Professional Documents
Culture Documents
4-2
4-3
4-4
4-5
McGraw-Hill/Irwin
Inc.
Managerial Accounting, 5/e
4-6
4-7
XXX
XXX
(b) Journal entry to record transfer of goods from the first to the second department
in the production sequence:
Work-in-Process Inventory: Department B....................
Work-in-Process Inventory: Department A..........
XXX
XXX
4-8
Transferred-in costs are the costs assigned to partially completed products that have
been transferred from one production department into the next department.
4-9
The $175,000 of transferred-in costs were incurred prior to January 1 and in the
mixing department. The costs must have been incurred prior to January 1, because
they are included in the cost of the beginning work-in-process inventory on that
date. Moreover, these costs must have been incurred in the mixing department,
because they have been transferred into the cooking department.
4-10
The name ''weighted-average method'' comes from the fact that the cost per
equivalent unit computed under this method is a weighted average of costs incurred
during the current period and costs incurred during prior periods.
McGraw-Hill/Irwin
Inc.
4-2
4-11
The difference between normal and actual costing lies in the calculation of the
manufacturing-overhead cost of the current period. Under actual costing, the
manufacturing-overhead cost of the current period is the actual overhead cost
incurred during the period. Under normal costing, the current-period manufacturing
overhead is computed as the product of the predetermined overhead rate and the
actual level of the cost driver used to apply manufacturing overhead.
4-12
If manufacturing overhead were applied according to some activity base (or cost
driver) other than direct labor, then direct-labor costs and manufacturing-overhead
costs would be accounted for separately instead of being combined into one
account called "conversion costs." Thus, instead of two columns for direct-material
and conversion costs, there would be three columns: direct material, direct labor,
and manufacturing overhead.
4-13
4-14
4.15
There is no direct material in the March 1 work in process for the stitching
department because direct material (rawhide lacing) is added at the end of the
process in that department.
McGraw-Hill/Irwin
Inc.
Managerial Accounting, 5/e
SOLUTIONS TO EXERCISES
EXERCISE 4-16 (10 MINUTES)
The general formula for all three cases is the following:
Work-in-process,
beginning
Units started
during month
Units completed
during month
Work-in-process,
ending
12,000 units
2.
5,300 kilograms
3.
750,000 gallons
McGraw-Hill/Irwin
Inc.
4-4
2.
4,000
2,000
6,000
100%
20%
4,000
2,000
_____
(a) 6,000
4,000
400
____
(b) 4,400
2,710,000
240,000
2,950,000
100%
80%
2,710,000
240,000
________
2,950,000
2,710,000
192,000
________
2,902,000
125,000
15,000
140,000
100%
70%
100%
30%
125,000
10,500
______
135,500
125,000
4,500
_______
129,500
McGraw-Hill/Irwin
Inc.
4-6
McGraw-Hill/Irwin
Inc.
Managerial Accounting, 5/e
$10.40
numberofunits toalcostper
transfer dout equivalentunit
2.
Total
$138,400
436,800
$575,200
50,000$10.40
$520,000
..........................................................
55,200
$575,200
Direct
Material
60,000
McGraw-Hill/Irwin
Inc.
4-8
Conversion
52,000
McGraw-Hill/Irwin
Inc.
Managerial Accounting, 5/e
(50,000)
10,000
(50,000)
2,000
Total
$22,500
281,600
$304,100
$3.10
numberofunits toalcostper
transfer dout equivalentunit
2.
90,000$3.10
$279,000
............................................................
$21,000
4,100
25,100
$304,100
Conversion
110,000
(90,000)
20,000
McGraw-Hill/Irwin
Inc.
Managerial Accounting, 5/e
92,000
(90,000)
2,000
Accumulated
by
department
Conversion costs:
Direct-labor
Manufacturing
overhead
Work-in-Process Inventory:
Finishing Department
Batch P25
Accumulated
by
batch
Batch S33
Directmaterial
costs
Work-in-Process Inventory:
Packaging Department
Batch P25
Finished-Goods Inventory
McGraw-Hill/Irwin
Inc.
