chap 011

CHAPTER 11: PROCESS COSTING

QUESTIONS

11-1 A company that should use a process costing system typically has homogenous products, which pass through a series of similar processes or departments. These firms usually engage in continuous mass production of a few products.

11-2 Process costing is likely used in industries such as chemicals, oil refining, textiles, paints, flour, canneries, rubber, steel, glass, food processing, mining, automobile production lines, electronics, plastics, drugs, paper, lumber, leather goods, metal products, sporting goods, cement, and watches.

11-3 Differences between job and process costing: (1) accumulating costs by job vs. department, (2) collecting cost data using the job cost sheet vs. the production cost report, and (3) computing unit cost by job vs. department.

11-4 Equivalent units are the number of completed units that could have been produced given the amount of work actually performed on both complete and partially completed units.

11-5 If direct materials are added at the beginning of the process rather than uniformly throughout the process, we do not need to add any equivalent units of direct materials to finish the work-in-process beginning inventory.

11-6 A production cost report is a report, which summarizes the physical units and equivalent units of a department, the costs incurred during the period, and costs assigned to both finished goods and work-in-process inventories. The five key steps in preparing a production cost report are analysis of physical units, calculation of equivalent units, determination of total costs to account for, computation of unit costs, and assignment of total costs.

11-7 The weighted-average method equivalent units include both the units placed into production in the current period and the units from the prior period that are still in production at the beginning of this period. FIFO method does not include the equivalent units of the prior period that are still in production at the beginning of this period. Equivalent units under the weighted-average method are larger than those under the FIFO method. They are equal only if there is no beginning work-in-process inventory.

Solutions Manual 11-1

11-8 The weighted-average method would be inappropriate when a firm’s beginning and ending inventories or manufacturing costs per unit change dramatically from period to period.

11-9 The advantage of the weighted-average method is its simplicity.

11-10 From the standpoint of cost control, the FIFO method is superior to weighted-average because the cost per equivalent unit under FIFO represents the cost for the current period’s efforts only. It is impossible to monitor cost trends using the weighted-average method because the costs of the prior period and the current period are mixed together.

11-11 Transferred-in costs are costs of work done in the prior department that are transferred into the current department.

11-12 Work-in-Process Inventory -- Second Department xxx Work-in-Process Inventory -- First Department xxx

11-13 Under the FIFO method of handling units transferred out, beginning inventory cost, the cost added in this period to complete the beginning inventory, and the cost of units started and completed are considered separately.

11-14 Under the weighted-average method, it makes no difference when a product is started; all units completed in the same period or in the ending inventory of that period are treated the same. In computing the equivalent units, this method looks at only the output of the production process. In calculating the unit cost, this method considers both the beginning work-in-process cost and the current period cost.

11-15 Process costing uses the same manufacturing accounts as job costing. Journal entries are essentially the same as in job costing. However, instead of tracing product costs to specific jobs, process costing accumulates costs in production departments or cost centers.

11-16 Operation costing is a hybrid costing system that uses job costing to assign direct materials costs, and uses process costing to assign conversion costs to products or services.

11-17 Automation will reduce the difference of unit costs between the weighted-average cost method and the FIFO cost method.

Blocher,Chen,Cokins,Lin: Cost Management 3e 11-2 © The McGraw-Hill Companies, Inc., 2005

EXERCISES

11-18 Physical Units (20 min)

1. Work-in-process inventory, 2/1 80,000 Units started 60,000 Total units to account for 140,000 Units completed (75,000) Work-in-process inventory, 2/28 65,000 2. Units completed 83,000 Work-in-process inventory, 6/30 55,000 Total units accounted for 138,000 Units started (75,000) Work-in-process Inventory, 6/1 63,000 3. Units completed 7,300 Work-in-process inventory, 9/30 3,400 Total units accounted for 10,700 Work-in-process inventory, 9/1 (5,500) Units started 5,200

4. Work-in-process inventory, 11/1 45,000 Units started 57,000 Total units to account for 102,000 Work-in-process inventory, 11/30 (23,000) Units completed 79,000


11-19 Equivalent Units; Weighted-Average Method (15 min)

