Chapter 6
Process Costing
Questions
1. A company that produces homogeneous
goods in mass quantities is likely to use a
process costing system. The company can
either have a single department or multiple
departments.
completed units on a comparable basis.
Without use of equivalent units, partially
completed and fully completed units would be
combined as if they were homogeneous
measures of output. This would result in
meaningless data since fully and partially
completed units are different outputs.
Job order costing and process costing are similar
in that they are both methods of assigning costs
to products. Also, the methods use similar
product accounts (raw materials, work in
process, finished goods, cost of goods sold) to
capture the costs associated with production and
use similar cost pools (DM, DL, OH).
4. The units "started and completed" in a period
are calculated as the total units completed
during the period minus the units that were in
the beginning inventory. This figure can be
used in both the weighted average and FIFO
methods shown in the chapter. (There are,
however, other methods of computing EUP in
which the units started and completed are not
shown separately.) This calculation is not
necessary for the weighted average method
because work performed on the current
period’s beginning inventory in the prior period
need not be separated from work performed to
complete the beginning inventory in the current
period. This calculation is necessary for the
FIFO method because work in the prior period
cannot be commingled with work performed in
the current period.
Job order costing and process costing differ in
the way in which costs are gathered. In a job
order costing system, costs are accumulated
by department and by job; in a process costing
system, costs are accumulated by production
departments for the products that flow through
those departments. In process costing,
production must be determined on the basis of
equivalent units to properly allocate the costs
associated with each cost component to the
work that was completed during the period and
to the work that is still in process at the end of
the period. Equivalent units of production are
unnecessary in job order costing.
Under weighted average, costs are assigned
to ending inventory by multiplying the cost per
EUP for each cost component times the EUP
calculated for that component; these costs are
then totaled. Costs are assigned to the units
completed/transferred out by multiplying the
total cost per EUP times the number of units
that have been completed and transferred out
during the period.
2. The only difference between weighted average
and FIFO equivalent units of production is in
the treatment of the work that was completed
on beginning inventory in the prior period.
Under weighted average, the work performed
on beginning inventory in the prior period is
combined with the work performed during the
current period. Under FIFO, the work
performed on beginning inventory during the
prior period is held out separately and not
commingled with the work performed during
the current period.
The cost assigned to ending inventory is
handled the same way for FIFO as for
weighted average. In determining the cost of
the units completed and transferred out,
however, the cost of completing the beginning
inventory must first be determined by
multiplying the equivalent units of production
performed this period for each cost component
times the cost per EUP for each cost
component. The cost of completing the
beginning inventory is then added to the
original beginning inventory cost to find the
total cost of producing the beginning inventory
The FIFO method more accurately portrays
the actual physical flow of units through the
manufacturing process, because it is most
likely that the units in beginning inventory will
be the first units to be completed during the
current period - thus a first-in, first-out flow.
3. Equivalent units of production is an approach
to put partially completed and wholly
111
112
Chapter 6
units. The cost of the units started and
completed in the current period is found by
multiplying the total cost per EUP times the
number of units started and completed this
period. Adding the total cost of producing
beginning inventory to the cost of the units
started and completed will give the total cost
transferred out of the department during the
period.
through the same physical conversion
processes. In this example, the material would
be accounted for on a job order basis and the
conversion would be accounted for using
process costing.
8. Normal loss refers to an expected reduction in
production quantity based on the production
technology and production practices of the
company. Abnormal loss refers to a quantity of
loss above the normal loss quantity.
5. The only difference between process costing
in a multi-department environment and a
single department environment is that there
will be a cost component labeled "Transferred
In." The costs of previous departments must
follow the flow of goods into successor
departments to determine the full cost of
production.
Normal loss creates an expected cost of
production so the cost of such a loss is
inventoriable as part of the cost of good
production using the “method of neglect.” The
method of neglect requires no specific
computations regarding spoiled units; all costs
are assigned to good units. The cost of spoiled
units that have been found at an inspection
point will be assigned to all units that have
passed the inspection point. Thus, the method
of neglect assigns spoilage costs by simply
ignoring (neglecting) the spoiled units. The
method of neglect raises the cost per
equivalent unit because no costs are assigned
to the spoiled units.
6. Under a standard costing system, the Material,
In-Process, and Finished Goods Inventory
accounts are accounted for at standard costs.
The actual costs of each process or each
department are also captured in a standard
costing system and variances can be
computed as differences between the
standard and actual amounts for each cost
component. The variances provide information
to management about the efficiency of
operations because the variances reflect
differences between expected (standard) and
actual costs.
7.
Abnormal spoilage cost is not expected, and,
thus, it is not inventoriable. Abnormal losses
would be more likely to be preventable than
normal losses because abnormal losses are
less likely to be caused by factors that are
inherent in the materials or production
methods. For example, a known amount of
material loss (waste) is to be expected if lower
quality materials are utilized. However, any
loss beyond the expected amount would likely
be caused by other factors that are subject to
management control, e.g., production errors.
A hybrid costing system is one in which
process costing is used to account for certain
product costs and job order costing is used to
account for other product costs. Hybrid costing
is common in environments that have, for
example, material costs that vary substantially
from one production run to another (gold
versus copper), but require all products to flow
Exercises
9.
a.,b.
Beginning inventory
Started
To account for
360,000
510,000
870,000
Beginning inventory
Started & completed
Ending inventory (40%)
Equivalent units
Beginning inventory
Started and completed
Ending inventory
Accounted for
Units
360,000
420,000
90,000
DM
360,000
420,000
90,000
870,000
360,000
420,000
90,000
870,000
CC
360,000
420,000
36,000
816,000
Chapter 6
10.
113
a.,b.
Beginning inventory
Started
To account for
360,000
510,000
870,000
Units
360,000
420,000
90,000
Beginning WIP completed
Started & completed
Ending inventory (40%)
Equivalent units
11.
a.,b.
Beginning inventory
Started
To account for
Beginning inventory
Started and completed
Ending inventory
Accounted for
25,000
280,000
305,000
Beginning inventory
Started & completed
Ending inventory
Equivalent units
b.
Beginning inventory
Started & completed
Ending inventory
Equivalent units
Beginning inventory
Started and completed
Ending inventory
Accounted for
CC
108,000
420,000
36,000
564,000
25,000
250,000
30,000
305,000
Units
25,000
250,000
30,000
DM
25,000
250,000
30,000
305,000
DL
25,000
250,000
12,000
287,000
OH
25,000
250,000
18,000
293,000
Units
25,000
250,000
30,000
DM
0
250,000
30,000
280,000
DL
7,500
250,000
12,000
269,500
OH
6,250
250,000
18,000
274,250
305,000
(25,000)
280,000
287,000
(17,500)
269,500
293,000
(18,750)
274,250
c. Equivalent units (WA)
EUPs - Beginning WIP
Equivalent units (FIFO)
12.
