managerial accounting hilton 6e chapter 4 solution

CHAPTER 1

CHAPTER 4

Process Costing and Hybrid Product-Costing Systems

Answers to Review Questions

4-1In a job-order costing system, costs are assigned to batches or job orders of production. Job-order costing is used by firms that produce relatively small numbers of dissimilar products. In a process-costing system, costs are averaged over a large number of product units. Process costing is used by firms that produce large numbers of nearly identical products.

4-2Process costing would be an appropriate product-costing system in the following industries: petroleum, food processing, lumber, chemicals, textiles, and electronics. Each of these industries is involved in the production of very large numbers of highly similar products.

4-3Process costing could be used in the following nonmanufacturing enterprises: processing of tests in a medical diagnostic laboratory, processing of tax returns by the Internal Revenue Service, and processing of loan applications in a bank.

4-4Product-costing systems are used for the following purposes:

(a)In financial accounting: Product costs are needed to value inventory on the balance sheet and to compute the cost-of-goods-sold expense on the income statement.

(b)In managerial accounting: Product costs are needed for planning, for cost control, and to provide managers with data for decision making.

(c)In reporting to interested organizations: Product cost information is used to report on relationships between firms and various outside organizations. For example, hospitals keep track of the costs of medical procedures that are reimbursed by insurance companies or by the federal government under the Medicare program.

4-5An equivalent unit is a measure of the amount of productive effort applied in the production process. In process costing, costs are assigned to equivalent units rather than to physical units.

4-6The following four steps are used in process costing:

(a)Analysis of physical flow of units: All of the units in the beginning and ending inventories, those started during the period, and those transferred out to finished goods are accounted for.

(b)Calculation of equivalent units: The equivalent units of activity are computed for direct material and for conversion.

(c)Computation of unit costs: The costs per equivalent unit for direct material and conversion are computed.

(d)Analysis of total costs: The cost of the goods completed and transferred out and the cost of the ending work-in-process inventory are determined.

4-7(a)Journal entry to enter direct-material costs into Work-in-Process Inventory account:

Work-in-Process Inventory: Department A

XXX

Raw-Material Inventory

XXX

(b)Journal entry to record transfer of goods from the first to the second department in the production sequence:

Work-in-Process Inventory: Department B

XXX

Work-in-Process Inventory: Department A

XXX

4-8Transferred-in costs are the costs assigned to partially completed products that have been transferred from one production department into the next department.

4-9The $175,000 of transferred-in costs were incurred prior to January 1 and in the mixing department. The costs must have been incurred prior to January 1, because they are included in the cost of the beginning work-in-process inventory on that date. Moreover, these costs must have been incurred in the mixing department, because they have been transferred into the cooking department.

4-10The name ''weighted-average method'' comes from the fact that the cost per equivalent unit computed under this method is a weighted average of costs incurred during the current period and costs incurred during prior periods.

4-11The difference between normal and actual costing lies in the calculation of the manufacturing-overhead cost of the current period. Under actual costing, the manufacturing-overhead cost of the current period is the actual overhead cost incurred during the period. Under normal costing, the current-period manufacturing overhead is computed as the product of the predetermined overhead rate and the actual level of the cost driver used to apply manufacturing overhead.

4-12If manufacturing overhead were applied according to some activity base (or cost driver) other than direct labor, then direct-labor costs and manufacturing-overhead costs would be accounted for separately instead of being combined into one account called "conversion costs." Thus, instead of two columns for direct-material and conversion costs, there would be three columns: direct material, direct labor, and manufacturing overhead.

4-13Operation costing is a hybrid product-costing system that is used when conversion activities are very similar across product lines, but the direct materials differ significantly. This is often the case in batch manufacturing operations. Conversion costs are accumulated by department, and process-costing methods are used to assign these costs to products. In contrast, direct-material costs are accumulated by job order or by batch, and job-order costing is used to assign direct-material costs to products.

4-14The departmental production report is the key document in a process-costing system rather than the job-cost sheet used in job-order costing. The departmental production report shows the analysis of the physical flow of units, the calculation of equivalent units, the computation of the cost per equivalent unit, and the analysis of the total costs incurred in the production department. The report shows the cost of the ending work-in-process inventory as well as the cost of the goods completed and transferred out of the department.

4-15 There is no direct material in the March 1 work in process for the stitching department because direct material (rawhide lacing) is added at the end of the process in that department.

Solutions to Exercises

Exercise 4-16 (10 minutes)

The general formula for all three cases is the following:

Work-in-process, beginning+Units started during monthUnits completed during month=Work-in-process,

ending

Using this formula, the missing amounts are:

1.12,000 units

2.5,300 kilograms

3.750,000 gallons

EXERCISE 4-17 (30 MINUTES)

All three of these companies manufacture large numbers of relatively homogeneous products (i.e., lumber and paper). Therefore, process costing is an appropriate product-costing system.


