CHAPTER 4
Process Costing and Hybrid Product-Costing
Systems
ANSWERS TO REVIEW QUESTIONS
4-1
In 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.
4-2
Process 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.
4-3
Process 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.
4-4
Product-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.
4-5
An 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.
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4-1
4-6
The 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 ....................
Raw-Material Inventory ..........................................
XXX
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 ....................
Work-in-Process Inventory: Department A ..........
XXX
XXX
4-8
Transferred-in costs are the costs assigned to partially completed products that
have been transferred from one production department into the next department.
4-9
The $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.
4-10
The 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.
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4-11
The 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.
4-12
If 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.
4-13
Operation 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.
4-14
The 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.
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4-3
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 month
–
Units 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 productcosting system.
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Solutions Manual
EXERCISE 4-18 (15 MINUTES)
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
Percentage
of
Equivalent Units
Completion with
Physical
Respect to
Direct
Units
Conversion
Material
Conversion
Work in process, October 1 ....
1,000
60%
Units started during October ..
5,000
Total units to account for ........
6,000
Units completed and transferred
out during October ...........
Work in process, October 31 ..
Total units accounted for ........
Total equivalent units ..............
4,000
2,000
6,000
100%
20%
4,000
2,000
_____
(a) 6,000
4,000
400
____
(b) 4,400
EXERCISE 4-19 (15 MINUTES)
CALCULATION OF EQUIVALENT UNITS: TERRA ENERGY COMPANY - LODI PLANT
Weighted-Average Method
Percentage
of
Completion
with
Equivalent Units
Physical
Respect to
Direct
Units
Conversion Material Conversion
Work in process, November 1................
2,000,000
25%
Units started during November .............
950,000
Total units to account for .......................
2,950,000
Units completed and transferred
out during November .........................
Work in process, November 30..............
Total units accounted for .......................
Total equivalent units .............................
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2,710,000
240,000
2,950,000
100%
80%
2,710,000
240,000
________
2,950,000
2,710,000
192,000
________
2,902,000
 2002 The McGraw-Hill Companies, Inc.
4-5
EXERCISE 4-20 (20 MINUTES)
CALCULATION OF EQUIVALENT UNITS: FIT-FOR-LIFE FOODS CORPORATION
Weighted-Average Method
Percentage
of
Percentage
Completion
of
with
Completion
Respect to
with
Equivalent Units
Physical
Direct
Respect to
Direct
Units
Material
Conversion Material Conversion
Work in process, January 1 ....
20,000
80%
60%
Units started during the year ..
120,000
Total units to account for ........
140,000
Unit completed and transferred
out during the year ............
Work in process, December 31
Total units accounted for ........
Total equivalent units ..............
125,000
15,000
140,000
100%
70%
100%
30%
125,000
10,500
______
135,500
125,000
4,500
_______
129,500
EXERCISE 4-21 (15 MINUTES)
CALCULATION OF COST PER EQUIVALENT UNIT: IDAHO LUMBER COMPANY
Weighted-Average Method
Direct
Material
Conversion
Total
Work in process, November 1...................
$ 65,000
$180,000
$ 245,000
Costs incurred during November .............
425,000
690,000
1,115,000
Total costs to account for .........................
$490,000
$870,000
$1,360,000
Equivalent units .........................................
7,000
1,740
Costs per equivalent unit ..........................
$70*
$500†
$570
*$70 = $490,000 ÷ 7,000
†$500 = $870,000 ÷ 1,740
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Solutions Manual
EXERCISE 4-22 (15 MINUTES)
CALCULATION OF COST PER EQUIVALENT UNIT: OTSEGO GLASS COMPANY
Weighted-Average Method
Direct
Material
Conversion
Total
Work in process, June 1 .........................
$ 37,000
$ 36,750
$ 73,750
Costs incurred during June ...................
150,000
230,000
380,000
Total costs to account for ......................
$187,000
$266,750
$453,750
Equivalent units ......................................
17,000
48,500
Costs per equivalent unit .......................
$11.00*
$5.50†
$16.50
*$11.00 = $187,000 ÷ 17,000
†$5.50
= $266,750 ÷ 48,500
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4-7
EXERCISE 4-23 (25 MINUTES)
SAVANNAH TEXTILES COMPANY
Weighted-Average Method
Direct
Material
Conversion
Work in process, September 1..................
$ 94,000
$ 44,400
Costs incurred during September ............
164,000
272,800
Total costs to account for .........................
$258,000
$317,200
Equivalent units .........................................
60,000
52,000
Costs per equivalent unit ..........................
$4.30
$6.10
1.
$10.40
Cost of goods completed and
transferred out during September:
 number of units  total cost per 

 
 .....................
 transferred out   equivalent unit
2.
Total
$138,400
436,800
$575,200
50,000$10.40
$520,000
Cost remaining in September 30
work in process:
Direct material (10,000*$4.30)
Conversion (2,000*$6.10) .......
Total .............................................
Total costs accounted for ...............
$43,000
12,200
55,200
$575,200
*Equivalent units in September 30 work in process:
Total equivalent units (weighted average) ........................
Units completed and transferred out ................................
Equivalent units in ending work in process .....................
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Direct
Material
60,000
(50,000)
10,000
Conversion
52,000
(50,000)
2,000
 2002 The McGraw-Hill Companies, Inc.
Solutions Manual
EXERCISE 4-24 (25 MINUTES)
TULSA PAPERBOARD COMPANY
Weighted-Average Method
Direct
Material
Conversion
Work in process, February 1 ...................
$ 5,500
$ 17,000
Costs incurred during February .............
110,000
171,600
Total costs to account for .......................
$115,500
$188,600
Equivalent units .......................................
110,000
92,000
Costs per equivalent unit ........................
$ 1.05
$ 2.05
Total
$ 22,500
281,600
$304,100
$
3.10
1. Cost of goods completed and
transferred out during February:
 number of units  total cost per 