DM
0
420,000
90,000
510,000
360,000
420,000
90,000
870,000
a. Beginning inventory
Units started
Units to account for
3,600
187,000
190,600
b. Units completed
Beginning inventory
Started & completed
184,200
(3,600)
180,600
c. Units to account for
Units completed
Units in EI
190,600
(184,200)
6,400
114
Chapter 6
Beginning inventory
Started & completed
Ending inventory
EUP (WA)
Material
3,600
180,600
2,560
186,760
Labor
3,600
180,600
1,600
185,800
Overhead
3,600
180,600
640
184,840
Beginning inventory
Started & completed
Ending inventory
EUP (FIFO)
Material
1,440
180,600
2,560
184,600
Labor
2,160
180,600
1,600
184,360
Overhead
2,880
180,600
640
184,120
EUP (WA)
Equivalent units in BI
EUP (FIFO)
Material
186,760
(2,160)
184,600
Labor
185,800
(1,440)
184,360
Overhead
184,840
(720)
184,120
d.
e.
13.
a. Total tons to account for:
Beginning inventory
Tons started
Total
60,000
800,000
860,000
b. Total tons to account for:
Less tons in ending inventory
Tons transferred out
Less tons in beginning inventory
Tons started & completed (tons)
860,000
(35,000)
825,000
(60,000)
765,000
c. Weighted average:
Beginning inventory
Started & completed
Ending inventory
EUP
Material
60,000
765,000
31,500
856,500
d. FIFO:
Complete beginning inventory
Started and completed
Ending inventory
EUP
Material
0
765,000
31,500
796,500
14.
Beginning inventory
Current period
Total costs
Divided by EUP
Cost per EUP
*
**
DM
$14,920
78,880
$93,800
26,800
$3.50
DL
$ 36,200
79,800*
$116,000
24,400
$4.75**
Conversion
60,000
765,000
21,000
846,000
Conversion
36,000
765,000
21,000
822,000
Overhead
$ 9,900
42,600
$52,500
21,000
$2.50
Direct Labor = Conversion Cost – Overhead = $122,400 - $42,600 = $79,800
rounded
Chapter 6
115
15.
EUPs - (WA)
EUPs - Beginning WIP
EUPs - (FIFO)
DM
26,800
(3,600)
23,200
DL
24,400
(4,000)
20,400
Overhead
21,000
(3,960)
17,040
Current period cost
Divided by EUP
Cost per EUP
$78,880
23,200
$3.40
$79,800
20,400
$3.91*
$42,600
17,040
$2.50
DM
$ 9,800
27,000
$36,800
DL
$ 3,160
17,360
$20,520
OH
$ 5,010
42,240
$47,250
Total
$ 17,970
86,600
$104,570
b. Total costs
EUPs - (WA)
Cost per EUP
$36,800
80,000
$0.46
$20,520
76,000
$0.27
$47,250
75,000
$0.63
$104,750
c. Current costs
EUPs - (FIFO)
Cost per EUP
$27,000
60,000
$0.45
$17,360
62,000
$0.28
$42,240
66,000
$0.64
$ 86,600
80,000
60,000
20,000
100%
76,000
62,000
14,000
70%
75,000
66,000
9,000
45%
*rounded
16.
a.
Beginning WIP
Current period
Total
d. EUPs - (WA)
EUPs - (FIFO)
EUPs – Beg. WIP
Percent complete
17.
Units
Beginning inventory
Units started
Units to account for
$1.36
$1.37
Units
9,800
81,500
91,300
Beginning inventory
Started & completed
Ending inventory
Accounted for
9,800
76,900
4,600
91,300
EUP computation:
Beginning WIP
Started & completed
EI
EUPs - (WA)
Other
Canisters Materials
9,800
9,800
76,900
76,900
4,600
1,380
91,300
88,080
DL
9,800
76,900
1,150
87,850
OH
9,800
76,900
460
87,160
116
Chapter 6
Costs:
Beginning WIP
Current
Total costs
Divided by EUPs
Cost per EUP
18.
Other
Canisters Materials
DL
$ 7,382
$ 6,188
$ 3,963
65,658
86,296
78,616
$73,040
$92,484
$82,579
91,300
88,080
87,850
$0.80
$1.05
$0.94
a.
Beginning inventory
Units started
Units to account for
Units
1,000
3,800
4,800
Beginning inventory completed
Units started & completed
Total units completed
Ending inventory
Units accounted for
1,000
3,000
4,000
800
4,800
Units in beginning inventory
Units started & completed
Equivalent units in ending inventory
EUP (FIFO)
b.
Material
$66,970
3,620
$18.50
Current costs
Divided by EUP (FIFO)
Cost per EUP
19.
20.
OH
3,432
157,814
$161,246
87,160
$1.85
$
Material
300
3,000
320
3,620
Conversion
$29,040
3,630
$8.00
Total
$ 20,965
388,384
$409,349
Conversion
150
3,000
480
3,630
Total
$96,010
$26.50
a. 520,000 × ($3.75 + $4.50 + $5.10) = 520,000 x $13.35 = $6,942,000
b. DM: $3.75 x (74,000 x 100%)
DL: $4.50 x (74,000 x 30%)
OH: $5.10 x (74,000 x 45%)
Total
$277,500
99,900
169,830
$547,230
c. Cost of goods transferred out
Ending WIP
Total
$6,942,000
547,230
$7,489,230
a. Material: 27,000 ÷ 27,000
Packaging:
0 ÷ 27,000
Labor:
8,100 ÷ 27,000
Overhead: 9,450 ÷ 27,000
= 100%
= 0%
= 30%
= 35%
$4.64
Chapter 6
117
b. Beginning WIP
Material
Labor
Overhead
Complete Beginning WIP
Packaging $1.50 (27,000 × 100%)
Labor
$6.42 (27,000 × 70%)
Overhead $3.84 (27,000 × 65%)
Total
$344,520
95,931
72,954
$ 40,500
121,338
67,392
$513,405
229,230
$742,635
c. (185,000 - 27,000) × ($12.75 + $1.50 + $6.42 + $3.84) =
158,000 x $24.51 = $3,872,580
d. Material ($12.75 × 6,000 × 100%)
Labor ($6.42 × 6,000 × 40%)
Overhead ($3.84 × 6,000 × 55%)
Total
21.
a. Beginning WIP
Started
Units to account for
500
4,200
4,700
Beginning WIP
Started & completed
Ending WIP
Units accounted for
500
4,050
150
4,700
Beginning WIP
Started & completed
Ending inventory
EUP (FIFO)
$ 76,500
15,408
12,672
$104,580
Material
200
4,050
120
4,370
Material ($31,464 ÷ 4,370)
Conversion ($11,713 ÷ 4,505)
Total cost per FIFO EUP
Conversion
350
4,050
105
4,505
$7.20
2.60
$9.80
b. Transferred out:
Costs in BI
Cost to complete BI
DM (200 × $7.20)
CC (350 × $2.60)
Started & completed (4,050 × $9.80)
Total cost transferred
$2,364
1,440
910
$ 4,714
39,690
$44,404
118
Chapter 6
c.
