CHAPTER 17 PROCESS COSTING 17-1 17-2 - JUfiles – …jufiles.com/wp-content/uploads/2016/10/cost_17.pdf17-1 CHAPTER 17 PROCESS COSTING 17-1 Industries using process costing in their

17-1

CHAPTER 17 PROCESS COSTING

17-1 Industries using process costing in their manufacturing area include chemical processing, oil refining, pharmaceuticals, plastics, brick and tile manufacturing, semiconductor chips, beverages, and breakfast cereals. 17-2 Process costing systems separate costs into cost categories according to the timing of when costs are introduced into the process. Often, only two cost classifications, direct materials and conversion costs, are necessary. Direct materials are frequently added at one point in time, often the start or the end of the process, and all conversion costs are added at about the same time, but in a pattern different from direct materials costs. 17-3 Equivalent units is a derived amount of output units that takes the quantity of each input (factor of production) in units completed or in incomplete units in work in process, and converts the quantity of input into the amount of completed output units that could be made with that quantity of input. Each equivalent unit is comprised of the physical quantities of direct materials or conversion costs inputs necessary to produce output of one fully completed unit. Equivalent unit measures are necessary since all physical units are not completed to the same extent at the same time. 17-4 The accuracy of the estimates of completion depends on the care and skill of the estimator and the nature of the process. Semiconductor chips may differ substantially in the finishing necessary to obtain a final product. The amount of work necessary to finish a product may not always be easy to ascertain in advance. 17-5 The five key steps in process costing follow: Step 1: Summarize the flow of physical units of output. Step 2: Compute output in terms of equivalent units. Step 3: Compute cost per equivalent unit. Step 4: Summarize total costs to account for. Step 5: Assign total costs to units completed and to units in ending work in process. 17-6 Three inventory methods associated with process costing are:

Weighted average. First-in, first-out. Standard costing.

17-7 The weighted-average process-costing method calculates the equivalent-unit cost of all the work done to date (regardless of the accounting period in which it was done), assigns this cost to equivalent units completed and transferred out of the process, and to equivalent units in ending work-in-process inventory.

17-2

17-8 FIFO computations are distinctive because they assign the cost of the previous accounting period’s equivalent units in beginning work-in-process inventory to the first units completed and transferred out of the process and assigns the cost of equivalent units worked on during the current period first to complete beginning inventory, next to start and complete new units, and finally to units in ending work-in-process inventory. In contrast, the weighted-average method costs units completed and transferred out and in ending work in process at the same average cost. 17-9 FIFO should be called a modified or departmental FIFO method because the goods transferred in during a given period usually bear a single average unit cost (rather than a distinct FIFO cost for each unit transferred in) as a matter of convenience. 17-10 A major advantage of FIFO is that managers can judge the performance in the current period independently from the performance in the preceding period. 17-11 The journal entries in process costing are basically similar to those made in job-costing systems. The main difference is that, in process costing, there is often more than one work-in-process account––one for each process. 17-12 Standard-cost procedures are particularly appropriate to process-costing systems where there are various combinations of materials and operations used to make a wide variety of similar products as in the textiles, paints, and ceramics industries. Standard-cost procedures also avoid the intricacies involved in detailed tracking with weighted-average or FIFO methods when there are frequent price variations over time. 17-13 There are two reasons why the accountant should distinguish between transferred-in costs and additional direct materials costs for a particular department:

(a) All direct materials may not be added at the beginning of the department process. (b) The control methods and responsibilities may be different for transferred-in items and

materials added in the department. 17-14 No. Transferred-in costs or previous department costs are costs incurred in a previous department that have been charged to a subsequent department. These costs may be costs incurred in that previous department during this accounting period or a preceding accounting period. 17-15 Materials are only one cost item. Other items (often included in a conversion costs pool) include labor, energy, and maintenance. If the costs of these items vary over time, this variability can cause a difference in cost of goods sold and inventory amounts when the weighted-average or FIFO methods are used. A second factor is the amount of inventory on hand at the beginning or end of an accounting period. The smaller the amount of production held in beginning or ending inventory relative to the total number of units transferred out, the smaller the effect on operating income, cost of goods sold, or inventory amounts from the use of weighted-average or FIFO methods.

17-3

17-16 (25 min.) Equivalent units, zero beginning inventory. 1. Direct materials cost per unit ($720,000 ÷ 10,000) $ 72 Conversion cost per unit ($760,000 ÷ 10,000) 76 Assembly Department cost per unit $148 2a. Solution Exhibit 17-16A calculates the equivalent units of direct materials and conversion costs in the Assembly Department of International Electronics in February 2007.

Solution Exhibit 17-16B computes equivalent unit costs. 2b. Direct materials cost per unit $ 72

Conversion cost per unit 80 Assembly Department cost per unit $152

3. The difference in the Assembly Department cost per unit calculated in requirements 1 and 2 arises because the costs incurred in January and February are the same but fewer equivalent units of work are done in February relative to January. In January, all 10,000 units introduced are fully completed resulting in 10,000 equivalent units of work done with respect to direct materials and conversion costs. In February, of the 10,000 units introduced, 10,000 equivalent units of work is done with respect to direct materials but only 9,500 equivalent units of work is done with respect to conversion costs. The Assembly Department cost per unit is, therefore, higher. SOLUTION EXHIBIT 17-16A Steps 1 and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units; Assembly Department of International Electronics for February 2007.

(Step 2) (Step 1) Equivalent Units Physical Direct Conversion

Flow of Production Units Materials Costs Work in process, beginning (given) 0 Started during current period (given) 10,000 To account for 10,000 Completed and transferred out during current period 9,000 9,000 9,000 Work in process, ending* (given) 1,000 1,000 100%; 1,000 50% 1,000 500 Accounted for 10,000 Work done in current period only 10,000 9,500 *Degree of completion in this department: direct materials, 100%; conversion costs, 50%.

17-4

SOLUTION EXHIBIT 17-16B Compute Cost per Equivalent Unit, Assembly Department of International Electronics for February 2007. Total

Production Costs

Direct

Materials

Conversion

Costs (Step 3) Costs added during February $1,480,000 $720,000 $760,000 Divide by equivalent units of work done in current period (Solution Exhibit 17-l6A)

10,000

9,500

Cost per equivalent unit $ 72 $ 80 17-17 (20 min.) Journal entries (continuation of 17-16). 1. Work in Process––Assembly 720,000 Accounts Payable 720,000

To record $720,000 of direct materials purchased and used in production during February 2007

2. Work in Process––Assembly 760,000 Various accounts 760,000

To record $760,000 of conversion costs for February 2007; examples include energy, manufacturing supplies, all manufacturing labor, and plant depreciation

3. Work in Process––Testing 1,368,000 Work in Process––Assembly 1,368,000

To record 9,000 units completed and transferred from Assembly to Testing during February 2007 at $152 9,000 units = $1,368,000

Postings to the Work in Process––Assembly account follow. Work in Process –– Assembly Department Beginning inventory, Feb. 1 0 3. Transferred out to 1. Direct materials 720,000 Work in Process––Testing 1,368,000 2. Conversion costs 760,000 Ending inventory, Feb. 29 112,000

17-5

17-18 (25 min.) Zero beginning inventory, materials introduced in middle of process. 1. Solution Exhibit 17-18A shows equivalent units of work done in the current period of Chemical P, 50,000; Chemical Q, 35,000; Conversion costs, 45,000. 2. Solution Exhibit 17-18B calculates cost per equivalent unit of work done in the current period for Chemical P, Chemical Q, and Conversion costs, summarizes the total Mixing Department costs for July 2007, and assigns these costs to units completed (and transferred out) and to units in ending work in process. SOLUTION EXHIBIT 17-18A Steps 1 and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units; Mixing Department of Vaasa Chemicals for July 2007.

(Step 1)

(Step 2)

Equivalent Units Physical Conversion

Flow of Production Units Chemical P Chemical Q Costs Work in process, beginning (given) 0 Started during current period (given) 50,000 To account for 50,000 Completed and transferred out during current period 35,000 35,000 35,000 35,000 Work in process, ending* (given) 15,000 15,000 100%; 15,000 0%; 15,000 66 2/3% 15,000 0 10,000 Accounted for 50,000 Work done in current period only 50,000 35,000 45,000 *Degree of completion in this department: Chemical P, 100%; Chemical Q, 0%; conversion costs, 66 2/3%.

17-6

SOLUTION EXHIBIT 17-18B Steps 3, 4, and 5: Compute Cost per Equivalent Unit, Summarize Total Costs to Account For, and Assign Total Costs to Units Completed and to Units in Ending Work in Process; Mixing Department of Vaasa Chemicals for July 2007. Total

Production Costs

Chemical P

Chemical Q

Conversion

Costs (Step 3) Costs added during July $455,000 $250,000 $70,000 $135,000 Divide by equivalent units of work

done in current period (Solution Exhibit 17-l8A)

50,000

35,000

45,000 Cost per equivalent unit $ 5 $ 2 $ 3 (Step 4) Total costs to account for $455,000 (Step 5) Assignment of costs: Completed and transferred out

(35,000 units)

$350,000

(35,000* $5) + (35,000* $2) + (35,000* $3) Work in process, ending (15,000 units) 105,000 (15,000† $5) + (0† $2) + (10,000† $3) Total costs accounted for $455,000

*Equivalent units completed and transferred out from Solution Exhibit 17-18A, Step 2. †Equivalent units in work in process, ending from Solution Exhibit 17-18A, Step 2. 17-19 (15 min.) Weighted-average method, equivalent units. Under the weighted-average method, equivalent units are calculated as the equivalent units of work done to date. Solution Exhibit 17-19 shows equivalent units of work done to date for the Satellite Assembly Division of Aerospatiale for direct materials and conversion costs. SOLUTION EXHIBIT 17-19 Steps 1 and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units; Weighted-Average Method of Process Costing, Satellite Assembly Division of Aerospatiale for May 2007. (Step 2) (Step 1) Equivalent Units Physical Direct Conversion Flow of Production Units Materials Costs Work in process beginning (given) 8 Started during current period (given) 50 To account for 58 Completed and transferred out during current period 46 46.0 46.0 Work in process, ending* (12 60%; 12 30%) (given) 12 7.2 3.6 Accounted for 58 ____ ____ Work done to date 53.2 49.6 *Degree of completion in this department: direct materials, 60%; conversion costs, 30%.

