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CHAPTER 11: PROCESS COSTING

QUESTIONS

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

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

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

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

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

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

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

11-8 The weighted-average method would be inappropriate when a firm’s beginning


and ending inventories or manufacturing costs per unit change dramatically from
period to period.

Solutions Manual 11-1


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

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

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

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


Work-in-Process Inventory -- First Department xxx

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

11-14 Under the weighted-average method, it makes no difference when a product is


started; all units completed in the same period or in the ending inventory of
that period are treated the same. In computing the equivalent units, this
method looks at only the output of the production process. In calculating the
unit cost, this method considers both the beginning work-in-process cost and
the current period cost.

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

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

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

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


EXERCISES

11-18 Physical Units (20 min)

1. Work-in-process inventory, 2/1 80,000


Units started 60,000
Total units to account for 140,000
Units completed (75,000)
Work-in-process inventory, 2/28 65,000

2. Units completed 83,000


Work-in-process inventory, 6/30 55,000
Total units accounted for 138,000
Units started (75,000)
Work-in-process Inventory, 6/1 63,000

3. Units completed 7,300


Work-in-process inventory, 9/30 3,400
Total units accounted for 10,700
Work-in-process inventory, 9/1 (5,500)
Units started 5,200

4. Work-in-process inventory, 11/1 45,000


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

Solutions Manual 11-3


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

1. Work-in-process inventory, 5/1 1,500


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

2. Equivalent units -- Weighted-Average Method


Materials:
Units completed 5,700
Work-in-process inventory, 5/31 2,300 x 50% = 1,150
Total equivalent units 6,850

Conversion:
Units completed 5,700
Work-in-process inventory, 5/31 2,300 x 30% = 690
Total equivalent units 6,390

Blocher,Chen,Cokins,Lin: Cost Management 3e 11-4 © The McGraw-Hill Companies, Inc., 2005


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

Quantity Schedule
Input
Work-in-process inventory, 1/1 30,000
Units started 150,000
Total units to account for 180,000

Output
Units completed 165,000
Work in process inventory, 12/31 15,000
Total units accounted for 180,000

Equivalent Units -- Weighted-Average Method


Materials
Units completed 165,000
Work-in-process inventory,12/31 15,000 x 70% = 10,500
Total equivalent units 175,500

Conversion:
Units completed 165,000
Work-in-process inventory,12/31 15,000 x 60% = 9,000
Total equivalent units 174,000

Solutions Manual 11-5


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

Quantity Schedule (not required)


Input
Work-in-process inventory, 9/1 3,000,000
Units started 4,850,000
Total units to account for 7,850,000

Output
Units completed 5,450,000
Work-in-process inventory, 9/30 2,400,000
Total units accounted for 7,850,000

Equivalent Units -- FIFO Method


Direct Materials
Units completed 5,450,000
Work-in-process inventory(9/30), 2,400,000 x 100% = 2,400,000
Total 7,850,000
Work-in-process inventory(9/1), 3,000,000 x 100% = (3,000,000)
Equivalent units 4,850,000

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

Blocher,Chen,Cokins,Lin: Cost Management 3e 11-6 © The McGraw-Hill Companies, Inc., 2005


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

Physical Percent Equivalent Units


Units Complete DM Conversion
Work-in-process 12/1 200 9%
Units started 900
Total units to account 1,100

Units completed
by 12/31 800 100% 800 800
Work-in-process,12/31 300 12% 300 36
Total units accounted 1,100 1,100 836

Less: equivalent units in


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

Solutions Manual 11-7


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

Physical Percent Equivalent Units


Units Complete DM Conversion
WIP, June 1 30,000 20%
Units started 50,000
Total units to account 80,000

Units completed and


transferred out 60,000 100% 60,000 60,000
WIP, June 30 20,000 70% 20,000 14,000
Total units accounted 80,000

Total 80,000 74,000


Less: EU in June 1 WIP 20% (30,000) (6,000)
FIFO equivalent units 50,000 68,000

Computation of unit costs:


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

Divided by equivalent units 50,000 68,000


Cost per equivalent unit $6.90 $3.00 $3.90

Blocher,Chen,Cokins,Lin: Cost Management 3e 11-8 © The McGraw-Hill Companies, Inc., 2005


11-24 Journal Entries (10 min)

1. Work-in-Process Inventory - Department 1 555,000


Materials Inventory 55,000
Accrued Payroll 160,000
Factory Overhead Applied 340,000

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


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

3. Work-in-Process Inventory - Department 2 602,000


Materials Inventory 32,000
Accrued Payroll 320,000
Factory Overhead Applied 250,000