Material
500
4,050
120
4,670
Beginning WIP
Started & completed
Ending inventory
EUP
Material ($33,391 ÷ 4,670)
Conversion ($12,150 ÷ 4,655)
Total cost per WA EUP
d. Ending WIP
DM (120 x $7.15)
CC (105 x $2.61)
Total
22.
Conversion
500
4,050
105
4,655
$7.15 (rounded)
2.61 (rounded)
$9.76
$ 858.00
274.05
$1,132.05
a. Fabrication:
Beginning inventory
Started
Units to account for
5,000
40,000
45,000
Units
5,000
33,200
6,800
45,000
Beginning WIP
Started & completed
Ending inventory
EUP (WA)
Assembly:
Beginning inventory
Started
Units to account for
Beginning inventory
Started & completed
Ending inventory
Units accounted for
2,000
38,200
40,200
Units
Beginning WIP
2,000
Started & completed 32,100
Ending inventory
6,100
EUP (WA)
40,200
Material
5,000
33,200
6,800
45,000
5,000
33,200
6,800
45,000
Conversion
5,000
33,200
4,080
42,280
Beginning inventory
Started & completed
Ending inventory
Units accounted for
2,000
32,100
6,100
40,200
Trans-in
2,000
32,100
6,100
40,200
Conversion
2,000
32,100
915
35,015
Material
2,000
32,100
0
34,100
b. Fabrication
Beginning inventory
Started & completed
Ending inventory
EUP (FIFO)
Units
5,000
33,200
6,800
45,000
Trans-in
5,000
33,200
6,800
45,000
Material
0
33,200
6,800
40,000
Conversion
3,750
33,200
4,080
41,030
Chapter 6
119
Assembly:
Beginning inventory
Started & completed
Ending inventory
EUP (FIFO)
23.
Units
2,000
32,100
6,100
40,200
a. 18,000 x 100% x $0.10 =
18,000 x 45% x $0.09 =
Total cost in BI
Trans-In
2,000
32,100
6,100
40,200
Material Conversion
2,000
1,300
32,100
32,100
0
915
34,100
34,315
$1,800
729
$2,529
b. 14,400 x 100% x $0.10 = $1,440.00
14,400 x 65% x $0.09 =
842.40
Total cost in EI
$2,282.40
c. Beginning inventory
Started
Units to account for
Total units
Units in EI
Units transferred out
18,000
130,000
148,000
148,000
(14,400)
133,600
Cost transferred out = 133,600 × $0.19 = $25,384
d.
To complete BI (units)
Started & completed
Ending inventory
Equivalent units (FIFO)
Multiply by unit cost
Standard cost of period
Actual cost of period
Variance
Material
0
115,600
14,400
130,000
x 0.10
$13,000
(18,400)
$ (5,400)U
e. Work in Process Inventory
Material Variance
Raw Material Inventory
Labor
9,900
115,600
9,360
134,860
x
0.02
$2,697.20
(2,698.00)
$
(0.80)U
OH
9,900
115,600
9,360
134,860
x
0.07
$ 9,440.20
(15,200.00)
$(5,759.80)U
13,000.00
5,400.00
18,400.00
Work in Process Inventory
Labor Variance
Wages Payable (or Cash)
2,697.20
.80
Work in Process Inventory
Underapplied Overhead
Manufacturing Overhead
9,440.20
5,759.80
2,698.00
15,200.00
120
24.
Chapter 6
a. Units to account for:
Beginning inventory
Started
Total
6,000
155,000
161,000
Beginning WIP
Started & completed
Ending WIP
Units accounted for
6,000
151,000
4,000
161,000
Beginning WIP
Started and completed
Ending inventory
EUP (FIFO)
Ingred.
0
151,000
4,000
155,000
Packaging
6,000
151,000
0
157,000
Conversion
1,800
151,000
2,400
155,200
b. Cost of goods completed: 157,000 x $0.68 = $106,760
c. Cost of ending work in process:
Ingredients (4,000 x $0.45)
Conversion (2,400 x $0.18)
Total
25.
$1,800
432
$2,232
a. Units to account for:
Beginning inventory
Started
Total
Started and completed
Ending inventory
EUP
0
2,500
2,500
Started & completed
Ending inventory
Units accounted for
Material
2,400
100
2,500
Labor
2,400
25
2,425
2,400
100
2,500
Overhead
2,400
35
2,435
Cost of goods transferred to finished goods:
Direct material:
Dacron (280 × $10)
$ 2,800
Denim (470 × $8)
3,760
Cotton (1,650 × $12)
19,800
$26,360
Direct labor (2,400 × $12)
28,800
Overhead (2,400 × $9)
21,600
Total
$76,760
b. Cost of ending work in process:
Direct material:
Dacron (20 × $10)
Denim (30 × $8)
Cotton (50 × $12)
Direct labor (25 × $12)
Overhead (35 × $9)
Total
$ 200
240
600
$ 1,040
300
315
$ 1,655
Chapter 6
121
26.
Each student will have a different answer. No answer provided.
27.
Each student will have a different answer. No answer provided.
28.
All spoilage is normal because the 1,400 gallons is less than 0.01 x 180,000.
29.
a and b.
Beginning inventory (60%; 70%)
Gallons started
Gallons to account for
Units
8,000
180,000
188,000
Material
Conversion
Beginning inventory completed
Gallons started and completed
Total gallons transferred
Ending inventory (40%; 20%)
Normal spoilage
Gallons accounted for (FIFO EUP)
8,000
174,600
182,600
4,000
1,400
188,000
3,200
174,600
2,400
174,600
1,600
0
179,400
800
0
177,800
a. 10,000 + 60,000 = 70,000 units
b. 60,000 × 0.05 = 3,000 units
c. 70,000 - (58,200 + 8,000 + 3,000) = 800 units
d.
Units
10,000
60,000
70,000
Material
Beginning inventory
Units started
Units to account for
Transferred out
Ending inventory
Normal spoilage
Abnormal spoilage
Units accounted for
58,200
8,000
3,000
800
70,000
58,200
8,000
0
800
67,000
Conversion
58,200
1,600
0
800
60,600
e. Cost of normal spoilage is automatically spread among all of the remaining
units produced. This is done by using the method of neglect and omitting
these spoiled units from the EUP calculations.
f. Cost of abnormal spoilage is written off as a period cost (loss).
122
30.
