… 90,000
Output for January……………………………………………….………… 810,000
2. Unit Cost = $1,215,000/810,000…………………..……………………… $1.50
3. Cost of goods tranferred out ($1.50 × 720,000)……………………… $1,080,000
EWIP ($1.50 × 90,000)……………………………………………………… 135,000
BE 6-25
Physical flow schedule:
Units in BWIP (80% complete)……………………… 160,000
Units started…………………………………………… 720,000
Total units to account for………………………… 880,000
Units completed and transferred out:
Units started and completed……………………… 600,000
Units completed from BWIP………………………… 160,000 760,000
Units in EWIP (60% complete)……………………… 120,000
Total units accounted for………………………… 880,000
BE 6-26
Physical flow:
Units to account for: Units accounted for:
Units in beginning WIP………… 4,000 Units completed……………… 27,200
Units started…………………… 31,200 Units in ending WIP………… 8,000
Total units to acct. for………35,200 Total units acct’d. for…… 35,200
Equivalent units:
Units completed…………………………………………………………………… 27,200
Units in ending work in process……………………………………………… 4,800
Total equivalent units………………………………………………………… 32,000
Manzer Inc.
Production Report
For the Month of October
Weighted Average Method
UNIT INFORMATION
Cutting Department
6-5
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CHAPTER 6 Process Costing
BE 6-26
Costs to account for:
Beginning work in process…………………………………………………… $ 32,000
Incurred during October………………………………………………………… 608,000
Total costs to account for…………………………………………………… $640,000
Cost per equivalent unit…………………………………………………………… $20.00
Costs accounted for:
Transferred
Out Total
Goods transferred out
($20.00 × 27,200)………………………… $544,000 — $544,000
Goods in ending WIP
($20.00 × 4,800)………………………… — $96,000 96,000
Total costs accounted for……………… $544,000 $96,000 $640,000
BE 6-27
1. Materials Conversion
Units completed………………………………………………… 65,200 65,200
Add: Units in ending WIP ×
Fraction complete (12,000 × 1; 12,000 × 0.60)…… 12,000 7,200
Equivalent units of output……………………………..…… 77,200 72,400
2.
Unit materials cost [($40,980 + $125,000)/77,200]……………………………… $2.15
Unit conversion cost [($28,920 + $210,000)/72,400]…………………………… 3.30
Total unit cost……………………………………………………………………… $5.45
*Rounded
3.
Cost transferred out (65,200 × $5.45)…………………………………………… $355,340
Cost of ending WIP:
Materials (12,000 × $2.15)……………………………………………………… $ 25,800
Conversion (7,200 × $3.30)……………………………………………………… 23,760
Total ending WIP cost……………………………………………………… $ 49,560
COST INFORMATION
Ending
Work in Process
*
*
6-6
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CHAPTER 6 Process Costing
BE 6-28
1. Physical flow schedule:
Units in beginning work in process………………………… 70,000
Units started during the period……………………………… 240,000
Total units to account for…………………………………… 310,000
Units completed and transferred out:
Units started and completed…………………………………… 192,500
Units completed from beginning work in process………… 70,000 262,500
Units in ending work in process……………………………… 47,500
Total units accounted for…………………………………… 310,000
2. Units completed…………………………………..………………… 262,500
Units in EWIP………………………………………………………… 47,500
Equivalent units (transferred-in materials)………………… 310,000
3. Unit Transferred-In Cost = ($283,000 + $957,000)/310,000…… $4.00
BE 6-29
Equivalent
Units
1. Units started and completed…………………………………………………… 570,000
Units in BWIP (0.20 × 120,000)…………………………………………………… 24,000
Units in EWIP (0.75 × 80,000)…………………………………………………… 60,000
Total……………………………………………………………………………… 654,000
2. Unit Cost = $1,471,500/654,000………………………………………………… $2.25
3. Cost of units transferred out:
BWIP costs……………………………………………………………………… $ 120,000
To finish BWIP………………………………………………………………… 54,000
Started and completed……………………………….………………………… 1,282,500
Total……………………………………………….………………………… $1,456,500
EWIP ($2.25 × 60,000)….….……………………………….……………………… $135,000
6-7
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CHAPTER 6 Process Costing
BE 6-30
Physical flow:
Units to account for:
Units in beginning WIP……… 120,000 Units accounted for:
Units started……………………650,000 Units started and completed… 570,000
From beginning WIP…………… 120,000
Total units to acct. for…… 770,000 Units in ending WIP……………… 80,000
Total units acct’d. for……… 770,000
Equivalent units:
Started and completed………………………………………………..……………… 570,000
To complete beginning WIP (120,000 × 0.20)…………………………………… 24,000
Units in ending WIP (80,000 × 0.75)………………………………………………… 60,000
Total equivalent units……………………………………………………………… 654,000
Costs to account for:
Costs in beginning WIP……………………………………………………………… $ 120,000
Costs added by department………………………………………………………… 1,471,500
Total costs to account for………………………………………………………… $1,591,500
Cost per Equivalent Unit = $1,471,500/654,000……………………………………… $2.25
Costs accounted for:
Transferred out:
Units started and completed (570,000 × $2.25)……………………………… $1,282,500
Units in beginning work in process:
From prior period………………………………………………………….……… 120,000
From current period (24,000 × $2.25)………………………………………… 54,000
Total cost transferred out………………………………………….…………… $1,456,500
Goods in ending work in process (60,000 × $2.25)………………………………… 135,000
Total costs accounted for……………………………………..…………………… $1,591,500
*Any difference due to rounding
UNIT INFORMATION
COST INFORMATION
Aztec Inc.
Mixing Department
Production Report
For the Month of July
(FIFO Method)
*
6-8
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CHAPTER 6 Process Costing
BE 6-31
Mixing Cooking Packaging
1. Direct materials………………………………… $600,500 $ 285,500 $ 250,000
Direct labor……………………………………… 90,000 50,000 120,000
Applied overhead……………………………… 117,000 65,000 156,000
Transferred-in cost…………………………… — 807,500 1,208,000
Total cost…………………………………… $807,500 $1,208,000 $1,734,000
2.
Debit
Work in Process—Cooking 807,500
Work in Process—Mixing 807,500
Work in Process—Packaging 1,208,000
Work in Process—Cooking 1,208,000
Finished Goods 1,734,000
Work in Process—Packaging 1,734,000
BE 6-32
Equivalent Units
Units completed…………………………………………………………
EWIP (0.30 × 15,750)…………………….…………………………….
Output…………………………………………………………………
BE 6-33
1. Equivalent Units
Units completed……………………………………………………
EWIP (0.70 × 42,700)…………………….…………………………
Output……………………………………………………………
Unit Cost = $1,759,120/219,890………………..…………………
2. Cost of goods tranferred out ($8 × 190,000)….………………
Cost of EWIP ($8 × 29,890)…………….……………………….