4. Finished Goods Inventory 740,000


Work-in-Process Inventory - Department 2 740,000

Solutions Manual 11-9


11-25 FIFO Method (25 min)

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

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

2. Cost per equivalent unit


$148,500 / 1,350 = $110

3. Cost of completed returns


From beginning inventory, 3/1: $ 330
Added to finish the beginning
inventory: $110 x 100 x (1 - 30%) = 7,700
Total first batch $ 8,030
Second batch--started and finished:
$110 x (1,200 - 100) = 121,000
Total cost of completed returns $129,030

4. Cost of returns in process on March 31


$110 x (200 x 90%) = $19,800

Blocher,Chen,Cokins,Lin: Cost Management 3e 11-10 © The McGraw-Hill Companies, Inc., 2005


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

1. Equivalent units -- Weighted-Average Method


Direct Materials:
Units completed 1,000 + 3,000 = 4,000
Work-in-process, 11/30 2,000 x 100% = 2,000
Total equivalent units 6,000

Conversion:
Units completed 1,000 + 3,000 = 4,000
Work-in-process, 11/30 2,000 x 20% = 400
Total equivalent units 4,400

2. Equivalent Units -- FIFO Method


Direct Materials
Units completed 1,000 + 3,000 = 4,000
Work-in-process, 11/30 2,000 x 100% = 2,000
Total 6,000
Work-in-process, 11/1 1,000 x 100% = (1,000)
Equivalent units 5,000

Conversion:
Units completed 1,000 + 3,000 = 4,000
Work-in-process, 11/30 2,000 x 20% = 400
Total 4,400
Work-in-process, 11/1 1,000 x 60% = ( 600)
Equivalent units 3,800

Solutions Manual 11-11


PROBLEMS

11.27 Weighted-Average Method (25-30 min)


1. Quantity Schedule (not required)
Input
Work-in-process inventory, 3/1 0
Units started 25,000
Total units to account for 25,000

Output
Units completed 23,000
Work-in-process inventory, 3/31 2,000
Total units accounted for 25,000

Equivalent Units -- Weighted-Average Method:


Direct Materials
Units completed 23,000
Work-in-process inventory, 3/31 2,000 x 100% = 2,000
Total equivalent units 25,000

Conversion:
Units completed 23,000
Work-in-process inventory, 3/31 2,000 x 60% = 1,200
Total equivalent units 24,200

Costs per equivalent unit:


Costs Direct Materials Conversion Total
Work-in-process, 3/1 $ 0 $ 0 $ 0
Costs added 162,500 133,100 295,600
Total $162,500 $133,100 $295,600
Divided by EU 25,000 24,200
= Unit cost $6.50 $5.50 $12.00

2. Cost of units completed and transferred out:


$12 x 23,000 = $276,000
3. Cost of ending work-in-process:
Direct materials $6.50 x 2,000 = $ 13,000
Conversion $5.50 x 1,200 = 6,600
$ 19,600

Blocher,Chen,Cokins,Lin: Cost Management 3e 11-12 © The McGraw-Hill Companies, Inc., 2005


11-28: Weighted Average Method (20 min)
Whole
QUANTITY RECAP: PHYSICAL UNITS Units Materials Conversion
Beginning WIP 3,000 100% 50%
Units started 7,000
TOTAL IN Process 10,000
Units Finished or Trans-out 8,500
Normal spoilage -
Abnormal spoilage -
Ending WIP 1,500 100% 50%
TOTAL OUT Process 10,000

EQUIVALENT UNITS: Weighted Average


Transferred In -
Materials 10,000 =8,500+1.0 x 1,500
Conversion 9,250 =8,500+ .5 x 1,500
EQUIVALENT UNITS: FIFO
Transferred In -
Materials 7,000 =10,000-1 x 3,000
Conversion 7,750 =9,250- .5 x 3,000

COST ADDED -----This Dept-----


Trans-in Materials Conversion Total
Beginning WIP - 32,000 44,000 76,000
Current Costs - 240,000 189,000 429,000
TOTAL - 272,000 233,000 505,000

Weighted Average Cost per EU $ 27.200 $ 25.189 $ 52.389


FIFO Cost per EU $ 34.286 $ 24.387 $ 58.673

11-29 FIFO Method (20 min)


(see above)

Solutions Manual 11-13


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

1. Quantity Schedule (not required)


Input
Work-in-process inventory, 8/1 27,000
Units started 60,000
Total units to account for 87,000

Output
Units completed 70,000
Work-in-process inventory, 8/31 17,000
Total units accounted for 87,000

