accounting chapter 20

Process Costing

Chapter 20

20-1Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall

Learning Objectives

1. Describe the flow of costs through a process costing system

2. Calculate equivalent units of production for direct materials and conversion costs

3. Prepare a production cost report using the weighted average method


Learning Objectives

4. Prepare journal entries for a process costing system

5. Use a production cost report to make decisions

6. Prepare a production cost report using the first-in, first-out method (Appendix 20A)


Learning Objective 1

Describe the flow of Describe the flow of costs through a costs through a process costing process costing

systemsystem


Job Order Costing vs.Process Costing

Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall 20-5

Process Costing Methods

• Weighted-average• First-in, first-out (FIFO—see Appendix 20A)


Process Costing—Calculating Cost per Unit


Process Costing—Calculating Cost per Unit


$600 ÷ 10,000 crayons = $0.06 per crayon$600 ÷ 10,000 crayons = $0.06 per crayon

Cost per Unit ofEach Process Is Used to:

• Control costs• Set selling prices• Calculate account balances

– Work-in-Process Inventory– Finished Goods Inventory– Cost of Goods Sold


Comparison of Cost Flows: Job Order Costing and Process Costing


Direct Materials

Direct Labor

Manufacturing Overhead

Work-in-Process Inventory

Job 27

Job 28

Job 29

Finished Goods Inventory

Job 27

Job 28

Cost ofGoods Sold

Job 27

Exhibit 20-2 Comparison of Cost Flows: Job Order Costing and Process CostingExhibit 20-2 Comparison of Cost Flows: Job Order Costing and Process Costing

PANEL A: Job Order Costing (Smart Touch Learning)

Balance Sheet Income Statement

Comparison of Cost Flows: Job Order Costing and Process Costing


Direct Materials

Direct Labor


Direct Materials

Direct Labor



Job 27

Job 28

Job 29


Job 27

Job 28

Cost ofGoods Sold

Job 27

FinishedGoods

Inventory

Work-in-Process InventoryMixing Work-in-Process

InventoryMolding


Packaging

Costof Goods

Sold

Exhibit 20-2 Comparison of Cost Flows: Job Order Costing and Process CostingExhibit 20-2 Comparison of Cost Flows: Job Order Costing and Process Costing

PANEL A: Job Order Costing (Smart Touch Learning)

Balance Sheet Income Statement

PANEL B: Process Costing (Cheerful Colors) Balance Sheet

Income Statement

Match each costing system characteristic to job order costing, process costing, or both.

1.Used by companies that manufactures identical items through a series of uniform production steps or processes.



1.Used by companies that manufactures identical items through a series of uniform production steps or processes.

Process costing



2.Transfers costs from Work-in-Process Inventory to Finished Goods Inventory to Cost of Goods Sold.



2.Transfers costs from Work-in-Process Inventory to Finished Goods Inventory to Cost of Goods Sold.

Both



3.Used by companies that manufacture unique products or provide specialized services.



3.Used by companies that manufacture unique products or provide specialized services.

Job order costing



4.Has multiple Work-in-Process Inventory accounts.



4.Has multiple Work-in-Process Inventory accounts.

Process costing



5.Tracks direct materials, direct labor, and manufacturing overhead costs.



5.Tracks direct materials, direct labor, and manufacturing overhead costs.

Both



Calculate equivalent Calculate equivalent units of production for units of production for

direct materials and direct materials and conversion costsconversion costs


All Costs Must Be Accounted For


Total Costs Incurredduring Period inDepartment 1

Costs Transferred toDepartment 2

at End of Period

Costs Remaining inDepartment 1

at End of Period

=

Exhibit 20-3 Assignment of Department 1 Costs at the End of the PeriodExhibit 20-3 Assignment of Department 1 Costs at the End of the Period

Equivalent Unitsof Production (EUP)

Cheerful Colors’ production plant has 10,000 crayons in ending Work-in-Process Inventory—Packaging. The crayons are 40% complete for direct materials and 80% complete for conver-sion. What are the equivalent units of pro-duction for direct materials? For conversion costs?