 
 .......................
 transferred out   equivalent unit
2.
90,000$3.10
$279,000
Cost remaining in February 28 work
in process:
Direct material (20,000*$1.05) .
Conversion (2,000*$2.05) ........
Total ..............................................
Total costs accounted for ................
$ 21,000
4,100
25,100
$304,100
*Equivalent units in February 28 work in process:
Total equivalent units (weighted average) .......................
Units completed and transferred out ...............................
Equivalent units in ending work in process ....................
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Direct
Material
110,000
(90,000)
20,000
Conversion
92,000
(90,000)
2,000
 2002 The McGraw-Hill Companies, Inc.
4-9
EXERCISE 4-25 (45 MINUTES)
1. Diagram of production process:
Work-in-Process Inventory:
Preparation Department
Batch P25 Batch S33
Accumulated
by
department
Conversion costs:
Direct-labor
Manufacturing
overhead
Work-in-Process Inventory:
Finishing Department
Batch P25
Accumulated
by
batch
Batch S33
Directmaterial
costs
Work-in-Process Inventory:
Packaging Department
Batch P25
Finished-Goods Inventory
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EXERCISE 4-25 (CONTINUED)
2. The product cost for each basketball is computed as follows:
Professional
Direct material: ....................................................................
Batch P25 ($42,000 ÷ 2,000) ..........................................
Batch S33 ($45,000 ÷ 4,000) ..........................................
Conversion: Preparation Department ..............................
Conversion: Finishing Department ..................................
*Conversion: Packaging Department ................................
Total product cost .............................................................
Scholastic
$21.00
-07.50
6.00
.50
$35.00
-0$11.25
7.50
6.00
-0$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 ..........
Raw-Material Inventory .................................................
39,500*
39,500
*$39,500 = $42,000 of direct material
for batch P25 – $2,500 of packaging material
Work-in-Process Inventory: Preparation Department ..........
Raw-Material Inventory .................................................
45,000*
45,000
*Direct-material cost for batch S33.
Work-in-Process Inventory: Preparation Department ..........
Applied Conversion Costs ............................................
45,000*
45,000
*$45,000 = 6,000 units$7.50 per unit
Work-in-Process Inventory: Finishing Department ..............
Work-in-Process Inventory: Preparation Department
129,500*
129,500
*$129,500 = $39,500 + $45,000 + $45,000
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4-11
EXERCISE 4-25 (CONTINUED)
Work-in-Process Inventory: Finishing Department ..............
Applied Conversion Costs ............................................
36,000*
36,000
*$36,000 = 6,000 units$6.00 per unit
Work-in-Process Inventory: Packaging Department ............
Finished-Goods Inventory ......................................................
Work-in-Process Inventory: Finishing 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.
Work-in-Process Inventory: Packaging Department ............
Raw-Material Inventory .................................................
Applied Conversion Costs ............................................
3,500
2,500*
1,000†
*Cost of packaging material for batch P25.
†$1,000
= 2,000 units$.50 per unit
Finished-Goods Inventory ......................................................
Work-in-Process Inventory: Packaging Department ..
70,000*
70,000
*$70,000 = $66,500 + $3,500
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Solutions Manual
EXERCISE 4-26 (10 MINUTES)
1.
2.
3.
4.
Work-in-Process Inventory: Pouring Department ...............
Raw-Material Inventory .................................................
Wages Payable ..............................................................
Manufacturing Overhead ..............................................
1,090,000
Work-in-Process Inventory: Finishing Department .............
Work-in-Process Inventory: Pouring Department ......
900,000
Work-in-Process Inventory: Finishing Department .............
Raw-Material Inventory ...............................................
Wages Payable .............................................................
Manufacturing Overhead .............................................
725,000
Finished-Goods Inventory .....................................................
Work-in-Process Inventory: Finishing Department ...
400,000
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Managerial Accounting, 5/e
70,000
340,000
680,000
900,000
25,000
280,000
420,000
400,000
 2002 The McGraw-Hill Companies, Inc.
4-13
SOLUTIONS TO PROBLEMS
PROBLEM 4-27 (50 MINUTES)
1.
2.
Physical flow of units:
Work in process, 1/1/x1 ..........................................................................
Units started during 20x1 .......................................................................
Total units to account for .......................................................................
Physical
Units
200,000
1,000,000
1,200,000
Units completed and transferred out during 20x1 ...............................
Work in process, 12/31/x1 ......................................................................
Total units accounted for .......................................................................
900,000
300,000
1,200,000
Equivalent units:
Work in process, 1/1/x1 ...............
Units started during 20x1 ............
Total units to account for ............
Units completed and transferred
out during 20x1 .......................
Work in process, 12/31/x1 ...........
Total units accounted for ............
Total equivalent units ..................
McGraw-Hill/Irwin
4-14
Percentage
of
Completion
with
Physical Respect to
Units
Conversion
200,000
80%
1,000,000
1,200,000
900,000
300,000
1,200,000
100%
50%
Equivalent Units
Direct
Material Conversion
900,000
300,000
________
1,200,000
900,000
150,000
________
1,050,000
 2002 The McGraw-Hill Companies, Inc.
Solutions Manual
PROBLEM 4-27 (CONTINUED)
3.
Costs per equivalent unit:
Work in process, 1/1/x1 .................................
Costs incurred during 20x1 ...........................
Total costs to account for..............................
Equivalent units..............................................
Costs per equivalent unit...............................
Direct
Material
Conversion
Total
a
$ 200,000 $ 504,000 $ 704,000
1,300,000 3,192,000b 4,492,000
$1,500,000 $3,696,000 $5,196,000
1,200,000
1,050,000
c
$1.25
$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
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4-15
PROBLEM 4-27 (CONTINUED)
4.
Cost of ending inventories:
Cost of goods completed and transferred out:
 number of units  total cost per 

  
 ....................
 transferred out   equivalent unit 
900,000$4.77
$4,293,000
300,000$1.25
$375,000
150,000$3.52
528,000
Cost remaining in 12/31/x1 work-in-process inventory:
Direct material:
 number of   cost per 

 

equivalent
equivalent

 

 units of   
 ........................
unit of

 

 direct material  direct material
Conversion:
 number of   cost per 

 

 equivalent   equivalent 
 units of    unit of  ..................................