BRIEF EXERCISES: SET B
$1,520,000
239,120
190,000
29,890
219,890
$8.00
105,000
4,725
109,725
Journal
Date Description Credit
6-9
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CHAPTER 6 Process Costing
BE 6-34
1. Equivalent
Units
Units completed………………………………………………………………………… 360,000
EWIP (0.40 × 112,500)…………………………………………………………………… 45,000
Output for July……………………………………………….…………………………… 405,000
2. Unit Cost = $607,500/405,000…………………..……………………………………… $1.50
3. Cost of goods tranferred out ($1.50 × 360,000)…………………………………… $540,000
EWIP ($1.50 × 45,000)…………………………………………………………………… 67,500
BE 6-35
Physical flow schedule:
Units in BWIP (60% complete)…………………………………… 60,000
Units started………………………………………………………… 230,000
Total units to account for……………………………………… 290,000
Units completed and transferred out:
Units started and completed……………………………………… 185,000
Units completed from BWIP……………………………………… 60,000 245,000
Units in EWIP (80% complete)…………………………………… 45,000
Total units accounted for……………………………………… 290,000
BE 6-36
Physical flow:
Units to account for: Units accounted for:
Units in beginning WIP……… 15,000 Units completed……………… 102,000
Units started…………………… 117,000 Units in ending WIP………… 30,000
Total units to acct. for…… 132,000 Total units acct’d for……… 132,000
Equivalent units:
Units completed……………………………………………………………………… 102,000
Units in ending work in process…………………………………………………… 18,000
Total equivalent units…………………………………………………………… 120,000
UNIT INFORMATION
Washburn Inc.
Production Report
For the Month of June
Weighted Average Method
Molding Department
6-10
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CHAPTER 6 Process Costing
BE 6-36 (Concluded)
Costs to account for:
Beginning work in process…………………………………………………… $ 180,000
Incurred during June………………………………………………………… 3,420,000
Total costs to account for………………………………………………… $3,600,000
Cost per equivalent unit………………………………………………………… $30.00
Costs accounted for:
Transferred Ending
Out Work in Process Total
Goods transferred out
($30.00 × 102,000)……………………… $3,060,000 — $3,060,000
Goods in ending WIP
($30.00 × 18,000)……………………… — $540,000 540,000
Total costs accounted for……………… $3,060,000 $540,000 $3,600,000
BE 6-37
1. Materials Conversion
Units completed……………………………………………… 13,040 13,040
Units in ending WIP ×
Fraction complete (2,400 × 1; 2,400 × 0.60)…… 2,400 1,440
Equivalent units of output……………………………..… 15,440 14,480
2. Unit materials cost [($16,000 + $50,000)/15,440]……… $ 4.27
Unit conversion cost [($12,000 + $84,000)/14,480]…… 6.63
Total unit cost…………………………………………… $10.90
* Rounded
3. Cost transferred out (13,040 × $10.90)…………………… $142,136
Cost of ending WIP:
Materials (2,400 × $4.27)………………………………… $ 10,248
Conversion (1,440 × $6.63)…………………………… 9,547
Total ending WIP cost……………………………… $ 19,795
Add:
COST INFORMATION
*
*
6-11
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CHAPTER 6 Process Costing
BE 6-38
1. Physical flow schedule:
Units in beginning work in process……………………………… 30,000
Units started during the period…………………………………… 120,000
Total units to account for……………………………………… 150,000
Units completed and transferred out:
Units started and completed……………………………………… 110,000
Units completed from beginning work in process…………… 30,000 140,000
Units in ending work in process………………………………… 10,000
Total units accounted for……………………………………… 150,000
2. Units completed…………………………………..…………………… 140,000
Units in EWIP…………………………………………………………… 10,000
Equivalent units (transferred-in materials)…………………… 150,000
3. Unit Transferred-In Cost = ($63,000 + $237,000)/150,000………… $2.00
BE 6-39
1. Units started and completed………………………………………………………… 28,500
Units in BWIP (0.30 × 6,000)………………………………………………………… 1,800
Units in EWIP (0.60 × 4,000)………………………………………………………… 2,400
Total…………………………………………………………………………………… 32,700
2. Unit Cost = $130,800/32,700………………………………………………………… $4.00
3. Cost of units transferred out:
BWIP costs…………………………………………………………………………… $ 16,380
To finish BWIP……………………………………………………………………… 7,200
Started and completed……………………………….…………………………… 114,000
Total……………………………………………….……………………………… $137,580
EWIP ($4.00 × 2,400)….….……………………………….…………………………… $9,600
Equivalent
Units
6-12
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CHAPTER 6 Process Costing
BE 6-40
Physical flow:
Units to account for: Units accounted for:
Units in beginning WIP………… 6,000 Units started and completed… 28,500
Units started……………………… 32,500 From beginning WIP…………… 6,000
Units in ending WIP…………… 4,000
Total units to acct. for……… 38,500 Total units acct’d for……… 38,500
Equivalent units:
Started and completed………………………………………………..………………… 28,500
To complete beginning WIP (6,000 × 0.30)………………………………………… 1,800
Units in ending WIP (4,000 × 0.60)…………………………………………………… 2,400
Total equivalent units……………………………………………………………… 32,700
Costs to account for:
Costs in beginning WIP………………………………………………………………… $ 16,380
Costs added by department…………………………………………………………… 130,800
Total costs to account for………………………………………………………… $147,180
Cost per Equivalent Unit = $130,800/32,700…………………………………………… $4.00
Transferred out:
Units started and completed (28,500 × $4.00)………………………………… $114,000
Units in beginning work in process:
From prior period………………………………………………………….………… 16,380
From current period (1,800 × $4.00)……………………………………………… 7,200
Total cost transferred out………………………………………….…………… $137,580
Goods in ending work in process (2,400 × $4.00)…………………………………… 9,600
Total costs accounted for……………………………………..……………………… $147,180
Saludable Inc.
Costs accounted for:
Drying Department
Production Report
For the Month of November
(FIFO Method)
COST INFORMATION
UNIT INFORMATION
6-13
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CHAPTER 6 Process Costing
E 6-41
1.
Direct materials………… $ 29,400
Direct labor……………… 68,400
Applied overhead……… 57,000
Transferred-in cost:
From Molding…………
From Grinding……… 718,600
Total cost………………… $873,400
2. Unit Cost = $873,400/18,000……….….………………………………………………… $48.52
E 6-42
1.
a. Work in Process—Grinding
Work in Process—Molding
b. Work in Process—Finishing
Work in Process—Grinding
c. Finished Goods
Work in Process—Finishing
2. The journal entries for the job-order and process-costing systems are generally
the same. There is one key difference. For process costing, each department has
its own WIP account. As goods are completed in one department, they are
transferred with their costs to the next department.