Direct materials10,000 crayons × 40% = 4,000 EUP




Direct materials10,000 crayons × 40% = 4,000 EUP

Conversion costs10,000 crayons × 80% = 8,000 EUP


Direct Labor + Manufacturing OverheadDirect Labor + Manufacturing Overhead

6. The Cutting Department has 6,500 units in process at the end of September that are 100% complete for direct materials and 85% complete for conversion costs. Calculate the equivalent units of production for direct materials and conversion costs.



Direct materials

6,500 units × 100% = 6,500 EUP



Direct materials

6,500 units × 100% = 6,500 EUP

Conversion costs

6,500 units × 85% = 5,525 EUP



Prepare a production Prepare a production cost report using the cost report using the

weighted average weighted average methodmethod


Flow of Costs in Producing Puzzles

AssemblyProcess

DirectMaterials Cardboard, picture, glue

DirectLabor

Workers operatingpressing machines

ManufacturingOverhead

Maintenance and depreciationon pressing machines

CuttingProcess

DirectMaterials Box

DirectLabor

Workers operatingcutting machines

ManufacturingOverhead

Maintenance and depreciationon cutting machines


Exhibit 20-4 Flow of Costs in Producing PuzzlesExhibit 20-4 Flow of Costs in Producing Puzzles

Partiallycompleted

puzzles

Completedpuzzles

Steps to Preparing aProduction Cost Report

1. Summarize the flow of physical units

2. Compute output in terms of equivalent units of production

3. Compute the cost per equivalent unit of production

4. Assign costs to units completed and units in process


Production Cost Report Terms

• To account for– Amount in process at the beginning of the period

+– Amount started or added during the period

• Accounted for– Still in process

or– Completed and transferred out


Production Cost Report – July Data for Puzzle Me


Step 1: Summarize theFlow of Physical Units

To account for = Beginning balance + Amount started




= 0 units + 50,000 units

= 50,000 units





= 50,000 units

Accounted for = Transferred out + In process





= 50,000 units


50,000 units = 40,000 units + In process

50,000 units = 40,000 units + 10,000 units


Production Cost Report—Assembly Department—Whole Units


Step 1: Physical flow of units

Step 2: Compute Output in Terms of Equivalent Units of Production

Direct Materials

Conversion Costs



Direct Materials

Completed units 40,000 units × 100% = 40,000 EUP

In process units 10,000 units × 100% = 10,000 EUP

Total EUP for direct materials50,000 EUP

Conversion Costs



Direct Materials


In process units 10,000 units × 100% = 10,000 EUP

Total EUP for direct materials50,000 EUP

Conversion Costs


In process units 10,000 units × 25% =2,500 EUP

Total EUP for conversion costs42,500 EUP


Production Cost Report—Assembly Department—EUP


Step 2: EUP

Step 3: Compute the Cost—Cost per EUP for Direct Materials

Cost per EUP for Direct Materials

= Total direct materials costs

Equivalent units of production for direct materials






= $140,00050,000 EUP

= $2.80 per EUP


Step 3: Compute the Cost—Cost per EUP for Conversion Costs

Cost per EUP for Conversion Costs

= Total conversion costs

Equivalent units of production for conversion costs






= $68,00042,500 EUP

= $1.60 per EUP


Production Cost Report—Assembly Department—Costs to Account For


Step 3:Costs to

Account for

Step 4: Assign Costs to Units Completed and Units In Process

Direct Materials

Conversion Costs



Direct Materials

Completed 40,000 EUP × $2.80 per EUP = $ 112,000

In process 10,000 EUP × $2.80 per EUP = 28,000

Total $140,000

Conversion Costs



Direct Materials



Total $140,000

Conversion Costs



Total $68,000


Production Cost Report—Assembly Department—Costs Accounted For


Step 4: Costs Accounted

for

Production Cost Report— July Data for Puzzle Me



To account for = Beginning balance + Amount transferred in




= 5,000 units + 40,000 units

= 45,000 units




= 5,000 units + 40,000 units

= 45,000 units



45,000 units = 38,000 units + 7,000 units


Production Cost Report—Cutting Department—Whole Units



Transferred In

Direct Materials

Conversion Costs



Transferred InCompleted units 38,000 units × 100% = 38,000 EUPIn process units7,000 units × 100% = 7,000 EUPTotal EUP for transferred in 45,000 EUP