 

conversion
conversion

 

Total cost of 12/31/x1 work in process .....................................................
$903,000
Check: Cost of goods completed and transferred out ...........................
Cost of 12/31/x1 work-in-process inventory ..............................
Total costs accounted for ............................................................
$4,293,000
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
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Solutions Manual
PROBLEM 4-28 (45 MINUTES)
1.
Work in process, June 1 ...........................................................................
Units started during June .........................................................................
Total units to account for ..........................................................................
Physical
Units
50,000
200,000
250,000
Units completed and transferred out during June ..................................
Work in process, June 30 .........................................................................
Total units accounted for ..........................................................................
190,000
60,000
250,000
2.
Work in process, June 1 ..........
Units started during June ........
Total units to account for .........
Units completed and transferred
out during June ....................
Work in process, June 30 ........
Total units accounted for .........
Total equivalent units ...............
Percentage
of
Completion
with
Physical Respect to
Units
Conversion
50,000
40%
200,000
250,000
190,000
60,000
250,000
100%
60%
Equivalent Units
Direct
Material Conversion
190,000
60,000
190,000
36,000
250,000
226,000
3.
Work in process, June 1 ................
Costs incurred during June ..........
Total costs to account for .............
Equivalent units .............................
Costs per equivalent unit ..............
McGraw-Hill/Irwin
Managerial Accounting, 5/e
Direct
Material
$120,000
492,500
$612,500
250,000
$2.45
Conversion
$ 34,400
349,800
$384,200
226,000
$1.70
Total
$154,400
842,300
$996,700
$4.15
 2002 The McGraw-Hill Companies, Inc.
4-17
PROBLEM 4-28 (CONTINUED)
4.
Cost of goods completed and transferred out during June:
 number of units  total cost per 

 
 ........................
 transferred out   equivalent unit 
190,000$4.15
$788,500
60,000$2.45
$147,000
36,000$1.70
61,200
Cost remaining in June 30 work-in-process inventory:
Direct material:
 number of
  cost per


 

 equivalent    equivalent  ..........................
 units of
  unit of


 

 direct material  direct material
Conversion:
 number of   cost per 

 

 equivalent    equivalent  ......................................
 units of   unit of


 

 conversion  conversion
Total cost of June 30 work in process .......................................................
$208,200
Check: Cost of goods completed and transferred out ..............................
Cost of June 30 work-in-process inventory ..................................
Total costs accounted for ...............................................................
$788,500
208,200
$996,700
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Solutions Manual
PROBLEM 4-29 (50 MINUTES)
The missing amounts are shown below. A completed production report follows.
Units started during July .......................................................................................
Units completed and transferred out during July ...............................................
Total equivalent units: conversion .......................................................................
Work in process, July 1: conversion ....................................................................
Costs incurred during July: direct material .........................................................
Cost per equivalent unit: conversion ...................................................................
Cost of goods completed and transferred out during July ................................
Cost remaining in ending work-in-process inventory: direct material ..............
45,000
50,000
56,000
$
79,800
371,850
13.20
1,072,500
123,750
PRODUCTION REPORT: VESUVIUS TILE COMPANY
Weighted-Average Method
Percentage
of
Completion
with
Equivalent Units
Physical
Respect to
Direct
Units
Conversion
Material Conversion
Work in process, July 1 ...................
20,000
30%
Units started during July .................
45,000
Total units to account for ................
65,000
Units completed and transferred
out during July ............................
Work in process, July 31 .................
Total units accounted for ................
Total equivalent units ......................
McGraw-Hill/Irwin
Managerial Accounting, 5/e
50,000
15,000
65,000
100%
40%
50,000
15,000
_____
65,000
50,000
6,000
_____
56,000
 2002 The McGraw-Hill Companies, Inc.
4-19
PROBLEM 4-29 (CONTINUED)
Work in process, July 1 .....................................
Costs incurred during July ...............................
Total costs to account for .................................
Equivalent units .................................................
Costs per equivalent unit ..................................
Direct
Material
$164,400
371,850
$536,250
65,000
$8.25*
Conversion
$ 79,800
659,400
$739,200
56,000
$13.20†
Total
$ 244,200
1,031,250
$1,275,450
$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:
 number of units  total cost per 

  
 ............................. 50,000$21.45
transferre
d
out
equivalent
unit

 

$1,072,500
Cost remaining in July 31 work-in-process inventory:
Direct material:
 number of
  cost per


 

 equivalent   equivalent 
 units of
   unit of
 ................................ 15,000$8.25

 

direct
material
direct
material

 

$ 123,750
Conversion:
 number of   cost per 

 

 equivalent   equivalent 
 units of
   unit of
 .......................................... 6,000$13.20

 

 conversion  conversion
Total cost of July 31 work in process .....................................................
Check:
Cost of goods completed and transferred out ..
Cost of July 31 work-in-process inventory ........
Total costs accounted for ...................................
McGraw-Hill/Irwin
4-20
79,200
$202,950
$1,072,500
202,950
$1,275,450
 2002 The McGraw-Hill Companies, Inc.
Solutions Manual
PROBLEM 4-30 (40 MINUTES)
1.
a.
Physical
Units
Work in process, May 1 ................... 25,000
Units started during May ................. 30,000
Total units to account for ................ 55,000
Units completed and
transferred out during May ......... 35,000
Work in process, May 31 ................. 20,000
Total units accounted for ................ 55,000
Total equivalent units ......................
Percentage
of
Completion
with
Respect to
Conversion
40%
100%
80%
Equivalent Units
Direct
Material Conversion
35,000
20,000
_____
55,000
35,000
16,000
_____
51,000
b.
Total costs to account for
Equivalent units
Costs per equivalent unit
Direct
Material
$308,000
55,000
Conversion
$2,483,700
51,000
Total
$5.60
$48.70
$54.30*
*$54.30 = $5.60 + $48.70
McGraw-Hill/Irwin
Managerial Accounting, 5/e
 2002 The McGraw-Hill Companies, Inc.
4-21
PROBLEM 4-30 (CONTINUED)
c.
Cost of goods completed and transferred out during May:
 number of units  total cost per 

  

 transferred out   equivalent unit 
35,000  $54.30
$1,900,500
Cost remaining in May 31 work-in-process inventory:
Direct material:
 number of
  cost per


 

 equivalent
  equivalent

 units of
   unit of


 

 direct material  direct material


 
......................20,000  $5.60
$112,000
.............................. 16,000  $48.70
779,200
Conversion:
 number of   cost per 