Chapter 6
Normal spoilage allowed = 60,000 pounds x 0.08 = 4,800 pounds
Material
Conversion
Beginning inventory
Pounds started
Pounds to account for
Units
18,000
60,000
78,000
Beginning inventory completed
Pounds started and completed
Ending inventory
Normal spoilage
Pounds accounted for (FIFO)
18,000
45,000
10,800
4,200
78,000
0
45,000
10,800
0
55,800
12,600
45,000
2,160
0
59,760
Total
$12,400
37,458
$49,858
Material
Conversion
$19,530
$17,928
55,800
$0.35
59,760
$0.30
Beginning inventory cost
Current costs
Total costs
Divided by EUP
Cost per EUP
$0.65
Cost Assignment
Transferred out:
Beginning inventory cost
Conversion cost to complete (12,600 x $0.30)
Total cost of beginning inventory
Started & completed (45,000 x $0.65)
Ending inventory:
Material (10,800 x $0.35)
Conversion (2,160 x $0.30)
Total costs accounted for
31.
a.
$12,400
3,780
$16,180
29,250
$ 3,780
648
Material
Beginning inventory
Pounds started
Pounds to account for
Units
40,000
425,000
465,000
BI completed
Started & completed
Ending inventory
Normal spoilage
Abnormal spoilage
EUP (FIFO)
40,000
405,000
10,000
2,000
8,000
465,000
0
405,000
10,000
0
8,000
423,000
b. Ending inventory:
Material (10,000 x $2.40)
Conversion (2,500 x $4.70)
Total cost
$24,000
11,750
$35,750
$45,430
4,428
$49,858
Conversion
6,000
405,000
2,500
0
5,600
419,100
Chapter 6
123
c. Abnormal spoilage:
Material (8,000 x $2.40)
Conversion (5,600 x $4.70)
Total cost (treated as a loss)
$19,200
26,320
$45,520
Problems
32.
a.
Wyeth Products
Cost of Production Report
For the Month of February 2006
Production Data
Beginning inventory
Units started
Units to account for
Units
800
11,400
12,200
Material
Beginning inventory units
800
Units started & completed 11,000
Ending inventory
400
EUP
12,200
800
11,000
280
12,080
Labor
Overhead
800
11,000
360
12,160
800
11,000
320
12,120
Cost Data
Cost in BI
Current costs
Total cost to account for
Divided by EUP
Cost per EUP
Total
$ 14,942
505,538
$520,480
$43
Cost Assignment
Transferred out (11,800 units x $43)
Ending inventory:
Material (280 x $22)
Labor (360 x $5)
Overhead (320 x $16)
Total cost accounted for
b.
Raw Material Inventory
Accounts Payable
WIP Inventory
Raw Material Inventory
Material Labor
6,748 $ 2,484
259,012
58,316
$265,760 $60,800
12,080
12,160
$22
$5
$
$507,400
$6,160
1,800
5,120
13,080
$520,480
XXX
XXX
259,012
WIP Inventory
58,316
Wages Payable
WIP Inventory
188,210
Manufacturing Overhead
259,012
58,316
188,210
Overhead
$ 5,710
188,210
$193,920
12,120
$16
124
Chapter 6
Manufacturing Overhead
Accounts Payable
XXX
Finished Goods Inventory
WIP Inventory
507,400
Cost of Goods Sold
Finished Goods Inventory
c.
XXX
507,400
XXX
XXX
Raw Materials
WIP Inventory
Beg
XXX 259,012 Issued
Purch XXX
Beg
DM
DL
OH
End
End 13,080
XXX
Wages Payable
58,316 DL
Manufacturing Overhead
Actual XXX 188,210 Applied
Cost of Goods Sold
From FG XXX
14,942
259,012
58,316
188,210
507,400 CGM
Finished Goods
Beg.
XXX
XXX COGS
CGM 507,400
End
XXX
Accounts Payable
XXX RM Purch
XXX Actual MOH
Chapter 6
33.
a.
125
Wyeth Products
Cost of Production Report
For the Month of February 2006
Production Data:
Beginning inventory
Units started
Units to account for
Units
800
11,400
12,200
Material
Beginning inventory units
Units started & completed
Ending inventory
Units accounted for
800
11,000
400
12,200
440
11,000
280
11,720
Cost Data:
Cost in BI
Current costs
Total cost to account for
Divided by EUP
Cost per EUP
Total
$ 14,942
505,538
$520,480
$43.06
Labor
280
11,000
360
11,640
Overhead
480
11,000
320
11,800
Material
Labor
Overhead
$259,012
$58,316
$188,210
11,720
$22.10
11,640
$5.01*
11,800
$15.95
*rounded
Cost Assignment
Transferred out:
Beginning WIP
$14,942
Complete Beginning WIP
Material (440 x $22.10)
9,724
Labor (280 x $5.01)
1,403
Overhead (480 x $15.95)
7,656
Started & Completed (11,000 x $43.06)
Ending inventory:
Material (280 × $22.10)
$6,188
Labor (360 × $5.01)
1,804
Overhead (320 × $15.95)
5,104
Total cost accounted for (off due to rounding)
$ 33,725
473,660
13,096
$520,481
b. The differences that exist between weighted average and FIFO process
costing occur because of the difference in the treatment of the work
performed in the prior period on beginning WIP inventory. WA includes such
work in the determination of equivalent units of production, whereas FIFO
does not. In addition, because WA includes the beginning inventory work in
EUP, this method also includes the cost of beginning inventory in the
determination of cost per EUP (whereas FIFO excludes it). These two items
cause the cost per EUP to differ and, thus, the cost of the goods transferred
out as well as the cost of ending inventory.
126
34.
Chapter 6
a.
Material
BI
Units started
Units to account for
Units
400,000
2,000,000
2,400,000
BI
Units S&C
EI
EUP
400,000
1,400,000
600,000
2,400,000
400,000
1,400,000
600,000
2,400,000
400,000
1,400,000
300,000
2,100,000
Material
$ 400,000
2,600,000
$3,000,000
2,400,000
$1.25
Labor
$ 576,000
3,204,000
$3,780,000
2,100,000
$1.80
Overhead
$ 345,600
1,922,400
$2,268,000
2,100,000
$1.08
b.