17-7

17-20 (20 min.) Weighted-average method, assigning costs (continuation of 17-19). Solution Exhibit 17-20 calculates cost per equivalent unit of work done to date in the Satellite Assembly Division of Aerospatiale, summarizes total costs to account for, and assigns costs to units completed and to units in ending work-in-process inventory. SOLUTION EXHIBIT 17-20 Steps 3, 4, and 5: Compute Cost per Equivalent Unit, Summarize Total Costs to Account For, and Assign Total Costs to Units Completed and to Units in Ending Work in Process; Weighted-Average Method of Process Costing, Satellite Assembly Division of Aerospatiale for May 2007.

Total Production

Costs

Direct Materials

Conversion Costs

(Step 3) Work in process, beginning (given) $ 5,844,000 $ 4,933,600 $ 910,400 Costs added in current period (given) 46,120,000 32,200,000 13,920,000 Costs incurred to date $37,133,600 $14,830,400

Divide by equivalent units of work done to date (Solution Exhibit 17-19)

53.2

49.6

Cost per equivalent unit of work done to date $ 698,000 $ 299,000 (Step 4) Total costs to account for $51,964,000 (Step 5) Assignment of costs: Completed and transferred out (46 units)

45,862,000

(46* $698,000) + (46* $299,000)

Work in process, ending (12 units) 6,102,000 (7.2† $698,000) + (3.6† $299,000) Total costs accounted for $51,964,000 *Equivalent units completed and transferred out from Solution Exhibit 17-19, Step 2. † Equivalent units in work in process, ending from Solution Exhibit 17-19, Step 2.

17-8

17-21 (15 min.) FIFO method, equivalent units. Under the FIFO method, equivalent units are calculated as the equivalent units of work done in the current period only. Solution Exhibit 17-21 shows equivalent units of work done in May 2007 in the Satellite Assembly Division of Aerospatiale for direct materials and conversion costs. SOLUTION EXHIBIT 17-21 Steps 1 and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units; FIFO Method of Process Costing, Satellite Assembly Division of Aerospatiale for May 2007.

(Step 1) (Step 2)

Equivalent Units

Flow of Production Physical

Units Direct

Materials Conversion

Costs Work in process, beginning (given) Started during current period (given) To account for

8 50 58

(work done before current period)

Completed and transferred out during current period: From beginning work in process§ 8 (100% 90%); 8 (100% 40%)

8

0.8

4.8 Started and completed 38 100%, 38 100%

38† 38.0

38.0

Work in process, ending* (given) 12 60%; 12 30%

12

7.2

3.6

Accounted for 58 Work done in current period only 46.0 46.4 §Degree of completion in this department: direct materials, 90%; conversion costs, 40%. †46 physical units completed and transferred out minus 8 physical units completed and transferred out from

beginning work-in-process inventory. *Degree of completion in this department: direct materials, 60%; conversion costs, 30%.

17-9

17-22 (20 min.) FIFO method, assigning costs (continuation of 17-21). Solution Exhibit 17-22 calculates cost per equivalent unit of work done in May 2007 in the Satellite Assembly Division of Aerospatiale, summarizes total costs to account for, and assigns total costs to units completed and to units in ending work-in-process inventory. SOLUTION EXHIBIT 17-22 Steps 3, 4, and 5: Compute Cost per Equivalent Unit, Summarize Total Costs to Account For, and Assign Total Costs to Units Completed and to Units in Ending Work in Process; FIFO Method of Process Costing, Satellite Assembly Division of Aerospatiale for May 2007. Total

Production Costs

Direct

Materials

Conversion

Costs Work in process, beginning ($4,933,600 + $910,400)

$ 5,844,000 (costs of work done before current period)

(Step 3) Costs added in current period (given) 46,120,000 $32,200,000 $ 13,920,000 Divide by equivalent units of work done in current period (Solution Exhibit 17-21)

46

46.4

Cost per equiv. unit of work done in current period $ 700,000 $ 300,000 (Step 4) Total costs to account for $51,964,000 (Step 5) Assignment of costs: Completed and transferred out (46 units):

Work in process, beginning (8 units) Costs added to beginning work in process in current period

$ 5,844,000

2,000,000

(0.8* $700,000) + (4.8* $300,000)

Total from beginning inventory Started and completed (38 units) Total costs of units completed and transferred out Work in process, ending (12 units) Total costs accounted for

7,844,000 38,000,000

45,844,000 6,120,000 $51,964,000

(38† $700,000) + (38† $300,000) (7.2# $700,000) + (3.6# $300,000)

*Equivalent units used to complete beginning work in process from Solution Exhibit 17-21, Step 2. †Equivalent units started and completed from Solution Exhibit 17-21, Step 2. #Equivalent units in work in process, ending from Solution Exhibit 17-21, Step 2.

17-10

17-23 (25-30 min.) Standard-costing method, assigning costs. 1. The calculations of equivalent units for direct materials and conversion costs are identical to the calculations of equivalent units under the FIFO method. Solution Exhibit 17-21 shows the equivalent unit calculations under standard costing given by the equivalent units of work done in May 2007 in the Assembly Department. 2. Solution Exhibit 17-23 summarizes the total costs to account for, and assigns these costs to units completed and transferred out and to units in ending work in process. 3. Solution Exhibit 17-23 shows the direct materials and conversion cost variances for

Direct materials $230,000 U Conversion costs $232,000 U SOLUTION EXHIBIT 17-23 Steps 3, 4, and 5: Compute Cost per Equivalent Unit, Summarize Total Costs to Account For, and Assign Total Costs to Units Completed and to Units in Ending Work in Process; Use of Standard Costs in Process Costing, Satellite Assembly Division of Aerospatiale for May 2007. Total

Production Costs

Direct

Materials

Conversion

Costs (Step 3) Standard cost per equivalent unit (given) $ 695,000 $ 295,000 Work in process, beginning (given) $ 5,948,000 (7.2 $695,000) + (3.2 $295,000)

Costs added in current period at standard costs 45,658,000 (46.0 $695,000) + (46.4 $295,000) (Step 4) Total costs to account for $51,606,000 (Step 5) Assignment of costs at standard costs: Completed and transferred out (46 units): Work in process, beginning (8 units)

Costs added to beginning work in process in current period

Total from beginning inventory

$ 5,948,000

1,972,000

7,920,000

(0.8* $695,000) + (4.8* $295,000)

Started and completed (38 units) Total costs of units transferred out

37,620,000 45,540,000

(38† $695,000) + (38† $295,000)

Work in process, ending (12 units) 6,066,000 (7.2# $695,000) + (3.6# $295,000) Total costs accounted for $51,606,000 Summary of variances for current performance: Costs added in current period at standard costs (see Step 3

above; 46.0 $695,000; 46.4 $295,000) Actual costs incurred (given) Variance

$31,970,000 32,200,000 $ 230,000 U

$13,688,000 13,920,000 $ 232,000 U

*Equivalent units to complete beginning work in process from Solution Exhibit 17-21, Step 2. †Equivalent units started and completed from Solution Exhibit 17-21, Step 2. #Equivalent units in work in process, ending from Solution Exhibit 17-21, Step 2.

17-11

17-24 (25 min.) Weighted-average method, assigning costs. 1. & 2. Solution Exhibit 17-24 calculates the cost per equivalent unit of work done to date for direct materials and conversion costs, summarizes total costs to account for, and assigns these costs to units completed and transferred out and to units in ending work-in-process inventory. SOLUTION EXHIBIT 17-24 Steps 3, 4, and 5: Compute Cost per Equivalent Unit, Summarize Total Costs to Account For, and Assign Total Costs to Units Completed and to Units in Ending Work in Process; Weighted-Average Method of Process Costing, Chatham Company for July 2007. Total

Production Costs

Direct

Materials

Conversion

Costs (Step 3) Work in process, beginning (given) $130,000 $ 60,000 $ 70,000 Costs added in current period (given) 651,000 280,000 371,000 Costs incurred to date $340,000 $441,000

Divide by equivalent units of work done to date (given)

50,000

42,000

Cost per equivalent unit of work done to date $ 6.80 $ 10.50 (Step 4) Total costs to account for $781,000 (Step 5) Assignment of costs: Completed and transferred out (34,000 units)

$588,200

(34,000* $6.80) + (34,000* $10.50)

Work in process, ending (16,000 units) 192,800 (16,000† $6.80) + (8,000† $10.50) Total costs accounted for $781,000 *Equivalent units completed and transferred out (given). †Equivalent units in work in process, ending (given).

17-12

17-25 (30 min.) FIFO method, assigning costs. 1. & 2. Solution Exhibit 17-25A calculates the equivalent units of work done in the current period. Solution Exhibit 17-25B calculates the cost per equivalent unit of work done in the current period for direct materials and conversion costs, summarizes total costs to account for, and assigns these costs to units completed and transferred out and to units in ending work-in-process inventory. SOLUTION EXHIBIT 17-25A Steps 1 and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units; FIFO Method of Process Costing, Chatham Company for July 2007.