1. Work-in-process inventory, 5/1 1,500 Units started 6,500 Total units to account for 8,000 Work-in-process inventory, 5/31 (2,300) Units completed and transferred out 5,700

2. Equivalent units -- Weighted-Average Method Materials: Units completed 5,700 Work-in-process inventory, 5/31 2,300 x 50% = 1,150 Total equivalent units 6,850 Conversion: Units completed 5,700 Work-in-process inventory, 5/31 2,300 x 30% = 690 Total equivalent units 6,390


11-20 Equivalent Units; Weighted-Average Method (20 min)

Quantity Schedule Input Work-in-process inventory, 1/1 30,000 Units started 150,000 Total units to account for 180,000 Output Units completed 165,000 Work in process inventory, 12/31 15,000 Total units accounted for 180,000

Equivalent Units -- Weighted-Average Method Materials Units completed 165,000 Work-in-process inventory,12/31 15,000 x 70% = 10,500 Total equivalent units 175,500 Conversion: Units completed 165,000 Work-in-process inventory,12/31 15,000 x 60% = 9,000 Total equivalent units 174,000


11-21 Equivalent Units; FIFO Method (25 min)

Quantity Schedule (not required) Input Work-in-process inventory, 9/1 3,000,000 Units started 4,850,000 Total units to account for 7,850,000 Output Units completed 5,450,000 Work-in-process inventory, 9/30 2,400,000 Total units accounted for 7,850,000

Equivalent Units -- FIFO Method Direct Materials Units completed 5,450,000 Work-in-process inventory(9/30), 2,400,000 x 100% = 2,400,000 Total 7,850,000 Work-in-process inventory(9/1), 3,000,000 x 100% = (3,000,000) Equivalent units 4,850,000 Conversion: Units completed 5,450,000 Work-in-process inventory(9/30), 2,400,000 x 80% = 1,920,000 Total 7,370,000 Work-in-process inventory(9/1), 3,000,000 x 25% = (750,000) Equivalent units 6,620,000


11-22 Equivalent Units; FIFO Method (25 min)

Physical Percent Equivalent Units Units Complete DM Conversion Work-in-process 12/1 200 9%Units started 900Total units to account 1,100 Units completed by 12/31 800 100% 800 800Work-in-process,12/31 300 12% 300 36Total units accounted 1,100 1,100 836

Less: equivalent units in work-in-process, 12/1 9% 200 18FIFO equivalent units 900 818


11-23 Equivalent Units; FIFO Unit Cost (25 min)

Physical Percent Equivalent UnitsUnits Complete DM Conversion

WIP, June 1 30,000 20%Units started 50,000Total units to account 80,000 Units completed and transferred out 60,000 100% 60,000 60,000WIP, June 30 20,000 70% 20,000 14,000Total units accounted 80,000

Total 80,000 74,000Less: EU in June 1 WIP 20% (30,000) (6,000)FIFO equivalent units 50,000 68,000 Computation of unit costs:

Total Materials Conversion WIP, June 1 $104,000Cost incurred during June 415,000 $150,000 $265,000Total cost to acct. for $519,000

Divided by equivalent units 50,000 68,000Cost per equivalent unit $6.90 $3.00 $3.90


11-24 Journal Entries (10 min)

1. Work-in-Process Inventory - Department 1 555,000Materials Inventory 55,000Accrued Payroll 160,000Factory Overhead Applied 340,000

2. Work-in-Process Inventory - Department 2 850,000Work-in-Process Inventory - Department 1 850,000

3. Work-in-Process Inventory - Department 2 602,000Materials Inventory 32,000Accrued Payroll 320,000Factory Overhead Applied 250,000

4. Finished Goods Inventory 740,000Work-in-Process Inventory - Department 2 740,000


11-25 FIFO Method (25 min)

1. Equivalent units Returns completed during March 1,200*Returns in process, 3/31: 200 x 90% = 180- Returns in process, 2/1: 100 x 30% = (30)FIFO equivalent units 1,350

* 100 + 1,300 - 200 = 1,200

2. Cost per equivalent unit$148,500 / 1,350 = $110

3. Cost of completed returnsFrom beginning inventory, 3/1: $ 330Added to finish the beginning

inventory: $110 x 100 x (1 - 30%) = 7,700Total first batch $ 8,030Second batch--started and finished:

$110 x (1,200 - 100) = 121,000Total cost of completed returns $129,030

4. Cost of returns in process on March 31$110 x (200 x 90%) = $19,800


11-26 Equivalent Units; Weighted-Average Method and FIFO (15 Min)

1. Equivalent units -- Weighted-Average Method Direct Materials: Units completed 1,000 + 3,000 = 4,000 Work-in-process, 11/30 2,000 x 100% = 2,000 Total equivalent units 6,000 Conversion: Units completed 1,000 + 3,000 = 4,000 Work-in-process, 11/30 2,000 x 20% = 400 Total equivalent units 4,400

2. Equivalent Units -- FIFO Method Direct Materials Units completed 1,000 + 3,000 = 4,000 Work-in-process, 11/30 2,000 x 100% = 2,000 Total 6,000 Work-in-process, 11/1 1,000 x 100% = (1,000) Equivalent units 5,000 Conversion: Units completed 1,000 + 3,000 = 4,000 Work-in-process, 11/30 2,000 x 20% = 400 Total 4,400 Work-in-process, 11/1 1,000 x 60% = ( 600) Equivalent units 3,800


PROBLEMS

11-27 Weighted-Average Method (25-30 min)1. Quantity Schedule (not required) Input Work-in-process inventory, 3/1 0 Units started 25,000 Total units to account for 25,000 Output Units completed 23,000 Work-in-process inventory, 3/31 2,000 Total units accounted for 25,000 Equivalent Units -- Weighted-Average Method: Direct Materials Units completed 23,000 Work-in-process inventory, 3/31 2,000 x 100% = 2,000 Total equivalent units 25,000 Conversion: Units completed 23,000 Work-in-process inventory, 3/31 2,000 x 60% = 1,200 Total equivalent units 24,200 Costs per equivalent unit: Costs Direct Materials Conversion Total Work-in-process, 3/1 $ 0 $ 0 $ 0 Costs added 162,500 133,100 295,600 Total $162,500 $133,100 $295,600 Divided by EU 25,000 24,200 = Unit cost $6.50 $5.50 $12.00 2. Cost of units completed and transferred out: $12 x 23,000 = $276,0003. Cost of ending work-in-process: Direct materials $6.50 x 2,000 = $ 13,000 Conversion $5.50 x 1,200 = 6,600 $ 19,600


11-28: Weighted Average Method (20 min)

11-29 FIFO Method (20 min) (see above)


11-30 Weighted-Average Method (30-40 min)

1. Quantity Schedule (not required) Input Work-in-process inventory, 8/1 27,000 Units started 60,000 Total units to account for 87,000 Output Units completed 70,000 Work-in-process inventory, 8/31 17,000 Total units accounted for 87,000 Equivalent Units: Material X Units completed 70,000 Work-in-process inventory, 8/31 17,000 x 100% = 17,000 Total equivalent units 87,000 Material Y Units completed 70,000 Work-in-process inventory, 8/31 17,000 x 0% = 0 Total equivalent units 70,000 Conversion Units completed 70,000 Work-in-process inventory, 8/31 17,000 x 40% = 6,800 Total equivalent units 76,800 2. Costs per equivalent unit: Costs Material X Material Y Conversion Total WIP, 8/1 $ 64,800 $ 89,100 $119,880 $273,780 Costs added 152,700 138,400 302,520 593,620 Total $217,500 $227,500 $422,400 $867,400 EU 87,000 70,000 76,800 Unit cost $2.50 $3.25 $5.50 $11.25


Problem 11-30: (Continued)

3. Cost of units transferred out: ($2.50 + $3.25 + $5.50) x 70,000 = $787,500

4. Cost of ending work-in-process inventory: Material X $2.50 x 17,000 = $ 42,500 Material Y 0 Conversion $5.50 x 6,800 = 37,400 $ 79,900


11-31 FIFO Method -- (40 min)1. Quantity schedule Units Input: Work-in-process inventory, May 1 3,000 Units started 69,000 Total units to account for 72,000 Output: Units completed and transferred out: From work-in-process inventory, May 1 3,000 Units started and completed 65,000 (=68,000 – 3,000) Work-in-process inventory, May 31 4,000 Total units accounted for 72,000