E 6-43
1. Equivalent
Units
21,600 units completed……………………………………………………………… 21,600
(2,250 units × 0.60)………………………………………………………………… 1,350
December output……………………………………………………………………… 22,950
2. Unit Cost per Unit = $82,620/22,950………………………………………………… $3.60
3. Cost of Goods Transferred Out = $3.60 × 21,600….……………………………… $77,760
4. EWIP = $3.60 × 1,350……………….…………..……………………………………… $4,860
$286,400
27,600
35,000
$349,000 $718,600
349,000
$ 30,400
67,200
272,000
232,000
272,000
128,000
128,000
Finishing
Department
EXERCISES
Description
Journal
Date
Department
Molding
Department
Grinding
Credit
232,000
272,000
Debit
6-14
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CHAPTER 6 Process Costing
E 6-44
Units completed……………………………………………………………………… 504,000
Units in ending work in process × Fraction complete:
(96,000 × 0.75)……………………………………………………………………… 72,000
Equivalent units of output………………………………………………………… 576,000
E 6-45
1. Unit Cost = $174,000/75,000 = $2.32 per unit
2. Cost of ending work in process ($2.32 × 21,600)………………………………… $50,112
Cost of goods tranferred out ($2.32 × 53,400)…………………………………… $123,888
3. Cassien is using the weighted average method for calculating unit costs. Thus, the
unit cost for June will be a mixture of May and June costs. May costs will not reflect
the cost savings and so the June unit cost will be higher than expected. Using FIFO
for June would better reflect the effect of the cost reductions and overcome the
problem.
E 6-46
1. Unit Cost = $1,100,000/220,000…………………………………………………… $5.00
2. Cost of units transferred out (196,000 × $5.00)……………………………… $ 980,000
Cost of ending WIP (24,000 × $5.00)…………………………………………… 120,000
Total costs accounted for…………………..………………………………… $1,100,000
3. The weighted average method is simpler to use than FIFO, but it does not reflect
the unit cost as well if costs are changing significantly from one period to the next.
FIFO calculates the unit cost using only costs of the current period and output of the
current period. Weighted average rolls back and picks up the costs and output in
BWIP and counts them as if they belong to the current period. These costs and
output of two periods are mixed. For Byford, the unit cost under weighted average
is $5.00 (see solution to Requirement 1). The unit cost for units in BWIP is $3.06
($107,000/35,000). This suggests a significant difference in the unit cost of the prior
period from the unit cost of the current period. If this type of cost fluctuation is
typical, Byford should switch to FIFO.
E 6-47
Units to account for:
Units in beginning work in process……………………………… 91,500
Units started during the period…………………………………… 99,000
Total units to account for……………………………………… 190,500
Units completed and transferred out:
Units started and completed*……………………………………… 73,800
Units completed from beginning work in process…………… 91,500 165,300
Units in ending work in process………………….……………… 25,200
Total units accounted for……………………………………… 190,500
*99,000 – 25,200 = 73,800
6-15
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CHAPTER 6 Process Costing
E 6-48
Units to account for:
Units in beginning WIP………………………………………………………………… 25,000
Units started……………………………………………………………………………… 142,500
Total units……………………………………………………………………………… 167,500
Units accounted for:
Completed from BWIP…………………………………………………………………… 25,000
Started and completed*………………………………………………………………… 107,500
Units in ending WIP……………………………………………………………………… 35,000
Total units……………………………………………………………………………… 167,500
142,500 – 35,000
E 6-49
Physical flow:
Units to account for: Units accounted for:
Units in beginning WIP………… 20,000 Units completed……………… 50,000
Units started……………………… 40,000 Units in ending WIP…………… 10,000
Total units to acct. for……… 60,000 Total units acct’d for……… 60,000
Equivalent units:
Units completed…………………………………………………………………………… 50,000
Units in ending work in process (0.20 × 10,000)…………………………………… 2,000
Total equivalent units………………………………………………………………… 52,000
Costs to account for:
Costs in beginning WIP………………………………………………………………… $ 93,600
Costs added by department…………………………………………………………… 314,600
Total costs to account for…………………………………………………………… $408,200
Cost per equivalent unit…………………………………………………………………… $7.85
UNIT INFORMATION
COST INFORMATION
Mino Inc.
Production Report
For the Month of April
(Weighted Average Method)
Cooking Department
6-16
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CHAPTER 6 Process Costing
E 6-49 (Concluded)
Costs accounted for:
Transferred
Out Total
Goods transferred out
($7.85 × 50,000)…..………… $392,500 — $392,500
Goods in ending WIP
($7.85 × 2,000)…..…………… — $15,700 15,700
Total costs accounted for….. $392,500 $15,700 $408,200
E 6-50
Materials Conversion
Units completed……………………..……………… 60,000 60,000
Units in ending WIP ×
Fraction complete* (20,000 × 0.60)…..…… 20,000 12,000
Equivalent units of output……………..…………… 80,000 72,000
*60% completion is related to conversion.
E 6-51
1. Unit materials cost [($147,000 + $1,053,000)/240,000]………………………… $5.00
Unit conversion cost [($7,875 + $236,205)/216,000]…………………………… 1.13
Total unit cost……………………………………………………………………… $6.13
2. Cost transferred out (180,000 × $6.13)…………………………………….….… $1,103,400
Cost of ending WIP:
Materials (60,000 × $5.00)……………………………………….….…………… $ 300,000
Conversion (36,000 × $1.13)…………………………………………………… 40,680
Total ending WIP cost……………………………………………………..…… $ 340,680
E 6-52
1. Units to account for: Units accounted for:
Units in beginning WIP…… 40,000 Units transferred out……… 120,000
Units started*……………… 110,000 Units in ending WIP………… 30,000
Total units to acct. for… 150,000 Total units acct’d for…… 150,000
Add:
Ending
Work in Process
6-17
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CHAPTER 6 Process Costing
E 6-52 (Concluded)
* Calculation:
Units transferred out……………..………………………………………………………… 120,000
Units in ending WIP……………..………………………………………………………… 30,000
Less: Units in beginning WIP…..………………………………………………………… (40,000)
Units transferred in………………..…………………………………………………… 110,000
2. Transferred-In Materials Conversion
Units transferred out……………… 120,000 120,000 120,000
Units in ending WIP………………… 30,000 30,000 18,000
Equivalent units………………… 150,000 150,000 138,000
E 6-53
1. Unit transferred-in cost [($2,100 + $30,900)/75,000]……..…………… $0.44
Unit materials cost [($1,500 + $22,500)/75,000]……..………………… 0.32
Unit conversion cost [($3,000 + $45,300)/69,000]……..……………… 0.70
2. Total unit cost…..……………..…………………………………………… $1.46
E 6-54
Units started and completed……..……………………………………… 27,000
Units in BWIP × Fraction to be completed (15,000 × 0.60)……..…… 9,000
Units in EWIP × Fraction complete (8,000 × 0.75)……..……………… 6,000
Equivalent units of output…………………………………..…………… 42,000
E 6-55
1. Unit Cost = $14,000/7,840……………………………………….………… $1.79
2. Cost of ending work in process ($1.79 × 2,400)……………..………… $ 4,296
Cost of goods transferred out:
From BWIP:
Prior-period costs…………………………………………..…………… $ 1,120
Completion costs ($1.79 × 840)…..…………………………………… 1,504
Started and completed ($1.79 × 4,600)………..…………………… 8,234
Total………..………………………………………………………… $10,858
* Rounded
*
*
6-18
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CHAPTER 6 Process Costing