1.6,000 equivalent units (refer to (a) in the following table)

2.4,400 equivalent units (refer to (b) in the following table)

Calculation of Equivalent Units: Rainbow glass company

Weighted-Average Method

Physical UnitsPercentage of Completion with Respect to Conversion

Equivalent Units

Direct Material

Conversion

Work in process, October 1

1,00060%

Units started during October

5,000

Total units to account for

6,000

Units completed and transferred out during October

4,000

100%

4,000

4,000


2,00020%2,000400

Total units accounted for

6,000

_________

Total equivalent units

(a) 6,000(b) 4,400


Calculation of Equivalent Units: terra energy company - lodi Plant


Physical UnitsPercentage of Completion with Respect to ConversionEquivalent Units

Direct Material

Conversion

Work in process, November 1

2,000,00025%

Units started during November

950,000


2,950,000

Units completed and transferred

out during November

2,710,000

100%

2,710,000

2,710,000


240,00080%240,000192,000


2,950,000

________________


2,950,0002,902,000


Calculation of Equivalent Units: fit-for-life Foods Corporation


Physical UnitsPercentage of Completion with Respect to Direct Material

Percentage of Completion withRespect to ConversionEquivalent Units

Direct Material

Conversion

Work in process, January 1

20,00080%60%

Units started during the year

120,000


140,000

Unit completed and transferred out during the year

125,000

100%

100%

125,000

125,000

Work in process, December 3115,00070%30%10,5004,500


140,000

_____________


135,500129,500


Calculation of Cost per Equivalent Unit: idaho Lumber Company


Direct MaterialConversionTotal


$65,000$180,000$ 245,000

Costs incurred during November

425,000690,000 1,115,000

Total costs to account for

$490,000$870,000$1,360,000

Equivalent units

7,0001,740

Costs per equivalent unit

$70*$500$570

*$70 = $490,000 7,000

$500 = $870,000 1,740


Calculation of Cost Per Equivalent Unit: otsego Glass Company



Work in process, June 1

$37,000$36,750$73,750

Costs incurred during June

150,000230,000380,000


$187,000$266,750$453,750

Equivalent units

17,00048,500


$11.00*$5.50$16.50

*$11.00 = $187,000 17,000

$5.50 = $266,750 48,500


savannah Textiles Company



Work in process, September 1

$94,000$44,400$138,400

Costs incurred during September

164,000272,800436,800


$258,000$317,200$575,200

Equivalent units

60,00052,000


$4.30$6.10$10.40

1.Cost of goods completed and

transferred out during September:

50,000$10.40$520,000

2.Cost remaining in September 30

work in process:

Direct material (10,000*$4.30)

$43,000

Conversion (2,000*$6.10)

12,200

Total

55,200

Total costs accounted for

$575,200

*Equivalent units in September 30 work in process:

DirectMaterialConversion

Total equivalent units (weighted average)

60,00052,000

Units completed and transferred out

(50,000)(50,000)

Equivalent units in ending work in process

10,0002,000


tulsa Paperboard Company



Work in process, February 1

$5,500$17,000$22,500

Costs incurred during February

110,000171,600281,600


$115,500$188,600$304,100

Equivalent units

110,00092,000


$1.05$2.05$3.10

1.Cost of goods completed and

transferred out during February:

90,000$3.10$279,000

2.Cost remaining in February 28 work

in process:

Direct material (20,000*$1.05)

$21,000

Conversion (2,000*$2.05)

4,100

Total

25,100


$304,100

*Equivalent units in February 28 work in process:

DirectMaterialConversion

Total equivalent units (weighted average)

110,00092,000


(90,000)(90,000)

Equivalent units in ending work in process

20,000 2,000


1.Diagram of production process:

Work-in-Process Inventory:

Preparation Department

Batch P25Batch S33

Accumulated

by

departmentConversion costs: Direct-labor Manufacturing overhead


Finishing Department

Batch P25Batch S33

Accumulated

by

batchDirect-

material

costs


Packaging Department

Batch P25

Finished-Goods Inventory

Exercise 4-25 (Continued)

2. The product cost for each basketball is computed as follows:

ProfessionalScholastic

Direct material:

Batch P25 ($42,000 2,000)

$21.00-0-

Batch S33 ($45,000 4,000)

-0-$11.25

Conversion: Preparation Department

7.507.50

Conversion: Finishing Department

6.006.00

*Conversion: Packaging Department

.50-0-

Total product cost

$35.00$24.75

*The two production departments each worked on a total of 6,000 balls, but the Packaging Department handled only the 2,000 professional balls.

3.Journal entries:

Work-in-Process Inventory: Preparation Department

39,500*


39,500

*$39,500 = $42,000 of direct material

for batch P25 $2,500 of packaging material


45,000*


45,000

*Direct-material cost for batch S33.