 

 equivalent   equivalent 
 units of
   unit of


 

 conversion  conversion


 
2.
Total cost of May 31 work in process....................................................
$891,200
Check: Cost of goods completed and transferred out ............................
Cost of May 31 work-in-process inventroy ................................
Total costs accounted for .............................................................
$1,900,500
891,200
$2,791,700
Journal entry:
Finished-Goods Inventory .............................................. 1,900,500
1,900,500
Work-in-Process Inventory .................................................................
McGraw-Hill/Irwin
4-22
1,900,500
 2002 The McGraw-Hill Companies, Inc.
Solutions Manual
PROBLEM 4-31 (45 MINUTES)
1.
Physical
Units
10,000
100,000
110,000
Work in process, April 1 ...........................................................................
Units started during April .........................................................................
Total units to account for .........................................................................
Units completed and transferred out during April ..................................
Work in process, April 30 .........................................................................
Total units accounted for ....................................................................................
80,000
30,000
110,000
2.
Physical
Units
Work in process, April 1 .................. 10,000
Units started during April ................ 100,000
Total units to account for ................ 110,000
Units completed and
transferred out during April ........ 80,000
Work in process, April 30
30,000
Total units accounted for ................ 110,000
Total equivalent units ......................
Percentage
of
Completion
with
Respect to
Conversion
20%
100%
33 1/3%
Equivalent Units
Direct
Material Conversion
80,000
30,000
______
110,000
80,000
10,000
_____
90,000
3.
Direct
Material
Work in process, April 1 .................................... $ 22,000
Costs incurred during April .............................. 198,000
Total costs to account for ................................. $220,000
Equivalent units ................................................. 110,000
Costs per equivalent unit ..................................
$2.00
McGraw-Hill/Irwin
Managerial Accounting, 5/e
Conversion
$ 4,500
158,400
$162,900
90,000
$1.81
Total
$ 26,500
356,400
$382,900
$3.81
 2002 The McGraw-Hill Companies, Inc.
4-23
PROBLEM 4-31 (CONTINUED)
4.
Cost of goods completed and transferred out during April:
 numberof units  total cost per 

  
 ..............................
80,000$3.81
 transferred out   equivalent unit 
$304,800
Cost remaining in April 30 work-in-process inventory:
Direct material:
 number of
  cost per


 

equivalent
equivalent

 

30,000$2.00
 units of
   unit of
 .................................

 

 direct material  direct material
$60,000
Conversion:
 number of   cost per 

 

 equivalent   equivalent 
10,000$1.81
 units of
   unit of
 ...........................................

 

conversion
conversion

 

18,100
Total cost of April 30 work-in-process ...................................................
$78,100
Check: Cost of goods completed and transferred out ........................
Cost of April 30 work-in-process inventory ............................
Total costs accounted for ........................................................
$304,800
78,100
$382,900
McGraw-Hill/Irwin
4-24
 2002 The McGraw-Hill Companies, Inc.
Solutions Manual
PROBLEM 4-32 (40 MINUTES)
1.
Physical
Units
Work in process, August 1 .............. 40,000
Units started during August ............ 80,000
Total units to account for ................. 120,000
Units completed and transferred
out during August ........................ 100,000
Work in process, August 31 ............ 20,000
Total units accounted for ................. 120,000
Total equivalent units .......................
Percentage
of
Completion
with
Respect to
Conversion
80%
100%
30%
Equivalent Units
Direct
Material Conversion
100,000
20,000
______
120,000
100,000
6,000
______
106,000
2.
Total costs to account for
Equivalent units
Costs per equivalent unit
Direct
Material
$138,000
120,000
Conversion
$1,089,680
106,000
$1.15
$10.28
Total
$11.43*
*$11.43 = $1.15 + $10.28
3.
Cost of goods completed and transferred out during August:
 number of units  total cost per 

  
 .............................
100,000$11.43
 transferred out   equivalent unit 
McGraw-Hill/Irwin
Managerial Accounting, 5/e
$1,143,000
 2002 The McGraw-Hill Companies, Inc.
4-25
PROBLEM 4-32 (CONTINUED)
4.
Cost remaining in August 31 work-in-process inventory:
Direct material:
 number of
  cost per


 

equivalent
equivalent

 

 units of
   unit of
 .................................20,000$1.15

 

direct
material
direct
material

 

$23,000
Conversion:
 number of   cost per 

 

 equivalent   equivalent 
 units of
   unit of
 ...........................................6,000$10.28

 

