cost chapter 8

©The McGraw-Hill Companies, Inc., 2008 234 Fundamentals of Cost Accounting

8 Process Costing

Solutions to Review Questions

8-1. Process costing is most likely to be used in industries that produce relatively homogeneous products using continuous processes.

8-2. Using the basic cost flow equation, rearrange the terms to solve for the unknown beginning inventory. From BB + TI – TO = EB, we have:

Beginning Inventory + Current Work – Transferred Out = Ending Inventory.

Rearranging yields:

Beginning Inventory = Transferred Out + Ending Inventory – Current Work

8-3. With FIFO costing, the units in the beginning inventory are transferred out first. These beginning inventory units carry with them the costs incurred in a previous period plus the costs incurred this period to complete the beginning inventory. The costs transferred-out will tend to be lower. The ending work-in-process inventory will be carried at a cost that is more current, hence higher.

8-4. Under FIFO costing, the equivalent units represent only the work done in the current period. Under weighted average, the equivalent units represent the work associated with all of the costs charged to work in process regardless of the period in which those costs were incurred (i.e., including costs from prior periods that are in beginning inventory).

8-5. Prior department costs behave the same as direct materials, which are typically added at the start of production. They are treated separately because they represent the accumulation of costs from previous departments rather than the receipt of materials from the stores area. It is helpful to separate prior department costs from other costs because the manager of the department receiving the transferred units has no control over the costs incurred in prior departments. Thus, the prior department costs are not useful for evaluating the performance of the manager of the department receiving the units.

©The McGraw-Hill Companies, Inc., 2008

8-6. From BB + TI – TO = EB; TO = BB + TI – EB

Solutions Manual, Chapter 8 235


Solutions to Critical Analysis and Discussion Questions

8-7. To assign costs to specific barrels of liquid cleaning products or similarly mass–produced items requires a considerable amount of record keeping. Assuming products are all the same, a process costing system provides sufficient information for control purposes. Record keeping is simplified since all costs in a given month are accumulated in one account and assigned at the end of the period.

8-8. This is a fairly common problem. LIFO is usually beneficial for tax purposes when prices are rising and inventory levels are steady or rising. However, maintaining internal records on a LIFO basis is often quite burdensome. To avoid the problem, companies usually maintain their internal accounting records on a FIFO or weighted-average basis and then make an estimate of the LIFO cost of inventories. The LIFO estimate is usually done on a highly aggregated basis and employs some form of “dollar value” LIFO estimation.

A company may use LIFO for tax purposes and some other method for internal accounting purposes. This is an example of the idea of “different costs for different purposes,” which was discussed in earlier chapters.

8-9. The results will be the same using either costing system. The important point is that job costing and process costing are both methods to assign costs incurred to services completed. When there is only one service, the method of accumulation and assignment does not affect the final cost.

8-10. The correct answer is (b). The difference between the weighted-average and FIFO methods of process costing is how they handle beginning WIP. When there is no beginning WIP there is no difference between the two costing methods.

Answer (a) is incorrect because both methods assume units are homogeneous. Answer (c) is incorrect because amounts in beginning inventory will differ between FIFO and weighted-average. If there are no ending inventories, then the cost of goods manufactured is the sum of the current costs, which will be the same under both methods, and the costs in beginning work in process, which can differ. Answer (d) is incorrect because the cost per equivalent unit can differ and so the costs assigned to the equivalent units in ending inventory can differ.

236 Fundamentals of Cost Accounting


8-11. If the percentage completion is overstated, (a) the total equivalent units for the period will be overstated, because the work-in-process ending inventory will be assumed to have more equivalent units than it actually does. (b) The costs per equivalent unit will be understated, as the cost is divided by equivalent units that are overstated. (c) Because the equivalent units in ending work-in-process are overstated, the costs transferred-out will be understated (and the ending work-in-process costs overstated).

8-12. The correct answer is (b). The weighted-average method of process costing combines the costs of work done in the previous period and the current period.

8-13. (e). None of these answers are correct.

Answers (a) and (b) are incorrect because (a) ignores stages of completion and (b) double counts units started that are still in ending inventory. Answer (c) is incorrect because the ending inventory should be multiplied by the amount of work done this period, not work necessary to complete the items. Answer (d) is incorrect because for the same reason as answer (c): the ending inventory should be multiplied by the amount of work done this period, not work necessary to complete the items.



Solutions to Exercises

8-14. (20 min.) Compute Equivalent Units—Weighted-Average Method: Clean Corporation

a.

Materials b.

Conversion CostsUnits transferred out .......................................... 210,000 210,000 Equivalent units in ending inventory: Materials: 20% x 70,000a units ........................ 14,000 EU Conversion costs: 10% x 70,000 units............. 7,000 EU Total equivalent units for all work done to date.. 224,000 EU 217,000 EU a70,000 units in ending inventory

= 40,000 units in beginning inventory + 240,000 units started this period – 210,000 units transferred out.



8-15. (20 min.) Compute Equivalent Units—FIFO method: Clean Corporation Compute Equivalent Units—FIFO

a. Materials

b. Conversion Costs

To complete beginning inventory: Materials: 50%a x 40,000 units .................. 20,000

EU

Conversion costs: 70%b x 40,000 units ..... 28,000 EU Started and completed during the period ..... 170,000 EU c 170,000 EU Units still in ending inventory: Materials: 20% x 70,000d units .................. 14,000 EU Conversion costs: 10% x 70,000 units ....... 7,000 EU 204,000 EU 205,000 EU

a50% = 100% – 50% already done at the beginning of the period. b70% = 100% – 30% already done at the beginning of the period. c170,000 units started and completed = 210,000 units transferred out less 40,000 units from beginning inventory. d 70,000 units in ending inventory = 40,000 units in beginning inventory + 240,000 units started this period – 210,000 units transferred out.

Alternative Method: Equivalent

units of work done this

period

=Units

transferred out

+EU

ending inventory

–

EU beginning inventory

a. Materials: 204,000 EU = 210,000 units + 14,000 EU – 20,000 EU b. Conversion Costs: 205,000 EU = 210,000 units + 7,000 EU – 12,000 EU



8-16. (15 min.) Compute Equivalent Units—Weighted Average Method: Missouri Corporation.

a. Materials

b. Conversion

Costs Units transferred out ............................................... 50,000 50,000 Equivalent units in ending inventory: Materials: 100% x 20,000 units............................. 20,000 Conversion costs: 15% x 20,000 units.................. 3,000 Total equivalent units for all work done to date....... 70,000 53,000

8-17. (20 min.) Compute Equivalent Units—FIFO method: Missouri Corporation.

a. Materials

b. Conversion

Costs To complete beginning inventory: Materials: 0%b x 10,000a units ............................... 0

EU

Conversion costs: 40%c x 10,000 units .................. 4,000 EU Started and completed during the period.................. 40,000 EU d 40,000 EU Units still in ending inventory: Materials: 100% x 20,000 units............................... 20,000 EU Conversion costs: 15% x 20,000 units.................... 3,000 EU 60,000 EU 47,000 EU

a 10,000 units in beginning inventory = 50,000 units transferred out + 20,000 units in ending inventory

– 60,000 units started this period. b 0% = 100% – 100% already done at the beginning of the period. c 40% = 100% – 60% already done at the beginning of the period. d 40,000 units started and completed = 50,000 units transferred out less 10,000 units from

beginning inventory.