4-12
Scholastic
$21.00
-07.50
6.00
.50
$35.00
-0-
$11.25
7.50
6.00
-0-
$24.75
*The two production departments each worked on a total of 6,000 balls, but the Packaging
Department handled only the 2,000 professional balls.
3.
Journal entries:
Work-in-Process Inventory: Preparation Department..........
Raw-Material Inventory..................................................
39,500*
39,500
45,000*
45,000
45,000*
45,000
129,500*
129,500
McGraw-Hill/Irwin
Inc.
Managerial Accounting, 5/e
36,000*
36,000
66,500*
99,000
165,500
3,500
2,500*
1,000
Finished-Goods Inventory......................................................
Work-in-Process Inventory: Packaging Department...
70,000*
70,000
McGraw-Hill/Irwin
Inc.
4-14
2.
3.
4.
1,090,000
900,000
725,000
Finished-Goods Inventory.....................................................
Work-in-Process Inventory: Finishing Department...
400,000
McGraw-Hill/Irwin
Inc.
Managerial Accounting, 5/e
70,000
340,000
680,000
900,000
25,000
280,000
420,000
400,000
SOLUTIONS TO PROBLEMS
PROBLEM 4-27 (50 MINUTES)
1.
2.
Physical
Units
200,000
1,000,000
1,200,000
900,000
300,000
1,200,000
Equivalent units:
McGraw-Hill/Irwin
Inc.
4-16
Percentage
of
Completion
with
Physical Respect to
Units
Conversion
200,000
80%
1,000,000
1,200,000
900,000
300,000
1,200,000
100%
50%
Equivalent Units
Direct
Material Conversion
900,000
300,000
________
1,200,000
900,000
150,000
________
1,050,000
Conversion cost
Conversion cost
Direct
Material
Conversion
Total
a
$ 200,000 $504,000 $ 704,000
1,300,000 3,192,000b 4,492,000
$1,500,000 $3,696,000 $5,196,000
1,200,000
1,050,000
c
$1.25
$3.52d
$4.77e
=
=
=
=
=
=
=
=
160%direct labor
160%$1,995,000
$3,192,000
McGraw-Hill/Irwin
Inc.
Managerial Accounting, 5/e
numberofunits toalcostper
t ransfer dout equivalentunit
900,000$4.77
$4,293,000
300,000$1.25
$375,000
..........................................................
numberof costper
equivalent equivalent
unitsof unitof
directmaterial directmaterial
McGraw-Hill/Irwin
Inc.
4-18
.............................................................
Conversion:
numberof costper
equivalent equivalent
unitsof unitof
conversion conversion
150,000$3.52
528,000
$903,000
$4,293,000
903,000
$5,196,000
Physical
Units
50,000
200,000
250,000
190,000
60,000
250,000
2.
Percentage
of
Completion
with
Physical Respect to
Units
Conversion
50,000
40%
200,000
250,000
190,000
60,000
250,000
100%
60%
Equivalent Units
Direct
Material Conversion
190,000
60,000
190,000
36,000
250,000
226,000
3.
Work in process, June 1................
Costs incurred during June..........
Total costs to account for.............
Equivalent units.............................
Costs per equivalent unit..............
McGraw-Hill/Irwin
Inc.
4-20
Direct
Material
$120,000
492,500
$612,500
250,000
$2.45
Conversion
$34,400
349,800
$384,200
226,000
$1.70
Total
$154,400
842,300
$996,700
$4.15
numberofunits toalcostper
transfer dout equivalentunit
190,000$4.15
$788,500
60,000$2.45
$147,000
............................................................
numberof costper
e quivalent equivalent
units of unitof
direct material direct material
............................................................
McGraw-Hill/Irwin
Inc.
Managerial Accounting, 5/e
Conversion:
numberof costper
equivalent equivalent
unitsof unitof
conversion conversion
36,000$1.70
61,200
....................................................................
$208,200
$788,500
208,200
$996,700
McGraw-Hill/Irwin
Inc.
4-22
45,000
50,000
56,000
$ 79,800
371,850
13.20
1,072,500
123,750
McGraw-Hill/Irwin
Inc.