Cost in BI
Current cost
Total cost to account for
Divided by EUP
Cost per EUP
Conversion
Total cost to account for = $3,000,000 + $3,780,000 + $2,268,000
= $9,048,000
c. Transferred out (1,800,000 × $4.13)
Ending inventory:
Material (600,000 × $1.25)
Conversion (300,000 × $2.88)
Total cost accounted for
35.
a. (1)
BI units
Units started & completed
EI unit
EUP
(2)
$750,000
864,000
1,614,000
$9,048,000
Material
Labor Overhead
100,000
100,000
100,000
1,100,000 1,100,000 1,100,000
400,000
240,000
240,000
1,600,000 1,440,000 1,440,000
Total
BI costs
$ 1,115,500
Current
12,628,500
Total
$13,744,000
Divided by EUP
Cost per EUP
$9.10
(3) Beginning FG
CGM (1,200,000 × $9.10)
Goods available for sale
Ending inventory
CGS
$7,434,000
Material
Labor
Overhead
$ 750,000 $ 215,000 $ 150,500
5,650,000
4,105,000
2,873,500
$6,400,000 $4,320,000 $3,024,000
1,600,000
1,440,000 1,440,000
$4.00
$3.00
$2.10
$
0
10,920,000
$10,920,000
(124,000)
$10,796,000
b. Finished Goods Inventory
Work in Process Inventory
10,920,000
Cost of Goods Sold
Finished Goods Inventory
10,796,000
10,920,000
10,796,000
Chapter 6
36.
127
a.
Beginning inventory
Units started
Units to account for
Units
5,000
80,400
85,400
Material
Conversion
Beginning inventory in units
5,000
0
3,000
Units started & completed
76,400
76,400
76,400
Ending inventory
4,000
4,000
3,200
EUP
85,400
80,400
82,600
b.
Total
Material Conversion
Current cost
$495,712
$388,332
$107,380
EUPs (FIFO)
80,400
82,600
Cost per EUP
$6.13
$4.83
$1.30
c. Beginning inventory costs
Complete WIP
CC (3,000 x $1.30)
Std. & Comp. (76,400 x $6.13)
Costs transferred
37.
$26,790
3,900 $ 30,690
468,332
$499,022
d. DM (4,000 x $4.83)
CC (3,200 x $1.30)
Total cost of EI
$19,320
4,160
$23,480
a. Gallons transferred out
Gallons in ending WIP
Total gallons to account for
Gallons in beginning WIP
Gallons started
242,000
23,500
265,500
(36,000)
229,500
b.
Material
0
206,000
23,500
229,500
Beginning WIP
Started & completed
Ending WIP
EUP - FIFO
Current costs
EUP - FIFO
Cost per EUP
Material
$1,136,025
229,500
$4.95
Labor
16,200
206,000
3,525
225,725
Labor
$451,450
225,725
$2.00
Beginning WIP ($178,000 + $39,100 + $81,740)
Completion of Beginning WIP
DL (16,200 x $2.00)
$32,400
CC (10,800 x $3.30)
35,640
Total cost of BI transferred
Overhead
10,800
206,000
2,350
219,150
Overhead
$723,195
219,150
$3.30
$298,840
68,040
$366,880
128
Chapter 6
c. Total cost per EUP = $4.95 + $2.00 + $3.30 = $10.25
Total cost of BI transferred
Started & completed (206,000 x $10.25)
Total cost of goods completed
$ 366,880
2,111,500
$2,478,380
d. $2,478,380 ÷ 242,000 = $10.24 (rounded)
e. DM (23,500 × $4.95)
DL (3,525 × $2.00)
OH (2,350 × $3.30)
Total EI
38.
a.
$116,325
7,050
7,755
$131,130
Nile Queen Corporation
Cost of Production Report
For the Month of October 2006
Production Data:
Beginning inventory
Units started
Units to account for
Units
6,000
45,000
51,000
Beginning inventory in units
Units started & completed
Ending inventory
EUP (WA)
Units
6,000
35,000
10,000
51,000
Material
6,000
35,000
10,000
51,000
Labor
6,000
35,000
4,000
45,000
Overhead
6,000
35,000
8,000
49,000
Cost Data:
Cost in BI
Current costs
Cost to account for
Divided by EUP
Cost per EUP
Total
$ 9,782
103,308
$113,090
$2.31
Cost Assignment:
Transferred out (41,000 × $2.31)
Ending inventory:
Material (10,000 × $1.01)
Direct labor (4,000 × $0.53)
Overhead (8,000 × $0.77)
Total cost accounted for
Material
$ 6,510
45,000
$51,510
51,000
$1.01
Labor
$ 954
22,896
$23,850
45,000
$0.53
Overhead
$ 2,318
35,412
$37,730
49,000
$0.77
$ 94,710
$10,100
2,120
6,160
18,380
$113,090
Chapter 6
129
b.
Nile Queen Corporation
Cost of Production Report
For the Month of October 2006
Production Data:
Units
Beginning inventory
Units started
Units to account for
6,000
45,000
51,000
Beginning inventory in units
Units started & completed
Ending inventory
EUP (FIFO)
Units
6,000
35,000
10,000
51,000
Material
0
35,000
10,000
45,000
Labor
4,200
35,000
4,000
43,200
Overhead
2,400
35,000
8,000
45,400
Cost Data:
Cost in BI
Current costs
Cost to account for
Divided by EUP
Cost per EUP
Total
$ 9,782
103,308
$113,090
$2.31
Material
Labor
Overhead
$45,000
$22,896
$35,412
45,000
$1.00
43,200
$0.53
45,400
$0.78
Cost Assignment:
Transferred out:
Beginning WIP
Complete Beginning WIP
DL (4,200 × $0.53)
OH (2,400 × $0.78)
Started & completed (35,000 × $2.31)
Ending inventory:
Material (10,000 × $1.00)
Direct labor (4,000 × $0.53)
Overhead (8,000 × $0.78)
Total cost accounted for
$ 9,782
2,226
1,872
$10,000
2,120
6,240
$ 13,880
80,850
18,360
$113,090
130
39.
Chapter 6
a.
Starbing Paints
Cost of Production Report
For Month Ended May 31, XXXX
Production data:
Beginning inventory
Units started
Units to account for
Beginning inventory
Started & completed
Ending inventory
Equivalent units
4,000
21,000
25,000
Direct Materials
Chemicals Cans
4,000
4,000
16,000
16,000
5,000
0
25,000
20,000
Conversion
4,000
16,000
4,000
24,000
Cost data:
Beginning inventory
Current costs
Total costs
Divided by EUP
Cost per equivalent unit
Direct Materials
Chemicals
Cans
$ 45,600
$ 0
228,400
7,000
$274,000
$ 7,000
25,000
20,000
$10.96
$0.35
Conversion
$ 8,125
45,500
$53,625
24,000
$2.23*
*rounded
Cost assignment:
Completed goods ($13.54 × 20,000)
Ending WIP
Chemicals (5,000 × $10.96)
$54,800
Conversion (4,000 × $2.23)
8,920
Total costs (off due to rounding)
$270,800
63,720
$334,520
Chapter 6
131
b.