Equivalent Units Direct Materials Conversion Units completed 68,000 68,000 Work-in-process, May 31: DM 4,000 x 100% = 4,000 CON 4,000 x 60% = 2,400 Total 72,000 70,400 Less: EU in WIP, May 1: DM 3,000 x 100% = ( 3,000) CON 3,000 x 40% = (1,200) FIFO equivalent units 69,000 69,200 Cost added during May $ 172,500 $224,900* Divided by EU 69,000 69,200 = Unit cost $2.50 $3.25 * Cost of units transferred out $393,400 Less: Cost of WIP, May 1 ( 13,800) DM started and completed cost $2.50 x 65,000 = ( 162,500) Conversion cost of units completed $ 217,100 $217,100 / (3,000 x 60% + 65,000) = $3.25 Unit conversion cost $3.25 x 69,200 = $224,900 Conversion cost added during May Problem 11-31 (Continued)


2. Cost reconciliation: Cost Incurred Work-in-process inventory, May 1 $ 13,800 Cost added during May 397,400* Total cost to account for $411,200 * $172,500 + $224,900 = $397,400

Cost Assignment Cost of units completed: Work-in-process inventory, May 1 $ 13,800 Cost to complete WIP: 3,000 x 60% x $3.25 = 5,850 Started and completed units: 65,000 x ($2.50 + $3.25) = 373,750 $ 393,400 Cost of work-in-process inventory, May 31: Direct materials 4,000 x $2.50 = $10,000 Conversion 4,000 x 60% x $3.25 = 7,800 17,800 Total cost accounted for $411,200


11-32 Weighted-Average Method (30 min)

1. Equivalent units: Direct Materials: 175,000 + (30,000 x 80%) = 199,000 Conversion: 175,000 + (30,000 x 40%) = 187,000

2. Cost per equivalent unit: Direct Materials: (57,000 renminbi + 736,000 renminbi) / 199,000 = 3.9849 renminbi Conversion: (45,000 renminbi + 1,094,950 renminbi) / 187,000 = 6.096 renminbi Total unit costs: 3.9849 + 6.096 = 10.0809 renminbi

3. Cost of goods completed and transferred out: 10.0809 x 175,000 = 1,764,157.50 renminbi

4. Cost of work-in-process, 10/31: Direct Materials: 3.9849 x 30,000 x 80% = 95,637.60 renminbi Conversion: 6.096 x 30,000 x 40% = 73,152.00 renminbi Total: 95,637.60 + 73,152.00 = 168,789.60 renminbi

5. Exchange rate depends on a particular date, which an instructor selected.

The exchange rate as on April 7, 2003 was $1 US = 8.27627 CNY


11-33 Weighted-Average Method; Transferred in Units (25 min)


11-34 Weighted Average Method (25 min)1. 3.


11-34 Weighted Average Method (continued)

4. The request is a violation of the controller’s responsibility to prepare accurate production cost reports. The ethical principles of integrity and objectivity require the controller to use the best available estimate of percentage completion.

11-35 FIFO Method (30 min) (see solution for 11-34 above)


11-36 FIFO Method; Journal Entries (50-60 min)


Problem 11-36 (continued)

Adjusting journal entries:1. To update the amount of the ending work-in-process inventory: Work-in-Process Inventory 267,018

Cost of Goods Sold 267,018 where $927,978 - $660,960 = $267,018

2. To update the amount of the ending finished goods inventory: Cost of Goods Sold 16,250

Finished Goods Inventory 16,250

where $4.8865 x 100,000 = $488,650 $504,900 - $488,650 = $16,250


11-37 Weighted-Average Method; Transferred-In Costs (40-50 min)1.