Alternative Method Equivalent

units of work done this period

=Units

transferred out

+EU

ending inventory

– EU

beginning inventory

a. Materials: 60,000 EU = 50,000 units + 20,000 EU – 10,000 EUb. Conversion Costs: 47,000 EU = 50,000 units + 3,000 EU – 6,000 EU



8-18. (30 min.) Compute Equivalent Units: Bears, Inc. a. Weighted-average method:

a. Materials

b. Conversion

Costs Units transferred out....................................................... 120,000 120,000Equivalent units in ending inventory: Materials: 100% x 18,000 units .................................... 18,000 Conversion costs: 75% x 18,000 units ......................... 13,500Total equivalent units for all work done to date .............. 138,000 133,500

b. First-in, First-out (FIFO) method:

a. Materials

b. Conversion

Costs To complete beginning inventory: Materials: 0%a x 18,000 units......................... 0

EU

Conversion costs: 40%b x 18,000 units .......... 7,200 EU Started and completed during the periodc.......... 102,000 EU 102,000 EU Units still in ending inventory: Materials: 100% x 18,000 units....................... 18,000 EU Conversion costs: 75% x 18,000 units............ 13,500 EU 120,000 EU 122,700 EU

a 0% = 100% – 100% already done at the beginning of the period. b 40% = 100% – 60% already done at the beginning of the period. c 102,000 units started and completed

= 120,000 units transferred out less 18,000 units from beginning inventory.



8-19. (30 min.) Compute Equivalent Units—Ethical Issues: Aaron Company a. Weighted-average method:

a. Materials

b. Conversion

Costs Units transferred out ............................................... 210,000 210,000 Equivalent units in ending inventory: Materials: 0% x 40,000 units ............................... 0 Conversion costs: 40% x 40,000 units ................ 16,000 Total equivalent units for all work done to date....... 210,000 226,000

b. First-in, First-out (FIFO) method:

a. Materials

b. Conversion

Costs To complete beginning inventory: Materials: 0%a x 50,000 units ........................ 0

EU

Conversion costs: 40%b x 50,000 units.......... 20,000 EU Started and completed during the periodc ......... 160,000 EU 160,000 EU Units still in ending inventory: Materials: 0% x 40,000 units .......................... 0 EU Conversion costs: 40% x 40,000 units ........... 16,000 EU 160,000 EU 196,000 EU

a 0% = 100% – 100% already done at the beginning of the period (conversion was 60% complete).

b 40% = 100% – 60% already done at the beginning of the period. c 160,000 units started and completed = 210,000 units transferred out less 50,000 units from beginning inventory.

c.

1. The change will reduce the unit cost for the units transferred to finished goods.

2. It is not ethical; there is no reason to believe the change reflects anything other than a desire for reporting better results.

3. It is unlikely to be successful for long. An accounting system keeps track of actual costs. If a manager postpones reporting them this period, they will be reported next period or shortly thereafter.



8-20. (20 min.) Compute Cost per Equivalent Unit—Weighted Average Method: Davenport Plant

Physical

Units Materials Eq. Units

Flow of units: Units to be accounted for: Beginning WIP inventory ................................ 90,000 Units started this period.................................. 240,000 Total units to account for............................. 330,000 Units accounted for: Completed and transferred out Materials (255,000 x 100%) ........................ 255,000 255,000 Units in ending inventory: Materials (75,000 x 100%) .......................... 75,000 75,000 Total units accounted for ......................... 330,000 330,000

Direct Materials Flow of costs: Costs to be accounted for: Costs in beginning WIP inventory................................. $33,000 Current period costs ..................................................... 105,600 Total costs to be accounted for ................................. $138,600 Cost per equivalent unit Materials ($138,600 ÷ 330,000 units) .......................... $0.42



8-21. (20 min.) Compute Cost per Equivalent Unit—FIFO method: Davenport Plant

Physical Units

Materials Eq. Units

Flow of units: Units to be accounted for: Beginning WIP inventory ......................................... 90,000 Units started this period .......................................... 240,000 Total units to account for ..................................... 330,000 Units accounted for: Completed and transferred out From beginning WIP inventory (90,000 x 0%) 90,000 0 Started and completed currently (165,000a x 100%) .........................................................................

165,000 165,000

Units in ending inventory: Materials (75,000 x 100%)................................... 75,000 75,000 Total units accounted for.................................. 330,000 240,000a 165,000 units started and completed = 255,000 units transferred-out – 90,000 beginning WIP units.

Direct Materials

Flow of costs: Costs to be accounted for: Total costs to be accounted for (current period costs only) .......... $105,600Cost per equivalent unit Materials ($105,600 ÷ 240,000 units) .............................................. $ 0.44



8-22. (20 min.) Compute Equivalent Units—FIFO method: Santiago Company Physical

Units Conversion Eq. Units

Flow of units: Units to be accounted for: Beginning WIP inventory .............................................. 90,000 Units started this period................................................ 1,020,000 Total units to account for........................................... 1,110,000 Units accounted for: Completed and transferred out From beginning WIP inventory [90,000 x (1 – 40%)] 90,000 54,000 Started and completed currently (870,000a x 100%) 870,000 870,000 Units in ending inventory: Conversion (150,000 x 70%)..................................... 150,000 105,000 Total units accounted for ....................................... 1,110,000 1,029,000a 870,000 units started and completed = 960,000 units transferred-out – 90,000 beginning

WIP units.



8-23. (35 min.) Compute Costs per Equivalent Unit—Weighted-Average Method: Matsui Lubricants

Physical

Units

Equivalent Units Materials

Eq. units Conversion

Costs Eq. unitsFlow of units: Units to be accounted for: Beginning WIP inventory .................... 600 Units started this period ..................... 4,000 Total units to account for ................ 4,600 Units accounted for: Completed and transferred outa ......... 3,400 3,400 3,400 Units in ending inventory .................... 1,200 Materials (1,200 x 40%).................. 480 Conversion costs (1,200 x 20%)..... 240 Total units accounted for ................ 4,600 3,880 3,640a 3,400 units transferred out = 4,600 units to account for – 1,200 units in ending WIP inventory.

Total Direct

Materials Conversion

Costs Flow of costs: Costs to be accounted for: Costs in beginning WIP inventory........... $ 2,496 $ 1,952 $ 544 Current period costs ............................... 36,168 22,880 13,288 Total costs to be accounted for ............ $38,664 $24,832 $13,832Cost per equivalent unit Materials ($24,832 ÷ 3,880 units) ........... $ 6.40 Conversion costs ($13,832 ÷ 3,640 units) ....... $ 3.80



8-24. (20 min.) Assign Costs to Goods Transferred Out and Ending Inventory—Weighted-Average Method: Matsui Lubricants

Total Direct


Costs Flow of costs: Costs to be accounted for: Costs in beginning WIP inventory .................. $ 2,496 $ 1,952 $ 544 Current period costs....................................... 36,168 22,880 13,288 Total costs to be accounted for.................... $38,664 $24,832 $13,832Cost per equivalent unit Materials ($24,832 ÷ 3,880 units)................... $ 6.40 Conversion costs ($13,832 ÷ 3,640) .............. $ 3.80Costs accounted for: Costs assigned to units transferred out $34,680 $21,760 a $12,920 b

Cost of ending WIP inventory......................... 3,984 3,072 c 912 d

Total costs accounted for............................. $38,664 $24,832 $13,832

Costs transferred out total $34,680, and costs in ending inventory total $3,984. a $21,760 = 3,400 EU x $6.40 per EU. b $12,920 = 3,400 EU x $3.80 per EU. c $3,072 = 480 EU x $6.40 per EU. d $912 = 240 EU x $3.80 per EU.