Equivalent Units:
Material X
Units completed 70,000
Work-in-process inventory, 8/31 17,000 x 100% = 17,000
Total equivalent units 87,000

Material Y
Units completed 70,000
Work-in-process inventory, 8/31 17,000 x 0% = 0
Total equivalent units 70,000

Conversion
Units completed 70,000
Work-in-process inventory, 8/31 17,000 x 40% = 6,800
Total equivalent units 76,800

2. Costs per equivalent unit:


Costs Material X Material Y Conversion Total
WIP, 8/1 $ 64,800 $ 89,100 $119,880 $273,780
Costs added 152,700 138,400 302,520 593,620
Total $217,500 $227,500 $422,400 $867,400
EU 87,000 70,000 76,800
Unit cost $2.50 $3.25 $5.50 $11.25

Problem 11-30: (Continued)

Blocher,Chen,Cokins,Lin: Cost Management 3e 11-14 © The McGraw-Hill Companies, Inc., 2005


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

4. Cost of ending work-in-process inventory:


Material X $2.50 x 17,000 = $ 42,500
Material Y 0
Conversion $5.50 x 6,800 = 37,400
$ 79,900

Solutions Manual 11-15


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

Equivalent Units
Direct Materials Conversion
Units completed 68,000 68,000
Work-in-process, May 31:
DM 4,000 x 100% = 4,000
CON 4,000 x 60% = 2,400
Total 72,000 70,400
Less: EU in WIP, May 1:
DM 3,000 x 100% = ( 3,000)
CON 3,000 x 40% = (1,200)
FIFO equivalent units 69,000 69,200

Cost added during May $ 172,500 $224,900*


Divided by EU 69,000 69,200
= Unit cost $2.50 $3.25

* Cost of units transferred out $393,400


Less: Cost of WIP, May 1 ( 13,800)
DM started and completed cost
$2.50 x 65,000 = ( 162,500)
Conversion cost of units completed $ 217,100

$217,100 / (3,000 x 60% + 65,000) = $3.25 Unit conversion cost


$3.25 x 69,200 = $224,900 Conversion cost added during May

Problem 11-31 (Continued)

2. Cost reconciliation:
Blocher,Chen,Cokins,Lin: Cost Management 3e 11-16 © The McGraw-Hill Companies, Inc., 2005
Cost Incurred
Work-in-process inventory, May 1 $ 13,800
Cost added during May 397,400*
Total cost to account for $411,200

* $172,500 + $224,900 = $397,400

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

Solutions Manual 11-17


11-32 Weighted-Average Method (30 min)

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

2. Cost per equivalent unit:


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

3. Cost of goods completed and transferred out:


10.0809 x 175,000 = 1,764,157.50 renminbi

4. Cost of work-in-process, 10/31:


Direct Materials:
3.9849 x 30,000 x 80% = 95,637.60 renminbi
Conversion:
6.096 x 30,000 x 40% = 73,152.00 renminbi
Total: 95,637.60 + 73,152.00 = 168,789.60 renminbi

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


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

Blocher,Chen,Cokins,Lin: Cost Management 3e 11-18 © The McGraw-Hill Companies, Inc., 2005


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

Whole Equivalent Units


QUANTITY RECAP: PHYSICAL UNITS Units Materials Conversion
Beginning WIP 4,000 0% 50%
Units started or Trans-in 21,000
TOTAL IN Process 25,000
Units Finished or Trans-out 19,000
Normal spoilage -
Abnormal spoilage -
Ending WIP 6,000 0% 50%
TOTAL OUT Process 25,000

EQUIVALENT UNITS: Weighted Average


Transferred In 25,000
Materials 19,000 = finished units + % complete x End WIP
Conversion 22,000 = finished units + % complete x End WIP

Cost Added: -----This Dept-----


Trans-in Materials Conversion Total
Beginning WIP 25,000 0 5,000 30,000
Current Costs 100,000 30,000 37,000 167,000
Total 125,000 30,000 42,000 197,000

Cost per EU $ 5.000 $ 1.579 $ 1.909 $ 8.488

COST SUMMARY - WEIGHTED AVERAGE


Finished Goods 19,000 units
Good production 161,273
Normal spoilage -
Total 161,273

Ending WIP 6,000 units


Trans-in 30,000
Materials -
Conversion 5,727
Total 35,727
Total Cost to Account For 197,000

Solutions Manual 11-19


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

Blocher,Chen,Cokins,Lin: Cost Management 3e 11-20 © The McGraw-Hill Companies, Inc., 2005


11-34 Weighted Average Method (continued)

4. The request is a violation of the controller’s responsibility to prepare


accurate production cost reports. The ethical principles of integrity and
objectivity require the controller to use the best available estimate of
percentage completion.

