cost accounting ch 17 solutions

171

CHAPTER 17 PROCESS COSTING

171 Industries using process costing in their manufacturing area include chemical processing, oil refining, pharmaceuticals, plastics, brick and tile manufacturing, semiconductor chips, beverages, and breakfast cereals.

172 Process costing systems separate costs into cost categories according to the timing of when costs are introduced into the process. Often, only two cost classifications, direct materials and conversion costs, are necessary. Direct materials are frequently added at one point in time, often the start or the end of the process, and all conversion costs are added at about the same time, but in a pattern different from direct materials costs.

173 Equivalent units is a derived amount of output units that takes the quantity of each input (factor of production) in units completed or in incomplete units in work in process, and converts the quantity of input into the amount of completed output units that could be made with that quantity of input. Each equivalent unit is comprised of the physical quantities of direct materials or conversion costs inputs necessary to produce output of one fully completed unit. Equivalent unit measures are necessary since all physical units are not completed to the same extent at the same time.

174 The accuracy of the estimates of completion depends on the care and skill of the estimator and the nature of the process. Semiconductor chips may differ substantially in the finishing necessary to obtain a final product. The amount of work necessary to finish a product may not always be easy to ascertain in advance.

175 The five key steps in process costing follow: Step 1: Summarize the flow of physical units of output. Step 2: Compute output in terms of equivalent units. Step 3: Summarize total costs to account for. Step 4: Compute cost per equivalent unit. Step 5: Assign total costs to units completed and to units in ending work in process.

176 Three inventory methods associated with process costing are: • Weighted average. • Firstin, firstout. • Standard costing.

177 The weightedaverage processcosting method calculates the equivalentunit cost of all the work done to date (regardless of the accounting period in which it was done), assigns this cost to equivalent units completed and transferred out of the process, and to equivalent units in ending workinprocess inventory.

172

178 FIFO computations are distinctive because they assign the cost of the previous accounting period’s equivalent units in beginning workinprocess inventory to the first units completed and transferred out of the process and assigns the cost of equivalent units worked on during the current period first to complete beginning inventory, next to start and complete new units, and finally to units in ending workinprocess inventory. In contrast, the weightedaverage method costs units completed and transferred out and in ending work in process at the same average cost.

179 FIFO should be called a modified or departmental FIFO method because the goods transferred in during a given period usually bear a single average unit cost (rather than a distinct FIFO cost for each unit transferred in) as a matter of convenience.

1710 A major advantage of FIFO is that managers can judge the performance in the current period independently from the performance in the preceding period.

1711 The journal entries in process costing are basically similar to those made in jobcosting systems. The main difference is that, in process costing, there is often more than one workin process account––one for each process.

1712 Standardcost procedures are particularly appropriate to processcosting systems where there are various combinations of materials and operations used to make a wide variety of similar products as in the textiles, paints, and ceramics industries. Standardcost procedures also avoid the intricacies involved in detailed tracking with weightedaverage or FIFO methods when there are frequent price variations over time.

1713 There are two reasons why the accountant should distinguish between transferredin costs and additional direct materials costs for a particular department:

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

materials added in the department.

1714 No. Transferredin costs or previous department costs are costs incurred in a previous department that have been charged to a subsequent department. These costs may be costs incurred in that previous department during this accounting period or a preceding accounting period.

1715 Materials are only one cost item. Other items (often included in a conversion costs pool) include labor, energy, and maintenance. If the costs of these items vary over time, this variability can cause a difference in cost of goods sold and inventory amounts when the weightedaverage or FIFO methods are used.

A second factor is the amount of inventory on hand at the beginning or end of an accounting period. The smaller the amount of production held in beginning or ending inventory relative to the total number of units transferred out, the smaller the effect on operating income, cost of goods sold, or inventory amounts from the use of weightedaverage or FIFO methods.

173

1716 (25 min.) Equivalent units, zero beginning inventory.

1. Direct materials cost per unit ($750,000 ÷ 10,000) $ 75.00 Conversion cost per unit ($798,000 ÷ 10,000) 79.80 Assembly Department cost per unit $154.80

2a. Solution Exhibit 1716A calculates the equivalent units of direct materials and conversion costs in the Assembly Department of Nihon, Inc. in February 2009.

Solution Exhibit 1716B computes equivalent unit costs.

2b. Direct materials cost per unit $ 75 Conversion cost per unit 84 Assembly Department cost per unit $159

3. The difference in the Assembly Department cost per unit calculated in requirements 1 and 2 arises because the costs incurred in January and February are the same but fewer equivalent units of work are done in February relative to January. In January, all 10,000 units introduced are fully completed resulting in 10,000 equivalent units of work done with respect to direct materials and conversion costs. In February, of the 10,000 units introduced, 10,000 equivalent units of work is done with respect to direct materials but only 9,500 equivalent units of work is done with respect to conversion costs. The Assembly Department cost per unit is, therefore, higher.

SOLUTION EXHIBIT 1716A Steps 1 and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units; Assembly Department of Nihon, Inc. for February 2009.

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

Flow of Production Units Materials Costs Work in process, beginning (given) 0 Started during current period (given) 10,000 To account for 10,000 Completed and transferred out during current period 9,000 9,000 9,000

Work in process, ending* (given) 1,000 1,000 × 100%; 1,000 × 50% 1,000 500

Accounted for 10,000 Work done in current period 10,000 9,500

* Degree of completion in this department: direct materials, 100%; conversion costs, 50%.

174

SOLUTION EXHIBIT 1716B Compute Cost per Equivalent Unit, Assembly Department of Nihon, Inc. for February 2009.

Total Production

Costs Direct

Materials Conversion

Costs (Step 3) Costs added during February $1,548,000 $750,000 $798,000

Divide by equivalent units of work done in current period (Solution Exhibit 17l6A) ÷ 10,000 ÷ 9,500

Cost per equivalent unit $ 75 $ 84

1717 (20 min.) Journal entries (continuation of 1716).

1. Work in Process––Assembly 750,000 Accounts Payable 750,000

To record $750,000 of direct materials purchased and used in production during February 2009

2. Work in Process––Assembly 798,000 Various accounts 798,000

To record $798,000 of conversion costs for February 2009; examples include energy, manufacturing supplies, all manufacturing labor, and plant depreciation

3. Work in Process––Testing 1,431,000 Work in Process––Assembly 1,431,000

To record 9,000 units completed and transferred from Assembly to Testing during February 2009 at $159 × 9,000 units = $1,431,000

Postings to the Work in Process––Assembly account follow.

Work in Process –– Assembly Department Beginning inventory, Feb. 1 0 3. Transferred out to

1. Direct materials 750,000 Work in Process––Testing 1,431,000 2. Conversion costs 798,000

Ending inventory, Feb. 28 117,000

175

1718 (25 min.) Zero beginning inventory, materials introduced in middle of process.

1. Solution Exhibit 1718A shows equivalent units of work done in the current period of Chemical P, 50,000; Chemical Q, 35,000; Conversion costs, 45,000.

2. Solution Exhibit 1718B summarizes the total Mixing Department costs for July 2009, calculates cost per equivalent unit of work done in the current period for Chemical P, Chemical Q, and Conversion costs, and assigns these costs to units completed (and transferred out) and to units in ending work in process.

SOLUTION EXHIBIT 1718A Steps 1 and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units; Mixing Department of Roary Chemicals for July 2009.

(Step 1) (Step 2) Equivalent Units

Physical Conversion Flow of Production Units Chemical P Chemical Q Costs

Work in process, beginning (given) 0 Started during current period (given) 50,000 To account for 50,000 Completed and transferred out during current period 35,000 35,000 35,000 35,000

Work in process, ending* (given) 15,000 15,000 × 100%; 15,000 × 0%; 15,000 × 66 2/3% 15,000 0 10,000

Accounted for 50,000 Work done in current period only 50,000 35,000 45,000

* Degree of completion in this department: Chemical P, 100%; Chemical Q, 0%; conversion costs, 66 2/3%.

176

SOLUTION EXHIBIT 1718B Steps 3, 4, and 5: Summarize Total Costs to Account For, Compute Cost per Equivalent Unit, and Assign Total Costs to Units Completed and to Units in Ending Work in Process; Mixing Department of Roary Chemicals for July 2009.

Total Production

Costs Chemical P Chemical Q Conversion

Costs (Step 3) Costs added during July $455,000 $250,000 $70,000 $135,000

Total costs to account for $455,000 $250,000 $70,000 $135,000

(Step 4) Costs added in current period $250,000 $70,000 $135,000 Divide by equivalent units of work done in current period (Solution Exhibit 17l8A) ÷ 50,000 ÷35,000 ÷ 45,000 Cost per equivalent unit $ 5 $ 2 $ 3

(Step 5) Assignment of costs: Completed and transferred out (35,000 units) $350,000 (35,000* × $5) + (35,000* × $2) + (35,000* × $3) Work in process, ending (15,000 units) 105,000 (15,000 † × $5) + (0 † × $2) + (10,000 † × $3) Total costs accounted for $455,000 $250,000 + $70,000 + $135,000

*Equivalent units completed and transferred out from Solution Exhibit 1718A, Step 2. † Equivalent units in ending work in process from Solution Exhibit 1718A, Step 2.