Starbing Paints
Cost of Production Report
For Month Ended May 31, XXXX
Production data:
Beginning inventory
Units started
Units to account for
Beginning inventory
Started & completed
Ending inventory
Equivalent units
4,000
21,000
25,000
Direct Materials
Chemicals Cans
0
4,000
16,000
16,000
5,000
0
21,000
20,000
Conversion
3,000
16,000
4,000
23,000
Cost data:
Direct Materials
Chemicals
Cans
Conversion
May costs incurred
$228,400
$ 7,000
$45,500
Divided by EUP
21,000
20,000
23,000
Costs per equivalent unit $10.88*
$0.35
$1.98*
*rounded
Cost assignment:
Completed goods:
Beg. WIP
$53,725
Complete Beg. WIP
Cans (4,000 × $.35)
1,400
CC (3,000 × $1.98)
5,940
$ 61,065
Started & completed (16,000 × $13.21)
211,360
Ending WIP
Chemicals (5,000 × $10.88)
$54,400
Conversion (4,000 × $1.98)
7,920
Total costs (off due to rounding)
$272,425
62,320
$334,745
c. The weighted average method is generally easier to use because the
calculations are simpler. However, this method tends to obscure current period
costs because the cost per equivalent unit includes both current costs and prior
costs that were in the beginning inventory. This method is most appropriate
when conversion costs, inventory levels, and raw material prices are stable.
132
Chapter 6
The FIFO method is based on the work done in the current period only.
This method is most appropriate when conversion costs, inventory levels,
or raw material prices fluctuate. This method should also be used when
accuracy in current equivalent unit costs is important or when a standard
cost system is used.
(CMA adapted)
40.
Xena Corp. Curing Dept.
Cost of Production Report
For the Month Ended May 31, 2006
Production Data:
TI
DM
DL
OH
Beginning inventory
Units started
Units to account for
Units
8,000
40,000
48,000
To complete BI
Started & completed
Ending inventory
Units accounted for
8,000
36,000
4,000
48,000
0
36,000
4,000
40,000
1,600
36,000
2,800
40,400
4,800
36,000
2,000
42,800
5,600
36,000
1,600
43,200
Cost Data:
Cost in BI
Current costs
Total to acct. for
Divided by EUP
Cost per EUP
Total
TI
$ 206,010
1,308,000 $760,000
$1,514,010
40,000
$32
$19
Cost Assignment:
Transferred out:
Beginning inventory
Complete BI
DM (1,600 × $4)
DL (4,800 × $6)
OH (5,600 × $3)
S & C (36,000 × $32)
Ending inventory:
TI (4,000 × $19)
DM (2,800 × $4)
DL (2,000 × $6)
OH (1,600 × $3)
Total cost accounted for
DM
DL
OH
$161,600
$256,800
$129,600
40,400
$4
42,800
$6
43,200
$3
$ 206,010
$ 6,400
28,800
16,800
$76,000
11,200
12,000
4,800
52,000
1,152,000
$1,410,010
104,000
$1,514,010
(CPA adapted)
Chapter 6
41.
a.
133
Big Piney Corp. Cutting Dept.
Cost of Production Report
For the Month Ended October 31, 2006
Production Data:
Beginning inventory
Units started
Units to account for
Units
8,000
36,000
44,000
Beginning inventory in units
Units started & completed
Ending inventory
EUP
Units
8,000
32,400
3,600
44,000
Material Conversion
8,000
8,000
32,400
32,400
3,600
2,520
44,000
42,920
Cost Data:
Cost in beginning inventory
Current costs
Total cost to account for
Divided by EUP
Cost per EUP
Total
$ 93,250
668,110
$761,360
$17.50
Cost Assignment:
Transferred out (40,400 × $17.50)
Ending inventory:
Material (3,600 × $9.50)
Conversion (2,520 × $8.00)
Total cost accounted for
Material
$ 73,250
344,750
$418,000
44,000
$9.50
Conversion
$ 20,000
323,360
$343,360
42,920
$8.00
$707,000
$34,200
20,160
54,360
$761,360
134
Chapter 6
b.
Big Piney Corp. Boxing Dept.
Cost of Production Report
For the Month Ended October 31, 2006
Production Data:
Trans. In
Beginning inventory
Units started
Units to account for
Units
2,500
40,400
42,900
Material Conversion
BI
Units S & C
Ending inventory
Units accounted for
2,500
39,200
1,200
42,900
2,500
39,200
1,200
42,900
2,500
39,200
0
41,700
Trans. In
$ 41,605
707,000
$748,605
42,900
$17.45
Material
$ 0
95,910
$95,910
41,700
$2.30
2,500
39,200
720
42,420
Cost Data:
Cost in BI
Current costs
Total to acct. for
Divided by EUP
Cost per EUP
Total
$ 43,705
864,440
$908,145
$21.25
Cost Assignment:
Transferred out (41,700 × $21.25)
Ending inventory:
Transferred in (1,200 × $17.45) $20,940
Conversion (720 × $1.50)
1,080
Total cost accounted for
42.
a. Striping Dept.:
Beginning inventory
Current costs:
DM
DL
OH ($80,000 × 0.8)
Total
Less ending inventory
Costs transferred to Adhesion
$886,125
22,020
$908,145
$ 20,000
90,000
80,000
64,000
$254,000
(17,000)
$237,000
Conversion
$ 2,100
61,530
$63,630
42,420
$1.50
Chapter 6
135
b. Adhesion Dept.: (let CC = conversion costs)
BI + TI + DM + CC – TO = EI
$70,000 + $237,000 + $22,600 + CC - $480,000 = $20,600
CC - $150,400 = $20,600
CC = $171,000
DL + OH = CC
DL + 0.8DL = CC
1.8DL = $171,000
DL = $95,000
OH = $95,000 x 0.80 = $76,000
c. Cost of goods manufactured is equal to the cost of goods transferred into
Finished Goods ($880,000).
OH = 0.8DL
$90,000 = 0.8DL
DL = $112,500
BI + TI + DM + DL + OH – CGM = $40,000
$150,000 + $480,000 + DM + $112,500 + $90,000 - $880,000 = $40,000
DM - $47,500 = $40,000
DM = $87,500
d. WIP - Adhesion
WIP - Striping
WIP - Packaging
WIP - Adhesion
Finished Goods Inventory
WIP - Packaging
237,000
237,000
480,000
480,000
880,000
880,000
Cost of Goods Sold
720,000
Finished Goods Inventory
720,000
43.
a. Cutting Process:
Material
Beginning inventory
Units started
Units to account for
Units
1,300
4,800
6,100
Beginning inventory completed
Units started & completed
Ending inventory
EUP (FIFO)
1,300
3,700
1,100
6,100
260
3,700
440
4,400
Conversion
325
3,700
220
4,245
136
Chapter 6
Pressure Process:
Trans. In
Material
Beginning inventory
Units started
Units to account for
Units
900
5,000
5,900
BI completed
Units S & C
Ending inventory
EUP (FIFO)
900
3,600
1,400
5,900
0
3,600
1,400
5,000
900
3,600
0
4,500
Conversion
360
3,600
560
4,520
b.
