chapter 004 managerial accounting-hilton-2nd edition solutions

Chapter 4

Chapter 4

Systems Design: Process Costing

Solutions to Questions

4-1A process costing system is appropriate when a homogeneous product is produced on a continuous basis.

4-2Process costing and job-order costing are similar in the following ways:

1. Both systems have the same basic purposes, which are to assign materials, labor, and overhead cost to products and to provide a mechanism for computing unit costs.

2. Both systems use the same basic accounts.

3. Cost flows through the accounts in basically the same way in both systems.

4-3Costs are accumulated by department in a process costing system.

4-4Cost accumulation is simpler under process costing because costs only need to be identified by departmentnot by separate job. Usually a company has only a few departments, whereas there can be hundreds or even thousands of jobs in a job-order costing system.

4-5A Work in Process account is maintained for each separate processing department in a process costing system.

4-6The journal entry to transfer the costs of partially completed goods from the Mixing Department to the Firing Department would be:

Work in Process, Firing

XXXX

Work in Process, Mixing

XXXX

4-7The costs that might be added to the Firing Departments Work in Process account would include: (1) cost transferred in from the Mixing Department, (2) materials cost, (3) labor cost, and (4) overhead cost.

4-8Under the weighted-average method, the equivalent units of production consist of units transferred to the next department (or to finished goods) during the period plus the equivalent units in the departments ending Work in Process inventory.

4-9A quantity schedule shows the physical flow of units through a department during a period. It serves several purposes. First, it provides the manager with information about activity in his or her department and also shows the manager the stage of completion of any in-process units. Second, it provides data for computing the equivalent units and for preparing the other parts of the production report.

4-10A unit of product accumulates cost in each department that it passes through, with the costs of one department added to the costs of the preceding department in a snowballing fashion.

Brief Exercise 4-1 (30 minutes)

a.To record issuing raw materials for use in production:

Work in ProcessMolding Department

$28,000

Work in ProcessFiring Department

$5,000

Raw Materials

$33,000

b.To record direct labor costs incurred:


$18,000


$5,000

Wages Payable

$23,000

c.To record applying manufacturing overhead:


$24,000


$37,000

Manufacturing Overhead

$61,000

d.To record transfer of unfired, molded bricks from the Molding Department to the Firing Department:


$67,000


$67,000

e.To record transfer of finished bricks from the Firing Department to the finished goods warehouse:

Finished Goods

$108,000


$108,000

f.To record Cost of Goods Sold:

Cost of Goods Sold

$106,000

Finished Goods

$106,000


Weighted-Average Method

Equivalent Units

MaterialsConversion

Units transferred to the next department

410,000410,000

Work in process, October 31:

30,000 units 70%

21,000

30,000 units 50%

15,000

Equivalent units

431,000425,000

Brief Exercise 4-3 (15 minutes)Weighted-Average Method1.Work in process, May 1

80,000

Started into production during May

300,000

Total kilograms in process

380,000

Deduct work in process, May 31

50,000

Completed and transferred out during May

330,000

2.Kilograms to be accounted for:

Work in process, May 1 (materials 80% complete; conversion 20% complete)

80,000

Started into production during the month

300,000

Total kilograms to be accounted for

380,000

Kilograms accounted for as follows:

Transferred out during the month

330,000


50,000

Total kilograms accounted for

380,000


1.

MaterialsLaborOverhead

Work in process, May 1

$14,550$23,620$118,100

Cost added during May

88,35014,33071,650

Total cost (a)

$102,900$37,950$189,750

Equivalent units of production (b)

1,2001,1001,100

Cost per equivalent unit (a) (b)

$85.75$34.50$172.50

2.

Cost per EU for materials

$85.75

Cost per EU for labor

34.50

Cost per EU for overhead

172.50

Total cost per EU

$292.75

Brief Exercise 4-5 (30 minutes)1.Computation of the total cost per EU:

Cost per EU for materials

$24.00

Cost per EU for labor

7.00

Cost per EU for overhead

14.00

Total cost per EU

$45.00

2.Computation of equivalent units in ending inventory:


Units in ending inventory

1,5001,5001,500

Percentage completed

90%40%40%

Equivalent units of production

1,350600600

3.Cost Reconciliation

Total CostMaterialsLaborOver-head

Cost accounted for as follows:

Transferred to the next department: 18,000 units at $45.00 per unit

$810,00018,00018,00018,000

Work in process, ending:

Materials, at $24.00 per EU

32,4001,350

Labor, at $7.00 per EU

4,200600

Overhead, at $14.00 per EU

8,400600

Total work in process

45,000

Total cost

$855,000

Exercise 4-6 (15 minutes)

Work in ProcessMixing

330,000

Raw Materials Inventory

330,000


260,000

Work in ProcessBaking

120,000

Wages Payable

380,000


190,000


90,000


280,000


760,000


760,000

Finished Goods

980,000


980,000

Exercise 4-7 (20 minutes)Weighted-Average MethodQuantity Schedule

Pounds to be accounted for:

Work in process, May 1 (materials 100% complete, labor and overhead 55% complete)

30,000

Started into production during May

480,000

Total pounds to be accounted for

510,000

Equivalent Units

MaterialsLabor & Overhead

Pounds accounted for as follows:

Transferred to Packing Department during May*

490,000490,000490,000


20,00020,00018,000

Total pounds accounted for

510,000510,000508,000

*30,000 + 480,000 20,000 = 490,000.

Exercise 4-8 (30 minutes)


1.For the sake of brevity, only the portion of the quantity schedule from which the equivalent units are computed is shown below.

QuantityEquivalent Units (EU)

ScheduleMaterialsConversion

Units accounted for as follows:

Transferred to the next process

300,000300,000300,000

Work in process, June 30 (materials 50% complete, conversion 25% complete)

40,00020,00010,000

Total units accounted for

340,000320,000310,000

2.Total CostMaterialsConversionWhole Unit

Cost to be accounted for:

Work in process, June 1

$71,500$56,600$14,900

Cost added by the department

599,500385,000214,500

Total cost to be accounted for (a)

$671,000$441,600$229,400

Equivalent units (b)

320,000310,000


$1.38+$0.74=$2.12

Exercise 4-9 (20 minutes)Weighted-Average MethodTotalEquivalent Units (EU)

CostMaterialsConversion


Transferred to the next process:

300,000 units at $2.12 each

$636,000300,000300,000

Work in process, June 30:


27,60020,000

Conversion, at $0.74 per EU

7,40010,000


35,000

Total cost accounted for

$671,000

Exercise 4-10 (30 minutes)Weighted-Average Method1.Quantity Schedule

Gallons to be accounted for:


80,000

Started into production

760,000

Total gallons accounted for

840,000

Equivalent Units


Gallons accounted for as follows:

Transferred to the next department

790,000790,000790,000790,000


50,00030,00010,00010,000

Total gallons accounted for

840,000820,000800,000800,000

Exercise 4-10 (continued)2.Total CostsMaterialsLaborOverheadWhole Unit



$146,600$68,600$30,000$48,000

Cost added during the month

1,869,200907,200370,000592,000


$2,015,800$975,800$400,000$640,000


820,000800,000800,000


$1.19+$0.50+$0.80=$2.49

Problem 4-11 (30 minutes)


1.The computation of equivalent units would be:


ScheduleMaterialsLaborOverhead


Transferred to the next department

35,60035,60035,60035,600

Work in process, April 30 (materials 80% complete, labor and overhead 60% complete)

7,4005,9204,4404,440

Total units and equivalent units of production

43,00041,52040,04040,040

2.The cost reconciliation follows:

TotalEquivalent Units (EU)

CostMaterialsLaborOverhead


Transferred to the next department: 35,600 units $2.90 per unit

$103,24035,60035,60035,600

Work in process, April 30:


2,9605,920


4,8844,440


5,7724,440


13,616

Total cost

$116,856



1.The equivalent units for the month would be:


ScheduleMaterialsConversion


Transferred to next department

92,00092,00092,000


14,00010,5007,000


106,000102,50099,000

2.Total CostMaterialsConversionWhole Unit


$16,400$5,900$10,500


431,200194,200237,000

Total cost (a)

$447,600$200,100$247,500


102,50099,000

Cost per EU (a) (b)

$1.95+$2.50=$4.45

3.Total units transferred

92,000

Less units in the beginning inventory

6,000

Units started and completed during May

86,000

4.No, the manager should not be rewarded for good cost control. The reason for the Mixing Departments low unit cost for May is traceable to the fact that costs of the prior month have been averaged in with Mays costs in computing the lower, $1.95 per unit figure. This is a major criticism of the weighted-average method in that the figures computed for product costing purposes cant be used to evaluate cost control or measure performance for the current period.