P 6-56
1. Mixing department:
a. Units Transferred to Tableting = Total Units* – Ending WIP
= 420,000 – 36,000
*Total Units = Beginning WIP + Units Started = 0 + 420,000
b. Units completed………………………………………………….……………… 384,000
Add: Units in ending work in process: 36,000 × 0.50…………………… 18,000
Equivalent units of output…………..………………………………………… 402,000
2. Tableting department:
Units Transferred Out = Total Units* – Ending WIP = 408,000 – 12,000 = 396,000
*Total Units = Beginning WIP + Units Transferred In = 24,000 + 384,000 = 408,000
3. The solution is to convert the transferred-in units to the same unit of measure as
the output for the tableting department. Each bottle has eight ounces of transferredin
material. Thus, 384,000 ounces become 48,000 bottles. Using this converted
measure, the revised solution would be as follows:
Units Transferred Out = Total Units* – Ending WIP = 51,000 – 1,500 = 49,500
*Total Units = Beginning WIP + Units Transferred In = 3,000 + 48,000 = 51,000
P 6-57
1. Units to account for:
Units in beginning work in process………..…………………… 60,000
Units started during the period……………..…………………… 120,000
Total units to account for…………………..………………… 180,000
Units accounted for:
Units completed and transferred out:
Started and completed……………………..………………… 90,000
From beginning work in process…………..……………… 60,000 150,000
Units in ending work in process…………..…………………… 30,000
Total units accounted for…………………..………………… 180,000
PROBLEMS
= 384,000
6-19
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CHAPTER 6 Process Costing
P 6-57 (Concluded)
2. Cabinets Components Conversion
Units completed……………………………… 150,000 150,000 150,000
Units in EWIP………………………………… 30,000 30,000 6,000
Equivalent units…………………………… 180,000 180,000 156,000
*0.20 × 30,000
3. Costs to account for: Cabinets Components Conversion Total
Beginning WIP……………… $1,200,000 $12,600,000 $ 5,400,000 $19,200,000
Incurred during April……… 2,400,000 25,200,000 8,640,000 36,240,000
Total costs to acct. for… $3,600,000 $37,800,000 $14,040,000 $55,440,000
Equivalent units…………… 180,000 180,000 156,000
Cost per equivalent unit…… $20 $210 $90 $320
4. Costs Transferred Out = 150,000 × $320
=
Cost of Ending WIP = (30,000 × $20) + (30,000 × $210) + (6,000 × $90)
= $7,440,000
5. Costs to account for:
Beginning work in process………..…………………………………………… $19,200,000
Incurred during April………………..…………………………………………… 36,240,000
Total costs to account for………..………………………………………… $55,440,000
Costs accounted for:
Goods transferred out……………..…………………………………………… $48,000,000
Goods in ending work in process……..……………………………………… 7,440,000
Total costs accounted for……………..…………………………………… $55,440,000
$48,000,000
*
6-20
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CHAPTER 6 Process Costing
P 6-58
1.
Physical flow:
Units to account for: Units accounted for:
Units in beginning WIP…… 60,000 Units completed…………… 150,000
Units started………………… 120,000 Units in ending WIP………… 30,000
Total units to acct. for… 180,000 Total units acct’d. for…… 180,000
Equivalent units: Cabinets Components Conversion
Units completed……………………………… 150,000 150,000 150,000
Units in EWIP…………………………………… 30,000 30,000 6,000
Equivalent units…………………………… 180,000 180,000 156,000
Costs to account for: Cabinets Components Conversion Total
Beginning WIP……………… $1,200,000 $12,600,000 $ 5,400,000 $19,200,000
Incurred during April……… 2,400,000 25,200,000 8,640,000 36,240,000
Total costs to acct. for… $3,600,000 $37,800,000 $14,040,000 $55,440,000
Equivalent units……………… 180,000 180,000 156,000
Cost per equivalent unit…… $20 $210 $90 $320
Transferred Ending Work
Costs accounted for: Out in Process Total
Goods transferred out
($320 × 150,000)……………………………… $48,000,000 — $48,000,000
Goods in ending WIP
Cabinets ($20 × 30,000)…………………… $ 600,000 600,000
Components ($210 × 30,000)…………… 6,300,000 6,300,000
Conversion ($90 × 6,000)………………… — 540,000 540,000
Total costs accounted for…………… $48,000,000 $7,440,000 $55,440,000
*0.20 × 30,000
Unit Information
Stillwater Designs
Production Report
For the Month of April
(Weighted Average Method)
Assembly Department
*
6-21
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CHAPTER 6 Process Costing
P 6-58 (Concluded)
2. Although the answers may vary, some essential elements should be mentioned in
the report. The job cost sheet summarizes the manufacturing activity for a job,
whereas the production report summarizes the manufacturing activity in a process
department for a period of time. Both reports provide unit cost information, although
the production report only provides the unit cost for a given process. Only the last
process provides the total cost per unit. A similar observation can be made about
the detail concerning materials and conversion costs. The job cost sheet acts as a
subsidiary work-in-process account. The production report also provides the cost
of ending work in process for each process. The sum of these amounts will give the
total work in process—so the production report serves a similar information function.
Thus, the purpose and content of the reports are very similar.
P 6-59
1. Units to account for:
Units in beginning work in process (60% complete)…………. 40,000
Units started during the period………………..…………………… 120,000
Total units to account for……………………..………………… 160,000
Units accounted for:
Units completed and transferred out:
Started and completed……………………..…………………… 80,000
From beginning work in process………..……………………… 40,000 120,000
Units in ending work in process (60% complete)…………..…… 40,000
Total units accounted for………………………….…..………… 160,000
2. Units completed…………………………………………..……………… 120,000
Add: Units in EWIP × Fraction complete
(40,000 × 0.60)…..……………………………………………………… 24,000
Equivalent units of output………………………………..…………… 144,000
3. Unit Cost [($144,000 + $604,800)/144,000] = $5.20
6-22
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CHAPTER 6 Process Costing
P 6-59 (Concluded)
4. First, calculate the cost per unit for the equivalent units in beginning
inventory (0.60 × 40,000 = 24,000 equivalent units in BWIP) = 24,000
Prior-Period Unit Cost = $144,000/24,000…………………………………………… $6.00
Next, calculate the current-period (FIFO) cost per unit:
= Weighted Average Equivalent
Units – Prior-Period
Equivalent Units
= 144,000 – 24,000
= 120,000
FIFO Unit Cost = $604,800/120,000 = $5.04
The weighted average unit cost
= (24,000/144,000)$6 + (120,000/144,000)$5.04
= $5.20
P 6-60
Physical flow:
Units to account for: Units accounted for:
Units in beginning WIP……… 40,000 Units completed……………… 120,000
Units started…………………… 120,000 Units in ending WIP………… 40,000
Total units to acct. for…… 160,000 Total units acct’d. for…… 160,000
Equivalent units:
Units completed……………… 120,000
Units in ending WIP………… 24,000
Total equivalent units…… 144,000
Costs to account for:
Costs in beginning WIP…………………………..………………………………… $144,000
Costs added by department………………………..……………………………… 604,800
Total costs to account for…………………………..………………………… $748,800
Cost per equivalent unit…………………………..…………………………………… $5.20
FIFO Equivalent Units for Materials
COST INFORMATION
Alfombra Inc.