Managerial Accounting, 5/e
50,000
15,000
65,000
100%
40%
50,000
15,000
_____
65,000
50,000
6,000
_____
56,000
Direct
Material
$164,400
371,850
$536,250
65,000
$8.25*
Conversion
$79,800
659,400
$739,200
56,000
$13.20
Total
$ 244,200
1,031,250
$1,275,450
$21.45**
numberofunits toalcostper
t ransfer dout equivalentunit
50,000$21.45
$1,072,500
....................................................................
McGraw-Hill/Irwin
Inc.
4-24
numberof costper
equivalent equivalent
unitsof unitof
directmaterial directmaterial
15,000$8.25
$123,750
6,000$13.20
79,200
......................................................................
Conversion:
numberof costper
equivalent equivalent
unitsof unitof
conversion conversion
............................................................................
McGraw-Hill/Irwin
Inc.
Managerial Accounting, 5/e
$202,950
$1,072,500
2002 The McGraw-Hill Companies,
4- 25
202,950
$1,275,450
a.
Physical
Units
Work in process, May 1.................... 25,000
Units started during May.................. 30,000
Total units to account for................. 55,000
Units completed and
transferred out during May.......... 35,000
Work in process, May 31.................. 20,000
Total units accounted for................. 55,000
Total equivalent units.......................
Percentage
of
Completion
with
Respect to
Conversion
40%
100%
80%
Equivalent Units
Direct
Material Conversion
35,000
20,000
_____
55,000
35,000
16,000
_____
51,000
b.
Direct
Material
Conversion
$308,000
55,000
$2,483,700
51,000
$5.60
$48.70
Total
$54.30*
McGraw-Hill/Irwin
Inc.
4-26
numberofunits toalcostper
t ransfer dout equivalentunit
35,000 $54.30
$1,900,500
number of costper
equivalent equivalent
unitsof unitof
directmaterial directmaterial
......................20,000 $5.60
$112,000
Conversion:
McGraw-Hill/Irwin
Inc.
Managerial Accounting, 5/e
numberof costper
equivalent equivalent
unitsof unitof
conversion conversion
2.
...............................16,000 $48.70
779,200
$891,200
$1,900,500
891,200
$2,791,700
Journal entry:
Finished-Goods Inventory...............................................
1,900,500
1,900,500
Work-in-Process Inventory.................................................................
McGraw-Hill/Irwin
Inc.
4-28
1,900,500
Physical
Units
10,000
100,000
110,000
Physical
Units
Work in process, April 1...................10,000
Units started during April.................
100,000
Total units to account for.................
110,000
Units completed and
transferred out during April.........80,000
Work in process, April 30
30,000
Total units accounted for.................
110,000
Total equivalent units.......................
Percentage
of
Completion
with
Respect to
Conversion
20%
100%
33 1/3%
Equivalent Units
Direct
Material Conversion
80,000
30,000
______
110,000
80,000
10,000
_____
90,000
3.
Direct
Material
Work in process, April 1.....................................
$22,000
Costs incurred during April...............................
198,000
Total costs to account for..................................
$220,000
Equivalent units..................................................
110,000
Costs per equivalent unit...................................$2.00
McGraw-Hill/Irwin
Inc.
Managerial Accounting, 5/e
Conversion
Total
$4,500 $26,500
158,400 356,400
$162,900 $382,900
90,000
$1.81
$3.81
numberofunits toalcostper
t ransfer dout equivalentunit
80,000$3.81
$304,800
.....................................................................
numberof costper
equivalent equivalent
unitsof unitof
directmaterial directmaterial
30,000$2.00
$60,000
......................................................................
Conversion:
McGraw-Hill/Irwin
Inc.
4-30
numberof costper
equivalent equivalent
unitsof unitof
conversion conversion
10,000$1.81
18,100
............................................................................
$78,100
$304,800
78,100
$382,900
McGraw-Hill/Irwin
Inc.
Managerial Accounting, 5/e
Physical
Units
Work in process, August 1............... 40,000
Units started during August............. 80,000
Total units to account for................. 120,000
Units completed and transferred
out during August......................... 100,000
Work in process, August 31............. 20,000
Total units accounted for................. 120,000
Total equivalent units.......................