2. Exchange rate depends on a particular date, which an instructor selected. On April 6, 2003, the exchange rate was $1 US = 1,257 Korean Won (KRW)


11-38 (Appendix B) FIFO Method; Transferred-In Costs (30 min)

1. The equivalent units of production schedule for the Packaging Department’s October activity is as follows. Equivalent Units Whole Quilted Direct Units Wrap Boxes Labor OverheadTo complete beginning WIP inventory 10,000 10,000 6,000 6,000Started and completed 30,000 30,000 30,000 30,000 30,000Ending WIP inventory 10,000 10,000 10,000 8,000 8,000 Equivalent units 40,000 50,000 44,000 44,000 2. Cost per equivalent unit of October production is as follows. October Costs / Equivalent Units = Unit CostsQuilted Wrap $80,000 40,000 $2.00Boxes 50,000 50,000 1.00Direct labor 22,000 44,000 0.50Applied overhead 66,000 44,000 1.50Equivalent unit cost $5.00

3. If $5,000 is considered an immaterial amount for Wood Glow Manufacturing, the additional overhead incurred would be charged (an increase) to the cost of goods sold for the month of October. If $5,000 is material, the underapplied overhead should be prorated among the cost of goods sold, work-in-process inventory, and finished goods inventory (increasing each account).


11-39 FIFO Method (30 min)

1. Quantity Schedule (not required) Input Work-in-process inventory, 6/1 15,000 Units started 80,000 Total units to account for 95,000 Output Units completed 70,000 Work-in-process inventory, 6/30 25,000 Total units accounted for 95,000 Equivalent Units -- FIFO Method: Material A Units completed 70,000 Work-in-process inventory, 6/30 25,000 x 100% = 25,000 Total 95,000 Less: EU in WIP inventory, 6/1 15,000 x 100% = (15,000) Total equivalent units 80,000 Material B Units completed 70,000 Work-in-process inventory, 6/30 25,000 x 100% = 25,000 Total 95,000 Less: EU in WIP inventory, 6/1 15,000 x 0% = ( 0) Total equivalent units 95,000 Conversion: Units completed 70,000 Work-in-process inventory, 6/30 25,000 x 65% = 16,250 Total 86,250 Less: EU in WIP inventory, 6/1 15,000 x 40% = ( 6,000) Total equivalent units 80,250


.11-39 (Continued)

2. Costs per equivalent unit: Costs Material A Material B Conversion Costs incurred in June $260,000 $403,750 $461,437.50 Divided by EU 80,000 95,000 80,250 Unit cost $3.25 $4.25 $5.75

3. Cost of units transferred out: Work-in-process inventory, June 1 $ 85,437.50 Cost to finish beginning WIP: Material B 15,000 x $4.25 = $63,750 Conversion 15,000 x 60% x $5.75 = 51,750 115,500.00 Total $200,937.50 Cost of units started and completed: ($3.25 + $4.25 + $5.75) x (70,000 - 15,000) = 728,750.00 Cost of units transferred out $929,687.50 4. Cost of ending work-in-process inventory: Material A $3.25 x 25,000 = $ 81,250.00 Material B $4.25 x 25,000 = 106,250.00 Conversion $5.75 x 16,250 = 93,437.50 $280,937.50


11-40 Weighted-Average Method; Two Departments (50 min)

1. 54,000; 51,6002. $2.4537; $6.4118; $8.86553. 50,000 x $8.8655 = $443,2764. $20,0745. 60,000; 57,0006. $8.9213; $ 16.207. $1,381,6708. $77,006

For calculations supporting the above answers, see the following cost reports:


11- 40 (continued)

Fabrication Department Cost Report



Cost Report for Assembly Department


11-41 (Appendix B) FIFO Method; Two Departments (60-70 min)

Production Report - Molding Department (FIFO Method)Physical Percent Equivalent Units

Units Complete DM Conv WIP, January 1 0Units started during Jan.50,000Total units to acct. for 50,000

Units completed & transferred out during Jan. 50,000 100% 50,000 50,000WIP, January 31 0Total units acct. for 50,000 Weighted average equivalent units 50,000 50,000Less: equivalent units in Jan.1 WIP 0 0FIFO equivalent units 50,000 50,000 Costs:

DM Conv Total WIP, January 1 $ 0 $ 0 $ 0Costs incurred during Jan. 300,000 50,000 350,000Total costs to acct. for $300,000 $50,000 $350,000 Divided by equivalent units 50,000 50,000Costs per equivalent unit $6.00 $1.00 $7.00 Cost of goods completed and transferred out of the molding department during January:Cost of January 1 WIP inventory $ 0Cost incurred to produce units that were both started and completed during January: ( # of units ) x ( total cost per equivalent unit ) = 50,000 x $7.00 = $350,000Total cost of goods completed and transferred out: $350,000Cost remaining in January 31 WIP Inventory in the molding department: $ 0


Problem 11-41 (Continued 1)

Production Report - Finishing Department (FIFO Method)Physical Percent Equivalent Units

Units Complete DM ConvWIP, January 1 5,000 25%Units transferred in during Jan. 50,000Total units to acct. for 55,000

Units completed and transferred out during January 53,000 100% 53,000 53,000WIP, January 31 2,000 25% 2,000 500Total units acct. for 55,000 Weighted-average equivalent units 55,000 53,500Less: equivalent units in Jan.1 WIP (5,000) ( 1,250)FIFO equivalent units 50,000 52,250

Costs: Trans.In Conv Total WIP, January 1 $15,000Costs incurred during Jan. $350,000 $40,000 390,000Total costs to acct. for $405,000 Divided by equivalent units 50,000 52,250Costs per equivalent unit $7.00 $0.7656 $7.7656

Cost of goods completed and transferred out of the finishing department during January:Cost of Jan. 1 WIP Inv., which is transferred out first: $15,000Cost incurred to finish the Jan.1 WIP Inv.:

(# of units) x (% of conversion remaining) x (cost per equivalent unit of conversion) = 5,000 x 0.75 x $0.7656 = $2,871


Problem 11-41 (Continued 2)

Cost incurred to produce units that were both started and completed during Jan.:

(# of units) x (total cost per equivalent unit)= (53,000 - 5,000) x $7.7656 = $372,748.80

Total cost of goods completed and transferred out: = $15,000 + $2,871 + $372,748.80 = $390,619.80

Cost remaining in Jan.31 WIP inventory in the finishing department: Transferred-in costs:

(# of equivalent units of transferred-in cost) x (transferred-in cost per equivalent unit) = 2,000 x $7.00 = $14,000

Conversion:(# of equivalent units of conversion.) x (Conversion cost per equivalent

unit)= 500 x $0.7656 = $382.80

Total cost of Jan.31 WIP inventory: $14,382.80

Check: Cost of goods completed & transferred out $390,619.80 Cost of Jan.31 WIP Inv. 14,382.80 Total costs accounted for $405,002.60*

* $2.60 difference due to rounding


11-42 Weighted-Average Method; FIFO Method (70-80 min)

1. Porter Company -- Department A FIFO Production Cost Report----------------------------------------------------------------------------------------- Production Quantity Information (Step 1) (Step 2) Equivalent Units Percent Direct ConversionInput Units Complete Materials Costs Work-in-process, beginning inventory 500 30%Started this period 1,500Total units to account for 2,000OutputCompleted 1,600 1,600 1,600Work-in-process, ending inventory 400 20% 400 80 Total units accounted for 2,000Total work done to date 2,000 1,680- Work-in-process, beginning inventory 500 30% ( 500) (150)Total work done this period 1,500 1,530(Total equivalent units) Cost Added(Step 3) Direct ConversionCosts Incurred Total Materials CostsWork-in-process, beginning inventory $ 4,530 Current cost 22,710 $12,000 $10,710Total costs to account for $27,240

Step 4

Cost per equivalent unit $15.00 $8.00 $7.00= $12,000/ 1,500 = $10,710/ 1,530


11-42 (Continued 1) Cost Assignment Direct Conversion(Step 5) Total Materials Costs Units Completed:From work-in-process, beginning inventory $ 4,530Current costs incurred completing units 2,450 = 500 x 70% x $7Total cost from beginning inventory $ 6,980Units started and completed this period 16,500 = (1,600-500) x $15Total cost of units completed $23,480Work-in-process, (400x$8) (80x$7) ending inventory 3,760 $3,200 $560Total costs acct. for $27,240