Production Report
For the Month of August
(Weighted Average Method)
UNIT INFORMATION
Throw Rug Department
6-23
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CHAPTER 6 Process Costing
P 6-60 (Concluded)
Transferred
Costs accounted for: Out Total
Goods transferred out
($5.20 × 120,000)……………… $624,000 $624,000
Goods in ending WIP:
Conversion ($5.20 × 24,000)…… $124,800 124,800
Total costs accounted for… $624,000 $124,800 $748,800
P 6-61
1. Units to account for: Units accounted for:
Units in beginning WIP……… 15,000 Transferred out……… 45,000
Units started*………………… 35,000 Units in ending WIP… 5,000
Total…………………………… 50,000 Total………………… 50,000
*50,000 – 15,000 = 35,000
2. Equivalent
Units
Transferred out………………………………………..…………………………… 45,000
Ending WIP (5,000 × 0.25)…………..…………………………………………… 1,250
Total………………………………………………………………..……………… 46,250
3. Unit cost [($1,656 + $26,094)/46,250]……..…………………………………… $0.60
4. Cost transferred out (45,000 × $0.60)………………………..………………… $27,000
Cost of ending WIP (1,250 × $0.60)……………………………………………… $750
5. To assign costs to spoiled units, they should appear as an item in the
equivalent units schedule:
Equivalent
Units
Transferred out…………………………………………………..………………… 42,500
Spoiled units…………………………………………………………..…………… 2,500
Ending WIP (5,000 × 0.25)…………..…………………………………………… 1,250
Total………………………………………………………………………..……… 46,250
Work in Process
Ending
6-24
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CHAPTER 6 Process Costing
P 6-61 (Concluded)
The cost per equivalent unit is the same calculated without spoilage.
Spoilage Cost = 2,500 × $0.60 = $1,500
If the spoilage cost is abnormal, then it will not be assigned to production. A
common approach is to treat the $1,500 as a loss for the period. If the spoilage
is normal, then it would be added to the cost of goods transferred out.
P 6-62
Units to account for: Units accounted for:
Units in beginning WIP……… 24,000 Units completed……………… 70,000
Units started…………………… 56,000 Units in ending WIP………… 10,000
Total units to acct. for…… 80,000 Total units acct’d. for …… 80,000
Equivalent units:
Units completed………………………………………………………………………… 70,000
Units in ending WIP (10,000 × 0.70)………………………………………………… 7,000
Total equivalent units……………………………………………………………… 77,000
Costs to account for:
Costs in beginning WIP………………………..……………………………………… $285,520
Costs added by department…………………..……………………………………… 638,480
Total costs to account for………………………………………………………… $924,000
Cost per equivalent unit ($924,000/77,000)……..……………………………………… $12.00
Costs accounted for:
Goods transferred out (70,000 × $12.00)………..………………………………… $840,000
Ending WIP (7,000 × $12.00)……..…………………………………………………… 84,000
Total costs accounted for……………………………………..………………… $924,000
COST INFORMATION
Millie Company
Assembly Department
For the Month of June
(Weighted Average Method)
UNIT INFORMATION
Production Report
6-25
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CHAPTER 6 Process Costing
P 6-63
Units to account for: Units accounted for:
Units in beginning WIP…….. 24,000 Started and completed…… 46,000
Units started……..…………… 56,000 From beginning WIP……… 24,000
From ending WIP…………… 10,000
Total units to acct. for…… 80,000 Total units acct’d for…… 80,000
Equivalent units:
Started and completed……………………………………………………………… 46,000
To complete beginning WIP (24,000 × 0.40)……………………………………… 9,600
Units in ending WIP (10,000 × 0.70)……………………………………………… 7,000
Total equivalent units…………………………………………………………… 62,600
Costs to account for:
Costs in beginning WIP…………………………..………………………………… $285,520
Costs added by department……………………..………………………………… 638,480
Total costs to account for……………………..………………………………… $924,000
Cost per equivalent unit ($638,480/62,600)……………………………………..…… $10.1994
Costs accounted for:
Transferred out:
Units started and completed (46,000 × $10.1994)…………………………… $469,172
Units in beginning WIP:
From prior period………………………………………..…………………… 285,520
From current period (9,600 × $10.1994)…………………..……………… 97,914
Total cost transferred out………………………………………………… $852,606
Goods in ending work in process (7,000 × $10.1994)………………………… 71,396
Total costs accounted for……………………………………………………… $924,002
* Rounded
UNIT INFORMATION
COST INFORMATION
Millie Company
(FIFO Method)
Assembly Department
Production Report
For the Month of June
*
6-26
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CHAPTER 6 Process Costing
P 6-64
1. a. Physical flow schedule:
Units to account for: Units accounted for:
Units in BWIP……… 30,000 Units completed………… 480,000
Units started……… 500,000 From EWIP……………… 50,000
Total units……… 530,000 Total units…………… 530,000
b. Equivalent unit schedule:
Units completed………………………………..……………………………… 480,000
Units in ending WIP (50,000 × 0.40)…..…………………………………..… 20,000
Total equivalent units…………..………………………………………… 500,000
2. Unit cost computation:
Costs in BWIP………………..……………………………………………………… $ 270,000
Costs added……………..…………………………………………………………… 11,342,500
Total costs……………..………………………………………………………… $11,612,500
Unit Cost = $11,612,500/500,000…………..……………………………………… $23.225
3. Ending work in process (20,000 × $23.225)…………………………………… $464,500
Goods transferred out (480,000 × $23.225)……..…..………………………… $11,148,000
4. Cost reconciliation:
Costs to account for: Costs accounted for:
Beginning WIP…..……… $ 270,000 Transferred out…..…… $11,148,000
August costs…..……… 11,342,500 Ending WIP…..………… 464,500
Total to acct. for….. $11,612,500 Total to acct. for…..… $11,612,500
5. Equivalent unit schedule: Paraffin Pigment
Units completed………………..………………………………… 480,000 480,000
Units in ending WIP……………………..……………………… 20,000 20,000
Total equivalent units……………………..………………… 500,000 500,000
Unit cost computation: Paraffin Pigment
Costs in BWIP…………………………..………………………… $ 120,000 $ 100,000
Costs added……………………………..………………………… 3,250,000 2,550,000
Total costs………….……..…………………………………… $3,370,000 $2,650,000
Unit paraffin cost = $3,370,000/500,000….……………..……………………… $6.74
Unit pigment cost = $2,650,000/500,000………….…..………………………… $5.30
6-27
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CHAPTER 6 Process Costing
P 6-65
1. Department A
a. Physical flow schedule:
Units in beginning WIP…………..………………… 5,000
Units started in November…………..…………… 25,000
Total units to account for………..…………… 30,000
Units completed and transferred out:
Units completed………..…………………………… 28,000
Units in ending WIP……………..………………… 2,000
Total units accounted for……………..……… 30,000
b. Equivalent unit calculation:
Units completed……………..………………………………………… 28,000
Add: Equivalent units in ending WIP (2,000 × 0.80)………..…… 1,600
Total equivalent units……………………………………..……… 29,600
c. Costs charged to the department: Materials Conversion Total
Beginning WIP…………..……………… $10,000 $ 6,900 $ 16,900
Incurred during November…………..… 57,800 95,220 153,020
Total costs…………..………………… $67,800 $102,120 $169,920
Unit cost calculation:
Unit cost = $169,920/29,600………….…..…………………………… $5.7405
d. and e. Cost reconciliation:
Costs to account for:
Beginning WIP…………………………..……………………………… $ 16,900
Costs incurred…………………………………..……………………… 153,020
Total costs to account for………………..……………………… $169,920
Total costs accounted for:
Goods transferred out (28,000 × $5.7405)……..…..……………… $160,734
Costs in ending WIP (1,600 × $5.74)…………..…………………… 9,185
Total costs accounted for*…………………..…………………… $169,919
* Rounded
2.