 conversion  conversion
5.
61,680
Total cost of August 31 work in process ....................................................
$ 84,680
Check: Cost of goods completed and transferred out ..............................
Cost of August 31 work-in-process inventory ..............................
Total costs accounted for: ..............................................................
$1,143,000
84,680
$1,227,680
Journal entry:
Finished-Goods Inventory ................................................
Work-in-Process Inventory .....................................
McGraw-Hill/Irwin
4-26
1,143,000
1,143,000
 2002 The McGraw-Hill Companies, Inc.
Solutions Manual
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
Goodson’s 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
Units
Percentage
Of
Completion
With
Respect to
Conversion
Work in process, April 1……………….
Units started during April……………..
Total units to account for……………..
4,000
25,000
29,000
75%
Units completed and transferred
out during April……………………..
Work in process, April 30……………..
Total units accounted for……………...
Total equivalent units…………………..
24,000
5,000
29,000
100%
40%
McGraw-Hill/Irwin
Managerial Accounting, 5/e
Equivalent Units
Direct
Material Conversion
24,000
5,000
24,000
2,000
29,000
26,000
 2002 The McGraw-Hill Companies, Inc.
4-27
PROBLEM 4-33 (CONTINUED)
Work in process, April 1……………………
Costs incurred during April……………….
Total costs to account for………………….
Equivalent units……………………………...
Cost per equivalent unit……………………
Direct
Material
Conversion
Total
$ 220,000
1,404,000
$1,624,000
29,000
$56a
$ 66,000
506,000
$572,000
26,000
$22b
$ 286,000
1,910,000
$2,196,000
$78c
a$1,624,000
÷ 29,000 = $56
÷ 26,000 = $22
c$56 + $22 = $78
b$572,000
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 Goodson’s 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.
McGraw-Hill/Irwin
4-28
 2002 The McGraw-Hill Companies, Inc.
Solutions Manual
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):
Percentage
Of
Completion
Equivalent Units
With
Respect to
Direct
Conversion Material Conversion
Physical
Units
Work in process, June 1……………….
Units started during June……………..
Total units to account for……………...
300
900
1,200
30%
Units completed and transferred
during June…………………………..
Work in process, June 30……………...
Total units accounted for………………
Total equivalent units…………………..
700
500
1,200
100%
60%
Work in process, June 1……………………
Costs incurred during June……………….
Total costs to account for………………….
Equivalent units……………………………...
Cost per equivalent unit…………………….
700
500
700
300
1,200
1,000
Direct
Material
Conversion
Total
$15,000
45,000
$60,000
1,200
$50a
$ 6,300
25,700
$32,000
1,000
$32b
$21,300
70,700
$92,000
$82c
a$60,000
÷ 1,200 = $50
÷ 1,000 = $32
c$50 + $32 = $82
b$32,000
Finished-Goods Inventory……………………………
Work-in-Process Inventory………………….
3.
57,400
57,400
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
McGraw-Hill/Irwin
Managerial Accounting, 5/e
 2002 The McGraw-Hill Companies, Inc.
4-29
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.
McGraw-Hill/Irwin
4-30
 2002 The McGraw-Hill Companies, Inc.
Solutions Manual
PROBLEM 4-35 (50 MINUTES)
The missing amounts are shown below. A completed production report follows.
Work in process, May 1 (in units) .........................................................................
Units completed and transferred out during May ...............................................
Total equivalent units: conversion .......................................................................
15,000
65,000
71,000
Work in process, May 1: conversion ....................................................................
Costs incurred during May: direct material .........................................................
Cost per equivalent unit: conversion ...................................................................
Cost of goods completed and transferred out during May ................................
Cost remaining in ending work-in-process inventory: direct material ..............
$ 37,500
570,000
12.25
1,407,250
94,000
PRODUCTION REPORT: HERCULES TIRE AND RUBBER COMPANY
Weighted-Average Method
Percentage
of
Completion
with
Equivalent Units
Physical
Respect to
Direct
Units
Conversion
Material
Conversion
Work in process, May 1 .................
15,000
20%
Units started during May ...............
60,000
Total units to account for ..............
75,000
Units completed and transferred
out during May.....................
Work in process, May 31 ...............
Total units accounted for ..............
Total equivalent units ....................
McGraw-Hill/Irwin
Managerial Accounting, 5/e
65,000
10,000
75,000
100%
60%
65,000
10,000
_____
75,000
65,000
6,000
_____
71,000
 2002 The McGraw-Hill Companies, Inc.
4-31
PROBLEM 4-35 (CONTINUED)
Work in process, May 1 .................
Costs incurred during May ...........
Total costs to account for .............
Equivalent units .............................
Costs per equivalent unit ..............
Direct
Material
$135,000
570,000
$705,000
75,000
$9.40*
Conversion
$ 37,500
832,250
$869,750
71,000
$12.25†
Total
$ 172,500
1,402,250
$1,574,750
$21.65**
*$9.40 = $705,000 ÷ 75,000
†$12.25 = $869,750 ÷ 71,000
**$21.65 = $9.40 + $12.25
McGraw-Hill/Irwin
4-32
 2002 The McGraw-Hill Companies, Inc.
Solutions Manual
PROBLEM 4-35 (CONTINUED)
Cost of goods completed and transferred out during May:
 number of units  total cost per 

  
 ............................... 65,000$21.65
 transferred out   equivalent unit 
$1,407,250
Cost remaining in May 31 work-in-process inventory:
Direct material:
 number of
  cost per


 

 equivalent   equivalent 
 units of
   unit of
 .................................

 

 direct material  direct material
10,000$9.40
$94,000
6,000$12.25
73,500
Total cost of May 31 work-in-process ...............................................................
$167,500
Conversion:
 number of   cost per 

 

 equivalent   equivalent 
 units of
   unit of
 ...........................................

 

conversion
conversion

 

Check: Cost of goods completed and transferred out ......
Cost of May 31 work-in-process inventory............
Total costs accounted for .......................................
McGraw-Hill/Irwin
Managerial Accounting, 5/e
$1,407,250
167,500
$1,574,750
 2002 The McGraw-Hill Companies, Inc.
4-33
PROBLEM 4-36 (30 MINUTES)
1.
a.
Tax
Returns
(physical
units)
Returns in process, February 1 ..... 200
Returns started in February ........... 825
Total returns to account for ........... 1,025
Returns completed
during February ........................ 900
Returns in process, February 28 ... 125
Total returns accounted for ........... 1,025
Total equivalent units of activity ...
Percentage
of
Completion
with Respect
to
Conversion
(labor and
overhead)
25%
100%
80%
Equivalent Units
Labor
Overhead
900
100
____
1,000
900
100
____
1,000
Overhead
£ 2,500
45,000
£47,500
1,000
£47.50
Total
£ 8,500
134,000
£142,500
b.
Returns in process, February 1 ...................
Costs incurred during February ..................
Total costs to account for ............................
Equivalent units ............................................
Costs per equivalent unit .............................
2.
Labor
£ 6,000
89,000
£95,000
1,000
£95.00
£142.50
Cost of returns in process on February 28:
Labor:
equivalent unitscost per equivalent unit
100£95.00 .......................................................
Overhead: equivalent unitscost per equivalent unit
100£47.50 .......................................................
Total cost of returns in process on February 28 .........................................
McGraw-Hill/Irwin
4-34
£ 9,500
4,750
£14,250
 2002 The McGraw-Hill Companies, Inc.
Solutions Manual
PROBLEM 4-37 (45 MINUTES)
1.
PRODUCTION REPORT: MIXING DEPARTMENT
(Weighted-Average Method)
Work in process, November 1.......
Units started during November ....
Total units to account for ..............
Units completed and transferred
out during November ..........
Work in process, November 30
Total units accounted for ..............
Total equivalent units ....................
Work in process, November 1.......
Costs incurred during November .
Total costs to account for .............
Equivalent units .............................
Costs per equivalent unit ..............
Percentage
of
Completion
with
Physical
Respect to
Units
Conversion
4,000
75%
16,000
20,000
15,000
5,000
20,000
100%
20%
Equivalent Units
Direct
Material
Conversion
15,000
5,000
____ _
20,000
Direct
Material
Conversion
$ 22,800
$ 46,510
81,600*
196,690†
$104,400
$ 243,200
20,000
16,000
$5.22
$15.20
15,000
1,000
_ ____
16,000
Total
$ 69,310
278,290
$347,600
$20.42
*$81,600 = $10,000 + $51,000 + (4,000 ÷ 10,000)($51,500)
†$196,690 = $103,350 + (.40)($103,350) + $52,000
McGraw-Hill/Irwin
Managerial Accounting, 5/e
 2002 The McGraw-Hill Companies, Inc.
4-35
PROBLEM 4-37 (CONTINUED)
Cost of goods completed and transferred out during November:
 number of units  total cost per 

  
 ............................. 15,000$20.42
 transferred out   equivalent unit 
$306,300
Cost remaining in November 30 work-in-process inventory
Direct material:
 number of
  cost per


 

 equivalent   equivalent 
 units of
   unit of
 .................................