1719 (15 min.) Weightedaverage method, equivalent units.

Under the weightedaverage method, equivalent units are calculated as the equivalent units of work done to date. Solution Exhibit 1719 shows equivalent units of work done to date for the Assembly Division of Fenton Watches, Inc., for direct materials and conversion costs.

SOLUTION EXHIBIT 1719 Steps 1 and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units; WeightedAverage Method of Process Costing, Assembly Division of Fenton Watches, Inc., for May 2009.


Flow of Production Units Materials Costs Work in process beginning (given) 80 Started during current period (given) 500 To account for 580 Completed and transferred out during current period 460 460 460 Work in process, ending* (120 × 60%; 120 × 30%) 120 72 36 Accounted for 580 ___ ___ Work done to date 532 496


177

1720 (20 min.) Weightedaverage method, assigning costs (continuation of 1719).

Solution Exhibit 1720 summarizes total costs to account for, calculates cost per equivalent unit of work done to date in the Assembly Division of Fenton Watches, Inc., and assigns costs to units completed and to units in ending workinprocess inventory.

SOLUTION EXHIBIT 1720 Steps 3, 4, and 5: Summarize Total Costs to Account For, Compute Cost per Equivalent Unit, and Assign Total Costs to Units Completed and to Units in Ending Work in Process; WeightedAverage Method of Process Costing, Assembly Division of Fenton Watches, Inc., for May 2009.

Total Production

Costs Direct


Costs (Step 3) Work in process, beginning (given) $ 584,400 $ 493,360 $ 91,040

Costs added in current period (given) 4,612,000 3,220,000 1,392,000 Total costs to account for $5,196,400 $3,713,360 $1,483,040

(Step 4) Costs incurred to date $3,713,360 $1,483,040 Divide by equivalent units of work done to date (Solution Exhibit 1719) ÷ 532 ÷ 496 Cost per equivalent unit of work done to date $ 6,980 $ 2,990

(Step 5) Assignment of costs: Completed and transferred out (460 units) $4,586,200 (460* × $6,980) + (460* × $2,990) Work in process, ending (120 units) 610,200 (72 † × $6,980) + (36 † × $2,990) Total costs accounted for $5,196,400 $3,713,360 + $1,483,040

* Equivalent units completed and transferred out from Solution Exhibit 1719, Step 2. † Equivalent units in work in process, ending from Solution Exhibit 1719, Step 2.

178

1721 (15 min.) FIFO method, equivalent units.

Under the FIFO method, equivalent units are calculated as the equivalent units of work done in the current period only. Solution Exhibit 1721 shows equivalent units of work done in May 2009 in the Assembly Division of Fenton Watches, Inc., for direct materials and conversion costs.

SOLUTION EXHIBIT 1721 Steps 1 and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units; FIFO Method of Process Costing, Assembly Division of Fenton Watches, Inc., for May 2009.

(Step 1) (Step 2)

Equivalent Units

Flow of Production Physical Units

Direct Materials

Conversion Costs

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

80 500 580

(work done before current period)

Completed and transferred out during current period:

From beginning work in process §

80× (100% − 90%); 80× (100% − 40%) 80

8 48 Started and completed 380 × 100%, 380 × 100%

380 † 380 380

Work in process, ending * (given) 120 × 60%; 120 × 30%

120 ___ 72 36

Accounted for 580 Work done in current period only 460 464

§ Degree of completion in this department: direct materials, 90%; conversion costs, 40%. † 460 physical units completed and transferred out minus 80 physical units completed and transferred out from

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

179

1722 (20 min.) FIFO method, assigning costs (continuation of 1721).

Solution Exhibit 1722 summarizes total costs to account for, calculates cost per equivalent unit of work done in May 2009 in the Assembly Division of Fenton Watches, Inc., and assigns total costs to units completed and to units in ending workinprocess inventory.

SOLUTION EXHIBIT 1722 Steps 3, 4, and 5: Summarize Total Costs to Account For, Compute Cost per Equivalent Unit, and Assign Total Costs to Units Completed and to Units in Ending Work in Process; FIFO Method of Process Costing, Assembly Division of Fenton Watches, Inc., for May 2009.

Total Production

Costs Direct


Costs (Step 3) Work in process, beginning (given) $ 584,400 $ 493,360 $ 91,040

Costs added in current period (given) 4,612,000 3,220,000 1,392,000 Total costs to account for $5,196,400

$3,713,360 $1,483,040

(Step 4) Costs added in current period $3,220,000 $1,392,000 Divide by equivalent units of work done in current period (Solution Exhibit 1721)

÷ 460 ÷ 464

Cost per equiv. unit of work done in current period $ 7,000 $ 3,000

(Step 5) Assignment of costs: Completed and transferred out (460 units): Work in process, beginning (80 units)

Costs added to beginning work in process in current period

$ 584,400

200,000

$493,360 + $91,040

(8 * × $7,000) + (48 * × $3,000) Total from beginning inventory

Started and completed (380 units) Total costs of units completed and transferred out

Work in process, ending (120 units) Total costs accounted for

784,400 3,800,000

4,584,400 612,000

$5,196,400

(380 † × $7,000) + (380 † × $3,000)

(72 # × $7,000) + (36 # × $3,000) $3,713,360 + $1,483,040

* Equivalent units used to complete beginning work in process from Solution Exhibit 1721, Step 2. † Equivalent units started and completed from Solution Exhibit 1721, Step 2. # Equivalent units in work in process, ending from Solution Exhibit 1721, Step 2.

1710

1723 (2025 min.) Standardcosting method, assigning costs.

1.

SOLUTION EXHIBIT 1723A Steps 1 and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units; Standard Costing Method of Process Costing for Bucky’s Boxes for July 2010

(Step 1) (Step 2)

Equivalent Units


Direct Materials

Conversion Costs


185,000 465,000 650,000


Completed and transferred out during current period: From beginning work in process §

185,000 × (100% − 100%); 185,000 × (100% – 25%) 185,000

0 138,750 Started and completed 327,000 × 100%, 327,000 × 100%

327,000 † 327,000 327,000

Work in process, ending* (given) 138,000 × 100%; 138,000 × 80%

138,000 _______ 138,000 110,400

Accounted for 650,000 _______ _______ Work done in current period only 465,000 576,150

§ Degree of completion in this department: direct materials, 100%; conversion costs, 25%. † 512,000 physical units completed and transferred out minus 185,000 physical units completed and transferred out from beginning workinprocess inventory.

*Degree of completion in this department: direct materials, 100%; conversion costs, 80%.

1711

2.

SOLUTION EXHIBIT 1723B Steps 3, 4, and 5: Summarize Total Costs to Account For, Compute Cost per Equivalent Unit, and Assign Total Costs to Units Completed and to Units in Ending Work in Process; Standard Costing Method of Process Costing for Bucky’s Boxes for July 2010

Total Production

Costs Direct


Costs (Step 3) Work in process, beginning (given) $ 337,625 $240,500 + $ 97,125

Costs added in current period at standard costs 1,814,415 (465,000 × $1.30) + (576,150 × $2.10) Total costs to account for $2,152,040 $845,000 + $1,307,040

(Step 4) Standard cost per equivalent unit (given) $ 1.30 $ 2.10

(Step 5) Assignment of costs at standard costs: Completed and transferred out (512,000 units): Work in process, beginning (185,000 units) Costs added to beg. work in process in current period

Total from beginning inventory

$ 337,625 291,375 629,000

$240,500 + $97,125 (0* × $1.30) + (138,750* × $2.10)

Started and completed (327,000 units) Total costs of units transferred out

1,111,800 1,740,800

(327,000 † × $1.30) + (327,000 † × $2.10)

Work in process, ending (138,000 units) 411,240 (138,000 # × $1.30) + (110,400 # × $2.10) Total costs accounted for $2,152,040 $845,000 + $1,307,040

Summary of variances for current performance: Costs added in current period at standard costs (see Step 3 above) Actual costs incurred (given) Variance

$604,500 607,500 $ 3,000 U

$1,209,915 1,207,415 $ 2,500 F

*Equivalent units to complete beginning work in process from Solution Exhibit 1723A, Step 2.

† Equivalent units started and completed from Solution Exhibit 1723A, Step 2.

# Equivalent units in ending work in process from Solution Exhibit 1723A, Step 2.

1712

1724 (25 min.) Weightedaverage method, assigning costs.

1. & 2.

Solution Exhibit 1724A shows equivalent units of work done to date for Bio Doc Corporation for direct materials and conversion costs.