Percentage
of
Completion
with
Respect to
Conversion
80%
100%
30%
Equivalent Units
Direct
Material Conversion
100,000
20,000
______
120,000
100,000
6,000
______
106,000
2.
Direct
Material
Conversion
$138,000
120,000
$1,089,680
106,000
$1.15
$10.28
Total
$11.43*
McGraw-Hill/Irwin
Inc.
4-32
numberofunits toalcostper
t ransfer dout equivalentunit
McGraw-Hill/Irwin
Inc.
Managerial Accounting, 5/e
100,000$11.43
$1,143,000
..................................................................
numberof costper
equivalent equivalent
unitsof unitof
directmaterial directmaterial
20,000$1.15
$23,000
......................................................................
Conversion:
McGraw-Hill/Irwin
Inc.
4-34
numberof costper
equivalent equivalent
unitsof unitof
conversion conversion
5.
6,000$10.28
61,680
............................................................................
$84,680
$1,143,000
84,680
$1,227,680
Journal entry:
Finished-Goods Inventory................................................
Work-in-Process Inventory.....................................
McGraw-Hill/Irwin
Inc.
Managerial Accounting, 5/e
1,143,000
1,143,000
2.
Goods completed during April cost $1,872,000 (24,000 units x $78) as the following
calculations show:
Physical
Units
Percentage
Of
Completion
With
Respect to
Conversion
4,000
25,000
29,000
75%
24,000
5,000
29,000
100%
40%
McGraw-Hill/Irwin
Inc.
4-36
Equivalent Units
Direct
Material Conversion
24,000
5,000
24,000
2,000
29,000
26,000
Direct
Material
Conversion
Total
$ 220,000
1,404,000
$1,624,000
29,000
$56a
$ 66,000
506,000
$572,000
26,000
$22b
$ 286,000
1,910,000
$2,196,000
$78c
3.
4.
(a)
No material would be added during May. All material is introduced at the start
of Goodsons manufacturing process, and these units were begun in April.
(b)
Since the work-in-process inventory is 40% complete at the end of April, 60%
of the conversion would be done in May.
5.
Given that the ending work-in-process inventory is at the 40% stage of completion,
these units would not have reached the 70% point in April where HH887 is added.
Therefore, there would be zero equivalent units with respect to part HH887 in the
ending work-in-process inventory.
McGraw-Hill/Irwin
Inc.
Managerial Accounting, 5/e
The ending work-in-process inventory consisted of 500 units (300 + 900 700).
2.
The cost of goods completed during June totaled $57,400 (700 units x $82):
Percentage
Of
Completion
Equivalent Units
With
Respect to
Direct
Conversion Material Conversion
Physical
Units
Work in process, June 1.
Units started during June..
Total units to account for...
300
900
1,200
30%
700
500
1,200
100%
60%
700
500
700
300
1,200
1,000
Direct
Material
Conversion
Total
$15,000
45,000
$60,000
1,200
$50a
$ 6,300
25,700
$32,000
1,000
$32b
$21,300
70,700
$92,000
$82c
Finished-Goods Inventory
57,400
Work-in-Process Inventory.
3.
57,400
McGraw-Hill/Irwin
Inc.
4-38
Equivalent units measure the amount of manufacturing activity (i.e., for direct
material or conversion) that has been applied to a batch of physical units. If, for
example, a company has 600 physical units in process that are 40% complete as to
conversion, the firm has done the equivalent amount of conversion activity as would
be required to do all of the conversion work for 240 units (600 x 40%).
Equivalent units are needed to state manufacturing activity on a common
measurement scale. One cannot add completed units to units in process. Such a
combination is like adding apples and oranges, as some units are complete and
some are incomplete. Instead, these units are first converted to equivalent units,
and the latter are then used in unit-cost calculations.
McGraw-Hill/Irwin
Inc.
Managerial Accounting, 5/e
15,000
65,000
71,000
$37,500
570,000
12.25
1,407,250
94,000
McGraw-Hill/Irwin
Inc.
4-40
65,000
10,000
75,000
100%
60%
65,000
10,000
_____
75,000
65,000
6,000
_____
71,000
Direct
Material
$135,000
570,000
$705,000
75,000
$9.40*
Conversion
$37,500
832,250
$869,750
71,000
$12.25
Total
$172,500
1,402,250
$1,574,750
$21.65**
McGraw-Hill/Irwin
Inc.