 

direct
material
direct
material

 

5,000$5.22
$26,100
 number of   cost per 

 

 equivalent   equivalent 
 units of
   unit of
 ........................................... 1,000$15.20

 

conversion
conversion

 

15,200
Total cost of November 30 work in process ....................................................
$41,300
Conversion
2.
Check: Cost of goods completed and transferred out ........
Cost of November 30 work-in-process inventory ...
Total costs accounted for ........................................
$306,300
41,300
$347,600
a. Work-in-Process Inventory: Mixing Department ............
Raw-Material Inventory ...........................................
81,600
b. Work-in-Process Inventory: Mixing Department ............
Wages Payable ........................................................
103,350
c. Work-in-Process Inventory: Mixing Department ............
Manufacturing Overhead ........................................
93,340*
81,600
103,350
93,340
*$93,340 = (.40)($103,350) + ($52,000)
d. Work-in-Process Inventory: Finishing Department ........
Work-in-Process Inventory: Mixing Department ..
McGraw-Hill/Irwin
4-36
306,300
306,300
 2002 The McGraw-Hill Companies, Inc.
Solutions Manual
PROBLEM 4-38 (40 MINUTES)
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:
Units produced .....................
Material costs .......................
Unit material cost ..........
Conversion costs* ................
Unit conversion cost .....
Extrusion
16,000
$192,000
12.00
392,000
24.50
Form
11,000
$ 44,000
4.00
132,000
12.00
Trim
5,000
$15,000
3.00
69,000
13.80
Finish
2,000
$12,000
6.00
42,000
21.00
*Direct labor and manufacturing overhead.
McGraw-Hill/Irwin
Managerial Accounting, 5/e
 2002 The McGraw-Hill Companies, Inc.
4-37
PROBLEM 4-38 (CONTINUED)
Unit Costs
Material costs:
Extrusion ........................
Form ...............................
Trim ................................
Finish..............................
Conversion costs:
Extrusion ........................
Form ...............................
Trim ................................
Finish..............................
Total unit cost .......................
Units produced .....................
Total product cost*...............
Plastic
Sheets
Standard
Model
Deluxe
Model
Executive
Model
$12.00
$12.00
4.00
$12.00
4.00
3.00
$12.00
4.00
3.00
6.00
24.50
24.50
12.00
_
$36.50
 5,000
$182,500
_
$52.50
 6,000
$315,000
24.50
12.00
13.80
_
$69.30
 3,000
$207,900
24.50
12.00
13.80
21.00
$96.30
 2,000
$192,600
*Total costs accounted for:
Product
Plastic sheets
Standard model
Deluxe model
Executive model
Total
2.
Total Product Costs
$182,500
315,000
207,900
192,600
$898,000
Journal entries:
Work-in-Process Inventory: Extrusion .............................
Raw-Material Inventory ............................................
Applied Conversion Costs ......................................
584,000
Finished-Goods Inventory .................................................
Work-in-Process Inventory: Extrusion ...................
182,500
Work-in-Process Inventory: Forming ...............................
Work-in-Process Inventory: Extrusion ...................
Raw-Material Inventory ............................................
Applied Conversion Costs ......................................
577,500
McGraw-Hill/Irwin
4-38
192,000
392,000
182,500
401,500
44,000
132,000
 2002 The McGraw-Hill Companies, Inc.
Solutions Manual
PROBLEM 4-38 (CONTINUED)
Finished-Goods Inventory .................................................
Work-in-Process Inventory: Forming .....................
315,000
Work-in-Process Inventory: Trimming .............................
Work-in-Process Inventory: Forming .....................
Raw-Material Inventory ............................................
Applied Conversion Costs ......................................
346,500
Finished-Goods Inventory .................................................
Work-in-Process Inventory: Trimming ...................
207,900
Work-in-Process Inventory: Finishing ..............................
Work-in-Process Inventory: Trimming ...................
Raw-Material Inventory ............................................
Applied Conversion Costs ......................................
192,600
Finished-Goods Inventory .................................................
Work-in-Process Inventory: Finishing ...................
192,600
McGraw-Hill/Irwin
Managerial Accounting, 5/e
315,000
262,500
15,000
69,000
207,900
138,600
12,000
42,000
192,600
 2002 The McGraw-Hill Companies, Inc.
4-39
PROBLEM 4-39 (35 MINUTES)
1.
Conversion cost per unit in department I:

direct labor  manufacturing overhead
units produced*

$38,000  $230,000
11,000  4,000  5,000
 $13.40 per uni 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:

direct labor  manufacturing overhead
units produced*

$22,000  $68,000
4,000  5,000
 $10.00 per unit
*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
$450,000
 $13.40
20,000
 $35.90 per sheet
McGraw-Hill/Irwin
4-40
 2002 The McGraw-Hill Companies, Inc.
Solutions Manual
PROBLEM 4-39 (CONTINUED)
4.
Cost of an unetched, colored glass sheet:
=
cost per clear
glass sheet
 $35.90 
direct material
conversion cost per
+ per unit in department II + unit in department II
$72,000
 $10.00
9,000
 $53.90 per sheet
5.
Cost of an etched, colored glass sheet:
cost per unetched
= colored glass sheet
 $53.90 
conversion cost per
+ unit in department III
$38,000  $73,750
5,000
 $76.25 per sheet
PROBLEM 4-40 (45 MINUTES)
1.
Conversion costs:
Direct labor ..................................
Manufacturing overhead ..............
Total conversion cost...................
Total units produced:
Rolling only ............................
Rolling, molding, punching
Rolling, molding, punching,
dipping ...............................
Conversion cost per unit .............
McGraw-Hill/Irwin
Managerial Accounting, 5/e
Rolling
$300,000
450,000
$750,000
Molding
$112,000
168,000
$280,000
Punching
$128,000
192,000
$320,000
8,000
8,000
Dipping
$ 45,000
67,500
$112,500
20,000
3,000
$37.50
$35.00
$40.00
$37.50
 2002 The McGraw-Hill Companies, Inc.
4-41
PROBLEM 4-40 (CONTINUED)
2.
Product costs:
Ceralam
Sheets
Sold
after
Rolling
Direct material:
Ceralam sheets ....................
Chemical dip .......................
Conversion costs:
Rolling ..................................
Molding ................................
Punching..............................
Dipping ................................
Total cost ....................................
Units manufactured....................
Unit cost ......................................
Nonreflective
Ceralam
Housings
Reflective
Ceralam
Housings
$480,000
$200,000
$120,000
30,000
$ 800,000
30,000
450,000a
187,500a
175,000b
200,000c
________
$762,500
5,000
$152.50
112,500a
105,000b
120,000c
112,500d
$600,000
3,000
$200.00
750,000
280,000
320,000
112,500
$2,292,500
_______
$930,000
12,000
$77.50
Total
Costs
aNumber
of unitsrolling cost per unit ($37.50)
of unitsmolding cost per unit ($35.00)
cNumber of unitspunching cost per unit ($40.00)
dNumber of unitsdipping cost per unit ($37.50)
bNumber
3.
Journal entries:
Work-in-Process Inventory: Rolling ...............................................
1,550,000
Raw-Material Inventory .........................................................
Applied Conversion Costs ....................................................
800,000*
750,000†
*$800,000 = direct-material cost for ceralam sheets
†$750,000 = conversion cost in rolling operation
McGraw-Hill/Irwin
4-42
 2002 The McGraw-Hill Companies, Inc.
Solutions Manual
PROBLEM 4-40 (CONTINUED)
Finished-Goods Inventory ...............................................................
930,000*
Work-in-Process Inventory: Rolling .....................................
930,000
*$930,000 = 12,000 ceralam sheets sold after
rolling$77.50 per unit
Cost of Goods Sold..........................................................................
930,000*
Finished-Goods Inventory ....................................................
930,000
*$930,000 = cost of ceralam sheets sold after
rolling
Work-in-Process Inventory: Molding ..............................................
620,000*
Work-in-Process Inventory: Rolling .....................................
620,000
*$620,000 = cost remaining in Work-in-Process
Inventory: Rolling
= $1,550,000 – $930,000
Work-in-Process Inventory: Molding ..............................................
280,000*
Applied Conversion Costs ....................................................
280,000
*$280,000 = conversion cost in molding operation
Work-in-Process Inventory: Punching ...........................................
900,000*
Work-in-Process Inventory: Molding....................................
900,000
*$900,000 = cost remaining in Work-in-Process
Inventory: Molding
= $620,000 + $280,000
Work-in-Process Inventory: Punching ...........................................
320,000*
Applied Conversion Costs ....................................................
320,000
*$320,000 = conversion cost in punching operation
McGraw-Hill/Irwin
Managerial Accounting, 5/e
 2002 The McGraw-Hill Companies, Inc.
4-43
PROBLEM 4-40 (CONTINUED)
Finished-Goods Inventory ...............................................................
762,500*
Work-in-Process Inventory: Punching .................................
762,500
*$762,500 = 5,000 nonreflective ceralam housings
sold after punching$152.50 per unit
Cost of Goods Sold..........................................................................
762,500*
Finished-Goods Inventory ....................................................
762,500
*$762,500 = cost of nonreflective ceralam
housings sold after punching
Work-in-Process Inventory: Dipping ..............................................
457,500*
Work-in-Process Inventory: Punching .................................
457,500
*$457,500 = cost remaining in Work-in-Process
Inventory: Punching
= $900,000 + $320,000 – $762,500
Work-in-Process Inventory: Dipping ..............................................142,500
Raw-Material Inventory ..........................................................
Applied Conversion Costs ....................................................
30,000*
112,500†
*$30,000 = direct-material cost for chemical dip
†$112,500 = conversion cost in dipping operation
Finished-Goods Inventory ...............................................................
600,000*
Work-in-Process Inventory: Dipping ....................................
600,000
*$600,000 = 3,000 reflective ceralam housings
sold after dipping$200.00 per unit
Cost of Goods Sold..........................................................................600,000
Finished-Goods Inventory ....................................................
McGraw-Hill/Irwin
4-44
600,000
 2002 The McGraw-Hill Companies, Inc.
Solutions Manual
PROBLEM 4-41 (30 MINUTES)
1.
a.
Cost of units completed and transferred to finished-goods inventory during
May:
Units completed and transferred out..............................................
Total cost per equivalent unit .........................................................
Cost of units completed and transferred out .................................
b.
11,900
 _ $9.00
$107,100
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) ..................................
Add: Units transferred in .................................................................
Units to account for .........................................................................
Less: Units transferred to finished goods .....................................
Work-in-process inventory, May 31 (in units) ................................
1,400
14,000
15,400
11,900
3,500
Then compute the transferred-in, direct-material, and conversion costs in the
May 31 work-in-process inventory:
Cost per
Equivalent
Equivalent
Input
Units
Unit
Cost
Transferred-in .....................................................
3,500
$5.00
=
$17,500

Direct material ....................................................
3,500
$1.00
=
3,500