Solution Exhibit 1724B summarizes total costs to account for, calculates the cost per equivalent unit of work done to date for direct materials and conversion costs, and assigns these costs to units completed and transferred out and to units in ending workinprocess inventory.

SOLUTION EXHIBIT 1724A Steps 1 and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units; WeightedAverage Method of Process Costing, Bio Doc Corporation for July 2008.


Flow of Production Units Materials Costs Work in process, beginning (given) 12,500 Started during current period (given) 50,000 To account for 62,500 Completed and transferred out during current period 42,500 42,500 42,500

Work in process, ending* (given) 20,000 20,000 × 100%; 20,000 × 50% 20,000 10,000

Accounted for 62,500 Work done to date 62,500 52,500

* Degree of completion: direct materials, 100%; conversion costs, 50%.

1713

SOLUTION EXHIBIT 1724B Steps 3, 4, and 5: Summarize Total Costs to Account For, Compute Cost per Equivalent Unit, and Assign Total Costs to Units Completed and to Units in Ending Work in Process; WeightedAverage Method of Process Costing, Bio Doc Corporation for July 2008.

Total Production

Costs Direct


Costs (Step 3) Work in process, beginning (given) $162,500 $ 75,000 $ 87,500

Costs added in current period (given) 813 ,750 350,000 463,750 Total costs to account for $976,250 $425,000 $551,250

(Step 4) Costs incurred to date $425,000 $551,250 Divide by equivalent units of work done to date (Solution Exhibit 1724A) ÷ 62,500 ÷ 52,500

Cost per equivalent unit of work done to date $ 6.80 $ 10.50

(Step 5) Assignment of costs: Completed and transferred out (42,500 units) $735,250 (42,500* × $6.80) + (42,500* × $10.50) Work in process, ending (20,000 units) 241,000 (20,000 † × $6.80) + (10,000 † × $10.50) Total costs accounted for $976,250 $425,000 + $551,250

*Equivalent units completed and transferred out (given). † Equivalent units in ending work in process (given).

1714

1725 (30 min.) FIFO method, assigning costs.

1. & 2. Solution Exhibit 1725A calculates the equivalent units of work done in the current period. Solution Exhibit 1725B summarizes total costs to account for, calculates the cost per equivalent unit of work done in the current period for direct materials and conversion costs, and assigns these costs to units completed and transferred out and to units in ending workinprocess inventory.

SOLUTION EXHIBIT 1725A Steps 1 and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units; FIFO Method of Process Costing, Bio Doc Corporation for July 2008.

(Step 1) (Step 2)

Equivalent Units


Direct Materials

Conversion Costs


12,500 50,000 62,500



12,500 × (100% − 100%); 12,500 × (100% – 70%) 12,500


30,000 † 30,000 30,000


20,000 20,000 10,000

Accounted for 62,500 Work done in current period only 50,000 43,750

§ Degree of completion in this department: direct materials, 100%; conversion costs, 70%. † 42,500 physical units completed and transferred out minus 12,500 physical units completed and transferred out from beginning workinprocess inventory.


1715

SOLUTION EXHIBIT 1725B Steps 3, 4, and 5: Summarize Total Costs to Account For, Compute Cost per Equivalent Unit, and Assign Total Costs to Units Completed and to Units in Ending Work in Process; FIFO Method of Process Costing, Bio Doc Corporation for July 2008.

Total Production

Costs Direct


Costs (Step 3) Work in process, beginning (given) $162,500 $ 75,000 $ 87,500

Costs added in current period (given) 813,750 350,000 463,750

Total costs to account for $976,250 $425,000 $551,250

(Step 4) Costs added in current period $350,000 $463,750

Divide by equivalent units of work done in current period (Solution Exhibit 1725A) ÷ 50,000 ÷ 43,750

Cost per equivalent unit of work done in current period $ 7 $ 10.60 (Step 5) Assignment of costs:

Completed and transferred out (42,500 units): Work in process, beginning (12,500 units)

Cost added to beginning work in process in current period $162,500 39,750

$75,000 + $87,500 (0 * × $7) + (3,750 * × $10.60)

Total from beginning inventory Started and completed (30,000 units)

Total costs of units completed and transferred out Work in process, ending (20,000 units)

202,250 528,000 730,250 246,000

(30,000 † × $7) + (30,000 † × $10.60)

(20,000 # × $7) + (10,000 # × $10.60) Total costs accounted for $976,250 $425,000 + $551,250

*Equivalent units used to complete beginning work in process from Solution Exhibit 1725A, Step 2. † Equivalent units started and completed from Solution Exhibit 1725A, Step 2. # Equivalent units in ending work in process from Solution Exhibit 1725A, Step 2.

1716

1726 (30 min.) Standardcosting method, assigning costs.

1. The calculations of equivalent units for direct materials and conversion costs are identical to the calculations of equivalent units under the FIFO method. Solution Exhibit 1725A shows the equivalent unit calculations for standard costing and computes the equivalent units of work done in July 2008. Solution Exhibit 1726 uses the standard costs (direct materials, $6.60; conversion costs, $10.40) to summarize total costs to account for, and to assign these costs to units completed and transferred out and to units in ending workinprocess inventory.

2. Solution Exhibit 1726 shows the direct materials and conversion costs variances for

Direct materials $20,000 U Conversion costs $8,750 U

SOLUTION EXHIBIT 1726 Steps 3, 4, and 5: Summarize Total Costs to Account For, Compute Cost per Equivalent Unit, and Assign Total Costs to Units Completed and to Units in Ending Work in Process; Standard Costing Method of Process Costing, Bio Doc Corporation for July 2008.

Total Production

Costs Direct


Costs (Step 3) Work in process, beginning (given) $173,500 (12,500 × $6.60) + (8,750 × $10.40)

Costs added in current period at standard costs 785,000 (50,000 × $6.60) + (43,750 × $10.40) Total costs to account for $958,500 $412,500 + $546,000

(Step 4) Standard cost per equivalent unit (given) $ 6.60 $ 10.40 (Step 5) Assignment of costs at standard costs:

Completed and transferred out (42,500 units): Work in process, beginning (12,500 units) Costs added to beg. work in process in current period


$173,500 39,000 212,500

(12,500 × $6.60) + (8,750 × $10.40) (0* × $6.60) + (3,750* × $10.40)


510,000 722,500

(30,000 † × $6.60) + (30,000 † × $10.40)

Work in process, ending (20,000 units) 236,000 (20,000 # × $6.60) + (10,000 # × $10.40) Total costs accounted for $958,500 $412,500 + $546,000


$330,000 350,000 $ 20,000 U

$455,000 463,750 $ 8,750 U

*Equivalent units to complete beginning work in process from Solution Exhibit 1725A, Step 2. † Equivalent units started and completed from Solution Exhibit 1725A, Step 2. # Equivalent units in ending work in process from Solution Exhibit 1725A, Step 2.

1717

1727 (35–40 min.) Transferredin costs, weightedaverage method.

1, 2. & 3. Solution Exhibit 1727A calculates the equivalent units of work done to date. Solution Exhibit 1727B summarizes total costs to account for, calculates the cost per equivalent unit of work done to date for transferredin costs, direct materials, and conversion costs, and assigns these costs to units completed and transferred out and to units in ending workinprocess inventory.

SOLUTION EXHIBIT 1727A Steps 1 and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units WeightedAverage Method of Process Costing; Finishing Department of Asaya Clothing for June 2009.



Transferred in Costs

Direct Materials

Conversion Costs

Work in process, beginning (given) 75 Transferred in during current period (given) 135 To account for 210 Completed and transferred out during current period 150 150 150 150 Work in process, ending* (given) 60 60 × 100%; 60 × 0%; 60 × 75% 60 0 45

Accounted for 210 Work done to date 210 150 195

* Degree of completion in this department: transferredin costs, 100%; direct materials, 0%; conversion costs, 75%.

1718

SOLUTION EXHIBIT 1727B Steps 3, 4, and 5: Summarize Total Costs to Account For, Compute Cost per Equivalent Unit, and Assign Total Costs to Units Completed and to Units in Ending Work in Process; WeightedAverage Method of Process Costing, Finishing Department of Asaya Clothing for June 2009.

Total Production

Costs Transferredin

Costs Direct


Costs (Step 3) Work in process, beginning (given) $105,000 $ 75,000 $ 0 $ 30,000

Costs added in current period (given) 258,000 142,500 37,500 78,000 Total costs to account for $363,000 $ 217,500 $37,500 $108,000

(Step 4) Costs incurred to date $ 217,500 $37,500 $108,000 Divide by equivalent units of work done to date (Solution Exhibit 1727A) ÷ 210 ÷ 150 ÷ 195 Cost per equivalent unit of work done to date $1,035.71 $ 250 $ 553.85

(Step 5) Assignment of costs: Completed and transferred out (150 units) $275,934 (150 a × $1,035.71) + (150 a × $250) + (150 a × $553.85) Work in process, ending (60 units): 87,066 (60 b × $1,035.71) + (0 b × $250) + (45 b × $553.85) Total costs accounted for $363,000 $ 217,500 + $37,500 + $108,000

a Equivalent units completed and transferred out from Sol. Exhibit 1727, step 2. b Equivalent units in ending work in process from Sol. Exhibit 1727A, step 2.