Quantity Schedule and Equivalent UnitsQuantity Schedule

Units to be accounted for:

Work in process, April 1 (materials 85% complete; conversion 60% complete)

7,000


88,000

Total units

95,000

Equivalent Units (EU)

MaterialsConversion


Transferred to bottling:

82,00082,00082,000

Work in process, April 30 (materials 60% complete, conversion 20% complete)

13,0007,8002,600

Total units and equivalent units of production595,00089,80084,600

Problem 4-13 (continued)

Costs per Equivalent Unit

TotalCostMaterialsConversionWhole Unit


Work in process, April 1

$14,800$6,800$8,000

Cost added during April

249,730105,450144,280

Total cost (a)

$264,530$112,250$152,280


89,80084,600

Cost per EU (a) (b)

$1.25+$1.80=$3.05

Cost Reconciliation


CostMaterialsConversion


Transferred to bottling:

82,000 units $3.05 per unit

$250,10082,00082,000

Work in process, April 30:


9,7507,800


4,6802,600


14,430

Total cost

$264,530



1. 2., and 3.

Quantity Schedule and Equivalent UnitsQuantity Schedule


Work in process, July 1 (materials 100% complete; labor and overhead 90% complete)

15,000


160,000

Total units

175,000




Transferred out

155,000155,000155,000155,000

Work in process, July 31 (materials 40% complete; labor and overhead 10% complete)

20,0008,0002,0002,000


175,000163,000157,000157,000


Cost per Equivalent UnitTotal CostMaterialsLaborOverheadWhole Unit


Work in process, July 1

$53,120$14,100$22,680$16,340


558,660142,380237,940178,340

Total cost (a)

$611,780$156,480$260,620$194,680


163,000157,000157,000

Cost per EU (a) (b)

$0.96+$1.66+$1.24=$3.86

Cost Reconciliation


Total CostMaterialsLaborOverhead


Transferred out:155,000 units $3.86 per unit

$598,300155,000155,000155,000

Work in process, July 31:


7,6808,000


3,3202,000


2,4802,000


13,480

Total cost

$611,780



1.A completed production report follows:

Quantity Schedule and Equivalent Units

Quantity Schedule


Work in process, March 1 (materials 100% complete; labor and overhead 60% complete)

4,500


56,800

Total Units

61,300


MaterialsLabor & Overhead


Transferred to mixing

58,40058,40058,400

Work in process, March 31 (materials 100% complete; labor and overhead 70% complete)

2,9002,9002,030

Total Units and equivalent units of production

61,30061,30060,430


Cost per Equivalent Unit

Total CostMaterialsLabor & OverheadWhole Unit


Work in process, March 1

$12,365$9,125$3,240

Cost added during March

188,794113,47575,319

Total cost (a)

$201,159$122,600$78,559


61,30060,430

Cost per EU (a) (b)

$2.00+$1.30=$3.30

Cost ReconciliationEquivalent Units (EU)

Total CostMaterialsLabor & Overhead


Transferred to mixing: 58,400 units $3.30 per unit

$192,72058,40058,400

Work in process, March 31:


5,8002,900

Labor and overhead, at $1.30 per EU

2,6392,030


8,439

Total cost

$201,159


2.In computing unit costs, the weighted-average method mixes costs of the prior period in with current period costs. Thus, under the weighted-average method, unit costs are influenced to some extent by what happened in a prior period. This problem becomes particularly significant when attempting to measure performance in the current period. Good cost control in the current period might be concealed to some degree by the unit costs that have been brought forward in the beginning inventory. The reverse could also be true in that poor cost control during a period might be concealed somewhat (or entirely) by the costs of the prior period that have been brought forward and added in with current period costs.



1.The equivalent units would be:


Units completed during the year

635,000635,000635,000

Work in process, December 31:

30,000 units 100%

30,000

30,000 units 80%

24,00024,000

Total equivalent units (a)

665,000659,000659,000

The costs per equivalent unit would be:

MaterialsLaborOverheadWhole Unit

Work in process, January 1

$18,000$9,555$7,644*

Cost added during the year

979,500616,495493,196**

Total costs (b)

$997,500$626,050$500,840

Cost per EU (b) (a)

$1.50+$0.95+$0.76=$3.21

* $9,555 80% = $7,644

** $616,495 80% = $493,196


2.The amount of cost that should be assigned to the ending inventories is:

Work in ProcessFinished GoodsTotal

Work in process:

Materials: 30,000 units $1.50 per unit

$45,000$45,000

Labor: 24,000 EU $0.95 per EU

22,80022,800

Overhead: 24,000 EU $0.76 per EU

18,24018,240

Finished goods: 12,000 units $3.21 per unit

$38,52038,520

Total cost that should be assigned to inventories

$86,040$38,520$124,560

3.The necessary adjustments would be:

Work in ProcessFinished GoodsTotal

Cost that should be assigned to inventories (above)

$86,040$38,520$124,560

Year-end balances in the accounts

85,00060,000145,000

Difference

$1,040$(21,480)$(20,440)

DebitCredit

Work in Process Inventory

1,040

Cost of Goods Sold

20,440

Finished Goods

21,480


4.The simplest computation of the cost of goods sold would be:

Beginning finished goods inventory

0

Units completed during the year

635,000

Units available for sale

635,000

Less units in ending finished goods inventory

12,000

Units sold during the year

623,000

Cost per equivalent unit (from part 1)

$3.21

Cost of goods sold

$1,999,830

Alternative computation:

Total manufacturing cost incurred:

Materials (part 1)

$997,500

Labor (part 1)

626,050

Overhead (part 1)

500,840

Total manufacturing cost

2,124,390

Less cost assigned to inventories (part 2)

124,560

Cost of goods sold

$1,999,830



1.a.Work in ProcessBending Department

394,210

Work in ProcessDrilling Department

100,800

Raw Materials

495,010

b.Work in ProcessBending Department

638,144


250,600

Salaries and Wages Payable

888,744

c.Manufacturing Overhead

685,000

Accounts Payable

685,000

d.Work in ProcessBending Department

493,584


493,584


189,000


189,000

e.Work in ProcessDrilling Department

1,536,990

Work in ProcessBending Department

1,536,990

f.Finished Goods

1,650,000


1,650,000

g.Accounts Receivable

2,700,000

Sales

2,700,000

Cost of Goods Sold

1,600,000

Finished Goods

1,600,000


2.

Accounts ReceivableRaw Materials

(g)2,700,000Bal.500,000495,010(a)

Bal.4,990

Work in ProcessBending DepartmentWork in ProcessDrilling Department

Bal.45,3691,536,990(e)Bal.10,0001,650,000(f)

(a)394,210(a)100,800

(b)638,144(b)250,600

(d)493,584(d)189,000

Bal.34,317(e)1,536,990

Bal.437,390

Finished GoodsManufacturing Overhead

Bal.110,0001,600,000(g)(c)685,000682,584(d)

(f)1,650,000Bal.2,416

Bal.160,000

Accounts PayableSalaries and Wages Payable

685,000(c)888,744(b)

SalesCost of Goods Sold

2,700,000(g)(g)1,600,000


3.The production report for the Bending Department follows:


Quantity Schedule



12,000


270,000

Total units

282,000




Transferred to Drilling:273,000*273,000273,000273,000


9,0008,1005,4005,400


282,000281,100278,400278,400

* 282,000 units 9,000 units = 273,000 units


Costs per Equivalent Unit

Total CostMaterialsLaborOverheadWhole Unit



$45,369$13,385$18,880$13,104

Cost added during May

1,525,938394,210638,144493,584

Total cost (a)

$1,571,307$407,595$657,024$506,688


281,100278,400278,400

Cost per EU (a) (b)

$1.45+$2.36+$1.82=$5.63

Cost Reconciliation


CostMaterialsLaborOverhead


Transferred to Drilling: 273,000; $5.63 per unit

$1,536,990273,000273,000273,000

Work in process, May 31:


11,7458,100


12,7445,400


9,8285,400


34,317

Total cost

$1,571,307



1.a.Work in ProcessDrying Department

540,460

Work in ProcessSalting Department

295,000

Raw Materials

835,460

b.Work in ProcessDrying Department

397,970


201,000

Salaries and Wages Payable

598,970

c.Manufacturing Overhead

542,000

Accounts Payable

542,000

d.Work in ProcessDrying Department

208,170


340,000


548,170

e.Work in ProcessSalting Department

1,200,000

Work in ProcessDrying Department

1,200,000

f.Finished Goods

1,980,000


1,980,000

g.Accounts Receivable

2,500,000

Sales

2,500,000

Cost of Goods Sold

1,930,000

Finished Goods

1,930,000


2.