Cutting Process:
Cost in beginning inventory
Current costs
Total cost to account for
Divided by EUP
Cost per EUP
Total
$16,065
56,425
$72,490
Material
Conversion
$35,200
$21,225
4,400
$8
4,245
$5
$13
c. Cost transferred out of Cutting (FIFO):
Cost of BI
Cost to complete BI
Material (260 x $8)
$ 2,080
Conversion (325 x $5)
1,625
S&C (3,700 x $13)
48,100
Total cost of goods transferred
Ending WIP:
DM (440 x $8)
$ 3,520
CC (220 x $5)
1,100
Total
$16,065
51,805
$67,870
4,620
$72,490
d. Cost per EUP:
Cost in BI
Current costs
Total
Divided by EUP
Cost per EUP
Total
$13,514
84,102
$97,616
$17.17
Trans. In
Material
Conversion
$67,870
$4,932
$11,300
5,000
$13.574
4,500
$1.096
4,520
$2.50
Chapter 6
137
e. Cost Assignment:
Transferred out
Beginning inventory cost
Cost to complete:
Material (900 × $1.096)
Conversion (360 × $2.50)
Units S&C (3,600 × $17.17)
Total cost transferred out
Ending inventory:
Transferred in (1,400 × $13.574)
Conversion (560 × $2.50)
Cost accounted for
$13,514.00
986.40
900.00
$19,003.60
1,400.00
$15,400.40
61,812.00
$77,212.40
20,403.60
$97,616.00
f. Because there was no beginning or ending FG Inventory, cost of goods
sold is equal to cost of goods manufactured (transferred to FG) for the
period. Thus, CGS = $77,212.40.
44.
a.
Beginning inventory
Units started
Units to account for
Units
10,000
180,000
190,000
Beginning inventory completed 10,000
Units started & completed
150,000
Units completed
160,000
Ending inventory
30,000
EUP
190,000
Material Conversion
0
150,000
3,000
150,000
30,000
180,000
18,000
171,000
138
Chapter 6
b.
Dark Out
Cost of Production Report
For the Month of May 2006
Production Data:
Units Material
10,000
180,000
190,000
Beginning inventory
Units started
Units to account for
Beginning inventory completed 10,000
Units started & completed
150,000
Ending inventory
30,000
EUP
190,000
0
150,000
30,000
180,000
Conversion
3,000
150,000
18,000
171,000
Cost Data (all at standard):
BI: DM (10,000 x $5.50)
CC (7,000 x $12.50)
Current costs
DM (180,000 x $5.50)
CC (171,000 x $12.50)
Total cost to account for
$
Total
55,000
87,500
$
Material
55,000
$
990,000
2,137,500
$3,270,000
Cost Assignment
Transferred out (160,000 × $18)
Ending inventory:
Material (30,000 × $5.50)
Conversion (18,000 × $12.50)
Total costs assigned
$1,045,000
$165,000
225,000
390,000
$3,270,000
Direct material variance
Conversion cost variance
Cost of Goods Sold
$2,145,000
(2,137,500)
$
7,500 unfavorable
9,000
7,500
1,500
87,500
990,000
2,137,500
$2,225,000
$2,880,000
c. Total variance = Total actual cost - Total standard cost
= $3,126,000 - $3,127,500
= $1,500 favorable
Material:
Current actual cost
$ 981,000
Standard cost (180,000 × $5.50)
(990,000)
Direct material variance
$ (9,000) favorable
Conversion:
Current actual cost
Standard cost (171,000 × $12.50)
Conversion cost variance
Conversion
Chapter 6
45.
139
a.
Units produced
Extrusion Form
16,000
11,000
Trim
5,000
Finish
2,000
Material costs
Unit cost
$192,000
$12.00
$ 44,000
$4.00
$15,000
$3.00
$12,000
$6.00
Conversion costs*
Unit cost
$392,000
$24.50
$132,000
$12.00
$69,000
$13.80
$42,000
$21.00
*Direct
labor and factory overhead
Unit costs:
Extrusion material
Form material
Trim material
Finish material
Extrusion conversion
Form conversion
Trim conversion
Finish conversion
Total unit cost
Times units produced
Total product cost
b.
Entering trim operation:
2,000 Deluxe units
1,000 Deluxe units
2,000 Executive units
Total equivalent units
Deluxe model WIP costs:
Extrusion material
Form material
Trim material (100%)
Extrusion conversion
Form conversion
Trim conversion (60%)
Work-in-process costs
*Conversion
Plastic Standard
Deluxe Executive
Sheets
Model
Model
Model
$12.00
$12.00
$12.00
$12.00
4.00
4.00
4.00
3.00
3.00
6.00
24.50
24.50
24.50
24.50
12.00
12.00
12.00
13.80
13.80
21.00
$36.50
$52.50
$69.30
$96.30
x 5,000 x 6,000
x 3,000 x 2,000
$182,500 $315,000 $207,900 $192,600
Equivalent Units
Material
Conversion
%
Qty.
%
Qty.
100
2,000
100
2,000
100
1,000
60
600
100
2,000
100
2,000
5,000
4,600
Unit Cost
$12.00
4.00
3.00
24.50
12.00
9.00*
$64.50
Total Costs
$12,000
4,000
3,000
24,500
12,000
9,000*
$64,500
cost = ($30,000 + $39,000) ÷ 4,600 = $15 per equivalent unit.
(CMA adapted)
140
46.
Chapter 6
a. Beginning pounds
Started
Pounds to account for
Pounds transferred
Pounds in EI
Pounds of shrinkage
1,000
125,000
126,000
(119,100)
(3,000)
3,900
b. Normal shrinkage = 125,000 × 0.03 = 3,750 pounds
For accounting purposes, normal shrinkage is simply ignored, which
means its costs will be spread over all good units produced.
c. Abnormal shrinkage = 3,900 – 3,750 = 150 pounds
The cost of abnormal shrinkage is treated as a loss of the period.
d.
Total
1,000
125,000
126,000
Material Conversion
Beginning inventory
Started
To account for
Beginning inventory
Started and completed
Ending inventory
Normal spoilage
Abnormal spoilage
EUP (WA)
1,000
118,100
3,000
3,750
150
126,000
1,000
118,100
3,000
1,000
118,100
900
150
122,250
150
120,150
e.
Beginning WIP costs
Current costs
Total costs
Divide by EUP
Cost per EUP
Total
$ 1,028
125,902
$126,930
$1.04
Transferred out (119,100 × $1.04)
Ending inventory:
Material (3,000 × $0.94)
$2,820
Conversion (900 × $0.10)
90
Abnormal spoilage (150 × $1.04)
Total cost accounted for
Material
$
953
113,962
$114,915
122,250
$0.94
Conversion
$
75
11,940
$ 12,015
120,150
$0.10
$123,864
2,910
156
$126,930
f. The easiest way to decrease shrinkage loss is to buy higher quality
material at a higher input cost per pound. Higher quality ground beef would
have a lower fat content and consequently would shrink less. However,
because of the reduced shrinkage, the cost of conversion per pound of
finished product might decline and the company would probably be able to
sell its product at a higher price.