(Step 1) (Step 2)

Equivalent Units


Units Direct



10,000 40,000 50,000


Completed and transferred out during current period: From beginning work in process§ 10,000 (100% 100%); 10,000 (100% – 70%)

10,000

0

3,000 Started and completed 24,000 100%, 24,000 100%

24,000† 24,000

24,000

Work in process, ending* (given) 16,000 100%; 16,000 50%

16,000

16,000

8,000

Accounted for 50,000 Work done in current period only 40,000 35,000 §Degree of completion in this department: direct materials, 100%; conversion costs, 70%. †34,000 physical units completed and transferred out minus 10,000 physical units completed and transferred out

from beginning work-in-process inventory. *Degree of completion in this department: direct materials, 100%; conversion costs, 50%.

17-13

SOLUTION EXHIBIT 17-25B Steps 3, 4, and 5: Compute Cost per Equivalent Unit, Summarize Total Costs to Account For, and Assign Total Costs to Units Completed and to Units in Ending Work in Process; FIFO Method of Process Costing, Chatham Company for July 2007. Total

Production Costs

Direct

Materials

Conversion

Costs Work in process, beginning ($60,000 + $70,000) $130,000 (costs of work done before current period) (Step 3) Costs added in current period (given) 651,000 $280,000 $371,000

Divide by equivalent units of work done in current period (Solution Exhibit 17-25A)

40,000

35,000

Cost per equivalent unit of work done in current period $ 7 $ 10.60

(Step 4) Total costs to account for $781,000

(Step 5) Assignment of costs: Completed and transferred out (34,000 units):

Work in process, beginning (10,000 units) Cost added to beginning work in process in current period

$130,000 31,800

(0* $7) + (3,000* $10.60)

Total from beginning inventory Started and completed (24,000 units)

Total costs of units completed and transferred out Work in process, ending (16,000 units) Total costs accounted for

161,800 422,400 584,200 196,800 $781,000

(24,000† $7) + (24,000† $10.60)

(16,000# $7) + (8,000# $10.60)

*Equivalent units used to complete beginning work in process from Solution Exhibit 17-25A, Step 2. †Equivelant units started and completed from Solution Exhibit 17-25A, Step 2. #Equivalent units in work in process, ending from Solution Exhibit 17-25A, Step 2.

17-14

17-26 (30 min.) Standard-costing method, assigning costs. 1. The calculations of equivalent units for direct materials and conversion costs are identical to the calculations of equivalent units under the FIFO method. Solution Exhibit 17-25A shows the equivalent unit calculations for standard costing given by the equivalent units of work done in July 2007. Solution Exhibit 17-26 uses the standard costs (direct materials, $6.60; conversion costs, $10.40) to summarize total costs to account for, and to assign these costs to units completed and transferred out and to units in ending work-in-process inventory. 2. Solution Exhibit 17-26 shows the direct materials and conversion costs variances for Direct materials $16,000 U Conversion costs $7,000 U SOLUTION EXHIBIT 17-26 Steps 3, 4, and 5: Compute Cost per Equivalent Unit, Summarize Total Costs to Account For, and Assign Total Costs to Units Completed and to Units in Ending Work in Process; Use of Standard Costs in Process Costing, Chatham Company for July 2007. Total

Production Costs

Direct

Materials

Conversion

Costs (Step 3) Standard cost per equivalent unit (given) $ 6.60 $ 10.40 Work in process, beginning (given) $138,800 (10,000 $6.60) + (7,000 $10.40)

Costs added in current period at standard costs 628,000 (40,000 $6.60) + (35,000 $10.40) (Step 4) Total costs to account for $766,800 (Step 5) Assignment of costs at standard costs: Completed and transferred out (34,000 units): Work in process, beginning (10,000 units) Costs added to beg. work in process in current period Total from beginning inventory

$138,800 31,200

170,000

(0* $6.60) + (3,000* $10.40)

Started and completed (24,000 units) Total costs of units transferred out

408,000 578,000

(24,000† $6.60) + (24,000† $10.40)

Work in process, ending (16,000 units) 188,800 (16,000# $6.60) + (8,000# $10.40) Total costs accounted for $766,800 Summary of variances for current performance: Costs added in current period at standard costs (see Step 3 above) Actual costs incurred (given) Variance

$264,000 280,000 $ 16,000 U

$364,000 371,000 $ 7,000 U

*Equivalent units to complete beginning work in process from Solution Exhibit 17-25A, Step 2. †Equivalent units started and completed from Solution Exhibit 17-25A, Step 2. #Equivalent units in work in process, ending from Solution Exhibit 17-25A, Step 2.

17-15

17-27 (35–40 min.) Transferred-in costs, weighted-average method. 1, 2. & 3. Solution Exhibit 17-27A calculates the equivalent units of work done to date. Solution Exhibit 17-27B calculates the cost per equivalent unit of work done to date for transferred-in costs, direct materials, and conversion costs, summarizes total costs to account for, and assigns these costs to units completed and transferred out and to units in ending work-in-process inventory. SOLUTION EXHIBIT 17-27A Steps 1 and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units Weighted-Average Method of Process Costing; Finishing Department of Aragon Industrials for June 2007.

(Step 1) (Step 2) Equivalent Units


Units Transferred-

in Costs Direct


Costs Work in process, beginning (given) 50 Transferred in during current period (given) 90 To account for 140 Completed and transferred out during current period 100 100 100 100 Work in process, ending* (given) 40 40 100%; 40 0%; 40 75% 40 0 30 Accounted for 140 Work done to date 140 100 130 *Degree of completion in this department: transferred-in costs, 100%; direct materials, 0%; conversion costs, 75%.

17-16

SOLUTION EXHIBIT 17-27B Steps 3, 4, and 5: Compute Cost per Equivalent Unit, Summarize Total Costs to Account For, and Assign Total Costs to Units Completed and to Units in Ending Work in Process; Weighted-Average Method of Process Costing, Finishing Department of Aragon Industrials for June 2007.

Total Production

Costs Transferred-in

Costs Direct


Costs (Step 3) Work in process, beginning (given) $ 70,000 $ 50,000 $ 0 $20,000 Costs added in current period (given) 172,000 95,000 25,000 52,000 Costs incurred to date $ 145,000 $25,000 $72,000

Divide by equivalent units of work done to date (Sol. Exh. 17-27A) 140 100

130

Cost per equivalent unit of work done to date _______ $1,035.71 $ 250 $553.85 (Step 4) Total costs to account for $242,000 (Step 5) Assignment of costs: Completed and transferred out (100 units) $183,956 (100 a $1,035.71) + (100 a $250) + (100 a $553.85) Work in process, ending (40 units): 58,044 (40b $1,035.71) + (0b $250) + (30b $553.85) Total costs accounted for $242,000 a Equivalent units completed and transferred out from Sol. Exhibit 17-27, step 2. b Equivalent units in ending work in process from Sol. Exhibit 17-27A, step 2.

17-17

17-28 (35–40 min.) Transferred-in costs, FIFO method. Solution Exhibit 17-28A calculates the equivalent units of work done in the current period (for transferred-in costs, direct-materials, and conversion costs) to complete beginning work-in-process inventory, to start and complete new units, and to produce ending work in process. Solution Exhibit 17-28B calculates the cost per equivalent unit of work done in the current period for transferred-in costs, direct materials, and conversion costs, summarizes total costs to account for, and assigns these costs to units completed and transferred out and to units in ending work-in-process inventory. SOLUTION EXHIBIT 17-28A Steps 1 and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units FIFO Method of Process Costing; Finishing Department of Aragon Industrials for June 2007. (Step 1) (Step 2) Equivalent Units


Units Transferred-in

Costs Direct


Costs Work in process, beginning (given) 50 (work done before current period) Transferred-in during current period (given) 90 To account for 140 Completed and transferred out during current period:

From beginning work in processa 50 [50 (100% – 100%); 50 (100% – 0%); 50 (100% – 60%)] 0 50 20 Started and completed 50b (50 100%; 50 100%; 50 100%)

50 50 50 Work in process, endingc (given) 40 (40 100%; 40 0%; 40 75%)

40 0 30 Accounted for 140 Work done in current period only 90 100 100 aDegree of completion in this department: Transferred-in costs, 100%; direct materials, 0%; conversion costs, 60%. b100 physical units completed and transferred out minus 50 physical units completed and transferred out from beginning work-in-process inventory.

cDegree of completion in this department: transferred-in costs, 100%; direct materials, 0%; conversion costs, 75%.

17-18

SOLUTION EXHIBIT 17-28B Steps 3, 4, and 5: Compute Cost per Equivalent Unit, Summarize Total Costs to Account For, and Assign Total Costs to Units Completed and to Units in Ending Work in Process; FIFO Method of Process Costing, Finishing Department of Aragon Industrials for June 2007.

Total Production


Costs Direct


Costs Work in process, beginning (given) ($40,000 + $0 + $20,000) $ 60,000 (costs of work done before current period) (Step 3) Costs added in current period (given) 164,200 $87,200 $25,000 $52,000

Divide by equivalent units of work done in current period (Sol. Exhibit 17-28A) 90 100 100

Cost per equivalent unit of work done in current period $968.89 $ 250 $ 520 (Step 4) Total costs to account for $224,200 (Step 5) Assignment of costs: Completed and transferred out (100 units) Work in process, beginning (50 units) $ 60,000 Costs added to beginning work in process in current period 22,900 (0a $968.89) + (50 a $250) + (20 a $520) Total from beginning inventory 82,900 Started and completed (50 units) 86,944 (50b $968.89) + (50b $250) + (50b $520) Total costs of units completed and transferred out 169,844 Work in process, ending (40 units): 54,356 (40c $968.89) + (0c $250) + (30c $520) Total costs accounted for $224,200 aEquivalent units used to complete beginning work in process from Solution Exhibit 17-28A, step 2. bEquivalent units started and completed from Solution Exhibit 17-28A, step 2. cEquivalent units in ending work in process from Solution Exhibit 17-28A, step 2.