Managerial Accounting, 5/e
numberofunits toalcostper
t ransfer dout equivalentunit
.................................................................. 65,000$21.65
$1,407,250
numberof costper
equivalent equivalent
unitsof unitof
directmaterial directmaterial
....................................................................
10,000$9.40
$94,000
Conversion:
McGraw-Hill/Irwin
Inc.
4-42
numberof costper
equivalent equivalent
unitsof unitof
conversion conversion
6,000$12.25
73,500
$167,500
..........................................................................
McGraw-Hill/Irwin
Inc.
Managerial Accounting, 5/e
$1,407,250
167,500
$1,574,750
a.
Tax
Returns
(physical
units)
Returns in process, February 1...... 200
Returns started in February........... 825
Total returns to account for............ 1,025
Returns completed
during February......................... 900
Returns in process, February 28.... 125
Total returns accounted for............ 1,025
Total equivalent units of activity....
Percentage
of
Completion
with Respect
to
Conversion
(labor and
overhead)
25%
100%
80%
Equivalent Units
Labor
Overhead
900
100
____
1,000
900
100
____
1,000
Overhead
2,500
45,000
47,500
1,000
47.50
Total
8,500
134,000
142,500
b.
Returns in process, February 1...................
Costs incurred during February..................
Total costs to account for............................
Equivalent units............................................
Costs per equivalent unit.............................
2.
Labor
6,000
89,000
95,000
1,000
95.00
142.50
McGraw-Hill/Irwin
Inc.
4-44
9,500
4,750
14,250
Physical
Units
4,000
16,000
20,000
15,000
5,000
20,000
Percentage
of
Completion
with
Respect to
Conversion
75%
100%
20%
Equivalent Units
Direct
Material
Conversion
15,000
5,000
____ _
20,000
Direct
Material
Conversion
$22,800
$ 46,510
81,600*
196,690
$104,400
$ 243,200
20,000
16,000
$5.22
$15.20
15,000
1,000
_ ____
16,000
Total
$69,310
278,290
$347,600
$20.42
McGraw-Hill/Irwin
Inc.
Managerial Accounting, 5/e
numberofunits toalcostper
t ransfer dout equivalentunit
..................................................................15,000$20.42
$306,300
numberof costper
equivalent equivalent
unitsof unitof
directmaterial directmaterial
...................................................................... 5,000$5.22
$26,100
Conversion
McGraw-Hill/Irwin
Inc.
4-46
numberof costper
equivalent equivalent
unitsof unitof
conversion conversion
.......................................................................... 1,000$15.20
2.
$306,300
41,300
$347,600
81,600
103,350
93,340*
15,200
$41,300
81,600
103,350
93,340
McGraw-Hill/Irwin
Inc.
Managerial Accounting, 5/e
306,300
306,300
The unit costs and total costs for each of the products manufactured by Plasto
Corporation during the month of May are calculated as follows:
Units produced.....................
Material costs.......................
Unit material cost..........
Conversion costs*................
Unit conversion cost.....
Extrusion
16,000
$192,000
12.00
392,000
24.50
Form
11,000
$ 44,000
4.00
132,000
12.00
Trim
5,000
$15,000
3.00
69,000
13.80
Finish
2,000
$12,000
6.00
42,000
21.00
McGraw-Hill/Irwin
Inc.
4-48
Plastic
Sheets
Standard
Model
Deluxe
Model
Executive
Model
$12.00
$12.00
4.00
$12.00
4.00
3.00
$12.00
4.00
3.00
6.00
24.50
24.50
12.00
_
$36.50
5,000
$182,500
_
$52.50
6,000
$315,000
24.50
12.00
13.80
_
$69.30
3,000
$207,900
24.50
12.00
13.80
21.00
$96.30
2,000
$192,600
Journal entries:
Work-in-Process Inventory: Extrusion..............................
Raw-Material Inventory............................................
Applied Conversion Costs.......................................
584,000
Finished-Goods Inventory.................................................