8-25. (35 min.) Compute Costs per Equivalent Unit—FIFO Method: Matsui Lubricants

Physical

Units


Eq. units Conversion Costs Eq. units

Flow of units: Units to be accounted for: Beginning WIP inventory ...................................... 600 Units started this period ....................................... 4,000 Total units to account for .................................. 4,600 Units accounted for: Completed and transferred outa ........................... 3,400 From beginning WIP inventory Materials (600 x (1 – 60%)) 240 Conversion (600 x (1 – 53%)) 282 Started and completed currently (2,800 x 100%) 2,800 2,800 Units in ending inventory ...................................... 1,200 Materials (1,200 x 40%).................................... 480 Conversion costs (1,200 x 20%)....................... 240 Total units accounted for .................................. 4,600 3,520 3,322a 3,400 units transferred out

= 4,600 units to account for – 1,200 units in ending WIP inventory.

Total Direct


Costs Flow of costs: Costs to be accounted for: Costs in beginning WIP inventory................. $ 2,496 $ 1,952 $ 544 Current period costs ..................................... 36,168 22,880 13,288 Total costs to be accounted for .................. $38,664 $24,832 $13,832Cost per equivalent unit Materials ($22,880 ÷ 3,520 units) ................. $ 6.50 Conversion costs ($13,288 ÷ 3,322) ............. $ 4.00



8-26. (20 min.) Assign Costs to Goods Transferred Out and Ending Inventory—FIFO Method: Matsui Lubricants.

Physical

Units


Eq. units Conversion Costs

Eq. units Flow of units: Units to be accounted for: Beginning WIP inventory ...................... 600 Units started this period........................ 4,000 Total units to account for................... 4,600 Units accounted for: Completed and transferred outa ........... 3,400 From beginning WIP inventory Materials (600 x (1 – 60%)) 240 Conversion (600 x (1 – 53%)) 282 Started and completed currently (2,800 x 100%).............................................

2,800

2,800

Units in ending inventory ...................... 1,200 Materials (1,200 x 40%) .................... 480 Conversion costs (1,200 x 20%) ....... 240 Total units accounted for................... 4,600 3,520 3,322a 3,400 units transferred out = 4,600 units to account for – 1,200 units in ending WIP inventory.



8-26. (continued)

Total Direct


Costs Flow of costs: Costs to be accounted for: Costs in beginning WIP inventory.......... $ 2,496 $ 1,952 $ 544 Current period costs .............................. 36,168 22,880 13,288 Total costs to be accounted for ........... $38,664 $24,832 $13,832Cost per equivalent unit Materials ($22,880 ÷ 3,520 units) .......... $ 6.50 Conversion costs ($13,288 ÷ 3,322) ...... $ 4.00 Costs accounted for: Costs assigned to units transferred out:

Costs from beginning WIP inventory ... $ 2,496 $ 1,952 $ 544 Current costs added to complete beginning WIP inventory .......................... 2,688

Materials ($6.50 x 240) .................. 1,560 Conversion costs ($4.00 x 282) ...... 1,128 Current costs of units started and completed:

29,400

Materials ($6.50 x 2,800) .................. 18,200 Conversion costs ($4.00 x 2,800) ..... 11,200Total costs transferred out ....................... $ 34,584 $21,712 $12,872Cost of ending WIP inventory .................. 4,080 Materials ($6.50 x 480) ..................... 3,120 Conversion costs ($4.00 x 240) ........ 960 Total costs accounted for .................... $38,664 $24,832 $13,832

Ending inventory is slightly higher under the FIFO method because the unit costs are higher under FIFO.



8-27. (35 min.) Compute Costs per Equivalent Unit—Weighted-Average Method: Pacific Ink

Physical

Units


Eq. units Conversion Costs

Eq. units Flow of units: Units to be accounted for: Beginning WIP inventory............................ 24,000 Units started this perioda 42,000 Total units to account for.......................... 66,000 Units accounted for: Completed and transferred out (given) ...... 51,000 51,000 51,000 Units in ending inventory............................ 15,000 Materials (15,000 x 80%) ......................... 12,000 Conversion costs (15,000 x 40%) ............ 6,000 Total units accounted for.......................... 66,000 63,000 57,000a 42,000 units started this period = 66,000 units to account for – 24,000 units in beginning work-in-process inventory.

Total Direct

Materials

Conversion Costs

Flow of costs: Costs to be accounted for: Costs in beginning WIP inventory .............. $ 372,480 $ 152,460 $ 220,020 Current period costs................................... 2,685,720 1,171,800 1,513,920 Total costs to be accounted for................ $3,058,200 $1,324,260 $1,733,940Cost per equivalent unit Materials ($1,324,260 ÷ 63,000 units)........ $ 21.02 Conversion costs ($1,733,940 ÷ 57,000) ... $ 30.42



8-28. (20 min.) Assign Costs to Goods Transferred Out and Ending Inventory—Weighted-Average Method: Pacific Ink.

Total Direct


Costs Flow of costs: Costs to be accounted for: Costs in beginning WIP inventory............. $ 372,480 $ 152,460 $ 220,020 Current period costs ................................. 2,685,720 1,171,800 1,513,920 Total costs to be accounted for .............. $3,058,200 $1,324,260 $1,733,940Cost per equivalent unit Materials ($1,324,260 ÷ 63,000 units) ...... $ 21.02 Conversion costs ($1,733,940 ÷ 57,000) .. $ 30.42Costs accounted for: Costs assigned to units transferred out $2,623,440 $1,072,020

a $1,551,420

b

Cost of ending WIP inventory ................... 434,760 252,240c

182,520d

Total costs accounted for ....................... $3,058,200 $1,324,260 $1,733,940

Costs transferred out total $2,623,440 and costs in ending inventory total $434,760. a $1,072,020 = 51,000 EU x $21.02 per EU. b $1,551,420 = 51,000 EU x $30.42 per EU. c $252,240 = 12,000 EU x $21.02 per EU. d $182,520 = 6,000 EU x $30.42 per EU.



8-29. (35 min.) Compute Costs per Equivalent Unit—FIFO Method: Pacific Ink Physical

Units


Eq. units Conversion

Costs Eq. units

Flow of units: Units to be accounted for: Beginning WIP inventory............................. 24,000 Units started this perioda 42,000 Total units to account for........................... 66,000 Units accounted for: Completed and transferred out 51,000 From beginning WIP inventory Materials (24,000 x (1 – 30%)) ...... 16,800 Conversion (24,000 x (1 – 30%)) .. 16,800 Started and completed ......................... 27,000 27,000 Units in ending inventory............................. 15,000 Materials (15,000 x 80%) .......................... 12,000 Conversion costs (15,000 x 40%) ............. 6,000 Total units accounted for........................... 66,000 55,800 49,800a 42,000 units started this period = 66,000 units to account for – 24,000 units in beginning

work-in-process inventory.

Total Direct

Materials

Conversion Costs

Flow of costs: Costs to be accounted for: Costs in beginning WIP inventory .............. $ 372,480 $ 152,460 $ 220,020 Current period costs................................... 2,685,720 1,171,800 1,513,920 Total costs to be accounted for................ $3,058,200 $1,324,260 $1,733,940Cost per equivalent unit Materials ($1,171,800 ÷ 55,800 units)........ $ 21.00 Conversion costs ($1,513,920 ÷ 49,800) ... $ 30.40



8-30. (20 min.) Assign Costs to Goods Transferred Out and Ending Inventory—FIFO Method: Pacific Ink.

Physical

Units


Eq. units Conversion Costs Eq. units

Flow of units: Units to be accounted for: Beginning WIP inventory ............................. 24,000 Units started this perioda 42,000 Total units to account for ......................... 66,000 Units accounted for: Completed and transferred out 51,000 To complete beginning WIP inventory Materials (24,000 x (1 – 30%))........ 16,800 Conversion (24,000 x (1 – 30%)) .... 16,800 Started and completed ........................... 27,000 27,000 Units in ending inventory ............................. 15,000 Materials (15,000 x 80%)......................... 12,000 Conversion costs (15,000 x 40%)............ 6,000 Total units accounted for ......................... 66,000 55,800 49,800a 42,000 units started this period = 66,000 units to account for – 24,000 units in beginning work-in-process inventory.