1719

1728 (35–40 min.) Transferredin costs, FIFO method.

Solution Exhibit 1728A calculates the equivalent units of work done in the current period (for transferredin costs, directmaterials, and conversion costs) to complete beginning workin process inventory, to start and complete new units, and to produce ending work in process. Solution Exhibit 1728B summarizes total costs to account for, calculates the cost per equivalent unit of work done in the current period for transferredin costs, direct materials, and conversion costs, and assigns these costs to units completed and transferred out and to units in ending work inprocess inventory.

SOLUTION EXHIBIT 1728A Steps 1 and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units FIFO Method of Process Costing; Finishing Department of Asaya Clothing for June 2009.



Transferredin Costs

Direct Materials

Conversion Costs

Work in process, beginning (given) 75 (work done before current period) Transferredin during current period (given) 135 To account for 210 Completed and transferred out during current period: From beginning work in process a 75 [75 × (100% – 100%); 75 × (100% – 0%); 75 × (100% – 60%)] 0 75 30

Started and completed 75 b

(75 × 100%; 75 × 100%; 75 × 100%) 75 75 75 Work in process, ending c (given) 60 (60 × 100%; 60 × 0%; 60 × 75%) ___ 60 0 45

Accounted for 210 ___ ___ ___ Work done in current period only 135 150 150

a Degree of completion in this department: Transferredin costs, 100%; direct materials, 0%; conversion costs, 60%. b 150 physical units completed and transferred out minus 75 physical units completed and transferred out from beginning workinprocess inventory. c Degree of completion in this department: transferredin costs, 100%; direct materials, 0%; conversion costs, 75%.

1720

SOLUTION EXHIBIT 1728B Steps 3, 4, and 5: Summarize Total Costs to Account For, Compute Cost per Equivalent Unit, and Assign Total Costs to Units Completed and to Units in Ending Work in Process; FIFO Method of Process Costing, Finishing Department of Asaya Clothing for June 2009.

Total Production

Costs Transferredin

Costs Direct MaterialsConversion Costs (Step 3) Work in process, beginning (given) $ 90,000 $ 60,000 $ 0 $ 30,000

Costs added in current period (given) 246,300 130,800 37,500 78,000 Total costs to account for $336,300 $190,800 $37,500 $108,000

(Step 4) Costs added in current period $130,800 $37,500 $ 78,000 Divide by equivalent units of work done in current period (Solution Exhibit 1728A) ÷ 135 ÷ 150 ÷ 150 Cost per equivalent unit of work done in current period $ 968.89 $ 250 $ 520

(Step 5) Assignment of costs: Completed and transferred out (150 units) Work in process, beginning (75 units) $ 90,000 $ 60,000 $ 0 $ 30,000 Costs added to beginning work in process in current period 34,350 (0 a × $968.89) + (75 a × $250) + (30 a × $520)

Total from beginning inventory 124,350 Started and completed (75 units) 130,416 (75 b × $968.89) + (75 b × $250) + (75 b × $520)

Total costs of units completed and transferred out 254,766 Work in process, ending (60 units): 81,534 (60 c × $968.89) + (0 c × $250) + (45 c × $520) Total costs accounted for $336,300 $190,800 + $37,500 + $108,000

a Equivalent units used to complete beginning work in process from Solution Exhibit 1728A, step 2. b Equivalent units started and completed from Solution Exhibit 1728A, step 2. c Equivalent units in ending work in process from Solution Exhibit 1728A, step 2.

1721

1729 (1520 min.) Standardcosting method.

1. Since there was no additional work needed on the beginning inventory with respect to materials, the initial mulch must have been 100% complete with respect to materials. For conversion costs, the work done to complete the opening inventory was 434,250 ÷ 965,000 = 45%. Therefore, the unfinished mulch in opening inventory must have been 55% complete with respect to conversion costs.

2. It is clear that the ending WIP is also 100% complete with respect to direct materials (1,817,000 ÷ 1,817,000), and it is 60% (= 1,090,200 ÷ 1,817,000) complete with regard to conversion costs.

3. We can first obtain the total standard costs per unit. The number of units started and completed during August is 845,000, and a total cost of $6,717,750 is attached to them. The per unit standard cost is therefore ($6,717,750 ÷ 845,000) = $7.95. If x and y represent the per unit cost for direct materials and conversion costs, respectively, we therefore know that:

x + y = 7.95

We also know that the ending inventory is costed at $12,192,070 and contains 1,817,000 equivalent units of materials and 1,090,200 equivalent units of conversion costs. This provides a second equation:

1,817,000 x + 1,090,200 y = 12,192,070.

Solving these equations reveals that the direct materials cost per unit, x, is $4.85, while the conversion cost per unit, y, is $3.10.

4. Finally, the opening WIP contained 965,000 equivalent units of materials and (965,000 434,250) = 530,750 equivalent units of conversion costs. Applying the standard costs computed in step (3), the cost of the opening inventory must have been:

965,000 × $4.85 + 530,750 × $3.10 = $6,325,575.

1722

1730 (25 min.) Weightedaverage method.

1. Since direct materials are added at the beginning of the assembly process, the units in this department must be 100% complete with respect to direct materials. Solution Exhibit 1730A shows equivalent units of work done to date:

Direct materials 25,000 equivalent units Conversion costs 24,250 equivalent units

2. & 3. Solution Exhibit 1730B summarizes the total Assembly Department costs for October 2009, calculates cost per equivalent unit of work done to date, and assigns these costs to units completed (and transferred out) and to units in ending work in process using the weighted average method.

SOLUTION EXHIBIT 1730A Steps 1 and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units; WeightedAverage Method of Process Costing, Assembly Department of Larsen Company, for October 2009.


Physical Direct Conversion Flow of Production Units Materials Costs

Work in process, beginning (given) 5,000 Started during current period (given) 20,000 To account for 25,000 Completed and transferred out during current period 22,500 22,500 22,500 Work in process, ending* (given) 2,500 2,500 × 100%; 2,500 × 70% 2,500 1,750

Accounted for 25,000 Work done to date 25,000 24,250 * Degree of completion in this department: direct materials, 100%; conversion costs, 70%.

1723

SOLUTION EXHIBIT 1730B Steps 3, 4, and 5: Summarize Total Costs to Account For, Compute Cost per Equivalent Unit, and Assign Total Costs to Units Completed and to Units in Ending Work in Process; WeightedAverage Method of Process Costing, Assembly Department of Larsen Company, for October 2009.

Total Production

Costs Direct

Materials Conversion Costs

(Step 3) Work in process, beginning (given) $1,652,750 $1,250,000 $ 402,750 Costs added in current period (given) 6,837,500 4,500,000 2,337,500 Total costs to account for $8,490,250 $5,750,000 $2,740,250

(Step 4) Costs incurred to date $5,750,000 $2,740,250 Divide by equivalent units of work done to date (Solution Exhibit 1730A) ÷ 25,000 ÷ 24,250 Cost per equivalent unit of work done to date $ 230 $ 113

(Step 5) Assignment of costs: Completed and transferred out (22,500 units) $7,717,500 (22,500* × $230) + (22,500 * × $113) Work in process, ending (2,500 units) 772,750 (2,500 † × $230) + (1,750 † × $113) Total costs accounted for $8,490,250 $6,150,000 + $2,619,000

* Equivalent units completed and transferred out from Solution Exhibit 1730A, Step 2. † Equivalent units in work in process, ending from Solution Exhibit 1730A, Step 2.

1731 (10 min.) Journal entries (continuation of 1730).

1. Work in Process––Assembly Department 4,500,000 Accounts Payable 4,500,000

Direct materials purchased and used in production in October.

2. Work in Process––Assembly Department 2,337,500 Various accounts 2,337,500

Conversion costs incurred in October.

3. Work in Process––Testing Department 7,717,500 Work in Process––Assembly Department 7,717,500

Cost of goods completed and transferred out in October from the Assembly Department to the Testing Department.

Work in Process––Assembly Department Beginning inventory, October 1 1,652,750 1. Direct materials 4,500,000 2. Conversion costs 2,337,500

3. Transferred out to Work in Process–Testing 7,717,500

Ending Inventory, October 31 772,750

1724

1732 (20 min.) FIFO method (continuation of 1730).

1. The equivalent units of work done in the current period in the Assembly Department in October 2009 for direct materials and conversion costs are shown in Solution Exhibit 1732A.

2. The cost per equivalent unit of work done in the current period in the Assembly Department in October 2009 for direct materials and conversion costs is calculated in Solution Exhibit 1732B.