2. Porter Company -- Department B Weighted-Average Production Cost Report----------------------------------------------------------------------------------------- Production Quantity Information (Step 1) (Step 2) Equivalent Units Percent Transferred Direct Conversion Input Complete -In Materials CostsWork-in-process, 4/1 300 40%Transferred-in 1,600Total units to account for 1,900Output Completed 1,400 1,400 1,400 1,400Work-in-process, 4/30 500 70% TI 500 x 100% = 500 DM 500 x 100% = 500 CON 500 x 70% = 350Total units accounted for 1,900Total work done to date 1,900 1,900 1,750 (Total equivalent units) Unit Cost Determination(Step 3) Transferred Direct ConversionCosts Incurred Total -In Materials Costs-------------- --------- ---------- ---------- -----------Work-in-process, 4/1 $6,100 $ 4,200* $ 0 $1,900**Current costs 85,830 23,480 38,000 24,350Total costs to account for $91,930 $27,680 $38,000 $26,250 ($27,680/ ($38,000/ ($26,250/(Step 4) 1,900) 1,900) 1,750)Cost per unit $49.568 $14.568 $20.00 $15.00 * $14 x 300 = $4,200** $6,100 - $4,200 = $1,900Problem 11-42 (continued)


Cost Assignment(Step 5)Units completed $69,395.20 = 1,400 x $ 49.568Work-in-process, ($14.568 ($20.00 ($15.00 x 500) x 500) x 350) 4/30 22,534.00 $7,284 $10,000 $5,250Total costs accounted for $91,929.20


11-43 (Appendix A: Spoilage) Weighted-Average Method; Transferred-In Costs (15-20 min)

1. Cost of goods finished and transferred outFinished goods: $9 x 11,200 = $100,800

Normal spoilage: $9 x 560 = 5,040Cost of goods finished $105,840

2. Cost of the ending work-in-process inventoryUnits: 1,400 + 14,000 - 700 - 11,200 = 3,500Costs:[($5 + $1) x 3,500] + [$3 x (3,500 x 40%)] = $25,200

3. Total cost transferred in during May$ 5 x 15,400 - $6,300 = $70,700

4. Abnormal spoilage cost$9 x (700 - 560) = $1,260


11-44 Appendix A: Spoilage (30 Min)

1. The revised cost production report for November 2004 as follows.

Romano Foods- Mixing DepartmentRevised Production Cost ReportMonth ended November 30, 2004

Good 10% Good Input Total Output Normal Abnormal Unit Units Costs Units Spoilage Spoilage Cost120,000 $45,360 107,000 10,700 2,300 $0.4158

Budgeted unit cost $.4350Actual cost per good unit .4158Favorable variance $.0192 Cost ReconciliationCost of 107,000 good units at $.4158 $44,490.60Abnormal spoilage (2,300 X $.378) 869.40Total production costs $45,360.00 Supporting Calculations

a. 10% of good output = units of normal spoilage .10 X 107,000 units = 10,700 units of normal spoilage

b. Total spoilage 13,000 Less normal spoilage10,700

Abnormal spoilage 2,300

c. Total cost of November production $45,360 Divide by total input (units) 120,000 Unit cost of production $ .378

Problem 11-44 (Continued)


Good units completed $40,446.00 (107,000 X $.378) Normal spoilage 4,044.60 (10,700 X $.378) Total cost of good units $44,490.60 Units cost of good units $ .4158

($44,490.60/107,000)

d. Abnormal spoilage (units) 2,300 Multiplied by unit cost of production .378 Total cost of abnormal spoilage $869.40

2. The journal entry, required to transfer November costs of the Mixing Department to the Assembly Department, charges the cost of good production to the Assembly Department, charges a loss account for abnormal spoilage, and credits the Mixing Department with the total cost of production.

Debit CreditWork in process Assembly $ 44,490.60Loss from Abnormal spoilage 869.40

Work in process Mixing $45,360.00

3. Corolla's report is less favorable than the revised report because he ignored the normal spoilage in calculating the unit cost. In addition, he miscalculated normal spoilage as ten percent of total input rather than ten percent of good output and , thus, miscalculated abnormal spoilage. Corolla divided the November production costs ($45,360) by the good units produced plus the incorrect amount of abnormal spoilage (107,000 + 1,000 = 108,000) to get the $.42 per unit. By ignoring the equivalent units of the normal spoilage, he used a higher base for calculating the unit cost. Normal spoilage should always be incorporated into the equivalent unit calculation to get an accurate representation of the unit cost.