17-19

17-29 (15 min.) Operation costing (chapter appendix). Costs of Work Order 815 and Work Order 831 are as follows: Work Order 815 Work Order 831 Number of units (pairs) 1,000 5,000 Direct materials costs $30,000 $ 50,000 Conversion costs: Cutting (1,000; 5,000 × $10) 10,000 50,000 Sewing (1,000; 5,000 × $15) 15,000 75,000 Lining (1,000; 0 × $8) 8,000 – Packing (1,000; 5,000 × $2) 2,000 10,000 Total costs $65,000 $185,000

Total cost per unit 1,000

$65,000 = $65 5,000

$185,000 = $37

17-20

17-30 (25 min.) Weighted-average method. 1. Since direct materials are added at the beginning of the assembly process, the units in this department must be 100% complete with respect to direct materials. Solution Exhibit 17-30A shows equivalent units of work done to date:

Direct materials 100 equivalent units Conversion costs 97 equivalent units

2. & 3. Solution Exhibit 17-30B calculates cost per equivalent unit of work done to date, summarizes the total Assembly Department costs for October 2007, and assigns these costs to units completed (and transferred out) and to units in ending work in process using the weighted-average method. SOLUTION EXHIBIT 17-30A Steps 1 and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units; Weighted-Average Method of Process Costing, Assembly Department of Global Defense, Inc., for October 2007. (Step 1) (Step 2) Equivalent Units Physical Direct Conversion Flow of Production Units Materials Costs Work in process, beginning (given) 20 Started during current period (given) 80 To account for 100 Completed and transferred out during current period 90 90 90 Work in process, ending* (given) 10 10 100%; 10 70% 10 7 Accounted for 100 Work done to date 100 97 *Degree of completion in this department: direct materials, 100%; conversion costs, 70%.

17-21

SOLUTION EXHIBIT 17-30B Steps 3, 4, and 5: Compute Cost per Equivalent Unit, Summarize Total Costs to Account For, and Assign Total Costs to Units Completed and to Units in Ending Work in Process; Weighted-Average Method of Process Costing, Assembly Department of Global Defense, Inc., for October 2007. Total

Production Costs

Direct

Materials

Conversion

Costs (Step 3) Work in process, beginning (given) $ 580,000 $ 460,000 $ 120,000 Costs added in current period (given) 2,935,000 2,000,000 935,000 Costs incurred to date $2,460,000 $1,055,000

Divide by equivalent units of work done to date (Solution Exhibit 17-30A)

100

97

Cost per equivalent unit of work done to date $ 24,600 $10,876.29 (Step 4) Total costs to account for $3,515,000 (Step 5) Assignment of costs: Completed and transferred out (90 units)

$3,192,866

(90* $24,600) + (90* $10,876.29)

Work in process, ending (10 units) 322,134 (10† $24,600) + (7† $10,876.29) Total costs accounted for $3,515,000 *Equivalent units completed and transferred out from Solution Exhibit 17-30A, Step 2. †Equivalent units in work in process, ending from Solution Exhibit 17-30A, Step 2. 17-31 (10 min.) Journal entries (continuation of 17-30). 1. Work in Process––Assembly Department 2,000,000 Accounts Payable 2,000,000 Direct materials purchased and used in production in October. 2. Work in Process––Assembly Department 935,000 Various accounts 935,000 Conversion costs incurred in October. 3. Work in Process––Testing Department 3,192,866 Work in Process––Assembly Department 3,192,866 Cost of goods completed and transferred out in October from the Assembly Department to the Testing Department.

Work in Process––Assembly Department Beginning inventory, October 1 580,000 1. Direct materials 2,000,000 2. Conversion costs 935,000

3. Transferred out to Work in Process–Testing 3,192,866

Ending Inventory, October 31 322,134

17-22

17-32 (20 min.) FIFO method (continuation of 17-30). 1. The equivalent units of work done in the current period in the Assembly Department in October 2007 for direct materials and conversion costs are shown in Solution Exhibit 17-32A. 2. The cost per equivalent unit of work done in the current period in the Assembly Department in October 2007 for direct materials and conversion costs is calculated in Solution Exhibit 17-32B. 3. Solution Exhibit 17-32B summarizes the total Assembly Department costs for October 2007, and assigns these costs to units completed (and transferred out) and units in ending work in process under the FIFO method. The cost per equivalent unit of beginning inventory and of work done in the current period differ: Beginning

Inventory Work Done in

Current Period Direct materials Conversion costs

$23,000 ($460,000 20 equiv. units) $10,000 ($120,000 12 equiv. units)

$25,000 $11,000

Direct


Costs Cost per equivalent unit (weighted-average) $24,600* $10,876.29* Cost per equivalent unit (FIFO) $25,000** $11,000**

*from Solution Exhibit 17-30B **from Solution Exhibit 17-32B The cost per equivalent unit differs between the two methods because each method uses different costs to calculate the numerator of the calculation. FIFO uses only the costs added during the period whereas weighted-average uses the costs from the beginning work-in-process as well as costs added during the period. Both methods also use different equivalent units in the denominator. The following table summarizes the costs assigned to units completed and those still in process under the weighted-average and FIFO process-costing methods for our example.

Weighted Average (Solution

Exhibit 17-30B)

FIFO

(Solution Exhibit 17-32B)

Difference Cost of units completed and transferred out Work in process, ending Total costs accounted for

$3,192,866 322,134 $3,515,000

$3,188,000 327,000 $3,515,000

–$4,866 +$4,866

17-23

The FIFO ending inventory is higher than the weighted-average ending inventory by $4,866. This is because FIFO assumes that all the lower-cost prior-period units in work in process are the first to be completed and transferred out while ending work in process consists of only the higher-cost current-period units. The weighted-average method, however, smoothes out cost per equivalent unit by assuming that more of the higher-cost units are completed and transferred out, while some of the lower-cost units in beginning work in process are placed in ending work in process. So, in this case, the weighted-average method results in a higher cost of units completed and transferred out and a lower ending work-in-process inventory relative to FIFO. SOLUTION EXHIBIT 17-32A Steps 1 and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units; FIFO Method of Process Costing, Assembly Department of Global Defense Inc. for October 2007. (Step 1) (Step 2)

Equivalent Units


Units Direct



20 80 100



20

0

8 Started and completed 70 100%, 70 100%

70† 70

70


10

10

7

Accounted for 100 Work done in current period only 80 85 §Degree of completion in this department: direct materials, 100%; conversion costs, 60%. †90 physical units completed and transferred out minus 20 physical units completed and transferred out from


17-24

SOLUTION EXHIBIT 17-32B Steps 3, 4, and 5: Compute Cost per Equivalent Unit, Summarize Total Costs to Account For, and Assign Total Costs to Units Completed and to Units in Ending Work in Process; FIFO Method of Process Costing, Assembly Department of Global Defense, Inc., for October 2007. Total

Production Costs

Direct

Materials

Conversion

Costs Work in process, beginning ($460,000 + $120,000) $ 580,000 (costs of work done before current period) (Step 3) Costs added in current period (given) 2,935,000 $2,000,000 $935,000 Divide by equivalent units of work done in current period (Solution Exhibit 17-32A)

80

85

Cost per equivalent unit of work done in current period $ 25,000 $ 11,000 (Step 4) Total costs to account for $3,515,000 (Step 5) Assignment of costs: Completed and transferred out (90 units):

Work in process, beginning (20 units) Costs added to beg. work in process in current period

$ 580,000 88,000

(0* $25,000) + (8* $11,000)

Total from beginning inventory Started and completed (70 units) Total costs of units completed & transferred out Work in process, ending (10 units) Total costs accounted for

668,000 2,520,000 3,188,000 327,000 $3,515,000

(70† $25,000) + (70† $11,000) (10# $25,000) + (7# $11,000)


17-25

17-33 (30 min.) Transferred-in costs, weighted-average method (related to 17-30 to 17-32). 1. Transferred-in costs are 100% complete, and direct materials are 0% complete in both beginning and ending work-in-process inventory. The reason is that transferred-in costs are always 100% complete as soon as they are transferred in from the Assembly Department to the Testing Department. Direct materials in beginning or ending work in process for the Testing Department are 0% complete because direct materials are added only when the testing process is 90% complete and the units in beginning and ending work in process are only 70% and 60% complete, respectively. 2. Solution Exhibit 17-33A computes the equivalent units of work done to date in the Testing Department for transferred-in costs, direct materials, and conversion costs. 3. Solution Exhibit 17-33B calculates the cost per equivalent unit of work done to date in the Testing Department for transferred-in costs, direct materials, and conversion costs, summarizes total Testing Department costs for October 2007, and assigns these costs to units completed and transferred out and to units in ending work in process using the weighted-average method. 4. Journal entries:

a. Work in Process––Testing Department 3,192,866 Work in Process––Assembly Department 3,192,866

Cost of goods completed and transferred out during October from the Assembly Department to the Testing Department b. Finished Goods 9,303,123 Work in Process––Testing Department 9,303,123

Cost of goods completed and transferred out during October from the Testing Department to Finished Goods inventory

17-26

SOLUTION EXHIBIT 17-33A Steps 1 and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units; Weighted-Average Method of Process Costing, Testing Department of Global Defense, Inc., for October 2007.