Direct Materials

Conversion Costs




Direct MaterialsCompleted units 38,000 units × 100% = 38,000 EUPIn process units 7,000 units × 0% = 0 EUPTotal EUP for direct materials 38,000 EUP

Conversion Costs




Direct MaterialsCompleted units 38,000 units × 100% = 38,000 EUPIn process units 7,000 units × 0% = 0 EUPTotal EUP for direct materials 38,000 EUP

Conversion CostsCompleted units 38,000 units × 100% = 38,000 EUPIn process units 7,000 units × 30% = 2,100 EUPTotal EUP for conversion costs 40,100 EUP


Production Cost Report—Cutting Department—EUP


Cutting Department:Costs to Account For


Step 3: Compute the Cost—Cost per EUP for Transferred In

Cost per EUP for Transferred In

= Total transferred in costs

Equivalent units of production for transferred in






= $198,00045,000 EUP

= $4.40 per EUP






= $19,00038,000 EUP

= $0.50 per EUP






= $16,00040,100 EUP

= $0.40 per EUP


Production Cost Report—Cutting Department—Costs to Account For



Transferred In

Direct Materials

Conversion Costs



Transferred InCompleted 38,000 EUP × $4.40 per EUP = $ 167,200In process 7,000 EUP × $4.40 per EUP = 30,800Total $ 198,000

Direct Materials

Conversion Costs




Direct MaterialsCompleted 38,000 EUP × $0.50 per EUP = $ 19,000In process 0 EUP × $0.50 per EUP = 0Total $ 19,000

Conversion Costs




Direct MaterialsCompleted 38,000 EUP × $0.50 per EUP = $ 19,000In process 0 EUP × $0.50 per EUP = 0Total $ 19,000

Conversion CostsCompleted 38,000 EUP × $0.40 per EUP = $ 15,200In process 2,100 EUP × $0.40 per EUP = 840Total $ 16,040


Production Cost Report—Cutting Department—Costs Accounted For


The Finishing Department started the month with 500 units in process, received 2,000 units from the Assembly Department, and transferred 2,100 units to the finished goods storage area. All materials are added at the beginning of the process. The units in process at the end of the month are 45% complete in respect to conversion costs. The Finishing Department incurred the following costs:

Beginning WIP Added this month Total

Transferred In $ 6,250 $ 25,000 $ 31,250

Direct Materials 500 2,000 2,500

Conversion Costs 1,250 5,590 6,840

Total $ 8,000 $ 32,590 $ 40,590


7. How many units are still in process at the end of the month?



To account for = 500 units + 2,000 units= 2,500 units

Accounted for = 2,100 units + In Process2,500 units = 2,100 units + In Process

In Process = 400 units


8. Compute the equivalent units of production for the Finishing Department.


8. Compute the equivalent units of production for the Finishing Department.

Transferred InCompleted units 2,100 units × 100% = 2,100 EUPIn process units 400 units × 100% = 400 EUPTotal EUP for transferred in 2,500 EUP

Direct MaterialsCompleted units 2,100 units × 100% = 2,100 EUPIn process units 400 units × 100% = 400 EUPTotal EUP for direct materials 2,500 EUP

Conversion CostsCompleted units 2,100 units × 100% = 2,100 EUPIn process units 400 units × 45% = 180 EUPTotal EUP for conversion costs 2,280 EUP


9. Determine the cost per equivalent unit for transferred in, direct materials, conversion costs, and total costs.


9. Determine the cost per equivalent unit for transferred in, direct materials, conversion costs, and total costs.

Transferred In $31,250 = $ 12.50 per EUP2,500 EUP

Direct Materials $2,500 = $ 1.00 per EUP2,500 EUP

Conversion Costs $6,840 = $ 3.00 per EUP2,280 EUP

Total: = $ 16.50 per EUPCopyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall 20-83

10. Determine the cost to be transferred to Finished Goods Inventory.



$16.50 per EUP × 2,100 EUP = $34,650



Prepare journal entries Prepare journal entries for a process costing for a process costing

systemsystem


Raw Materials Purchased


Transaction 1—Raw Materials Purchased: During July, the company purchased materials on account for $175,000.