Credit
Work in Process—Department A
Raw Materials 57,800
Work in Process—Department A
Conversion Costs—Department A 95,220
Work in Process—Department B
Work in Process—Department A 160,734
160,734
57,800
Debit
Journal
95,220
Date Description
*
*
*
6-28
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CHAPTER 6 Process Costing
P 6-65 (Concluded)
Answers may vary, but could (or should) include:
Using a conversion cost control account is more commonly used because direct
labor is becoming a small percentage of total manufacturing costs. Automation is
one cause; changing the nature of direct labor as in JIT is another cause. In
manufacturing cells, direct labor also performs many so-called traditional overhead
activities such as maintenance and inspection—thus, taking on the nature of
“conversion labor.”
P 6-66
1. Department A
a. Physical flow schedule:
Units in beginning WIP……………..…………………… 5,000
Units started in November………..…………………… 25,000
Total units to account for…………..……………… 30,000
Units completed and transferred out:
Started and completed…..……………………………… 23,000
From beginning WIP………………..…………………… 5,000
Units in ending WIP………………..…………………… 2,000
Total units accounted for…………..……………… 30,000
b. Equivalent unit calculation:
Units started and completed……..……………………………………… 23,000
Equivalent units in beginning WIP [(1 – 0.40) × 5,000]……………… 3,000
Equivalent units in ending WIP (2,000 × 0.80)………………………… 1,600
Total equivalent units…………………..……………………………… 27,600
c. Costs charged to the department: Materials Conversion Total
Beginning WIP…..…………………………… $10,000 $ 6,900 $ 16,900
Incurred during November…..…………… 57,800 95,220 153,020
Total costs…..…………………………… $67,800 $102,120 $169,920
Unit cost calculation:
Unit Cost = $153,020/27,600……………..…………………………………… $5.544
6-29
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CHAPTER 6 Process Costing
P 6-66 (Concluded)
d. and e. Cost reconciliation:
Costs of unit started and completed (23,000 × $5.544)……………… $127,512
Costs of unit in beginning WIP:
Prior period costs………………..……………………………………… 16,900
Current cost to finish units (3,000 × $5.54)………….………..……… 16,632
Total cost of units transferred out……..………………………… $161,044
Costs in ending WIP (1,600 × $5.54)…………………………………….. 8,870
Total costs accounted for*…………..………………………………… $169,914
Costs to account for:
Beginning WIP………………………..…………………………………… $ 16,900
Costs incurred………………………..…………………………………… 153,020
Total costs to account for……………..…………………………… $169,920
* Difference due to rounding.
2.
Debit Credit
Work in Process—Department A
Raw Materials 57,800
Work in Process—Department A
Conversion Costs—Department A 95,220
Work in Process—Department B
Work in Process—Department A 161,044
Because conversion costs are not broken into labor and overhead components,
a control account for conversion costs is used. Some firms are now combining
overhead and direct labor costs into one category. This practice is developing
because direct labor is becoming a small percentage of total manufacturing costs.
95,220
161,044
Journal
Date Description
57,800
6-30
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CHAPTER 6 Process Costing
P 6-67
1.
Units to account for:
Units in beginning WIP……………………………………………………… 10
Units started…………………………………………………………………… 150
Total units to account for………………………………………………… 160
Physical Equivalent
Units accounted for: Flow Units
Units completed…………………………………………… 140 140
Units in ending WIP ……………………………………… 20 10
Total units accounted for……………………………… 160 150
Costs to account for: Materials Conversion* Total
Beginning WIP……………………………… $ 252 $ 846 $ 1,098
Incurred during March……………………… 3,636 13,854 17,490
Total costs to account for……………… $3,888 $14,700 $18,588
Equivalent units…………………………………………………………………… 150
Cost per equivalent unit………………………………………………………… $123.92
* Conversion is labor plus overhead (200% of labor):
BWIP: $282 + ($282 × 2.00) = $846
March: $4,618 + ($4,618 × 2.00) = $13,854
Transferred Ending Work
Costs accounted for: Out Total
Goods transferred out
(140 × $123.92)…………………………… $17,349 — $17,349
Ending WIP (10 × $123.92)………………… $1,239 1,239
Total costs accounted for……………… $17,349 $1,239 $18,588
in Process
Benson Pharmaceuticals
Mixing Department
For the Month of March
(Weighted Average Method)
UNIT INFORMATION
COST INFORMATION
Production Report
6-31
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CHAPTER 6 Process Costing
P 6-67 (Continued)
2.
Units to account for:
Units in beginning WIP…………………………………………………………… 4,000
Units started………………………………………………………………………… 210,000
Total units to account for …………………………………………………… 214,000
Units accounted for: Flow Trans. In Materials Conversion
Units completed………………… 208,000 208,000 208,000 208,000
Units in ending WIP*…………… 6,000 6,000 6,000 2,400
Total units accounted for…… 214,000 214,000 214,000 210,400
* 6,000 × 0.40
Costs to account for: Trans. In Materials Total
Beginning WIP…………………… $ 140 $ 32 $ 50 $ 222
Incurred during March………… 17,349 1,573 4,860 23,782
Total costs to account for… $17,489 $1,605 $4,910 $24,004
Equivalent units………………… 214,000 214,000 210,400
Cost per equivalent unit……… $0.0817 $0.0075 $0.0233 $0.1125
** BWIP: $20 + ($20 × 1.50) = $50
March: $1,944 + ($1,944 × 1.50) = $4,860
Costs accounted for: Total
Goods transferred out
(208,000 × $0.1125)……………………………… $23,400 $23,400
Ending WIP transferred in
(6,000 × $0.0817)………………………………… 490
Materials (6,000 × $0.0075)……………………… 45
Conversion (2,400 × $0.0233)…………………… 56
Total costs accounted for…………………… $23,400 $23,991
*** Difference due to rounding.
Benson Pharmaceuticals
Encapsulating Department
For the Month of March
(Weighted Average Method)
Production Report
UNIT INFORMATION
56
45
$591
Equivalent Units
Physical
Conversion
Out
Transferred Ending Work
in Process
$490
COST INFORMATION
***
**
6-32
© 2018 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
CHAPTER 6 Process Costing
P 6-67 (Concluded)
3. Weighted average is easier to use than FIFO because it does not require separate
tracking for units in BWIP. FIFO requires that prior-period work and costs be
accounted for separately. The weighted average method commingles prior-period
work and costs with current-period work and costs, thus making the computations
much easier. The weighted average method will produce essentially the same results
as the FIFO method if the cost of inputs remains relatively unchanged from one
period to the next. If there are significant changes in costs, then the unit cost of the
two periods can be significantly different. Of course, if BWIP is very small, then the
difference in using weighted average as opposed to FIFO will be immaterial.