Costs Direct


Costs Work in process, beginning (given) 30 Transferred in during current period (given) 90 To account for 120 Completed and transferred out during current period 105 105 105 105 Work in process, ending* (given) 15 15 100%; 15 0%; 15 60% 15 0 9 Accounted for 120 Work done to date 120 105 114 *Degree of completion in this department: transferred-in costs, 100%; direct materials, 0%; conversion costs, 60%.

17-27

SOLUTION EXHIBIT 17-33B Steps 3, 4, and 5: Compute Cost per Equivalent Unit, Summarize Total Costs to Account For, and Assign Total Costs to Units Completed and to Units in Ending Work in Process; Weighted-Average Method of Process Costing, Testing Department of Global Defense, Inc., for October 2007. Total

Production Costs

Transferred

-in Costs

Direct

Materials

Conversion

Costs (Step 3) Work in process, beginning (given) $1,317,600 $ 985,800 $ 0 $ 331,800 Costs added in current period (given) 8,658,866 3,192,866 3,885,000 1,581,000 Costs incurred to date $4,178,666 $3,885,000 $1,912,800


120

105

114

Equivalent unit costs of work done to date _________ $ 34,822.22 $ 37,000 $ 16,778.95 (Step 4) Total costs to account for $9,976,466 (Step 5) Assignment of costs: Completed and transferred out (105 units)

$9,303,123

(105* $34,822.22) + (105* $37,000) + (105* $16,778.95)

Work in process, ending (15 units) 673,343 ( 15† $34,822.22) + (0†$37,000) + (9† $16,778.95) Total costs accounted for $9,976,466 *Equivalent units completed and transferred out from Solution Exhibit 17-33A, Step 2. †Equivalent units in work in process, ending from Solution Exhibit 17-33A, Step 2.

17-28

17-34 (30 min.) Transferred-in costs, FIFO method (continuation of 17-33). 1. As explained in Problem 17-33, requirement 1, transferred-in costs are 100% complete and direct materials are 0% complete in both beginning and ending work-in-process inventory. 2. The equivalent units of work done in October 2007 in the Testing Department for transferred-in costs, direct materials, and conversion costs are calculated in Solution Exhibit 17-34A. 3. Solution Exhibit 17-34B calculates the cost per equivalent unit of work done in October 2007 in the Testing Department for transferred-in costs, direct materials, and conversion costs, summarizes total Testing Department costs for October 2007, and assigns these costs to units completed and transferred out and to units in ending work in process using the FIFO method. 4. Journal entries:

a. Work in Process––Testing Department 3,188,000 Work in Process––Assembly Department 3,188,000

Cost of goods completed and transferred out during October from the Assembly Dept. to the Testing Dept.

b. Finished Goods 9,281,527

Work in Process––Testing Department 9,281,527 Cost of goods completed and transferred out during October from the Testing Department to Finished Goods inventory.

17-29

SOLUTION EXHIBIT 17-34A Steps 1 and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units; FIFO Method of Process Costing, Testing Department of Global Defense, Inc., for October 2007.

(Step 1) (Step 2)

Equivalent Units


Units Transferred-

in Costs Direct


Costs Work in process, beginning (given) Transferred-in during current period (given) To account for

30 90 120


Completed and transferred out during current period: From beginning work in process§ 30 (100% 100%); 30 (100% 0%); 30 (100% 70%)

30

0

30

9 Started and completed 75 100%; 75 100%; 75 100%

75† 75

75

75

Work in process, ending* (given) 15 100%; 15 0%; 15 60%

15

15

0

9

Accounted for 120 Work done in current period only 90 105 93

§ Degree of completion in this department: Transferred-in costs, 100%; direct materials, 0%; conversion costs, 70%. †105 physical units completed and transferred out minus 30 physical units completed and transferred out from

beginning work-in-process inventory. *Degree of completion in this department: transferred-in costs, 100%; direct materials, 0%; conversion costs, 60%.

17-30

SOLUTION EXHIBIT 17-34B Steps 3, 4, and 5: Compute Cost per Equivalent Unit, Summarize Total Costs to Account For, and Assign Total Costs to Units Completed and to Units in Ending Work in Process; FIFO Method of Process Costing, Testing Department of Global Defense, Inc., for October 2007. Total

Production

Costs

Transferred

-in Costs

Direct

Materials

Conversion

Costs

Work in process, beginning

($331,800 + $0 + $980,060))

$1,311,860

(Costs of work done before current period)

(Step 3) Costs added in current period (given) 8,654,000 $3,188,000 $3,885,000 $1,581,000

Divide by equivalent units of work done in

current period (Solution Exhibit 17-34A)

90

105

93

Cost per equiv. unit of work done in current period $ 35,422.22 $ 37,000 $ 17,000

(Step 4) Total costs to account for $9,965,860

(Step 5) Assignment of costs:

Completed and transferred out (105 units):

Work in process, beginning (30 units)

Costs added to beg. work in process in current period

$1,311,860

1,263,000

(0* $35,422.22) + (30* $37,000) + (9* $17,000)

Total from beginning inventory

Started and completed (75 units)

Total costs of units completed & transferred out

Work in process, ending (15 units)

Total costs accounted for

2,574,860

6,706,667

9,281,527

684,333

$9,965,860

(75† $35,422.22) + (75† $37,000) + (75† $17,000)

(15# $35,422.22) + (0# $37,000) + (9# $17,000)

*Equivalent units used to complete beginning work in process from Solution Exhibit 17-34A, Step 2. †Equivalent units started and completed from Solution Exhibit 17-34A, Step 2. #Equivalent units in work in process, ending from Solution Exhibit 17-34A, Step 2.

17-31

17-35 (25 min.) Weighted-average method. Solution Exhibit 17-35A shows equivalent units of work done to date of:

Direct materials 2,500 equivalent units Conversion costs 2,125 equivalent units

Note that direct materials are added when the Forming Department process is 10% complete. Both the beginning and ending work in process are more than 10% complete and hence are 100% complete with respect to direct materials.

Solution Exhibit 17-35B calculates cost per equivalent unit of work done to date for direct materials and conversion costs, summarizes the total Forming Department costs for April 2007, and assigns these costs to units completed (and transferred out), and to units in ending work in process using the weighted-average method. SOLUTION EXHIBIT 17-35A Steps 1 and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units; Weighted-Average Method of Process Costing, Forming Department of Star Toys for April 2007. (Step 1) (Step 2) Equivalent Units Physical Direct Conversion Flow of Production Units Materials Costs Work in process, beginning (given) 300 Started during current period (given) 2,200 To account for 2,500 Completed and transferred out during current period 2,000 2,000 2,000 Work in process, ending* (given) 500 500 100%; 500 25% 500 125 Accounted for 2,500 Work done to date 2,500 2,125 *Degree of completion in this department: direct materials, 100%; conversion costs, 25%.

17-32

SOLUTION EXHIBIT 17-35B Steps 3, 4, and 5: Compute Cost per Equivalent Unit, Summarize Total Costs to Account For, and Assign Total Costs to Units Completed and to Units in Ending Work in Process; Weighted-Average Method of Process Costing, Forming Department of Star Toys, April 2007. Total

Production Costs

Direct

Materials

Conversion

Costs (Step 3) Work in process, beginning (given) $ 9,625 $ 7,500 $ 2,125 Costs added in current period (given) 112,500 70,000 42,500 Costs incurred to date $77,500 $44,625


2,500

2,125

Cost per equivalent unit of work done to date $ 31 $ 21 (Step 4) Total costs to account for $122,125 (Step 5) Assignment of costs: Completed and transferred out (2,000 units)

$104,000

(2,000* $31) + (2,000* $21)

Work in process, ending (500 units) 18,125 (500† $31) + (125† $21) Total costs accounted for $122,125 *Equivalent units completed and transferred out from Solution Exhibit 17-35A, Step 2. †Equivalent units in work in process, ending from Solution Exhibit 17-35A, Step 2.

17-33

17-36 (5–10 min.) Journal entries (continuation of 17-35). 1. Work in Process––Forming Department 70,000 Accounts Payable 70,000 To record direct materials purchased and used in production during April 2. Work in Process––Forming Department 42,500 Various Accounts 42,500 To record Forming Department conversion costs for April 3. Work in Process––Finishing Department 104,000 Work in Process––Forming Department 104,000 To record cost of goods completed and transferred out in April from the Forming Department to the Finishing Department Work in Process––Forming Department Beginning inventory, April 1 9,625 3. Transferred out to 1. Direct materials 70,000 Work in Process––Finishing 104,000 2. Conversion costs 42,500 Ending inventory, April 30 18,125

17-34

17-37 (20 min.) FIFO method (continuation of 17-35). The equivalent units of work done in April 2007 in the Forming Department for direct materials and conversion costs are shown in Solution Exhibit 17-37A. Solution Exhibit 17-37B calculates the cost per equivalent unit of work done in April 2007 in the Forming Department for direct materials and conversion costs, summarizes the total Forming Department costs for April 2007, and assigns these costs to units completed (and transferred out) and to units in ending work in process under the FIFO method. The equivalent units of work done in beginning inventory is: direct materials, 300 100% = 300; and conversion costs 300 40% = 120. The cost per equivalent unit of beginning inventory and of work done in the current period are:

Beginning Inventory

Work Done in Current Period

(Calculated Under FIFO Method)

Direct materials Conversion costs

$25 ($7,500 300) $17.708 ($2,125 120)

$31.818 $21.197

The following table summarizes the costs assigned to units completed and those still in process under the weighted-average and FIFO process-costing methods for our example.