A

=

L + E

Raw Materials Purchased


Transaction 1—Raw Materials Purchased: During July, the company purchased materials on account for $175,000.

A ↑

=

L ↑ + E

RM ↑ A/P ↑

Raw Materials Used in Production


Transaction 2—Raw Materials Used in Production: During July, direct materials were assigned to the two production departments: $140,000 to the Assembly Department and $19,000 to the Cutting Department; $2,000 in indirect materials were accumulated in Manufacturing Overhead.

A

=

L + E

Raw Materials Used in Production


Transaction 2—Raw Materials Used in Production: During July, direct materials were assigned to the two production departments: $140,000 to the Assembly Department and $19,000 to the Cutting Department; $2,000 in indirect materials were accumulated in Manufacturing Overhead.

A ↓

=

L + E ↓

RM ↓WIP - Assembly ↑

WIP - Cutting ↑

MOH ↑

Labor Costs Incurred


Transaction 3—Labor Costs Incurred: During the month, Puzzle Me incurred $20,000 in direct labor costs in the Assembly Department; $3,840 in direct labor costs in the Cutting Department; and $1,500 in indirect labor costs which were accumulated in Manufacturing Overhead.

A

=

L + E

Labor Costs Incurred


Transaction 3—Labor Costs Incurred: During the month, Puzzle Me incurred $20,000 in direct labor costs in the Assembly Department; $3,840 in direct labor costs in the Cutting Department; and $1,500 in indirect labor costs which were accumulated in Manufacturing Overhead.

A ↑

=

L ↑ + E ↓

WIP - Assembly ↑WIP - Cutting ↑

WagesPayable ↑

MOH ↑

Additional ManufacturingCosts Incurred


Transaction 4—Additional Manufacturing Costs Incurred: In addition to the indirect materials and indirect labor costs, Puzzle Me incurred $35,000 in machinery depreciation and $20,000 in indirect costs that were paid in cash, which included rent and utilities.

A

=

L + E

Additional ManufacturingCosts Incurred


Transaction 4—Additional Manufacturing Costs Incurred: In addition to the indirect materials and indirect labor costs, Puzzle Me incurred $35,000 in machinery depreciation and $20,000 in indirect costs that were paid in cash, which included rent and utilities.

A ↓

=

L + E ↓

AccumulatedDepreciation ↑

Cash ↓

MOH ↑

Allocation ofManufacturing Overhead


Transaction 5—Allocation of Manufacturing Overhead: Puzzle Me used a predetermined overhead allocation rate to allocate indirect costs to the departments: $48,000 to the Assembly Department and $11,000 to the Cutting Department.

A

=

L + E

Allocation ofManufacturing Overhead


Transaction 5—Allocation of Manufacturing Overhead: Puzzle Me used a predetermined overhead allocation rate to allocate indirect costs to the departments: $48,000 to the Assembly Department and $11,000 to the Cutting Department.

A ↑

=

L + E ↑

WIP - Assembly ↑WIP - Cutting ↑

MOH ↓

Transfer from the Assembly Department to the Cutting Department


Transaction 6—Transfer from the Assembly Department to the Cutting Department: At the end of July, when the production cost report for the Assembly Department was prepared, Puzzle Me assigned $176,000 to the 40,000 units transferred from the Assembly Department to the Cutting Department.

A

=

L + E

Transfer from the Assembly Department to the Cutting Department


Transaction 6—Transfer from the Assembly Department to the Cutting Department: At the end of July, when the production cost report for the Assembly Department was prepared, Puzzle Me assigned $176,000 to the 40,000 units transferred from the Assembly Department to the Cutting Department.