Conversion .........................................................
$3.00
=
4,200
3,50040% 
Total cost of May 31 work-in-process inventory .............................................
$25,200
2.
Equivalent units of transferred-in costs...................................................
Transferred-in cost per equivalent unit ....................................................
Total transferred-in cost ............................................................................
Deduct: Transferred-in cost in May 1 work-in-process inventory ..........
Total cost transferred in from the Assembly Department ......................
15,400
 $5.00
$77,000
6,750
$70,250
Journal entry to record transfer:
Work-in-Process Inventory: Finishing Department .......................70,250
Work-in-Process Inventory: Assembly Department ...............
McGraw-Hill/Irwin
Managerial Accounting, 5/e
70,250
 2002 The McGraw-Hill Companies, Inc.
4-45
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
Weighted-Average Method
Percentage
of
Completion
with
Equivalent Units
Physical
Respect to
Direct
Units
Conversion
Material Conversion
Work in process, October 1 ............
400
25%
Units started during October ..........
7,600
Total units to account for ................
8,000
Units completed and transferred
out during October ........................
Work in process, October 31 ..........
Total units accounted for ................
Total equivalent units ......................
McGraw-Hill/Irwin
4-46
7,000
1,000
8,000
100%
50%
7,000
1,000
7,000
500
8,000
7,500
 2002 The McGraw-Hill Companies, Inc.
Solutions Manual
CASE 4-42 (CONTINUED)
CALCULATION OF COSTS PER EQUIVALENT UNIT: DALLAS PLANT
Weighted-Average Method
Direct
Material
Conversion
Work in process, October 1 .............................. $ 1,250
$ 300
Costs incurred during October .........................
25,150
20,700
Total costs to account for ................................. $26,400
$21,000
Equivalent units .................................................
8,000
7,500
Costs per equivalent unit ..................................
$3.30
$2.80
Total
$ 1,550
45,850
$47,400
$6.10
ANALYSIS OF TOTAL COSTS: DALLAS PLANT
Weighted-Average Method
Cost of goods completed and transferred out during October:
 number of units  total cost per 

  
 .............................
 transferred out   equivalent unit 
7,000$6.10
$42,700
1,000$3.30
$3,300
500$2.80
1,400
Cost remaining in October 31 work-in-process inventory:
Direct material:
 number of
  cost per


 

 equivalent   equivalent 
 units of
   unit of
 ................................

 

 direct material  direct material
Conversion:
 number of   cost per 

 

 equivalent   equivalent 
 units of
   unit of
 ..........................................

 

conversion
conversion

 

Total cost of October 31 work in process ...............................................
McGraw-Hill/Irwin
Managerial Accounting, 5/e
$4,700
 2002 The McGraw-Hill Companies, Inc.
4-47
CASE 4-42 (CONTINUED)
Check: Cost of goods completed and transferred out ......
Cost of October 31 work-in-process inventory .....
Total costs accounted for .......................................
5.
$42,700
4,700
$47,400
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.
McGraw-Hill/Irwin
4-48
 2002 The McGraw-Hill Companies, Inc.
Solutions Manual
CASE 4-43 (60 MINUTES)
PRODUCTION REPORT: HOME GARDEN COMPANY - GRADING DEPARTMENT
Weighted-Average Method
Percentage
of
Completion
with
Equivalent Units
Physical
Respect to
Direct
Units
Conversion
Material Conversion
Work in process, November 1 .........
-0—
Units started during November ......
36,000
Total units to account for ................
36,000
Units completed and transferred
out during November..................
Work in process, November 30 .......
Total units accounted for ................
Total equivalent units ......................
36,000
-036,000
Work in process, November 1 ...........................
Costs incurred during November .....................
Total costs to account for .................................
Equivalent units .................................................
Costs per equivalent unit ..................................
100%
—
Direct
Material
-0$265,680
$265,680
36,000
$7.38
36,000
-0_____
36,000
Conversion
-0$86,400
$86,400
36,000
$2.40
36,000
-0_____
36,000
Total
-0$352,080
$352,080
$9.78
Cost of goods completed and transferred out of the Grading Department
during November:
 number of units  total cost per 

  
 ............................. 36,000$9.78
transferre
d
out
equivalent
unit

 

Cost remaining in November 30 work-in-process inventory in the
Grading Department .....................................................................................
Check: Cost of goods completed and transferred out .............
Cost of November 30 work-in-process inventory ........
Total costs accounted for ..............................................
McGraw-Hill/Irwin
Managerial Accounting, 5/e
$352,080
-0-
$352,080
-0$352,080
 2002 The McGraw-Hill Companies, Inc.
4-49
CASE 4-43 (CONTINUED)
PRODUCTION REPORT: HOME GARDEN COMPANY - SATURATING DEPARTMENT
Weighted-Average Method
Percentage
of
Completion
with
Equivalent Units
Physical Respect to Transferred
Units
Conversion
in
Conversion
Work in process, November 1 .........
1,600
50%
Units transferred in during November 36,000
Total units to account for ................
37,600
Units completed and transferred
out during November..................
Work in process, November 30 .......
Total units accounted for ................
Total equivalent units ......................
35,600
2,000
37,600
Work in process, November 1 ...........................
Costs incurred during November .....................
Total costs to account for .................................
Equivalent units .................................................
Costs per equivalent unit ..................................
100%
50%
Transferred
In
$ 13,850
352,080*
$365,930
37,600
$9.7322
35,600
2,000
_____
37,600
Conversion
$ 3,750
85,920
$89,670
36,600
$2.45
35,600
1,000
_____
36,600
Total
$ 17,600
438,000
$455,600
$12.1822
*Cost of goods completed and transferred out of Grading Department during November,
under the weighted-average method.
McGraw-Hill/Irwin
4-50
 2002 The McGraw-Hill Companies, Inc.
Solutions Manual
CASE 4-43 (CONTINUED)
Cost of goods completed and transferred out of the Saturating
Department during November:
 number of units  total cost per 

  
 .............................35,600$12.1822
 transferred out   equivalent unit 
$433,686†
Cost remaining in November 30 work-in-process inventory in the
Saturating Department:
Transferred-in costs:
 number of
  transferred-in 

 

 equivalent
  cost per

 units of
   equivalent  .......................... 2,000$9.7322

 

transferre
d
in
cost
unit

 

$19,464†
Direct material:
None
Conversion:
 number of   conversion

 

equivalent
cost
per

 

 units of
   equivalent  ..........................................

 

conversion
unit

 

1,000$2.45
Total cost of November 30 work in process ...........................................
Check: Cost of goods completed and transferred out .............
Cost of November 30 work-in-process inventory ........
Total costs accounted for ..............................................
2,450
$21,914
$433,686
21,914
$455,600
†Rounded
McGraw-Hill/Irwin
Managerial Accounting, 5/e
 2002 The McGraw-Hill Companies, Inc.
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CURRENT ISSUES IN MANAGERIAL ACCOUNTING
ISSUE 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.
McGraw-Hill/Irwin
4-52
 2002 The McGraw-Hill Companies, Inc.
Solutions Manual
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 company’s
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
Managerial Accounting, 5/e
 2002 The McGraw-Hill Companies, Inc.
4-53