11-35 FIFO Method (30 min)

(see solution for 11-34 above)

Solutions Manual 11-21


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

Whole Equivalent Units


QUANTITY RECAP: PHYSICAL UNITS Units Materials Conversion
Beginning WIP 200,000 100% 80%
Units started or Trans-in 1,000,000
TOTAL IN Process 1,200,000
Units Finished or Trans-out 900,000
Normal spoilage -
Abnormal spoilage -
Ending WIP 300,000 100% 50%
TOTAL OUT Process 1,200,000

EQUIVALENT UNITS: FIFO


Materials 1,000,000 =weighted average EUs - % completion x Beginning WIP
Conversion 890,000 =weighted average EUs - % completion x Beginning WIP
Cost Added: -----This Dept-----
Materials Conversion* Total
Beginning WIP 200,000 504,000 704,000
Current Costs 1,300,000 3,192,000 4,492,000
Total 1,500,000 3,696,000 5,196,000
FIFO Cost per EU $ 1.3000 $ 3.5865 $ 4.8865
(*Note Coversion costs are labor +60% applied overhead)

COST SUMMARY - FIFO


Finished Goods 900,000 units
Prior period costs in Beginning WIP 704,000
Cost to complete Beg WIP (200,000 x .2 x $3.5865) 143,461
Cost of units started and finished (@ $4.8865) 3,420,562
Total 4,268,022

Ending WIP 300,000 units


Materials 390,000
Conversion 537,978
Total 927,978
Total Cost to Account For 5,196,000

Blocher,Chen,Cokins,Lin: Cost Management 3e 11-22 © The McGraw-Hill Companies, Inc., 2005


Problem 11-36 (continued)

Adjusting journal entries:


1. To update the amount of the ending work-in-process inventory:
Work-in-Process Inventory 267,018
Cost of Goods Sold 267,018
where $927,978 - $660,960 = $267,018

2. To update the amount of the ending finished goods inventory:


Cost of Goods Sold 16,250
Finished Goods Inventory 16,250

where $4.8865 x 100,000 = $488,650


$504,900 - $488,650 = $16,250

Solutions Manual 11-23


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

Whole Equivalent Units


QUANTITY RECAP: PHYSICAL UNITS Units Materials Conversion
Beginning WIP 4,000 100% 80%
Units started or Trans-in 15,000
TOTAL IN Process 19,000
Units Finished or Trans-out 16,000
Normal spoilage
Abnormal spoilage
Ending WIP 3,000 90% 60%
TOTAL OUT Process 19,000

EQUIVALENT UNITS: Weighted Average


Transferred In 19,000
Materials 18,700 = finished units + spoiled units + % completion x Ending WIP
Conversion 17,800 = finished units + spoiled units + % completion x Ending WIP
Cost Added: -----This Dept-----
Trans-in Materials Conversion Total
Beginning WIP 57,800 23,400 23,360 104,560
Current Costs 141,700 93,475 110,140 345,315
Total 199,500 116,875 133,500 449,875

WTAVG Cost per EU $ 10.500 $ 6.250 $ 7.500 $ 24.250

COST SUMMARY - WEIGHTED AVERAGE


Finished Goods 16,000 units
Good production (@ $24.25) 388,000
Total
Ending WIP 3,000 units
Trans-in (3,000 x $10.50) 31,500
Materials (3,000 x .9 x $6.25) 16,875
Conversion (3,000 x . 6 x $7.50) 13,500
Total 61,875

Total Cost to Account For 449,875

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


selected. On April 6, 2003, the exchange rate was $1 US = 1,257
Korean Won (KRW)

Blocher,Chen,Cokins,Lin: Cost Management 3e 11-24 © The McGraw-Hill Companies, Inc., 2005


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

1. The equivalent units of production schedule for the Packaging


Department’s October activity is as follows.
Equivalent Units
Whole Quilted Direct
Units Wrap Boxes Labor Overhead
To complete beginning
WIP inventory 10,000 10,000 6,000 6,000
Started and completed 30,000 30,000 30,000 30,000 30,000
Ending WIP inventory 10,000 10,000 10,000 8,000 8,000
Equivalent units 40,000 50,000 44,000 44,000

2. Cost per equivalent unit of October production is as follows.


October Costs / Equivalent Units = Unit Costs
Quilted Wrap $80,000 40,000 $2.00
Boxes 50,000 50,000 1.00
Direct labor 22,000 44,000 0.50
Applied overhead 66,000 44,000 1.50
Equivalent unit cost $5.00