45,000*

Applied Conversion Costs

45,000

*$45,000 = 6,000 units$7.50 per unit

Work-in-Process Inventory: Finishing Department

129,500*


129,500

*$129,500 = $39,500 + $45,000 + $45,000

Exercise 4-25 (Continued)


36,000*


36,000

*$36,000 = 6,000 units$6.00 per unit

Work-in-Process Inventory: Packaging Department

66,500*


99,000


165,500

*$66,500 = $39,500 + (2,000$7.50) + (2,000$6.00).

These are the costs accumulated for batch P25 only.

$99,000 = $45,000 + (4,000$7.50) + (4,000$6.00).

These are the costs accumulated for batch S33 only.


3,500


2,500*


1,000

*Cost of packaging material for batch P25.

$1,000 = 2,000 units$.50 per unit


70,000*


70,000

*$70,000 = $66,500 + $3,500


1.Work-in-Process Inventory: Pouring Department

1,090,000


70,000

Wages Payable

340,000

Manufacturing Overhead

680,000

2.Work-in-Process Inventory: Finishing Department

900,000

Work-in-Process Inventory: Pouring Department

900,000

3.Work-in-Process Inventory: Finishing Department

725,000


25,000

Wages Payable

280,000


420,000

4.Finished-Goods Inventory

400,000


400,000

solutions to Problems

Problem 4-27 (50 minutes)

1.Physical flow of units:

Physical Units

Work in process, 1/1/x1

200,000

Units started during 20x1

1,000,000


1,200,000

Units completed and transferred out during 20x1

900,000


300,000


1,200,000

2.Equivalent units:


Direct Material

Conversion


200,00080%

Units started during 20x1

1,000,000


1,200,000


out during 20x1

900,000

100%

900,000

900,000


300,00050%300,000150,000


1,200,000

________________


1,200,0001,050,000

Problem 4-27 (Continued)

3.Costs per equivalent unit:



$ 200,000$504,000a$ 704,000

Costs incurred during 20x1

1,300,0003,192,000b4,492,000


$1,500,000$3,696,000$5,196,000

Equivalent units

1,200,0001,050,000


$1.25c$3.52d$4.77e

aConversion cost=direct labor + overhead

=direct labor + (60%direct labor)

=160%direct labor

=160%$315,000

=$504,000

bConversion cost=160%direct labor

=160%$1,995,000

=$3,192,000

c$1.25 = $1,500,000 1,200,000

d$3.52 = $3,696,000 1,050,000

e$4.77 = $1.25 + $3.52


4.Cost of ending inventories:

Cost of goods completed and transferred out:

900,000$4.77$4,293,000

Cost remaining in 12/31/x1 work-in-process inventory:

Direct material:

300,000$1.25

$375,000

Conversion:

150,000$3.52

528,000

Total cost of 12/31/x1 work in process

$903,000

Check: Cost of goods completed and transferred out

$4,293,000

Cost of 12/31/x1 work-in-process inventory

903,000


$5,196,000

The cost of the ending work-in-process inventory is $903,000

Ending finished-goods inventory: Of the 900,000 units completed during 20x1, 200,000 units remain in finished-goods inventory on December 31, 20x1. Therefore:

$4,293,000(200,000 900,000) = $954,000*

The cost of the ending finished-goods inventory is $954,000.

*Also, $954,000 = 200,000$4.77 per unit


1.

PhysicalUnits


50,000

Units started during June

200,000


250,000

Units completed and transferred out during June

190,000


60,000


250,000

2.


Direct Material

Conversion


50,00040%

Units started during June

200,000


250,000


out during June

190,000

100%

190,000

190,000


60,00060%60,00036,000


250,000


250,000226,000

3.



$120,000$34,400$154,400

Costs incurred during June

492,500349,800842,300


$612,500$384,200$996,700

Equivalent units

250,000226,000


$2.45$1.70$4.15


4.Cost of goods completed and transferred out during June:

190,000$4.15$788,500

Cost remaining in June 30 work-in-process inventory:

Direct material:

60,000$2.45$147,000

Conversion:

36,000$1.70 61,200

Total cost of June 30 work in process

$208,200


$788,500

Cost of June 30 work-in-process inventory

208,200


$996,700


The missing amounts are shown below. A completed production report follows.