6-33
© 2018 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
CHAPTER 6 Process Costing
P 6-68
1.
Units to account for:
Units in beginning WIP……………… 10
Units started…………………………… 150
Total units to account for………… 160
Units accounted for:
Units started and completed………… 130 130
Units in BWIP (to complete)………… 10 6
Units in EWIP………………………… 20 10
Total units accounted for………… 160 146
* 10 × 0.60 = 6
** 20 × 0.50 = 10
Costs to account for: Total
Beginning WIP…………………………… $ 1,098
Incurred during March…………………… 17,490
Total costs to account for……………… $18,588
Equivalent units………………………………………………………………… 146
Cost per equivalent unit………………………………………………………… $119.7945
*** BWIP: $282 + ($282 × 2.00) = $846
March: $4,618 + ($4,618 × 2.00) = $13,854
Costs accounted for: Total
Units started and completed
(130 × $119.7945)……………………… — $15,573
Units in beginning WIP:
From prior period……………………… — 1,098
From current period
(6 × $119.7945)……………………… — 719
Ending work in process
(10 × $119.7945)……………………… $1,198 1,198
Total costs accounted for……… $1,198 $18,588
in Process
Benson Pharmaceuticals
Mixing Department
(FIFO Method)
COST INFORMATION
UNIT INFORMATION
For the Month of March
Physical
Flow
Transferred
Production Report
$17,390
Equivalent
Units
Ending Work
Conversion
$ 846
13,854
$14,700
Materials
$15,573
1,098
719
Out
$ 252
3,636
$3,888
***
*
**
6-34
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CHAPTER 6 Process Costing
P 6-68 (Concluded)
2.
Units to account for:
Units in beginning WIP…………… 4,000
Units started………………………… 210,000
Total units to account for…… 214,000
Physical
Units accounted for: Flow Trans. In Materials Conversion
Units started and completed………… 204,000 204,000 204,000 204,000
Units in BWIP (to complete)………… 4,000 — — 2,000
Units in EWIP…………………………… 6,000 6,000 6,000 2,400
Total units accounted for………… 214,000 210,000 210,000 208,400
Costs to account for: Trans. In Materials Total
Beginning WIP………………………… $ 140 $ 32 $ 50 $ 222
Incurred during March………………… 17,390 1,573 4,860 23,823
Total costs to account for………… $17,530 $1,605 $4,910 $24,045
Equivalent units……………………… 210,000 210,000 208,400
Cost per equivalent unit***…………… $0.0828 $0.0075 $0.0233 $0.1136
* BWIP: $20 + ($20 × 1.50) = $50
** March: $1,944 + ($1,944 × 1.50) = $4,860
*** The numbers are rounded and the unit costs are calculated using only costs for March
because FIFO is being used.
Ending
Costs accounted for: Work in Process Total
Units started and completed
(204,000 × $0.1136)………………… $23,174 — $23,174
Units in BWIP from prior period 222 — 222
Current period (2,000 × $0.0233)…… 47 — 47
Ending WIP:
Transferred In (6,000 × $0.0828)… — $497 497
Materials (6,000 × $0.0075)……… — 45 45
Conversion (2,400 × $0.0233)…… — 56 56
Total costs accounted for*…… $23,443 $598 $24,041
*Difference due to rounding.
Transferred
Out
Conversion
COST INFORMATION
Equivalent Units
Benson Pharmaceuticals
UNIT INFORMATION
Encapsulating Department
(FIFO Method)
For the Month of March
Production Report
*
**
6-35
© 2018 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
CHAPTER 6 Process Costing
Case 6-69
1. Unit cost computation:
Physical flow schedule:
Units, beginning work in process…………………………………………… 0
Units started…………………………………………………………………… 2,800
Total units to account for………………………………………………… 2,800
Units completed and transferred out:
Started and completed………………………………………………………… 2,500
From beginning work in process…………………………………………… 0
Units, ending work in process……………………………………………… 300
Total units accounted for………………………………………………… 2,800
Direct Conversion
Costs charged to the department: Materials Cost Total
Costs in BWIP………………………………… $ 0 $ 0 $ 0
Costs added by department*……………… 114,000 82,201 196,201
Total costs………………………………… $114,000 $82,201 $196,201
* $45,667 + (0.80 × $45,667)
Direct Conversion
Equivalent units calculation: Materials Cost
Units completed………………………………………………… 2,500 2,500
Equivalent units in ending work in process……………… 300 240
Total equivalent units……………………………………… 2,800 2,740
Unit cost calculation:
Unit Cost = Unit Direct Materials Cost + Unit Conversion Costs
Direct material cost**………………………………………………………… $40.71
Unit conversion cost………………………………………………………… 30.00
Total unit cost……………………………………………………………… $70.71
** Rounded
2. Since conversion activity is the same for both bows, only the materials cost will
differ. Thus, the unit materials cost is computed and then added to the unit
conversion cost obtained in Requirement 1.
Econo Model
Physical flow schedule:
Units, beginning work in process…………………………………………… 0
Units started…………………………………………………………………… 1,600
Total units to account for………………………………………………… 1,600
CASES
6-36
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CHAPTER 6 Process Costing
Case 6-69 (Continued)
Units completed and transferred out:
Started and completed…………………..……………………………………… 1,500
From beginning work in process………..……………………………………… 0
Units, ending work in process…………..……………………………………… 100
Total units accounted for………………..…………………………………… 1,600
Direct materials cost charged to the department: Direct
Materials
Costs in beginning work in process……..……………………………………… $ 0
Costs added by department………………..……………………………………… 30,000
Total costs…………………………………..……………………………………… $30,000
Equivalent units calculation: Direct
Materials
Units completed……………………………..………………………………………… 1,500
Add: Equivalent units in ending work in process…………..………………… 100
Total equivalent units…………………………………………..………………… 1,600
Unit cost calculation:
Unit Cost = Unit Direct Materials Cost + Unit Conversion Costs
Direct material cost per unit………………………………..……………………… $18.75
Unit conversion cost…………………………………………..……………………… 30.00
Total unit cost………………………………………………..…………………… $48.75
Deluxe Model
Physical flow schedule:
Units, beginning work in process…………………………..………………… 0
Units started…………………………………………………..…………………… 1,200
Total units to account for…………………………………..………………… 1,200
Units completed and transferred out:
Started and completed……………………………………..…………………… 1,000
From beginning work in process…………………………..…………………… 0
Units, ending work in process……………………………..…………………… 200
Total units accounted for…………………………………..………………… 1,200
Direct materials cost charged to the department: Direct
Materials
Costs in beginning work in process……………………..……………………… $ 0
Costs added by department……………………………..………………………… 84,000
Total costs…………………………………………………..……………………… $84,000
6-37
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CHAPTER 6 Process Costing
Case 6-69 (Concluded)
Equivalent units calculation: Direct
Materials
Units completed………..…………………………………………………………… 1,000
Add: Equivalent units in ending work in process………..…………………… 200
Total equivalent units……………………………………..………………… 1,200
Unit cost calculation:
Unit Cost = Unit Direct Materials Cost + Unit Conversion Costs
Direct material cost per unit …………………………………..……………………… $ 70
Unit conversion cost…………………………………………..……………………… 30
Total unit cost…………………………………………………..…………………… $100
3. Unit cost for Econo model……………………………..……………………………… $ 48.75
Unit cost for Deluxe model…………………………..……………………………… 100.00
Unit cost for both together……………………………..……………………………… $148.75
Using pure process costing understates the cost of the Deluxe model and overstates
the cost of the Econo model.The error is large, so Karen seems to be justified in her
belief that a pure process-costing relationship is not appropriate.