3. Solution Exhibit 1732B summarizes the total Assembly Department costs for October 2009, and assigns these costs to units completed (and transferred out) and units in ending work in process under the FIFO method.

The cost per equivalent unit of beginning inventory and of work done in the current period differ:

Beginning Inventory

Work Done in Current Period

Direct materials Conversion costs Total cost per unit

$250.00 ($1,250,000 ÷ 5,000 equiv. units) 134.25 ($ 402,750 ÷ 3,000 equiv. units) $384.25

$225.00 110.00 $335.00

Direct Materials

Conversion Costs

Cost per equivalent unit (weightedaverage) $230* $113 *

Cost per equivalent unit (FIFO) $225** $110 ** * from Solution Exhibit 1730B ** from Solution Exhibit 1732B

The cost per equivalent unit differs between the two methods because each method uses different costs as the numerator of the calculation. FIFO uses only the costs added during the current period whereas weightedaverage uses the costs from the beginning workinprocess as well as costs added during the current period. Both methods also use different equivalent units in the denominator.

The following table summarizes the costs assigned to units completed and those still in process under the weightedaverage and FIFO processcosting methods for our example.

Weighted Average (Solution

Exhibit 1730B)

FIFO (Solution

Exhibit 1732B) Difference Cost of units completed and transferred out Work in process, ending Total costs accounted for

$7,717,500 772,750

$8,490,250

$7,735,250 755,000

$8,490,250

+ $17,750 − $17,750

1725

The FIFO ending inventory is lower than the weightedaverage ending inventory by $17,750. This is because FIFO assumes that all the highercost priorperiod units in work in process are the first to be completed and transferred out while ending work in process consists of only the lowercost currentperiod units. The weightedaverage method, however, smoothes out cost per equivalent unit by assuming that more of the lowercost units are completed and transferred out, while some of the highercost units in beginning work in process are placed in ending work in process. So, in this case, the weightedaverage method results in a lower cost of units completed and transferred out and a higher ending workinprocess inventory relative to the FIFO method.

SOLUTION EXHIBIT 1732A Steps 1 and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units; FIFO Method of Process Costing, Assembly Department of Larsen Company for October 2009.



Direct Materials

Conversion Costs


5,000 20,000 25,000



5,000 × (100% − 100%); 5,000 × (100% − 60%) 5,000 0 2,000 Started and completed 17,500 ×100%, 17,500 × 100% 17,000 † 17,500 17,500


2,500 _____ 2,500 1,750

Accounted for 25,000 ______

Work done in current period only 20,000 21,250 § Degree of completion in this department: direct materials, 100%; conversion costs, 60%. † 22,500 physical units completed and transferred out minus 5,000 physical units completed and transferred out from beginning workinprocess inventory.


1726

SOLUTION EXHIBIT 1732B Steps 3, 4, and 5: Summarize Total Costs to Account For, Compute Cost per Equivalent Unit, and Assign Total Costs to Units Completed and to Units in Ending Work in Process; FIFO Method of Process Costing, Assembly Department of Larsen Company for October 2009.

Total Production

Costs Direct


Costs (Step 3) Work in process, beginning (given) $1,652,750 $1,250,000 $ 402,750

Costs added in current period (given) 6,837,500 4,500,000 2,337,500 Total costs to account for $8,490,250 $5,750,000 $2,740,250

(Step 4) Costs added in current period $4,500,000 $2,337,500 Divide by equivalent units of work done in current period (Solution Exhibit 1732A) ÷ 20,000 ÷ 21,250

Cost per equivalent unit of work done in current period $ 225 $ 110

(Step 5) Assignment of costs: Completed and transferred out (22,500 units): Work in process, beginning (5,000 units)

Costs added to beg. work in process in current period $1,652,750

220,000 $1,250,000 + $ 402,750 (0 * × $225) + (2,000 * × $110)


Total costs of units completed & transferred out Work in process, ending (2,500 units) Total costs accounted for

1,872,750 5,862,500 7,735,250 755,000

$8,490,250

(17,500 † × $225) + (17,500 † × $110)

(2,500 # × $225) + (1,750 # × $110) $5,750,000 + $2,740,250


1727

1733 (30 min.) Transferredin costs, weightedaverage method (related to 1730 to 1732).

1. Transferredin costs are 100% complete, and direct materials are 0% complete in both beginning and ending workinprocess inventory. The reason is that transferredin costs are always 100% complete as soon as they are transferred in from the Assembly Department to the Testing Department. Direct materials in beginning or ending work in process for the Testing Department are 0% complete because direct materials are added only when the testing process is 90% complete and the units in beginning and ending work in process are only 70% and 60% complete, respectively.

2. Solution Exhibit 1733A computes the equivalent units of work done to date in the Testing Department for transferredin costs, direct materials, and conversion costs.

3. Solution Exhibit 1733B summarizes total Testing Department costs for October 2009, calculates the cost per equivalent unit of work done to date in the Testing Department for transferredin costs, direct materials, and conversion costs, and assigns these costs to units completed and transferred out and to units in ending work in process using the weightedaverage method.

4. Journal entries: a. Work in Process––Testing Department 7,717,500

Work in Process––Assembly Department 7,717,500 Cost of goods completed and transferred out

during October from the Assembly Department to the Testing Department

b. Finished Goods 23,459,600 Work in Process––Testing Department 23,459,600

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

1728

SOLUTION EXHIBIT 1733A Steps 1 and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units; WeightedAverage Method of Process Costing, Testing Department of Larsen Company for October 2009.



Transferredin Costs

Direct Materials

Conversion Costs

Work in process, beginning (given) 7,500 Transferred in during current period (given) 22,500 To account for 30,000 Completed and transferred out during current period 26,300 26,300 26,300 26,300 Work in process, ending* (given) 3,700 3,700 × 100%; 3,700 × 0%; 3,700 × 60% 3,700 0 2,220

Accounted for 30,000 Work done to date 30,000 26,300 28,520


1729

SOLUTION EXHIBIT 1733B Steps 3, 4, and 5: Summarize Total Costs to Account For, Compute Cost per Equivalent Unit, and Assign Total Costs to Units Completed and to Units in Ending Work in Process; WeightedAverage Method of Process Costing, Testing Department of Larsen Company for October 2009.

Total Production

Costs Transferred in Costs

Direct Materials

Conversion Costs

(Step 3)Work in process, beginning (given) $ 3,767,960 $ 2,932,500 $ 0 $ 835,460 Costs added in current period (given) 21,378,100 7,717,500 9,704,700 3,955,900 Total costs to account for $25,146,060 $10,650,000 $9,704,700 $4,791,360

(Step 4) Costs incurred to date $10,650,000 $9,704,700 $4,791,360 Divide by equivalent units of work done to date (Solution Exhibit 1733A) ÷ 30,000 ÷ 26,300 ÷ 28,520 Equivalent unit costs of work done to date $ 355 $ 369 $ 168

(Step 5)Assignment of costs: Completed and transferred out (26,300 units) $23,459,600 (26,300 * × $355) + (26,300 * × $369) + (26,300 * × $168) Work in process, ending (3,700 units) 1,686,460 (3,700 † × $355) + (0 † × $369) + (2,220 † × $168) Total costs accounted for $25,146,060 $10,429,500 + $9,704,700 + $4,791,360

*Equivalent units completed and transferred out from Solution Exhibit 1733A, Step 2. † Equivalent units in ending work in process from Solution Exhibit 1733A, Step 2.

1730

1734 (30 min.) Transferredin costs, FIFO method (continuation of 1733).

1. As explained in Problem 1733, requirement 1, transferredin costs are 100% complete and direct materials are 0% complete in both beginning and ending workinprocess inventory.

2. The equivalent units of work done in October 2009 in the Testing Department for transferredin costs, direct materials, and conversion costs are calculated in Solution Exhibit 17 34A.

3. Solution Exhibit 1734B summarizes total Testing Department costs for October 2009, calculates the cost per equivalent unit of work done in October 2009 in the Testing Department for transferredin costs, direct materials, and conversion costs, and assigns these costs to units completed and transferred out and to units in ending work in process using the FIFO method.

4. Journal entries: a. Work in Process––Testing Department 7,735,250

Work in Process––Assembly Department 7,735,250 Cost of goods completed and transferred out during October from the Assembly Dept. to the Testing Dept.

b. Finished Goods 23,463,766 Work in Process––Testing Department 23,463,766

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

1731

SOLUTION EXHIBIT 1734A Steps 1 and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units; FIFO Method of Process Costing, Testing Department of Larsen Company for October 2009.