8-30. (continued)

Total Direct

Materials

Conversion Costs

Flow of costs: Costs to be accounted for: Costs in beginning WIP inventory ............. $ 372,480 $ 152,460 $ 220,020 Current period costs.................................. 2,685,720 1,171,800 1,513,920 Total costs to be accounted for............... $3,058,200 $1,324,260 $1,733,940Cost per equivalent unit Materials ($1,171,800 ÷ 55,800 units)....... $ 21.00 Conversion costs ($1,513,920 ÷ 49,800) .. $ 30.40 Costs accounted for: Costs assigned to units transferred out:

Costs from beginning WIP inventory..... $ 372,480 $ 152,460 $ 220,020 Current costs added to complete beginning WIP inventory .............. 863,520

Materials ($21.00 x 16,800) ................. 352,800 Conversion costs ($30.40 x 16,800) .... 510,720 Current costs of units started and completed: .................................... 1,387,800

Materials ($21.00 x 27,000) ................. 567,000 Conversion costs ($30.40 x 27,000) .... 820,800Total costs transferred out ........................ $ 2,623,800 $1,072,260 $1,551,540Cost of ending WIP inventory.................... 434,400 Materials ($21.00 x 12,000) ................. 252,000 Conversion costs ($30.40 x 6,000) ...... 182,400 Total costs accounted for ........................ $3,058,200 $1,324,260 $1,733,940 Ending inventory is slightly lower under the FIFO method because the unit costs are lower under FIFO. This means that current costs are slightly lower than last period’s costs. Because ending WIP inventory is carried at current costs under FIFO, the ending WIP costs are lower under FIFO.



8-31. (50 min.) Production Cost Report—FIFO method: El Paso Corporation

Physical Units

Equivalent Units

Prior Department

DepartmentNo. B

Flow of units: Units to be accounted for: Beginning WIP inventory .............................. 15,000 Units started this period................................ 35,000 Total units to account for ............................ 50,000 Units accounted for: Completed and transferred out From beginning WIP inventory ................... 15,000 Prior department....................................... 0 Dept. B [15,000 units x (1–20%)].............. 12,000 Started and completed currently................. 30,000 30,000 30,000Units in ending WIP inventory......................... 5,000 Prior department......................................... 5,000 Department B (5,000 units x 50%) ............. 2,500 Total units accounted for .......................... 50,000 35,000 44,500



8-31. (continued)

Total Prior

Department Department

No. B Flow of costs: Costs to be accounted for: Costs in beginning WIP inventory .................... $ 36,675 $29,000 $ 7,675 Current period costs......................................... 219,075 70,000 149,075 Total costs to be accounted for...................... $255,750 $99,000 $156,750Cost per equivalent unit Prior department ($70,000 ÷ 35,000 units) ..... $ 2.00 Department. B ($149,075 ÷ 44,500 units) ....... $ 3.35 Costs accounted for: Costs assigned to units transferred out:

Costs from beginning WIP inventory.............. $ 36,675 $29,000 $ 7,675 Current costs added to complete beginning WIP inventory..................................................... 40,200

Prior department .......................................... 0 Department B ($3.35 x 12,000 units) .......... 40,200 Current costs of units started and completed: . 160,500 Prior department ($2.00 x 30,000) ............... 60,000 Department B ($3.35 x 30,000) ................. 100,500Total costs transferred out ................................. $237,375 $89,000 $148,375Cost of ending WIP inventory............................. 18,375 Prior department ($2.00 x 5,000) ................ 10,000 Department B ($3.35 x 2,500) .................... 8,375 Total costs accounted for............................... $255,750 $99,000 $156,750



8-32. (50 min.) Production Cost Report—Weighted-Average Method: El Paso Corporation

Physical Units

Equivalent Units

Prior Department

Department No. B

Flow of units: Units to be accounted for: Beginning WIP inventory .............................. 15,000 Units started this period................................ 35,000 Total units to account for ............................ 50,000 Units accounted for: Completed and transferred out ..................... 45,000 45,000 45,000 Units in ending inventory .............................. 5,000 Prior department (5,000 units x 100%) ....... 5,000 Department No. B (5,000 units x 50%) ....... 2,500 Total units accounted for .......................... 50,000 50,000 47,500 Total Direct


Costs Flow of costs: Costs to be accounted for: Costs in beginning WIP inventory................... $ 36,675 $29,000 $ 7,675 Current period costs ....................................... 219,075 70,000 149,075 Total costs to be accounted for .................... $255,750 $99,000 156,750Cost per equivalent unit Prior departments ($99,000 ÷ 50,000 units) ... $ 1.98 Department No. B ($156,750 ÷ 47,500).......... $ 3.30Costs accounted for: Costs assigned to units transferred out .......... $237,600 $89,100 $148,500 Costs of ending WIP inventory ....................... 18,150 9,900 8,250 Total costs accounted for ............................. $255,750 $99,000 $156,750

The ending inventory is lower under the weighted-average method than under the FIFO method. Under weighted-average, the ending inventory is $18,150. This is $225 less than FIFO, which is $18,375. The difference is due to the differences in costs per equivalent unit between FIFO and weighted-average.



8-33. (50 min.) (20 minutes) Operations Costing: Brokia Electronics a.

Total

Basic (40,000 units)

Photo (30,000 units)

UrLife (10,000 units)

Materials...................... $2,800,000 $600,000 $1,500,000 $700,000 Conversion Assemblya .............. $ 1,400,000 700,000 525,000 175,000 Special Packaging.. 400,000 –0– –0– 400,000 Total conversion .. $ 1,800,000 $700,000 $525,000 $ 575,000Total Product Cost $4,600,000 $1,300,000 $2,025,000 $1,275,000Number of Units 40,000 30,000 10,000Cost per unit $32.50 $67.50 $127.50a Unit cost is $17.50 (= $1,400,000 ÷ 80,000 units)

b. (1)

Total

Basic (40,000 units)

Photo (30,000 units)

UrLife (10,000 units)

Materials $2,800,000 $600,000 $1,500,000 $700,000 Conversion Assemblya $ 1,400,000 300,000 750,000 350,000 Special Packaging 400,000 –0– –0– 400,000 Total conversion cost $ 1,800,000 $300,000 $750,000 $ 750,000Total Product Cost $4,600,000 $900,000 $2,250,000 $1,450,000Number of Units 40,000 30,000 10,000Cost per unit $22.50 $75.00 $145.00a Unit cost is 50% of material dollars (= $1,400,000 ÷ $2,800,000 material dollars)

(2) If there is a reason that conversion costs are related to material dollars (for example, because of the difficulty of working with different materials), this change might be justified. If it is done simply to shift cost to the cost-plus customer, this is not ethical.



8-34. Operation Costing: Ferdon Watches a.



8-34. (continued) b.

Total

Gag-Gift(5,000 units)

Commuter(10,000 units)

Sport (13,000 units)

Retirement(2,000 units)

Materials..................... $ 535,000 $25,000 $150,000 $260,000 $100,000 Conversion Assemblya .............. $120,000 $20,000 $40,000 $52,000 $ 8,000 Polishingb ............... 69,000 –0– 30,000 39,000 –0– Special Finishingc.... 20,000 –0– –0– –0– 20,000 Packagingd.............. 90,000 15,000 30,000 39,000 6,000 Total conversion ... $299,000 $35,000 $100,000 $130,000 $ 34,000Total Product Cost...... $834,000 $60,000 $250,000 $390,000 $134,000Number of Units ......... 5,000 10,000 13,000 2,000Cost per unit ............... $12.00 $25.00 $30.00 $67.00

a Unit cost is $4.00 (= $120,000 ÷ 30,000 units) b Unit cost is $3.00 (= $69,000 ÷ 23,000 units) c Unit cost is $10.00 (= $20,000 ÷ 2,000 units) d Unit cost is $3.00 (= $90,000 ÷ 30,000 units)



Solutions to Problems

8-35. (45 min.) Compute Equivalent Units: Multiple Choice a. The answer is (2).