3. If $5,000 is considered an immaterial amount for Wood Glow


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

Solutions Manual 11-25


11-39 FIFO Method (30 min)

1. Quantity Schedule (not required)


Input
Work-in-process inventory, 6/1 15,000
Units started 80,000
Total units to account for 95,000

Output
Units completed 70,000
Work-in-process inventory, 6/30 25,000
Total units accounted for 95,000

Equivalent Units -- FIFO Method:


Material A
Units completed 70,000
Work-in-process inventory, 6/30 25,000 x 100% = 25,000
Total 95,000
Less: EU in WIP inventory, 6/1 15,000 x 100% = (15,000)
Total equivalent units 80,000

Material B
Units completed 70,000
Work-in-process inventory, 6/30 25,000 x 100% = 25,000
Total 95,000
Less: EU in WIP inventory, 6/1 15,000 x 0% = ( 0)
Total equivalent units 95,000

Conversion:
Units completed 70,000
Work-in-process inventory, 6/30 25,000 x 65% = 16,250
Total 86,250
Less: EU in WIP inventory, 6/1 15,000 x 40% = ( 6,000)
Total equivalent units 80,250

Blocher,Chen,Cokins,Lin: Cost Management 3e 11-26 © The McGraw-Hill Companies, Inc., 2005


.
11-39 (Continued)

2. Costs per equivalent unit:


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

3. Cost of units transferred out:


Work-in-process inventory, June 1 $ 85,437.50
Cost to finish beginning WIP:
Material B 15,000 x $4.25 = $63,750
Conversion 15,000 x 60% x $5.75 = 51,750 115,500.00
Total $200,937.50
Cost of units started and completed:
($3.25 + $4.25 + $5.75) x (70,000 - 15,000) = 728,750.00
Cost of units transferred out $929,687.50

4. Cost of ending work-in-process inventory:


Material A $3.25 x 25,000 = $ 81,250.00
Material B $4.25 x 25,000 = 106,250.00
Conversion $5.75 x 16,250 = 93,437.50
$280,937.50

Solutions Manual 11-27


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

1. 54,000; 51,600
2. $2.4537; $6.4118; $8.8655
3. 50,000 x $8.8655 = $443,276
4. $20,074
5. 60,000; 57,000
6. $8.9213; $ 16.20
7. $1,381,670
8. $77,006

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

Blocher,Chen,Cokins,Lin: Cost Management 3e 11-28 © The McGraw-Hill Companies, Inc., 2005


11- 40 (continued)

Fabrication Department Cost Report


Whole Equivalent Units
QUANTITY RECAP: PHYSICAL UNITS Units Materials Conversion
Beginning WIP 6,000 100% 20%
Units started or Trans-in 48,000
TOTAL IN Process 54,000
Units Finished or Trans-out 50,000
Normal spoilage -
Abnormal spoilage -
Ending WIP 4,000 100% 40%
TOTAL OUT Process 54,000

EQUIVALENT UNITS: Weighted Average

Materials 54,000 = Trans out + spoiled units + % completion x End WIP


Conversion 51,600 = Trans out + spoiled units + % completion x End WIP
Cost Added:
Materials Conversion Total
Beginning WIP 15,000 20,000 35,000
Current Costs 117,500 310,850 428,350
Total 132,500 330,850 463,350

WTAVG Cost per EU $ 2.4537 $ 6.4118 $ 8.8655

COST SUMMARY - WEIGHTED AVERAGE


Transferred Out 50,000 units
Good production 443,276
Normal spoilage -
Total 443,276
Ending WIP 4,000 units
Trans-in -
Materials 9,815
Conversion 10,259
Total 20,074
Total Cost to Account For 463,350

Solutions Manual 11-29


Problem 11-40 (continued)

Cost Report for Assembly Department

Whole Equivalent Units


QUANTITY RECAP: PHYSICAL UNITS Units Materials Conversion
Beginning WIP 10,000 0% 40%
Units started or Trans-in 50,000
TOTAL IN Process 60,000
Units Finished or Trans-out 55,000
Normal spoilage -
Abnormal spoilage -
Ending WIP 5,000 0% 40%
TOTAL OUT Process 60,000

EQUIVALENT UNITS: Weighted Average


Transferred In 60,000

Conversion 57,000 = Trans out + spoiled units + % completion x End WIP


Cost Added: -----This Dept-----
Trans In Materials Conversion Total
Beginning WIP 92,000 - 200,000 292,000
Current Costs 443,276 - 723,400 1,166,676
Total 535,276 - 923,400 1,458,676