Units started during July

45,000

Units completed and transferred out during July

50,000

Total equivalent units: conversion

56,000

Work in process, July 1: conversion

$ 79,800

Costs incurred during July: direct material

371,850

Cost per equivalent unit: conversion

13.20

Cost of goods completed and transferred out during July

1,072,500

Cost remaining in ending work-in-process inventory: direct material

123,750

Production Report: vesuvius Tile Company



Direct MaterialConversion

Work in process, July 1

20,00030%

Units started during July

45,000


65,000


out during July

50,000

100%

50,000

50,000


15,00040%15,0006,000


65,000

__________


65,00056,000




$164,400$79,800$ 244,200

Costs incurred during July

371,850659,4001,031,250


$536,250$739,200$1,275,450

Equivalent units

65,00056,000


$8.25*$13.20$21.45**

*$8.25 = $536,250 65,000

$13.20 = $739,200 56,000

**$21.45 = $8.25 + $13.20

Cost of goods completed and transferred out during July:

50,000$21.45

$1,072,500

Cost remaining in July 31 work-in-process inventory:

Direct material:

15,000$8.25

$123,750

Conversion:

6,000$13.20

79,200

Total cost of July 31 work in process

$202,950

Check:Cost of goods completed and transferred out

$1,072,500

Cost of July 31 work-in-process inventory

202,950


$1,275,450


1.a.



Work in process, May 1

25,00040%

Units started during May

30,000


55,000

Units completed and

transferred out during May

35,000

100%

35,000

35,000


20,00080%20,00016,000


55,000

__________


55,00051,000

b.


Costs per equivalent unit$5.60$48.70$54.30*

*$54.30 = $5.60 + $48.70


c.Cost of goods completed and transferred out during May:

35,000 ( $54.30$1,900,500

Cost remaining in May 31 work-in-process inventory:

Direct material:

20,000 ( $5.60$112,000

Conversion:

16,000 ( $48.70779,200

Total cost of May 31 work in process

$891,200


$1,900,500

Cost of May 31 work-in-process inventroy

891,200


$2,791,700

2.Journal entry:

Finished-Goods Inventory1,900,5001,900,500

Work-in-Process Inventory

1,900,500


1.

PhysicalUnits

Work in process, April 1

10,000

Units started during April

100,000


110,000

Units completed and transferred out during April

80,000


30,000


110,000

2.

PhysicalUnitsPercentage of Completion with Respect to ConversionEquivalent Units



10,00020%

Units started during April

100,000


110,000

Units completed and

transferred out during April

80,000

100%

80,000

80,000


30,00033 1/3%30,00010,000


110,000

______ _____


110,00090,000

3.



$22,000$4,500$26,500

Costs incurred during April

198,000158,400356,400


$220,000$162,900$382,900

Equivalent units

110,00090,000


$2.00$1.81$3.81


4.Cost of goods completed and transferred out during April:

80,000$3.81

$304,800

Cost remaining in April 30 work-in-process inventory:

Direct material:

30,000$2.00

$60,000

Conversion:

10,000$1.81

18,100

Total cost of April 30 work-in-process

$78,100


$304,800

Cost of April 30 work-in-process inventory

78,100


$382,900


1.



Work in process, August 1

40,00080%

Units started during August

80,000


120,000


out during August

100,000

100%

100,000

100,000

Work in process, August 31

20,00030%20,0006,000


120,000

____________


120,000106,000

2.


Costs per equivalent unit$1.15$10.28$11.43*

*$11.43 = $1.15 + $10.28

3.Cost of goods completed and transferred out during August:

100,000$11.43

$1,143,000


4.Cost remaining in August 31 work-in-process inventory:

Direct material:

20,000$1.15

$23,000

Conversion:

6,000$10.28

61,680

Total cost of August 31 work in process

$84,680


$1,143,000

Cost of August 31 work-in-process inventory

84,680

Total costs accounted for:

$1,227,680

5.Journal entry:


1,143,000

Work-in-Process Inventory

1,143,000

PROBLEM 4-33 (35 MINUTES)

1.Direct material cost was $1,404,000:

XY634..$ 267,000

AA788. 689,000

GU321. 448,000

Total.$1,404,000

Goodsons total direct-labor payroll amounted to $126,500 for 6,325 hours of work ($126,500 $20 per hour). Thus, conversion cost was $506,000:

Direct labor...$126,500

Overhead applied (6,325 hours x $60).. 379,500

Total..$506,000

2.Goods completed during April cost $1,872,000 (24,000 units x $78) as the following calculations show:

Physical

UnitsPercentage

Of

Completion

With

Respect to ConversionEquivalent Units

Direct

Material Conversion

Work in process, April 1. 4,00075%

Units started during April..25,000

Total units to account for..29,000


out during April..24,000100%24,00024,000

Work in process, April 30.. 5,000 40% 5,000 2,000

Total units accounted for...29,000

Total equivalent units..

29,00026,000

PROBLEM 4-33 (CONTINUED)

Direct

MaterialConversionTotal

Work in process, April 1$ 220,000$ 66,000$ 286,000

Costs incurred during April. 1,404,000 506,000 1,910,000

Total costs to account for.$1,624,000$572,000$2,196,000

Equivalent units...29,00026,000

Cost per equivalent unit$56a$22b$78c

a$1,624,000 29,000 = $56

b$572,000 26,000 = $22

c$56 + $22 = $78

3.The cost of the ending work-in-process inventory is $324,000:

Direct material (5,000 x $56)..$280,000

Conversion cost (2,000 x $22).. 44,000

Total.$324,000

4.(a)No material would be added during May. All material is introduced at the start of Goodsons manufacturing process, and these units were begun in April.