Costs Units transferred out ............................ 395,000

a 395,000

a

EU in ending inventory: Materials 100% x 40,000 units ......... 40,000 EU Conversion costs 30% x 40,000 units .....................................................

12,000 EU

EU produced this period ...................... 435,000 EU 407,000 EU aUnits transferred out = units started + beg. inventory – ending inventory = 360,000 + 75,000 – 40,000 = 395,000 b. The answer is (4). Prior

Department Costs

Materials

Conversion Costs

Units transferred out ............................ 660,000 a 660,000a

660,000a

EU in ending inventory: Prior department costs ..................... 80,000 EU Materialsb......................................... –0– EU Conversion costs 65% x 80,000 units .....................................................

52,000 EU

EU produced this period ...................... 740,000 EU 660,000 EU 712,000 EU a640,000 started + 100,000 in beg. inv. – 80,000 in ending inv. = 660,000 transferred out. bMaterials are added at the end of the process. c. The answer is (4).

EU to complete beginning inventory 70%a x 80,000 units....................................................................

56,000 EU

Started and completedb...................................... 1,200,000 EU EU in ending inventory 70% x 160,000 units ...... 112,000 EU EU done this period............................................ 1,368,000 EU

a70% = 100% – 30% already done at the beginning of the period.



b 1,200,000 units = 1,280,000 transferred out – 80,000 from beginning inventory. 8-35. (continued) d. The answer is (1).

Materials

Conversion Costs

To complete beginning inventory:

Materials: 0%a x 20,000 units ..................... 0

Conversion costs: 30%b x 20,000 units....... 6,000 EU Started and completed during the period........ 70,000 c EU 70,000 EU Units still in ending inventory: Materials: 100% x 16,000 units ................... 16,000 EU Conversion costs: 50% x 16,000 units ........ 8,000 EU Work done in current period............................ 86,000 EU 84,000 EU

a 0% = 100% – 100% already done at the beginning of the period. b 30% = 100% – 70% already done at the beginning of the period. c 70,000 = 90,000 transferred out – 20,000 from beginning inventory.



8-36. (30 min) FIFO Method: McKenzie Corporation a.

Physical Units

Equivalent Units Conversion

Costs Flow of units Units to be accounted for: Beginning WIP inventory ......................... 150,000 Units started this period........................... 810,000 Total units to account for ..................... 960,000 Units accounted for: Completed and transferred out From beginning WIP inventory .............. 150,000 (150,000 x 20%) .................................. 30,000 Started and completed currently............ 450,000 450,000 Units in ending WIP inventory.................. 360,000 (360,000 x 50%) .................................. 180,000 Total units accounted for ................... 960,000 660,000 Conversion Costs Flow of costs: Costs to be accounted for: Costs in beginning WIP inventory .................. $ 258,000 Current period costs....................................... 1,452,000 Total costs to be accounted for................... $1,710,000 Cost per equivalent unit ($1,452,000 ÷ 660,000) $ 2.20 Costs accounted for: Costs assigned to units transferred out: Costs from beginning WIP inventory .......... $ 258,000 Current costs added to complete beginning WIP inventory:

Conversion costs ($2.20 x 30,000) ........ 66,000 Current costs of units started and completed: Conversion costs ($2.20 x 450,000) .......... 990,000 Total costs transferred out ............................. $1,314,000 Cost of ending WIP inventory: Conversion costs ($2.20 x 180,000) ....... 396,000 (Answer) Total costs accounted for............................ $1,710,000



8-36. (continued) b. Cost per unit for the previous period is $2.15 [= $258,000 ÷ (150,000 equiv. units x 80%)] Cost per unit for the current period is $2.20 as calculated in (a) above.


8-37. (50 min.) Prepare A Production Cost Report—Weighted Average Method: Douglas Toys.

a.

Douglas Toys Assembling Department

Production Cost Report—Weighted Average


FLOW OF PRODUCTION UNITS (Section 1)

Physical units

Units to be accounted for: Beginning WIP inventory ..................... 100,000 Units started this period....................... 500,000 Total units to be accounted for ................ 600,000 (Section 2)

COMPUTE EQUIVALENT UNITS

Prior department costs

Materials

Labor

Manufacturing overhead

Units accounted for: Units completed and transferred out: From beginning inventory ................... 100,000 Started and completed currently ......... 300,000 Total transferred out............................ 400,000 400,000 400,000 400,000 400,000 Units in ending WIP inventory ............... 200,000 200,000 180,000 (90%) 140,000 (70%) 70,000 (35%)Total units accounted for ......................... 600,000 600,000 580,000 540,000 470,000


©The McGraw-Hill Companies, Inc., 2008 Solutions Manual, Chapter 8 267

8-37. (continued) DETAILS

Total costs Prior

department costs

Materials

Labor

Manufacturingoverhead

Costs to be accounted for: (Section 3) Costs in beginning WIP inventory .................... $ 127,600 $ 64,000 $ 40,000 $

14,400$ 9,200

Current period costs.........................................

621,800 320,000 192,000 72,000 37,800Total costs to be accounted for .......................... $749,400 $384,000 $232,000 $86,400 $47,000Cost per equivalent unit: (Section 4) Prior department costs ($384,000 ∏ 600,000).. $0.64 Materials ($232,000 ∏ 580,000) ....................... $0.40 Labor ($86,400 ∏ 540,000)............................... $0.16 Manufacturing overhead ($47,000 ∏ 470,000) . $0.10Costs accounted for: (Section 5) Costs assigned to units transferred out: Prior department costs ($0.64 x 400,000)...... $256,000 $256,000 Materials ($0.40 x 400,000) ...........................

160,000 $ 160,000

Labor ($0.16 x 400,000)................................. 64,000 $64,000 Manufacturing overhead ($0.10 x 400,000) ... 40,000 $40,000 Total costs of units transferred out................... $520,000Costs assigned to ending WIP inventory: Prior department costs ($0.64 x 200,000)...... $128,000 128,000 Materials ($0.40 x 180,000) ........................... 72,000 72,000 Labor ($0.16 x 140,000).................................

22,400 22,400 Manufacturing overhead ($0.10 x 70,000) ..... 7,000 7,000 Total ending WIP inventory .............................. $229,400


Total costs accounted for ................................... $749,400 $384,000 $232,000 $86,400 $47,0008-37. (continued) b. The report to management should include the following items: Materials: The $0.40 per unit goal set by management is currently being achieved by the Assembling Dept. Labor: Equivalent unit labor costs per unit ($.16) is below management’s goal of $0.20. Manufacturing overhead: overhead costs per unit ($0.10) is slightly higher than management’s goal of $0.09.


8-38. (50 min.) Prepare a Production Cost Report—FIFO Method: Douglas Toys.

a.

Douglas Toys Assembling Department

Production Cost Report—FIFO FLOW OF PRODUCTION UNITS

(Section 1)(Section 2)

COMPUTE EQUIVALENT UNITS

Physical units

Prior department

costs

Materials

Labor

Manufacturing

overhead Units to be accounted for: Beginning WIP inventory....................... 100,000 Units started this period ........................ 500,000 Total units to be accounted for ................ 600,000 Units accounted for: Units completed and transferred out: From beginning inventory ................... 100,000 –0– –0– 40,000 (40%)

a50,000 (50%) b

Started and completed currently ......... 300,000 300,000 300,000 300,000 300,000 Units in ending WIP inventory ............... 200,000 200,000 180,000 (90%) 140,000 (70%) 70,000 (35%) Total units accounted for ......................... 600,000 500,000 480,000 480,000 420,000

a40% = 100% – 60% already done at the beginning of the period. b50% = 100% – 50% already done at the beginning of the period.