Work-in-Process Inventory: Extrusion...................
182,500
577,500
McGraw-Hill/Irwin
Inc.
Managerial Accounting, 5/e
192,000
392,000
182,500
401,500
44,000
132,000
315,000
346,500
Finished-Goods Inventory.................................................
Work-in-Process Inventory: Trimming....................
207,900
192,600
Finished-Goods Inventory.................................................
Work-in-Process Inventory: Finishing....................
192,600
McGraw-Hill/Irwin
Inc.
4-50
315,000
262,500
15,000
69,000
207,900
138,600
12,000
42,000
192,600
$38,000 $230,000
11,000 4,000 5,000
*Note that all of the products sold after processing in departments I, II, or III were
produced orginally in department I.
2.
$22,000 $68,000
4,000 5,000
*Note that all of the products sold after processing in departments II and III were
colored in department II.
3.
$450,000
$13.40
20,000
McGraw-Hill/Irwin
Inc.
Managerial Accounting, 5/e
$35.90
direct material
conversion cost per
+ per unit in department II + unit in department II
$72,000
$10.00
9,000
5.
$38,000 $73,750
5,000
Conversion costs:
Direct labor...................................
Manufacturing overhead...............
Total conversion cost...................
Total units produced:
Rolling only............................
Rolling, molding, punching
Rolling, molding, punching,
dipping...............................
Conversion cost per unit..............
McGraw-Hill/Irwin
Inc.
4-52
Rolling
$300,000
450,000
$750,000
Molding
$112,000
168,000
$280,000
Punching
$128,000
192,000
$320,000
8,000
8,000
Dipping
$ 45,000
67,500
$112,500
20,000
3,000
$37.50
$35.00
$40.00
$37.50
Product costs:
Ceralam
Sheets
Sold
after
Rolling
Direct material:
Ceralam sheets....................
Chemical dip........................
Conversion costs:
Rolling..................................
Molding................................
Punching..............................
Dipping................................
Total cost....................................
Units manufactured....................
Unit cost......................................
Nonreflective
Ceralam
Housings
Reflective
Ceralam
Housings
Total
Costs
$480,000
$200,000
$120,000
30,000
$ 800,000
30,000
450,000a
187,500a
175,000b
200,000c
________
$762,500
5,000
$152.50
112,500a
105,000b
120,000c
112,500d
$600,000
3,000
$200.00
750,000
280,000
320,000
112,500
$2,292,500
_______
$930,000
12,000
$77.50
3.
Journal entries:
Work-in-Process Inventory: Rolling................................................
1,550,000
Raw-Material Inventory..........................................................
Applied Conversion Costs.....................................................
800,000*
750,000
McGraw-Hill/Irwin
Inc.
Managerial Accounting, 5/e
Finished-Goods Inventory...............................................................
930,000*
Work-in-Process Inventory: Rolling......................................
930,000
930,000
620,000
280,000
900,000
320,000
McGraw-Hill/Irwin
Inc.
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762,500
762,500
457,500
30,000*
112,500
600,000
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Inc.
Managerial Accounting, 5/e
600,000
a.
b.
11,900
_ $9.00
$107,100
1,400
14,000
15,400
11,900
3,500
Direct material.....................................................
3,500
$1.00
=
3,500
Conversion..........................................................
$3.00
=
4,200
3,50040%
Total cost of May 31 work-in-process inventory..............................................
$25,200
2.
15,400
$5.00
$77,000
6,750
$70,250
McGraw-Hill/Irwin
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70,250
SOLUTIONS TO CASES
CASE 4-42 (45 MINUTES)
1.
2.
3.
4.
These answers are supported by the following process-costing schedules. The firm's cost
per belt used for planning and control, $5.35, is substantially lower than the actual cost per
belt incurred in October, $6.10. Management should investigate this situation to determine
whether production costs can be reduced. If not, then the cost used for planning and
control purposes should be changed to reflect the firm's actual experience.
CALCULATION OF EQUIVALENT UNITS: LAREDO LEATHER CO. - DALLAS PLANT
Weighted-Average Method
Percentage
of
Completion
with
Equivalent Units
Physical
Respect to
Direct
Units
Conversion
Material Conversion
Work in process, October 1.............