(Step 1) (Step 2)

Equivalent Units



Direct Materials

Conversion Costs

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

7,500 22,500 30,000


Completed and transferred out during current period:

From beginning work in process §

7,500× (100% − 100%); 7,500× (100% − 0%); 7,500× (100% − 70%)

7,500

0 7,500 2,250 Started and completed

18,800 × 100%; 18,800× 100%; 18,800× 100% 18,800 †

18,800 18,800 18,800 Work in process, ending* (given) 3,700× 100%; 3,700× 0%; 3,700× 60%

3,700 ______ 3,700 0 2,220

Accounted for 30,000 _____ ______ Work done in current period only 22,500 26,300 23,270

§ Degree of completion in this department: Transferredin costs, 100%; direct materials, 0%; conversion costs, 70%. † 26,300 physical units completed and transferred out minus 7,500 physical units completed and transferred out from beginning workinprocess inventory.

*Degree of completion in this department: transferredin costs, 100%; direct materials, 0%; conversion costs, 60%.

1732

SOLUTION EXHIBIT 1734B Steps 3, 4, and 5: Summarize Total Costs to Account For, Compute Cost per Equivalent Unit, and Assign Total Costs to Units Completed and to Units in Ending Work in Process; FIFO Method of Process Costing, Testing Department of Larsen Company for October 2009.

Total Production

Costs Transferredin

Costs Direct


Costs (Step 3) Work in process, beginning (given) $ 3,717,335 $ 2,881,875 $ 0 $ 835,460

Costs added in current period (given) 21,395,850 7,735,250 9,704,700 3,955,900 Total costs to account for $25,113,185 $10,617,125 $9,704,700 $4,791,360

(Step 4) Costs added in current period $ 7,735,250 $9,704,700 $3,955,900 Divide by equivalent units of work done in current period (Solution Exhibit 1734A) ÷ 22,500 ÷ 26,300 ÷ 23,270

Cost per equiv. unit of work done in current period $ 343.79 $ 369.00 $ 170.00

(Step 5) Assignment of costs: Completed and transferred out (26,300 units): Work in process, beginning (7,500 units)

Costs added to beg. work in process in current period $ 3,717,335 3,150,000

$2,881,875 + $0 + $835,460 (0 * × $343.79) + (7,500 * × $369.00) + (2,250 * × $170.00)


Total costs of units completed & transferred out Work in process, ending (3,700 units)

6,867,335 16,596,431 23,463,766 1,649,419

(18,800 † × $343.79)+(18,800 † × $369.00)+(18,800 † ×$170.00)

(3,700 # × $343.79) + (0 # × $369.00) + (2,220 # × $170.00) Total costs accounted for $25,113,185 $10,617,125 + $9,704,700 + $4,791,360


1733

1735 (25 min.) Weightedaverage method.

Solution Exhibit 1735A shows equivalent units of work done to date of:

Direct materials 625 equivalent units Conversion costs 525 equivalent units

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

Solution Exhibit 1735B summarizes the total Assembly Department costs for April 2009, calculates cost per equivalent unit of work done to date for direct materials and conversion costs, and assigns these costs to units completed (and transferred out), and to units in ending work in process using the weightedaverage method.

SOLUTION EXHIBIT 1735A Steps 1 and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units; WeightedAverage Method of Process Costing, Assembly Department of Porter Handcraft for April 2009.


Physical Direct Conversion Flow of Production Units Materials Costs

Work in process, beginning (given) 75 Started during current period (given) 550 To account for 625 Completed and transferred out during current period 500 500 500

Work in process, ending* (given) 125 125 × 100%; 125 × 20% 125 25

Accounted for 625 Work done to date 625 525


1734

SOLUTION EXHIBIT 1735B Steps 3, 4, and 5: Summarize Total Costs to Account For, Compute Cost per Equivalent Unit, and Assign Total Costs to Units Completed and to Units in Ending Work in Process; WeightedAverage Method of Process Costing, Assembly Department of Porter, April 2009.

Total Production

Costs Direct


Costs (Step 3) Work in process, beginning (given) $ 1,910 $ 1,775 $ 135

Costs added in current period (given) 28,490 17,600 10,890 Total costs to account for $30,400 $19,375 $11,025

(Step 4) Costs incurred to date $19,375 $11,025 Divide by equivalent units of work done to date (Solution Exhibit 1735A) ÷ 625 ÷ 525

Cost per equivalent unit of work done to date $ 31 $ 21

(Step 5) Assignment of costs: Completed and transferred out (500 units) $26,000 (500 * × $31) + (500 * × $21) Work in process, ending (125 units) 4,400 (125 † × $31) + (25 † × $21) Total costs accounted for $30,400 $19,375 + $11,025

* Equivalent units completed and transferred out from Solution Exhibit 1735A, Step 2. † Equivalent units in ending work in process from Solution Exhibit 1735A, Step 2.

1735

1736 (5–10 min.) Journal entries (continuation of 1735).

1. Work in Process–– Assembly Department 17,600 Accounts Payable 17,600

To record direct materials purchased and used in production during April

2. Work in Process–– Assembly Department 10,890 Various Accounts 10,890

To record Assembly Department conversion costs for April

3. Work in Process––Finishing Department 26,000 Work in Process–– Assembly Department 26,000

To record cost of goods completed and transferred out in April from the Assembly Department to the Finishing Department

Work in Process –– Assembly Department Beginning inventory, April 1 1,910 3. Transferred out to 1. Direct materials 17,600 Work in Process––Finishing 26,000 2. Conversion costs 10,890 Ending inventory, April 30 4,400

1736

1737 (20 min.) FIFO method (continuation of 1735).

The equivalent units of work done in April 2009 in the Assembly Department for direct materials and conversion costs are shown in Solution Exhibit 1737A.

Solution Exhibit 1737B summarizes the total Assembly Department costs for April 2009, calculates the cost per equivalent unit of work done in April 2009 in the Assembly Department for direct materials and conversion costs, and assigns these costs to units completed (and transferred out) and to units in ending work in process under the FIFO method.

The equivalent units of work done in beginning inventory is: direct materials, 75 × 100% = 75; and conversion costs 75 × 40% = 30. The cost per equivalent unit of beginning inventory and of work done in the current period are:

Beginning Inventory


(Calculated Under FIFO Method)

Direct materials Conversion costs

$23.67 ($1,775 ÷ 75) $4.50 ($135 ÷ 30)

$32 $22

The following table summarizes the costs assigned to units completed and those still in process under the weightedaverage and FIFO processcosting methods for our example.


Exhibit 1735B)

FIFO (Solution


$26,000 4,400

$30,400

$25,850 4,550

$30,400

–$150 +$150

The FIFO ending inventory is higher than the weightedaverage ending inventory by $150. This is because FIFO assumes that all the lowercost priorperiod units in work in process are the first to be completed and transferred out while ending work in process consists of only the highercost currentperiod units. The weightedaverage method, however, smoothes out cost per equivalent unit by assuming that more of the highercost units are completed and transferred out, while some of the lowercost units in beginning work in process are placed in ending work in process. Hence, in this case, the weightedaverage method results in a higher cost of units completed and transferred out and a lower ending workinprocess inventory relative to the FIFO method.

1737

SOLUTION EXHIBIT 1737A Steps 1 and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units; FIFO Method of Process Costing, Assembly Department of Porter Handcraft for April 2009.

(Step 1) (Step 2)

Equivalent Units


Direct Materials

Conversion Costs


75 550 625



75× (100% − 100%); 75× (100% − 40%) 75

0 45 Started and completed 425 × 100%; 425 × 100%

425 † 425 425

Work in process, ending* (given) 125 × 100%; 125 × 20%

125 125 25

Accounted for 625 Work done in current period only 550 495

§ Degree of completion in this department: direct materials, 100%; conversion costs, 40%. † 500 physical units completed and transferred out minus 75 physical units completed and transferred out from beginning workinprocess inventory.

*Degree of completion in this department: direct materials, 100%; conversion costs, 20%. SOLUTION EXHIBIT 1737B Steps 3, 4, and 5: Summarize Total Costs to Account For, Compute Cost per Equivalent Unit, and Assign Total Costs to Units Completed and to Units in Ending Work in Process; FIFO Method of Process Costing, Assembly Department of Porter Handcraft for April 2009.

Total Production

Costs Direct


Costs (Step 3) Work in process, beginning (given) $ 1,910 $ 1,775 $ 135

Costs added in current period (given) 28,490 17,600 10,890 Total costs to account for $30,400 $19,375 $11,025

(Step 4) Costs added in current period $17,600 $10,890 Divide by equivalent units of work done in current period (Exhibit 1737A) ÷ 550 ÷ 495

Cost per equivalent unit of work done in current period $ 32 $ 22

(Step 5) Assignment of costs: Completed and transferred out (500 units):

Work in process, beginning (75 units) Costs added to begin. work in process in current period

$ 1,910

990

$1,775 + $135

(0 * × $32) + (45 * × $22) Total from beginning inventory

Started and completed (425 units) Total costs of units completed & tsfd. out

Work in process, ending (125 units) Total costs accounted for

2,900 22,950 25,850 4,550

$30,400

(425 † × $32) + (425 † × $22)

(125 # × $32) + (25 # × $22) $19,375 + $11,025


1738

1738 (30 min.) Transferredin costs, weighted average.