8-38. (continued) COSTS DETAILS

Total Costs

Prior department costs

Materials

Labor

Manufacturingoverhead

Costs to be accounted for: (Section 3) Costs in beginning WIP inventory...................

$ 127,600 $ 64,000 $ 40,000 $ 14,400 $ 9,200

Current period costs ....................................... 621,800 320,000 192,000 72,000 37,800

Total costs to be accounted for .......................... $749,400 $384,000 $232,000 $86,400 $47,000

Cost per equivalent unit: (Section 4)

Prior department costs ($320,000 ∏ 500,000)

$0.64

Materials ($192,000 ∏ 480,000).................... $0.40

Labor ($72,000 ∏ 480,000) ............................. $0.15

Manufacturing overhead ($37,800 ∏ 420,000) $0.09


8-38. (continued)


Details

Total CostsPrior

department costs

Materials

Labor

Manufacturing overhead

Costs accounted for: (Section 5) Costs assigned to units transferred out: Costs from beginning WIP inventory.............. $ 127,600 $ 64,000 $ 40,000 $

14,400$ 9,200

Current costs added to complete beginning WIP inventory:

Prior department costs................................. –0– –0– Materials ......................................................

–0– –0– Labor ($0.15 x 40,000) ................................ 6,000 6,000 Manufacturing overhead ($0.09 x 50,000) ... 4,500 4,500 Total costs from beginning inventory ............. $138,100Current costs of units started and completed: Prior department costs ($0.64 x 300,000)...... 192,000 192,000 Materials ($0.40 x 300,000) ........................... 120,000 120,000 Labor ($0.15 x 300,000)................................. 45,000 45,000 Manufacturing overhead ($0.09 x 300,000) ... 27,000 27,000 Total costs of units started and completed....... $384,000Total costs of units transferred out ..................... $522,100Costs assigned to ending WIP inventory: Prior department costs ($0.64 x 200,000) ........ $128,000 128,000 Materials ($0.40 x 180,000) .............................

72,000 72,000 Labor ($0.15 x 140,000)................................... 21,000 21,000 Manufacturing overhead ($0.09 x 70,000) ....... 6,300 6,300Total ending WIP inventory ................................ $227,300



Total costs accounted for ................................... $749,400 $384,000 $232,000 $86,400 $47,0008-38. (continued)

b. The report to management should include the following items:

Materials: The equivalent unit materials cost per unit ($0.40) is the same as management’s goal of $0.40.

Labor: Equivalent unit labor costs per unit ($0.15) is below management’s goal of $0.20.

Manufacturing overhead: Overhead costs per unit ($0.09) is equal to management’s goal of $0.09.


8-39. (60 min.) Prepare a Production Cost Report and Adjust Inventory Balances—Weighted Average Method: Elmhurst Parts.

a. Elmhurst Parts

Production Cost Report—Weighted Average


Flow Of Production Units (Section 1)

Physical units

Units to be accounted for: Beginning WIP inventory............................ 400,000 Units started this period ............................. 2,000,000Total units to be accounted for ..................... 2,400,000

(Section 2)COMPUTE EQUIVALENT UNITS

Materials Labor Overhead

Units accounted for: Units completed and transferred out: From beginning inventory ........................

400,000 Started and completed currently .............. 1,400,000 Total transferred out................................. 1,800,000 1,800,000 1,800,000 1,800,000 Units in ending WIP inventory ....................

600,000 600,000 240,000 (40%) 240,000 (40%)

Total units accounted for .............................. 2,400,000 2,400,000 2,040,000 2,040,000


8-39. (continued)


Costs Details

Total costs Labor Materials Overhead

Costs to be accounted for: (Section 3) Costs in beginning WIP inventory .................... $ 2,038,000

$ 400,000 $ 910,000 $ 728,000

Current period costs......................................... 9,224,000 2,600,000 3,680,000 2,944,000Total costs to be accounted for .......................... $11,262,000 $3,000,000 $4,590,000 $3,672,000Cost per equivalent unit: (Section 4) Materials ($3,000,000 ∏ 2,400,000) ............... $1.25 Labor ($4,590,000 ∏ 2,040,000)..................... $2.25 Overhead ($3,672,000 ∏ 2,040,000) .............. $1.80Costs accounted for: (Section 5) Costs assigned to units transferred out: Materials ($1.25 x 1,800,000) ........................ $2,250,000 $2,250,000 Labor ($2.25 x 1,800,000)..............................

4,050,000 $4,050,000 Overhead ($1.80 x 1,800,000) ....................... 3,240,000 $3,240,000 Total costs of units transferred out................... 9,540,000Costs assigned to ending WIP inventory: Materials ($1.25 x 600,000) ........................... 750,000 750,000 Labor ($2.25 x 240,000)................................. 540,000 540,000 Overhead ($1.80 x 240,000) .......................... 432,000 432,000 Total ending WIP inventory .............................. 1,722,000Total costs accounted for ................................... $11,262,000 $3,000,000 $4,590,000 $3,672,000



8-39. (continued) b. Adjustment required: Work in

Process Finished

Goods Per problem statement.......... $1,321,920 $562,600 Correct .................................. 1,722,000 530,000 a

Difference.............................. ($400,080) $32,600

Journal entry:

Work in Process.................. 400,080 Finished Goods................. 32,600 Cost of Goods Sold........... 367,480

Additional computations: a100,000 units of finished-goods inventory ($1.25 + 2.25 + 1.80) = $530,000

c. Income would have been understated. Work in process would have been understated. Finished goods would have been overstated.



8-40. (70 min.) Show Cost Flows—FIFO Method: Vermont Co.

Work in Process

Beginning Balance 716,000 Transferred out: Current work: materials (given) 300,400

716,000a From beginning inventory From current work

conversion (given) 1,287,000 240,320a materials 833,976b conversion costs

513,104 Ending Balance

Additional computations: a $240,320 = 40,000 EU transferred x ($300,400 ÷ 50,000 EU for materials) (40,000 EU = 50,000 – 10,000 in ending inventory)

1,790,296

b $833,976 = 40,500 EU transferred out x ($1,287,000 ÷ 62,500 EU for conversion costs; 40,500 EU = 62,500 – 22,000 in ending inventory)

Finished Goods

Transferred in 1,432,237 To Cost of Goods Sold (80%)a

Balance 358,059 aFrom total credits in Work in Process.

Cost of Goods Sold From Finished Goods 1,432,237 Overapplied overhead

(See explanation below)55,000

Overhead applied in beginning WIP inventory is 125% of direct labor costs (i.e., $325,000 ÷ $260,000). Since the application rate has not changed, the ratio of applied overhead to total conversion costs found in the beginning inventory should also hold for conversion costs this period.

For this period, 1.25 D.L. + D.L. = $1,287,000

2.25 D.L. $1,287,000

Based on the balance in the manufacturing overhead account, actual overhead is $660,000. Therefore, overhead is overapplied by $55,000 (i.e., $715,000 – $660,000).

=D.L. = $572,000

So, total conversion costs – direct labor = overhead applied$1,287,000 – $572,000 = $715,000



8-40. (continued)

The journal entry to assign the overapplied overhead to cost of goods sold is: Overapplied overhead ...................................55,000

55,000

8-41. (40 min.) Prepare a Production Cost Report and Show Cost Flows Through Accounts—FIFO method: Recyclers, Inc..