Chapter 6
47.
141
Maximum normal spoilage = 70,000 × 0.03 = 2,100 units
Robbin Darrell Company
Cost of Production Report
For the Month Ended May 31, 2006
Material Conversion
Beginning inventory
Units started
Units to account for
Units
5,600
74,400
80,000
BI completed
Units S & C
Ending inventory
Normal spoilage
Abnormal spoilage
EUP (FIFO)
5,600
64,400
7,500
2,100
400
80,000
0
64,400
7,500
2,100
400
74,400
Beg. inventory cost
Current costs
Total costs
Divided by EUP
Cost per EUP
$
Total
7,632
106,168
$113,800
$1.44
Cost Assignment:
Beginning inventory cost
Cost to complete
Conversion (2,800 × $0.44)
Total cost of BI
Started & comp. (64,400 × $1.44)
Normal spoilage
DM: (2,100 × $1)
CC: (2,100 × $0.44)
Ending inventory:
Material (7,500 × $1)
Conversion (2,500 × $0.44)
Abnormal spoilage
Material (400 × $1)
Conversion (400 × $0.44)
Total costs accounted for
2,800
64,400
2,500
2,100
400
72,200
Material
Conversion
$74,400
$31,768
74,400
$1.00
72,200
$0.44
$ 7,632
1,232
$ 8,864
92,736
$2,100
924
3,024
$104,624
$ 7,500
1,100
8,600
$
400
176
576
$113,800
142
48.
Chapter 6
Robbin Darrell Company
Cost of Production Report
For the Month Ended May 31, 2006
Material Conversion
Beginning inventory
Units started
Units to account for
Units
5,600
74,400
80,000
BI completed
Units S & C
Ending inventory
Normal spoilage
Abnormal spoilage
Units accounted for
5,600
64,400
7,500
2,100
400
80,000
5,600
64,400
7,500
2,100
400
80,000
Beg. inventory cost
Current costs
Total costs
Divided by EUP
Cost per EUP
Total
$ 7,632
106,168
$113,800
$1.45
Cost Assignment:
Units completed (70,000 × $1.45)
Normal spoilage
DM: (2,100 × $1.01)
CC: (2,100 × $0.44)
Ending inventory:
Material (7,500 × $1.01)
Conversion (2,500 × $0.44)
Abnormal spoilage
Material (400 × $1.01)
Conversion (400 × $0.44)
Total costs accounted for
Material
$ 6,400
74,400
$80,800
80,000
$1.01
5,600
64,400
2,500
2,100
400
75,000
Conversion
$ 1,232
31,768
$33,000
75,000
$0.44
$101,500
$2,121
924
$
$
3,045
$104,545
7,575
1,100
8,675
404
176
580
$113,800
Chapter 6
49.
a.
143
Shelley Brian Tools Grinding Department
Cost of Production Report
For the Month Ended August 31, 2006
BI
Transferred in
Units to account for
Units
1,000
50,800
51,800
BI
Units S & C
Ending inventory
Normal spoilage
Abnormal spoilage
EUP (WA)
Units
1,000
48,000
1,800
650
350
51,800
BI cost
Current costs
Total costs
Divided by EUP
Cost per EUP
Total
$ 7,355
235,557
$242,912
$4.725
Trans. In
1,000
48,000
1,800
650
350
51,800
Trans. In Material
$ 6,050 $ 0
49,350
12,250
$155,400 $12,250
51,800
49,000
$3.00
$0.25
Cost Assignment:
Transferred out:
Good units (49,000 × $4.725)
Normal spoilage (650 × $4.475)
Ending inventory:
Transferred in (1,800 × $3.00)
Labor (720 × $0.475)
Overhead (1,170 × $1.00)
Abnormal spoilage (350 × $4.475)
Total costs accounted for
b. Loss on Abnormal Spoilage
Work in Process - Grinding
50.
Material
1,000
48,000
0
0
0
49,000
$231,525
2,909
$ 5,400
342
1,170
1,566
a. Beginning inventory
Transferred in
Units to account for
3,000
45,000
48,000
Transferred out
Ending inventory
Bikes lost
Units accounted for
40,000
4,000
4,000
48,000
1,566
Labor
1,000
48,000
720
650
350
50,720
Labor
$ 325
23,767
$24,092
50,720
$0.475
$234,434
6,912
1,566
$242,912
OH
1,000
48,000
1,170
650
350
51,170
OH
$ 980
50,190
$51,170
51,170
$1.00
144
Chapter 6
(1) Bikes passing through Assembly
Minus bikes in EI (have not reached the
inspection point so there is no way
to determine acceptability)
Bikes reaching the inspection point
Normal defective rate
Normal number of defective bikes
48,000
(2) Total bikes lost
Normal number of defective bikes
Abnormal number of defective bikes
4,000
(2,200)
1,800
b.
Transferred out
Ending inventory
Normal loss
Abnormal loss
EUP (WA)
c.
BI
Current
Total cost
Divided by EUP
Cost per EUP
Units
40,000
4,000
2,200
1,800
48,000
Trans. In
40,000
4,000
2,200
1,800
48,000
(4,000)
44,000
x 0.05
2,200
Material Conversion
40,000
40,000
2,000
800
2,200
2,200
1,800
1,800
46,000
44,800
Total
Trans. In
Material
$ 102,790 $ 82,200 $ 6,660
1,576,070
1,237,800
96,840
$1,678,860 $1,320,000 $103,500
48,000
46,000
$35.45
$27.50
$2.25
Conversion
$ 13,930
241,430
$255,360
44,800
$5.70
d. (1) Normal defective bikes: 2,200 x $35.45 = $77,990
(2) Abnormal defective bikes: 1,800 x $35.45 = $63,810
(3) Good bikes completed: 40,000 x $35.45 = $1,418,000
(4) Ending WIP
Transferred-in (4,000 x $27.50)
Material (2,000 x $2.25)
Conversion (800 x $5.70)
Total
$110,000
4,500
4,560
$119,060
e. Total cost transferred = Cost of good bikes + Normal spoilage cost =
$1,418,000 + $77,990 = $1,495,990 (or an average cost per bike of $37.40)
f. Normal spoilage cost is an expected cost of producing good units. As such,
it is not an extra cost but thought to be inherent in producing good units.
Normal spoilage may occur because of material or labor quality, machine
malfunctions, or human error. Management should do cost=benefit studies
to determine if it is economically sensible to reduce spoilage. Three
questions should be addressed: (1) What does the spoilage actually cost?
(2) Why does it occur? (3) How can it be controlled?
(CMA adapted)