Exhibit 17-35B)

FIFO



$104,000 18,125 $122,125

$103,566 18,559 $122,125

–$434 +$434

The FIFO ending inventory is higher than the weighted-average ending inventory by $434. This is because FIFO assumes that all the lower-cost prior-period units in work in process are the first to be completed and transferred out while ending work in process consists of only the higher-cost current-period units. The weighted-average method, however, smoothes out cost per equivalent unit by assuming that more of the higher-cost units are completed and transferred out, while some of the lower-cost units in beginning work in process are placed in ending work in process. Hence, in this case, the weighted-average method results in a higher cost of units completed and transferred out and a lower ending work-in-process inventory relative to FIFO.

17-35

SOLUTION EXHIBIT 17-37A Steps 1 and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units; FIFO Method of Process Costing, Forming Department of Star Toys for April 2007.

(Step 1) (Step 2)

Equivalent Units


Units Direct



300 2,200 2,500



300

0

180 Started and completed 1,700 100%; 1,700 100%

1,700† 1,700

1,700


500

500

125

Accounted for 2,500 Work done in current period only 2,200 2,005 §Degree of completion in this department: direct materials, 100%; conversion costs, 40%. †2,000 physical units completed and transferred out minus 300 physical units completed and transferred out from

beginning work-in-process inventory. *Degree of completion in this department: direct materials, 100%; conversion costs, 25%. SOLUTION EXHIBIT 17-37B Steps 3, 4, and 5: Compute Cost per Equivalent Unit, Summarize Total Costs to Account For, and Assign Total Costs to Units Completed and to Units in Ending Work in Process; FIFO Method of Process Costing, Forming Department of Star Toys for April 2007. Total

Production Costs

Direct

Materials

Conversion

Costs Work in process, beginning (given: $7,500 + $2,125)

$ 9,625


(Step 3) Costs added in current period (given) 112,500 $70,000 $42,500 Divide by equivalent units of work done in current period (Exhibit 17-37A)

2,200

2,005

Cost per equivalent unit of work done in current period

$31.818

$21.197

(Step 4) Total costs to account for $122,125 (Step 5) Assignment of costs: Completed and transferred out (2,000 units):

Work in process, beginning (300 units) Costs added to begin. work in process in current period

$ 9,625

3,815

(0* $31.818) + (180* $21.197)

Total from beginning inventory Started and completed (1,700 units) Total costs of units completed & tsfd. out Work in process, ending (500 units) Total costs accounted for

13,440 90,126 103,566 18,559 $122,125

(1,700† $31.818) + (1,700† $21.197) (500# $31.818) + (125# $21.197)


17-36

17-38 (30 min.) Transferred-in costs, weighted average. 1. Solution Exhibit 17-38A computes the equivalent units of work done to date in the Spinning Department for transferred-in costs, direct materials, and conversion costs. Solution Exhibit 17-38B calculates the cost per equivalent unit of work done to date in the Spinning Department for transferred-in costs, direct materials, and conversion costs, summarizes total Spinning Department costs for April 2007, and assigns these costs to units completed and transferred out and to units in ending work in process using the weighted-average method. 2. Journal entries:

a. Work in Process––Spinning Department 96,000 Work in Process––Drawing Department 96,000 Cost of goods completed and transferred out during April from the Drawing Department to the Spinning Department b. Finished Goods 166,008 Work in Process––Spinning Department 166,008

Cost of goods completed and transferred out during April from the Spinning Department to Finished Goods inventory

SOLUTION EXHIBIT 17-38A Steps 1 and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units; Weighted-Average Method of Process Costing, Spinning Department of Jhirmack Woolen Mills for April 2007. (Step 1) (Step 2) Equivalent Units


Units Transferred-

in Costs Direct


Costs Work in process, beginning (given) 600 Transferred-in during current period (given) 1,800 To account for 2,400 Completed and transferred out during current period: 2,000 2,000 2,000 2,000 Work in process, endinga (given) 400 (400 100%; 400 0%; 400 60%) 400 0 240 Accounted for 2,400 Work done to date 2,400 2,000 2,240 aDegree of completion in this department: transferred-in costs, 100%; direct materials, 0%; conversion costs, 60%.

17-37

SOLUTION EXHIBIT 17-38B Steps 3, 4, and 5: Compute Cost per Equivalent Unit, Summarize Total Costs to Account For, and Assign Total Costs to Units Completed and to Units in Ending Work in Process; Weighted-Average Method of Process Costing, Spinning Department of Jhirmack Woolen Mills for April 2007.

Total Production


Costs Direct


Costs (Step 3) Work in process, beginning (given) $ 31,850 $ 21,850 $ 0 $10,000 Costs added in current period (given) 159,800 96,000 17,800 46,000 Costs incurred to date $117,850 $17,800 $56,000

Divide by equivalent units of work done to date (Solution Exhibit 17-38A) 2,400 2,000 2,240

Cost per equivalent unit of work done to date $ 49.104 $ 8.90 $ 25 (Step 4) Total costs to account for $191,650 (Step 5) Assignment of costs: Completed and transferred out (2,000 units) $166,008 (2,000a $49.104) + (2,000a $8.90) + (2,000a $25) Work in process, ending (400 units): 25,642 (400b $49.104) + (0b $8.90) + (240b $25) Total costs accounted for $191,650 a Equivalent units completed and transferred out from Sol. Exhibit 17-38A, step 2. b Equivalent units in ending work in process from Sol. Exhibit 17-38A, step 2.

17-38

17-39 (30 min.) Transferred-in costs, FIFO method (continuation of 17-38). 1. Solution Exhibit 17-39A calculates the equivalent units of work done in April 2007 in the Spinning Department for transferred-in costs, direct materials, and conversion costs. Solution Exhibit 17-37B calculates the cost per equivalent unit of work done in April 2007 in the Spinning Department for transferred-in costs, direct materials, and conversion costs, summarizes total Spinning Department costs for April 2007, and assigns these costs to units completed and transferred out and to units in ending work in process using the FIFO method. Journal entries:

a. Work in Process––Spinning Department 94,500 Work in Process––Drawing Department 94,500

Cost of goods completed and transferred out during April from the Drawing Department to the Spinning Department.

b. Finished Goods 160,100 Work in Process––Spinning Department 160,100

Cost of goods completed and transferred out during April from the Spinning Department to Finished Goods inventory.

2. The equivalent units of work done in beginning inventory is: Transferred-in costs, 600 100% = 600; direct materials, 600 0% = 0; and conversion costs, 600 40% = 240. The cost per equivalent unit of beginning inventory and of work done in the current period are: Beginning

Inventory Work Done in

Current Period Transferred-in costs (weighted average) Transferred-in costs (FIFO) Direct materials Conversion costs

$36.42 ($21,850 600) $30.53 ($18,320 600)

— $41.67 ($10,000 240)

$53.33 ($96,000 1,800) $52.50 ($94,500 1,800)

$8.90 $25

The following table summarizes the costs assigned to units completed and those still in process under the weighted-average and FIFO process-costing methods for the Spinning Department.


Exhibit 17-38B)

FIFO



$166,008 25,642 $191,650

$160,100 26,520 $186,620

–$5,908 +$ 878

17-39

The FIFO ending inventory is higher than the weighted-average ending inventory by $878. This is because FIFO assumes that all the lower-cost prior-period units in work in process (resulting from the lower transferred-in costs in beginning inventory) are the first to be completed and transferred out while ending work in process consists of only the higher-cost current-period units. The weighted-average method, however, smoothes out cost per equivalent unit by assuming that more of the higher-cost units are completed and transferred out, while some of the lower-cost units in beginning work in process are placed in ending work in process. Hence, in this case, the weighted-average method results in a higher cost of units completed and transferred out and a lower ending work-in-process inventory relative to FIFO. Note that the difference in cost of units completed and transferred out (–$5,908) does not fully offset the difference in ending work-in-process inventory (+$878). This is because the FIFO and weighted-average methods result in different values for transferred-in costs with respect to both beginning inventory and costs transferred in during the period. SOLUTION EXHIBIT 17-39A Steps 1 and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units; FIFO Method of Process Costing, Spinning Department of Jhirmack Woolen Mills for April 2007. (Step 1) (Step 2) Equivalent Units



Costs Direct


Costs Work in process, beginning (given) 600 (work done before current period) Transferred-in during current period (given) 1,800 To account for 2,400 Completed and transferred out during current period: From beginning work in processa 600 [600 (100% – 100%); 600 (100% – 0%); 600 (100% – 40%)] 0 600 360 Started and completed 1,400b (1,400 100%; 1,400 100%; 1,400 100%) 1,400 1,400 1,400 Work in process, endingc (given) 400 (400 100%; 400 x 0%; 400 60%) ____ 400 0 240 Accounted for 2,400 ____ ____ ____ Work done in current period only 1,800 2,000 2,000 a Degree of completion in this department: Transferred-in costs, 100%; direct materials, 0%; conversion costs, 40%. b 2,000 physical units completed and transferred out minus 600 physical units completed and transferred out from beginning work-in-process inventory.

c Degree of completion in this department: transferred-in costs, 100%; direct materials, 0%; conversion costs, 60%.

17-40

SOLUTION EXHIBIT 17-39B Steps 3, 4, and 5: Compute Cost per Equivalent Unit, Summarize Total Costs to Account For, and Assign Total Costs to Units Completed and to Units in Ending Work in Process; FIFO Method of Process Costing, Spinning Department of Jhirmack Woolen Mills for April 2007.