(Section 2) Compute Equivalent

Units (Section 1)

Physical unitsConversion

costs Units to be accounted for: Beginning WIP inventory.................................

Cost of goods sold .............................

Recyclers, Inc. Production Cost Report—FIFO

a. FLOW OF PRODUCTION UNITS

. 300 Units started this period ................................... 2,700 Total units to be accounted for ........................... 3,000 Units accounted for: Units completed and transferred out: From beginning inventory .............................. 300 120 (40%)a

Started and completed currently .................... 2,550 2,550 Units in ending WIP inventory .......................... 150 (20%) 30 Total units accounted for.................................... 3,000 2,700 a40% = 100% – 60% already done at the beginning of the period.



8-41. (continued) COSTS Total

$ 16810,800

Total costs to be accounted for.............................

costs Conversion costs

Costs to be accounted for: (Section 3) Costs in beginning WIP inventory....................... $ 168 Current period costs ........................................... 10,800

$10,968 $10,968 Cost per equivalent unit: (Section 4) Conversion costs ($10,800 ∏ 2,700)................... $4.00 Costs accounted for: (Section 5) Costs assigned to units transferred out: Costs from beginning inventory ........................ $ 168 $ 168 Current costs added to complete beginning

Conversion costs ($4.00 x 120)...................... 480 480 $ 648

WIP inventory:

Total costs from beginning inventory .................. Current costs of units started and completed: Conversion costs ($4.00 x 2,550)..................... 10,200 10,200 Total costs of units started and completed ......... $10,200 Total costs of units transferred out ..................... $10,848 Costs assigned to ending WIP inventory: Conversion costs ($4.00 x 30).......................... 120

120

Total ending WIP inventory................................. $ 120 Total costs accounted for...................................... $10,968 $10,968 b.

168

Work in Process Beginning inventory: Conversion costs

This period's costs: Conversion costs 10,800

To Finished Goods Inventory 10,848a

Ending inventory 120 All costs have been accounted for.

Various Payables Finished Goods Inventory 10,800 10,848

a$10,848 = $648 + $10,200

c. The company’s target has been achieved. Production costs total $4.00 per unit, less than management’s target of $4.25.


8-42. (60 min.) FIFO Process Costing: Pantanal, Inc.

Pantanal, Inc. Assembling Department

Production Cost Report—FIFO

Prior department

costs Materials Conversion

FLOW OF PRODUCTION UNITS (Section 1)

(Section 2) COMPUTE EQUIVALENT UNITS

Physical units

Units to be accounted for: Beginning WIP inventory

........................... 10,000

Units started this period ............................ 102,000 Total units to be accounted for .................... 112,000 Units accounted for: Units completed and transferred out: From beginning inventory........................ 10,000 –0– 4,000 (40)% 6,000 (60%)

b

Started and completed currently ............

a

. 86,000 86,000 86,000 86,000 Units in ending WIP inventory ................... 16,000 16,000 8,000 (50%)Total units accounted for ............................

14,400 (90%). 112,000 100,000102,000 104,400

a40% = 100% – 60% already done at the beginning of the period. b60% = 100% – 40% already done at the beginning of the period.


8-42. (continued)

COSTS

Total Costs

Prior department

costs

Materials

DETAILS

Conversion Costs to be accounted for: (Section 3) Costs in beginning WIP inventory .................... $323,400 $ 98,000 $ 164,400 Current period costs......................................... 3,306,600 939,600Total costs to be accounted for .......................... $3,630,000 $286,000

$ 61,000225,0002,142,000

$2,240,000 $1,104,000Cost per equivalent unit: (Section 4) Prior department costs ($2,142,000 ∏ 102,000) $21.00

Materials ($939,600 ∏ 104,400) ....................... $9.00 Conversion ($225,000 ∏ 100,000).................... $2.25


8-42. (continued)

Details

Costs accounted for: (Section 5) Costs assigned to units transferred out:

36,000

13,500

Total Costs

Prior department

costs

Materials

Conversion

Costs from beginning WIP inventory..................................... $ 323,400 $ 98,000 $ 164,400 $61,000

Current costs added to complete beginning WIP inventory: Prior department costs........................................................ –0– –0– Materials ($9.00 x 4,000) ................................................... 36,000 Conversion ($2.25 x 6,000)................................................ 13,500

Total costs from beginning inventory .................................... $ 372,900 Current costs of units started and completed: Prior department costs ($21.00 x 86,000)............................. Materials ($9.00 x 86,000) ....................................................

$1,806,000 1,806,000774,000 774,000

Conversion ($2.25 x 86,000)................................................. Total costs of units started and completed..............................

193,500 193,500 $2,773,500

Total costs of units transferred out ............................................ $3,146,400 Costs assigned to ending WIP inventory: Prior department costs ($21.00 x 16,000) ............................... $ 336,000

336,000

Total ending WIP inventory ....................................................... $

Materials ($9.00 x 14,400) ...................................................... Conversion ($2.25 x 8,000) .....................................................

129,600 129,60018,000

483,600

18,000

Total costs accounted for .......................................................... $3,630,000 $2,240,000 $1,104,000 $286,000



8-43. (40 min.) Solving For Unknowns—FIFO Method a. Equivalent units =

Beginning inventory x (1 – percentage of completion of beginning inventory)

+ 100% of units started and completed + ending inventory times its percentage of completion = 5,600 equivalent units Let X be the unknown percentage of completion. Then,

5,600 = 1,000 (1 – X) + 4,500 + (3,000 x 30%) 5,600 = 1,000 – 1,000X + 5,400

collecting terms: 5,600 – 5,400 – 1,000 = –1,000X

1,000X

800 = X = 80%

(4,500 + 1,000) + 900 – 5,600 = 800 units

800 = 1,000X

Also, using BB = TO + EB – TI =

X = 80% b. The cost per equivalent unit is obtained by dividing the ending inventory costs by the equivalent units in ending inventory;

$87,000 ÷ 10,000

Equivalent units worked this period are the sum of the equivalent units to:

(a) complete the beginning inventory

(b) start and complete some units, and

which, for the problem are:

= $8.70 per EU

(c) to start the ending inventory

42,000 + 60,000 + 10,000 = 112,000

The total costs incurred are the cost per equivalent unit times the equivalent units worked this period, that is 112,000 × $8.70 = $974,400.



8-43. (continued)

Units started and completed equals the units transferred out (units completed this period) less the units started in a previous period (beginning inventory):

units transferred out –5,000

c.

40,000

units in beginning inventory 35,000 units started and completed.

d.

= TO – BB + EB 9,500 – 4,000 + 3,000

=

Current units started equals units transferred out minus beginning inventory plus ending inventory or, in equation form:

Current units started

= 8,500 units



8-44. (50 min.) Solving For Unknowns—Weighted-Average Method

BB + TI (current work) – EB 12,300 + 10,500 – 10,000 =

a. Units transferred out equals beginning inventory plus current work minus ending inventory. In equation form:

TO = =

12,800

Of the 12,800 units transferred out, 12,300 were from the beginning inventory. Therefore, 500 units were started and completed. That is, 12,800 completed this period less 12,300 started in a prior period equals the 500 started and completed this period.

b. The inventory equation yields:

BB + TI = TO + EB

Given the information in the problem, we can compute the right hand side. There are 4,800 (24,000 x 20%) equivalent units in ending inventory at a cost of $18,000. The cost per equivalent unit is $3.75 (or $18,000 ÷ 4,800 EU).

$270,000

TI $270,000 – $56,800

The right hand side of the equation is the total equivalent units represented by all costs in the account (72,000 EU) times the cost per equivalent unit ($3.75). The resulting $270,000 and the beginning inventory cost of $56,800 are entered in the equation:

$56,800 + TI =

and solving for TI: =

= $213,200



8-44. (continued)

c. First, we compute the cost of ending inventory:

BB + TI (current work) = TO + EB

$11,400 + $108,600 $115,200 + EB EB $120,000 – $115,200

= $4,800

= =

Equivalent units in ending inventory equals $4,800 divided by the cost per equivalent unit.