1. Solution Exhibit 1738A computes the equivalent units of work done to date in the Binding Department for transferredin costs, direct materials, and conversion costs.

Solution Exhibit 1738B summarizes total Binding Department costs for April 2009, calculates the cost per equivalent unit of work done to date in the Binding Department for transferredin costs, direct materials, and conversion costs, and assigns these costs to units completed and transferred out and to units in ending work in process using the weightedaverage method.

2. Journal entries: a. Work in Process–– Binding Department 144,000

Work in Process––Printing Department 144,000 Cost of goods completed and transferred out

during April from the Printing Department to the Binding Department

b. Finished Goods 249,012 Work in Process–– Binding Department 249,012

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

SOLUTION EXHIBIT 1738A Steps 1 and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units; WeightedAverage Method of Process Costing, Binding Department of Publish, Inc. for April 2009.




Direct Materials

Conversion Costs

Work in process, beginning (given) 900 Transferredin during current period (given) 2,700 To account for 3,600 Completed and transferred out during current period: 3,000 3,000 3,000 3,000 Work in process, ending a (given) 600 (600 × 100%; 600 × 0%; 600 × 60%) 600 0 360


a Degree of completion in this department: transferredin costs, 100%; direct materials, 0%; conversion costs, 60%.

1739

SOLUTION EXHIBIT 1738B Steps 3, 4, and 5: Summarize Total Costs to Account For, Compute Cost per Equivalent Unit, and Assign Total Costs to Units Completed and to Units in Ending Work in Process; WeightedAverage Method of Process Costing, Binding Department of Publish, Inc. for April 2009.

Total Production

Costs Transferredin

Costs Direct


Costs (Step 3) Work in process, beginning (given) $ 47,775 $ 32,775 $ 0 $15,000


(Step 4) Costs incurred to date $176,775 $26,700 $84,000 Divide by equivalent units of work done to date (Solution Exhibit 1738A) ÷ 3,600 ÷ 3,000 ÷ 3,360 Cost per equivalent unit of work done to date $ 49.104 $ 8.90 $ 25

(Step 5) Assignment of costs: Completed and transferred out (3,000 units) $249,012 (3,000 a × $49.104) + (3,000 a × $8.90) + (3,000 a × $25) Work in process, ending (600 units): 38,463 (600 b × $49.104) + (0 b × $8.90) + (360 b × $25)

Total costs accounted for $287,475 $176,775 + $26,700 + $84,000

a Equivalent units completed and transferred out from Sol. Exhibit 1738A, step 2. b Equivalent units in ending work in process from Sol. Exhibit 1738A, step 2.

1740

1739 (30 min.) Transferredin costs, FIFO method (continuation of 1738).

1. Solution Exhibit 1739A calculates the equivalent units of work done in April 2009 in the Binding Department for transferredin costs, direct materials, and conversion costs.

Solution Exhibit 1739B summarizes total Binding Department costs for April 2009, calculates the cost per equivalent unit of work done in April 2009 in the Binding Department for transferredin costs, direct materials, and conversion costs, and assigns these costs to units completed and transferred out and to units in ending work in process using the FIFO method.

Journal entries: a. Work in Process–– Binding Department 141,750

Work in Process––Printing Department 141,750 Cost of goods completed and transferred out during April from the Printing Department to the Binding Department.

b. Finished Goods 240,525 Work in Process–– Binding Department 240,525

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

2. The equivalent units of work done in beginning inventory is: Transferredin costs, 900 × 100% = 900; direct materials, 900 × 0% = 0; and conversion costs, 900 × 40% = 360. The cost per equivalent unit of beginning inventory and of work done in the current period are:

Beginning Inventory


Transferredin costs (weighted average) Transferredin costs (FIFO) Direct materials Conversion costs

$36.42 ($32,775 ÷ 900) $30.95 ($27,855 ÷ 900)

— $41.67 ($15,000 ÷ 360)

$53.33 ($144,000 ÷ 2,700) $52.50 ($141,750 ÷ 2,700)

$ 8.90 $23.00

The following table summarizes the costs assigned to units completed and those still in process under the weightedaverage and FIFO processcosting methods for the Binding Department.


Exhibit 1738B)

FIFO (Solution


$249,012 38,463

$287,475

$240,525 39,780

$280,305

–$8,487 +$1,317

1741

The FIFO ending inventory is higher than the weightedaverage ending inventory by $1,317. This is because FIFO assumes that all the lowercost priorperiod units in work in process (resulting from the lower transferredin costs in beginning inventory) are the first to be completed and transferred out while ending work in process consists of only the highercost currentperiod units. The weightedaverage method, however, smoothes out cost per equivalent unit by assuming that more of the highercost units are completed and transferred out, while some of the lowercost units in beginning work in process are placed in ending work in process. Hence, in this case, the weightedaverage method results in a higher cost of units completed and transferred out and a lower ending workinprocess inventory relative to FIFO. Note that the difference in cost of units completed and transferred out (–$8,487) does not fully offset the difference in ending workinprocess inventory (+$1,317). This is because the FIFO and weightedaverage methods result in different values for transferredin costs with respect to both beginning inventory and costs transferred in during the period.

SOLUTION EXHIBIT 1739A Steps 1 and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units; FIFO Method of Process Costing, Binding Department of Publish, Inc. for April 2009.



Transferredin Costs

Direct Materials

Conversion Costs

Work in process, beginning (given) 900 (work done before current period) Transferredin during current period (given) 2,700 To account for 3,600 Completed and transferred out during current period: From beginning work in process a 900 [900 × (100% – 100%); 900 × (100% – 0%); 900 × (100% – 40%)] 0 900 540

Started and completed 2,100 b

(2,100 ×100%; 2,100 ×100%; 2,100 ×100%) 2,100 2,100 2,100 Work in process, ending c (given) 600 (600 ×100%; 600 x 0%; 600 ×60%) ____ 600 0 360

Accounted for 3,600 ____ ____ ____ Work done in current period only 2,700 3,000 3,000

a Degree of completion in this department: Transferredin costs, 100%; direct materials, 0%; conversion costs, 40%. b 3,000 physical units completed and transferred out minus 900 physical units completed and transferred out from beginning workinprocess inventory.

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

1742

SOLUTION EXHIBIT 1739B Steps 3, 4, and 5: Summarize Total Costs to Account For, Compute Cost per Equivalent Unit, and Assign Total Costs to Units Completed and to Units in Ending Work in Process; FIFO Method of Process Costing, Binding Department of Publish, Inc. for April 2009.

Total Production

Costs Transferredin Costs Direct


Costs (Step 3) Work in process, beginning (given) $ 42,855 $ 27,855 $ 0 $15,000


(Step 4) Costs added in current period $141,750 $26,700 $69,000 Divide by equivalent units of work done in current period (Sol. Exhibit 1739A) ÷ 2,700 ÷ 3,000 ÷ 3,000 Cost per equivalent unit of work done in current period $ 52.50 $ 8.90 $ 23.00

(Step 5) Assignment of costs: Completed and transferred out (3,000 units) Work in process, beginning (900 units) $ 42,855 $27,855 + $0 + $15,000 Costs added to beginning work in process in current period 20,430 (0 a × $52.50) + (900 a × $8.90) + (540 a × $23)

Total from beginning inventory 63,285 Started and completed (2,100 units) 177,240 (2,100 b × $52.50) + (2,100 b × $8.90) + (2,100 b × $23)

Total costs of units completed and transferred out 240,525 Work in process, ending (600 units): 39,780 (600 c × $52.50) + (0 c × $8.90) + (360 c × $23) Total costs accounted for $280,305 $169,605 + $26,700 + $84,000

a Equivalent units used to complete beginning work in process from Solution Exhibit 1739A, step 2. b Equivalent units started and completed from Solution Exhibit 1739A, step 2. c Equivalent units in ending work in process from Solution Exhibit 1739A, step 2.

1743

1740 (45 min.) Transferredin costs, weightedaverage and FIFO methods.

1. Solution Exhibit 1740A computes the equivalent units of work done to date in the Drying and Packaging Department for transferredin costs, direct materials, and conversion costs. Solution Exhibit 1740B summarizes total Drying and Packaging Department costs for week 37, calculates the cost per equivalent unit of work done to date in the Drying and Packaging Department for transferredin costs, direct materials, and conversion costs, and assigns these costs to units completed and transferred out and to units in ending work in process using the weightedaverage method.

2. Solution Exhibit 1740C computes the equivalent units of work done in week 37 in the Drying and Packaging Department for transferredin costs, direct materials, and conversion costs. Solution Exhibit 1740D summarizes total Drying and Packaging Department costs for week 37, calculates the cost per equivalent unit of work done in week 37 in the Drying and Packaging Department for transferredin costs, direct materials, and conversion costs, and assigns these costs to units completed and transferred out and to units in ending work in process using the FIFO method.