11-45 Weighted Average Process Costing; Spoilage (50-60 min)


11-46 Appendix A: Spoilage; Weighted-Average Method; Transferred-in Costs (40 Min)

1. Physical quantity schedule

Beginning WIP 3,000 Bikes transferred out 40,000Bikes transferred in 45,000 Ending WIP 4,000Bikes to account for 48,000 Bikes lost 4,000

Bikes accounted for 48,000

a. Normal amount of defective or spoiled bikes

Bikes passing through assembly 48,000Less: Bikes not inspected during current year Beginning work-in-process inventory (inspected in prior year – 80% complete) 3,000 Ending work-in-process inventory (have not reached inspection point – 20% complete) 4,000 7,000Bikes that reached inspection point 41,000Normal defective/spoiled rate .05Normal amount of defective/spoiled bikes 2,050

b. Abnormal amount of defective/spoiled bikesTotal bikes lost 4,000Normal amount of defective/spoiled bikes 2,050Abnormal amount of defective/spoiled bikes 1,950



2. Equivalent units of production

a. Transferred- b. c.in from Assembly AssemblyMolding Material Conversion

Units transferred out 40,000 40,000 40,000Equivalent units in ending work-in-process 4,000 x 100% 4,000

4,000 x 50% 2,0004,000 x 20% 800

Equivalent units lost4,000 x 100% 4,000 4,0004,000 x 70% 2,800

Total equivalent units 48,000 46,000 43,600

3. Cost per equivalent unit for fully assembled dirt bike Total

Prior Current Cost perPeriod Period Total Equivalent Equivalent Cost Cost Cost Units Unit

Transferred in $82,200 $1,237,800 $1,320,000 48,000 $27.50Materials 6,660 96,840 103,500 46,000 2.25Conversion 11,930 236,590 248,520 43,600 5.70

$35.45

4. The total production cost:

a. Normal defective/spoiled bikesTransferred-in 2,050 x $27.50 = $56,375.00Material 2,050 x 2.25 = 4,612.50Conversion 2,050 x .7 x 5.70 = 8,179.50

$69,167.00



b. Abnormal defective/spoiled bikesTransferred-in 1,950 x $27.50 = $53,625.00Material 1,950 x 2.25 = 4,387.50Conversion 1,950 x .7x 5.70 = 7,780.50 $65,793.00

c. Good bikes completed in theAssembly Department40,000 bikes x $35.45 = $ 1,418,000.00

d. Ending work-in-process 4,000 x $27.50 = $110,000.00Transferred-in 2,000 x 2.25 = 4,500.00Conversion 800 x 5.70 = 4,560.00

$ 119,060.00Total costs accounted for $1,672,020.00

5. a. The cost of the normal spoiled units of $69,167 would be transferred to the Packing Department as a portion of the cost of the 40,000 good units transferred out. Thus, this amount would be a portion of the Packing Department’s inventory account and/or cost of goods sold amount depending upon the proportion of the units in the work-in-process inventory, finished goods inventory, and units sold during the year.

b. The abnormal losses of $65,793 would appear as a period expense on the company’s income statement.

c. The cost of the good units completed and transferred to the Packing Department ($1,418,000) would be included in the Packing Department’s production costs. Thus, this amount would be a portion of the Packing Department’s inventory accounts and/or cost of goods sold account depending upon the proportion of the units in the work-in-process inventory, finished goods inventory, and units sold during the year.


11-47 Process Costing and Activity Based Costing

1.


Problem 11-47 (continued)2.



Ted is apparently correct about the under-costing of ending working process. The activity-based method, which separates the batch-related costs from the other conversion costs, shows $104,329 ending work in process, $17,657 (or 20%) greater than the conventional costing of $86,672. This analysis also has implications for costing and pricing the smaller orders, which require the same batch-level costs of $285 per batch as for the larger orders.


chap 011

Documents

inventory cost

process inventory

costs of work

production cost report

prior period

beginning work

fifo method of handling

process inventories