WTAVG Cost per EU $ 8.9213 $ 16.2000 $ 25.1213

COST SUMMARY - WEIGHTED AVERAGE


Finished Goods 55,000 units
Good production 1,381,670
Normal spoilage -
Total 1,381,670
Ending WIP 5,000 units
Trans-in 44,606
Materials
Conversion 32,400
Total 77,006
Total Cost to Account For 1,458,676

Blocher,Chen,Cokins,Lin: Cost Management 3e 11-30 © The McGraw-Hill Companies, Inc., 2005


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

Production Report - Molding Department (FIFO Method)


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

Units completed & transferred


out during Jan. 50,000 100% 50,000 50,000
WIP, January 31 0
Total units acct. for 50,000

Weighted average equivalent units 50,000 50,000


Less: equivalent units in Jan.1 WIP 0 0
FIFO equivalent units 50,000 50,000

Costs:
DM Conv Total
WIP, January 1 $ 0 $ 0 $ 0
Costs incurred during Jan. 300,000 50,000 350,000
Total costs to acct. for $300,000 $50,000 $350,000

Divided by equivalent units 50,000 50,000


Costs per equivalent unit $6.00 $1.00 $7.00

Cost of goods completed and transferred out of the molding department


during January:
Cost of January 1 WIP inventory $ 0
Cost incurred to produce units that were both started and completed during
January:
( # of units ) x ( total cost per equivalent unit ) = 50,000 x $7.00 = $350,000
Total cost of goods completed and transferred out: $350,000
Cost remaining in January 31 WIP Inventory in the molding department: $ 0

Solutions Manual 11-31


Problem 11-41 (Continued 1)

Production Report - Finishing Department (FIFO Method)


Physical Percent Equivalent Units
Units Complete DM Conv
WIP, January 1 5,000 25%
Units transferred in
during Jan. 50,000
Total units to acct. for 55,000

Units completed and


transferred out
during January 53,000 100% 53,000 53,000
WIP, January 31 2,000 25% 2,000 500
Total units acct. for 55,000

Weighted-average equivalent units 55,000 53,500


Less: equivalent units in Jan.1 WIP (5,000) ( 1,250)
FIFO equivalent units 50,000 52,250

Costs: Trans.In Conv Total


WIP, January 1 $15,000
Costs incurred during Jan. $350,000 $40,000 390,000
Total costs to acct. for $405,000

Divided by equivalent units 50,000 52,250


Costs per equivalent unit $7.00 $0.7656 $7.7656

Cost of goods completed and transferred out of the finishing department


during January:
Cost of Jan. 1 WIP Inv., which is transferred out first: $15,000
Cost incurred to finish the Jan.1 WIP Inv.:
(# of units) x (% of conversion remaining) x (cost per equivalent unit of
conversion) = 5,000 x 0.75 x $0.7656 = $2,871

Blocher,Chen,Cokins,Lin: Cost Management 3e 11-32 © The McGraw-Hill Companies, Inc., 2005


Problem 11-41 (Continued 2)

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

(# of units) x (total cost per equivalent unit)


= (53,000 - 5,000) x $7.7656 = $372,748.80

Total cost of goods completed and transferred out:


= $15,000 + $2,871 + $372,748.80 = $390,619.80

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


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

Conversion:
(# of equivalent units of conversion.) x (Conversion cost per equivalent
unit)
= 500 x $0.7656 = $382.80

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

Check: Cost of goods completed & transferred out $390,619.80


Cost of Jan.31 WIP Inv. 14,382.80
Total costs accounted for $405,002.60*

* $2.60 difference due to rounding

Solutions Manual 11-33


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

1. Porter Company -- Department A


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

Step 4

Cost per equivalent unit $15.00 $8.00 $7.00


= $12,000/ 1,500 = $10,710/ 1,530

Blocher,Chen,Cokins,Lin: Cost Management 3e 11-34 © The McGraw-Hill Companies, Inc., 2005


11-42 (Continued 1)
Cost Assignment
Direct Conversion
(Step 5) Total Materials Costs

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

Solutions Manual 11-35


Problem 11-42 (continued)

2. Porter Company -- Department B


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

($27,680/ ($38,000/ ($26,250/


(Step 4) 1,900) 1,900) 1,750)
Cost per unit $49.568 $14.568 $20.00 $15.00

* $14 x 300 = $4,200


** $6,100 - $4,200 = $1,900
Problem 11-42 (continued)

Blocher,Chen,Cokins,Lin: Cost Management 3e 11-36 © The McGraw-Hill Companies, Inc., 2005