A ↑ ↓

=

L + E

WIP - Assembly ↓WIP - Cutting ↑

Transfer from Cutting Departmentto Finished Goods Inventory


Transaction 7—Transfer from Cutting Department to Finished Goods Inventory: At the end of July, when the production cost report for the Cutting Department was prepared, Puzzle Me assigned $201,400 to the 38,000 units transferred from the Cutting Department to Finished Goods Inventory. This is the cost of goods manufactured.

A

=

L + E

Transfer from Cutting Departmentto Finished Goods Inventory


Transaction 7—Transfer from Cutting Department to Finished Goods Inventory: At the end of July, when the production cost report for the Cutting Department was prepared, Puzzle Me assigned $201,400 to the 38,000 units transferred from the Cutting Department to Finished Goods Inventory. This is the cost of goods manufactured.

A ↑ ↓

=

L + E

FG ↑WIP - Cutting ↓

Puzzles Sold


Transaction 8—Puzzles Sold: During July, Puzzle Me sold 35,000 puzzles. We have already determined from the production cost report for the Cutting Department that the cost of goods manufactured is $5.30 per puzzle. Therefore, the cost of 35,000 puzzles is $185,500 (35,000 puzzles × $5.30). The puzzles were sold on account for $8.00 each, which is a total of $280,000 (35,000 puzzles × $8.00).

A

=

L + E

Puzzles Sold


Transaction 8—Puzzles Sold: During July, Puzzle Me sold 35,000 puzzles. We have already determined from the production cost report for the Cutting Department that the cost of goods manufactured is $5.30 per puzzle. Therefore, the cost of 35,000 puzzles is $185,500 (35,000 puzzles × $5.30). The puzzles were sold on account for $8.00 each, which is a total of $280,000 (35,000 puzzles × $8.00).

A ↑ ↓

=

L + E ↑ ↓

A/R ↑FG ↓

Sales Revenue ↑COGS ↑

Adjust Manufacturing Overhead


Transaction 9—Adjust Manufacturing Overhead: The actual manufacturing overhead costs incurred were $58,500, which includes the indirect materials in Transaction 2, the indirect labor in Transaction 3, and the accumulated depreciation and other indirect costs in Transaction 4. The amount of manufacturing overhead allocated to the two departments was $59,000, as shown in Transaction 5.

A

=

L + E Manufacturing Overhead

Trans. 2 2,000 Trans. 5 59,000

Trans. 3 1,500

Trans. 4 35,000

Trans. 4 20,000

Bal 500

Adjust Manufacturing Overhead


Transaction 9—Adjust Manufacturing Overhead: The actual manufacturing overhead costs incurred were $58,500, which includes the indirect materials in Transaction 2, the indirect labor in Transaction 3, and the accumulated depreciation and other indirect costs in Transaction 4. The amount of manufacturing overhead allocated to the two departments was $59,000, as shown in Transaction 5.

A

=

L + E ↑ ↓

MOH ↑COGS ↓


Trans. 2 2,000 Trans. 5 59,000

Trans. 3 1,500

Trans. 4 35,000

Trans. 4 20,000

Bal 500

Key Accounts After Posting


Work-in-Process Inventory—Assembly

Balance, June 30 0 Trans. 6 176,000

Trans. 2 140,000

Trans. 3 20,000

Trans. 5 48,000

Balance, July 31 32,000

Work-in-Process Inventory—Cutting

Balance, June 30 23,200 Trans. 7 201,400

Trans. 2 19,000

Trans. 3 3,840

Trans. 5 11,000

Trans. 6 176,000



Balance, June 30 0 Trans. 8 185,500

Trans. 7 201,400


Cost of Goods Sold

Trans. 8 185,500 Trans. 9 500


11. Castillo Company has three departments: Mixing, Bottling, and Packaging. At the end of the month, the production cost reports for the departments show the costs of the products completed and transferred were $75,000 from Mixing to Bottling, $50,000 from Bottling to Packaging, and $65,000 from Packaging to Finished Goods Inven-tory. Prepare the journal entries for the transfer of the costs.