(b)Since the work-in-process inventory is 40% complete at the end of April, 60% of the conversion would be done in May.

5.Given that the ending work-in-process inventory is at the 40% stage of completion, these units would not have reached the 70% point in April where HH887 is added. Therefore, there would be zero equivalent units with respect to part HH887 in the ending work-in-process inventory.

PROBLEM 4-34 (30 MINUTES)

1.The ending work-in-process inventory consisted of 500 units (300 + 900 700).

2.The cost of goods completed during June totaled $57,400 (700 units x $82):

Physical

UnitsPercentage

Of

Completion

With

Respect to ConversionEquivalent Units

Direct

Material Conversion

Work in process, June 1. 300 30%

Units started during June.. 900

Total units to account for...1,200


during June.. 700100% 700 700

Work in process, June 30... 500 60% 500 300

Total units accounted for1,200

Total equivalent units..

1,2001,000

Direct


Work in process, June 1$15,000$ 6,300$21,300

Costs incurred during June. 45,000 25,700 70,700

Total costs to account for.$60,000$32,000$92,000

Equivalent units...1,2001,000

Cost per equivalent unit.$50a$32b$82c

a$60,000 1,200 = $50

b$32,000 1,000 = $32

c$50 + $32 = $82


57,400

Work-in-Process Inventory.

57,400

3.The cost of the June 30 work-in-process inventory is $34,600:

Direct materials (500 x $50)...$25,000

Conversion cost (300 x $32).. 9,600

Total$34,600

PROBLEM 4-34 (CONTINUED)

4.Equivalent units measure the amount of manufacturing activity (i.e., for direct material or conversion) that has been applied to a batch of physical units. If, for example, a company has 600 physical units in process that are 40% complete as to conversion, the firm has done the equivalent amount of conversion activity as would be required to do all of the conversion work for 240 units (600 x 40%).

Equivalent units are needed to state manufacturing activity on a common measurement scale. One cannot add completed units to units in process. Such a combination is like adding apples and oranges, as some units are complete and some are incomplete. Instead, these units are first converted to equivalent units, and the latter are then used in unit-cost calculations.


The missing amounts are shown below. A completed production report follows.

Work in process, May 1 (in units)

15,000

Units completed and transferred out during May

65,000

Total equivalent units: conversion

71,000

Work in process, May 1: conversion

$37,500

Costs incurred during May: direct material

570,000

Cost per equivalent unit: conversion

12.25

Cost of goods completed and transferred out during May

1,407,250

Cost remaining in ending work-in-process inventory: direct material

94,000

Production Report: hercules Tire and Rubber Company


Percentage

of

Completion

withEquivalent Units

PhysicalRespect toDirect

UnitsConversionMaterialConversion


15,00020%

Units started during May

60,000


75,000


out during May

65,000100%65,00065,000


10,00060%10,0006,000


75,000

__________


75,00071,000


Direct



$135,000$37,500$172,500

Costs incurred during May

570,000832,2501,402,250


$705,000$869,750$1,574,750

Equivalent units

75,00071,000


$9.40*$12.25$21.65**

*$9.40 = $705,000 75,000

$12.25 = $869,750 71,000

**$21.65 = $9.40 + $12.25


Cost of goods completed and transferred out during May:

65,000$21.65$1,407,250

Cost remaining in May 31 work-in-process inventory:

Direct material:

10,000$9.40$94,000

Conversion:

6,000$12.2573,500

Total cost of May 31 work-in-process

$167,500


$1,407,250

Cost of May 31 work-in-process inventory

167,500


$1,574,750


1.a.

Percentage

of

Completion

with Respect

Taxto

ReturnsConversion

(physical(labor andEquivalent Units

units)overhead)LaborOverhead

Returns in process, February 1

20025%

Returns started in February

825

Total returns to account for

1,025

Returns completed

during February

900100% 900900


12580% 100100

Total returns accounted for

1,025

________

Total equivalent units of activity

1,0001,000

b.