400
25%
Units started during October...........
7,600
Total units to account for.................
8,000
Units completed and transferred
out during October.........................
Work in process, October 31...........
Total units accounted for.................
Total equivalent units.......................
McGraw-Hill/Irwin
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Managerial Accounting, 5/e
7,000
1,000
8,000
100%
50%
7,000
1,000
7,000
500
8,000
7,500
numberofunits toalcostper
t ransfer dout equivalentunit
7,000$6.10
$42,700
..................................................................
McGraw-Hill/Irwin
Inc.
4-58
numberof costper
equivalent equivalent
unitsof unitof
directmaterial directmaterial
1,000$3.30
$3,300
500$2.80
1,400
......................................................................
Conversion:
numberof costper
equivalent equivalent
unitsof unitof
conversion conversion
............................................................................
McGraw-Hill/Irwin
Inc.
Managerial Accounting, 5/e
$4,700
$42,700
4,700
$47,400
If the units were 60 percent complete as of October 31, there would be 7,600
equivalent units with respect to conversion. (To see this, just change the 500 in the
right-hand column of the table in the solution to requirement (4) to 600. This
changes the last number in the right-hand column from 7,500 to 7,600.)
Now the unit cost of conversion drops from $2.80, as currently computed,
to $2.76 (rounded, $21,000 7,600). Thus, the unit cost drops from $6.10 to $6.06
(rounded).
As controller, Jeff Daley has an ethical obligation to refuse his friend's
request to alter the estimate of the percentage of completion. What Daley can do is
to help Murray think of some legitimate ways to bring about real cost reductions.
Several ethical standards for management accountants (listed in Chapter 1) apply
in this situation. Among the relevant standards are the following:
Competence:
McGraw-Hill/Irwin
Inc.
4-60
36,000
-036,000
100%
Direct
Material
-0$265,680
$265,680
36,000
$7.38
36,000
-0_____
36,000
Conversion
-0$86,400
$86,400
36,000
$2.40
36,000
-0-
_____
36,000
Total
-0$352,080
$352,080
$9.78
McGraw-Hill/Irwin
Inc.
Managerial Accounting, 5/e
numberofunits toalcostper
t ransfer dout equivalentunit
36,000$9.78
....................................................................
McGraw-Hill/Irwin
Inc.
4-62
$352,080
-0-
$352,080
-0$352,080
35,600
2,000
37,600
100%
50%
35,600
2,000
_____
37,600
Transferred
In
$13,850
352,080*
$365,930
37,600
$9.7322
Conversion
$3,750
85,920
$89,670
36,600
$2.45
35,600
1,000
_____
36,600
Total
$17,600
438,000
$455,600
$12.1822
*Cost of goods completed and transferred out of Grading Department during November,
under the weighted-average method.
McGraw-Hill/Irwin
Inc.
Managerial Accounting, 5/e
numberofunits toalcostper
t ransfer dout equivalentunit
35,600$12.1822
$433,686
..................................................................
McGraw-Hill/Irwin
Inc.
4-64
unitsof equivalent
transfer ed-incost unit
2,000$9.7322
$19,464
1,000$2.45
2,450
.............................................................
Direct material:
None
Conversion:
numberof conversion
equivalent costper
unitsof equivalent
conversion unit
............................................................................
McGraw-Hill/Irwin
Inc.
Managerial Accounting, 5/e
$21,914
$433,686
21,914
$455,600
Rounded
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McGraw-Hill/Irwin
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Managerial Accounting, 5/e
2. Oil companies would use process costing since they produce large quantities of
relatively homogeneous products.
ISSUE 4-47
GEORGIA-PACIFIC PROFIT DECLINES BY 43 PERCENT: SLUGGISH BUILDING PRODUCTS
SECTOR CITED, THE WALL STREET JOURNAL, OCTOBER 19, 2000, BETSY MCKAY.
1. Georgia-Pacific would use process costing since the company produces large
quantities of relatively homogeneous products.
2. Lower prices for building materials would not directly affect the companys
product costs, but lower prices would pressure management to attempt to
reduce product costs in order to remain price competitive in a weakening market.
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