Transfer from Mixing to Bottling

Work-in-Process Inventory—Bottling 75,000

Work-in-Process Inventory—Mixing 75,000

Transfer from Bottling to Packaging

Work-in-Process Inventory—Packaging 50,000

Work-in-Process Inventory—Bottling 50,000

Transfer from Packaging to Finished Goods Inventory

Finished Goods Inventory 65,000

Work-in-Process Inventory—Packaging 65,000



Use a production cost Use a production cost report to make report to make

decisionsdecisions


How Managers Use ProductionCost Reports to Make Decisions

• Controlling costs• Evaluating performance• Pricing products• Identifying the most profitable products• Preparing the financial statements


12. Describe some ways managers use production cost reports to make business decisions.


12. Describe some ways managers use production cost reports to make business decisions.

Managers use production cost reports to:• Control costs• Evaluate performance• Price products• Identify profitability of different products• Prepare financial statements



Prepare a production Prepare a production cost report using the cost report using the

first-in, first-out first-in, first-out methodmethod

(Appendix 20A)(Appendix 20A)


Production Cost Report— July Data for Puzzle Me




= 5,000 units + 40,000 units

= 45,000 units


July Units Accounted For


BeginningInventory

5,000 units

Started andCompleted

in July33,000 units

Completed in July—38,000 units

Exhibit 20A-1 July Units Accounted ForExhibit 20A-1 July Units Accounted For

July Units Accounted For


BeginningInventory

5,000 units

Started andCompleted

in July33,000 units

EndingInventory

7,000 units

Started in July—40,000 units

Completed in July—38,000 units

Units Accounted For—45,000 units

Exhibit 20A-1 July Units Accounted ForExhibit 20A-1 July Units Accounted For



= 5,000 units + 40,000 units

= 45,000 units

Accounted for = Beginning balance + Started and completed + In process




= 5,000 units + 40,000 units

= 45,000 units


45,000 units = 5,000 units + Started and completed + 7,000 units

45,000 units = 5,000 units + 33,000 units + 7,000 units


Production Cost Report—Cutting Department—FIFO Method—Whole Units



Transferred In

Direct Materials

Conversion Costs



Transferred InBeginning WIP units 5,000 units × 0% = 0 EUPStarted and completed units 33,000 units × 100% = 33,000 EUPIn process units 7,000 units × 100% = 7,000 EUPTotal EUP for transferred in 40,000 EUP

Direct Materials

Conversion Costs




Direct MaterialsBeginning WIP units 5,000 units × 100% = 5,000 EUPStarted and completed units 33,000 units × 100% = 33,000 EUPIn process units 7,000 units × 0% = 0 EUPTotal EUP for direct materials 38,000 EUP

Conversion Costs




Direct MaterialsBeginning WIP units 5,000 units × 100% = 5,000 EUPStarted and completed units 33,000 units × 100% = 33,000 EUPIn process units 7,000 units × 0% = 0 EUPTotal EUP for direct materials 38,000 EUP

Conversion CostsBeginning WIP units 5,000 units × 40% = 2,000 EUPStarted and completed units 33,000 units × 100% = 33,000 EUPIn process units 7,000 units × 30% = 2,100 EUPTotal EUP for conversion costs 37,100 EUP