Total Production


Costs Direct


Costs Work in process, beginning (given: $18,320 + $10,000) $ 28,320 (costs of work done before current period)

(Step 3) Costs added in current period (given) 158,300 $94,500 $17,800 $46,000

Divide by equivalent units of work done in current period (Sol. Exhibit 17-39A) 1,800 2,000 2,000

Cost per equivalent unit of work done in current period _______ $ 52.50 $ 8.90 $ 23.00 (Step 4) Total costs to account for $186,620 (Step 5) Assignment of costs:

Completed and transferred out (2,000 units) Work in process, beginning (600 units) $ 28,320 Costs added to beginning work in process in current period 13,620 (0a $52.50) + (600a $8.90) + (360a $23) Total from beginning inventory 41,940 Started and completed (1,400 units) 118,160 (1,400b $52.50) + (1,400b $8.90) + (1,400b $23) Total costs of units completed and transferred out 160,100 Work in process, ending (400 units): 26,520 (400c $52.50) + (0c $8.90) + (240c $23) Total costs accounted for $186,620 a Equivalent units used to complete beginning work in process from Solution Exhibit 17-39A, step 2. b Equivalent units started and completed from Solution Exhibit 17-39A, step 2. c Equivalent units in ending work in process from Solution Exhibit 17-39A, step 2.

17-41

17-40 (45 min.) Transferred-in costs, weighted-average and FIFO methods. 1. Solution Exhibit 17-40A computes the equivalent units of work done to date in the Drying and Packaging Department for transferred-in costs, direct materials, and conversion costs. Solution Exhibit 17-40B calculates the cost per equivalent unit of work done to date in the Drying and Packaging Department for transferred-in costs, direct materials, and conversion costs, summarizes total Drying and Packaging Department costs for week 37, and assigns these costs to units completed and transferred out and to units in ending work in process using the weighted-average method. 2. Solution Exhibit 17-40C computes the equivalent units of work done in week 37 in the Drying and Packaging Department for transferred-in costs, direct materials, and conversion costs. Solution Exhibit 17-40D calculates the cost per equivalent unit of work done in week 37 in the Drying and Packaging Department for transferred-in costs, direct materials, and conversion costs, summarizes total Drying and Packaging Department costs for week 37, and assigns these costs to units completed and transferred out and to units in ending work in process using the FIFO method. SOLUTION EXHIBIT 17-40A Steps 1 and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units; Weighted-Average Method of Process Costing, Drying and Packaging Department of Frito-Lay Inc. for Week 37.



Units Transferred-

in Costs Direct


Costs Work in process, beginning (given) 1,250 Transferred in during current period (given) 5,000 To account for 6,250 Completed and transferred out during current period 5,250 5,250 5,250 5,250 Work in process, ending* (given) 1,000 1,000 100%; 1,000 0%; 1,000 40% 1,000 0 400 Accounted for 6,250 Work done to date 6,250 5,250 5,650 *Degree of completion in this department: transferred-in costs, 100%; direct materials, 0%; conversion costs, 40%.

17-42

SOLUTION EXHIBIT 17-40B Steps 3, 4, and 5: Compute Cost per Equivalent Unit, Summarize Total Costs to Account For, and Assign Total Costs to Units Completed and to Units in Ending Work in Process; Weighted-Average Method of Process Costing, Drying and Packaging Department of Frito-Lay Inc. for Week 37. Total

Production Costs

Transferred

-in Costs

Direct

Materials

Conversion

Costs (Step 3) Work in process, beginning (given) $ 38,060 $ 29,000 $ 0 $ 9,060 Costs added in current period (given) 159,600 96,000 25,200 38,400 Costs incurred to date $125,000 $25,200 $47,460


6,250

5,250

5,650

Equivalent unit costs of work done to date $ 20 $ 4.80 $ 8.40 (Step 4) Total costs to account for $197,660 (Step 5) Assignment of costs: Completed and transferred out (5,250 units)

$174,300

(5,250* $20) + (5,250* $4.80) + (5,250* $8.40)

Work in process, ending (1,000 units) 23,360 (1,000† $20) + (0† $4.80 ) + (400† $8.40)

Total costs accounted for $197,660 *Equivalent units completed and transferred out from Solution Exhibit 17-40A, Step 2. †Equivalent units in work in process, ending from Solution Exhibit 17-40A, Step 2.

17-43

SOLUTION EXHIBIT 17-40C Steps 1 and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units; FIFO Method of Process Costing, Drying and Packaging Department of Frito-Lay Inc. for Week 37.

(Step 1) (Step 2)

Equivalent Units


Units Transferred-

in Costs Direct



1,250 5,000 6,250


Completed and transferred out during current period: From beginning work in process§ 1,250 (100% 100%); 1,250 (100% 0%); 1,250 (100% 80%)

1,250

0

1,250

250 Started and completed 4,000 100%; 4,000 100%; 4,000 100%

4,000† 4,000

4,000

4,000

Work in process, ending* (given) 1,000 100%; 1,000 0%; 1,000 40%

1,000

1,000

0

400

Accounted for 6,250 Work done in current period only 5,000 5,250 4,650

§Degree of completion in this department: Transferred-in costs, 100%; direct materials, 0%; conversion costs, 80%. †5,250 physical units completed and transferred out minus 1,250 physical units completed and transferred out from

beginning work-in-process inventory. *Degree of completion in this department: transferred-in costs, 100%; direct materials, 0%; conversion costs, 40%.

17-44

SOLUTION EXHIBIT 17-40D Steps 3, 4, and 5: Compute Cost per Equivalent Unit, Summarize Total Costs to Account For, and Assign Total Costs to Units Completed and to Units in Ending Work in Process; FIFO Method of Process Costing, Drying and Packaging Department of Frito-Lay Inc. for Week 37. Total

Production Costs

Transferred

-in Costs

Direct

Materials

Conversion

Costs Work in process, beginning ($9,060 + $0 + $28,920)

$ 37,980


(Step 3) Costs added in current period (given) 157,600 $94,000 $25,200 $38,400 Divide by equivalent units of work done in current period (Solution Exhibit 17-40C)

5,000

5,250

4,650

Cost per equiv. unit of work done in current period $ 18.80 $ 4.80 $ 8.258 (Step 4) Total costs to account for $195,580 (Step 5) Assignment of costs: Completed and transferred out (5,250 units):

Work in process, beginning (1,250 units) Costs added to beg. work in process in current period

$ 37,980 8,065

(0* $18.80) + (1,250* $4.80) + (250* $8.258)

Total from beginning inventory Started and completed (4,000 units) Total costs of units completed & transferred out Work in process, ending (1,000 units) Total costs accounted for

46,045 127,432 173,477 22,103 $195,580

(4,000† $18.80) + (4,000† $4.80) + (4,000† $8.258) (1,000# $18.80) + (0# $4.80) + (400# $8.258)

*Equivalent units used to complete beginning work in process from Solution Exhibit 17-40C, Step 2. †Equivalent units started and completed from Solution Exhibit 17-40C, Step 2. #Equivalent units in work in process, ending from Solution Exhibit 17-40C, Step 2.

17-45

17-41 (25 min.) Standard costing with beginning and ending work in process. 1. Solution Exhibit 17-41A shows equivalent units of work done in the current period: Direct materials 20,000 equivalent units Conversion costs 18,700 equivalent units

Solution Exhibit 17-41B uses the standard costs of work done in the current period: direct materials, $6; conversion costs, $3; to summarize the total Cooking Department costs for May 2007, and assign these costs to units completed (and transferred out) and to units in ending work in process using the standard costing method. 2. May variances for direct materials and conversion costs are as follows: Direct Materials Conversion Costs Output in equivalent units for May Standard costs of May month's output Direct materials, $6; Conversion costs, $3 Actual costs incurred during May (given) Variances

20,000

$120,000 125,000 $ 5,000 U

18,700

$56,100 57,000 $ 900 U

SOLUTION EXHIBIT 17-41A Steps 1 and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units; Use of Standard Costs in Process Costing, Cooking Department of Victoria Corporation for May 2007.

(Step 1) (Step 2)

Equivalent Units


Units Direct



3,000 20,000 23,000

Completed and transferred out during current period: From beginning work in process§ 3,000 (100% 100%); 3,000 (100% 60%)

3,000

0

1,200 Started and completed 15,000 100%; 15,000 100%

15,000||

15,000

15,000

Work in process, ending* (given) 5,000 100%; 5,000 50%

5,000

5,000

2,500

Accounted for 23,000 Work done in current period only 20,000

18,700

§Degree of completion in this department: direct materials, 100%; conversions, 60%. ||18,000 physical units completed and transferred out minus 3,000 physical units completed and transferred out from


17-46

SOLUTION EXHIBIT 17-41B Steps 3, 4, and 5: Compute Cost per Equivalent Unit, Summarize Total Costs to Account For, and Assign Total Costs to Units Completed and to Units in Ending Work in Process; Use of Standard Costs in Process Costing, Cooking Department of Victoria Corporation for May 2007. Total

Production Costs

Direct

Materials

Conversion

Costs (Step 3) Standard cost per equivalent unit (given) $ 6 $ 3 Work in process, beginning (given) $ 23,400 (3,000 $6) + (1,800 $3)

Costs added in current period at standard costs 176,100 (20,000 $6) + (18,700 $3) (Step 4) Total costs to account for $199,500 (Step 5) Assignment of costs at standard costs: Completed and transferred out (18,000 units): Work in process, beginning (3,000 units) Costs added to beg. work in process in current period Total from beginning inventory

$ 23,400 3,600

27,000

(0* $6)

+ (1,200* $3)

Started and completed (15,000 units) Total costs of units completed and transferred out

135,000 162,000

(15,000† $6) + (15,000† $3)

Work in process, ending (5,000 units) 37,500 (5,000# $6) + (2,500# $3) Total costs accounted for $199,500 Summary of variances for current performance Costs added in current period at standard costs (see Step 3 above) Actual costs incurred (given) Variance

$120,000 125,000 $ 5,000 U

$56,100 57,000 $ 900 U

*Equivalent units to complete beginning work Solution Exhibit 17-41A, Step 2. †Equivalent units started and completed from Solution Exhibit 17-41A, Step 2. #Equivalent units in work in process, ending from Solution Exhibit 17-41A, Step 2.