Process costing could be used for all departments other than the pattern department.
The pattern procedures can be used for conversion costs, but the cost of direct
materials should be tracked by batch.
4. The profitability of the Econo line was being understated by nearly $22, while that of
the Deluxe line was overstated by over $29 producing an erroneous $51 difference
in profitability under the current process-costing system. This easily could be enough
difference to make the marketing manager’s request for additional advertising dollars
a sound one. It is quite possible that Aaron was wrong in not granting the request—
wrong because he was using the wrong cost information. This example illustrates
the importance of an accurate costing system.
6-38
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CHAPTER 6 Process Costing
Case 6-70
1. Physical flow schedule:
Units, beginning work in process……………………………………………… 10,000
Units started (transferred in)…………………..………………………………… 51,000
Total units to account for……………………..…………………………… 61,000
Units completed and transferred out:
Started and completed………………………..………………………………… 40,000
From beginning work in process……………..………………………………… 10,000
Units, ending work in process………………..………………………………… 11,000
Total units accounted for………………………..…………………………… 61,000
Costs:
Costs incurred by the gating department:
Direct materials (0.23 × $378,000)…………………………………………… $ 86,940
Direct labor (0.35 × $530,300)……………………………………………… 185,605
Overhead (0.35 × $643,518)………………………………………………… 225,231
Total costs added……………………………………………….………… $497,776
*Assumes that overhead is used in the same proportion as direct labor
Direct Conversion
Equivalent units calculation: Materials Costs
Units started and completed……………………………………… 4 0,000 40,000
Units completed from beginning work in process…………… 4,000
Add: Equivalent units in ending work in process…………… 1 1,000 6,600
Total equivalent units……………………………………….…… 51,000 50,600
Unit cost calculation:
Unit Cost = Unit Direct Materials Cost + Unit Conversion Costs
Direct material cost per unit……………………………………..………………… $1.70
Unit conversion cost*……………………………………………..………………… 8.12
Total unit cost……………………………………………………..……………… $9.82
*Rounded
Value of ending work in process:
Direct materials (11,000 × $1.70)…..…………..……………………………… $18,700
Conversion costs (6,600 × $8.12)…..…………..……………………………… 53,592
Total cost of units in ending work in process………………..………… $72,292
Assumptions: Overhead is used at the same rate as direct labor.
The FIFO method is used because the costs associated with the beginning work in
process are not known. Only the manufacturing costs added this period (20X1) are
known. Since the FIFO method requires only current output and current costs to
calculate the unit cost, it is the method that should be used. Once a cost per
equivalent unit is known, the ending work in process can be valued.
6-39
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CHAPTER 6 Process Costing
Case 6-70 (Continued)
2. Units, beginning work in process…………………..……………………………… 8,000
Units started (transferred in)………………………………………………………… 50,000
Total units to account for………………………………………………………… 58,000
Units completed and transferred out:
Started and completed…………………………………………………………… 42,000
From beginning work in process………………………………………………… 8,000
Units, ending work in process…………………………………………………… 8,000
Total units accounted for……………………………………………………… 58,000
Direct Conversion Transferred
Equivalent units calculation: Materials Costs In
Units started and completed…..…………………… 42,000 42,000 42,000
Units to complete, beginning
work in process…..………………………………… 0 6,400 0
Add: Equivalent units in ending
work in process…..………………………… 8,000 2,400 8,000
Total equivalent units…..…………………………… 50,000 50,800 50,000
Costs:
Transferred-in cost (50,000 × $9.82)*…………………………… $491,000
Costs incurred by shell creating:
Direct materials ($378,000 × 0.47)…………………………… $177,660
Direct labor ($530,300 × 0.15)………………………………… 79,545
Overhead ($643,518 × 0.15)…………………………………… 96,528
Total conversion cost……………………………………… 353,733
Total costs…………………………………………………………… $844,733
* Assumes that all units transferred out, including those finished from beginning work in process, have
a cost of $9.82 per unit. In essence, this assumes that the unit cost of this period equals the unit cost
of the prior period.
Unit Cost = Unit Direct Materials Cost + Unit Conversion Costs + Unit Tranferred-In
Cost
Unit direct materials cost* …………………………………………………………… $ 3.55
Unit conversion costs* ……………………………………………………………… 3.47
Unit transferred-in cost……………………………………………………………… 9.82
$16.84
Units, ending work in process:*
Direct materials (8,000 × $3.55)…………………………………………………… $ 28,400
Conversion costs (2,400 × $3.47)………………………………………………… 8,328
Transferred in (8,000 × $9.82)…………………………………………………… 78,560
Total cost of ending work in process……………………………………… $115,288
*Rounded
6-40
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CHAPTER 6 Process Costing
Case 6-70 (Concluded)
In addition to the same assumptions made for the first department, we had to assume
that the unit cost of all units transferred out was equal to the FIFO method unit cost.
This assumption holds if the cost of producing last period did not change for this
period. Even if the cost did change, the error is not likely to be large. For purposes
of estimating the value of ending work in process, the assumption is quite workable.
Case 6-71
1. Gary’s proposal requires Donna to falsify the equivalent unit calculation so that
income and assets can be inflated and reported incorrectly. Falsification of the
production report would be a violation of at least two major ethical standards:
integrity and credibility. If Donna agrees to the proposal, she would be taking action
that would discredit her profession. In addition, Donna has an ethical obligation
to communicate information fairly and objectively, disclosing all information that
would be needed for the loan officer to fairly assess the merits of the company’s
request for a loan. Clearly, Donna should not agree to falsify the production report.
2. Donna has an obligation to report Gary to a superior only if an actual ethical problem
exists. If Gary decides that the course of action he is suggesting is not really in his or
the company’s best interests, then no ethical problem exists and no action by Donna
is needed.
3. If Gary insists on his idea of falsification of the division’s reports, Donna should
attempt to resolve the conflict by appealing to Gary’s immediate supervisor (and on
up, if necessary and with the immediate supervisor’s knowledge, assuming he or
she is not involved) until a satisfactory resolution is achieved. If no satisfactory
resolution is possible, then Donna should consult her own attorney as to legal
obligations and rights concerning the ethical conflict. She may also clarify the
ethical issues by initiating a confidential discussion with an IMA Ethics Counselor.
4. In this situation, the ethical dilemma is complicated by two factors: Donna’s age
and a low likelihood of resolution by appealing to higher-level authorities. Donna’s
age may make it more difficult to find alternative employment (at least at the same
level and pay), and it may mean possible forfeiture of retirement benefits. Seeking
help from an expert in ethics and consulting a lawyer are certainly good
recommendations. Donna has the option of fighting back, and at her age (with
retirement benefits at stake), a good offense may be her best defense.
6-41
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