Timing of Conversion Costs


Exhibit 20A-3 Timing of Conversion CostsExhibit 20A-3 Timing of Conversion Costs

Beginning Inventory 60% 40%

Started and Completed 100%

Ending Inventory 30% 70%

June July August

Production Cost Report—Cutting Department—FIFO Method—EUP


Cutting Department:Costs to Account For






= $176,00040,000 EUP

= $4.40 per EUP






= $19,00038,000 EUP

= $0.50 per EUP






= $14,84037,100 EUP

= $0.40 per EUP


Production Cost Report—Cutting Department—FIFO Method—Costs to Account For



Transferred In

Direct Materials

Conversion Costs



Transferred In

Beginning WIP $ 22,000

To complete beginning WIP 0 EUP × $4.40 per EUP = 0

Started and Completed 33,000 EUP × $4.40 per EUP = 145,200

Transferred to FG 167,200

In process: 7,000 EUP × $4.40 per EUP = 30,800

Total $ 198,000

Direct Materials

Conversion Costs



Transferred In






Total $ 198,000

Direct Materials

Beginning WIP $ 0

To complete beginning WIP 5,000 EUP × $0.50 per EUP = 2,500



In process: 0 EUP × $0.50 per EUP = 0

Total $ 19,000

Conversion Costs



Transferred In






Total $ 198,000

Direct Materials

Beginning WIP $ 0

To complete beginning WIP 5,000 EUP × $0.50 per EUP = 2,500



In process: 0 EUP × $0.50 per EUP = 0

Total $ 19,000

Conversion Costs

Beginning WIP $ 700

To complete beginning WIP 2,000 EUP × $0.40 per EUP = 800



In process: 2,100 EUP × $0.40 per EUP = 840

Total $ 15,540

*Adjusted for $1 to correct rounding error


Production Cost Report—Cutting Department—FIFO Method—Costs Accounted For


Production Cost Report—Cutting Department—Costs Accounted For


Bishop Company uses the FIFO method in its process costing system. The Finishing Department started the month with 500 units in process that were 20% complete, received 2,000 units from the Assembly Department, and transferred 2,100 units to the finished goods storage area. All materials are added at the beginning of the process. The units in process at the end of the month are 45% complete with respect to conversion costs. The department incurred the following costs:

Beginning WIP Added this month Total

Transferred In $ 6,250 $ 25,000 $ 31,250

Direct Materials 500 2,000 2,500

Conversion Costs 1,250 5,450 6,700

Total $ 8,000 $ 32,450 $ 40,450





= 2,500 units


2,500 units = 500 units + 1,600 units + In process


400 units = In process


14. Compute the equivalent units of production for the Finishing Department for the current month.


14. Compute the equivalent units of production for the Finishing Department for the current month.

Transferred InBeginning WIP units 500 units × 0% = 0 EUPStarted and completed units 1,600 units × 100% = 1,600 EUPIn process units 400 units × 100% = 400 EUPTotal EUP for transferred in 2,000 EUP

Direct MaterialsBeginning WIP units 500 units × 0% = 0 EUPStarted and completed units 1,600 units × 100% = 1,600 EUPIn process units 400 units × 100% = 400 EUPTotal EUP for direct materials 2,000 EUP

Conversion CostsBeginning WIP units 500 units × 80% = 400 EUPStarted and completed units 1,600 units × 100% = 1,600 EUPIn process units 400 units × 45% = 180 EUPTotal EUP for conversion costs 2,180 EUP


15. Determine the cost per equivalent unit for the current period for transferred in, direct materials, and conversion costs.


15. Determine the cost per equivalent unit for the current period for transferred in, direct materials, and conversion costs.


Transferred In:$25,000

2,000 EUP = $12.50 per EUP

Direct Materials:$2,000

2,000 EUP = $1.00 per EUP

Conversion Costs:$5,450

2,180 EUP = $2.50 per EUP


Transferred InBeginning WIP $ 6,250To complete beginning WIP 0 EUP × $12.50 per EUP = 0Started and Completed 1,600 EUP × $12.50 per EUP =

20,000Transferred to FG $ 26,250

Direct MaterialsBeginning WIP $ 500To complete beginning WIP 0 EUP × $1.00 per EUP = 0Started and Completed 1,600 EUP × $1.00 per EUP =

1,600Transferred to FG 2,100

Conversion CostsBeginning WIP $ 1,250To complete beginning WIP 400 EUP × $2.50 per EUP = 1,000Started and Completed 1,600 EUP × $2.50 per EUP =

4,000Transferred to FG 6,250

Total $ 34,600Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall 20-148

End of Chapter 20


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