17-47

17-42 (25-30 min.) Operation costing, equivalent units. 1. Materials and conversion costs of each operation, the total units produced, and the material and conversion cost per unit for the month of May are as follows: Extrusion Form Trim Finish 1. Units produced 11,000 11,000 5,000 2,000 2. Materials costs $132,000 $ 44,000 $15,000 $12,000 3. Materials cost per unit (2 ÷1) 12.00 4.00 3.00 6.00 4. Conversion costs 269,500 132,000 69,000 42,000 5. Conversion cost per unit (4 ÷ 1) 24.50 12.00 13.80 21.00 The unit cost and total costs in May for each product are as follows: Standard Deluxe Executive Cost Elements Model Model Model Extrusion materials $ 12.00 $ 12.00 $ 12.00 Form materials 4.00 4.00 4.00 Trim materials – 3.00 3.00 Finish materials – – 6.00 Extrusion conversion 24.50 24.50 24.50 Form conversion 12.00 12.00 12.00 Trim conversion – 13.80 13.80 Finish conversion – – 21.00 Total unit cost $ 52.50 $ 69.30 $ 96.30 Multiply by units produced × 6,000 × 3,000 × 2,000 Total product costs $315,000 $207,900 $192,600 2. Equivalent Unit Cost Units Total Costs Deluxe model work-in process costs at the trim operation

Extrusion material (100% complete when transferred in)

$12.00

1,000

$12,000

Extrusion conversion (100% complete when transferred in)

24.50

1,000

24,500

Form material (100% complete when transferred in)

4.00

1,000

4,000

Form conversion (100% complete when transferred in)

12.00

1,000

12,000

Trim material (100% complete) 3.00 1,000 3,000 Trim conversion (60% complete) 13.80 600* 8,280 Work-in-process costs $63,780 *1,000 units × 60% complete

17-48

17-43 (20 min.) Equivalent-unit computations, benchmarking, ethics. 1. The reported monthly cost per equivalent unit of either direct materials or conversion costs is lower when the plant manager overestimates the percentage of completion of ending work in process; the overestimate increases the denominator and, thus, decreases the cost per equivalent unit. The plant manager has two motivations to report lower cost per equivalent unit numbers: (1) to get a bonus and (2) to be recognized in the company newsletter. 2. While the plant controller has responsibility for preparing the accounting reports for the plant, in most cases, the plant controller reports directly to the plant manager. If this reporting relationship exists, Major may create a conflict of interest situation for the plant controller. Only if the plant controller reports directly to the corporate controller, and indirectly to the plant manager, should Major show the letters to the plant controller without simultaneously showing them to the plant manager. 3. The plant controller’s ethical responsibilities to Major and to Leisure Suits are the same.

These include: Competence: The plant controller is expected to have the competence to make

equivalent unit computations. This competence does not always extend to making estimates of the percentage of completion of a product. In Leisure Suits’s case,

however, the products are probably easy to understand and observe. Hence, a plant controller could obtain reasonably reliable evidence on percentage of completion at a plant.

Objectivity: The plant controller should not allow the possibility of the plant being written about favorably in the company newsletter to influence the way equivalent unit costs are computed. The plant controller has a responsibility to communicate information fairly and objectively.

4. Major could seek evidence on possible manipulations as follows:

a. Have plant controllers report detailed breakdowns on the stages of production and then conduct end-of-month audits to verify the actual stages completed for ending work in process.

b. Examine trends in ending work in process. Divisions that report low amounts of ending work in process relative to total production are not likely to be able to greatly affect equivalent unit cost amounts by manipulating percentage of completion estimates. Divisions that show sizable quantities of total production in ending work in process are more likely to be able to manipulate equivalent cost computations by manipulating percentage of completion estimates.

17-49

17-44 (45 min.) Transferred-in costs, equivalent unit costs, working backward. 1. The equivalent units of work done in the current period for each cost category are computed in Solution Exhibit 17-44B using data on costs added in current period and cost per equivalent unit of work done in current period. Transferred- Direct Conversion In Costs Materials Costs Costs added in current period $58,500 $57,000 $57,200 Divided by cost per equivalent unit of work done in current period $6.50 $3 $5.20 Equivalent units of work done in current period 9,000 19,000 11,000 2. Physical units completed Physical units in beginning Physical Physical units in ending

and transferred out work in process units added work in process

= 15,000 + 9,000 5,000 = 19,000 Solution Exhibit 17-44A shows the equivalent units of work done in June to complete beginning work in process and the equivalent units of work done in June to start and complete 4,000 units. Note that direct materials in beginning work in process is 0% complete because it is added only when the process is 80% complete and the beginning WIP is only 60% complete. We had calculated the total equivalent units of work done in the current period in requirement 1: transferred-in costs, 9,000; direct materials, 19,000; and conversion costs, 11,000. The missing number is the equivalent units of each cost category in ending work in process (see Solution Exhibit 17-44A).

Transferred-in costs 5,000 Direct materials 0 Conversion costs 1,000

3. Percentage of completion for each cost category in ending work in process can be calculated by dividing equivalent units in ending work in process for each cost category by physical units of work in process (5,000 units).

Transferred-in costs 5,000 5,000 = 100% Direct materials 0 5,000 = 0% Conversion costs 1,000 5,000 = 20%

4. Solution Exhibit 17-44B summarizes the total costs to account for, and assigns these costs to units completed and transferred out and to units in ending work in process.

17-50

SOLUTION EXHIBIT 17-44A Steps 1 and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units; FIFO Method of Process Costing, Thermo-assembly Department of Lennox Plastics for June 2007.

(Step 1) (Step 2)

Equivalent Units


Units Transferred-

in Costs Direct



15,000 9,000 24,000


Completed and transferred out during current period: From beginning work in process§ 15,000 (100% 100%); 15,000 (100% 0%); 15,000 (100% 60%)

15,000

0

15,000

6,000 Started and completed 4,000 100%; 4,000 100%; 4,000 100%

4,000† 4,000

4,000

4,000

Work in process, ending* (given) 5,000 100%; 5,000 0%; 5,000 20%

5,000

5,000

0

1,000

Accounted for 24,000 Work done in current period only (from Solution Exhibit 17-44B)

9,000

19,000

11,000

§Degree of completion in this department: transferred-in costs, 100%; direct materials, 0%;

conversion costs, 60%. †19,000 physical units completed and transferred out minus 15,000 physical units completed and transferred out

from beginning work-in-process inventory. *Degree of completion in this department: transferred-in costs, 100%; direct materials, 0%; conversion costs, 20%.

17-51

SOLUTION EXHIBIT 17-44B Steps 3, 4, and 5: Compute Cost per Equivalent Unit, Summarize Total Costs to Account For, and Assign Total Costs to Units Completed and to Units in Ending Work in Process; FIFO Method of Process Costing, Thermo-assembly Department of Lennox Plastics for June 2007. Total

Production Costs

Transferred

-in Costs

Direct

Materials

Conversion

Costs Work in process, beginning ($90,000 + $0 + $45,000)

$135,000


(Step 3) Costs added in current period (given) 172,700 $58,500 $57,000 $57,200 Divide by equivalent units of work done in current period

9,000

19,000

11,000

Cost per equiv. unit of work done in current period $ 6.50 $ 3 $ 5.20 (Step 4) Total costs to account for $307,700 (Step 5) Assignment of costs: Completed and transferred out (19,000 units):

Work in process, beginning (15,000 units) Costs added to beg. work in process in current period

$135,000 76,200

(0* $6.50) + (15,000* $3) + (6,000* $5.20)

Total from beginning inventory Started and completed (4,000 units) Total costs of units completed & transferred out Work in process, ending (5,000 units) Total costs accounted for

211,200 58,800 270,000 37,700 $307,700

(4,000† $6.50) + (4,000† $3) + (4,000† $5.20) (5,000# $6.50) + (0# $3) + (1,000# $5.20)

*Equivalent units used to complete beginning work in process from Solution Exhibit 17-44A, Step 2. †Equivalent units started and completed from Solution Exhibit 17-44A, Step 2. #Equivalent units in work in process, ending from Solution Exhibit 17-44A, Step 2.

17-52

Chapter 17 Video Case The video case can be discussed using only the case writeup in the chapter. Alternatively, instructors can have students view the videotape of the company that is the subject of the case. The videotape can be obtained by contacting your Prentice Hall representative. The case questions challenge students to apply the concepts learned in the chapter to a specific business situation. NANTUCKET NECTARS: Process Costing 1. In a process-costing system, the unit cost of a product or service is obtained by assigning total costs to many identical or similar units, in this case, single-serve juice beverage bottles. 2.

Direct Material Item Stage in Production Process Raw ingredients for juices (water, cane sugar, fruit juice concentrates, etc.)

Beginning

Bottles and caps Middle Labels, cardboard trays, shrink-wrap End

3. Conversion costs include labor associated with the production line, depreciation on production equipment, plant utilities, plant maintenance costs, and plant property taxes. 4. In the process described for the manufacture of Nantucket Nectars juices, there is no partially completed inventory, as the product is mixed and bottled within a few hours each production day. Accordingly, the calculation of equivalent units in this case makes little sense. As there is no partially completed ending inventory, there will be no difference between the cost of the units transferred out under the weighted average or FIFO methods.

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