LaborOverheadTotal


6,0002,5008,500

Costs incurred during February

89,00045,000134,000


95,00047,500142,500

Equivalent units

1,0001,000


95.0047.50142.50

2.Cost of returns in process on February 28:

Labor: equivalent unitscost per equivalent unit

10095.00

9,500

Overhead:equivalent unitscost per equivalent unit

10047.50

4,750

Total cost of returns in process on February 28

14,250


1.Production Report: Mixing Department

(Weighted-Average Method)

Percentage

of

Completion

withEquivalent Units

PhysicalRespect toDirect

UnitsConversionMaterialConversion


4,000 75%


16,000


20,000


out during November

15,000 100%15,00015,000

Work in process, November 305,000 20%5,0001,000


20,000

____ __ ____


20,00016,000

Direct



$22,800$ 46,510$69,310


81,600* 196,690278,290


$104,400$ 243,200$347,600

Equivalent units

20,00016,000


$5.22$15.20$20.42

*$81,600 = $10,000 + $51,000 + (4,000 10,000)($51,500)

$196,690 = $103,350 + (.40)($103,350) + $52,000


Cost of goods completed and transferred out during November:

15,000$20.42$306,300

Cost remaining in November 30 work-in-process inventory

Direct material:

5,000$5.22$26,100

Conversion

1,000$15.2015,200

Total cost of November 30 work in process

$41,300


$306,300

Cost of November 30 work-in-process inventory

41,300


$347,600

2.a.Work-in-Process Inventory: Mixing Department

81,600


81,600

b.Work-in-Process Inventory: Mixing Department

103,350

Wages Payable

103,350

c.Work-in-Process Inventory: Mixing Department

93,340*


93,340

*$93,340 = (.40)($103,350) + ($52,000)

d.Work-in-Process Inventory: Finishing Department

306,300

Work-in-Process Inventory: Mixing Department

306,300


1.The unit costs and total costs for each of the products manufactured by Plasto Corporation during the month of May are calculated as follows:

ExtrusionFormTrimFinish

Units produced

16,00011,0005,0002,000

Material costs

$192,000$ 44,000$15,000$12,000

Unit material cost

12.004.003.006.00

Conversion costs*

392,000132,00069,00042,000

Unit conversion cost

24.5012.0013.8021.00

*Direct labor and manufacturing overhead.


Unit CostsPlastic SheetsStandard ModelDeluxe ModelExecutive Model

Material costs:

Extrusion

$12.00$12.00$12.00$12.00

Form

4.004.004.00

Trim

3.003.00

Finish

6.00

Conversion costs:

Extrusion

24.5024.5024.5024.50

Form

12.0012.0012.00

Trim

13.8013.80

Finish

_ _ _ 21.00

Total unit cost

$36.50$52.50$69.30$96.30

Units produced

( 5,000( 6,000( 3,000( 2,000

Total product cost*

$182,500$315,000$207,900$192,600

*Total costs accounted for:

ProductTotal Product Costs

Plastic sheets$182,500

Standard model315,000

Deluxe model207,900

Executive model192,600

Total$898,000

2.Journal entries:

Work-in-Process Inventory: Extrusion

584,000


192,000


392,000


182,500


182,500

Work-in-Process Inventory: Forming

577,500


401,500


44,000


132,000



315,000


315,000

Work-in-Process Inventory: Trimming

346,500


262,500


15,000


69,000


207,900


207,900

Work-in-Process Inventory: Finishing

192,600


138,600


12,000


42,000


192,600

Work-in-Process Inventory: Finishing

192,600


1.Conversion cost per unit in department I:

t

*Note that all of the products sold after processing in departments I, II, or III were produced orginally in department I.

2.Conversion cost per unit in department II:

*Note that all of the products sold after processing in departments II and III were colored in department II.

3.Cost of a clear glass sheet:

=direct material per

unit in department I+conversion cost per

unit in department I


4.Cost of an unetched, colored glass sheet:

=cost per clearglass sheet+direct materialper unit in department II+conversion cost perunit in department II

5.Cost of an etched, colored glass sheet:

=cost per unetchedcolored glass sheet+conversion cost per

unit in department III


1.Conversion costs:

RollingMoldingPunchingDipping

Direct labor

$300,000$112,000$128,000$ 45,000

Manufacturing overhead

450,000168,000192,000 67,500

Total conversion cost

$750,000$280,000$320,000$112,500

Total units produced:

Rolling only

20,000

Rolling, molding, punching

8,0008,000

Rolling, molding, punching,

dipping

3,000

Conversion cost per unit

$37.50$35.00$40.00$37.50


2.Product costs:

Ceralam

Sheets SoldNonreflectiveReflective

afterCeralamCeralamTotal

RollingHousingsHousingsCosts

Direct material:

Ceralam sheets

$480,000$200,000$120,000$ 800,000

Chemical dip

30,00030,000

Conversion costs:

Rolling

450,000a187,500a112,500a750,000

Molding

175,000b105,000b280,000

Punching

200,000c120,000c320,000

Dipping

_______________112,500d 112,500

Total cost

$930,000$762,500$600,000$2,292,500

Units manufactured

12,0005,0003,000

Unit cost

$77.50$152.50$200.00

aNumber of unitsrolling cost per unit ($37.50)

bNumber of unitsmolding cost per unit ($35.00)

cNumber of unitspunching cost per unit ($40.00)

dNumber of unitsdipping cost per unit ($37.50)