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

Solutions Manual 11-37


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

1. Cost of goods finished and transferred out


Finished goods: $9 x 11,200 = $100,800
Normal spoilage: $9 x 560 = 5,040
Cost of goods finished $105,840

2. Cost of the ending work-in-process inventory


Units: 1,400 + 14,000 - 700 - 11,200 = 3,500
Costs:
[($5 + $1) x 3,500] + [$3 x (3,500 x 40%)] = $25,200

3. Total cost transferred in during May


$ 5 x 15,400 - $6,300 = $70,700

4. Abnormal spoilage cost


$9 x (700 - 560) = $1,260

Blocher,Chen,Cokins,Lin: Cost Management 3e 11-38 © The McGraw-Hill Companies, Inc., 2005


11-44 Appendix A: Spoilage (30 Min)

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

Romano Foods- Mixing Department


Revised Production Cost Report
Month ended November 30, 2004

Good 10% Good


Input Total Output Normal Abnormal Unit
Units Costs Units Spoilage Spoilage Cost
120,000 $45,360 107,000 10,700 2,300 $0.4158

Budgeted unit cost $.4350


Actual cost per good unit .4158
Favorable variance $.0192

Cost Reconciliation
Cost of 107,000 good units at $.4158 $44,490.60
Abnormal spoilage (2,300 X $.378) 869.40
Total production costs $45,360.00

Supporting Calculations

a. 10% of good output = units of normal spoilage


.10 X 107,000 units = 10,700 units of normal spoilage

b. Total spoilage 13,000


Less normal spoilage10,700
Abnormal spoilage 2,300

c. Total cost of November production $45,360


Divide by total input (units) 120,000
Unit cost of production $ .378

Problem 11-44 (Continued)

Good units completed $40,446.00

Solutions Manual 11-39


(107,000 X $.378)
Normal spoilage 4,044.60
(10,700 X $.378)
Total cost of good units $44,490.60

Units cost of good units $ .4158


($44,490.60/107,000)

d. Abnormal spoilage (units) 2,300


Multiplied by unit cost of production .378
Total cost of abnormal spoilage $869.40

2. The journal entry, required to transfer November costs of the Mixing


Department to the Assembly Department, charges the cost of good
production to the Assembly Department, charges a loss account for
abnormal spoilage, and credits the Mixing Department with the total
cost of production.
Debit Credit
Work in process Assembly $ 44,490.60
Loss from Abnormal spoilage 869.40
Work in process Mixing $45,360.00

3. Corolla's report is less favorable than the revised report because he


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

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

Blocher,Chen,Cokins,Lin: Cost Management 3e 11-40 © The McGraw-Hill Companies, Inc., 2005


Whole Equivalent Units
QUANTITY RECAP: PHYSICAL UNITS Units Materials Conversion
Beginning WIP 4,000 100% 25%
Units started or Trans-in 21,000
TOTAL IN Process 25,000
Units Finished or Trans-out 20,000
Normal spoilage 500
Abnormal spoilage 500
Ending WIP 4,000 100% 80%
TOTAL OUT Process 25,000

EQUIVALENT UNITS: Weighted Average


Materials 25,000 = trans out + spoiled units + % completion x End WIP
Conversion 24,200 = trans out + spoiled units + % completion x End WIP

Cost Added:
Materials Conversion Total
Beginning WIP 45,600 8,125 53,725
Current Costs 228,400 45,500 273,900
Total 274,000 53,625 327,625

WTAVG Cost per EU $ 10.960 $ 2.216 $ 13.176

COST SUMMARY - WEIGHTED AVERAGE


Finished Goods 20,000 units
Good production (@ $13.176) 263,518
Normal spoilage (500 x $13.176) 6,588
Total 270,106

Abnormal Spoilage 500 units


(500 x $13.176) 6,588
Ending WIP 4,000 units
-
Materials (4,000 x $10.96) 43,840
Conversion (4000 x .8 x $2.216) 7,091
Total 50,931
Total Cost to Account For 327,625

Solutions Manual 11-41


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

1. Physical quantity schedule

Beginning WIP 3,000 Bikes transferred out 40,000


Bikes transferred in 45,000 Ending WIP 4,000
Bikes to account for 48,000 Bikes lost 4,000
Bikes accounted for 48,000

a. Normal amount of defective or spoiled bikes

Bikes passing through assembly 48,000


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

b. Abnormal amount of defective/spoiled bikes


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

Blocher,Chen,Cokins,Lin: Cost Management 3e 11-42 © The McGraw-Hill Companies, Inc., 2005


Problem 11-46 (continued)