Accounts ReceivableRaw Materials

(g)2,500,000Bal.850,000835,460(a)

Bal.14,540

Work in ProcessDrying DepartmentWork in ProcessSalting Department

Bal.97,4001,200,000(e)Bal.33,0001,980,000(f)

(a)540,460(a)295,000

(b)397,970(b)201,000

(d)208,170(d)340,000

Bal.44,000(e)1,200,000

Bal.89,000

Finished GoodsManufacturing Overhead

Bal.57,0001,930,000(g)(c)542,000548,170(d)

(f)1,980,0006,170Bal.

Bal.107,000

Accounts PayableSalaries and Wages Payable

542,000(c)598,970(b)

SalesCost of Goods Sold

2,500,000(g)(g)1,930,000


3.The production report for the Drying Department follows:


Quantity Schedule

Pounds to be accounted for:

Work in process, December 1 (materials 90% complete, labor and overhead 80% complete)

19,000


191,000*

Total pounds

210,000



Pounds accounted for as follows:

Transferred to Salting:

200,000200,000200,000200,000

Work in process, December 31 (materials 100% complete, labor and overhead 50% complete)

10,00010,0005,0005,000

Total pounds and equivalent units of production

210,000210,000205,000205,000

* (200,000 pounds + 10,000 pounds) 19,000 pounds = 191,000 pounds started


Cost per Equivalent Unit

Total CostMaterialsLaborOverheadWhole Unit


Work in process, December 1

$97,400$47,540$32,530$17,330

Cost added during December

1,146,600540,460397,970208,170

Total cost (a)

$1,244,000$588,000$430,500$225,500


210,000205,000205,000

Cost per EU (a) (b)

$2.80+$2.10+$1.10=$6.00

Cost Reconciliation

Total CostEquivalent Units (EU)



Transferred to Salting: 200,000 pounds at $6.00 per pound

$1,200,000200,000200,000200,000

Work in process, December 31:


28,00010,000


10,5005,000


5,5005,000


44,000

Total cost

$1,244,000

Analytical Thinking (90 minutes)Weighted-Average Method

1.The revised production report follows:


Quantity Schedule


Work in process, October 1 (material 100% complete, conversion 7/8 complete)

8,000

Received from the preceding department*

97,000

Total units to be accounted for

105,000


Transferred InMaterialsConver-sion


Transferred to Stamping

100,000100,000100,000100,000

Work in process, October 31 (material 0% complete, conversion 2/5 complete)month5,0005,0002,000

Total units accounted for

105,000105,000100,000102,000

*100,000 + 5,000 8,000 = 97,000.Analytical Thinking (continued)Costs per Equivalent UnitTotal CostTransferred InMaterialsConversionWhole Unit


Work in process, October 1

$22,420$8,820$3,400$10,200

Cost transferred in or added during the month

205,98081,48027,60096,900


$228,400$90,300$31,000$107,100


105,000100,000102,000


$0.86+$0.31+$1.05=$2.22

Cost ReconciliationTotalEquivalent Units (EU)

CostTransferred InMaterialsConversion


Transferred to Stamping:

100,000 units $2.22 per unit

$222,000100,000100,000100,000

Work in process, October 31:

Transferred in cost, at $0.86 per EU

4,3005,000


2,1002,000


6,400

Total cost accounted for

$228,400

2.The unit cost figure on the report prepared by the accountant is high because none of the cost incurred during the month was assigned to the units in the ending work in process inventory.

Ethics Case (120 minutes)

This case is difficultparticularly part 3, which requires analytical skills.

Since there are no beginning inventories, it makes no difference whether the weighted-average or FIFO method is used by the company. You may choose to assign the problem specifying that the FIFO method be used rather than the weighted-average method.

1.The computation of the cost of goods sold follows:

Transferred InConversion

Estimated completion

100%25%

Computation of equivalent units:

Completed and transferred out

250,000250,000


Transferred in, 20,000 units 100%

20,000

Conversion, 20,000 units 25%

5,000

Total equivalent units

270,000255,000

Transferred InConversionWhole Unit


Work in process

00


$49,221,000$16,320,000


$49,221,000$16,320,000

Equivalent units (above) (b)

270,000255,000


$182.30+ $64.00= $246.30

Cost of goods sold = 250,000 units $246.30 per unit = $61,575,000

Ethics Case (continued)

2.The estimate of the percentage completion of ending work in process inventories affects the unit costs of finished goods and therefore of the cost of goods sold. Thad Kostowski would like the estimated percentage completion figures to be increased for the ending work in process. The higher the percentage of completion of ending work in process, the higher the equivalent units for the period and the lower the unit costs.