3.Journal entries:

Work-in-Process Inventory: Rolling

1,550,000


800,000*


750,000

*$800,000=direct-material cost for ceralam sheets

$750,000=conversion cost in rolling operation

problem 4-40 (continued)


930,000*


930,000

*$930,000=12,000 ceralam sheets sold after

rolling$77.50 per unit

Cost of Goods Sold

930,000*


930,000

*$930,000=cost of ceralam sheets sold after

rolling

Work-in-Process Inventory: Molding

620,000*


620,000

*$620,000=cost remaining in Work-in-ProcessInventory: Rolling

= $1,550,000 $930,000


280,000*


280,000

*$280,000 = conversion cost in molding operation

Work-in-Process Inventory: Punching

900,000*


900,000

*$900,000=cost remaining in Work-in-ProcessInventory: Molding

=$620,000 + $280,000


320,000*


320,000

*$320,000=conversion cost in punching operation

problem 4-40 (continued)


762,500*


762,500

*$762,500=5,000 nonreflective ceralam housingssold after punching$152.50 per unit

Cost of Goods Sold

762,500*


762,500

*$762,500=cost of nonreflective ceralamhousings sold after punching

Work-in-Process Inventory: Dipping

457,500*


457,500

*$457,500=cost remaining in Work-in-ProcessInventory: Punching

=$900,000 + $320,000 $762,500


142,500


30,000*


112,500

*$30,000=direct-material cost for chemical dip

$112,500=conversion cost in dipping operation


600,000*


600,000

*$600,000=3,000 reflective ceralam housingssold after dipping$200.00 per unit

Cost of Goods Sold

600,000


600,000


1.a.Cost of units completed and transferred to finished-goods inventory during May:


11,900

Total cost per equivalent unit

( _ $9.00

Cost of units completed and transferred out

$107,100

b.To compute the cost of the Finishing Department's work-in-process inventory on May 31, first determine the number of units in ending work-in-process inventory, as follows:

Work-in-process inventory, May 1 (in units)

1,400

Add: Units transferred in

14,000

Units to account for

15,400

Less: Units transferred to finished goods

11,900

Work-in-process inventory, May 31 (in units)

3,500

Then compute the transferred-in, direct-material, and conversion costs in the May 31 work-in-process inventory:

InputEquivalent Units

Cost per Equivalent UnitCost

Transferred-in

3,500($5.00=$17,500

Direct material

3,500($1.00=3,500

Conversion

3,50040%($3.00=4,200

Total cost of May 31 work-in-process inventory

$25,200

2.Equivalent units of transferred-in costs

15,400

Transferred-in cost per equivalent unit

( $5.00

Total transferred-in cost

$77,000

Deduct: Transferred-in cost in May 1 work-in-process inventory

6,750

Total cost transferred in from the Assembly Department

$70,250

Journal entry to record transfer:


70,250

Work-in-Process Inventory: Assembly Department

70,250

solutions to cases

Case 4-42 (45 minutes)

1.Equivalent units of material

8,000

Equivalent units of conversion

7,500

2.Cost per equivalent unit of material

$3.30

Cost per equivalent unit of conversion

$2.80

3.October 31 work-in-process inventory

$4,700

Cost of goods completed and transferred out

$42,700

4.Weighted-average unit cost of completed leather belts

$6.10

These answers are supported by the following process-costing schedules. The firm's cost per belt used for planning and control, $5.35, is substantially lower than the actual cost per belt incurred in October, $6.10. Management should investigate this situation to determine whether production costs can be reduced. If not, then the cost used for planning and control purposes should be changed to reflect the firm's actual experience.

CALCULATION OF EQUIVALENT UNITS: LAREDO LEATHER CO. - DALLAS PLANT





40025%

Units started during October

7,600


8,000

Units completed and transferred out during October

7,000100%

7,000

7,000


1,00050%1,000 500


8,000


8,0007,500

Case 4-42 (Continued)

CALCULATION OF COSTS PER EQUIVALENT UNIT: DALLAS PLANT




$1,250$ 300$1,550

Costs incurred during October

25,15020,70045,850


$26,400$21,000$47,400

Equivalent units

8,0007,500


$3.30$2.80$6.10

Analysis of Total Costs: dallas Plant


Cost of goods completed and transferred out during October:

7,000$6.10

$42,700

Cost remaining in October 31 work-in-process inventory:

Direct material:

1,000$3.30

$3,300

Conversion:

500$2.80

1,400

Total cost of October 31 work in process

$4,700



$42,700

Cost of October 31 work-in-process inventory

4,700


$47,400

5.If the units were 60 percent complete as of October 31, there would be 7,600 equivalent units with respect to conversion. (To see this, just change the 500 in the right-hand column of the table in the solution to requirement (4) to 600. This changes the last number in the right-hand column from 7,500 to 7,600.)