2. Equivalent units of production

a. Transferred- b. c.
in from Assembly Assembly
Molding Material Conversion
Units transferred out 40,000 40,000 40,000
Equivalent units in
ending work-in-process
4,000 x 100% 4,000

4,000 x 50% 2,000


4,000 x 20% 800
Equivalent units lost
4,000 x 100% 4,000 4,000
4,000 x 70% 2,800

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

3. Cost per equivalent unit for fully assembled dirt bike


Total
Prior Current Cost per
Period Period Total Equivalent Equivalent
Cost Cost Cost Units Unit
Transferred in $82,200 $1,237,800 $1,320,000 48,000 $27.50
Materials 6,660 96,840 103,500 46,000 2.25
Conversion 11,930 236,590 248,520 43,600 5.70
$35.45

4. The total production cost:

a. Normal defective/spoiled bikes


Transferred-in 2,050 x $27.50 = $56,375.00
Material 2,050 x 2.25 = 4,612.50
Conversion 2,050 x .7 x 5.70 = 8,179.50
$69,167.00

Solutions Manual 11-43


Problem 11-46 (continued)

b. Abnormal defective/spoiled bikes


Transferred-in 1,950 x $27.50 = $53,625.00
Material 1,950 x 2.25 = 4,387.50
Conversion 1,950 x .7x 5.70 = 7,780.50
$65,793.00

c. Good bikes completed in the


Assembly Department
40,000 bikes x $35.45 = $ 1,418,000.00

d. Ending work-in-process 4,000 x $27.50 = $110,000.00


Transferred-in 2,000 x 2.25 = 4,500.00
Conversion 800 x 5.70 = 4,560.00
$ 119,060.00
Total costs accounted for $1,672,020.00

5. a. The cost of the normal spoiled units of $69,167 would be


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

b. The abnormal losses of $65,793 would appear as a period


expense on the company’s income statement.

c. The cost of the good units completed and transferred to the


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

Blocher,Chen,Cokins,Lin: Cost Management 3e 11-44 © The McGraw-Hill Companies, Inc., 2005


11-47 Process Costing and Activity Based Costing

1.

Whole Equivalent Units


QUANTITY RECAP: PHYSICAL UNITS Units (000s) Materials Conversion
Beginning WIP 200 100% 60%
Units started or Trans-in 1,000
TOTAL IN Process 1,200
Units Finished or Trans-out 800
Normal spoilage -
Abnormal spoilage -
Ending WIP 400 100% 30%
TOTAL OUT Process 1,200
Total Number of Batches

EQUIVALENT UNITS: Weighted Average


Materials 1,200
Conversion 920

Cost Added:
Materials Conversion Total
Beginning WIP 55,000 7,250 62,250
Current Costs 176,000 66,900 242,900
Total 231,000 74,150 305,150

WTAVG Cost per EU; Cost per batch $ 192.500 $ 80.598 $ 273.098

COST SUMMARY - WEIGHTED AVERAGE


Finished Goods 800 gallons
Good production 218,478

Ending WIP 400 gallons


Materials 77,000
Conversion 9,672 86,672

Total Cost to Account For 305,150

Solutions Manual 11-45


Problem 11-47 (continued)
2.
Whole Equivalent Units Number of
QUANTITY RECAP: PHYSICAL UnitsUNITS
(000s) Materials Conversion Batches
Beginning WIP 200 100% 60%
Units started or Trans-in 1,000
TOTAL IN Process 1,200
Units Finished or Trans-out 800 25
Normal spoilage
Abnormal spoilage
Ending WIP 400 100% 30% 75
TOTAL OUT Process 1,200
Total Number of Batches 100

EQUIVALENT UNITS: Weighted Average


Materials 1,200
Conversion 920

Cost Added:
Materials Conversion Batch Total
Beginning WIP 55,000 7,250 - 62,250
Current Costs 176,000 38,400 28,500 242,900
Total 231,000 45,650 28,500 305,150

WTAVG Cost per EU; Cost


$ 192.500
per batch $ 49.620 285.00 $ 242.120

COST SUMMARY - WEIGHTED AVERAGE


Finished Goods 800 gallons
Good production 193,696
Batch Costs 7,125 200,821

Ending WIP 400 gallons


Materials 77,000
Conversion 5,954
Batch costs 21,375 104,329

Total Cost to Account For 305,150

Blocher,Chen,Cokins,Lin: Cost Management 3e 11-46 © The McGraw-Hill Companies, Inc., 2005


Problem 11-47 (continued)

Ted is apparently correct about the under-costing of ending working process.


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

Solutions Manual 11-47