Costs per equivalent unit is the $115,200 transferred out costs divided by the units transferred out:

$115,200 ÷ 28,800 units $4 per E.U=

Cost assigned to ending inventory is based on the relationship:

$4,800 = Equivalent units in EB times $4.00 and solving for EU in EB

EU in EB =

= 1,200 EU$4,800 ÷ $4

d. The materials cost per equivalent unit is: $2.10 per EU

$26,880 ÷ 12,800 units transferred out =

Since ending inventory contains direct materials cost of $5,040, it must contain

If the inventory is 25% complete with respect to direct materials costs, then these 2,400 equivalent units represent 25% of the physical count of units in the ending inventory. Therefore, since

Then units in EB = 9,600

2,400 ( = $5,040 ÷ $2.10) equivalent units.

2,400 EU = .25 (units in EB)

= 2,400 ÷ .25



8-45. (50 min.) Operation Costing—Work-in-Process Inventory: Washington, Inc.

The solution to this problem is to apply process costing methods for the conversion costs and then add the cost of materials for each product. Because there is no beginning work-in-process inventory, FIFO and weighted-average process costing gives the same results.

The material costs per unit are:

Number Unit Material Cost

90,000 300 = 300 X-40 .......... 160,000 200 = 800

Physical

Units Conversion Costs

Flow of units:

Units started this perioda 1,000

a.

Product Material

Cost of

Units

X-10 .......... $50,000 ÷ 500 = $100 X-20 .......... ÷

÷

The conversion costs per equivalent unit are:

Department A:

Equivalent Units

Units to be accounted for: Beginning WIP inventory.................... –0–

1,000 Total units to account for ................ Units accounted for: Completed and transferred outb

Total units accounted for ................ 1,000

840 840 Units in ending inventoryc 160 Conversion costs (160 x 25%)........ 40

880

a 1,000 units = 500 X-10 + 300 X-20 + 200 X-40

b 840 units = 400 X-10 + 260 X-20 + 180 X-40 c 160 units = 1,000 units started – 840 units transferred out.



8-45. (continued)

Total

Flow of costs: Costs to be accounted for: Costs in beginning WIP inventory ...... $ –0– Current period costs........................... Total costs to be accounted for........ $ 264,000

Conversion

Costs

$ –0–264,000 264,000

$ 264,000Cost per equivalent unit Conversion costs ($264,000 ÷ 880) ... $ 300

Conversion Costs

Flow of units:

440

Department B:

Physical Units Equivalent Units

Units to be accounted for: Beginning WIP inventory ................... –0– Units started this perioda 440 Total units to account for................ Units accounted for: Completed and transferred outb 390 390

30 Total units accounted for................ 440

Units in ending inventoryc 50 Conversion costs (50 x 60%) .........

420a 440 units = 260 X-20 + 180 X-40 b 390 units = 225 X-20 + 165 X-40

Total

$ –0– Current period costs........................... 42,000 Total costs to be accounted for........

a 50 units = 440 units started – 390 units transferred out.

Conversion Costs

Flow of costs: Costs to be accounted for: Costs in beginning WIP inventory ...... $ –0–

42,000$ 42,000 $ 42,000

Cost per equivalent unit Conversion costs ($42,000 ÷ 420) ..... $ 100



8-45. (continued)

Cost of units transferred to finished goods:

Product Material Cost

Unit Department

A Cost

Unit Department

B Cost Unit Cost

X-10 .......... $100 $ –0– $ 400

300 300 + 100 700 800 + + 100 1,200

b.

Work-in-Process Ending Inventory Balances are:

Department A:

Material cost Total Cost

X-10........................ 100 × $100 40 ×

× 16,000

Unit

+ $ 300 + =

X-20 .......... + =X-40 .......... 300 =

Number of Units

Unit Cost

$ 10,000 X-20........................ 300 12,000 X-30........................ 20 800

Total material cost .....

Conversion costs ....... 300 12,000

$ 38,000

40 ×Total ........................... $ 50,000

Department B:

Number of Units

Unit Cost Total Cost

35 15 800

Material cost

X-20........................ × $300 10,500 X-30........................ × 12,000

Total material cost ..... $ 22,500

Conversion costs ....... ×

30 100 3,000

From Dept. A .......... 50 300 15,000 From Dept. B .......... ×Total........................... $ 40,500



8-46. (50 min.) Process Costing and Ethics – Increasing Production to Boost Profits: Pacific Siding, Inc.

a. The CEO and CFO expect to produce profits by reducing the unit cost of each sold. This will occur because of the fixed overhead costs. (Recall “most of the overhead costs are fixed.”) Because each unit transferred out in March will have a lower unit costs, reported costs of goods sold will be lower. Therefore, profit will be higher.


8-46. (continued)

b. See the revised data entry section and production cost report below:

Data Entry Section

Unit Information Percent Complete Units (board Direct Direct feet) Overhead materials labor Units in beginning WIP inventory (all completed this period) 250,000 n/a n/a n/a Units started and completed during the period 140,000 100% 100% 100%Units started and partially completed during the period 225,000 80% 85% 90% Direct Direct Cost Information materials labor Overhead Costs in beginning WIP inventory $90,000 $76,000 $150,000 Costs incurred during the period $95,000 $102,000 $150,000


8-46. (continued) Revised Production Cost Report

Month Ending March 31

Step 1: Summary of Physical Units and Equivalent Unit Calculations

Physical

Units to be accounted for Units

250,000

Units in beginning WIP inventory

Units started during the period 365,000

Total units to be accounted for 615,000

Equivalent Units

Direct

Units accounted for

Direct

materials labor Overhead

390,000

Units in ending WIP inventory 225,000

Units completed and transferred out 390,000 390,000 390,000

180,000 191,250 202,500

Total units accounted for 570,000 592,500

check total units to be accounted for = total units accounted for? If so, amount = $0 ----> 0

615,000 581,250

Step 2: Summary of Costs to be Accounted for

Direct Direct

Costs to be accounted for materials labor Total

Costs in beginning WIP inventory $90,000

Costs incurred during the period

Overhead

$76,000 $150,000 $316,000

95,000 102,000 150,000 347,000

Total costs to be accounted for $171,000 $192,000

check total costs to be accounted for = total costs accounted for? If so, amount = $0 ---->

$300,000 $663,000

0 ©The McGraw-Hill Companies, Inc., 2008 Solutions Manual, Chapter 8 291

Step 3: Calculation of Cost per Equivalent Unit

Direct

materials Overhead

Total costs to be accounted for (a)

Total equivalent units accounted for 570,000 581,250

Cost per equivalent unit (a) / (b) $0.3000 $0.5063

Direct

labor Total

$171,000 $192,000 $300,000

592,500

$0.3303 $1.1367

Step 4: Assign Costs to Units Transferred Out and Units in Ending WIP Inventory

Direct

materials

$128,826

Direct

labor Overhead Total

Costs assigned to units transferred out $117,000 $197,468 $443,294

Costs assigned to ending WIP inventory 54,000 63,174 102,532 219,706

Total costs accounted for $171,000 $192,000 $300,000 $663,000



8-46. (continued)

d. This is not ethical. The reason for the production increase was solely to manipulate income and distort results for the year. There is no indication that the increase in production was to meet much larger demand.

c. The costs assigned to units transferred out has decreased from $541,621 to $443,294, or $98,327. Because all the units transferred out will be sold before the end of March, profits will be $98,327 higher than originally planned.


cost chapter 8

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