Now the unit cost of conversion drops from $2.80, as currently computed, to $2.76 (rounded, $21,000 7,600). Thus, the unit cost drops from $6.10 to $6.06 (rounded).

As controller, Jeff Daley has an ethical obligation to refuse his friend's request to alter the estimate of the percentage of completion. What Daley can do is to help Murray think of some legitimate ways to bring about real cost reductions. Several ethical standards for management accountants (listed in Chapter 1) apply in this situation. Among the relevant standards are the following:

Competence:

Prepare complete and clear reports and recommendations after appropriate analyses of relevant and reliable information.

Objectivity:

Communicate information fairly and objectively.

Disclose fully all relevant information that could reasonably be expected to influence an intended user's understanding of the reports, comments, and recommendations presented.

Case 4-43 (60 minutes)

PRODUCTION REPORT: HOME GARDEN COMPANY - GRADING DEPARTMENT





-0-


36,000


36,000

Units completed and transferred out during November

36,000100%36,00036,000


-0--0--0-


36,000

__________


36,00036,000



-0--0--0-


$265,680$86,400$352,080


$265,680$86,400$352,080

Equivalent units

36,00036,000


$7.38$2.40$9.78

Cost of goods completed and transferred out of the Grading Department during November:

36,000$9.78

$352,080

Cost remaining in November 30 work-in-process inventory in the

Grading Department

-0-


$352,080


-0-


$352,080


PRODUCTION REPORT: HOME GARDEN COMPANY - SATURATING DEPARTMENT



TransferredinConversion


1,60050%

Units transferred in during November

36,000


37,600


out during November

35,600100%35,60035,600


2,00050%2,0001,000


37,600

__________


37,60036,600

Transferred InConversionTotal


$13,850$3,750$17,600


352,080*85,920438,000


$365,930$89,670$455,600

Equivalent units

37,60036,600


$9.7322$2.45$12.1822

*Cost of goods completed and transferred out of Grading Department during November, under the weighted-average method.


Cost of goods completed and transferred out of the Saturating Department during November:

35,600$12.1822

$433,686

Cost remaining in November 30 work-in-process inventory in the Saturating Department:

Transferred-in costs:

2,000$9.7322

$19,464

Direct material:

None

Conversion:

1,000$2.45

2,450

Total cost of November 30 work in process

$21,914


$433,686


21,914


$455,600

Rounded

current issues in Managerial accountingISSUE 4-44

"bottled up: profits aren't flowing like they used to at packaged-goods companies. green ketchup and tunA in a pouch save heinz?, " fortune, september 18, 2000, julie creswell.

1. Heinz is a food processor and manufactures large quantities of relatively homogeneous products. Thus, process costing would be an appropriate product costing system for Heintz.

2. Heinz has recently begun to compete for more noticeable and attractive shelve space, and, after years of neglect, the company has begun to market and package to reflect the growing demographic changes in America. By bringing on the StarKist Tuna in a Pouch it has recognized that eating habits have changed in America. The green ketchup in an EZ Squirt bottle is an attempt to gain a young audience because eating habits begin early. Fruit and Vegetable Wash is a new product offering.

Issue 4-45

international paper shutting plants to cut supply, The wall street journal, october 19, 2000, allanna sullivan.

1. International paper would use process costing since they produce large quantities of relatively homogeneous products.

2. Paper supply costs and total production costs should be reduced. The fixed costs of the closed plants would be eliminated while the fixed costs of the remaining plants would remain stable. Production of the remaining plants would increase. Issue 4-46

u.s. is unlikely to release more oil soon, The wall street journal, october 19, 2000, john j. Flaka. Also see no surge in crude delieveries expected, The wall street journal, october 16, 2000, bhushan bahree.

1. The government's release of 30 million gallons of crude oil is only about one day's supply of oil for the United States, so I would have a negligible effect on the oil companies.

2. Oil companies would use process costing since they produce large quantities of relatively homogeneous products.

Issue 4-47

georgia-pacific profit declines by 43 percent: sluggish building products sector cited, The wall street journal, october 19, 2000, betsy mckay.

1. Georgia-Pacific would use process costing since the company produces large quantities of relatively homogeneous products.

2. Lower prices for building materials would not directly affect the companys product costs, but lower prices would pressure management to attempt to reduce product costs in order to remain price competitive in a weakening market.

McGraw-Hill/Irwin

( 2002 The McGraw-Hill Companies, Inc.

4-20 Solutions Manual McGraw-Hill/Irwin

( 2002 The McGraw-Hill Companies, Inc.

Managerial Accounting, 5/e 4-1

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managerial accounting hilton 6e chapter 4 solution

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