3.Increasing the percentage of completion can increase net operating income by reducing the cost of goods sold. To increase net operating income by $62,500, the cost of goods sold would have to be decreased by $62,500 from $61,575,000 down to $61,512,500.

The percentage of completion, X, affects the cost of goods sold by its effect on the unit cost, which can be determined as follows:

Unit cost = $182.30 +

And the cost of goods sold can be computed as follows:

Cost of goods sold = 250,000 Unit cost

Since cost of goods sold must be reduced down to $61,512,500, the unit cost must be $246.05 ($61,512,500 250,000 units). Thus, the required percentage completion, X, to obtain the $62,500 reduction in cost of goods sold can be found by solving the following equation:


Thus, changing the percentage completion to 30% will decrease cost of goods sold and increase net operating income by $62,500 as verified on the next page.


3.(continued)

Transferred InConversion

Estimated completion

100%30%

Computation of equivalent units:

Completed and transferred out

250,000250,000


Transferred in, 20,000 units 100%

20,000

Conversion, 20,000 units 30%

6,000

Total equivalent units

270,000256,000

Transferred InConversionWhole Unit


Work in process

00


$49,221,000$16,320,000


$49,221,000$16,320,000

Equivalent units (above) (b)

270,000256,000


$182.30+ $63.75=$246.05

Cost of goods sold = 250,000 units $246.05 per unit = $61,512,500


4.Carol is in a very difficult position. Collaborating with Thad Kostowski in subverting the integrity of the accounting system is unethical by almost any standard. To put the situation in its starkest light, Kostowski is suggesting that the production managers lie in order to get their bonus. Having said that, the peer pressure to go along in this situation may be intense. It is difficult on a personal level to ignore such peer pressure. Moreover, Carol probably prefers not to risk alienating people she might need to rely on in the future. On the other hand, Carol should be careful not to accept at face value Kostowskis assertion that all of the other managers are doing as much as they can to pull this bonus out of the hat. Those who engage in unethical or illegal acts often rationalize their own behavior by exaggerating the extent to which others engage in the same kind of behavior. Other managers may actually be very uncomfortable pulling strings to make the target profit for the year.

From a broader perspective, if the net profit figures reported by the managers in a division cannot be trusted, then the company would be foolish to base bonuses on the net profit figures. A bonus system based on divisional net profits presupposes the integrity of the accounting system. However, the company should perhaps reconsider how it determines the bonus. It is quite common for companies to pay an all or nothing bonus contingent on making a particular target. This inevitably creates powerful incentives to bend the rules when the target has not quite been attained. It might be better to have a bonus without this all or nothing feature. For example, managers could be paid a bonus of x% of profits above target profits rather than a bonus that is a preset percentage of their base salary. Under such a policy, the effect of adding that last dollar of profits that just pushes the divisional net profits over the target profit will add a few pennies to the managers compensation rather than thousands of dollars. Therefore, the incentives to misstate the net operating income are reduced. Why tempt people unnecessarily?

Communicating in Practice (30 minutes)

Date:

Current Date

To:

Minesh Patel

From:Students Name

Subject:Production Report

Referring to the Production Report for the Shaping and Milling Department, please perform the following steps:

1.Ensure that the current balance in the Shaping and Milling Department Work in Process account is currently $734,675, which is the total cost to be accounted for in the Cost Reconciliation section of the Production Report.

2.Prepare the following journal entry for the 4,800 units that were transferred during the month from the Shaping and Milling Department to the Graphics Application Department:

Work in Process, Graphics Application

715,200

Work in Process, Shaping and Milling

715,200

3.After this entry is posted to the ledger, the Shaping and Milling Department account should have an ending account balance of $19,475, which is the total Work in Process, May 31 amount reflected in the Cost Reconciliation section of the Production Report.

If you have any questions, please do not hesitate to contact me.Teamwork In Action

Reports similar to the following should be prepared by the Expert Teams and shared with the Learning Teams:

a.Quantity Schedule and Equivalent Units

The Quantity Schedule and Equivalent Units section of the production report: (1) accounts for all of the units that were in production during the period, and (2) computes the equivalent units of production. Imagine that you are the manager of a department in a factory. You are responsible for the units that pass through your department during the month. This section of the report summarizes that activity. In addition, it converts the information to equivalent units.