SOLUTION EXHIBIT 1740A Steps 1 and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units; WeightedAverage Method of Process Costing, Drying and Packaging Department of FritoLay Inc. for Week 37.




Direct Materials

Conversion Costs

Work in process, beginning (given) 1,250 Transferred in during current period (given) 5,000 To account for 6,250 Completed and transferred out during current period 5,250 5,250 5,250 5,250 Work in process, ending* (given) 1,000 1,000 × 100%; 1,000 × 0%; 1,000 × 40% 1,000 0 400



1744

SOLUTION EXHIBIT 1740B Steps 3, 4, and 5: Summarize Total Costs to Account For, Compute Cost per Equivalent Unit, and Assign Total Costs to Units Completed and to Units in Ending Work in Process; WeightedAverage Method of Process Costing, Drying and Packaging Department of FritoLay Inc. for Week 37.

Total Production


Direct Materials

Conversion Costs

(Step 3) Work in process, beginning (given) $ 38,060 $ 29,000 $ 0 $ 9,060 Costs added in current period (given) 159,600 96,000 25,200 38,400 Total costs to account for $197,660 $125,000 $25,200 $47,460

(Step 4) Costs incurred to date $125,000 $25,200 $47,460 Divide by equivalent units of work done

to date (Solution Exhibit 1740A) ÷ 6,250 ÷ 5,250 ÷ 5,650 Equivalent unit costs of work done to date $ 20 $ 4.80 $ 8.40

(Step 5) Assignment of costs: Completed and transferred out (5,250 units) $174,300 (5,250 * × $20) + (5,250 * × $4.80) + (5,250 * × $8.40) Work in process, ending (1,000 units) 23,360 (1,000 † × $20) + (0 † × $4.80) + (400 † × $8.40) Total costs accounted for $197,660 $125,000 + $25,200 + $47,460

* Equivalent units completed and transferred out from Solution Exhibit 1740A, Step 2. †Equivalent units in ending work in process from Solution Exhibit 1740A, Step 2.

1745

SOLUTION EXHIBIT 1740C Steps 1 and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units; FIFO Method of Process Costing, Drying and Packaging Department of FritoLay Inc. for Week 37.

(Step 1) (Step 2)

Equivalent Units



Direct Materials

Conversion Costs

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

1,250 5,000 6,250



1,250× (100% − 100%); 1,250× (100% − 0%); 1,250× (100% − 80%)

1,250

0 1,250 250 Started and completed 4,000× 100%; 4,000× 100%; 4,000× 100%

4,000 † 4,000 4,000 4,000

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

1,000 1,000 0 400

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

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

*Degree of completion in this department: transferredin costs, 100%; direct materials, 0%; conversion costs, 40%.

1746

SOLUTION EXHIBIT 1740D Steps 3, 4, and 5: Summarize Total Costs to Account For, Compute Cost per Equivalent Unit, and Assign Total Costs to Units Completed and to Units in Ending Work in Process; FIFO Method of Process Costing, Drying and Packaging Department of FritoLay Inc. for Week 37.

Total Production


Direct Materials

Conversion Costs

(Step 3) Work in process, beginning (given) $ 37,980 $ 28,920 $ 0 $ 9,060 Costs added in current period (given) 157,600 94,000 25,200 38,400 Total costs to account for $195,580 $122,920 $25,200 $47,460

(Step 4) Costs added in current period $ 94,000 $25,200 $38,400 Divide by equivalent units of work done in current period (Solution Exhibit 1740C) ÷ 5,000 ÷ 5,250 ÷ 4,650 Cost per equivalent unit of work done in current period $ 18.80 $ 4.80 $ 8.258

(Step 5) Assignment of costs: Completed and transferred out (5,250 units):

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

$ 37,980 8,065

$28,920 + $0 + $9,060 (0 * × $18.80) + (1,250 * × $4.80) + (250 * × $8.258)


Total costs of units completed & transferred out Work in process, ending (1,000 units) Total costs accounted for

46,045 127,432 173,477 22,103

$195,580

(4,000 † × $18.80) + (4,000 † × $4.80) + (4,000 † × $8.258)

(1,000 # × $18.80) + (0 # × $4.80) + (400 # × $8.258) $122,920 + $25,200 $47,460

(Step 3) * Equivalent units used to complete beginning work in process from Solution Exhibit 1740C, Step 2. † Equivalent units started and completed from Solution Exhibit 1740C, Step 2. # Equivalent units in ending work in process from Solution Exhibit 1740C, Step 2.

1747

1741 (3035 min.) Weightedaverage and standardcosting method.

1. Solution Exhibit 1741A computes the equivalent units of work done in November 2010 by Paquita’s Pearls Company for direct materials and conversion costs.

2. and 3. Solution Exhibit 1741B summarizes total costs of the Paquita’s Pearls Company for November 30, 2010 and, using the standard cost per equivalent unit for direct materials and conversion costs, assigns these costs to units completed and transferred out and to units in ending work in process. The exhibit also summarizes the cost variances for direct materials and conversion costs for November 2010.

SOLUTION EXHIBIT 1741A Steps 1 and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units; Standard Costing Method of Process Costing, Paquita’s Pearls Company for the month ended November 30, 2010.

(Step 1) (Step 2)

Equivalent Units


Direct Materials

Conversion Costs


25,000 126,250 151,250



25,000 × (100% − 100%); 25,000 × (100% – 75%) 25,000


100,000 † 100,000 100,000


26,250 _______ 26,250 13,125

Accounted for 151,250 _______ _______ Work done in current period only 126,250 119,375

§ Degree of completion in this department: direct materials, 100%; conversion costs, 75%.

† 125,000 physical units completed and transferred out minus 25,000 physical units completed and transferred out from beginning workinprocess inventory.


1748

SOLUTION EXHIBIT 1741B Steps 3, 4, and 5: Summarize Total Costs to Account For, Compute Cost per Equivalent Unit, and Assign Total Costs to Units Completed and to Units in Ending Work in Process; StandardCosting Method of Process Costing, Paquita’s Pearls Company for the month ended November 30, 2010.

Total Production

Costs Direct


Costs (Step 3) Work in process, beginning (given) $ 250,000 $ 62,500 + $ 187,500

Costs added in current period at standard costs 1,509,375 (126,250 × 2.50) + (119,375 × $10.00) Total costs to account for $1,759,375 $378,125 + $1,381,250

(Step 4) Standard cost per equivalent unit (given) $ 2.50 $ 10.00 (Step 5) Assignment of costs at standard costs:

Completed and transferred out (125,000 units): Work in process, beginning (25,000 units) Costs added to beg. work in process in current period


$ 250,000 62,500 312,500

$62,500 + $187,500 (0* × $2.50) + (6,250* × $10.00)


1,250,000 1,562,500

(100,000 † × $2.50) + (100,000 † × $10.00)

Work in process, ending (26,250 units) 196,875 (26,250 # × $2.50) + (13,125 # × $10.00) Total costs accounted for $1,759,375 $378,125 + $1,381,250


$315,625 327,500 $ 11,875 U

$1,193,750 1,207,415 $ 13,665 U

*Equivalent units to complete beginning work in process from Solution Exhibit 1741A, Step 2.

† Equivalent units started and completed from Solution Exhibit 1741A, Step 2.

# Equivalent units in ending work in process from Solution Exhibit 1741A, Step 2.

1749

1742 (2530 min.) Operation costing

1. To obtain the overhead rates, divide the budgeted cost of each operation by the pairs of shoes that are expected to go through that operation.

Budgeted Conversion

Cost

Budgeted Pairs of Shoes

Conversion Cost per Pair of Shoes

Operation 1 $145,125 32,250 $4.50 Operation 2 58,050 32,250 1.80 Operation 3 4,275 2,250 1.90 Operation 4 67,725 32,250 2.10 Operation 5 13,500 30,000 0.45 Operation 6 2,025 2,250 0.90

2. Work Order Work Order

10399 10400 Shoe type: Basic Elaborate Quantity: 1,000 150 Direct Materials $13,000 $4,200 Operation 1 4,500 675 Operation 2 1,800 270 Operation 3 0 285 Operation 4 2,100 315 Operation 5 450 0 Operation 6 0 135 Total $21,850 $5,880

The direct materials costs per unit vary based on the type of shoe ($390,000 ÷ 30,000 = $13 for the Basic, and $63,000 ÷ 2,250 = $28 for the Elaborate). Conversion costs are charged using the rates computed in part (1), taking into account the specific operations that each type of shoe actually goes through.

3. Work order 10399 (Basic shoes): Work order 10400 (Elaborate shoes):

Total cost $21,850 Total cost: $5,880 Divided by number of Divided by number of pairs of shoes: ÷ 1,000 pairs of shoes: ÷ 150

Cost per pair of plain shoes: $ 21.85 Cost per pair of fancy shoes: $39.20

cost accounting ch 17 solutions

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