The work in process, beginning of the period represents the number of units that are sitting in your department when you arrive at work on the first day of the month. These units were started last month. During the month, the department just before yours in the production process will transfer units into your department (or, if you are the first department in the process, raw materials will be transferred into your department during the month). These units are started into production. Also, during the month, your department will work on (or process) units. The units that have been completely processed are transferred to the next department. It is important to note that the units on hand at the beginning of the month plus the units that were transferred in must equal the units that were transferred out plus the units that were still on hand at the end of the period.

To determine the departments output for the period, the equivalent units of production are computed for both materials and conversion (labor and overhead). The equivalent units of production are determined by adding the number of completed units that were transferred to the next department and the equivalent units that are in the ending work in process inventory. The number of equivalent units in the ending work in process inventory is computed by multiplying the number of units on hand times the percent complete.

Teamwork In Action, continuedb. Costs per Equivalent Unit

The Costs per Equivalent Unit section of the production report: (1) summarizes the total costs that must be accounted for, and (2) documents the cost per equivalent unit.

The costs to be accounted for section represents the costs added to the departments Work in Process account during the period. The work in process, beginning of period is the beginning balance in the inventory account for this department. Note that this balance is broken out into its two components: materials and conversion. The costs added represent the materials and conversion costs that were debited to the work in process account during the period. Materials requisitions generate the amount used in the entry to record the material costs. The conversion costs are comprised of: (1) the direct labor wages paid to the employees who worked in the department during the period and (2) the overhead that was applied (using the departments predetermined overhead rate) to the units that passed through the department during the period.

The materials cost per equivalent unit is determined by dividing the total materials costs (the total of materials in the beginning inventory and the costs that were added during the period) by the number of equivalent units of production for materials (which is calculated in the Quantity Schedule and Equivalent Units section of the report). The conversion cost per equivalent unit is determined by dividing the total conversion costs (the total of conversion costs in the beginning inventory and the labor and overhead that were added during the period) by the number of equivalent units of production for conversion (which is calculated in the Quantity Schedule and Equivalent Units section of the report). The whole unit cost per equivalent unit is the total of the material cost per equivalent unit and the conversion cost per equivalent unit.

c. Cost Reconciliation

The Cost Reconciliation section of the production report summarizes the total costs that have been accounted for. This section determines the amount that will be used in the entry to transfer units from this departments work in process account to the next. This is referred to as

Teamwork In Action, continuedtransferred to the next department in this section of the report. Also, in addition to showing the components (materials and conversion) of the ending balance in this departments work in process account (for use in preparing next months Production Report), this section proves that ending balance.

The amount that is transferred to the next department is determined by multiplying the number of units transferred to the next department (which appears in the Quantity Schedule and Equivalent Units section of the report) by the whole unit cost per equivalent unit (which is calculated in the Costs per Equivalent Unit section of the report).

The amount of materials in the ending work in process inventory for this department is determined by multiplying the number of equivalent units (for materials) that are in the ending work in process (which appears in the Quantity Schedule and Equivalent Units section of the report) by the materials cost per equivalent unit (which is calculated in the Costs per Equivalent Unit section of the report).

The amount of conversion in the ending work in process inventory for this department is determined by multiplying the number of equivalent units (for conversion) that are in the ending work in process (which appears in the Quantity Schedule and Equivalent Units section of the report) by the conversion cost per equivalent unit (which is calculated in the Costs per Equivalent Unit section of the report).

The total work in process is the sum of the amounts just calculated for materials and conversion. After all journal entries are made, this amount should appear as the ending balance in this departments Work in Process account.

Finally, the total cost is the sum of the costs transferred to the next department and the ending Work in Process inventory for this department. Note that this total must equal the total of the costs to be accounted for that appears in the Costs per Equivalent Unit section of the report.

The McGraw-Hill Companies, Inc., 2005. All rights reserved. PAGE 2

Introduction to Managerial Accounting, 2nd Edition

The McGraw-Hill Companies, Inc., 2005. All rights reserved.

Solutions Manual, Chapter 4137

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chapter 004 managerial accounting-hilton-2nd edition solutions

Documents

processfiring department

processmolding department

mixing department

preceding department

process units

separate processing

cost of goods

firing departments work