Chapter 23
Process Cost Accounting
Questions
1.
Yes, services can be delivered by processes. An example is a standardized medical
service such as X-ray testing. As another example, consider courier services such as
Purolator. Courier providers deliver parcels by (a) picking them up from the sender, (b)
transporting them to a central location, (c) sorting them for rerouting, (d) transporting
them to their destination cities, and (e) delivering them to their recipients.
2.
The type of product or service. Process costing system = cleaning fluids, mail
processing; Job order costing system = home building, tax return preparation.
3.
Material consumption report.
4.
The production department and equivalent units.
5.
The journal entries are primarily the same. Material flows into production and direct
labour is applied to the product in process costing. Factory overhead is also captured
and applied to each production department, compared to each job.
6.
Equivalent units of production (EUP) are partially completed units standardized to
completed units; they are a measure corresponding to partial units as if they were fully
(100%) processed. It is necessary to compute EUP in order to assign costs appropriately
to goods in process and fully completed units.
7.
A process cost accounting system treats labour that is used entirely within one process
(say, a production department) as direct labour. The labour may include the software
engineer to control the equipment and the maintenance by persons who work entirely
within that department.
8.
Direct labour costs flow first from the Factory Payroll account to the Goods in Process
Inventory accounts of the Mixing and Cutting Departments. Then, the direct labour in the
Mixing Department’s Goods in Process Inventory account flows to the Cutting
Department’s Goods in Process Inventory account when the partially processed units are
transferred. From there, the direct labour costs flow to the Finished Goods Inventory and
on to Cost of Goods Sold.
9.
After all labour costs have been allocated to goods in process accounts or factory
overhead, the Factory Payroll account should have a zero balance.
10. Yes, it is possible to have either under- or overapplied overhead in a process cost
accounting system. Since the overhead application rate is based on predictions of
overhead and other variables, such as direct labour, the predicted amounts are not likely
to be exactly equal to the actual amounts.
11. Equivalent units for direct labour and for overhead are the same when overhead costs
are applied based on direct labour. Equivalent units for materials differ if direct labour
and direct materials are added at different stages in the production process.
12. Step 1. Calculate the physical flow of units; Step 2. Compute equivalent units of
production; Step 3. Compute cost per equivalent units; Step 4. Prepare a cost
reconciliation.
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13. The process cost summary serves three purposes: (a) to help managers control their
departments; (b) to help factory managers evaluate department managers’ performance;
and (c) to provide cost information for the financial statements. To accomplish these
objectives, a process cost summary describes the costs charged to the department, the
equivalent units of production achieved by the department, and the costs assigned to the
output.
14.
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Fundamental Accounting Principles, Eleventh Canadian Edition
QUICK STUDY
Quick Study 23-1
a.
b.
c.
d.
e.
Job-order operation
Process operation
Job-order operation
Process operation
Process operation
f.
g.
h.
i.
j.
Process operation
Job-order operation
Process operation
Job-order operation
Process operation
Quick Study 23-2
Goods in Process Inventory—Sewing .............................
Goods in Process Inventory—Cutting......................
285,500
285,500
Quick Study 23-3
Goods in Process Inventory—Sewing .............................
Raw Materials Inventory.............................................
56,300
Goods in Process Inventory—Sewing .............................
Factory Payroll ............................................................
92,000
Quick Study 23-4
Goods in Process Inventory—Sewing .............................
Factory Overhead .......................................................
92,000
Quick Study 23-5
Finished Goods Inventory .................................................
Goods in Process Inventory—Sewing......................
99,400
56,300
92,000
92,000
99,400
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85
Quick Study 23-6
(b) FIFO Method
Goods in process .........................
Goods started and completed .....
Ending goods in process.............
Total equivalent units...................
Units of
Product
130,000
290,000
110,000
Percent of
Equivalent
Labour Added
Units
75%
97,500
100
290,000
45
49,500
437,000
Units of
Product
420,000
110,000
Percent of
Equivalent
Labour Added
Units
100%
420,000
45
49,500
469,500
(b) Weighted-average Method
Goods completed .........................
Ending goods in process.............
Total equivalent units...................
Note: The goods completed amount of 420,000 units includes 130,000 from
beginning goods in process.
Quick Study 23-7
(a) Weighted-average Method
Units completed............................
Ending units in process ...............
Total equivalent units...................
Units of
Percent of
Equivalent
Product Overhead Added Units
440,000
100%
440,000
88,000
60
52,800
492,800
Note: The units completed amount of 440,000 units includes 70,000 from
beginning units in process.
(b) FIFO Method
Units in process............................
Units started and completed .......
Ending units in process ...............
Total equivalent units...................
Units of
Product
70,000
370,000
88,000
Percent of
Equivalent
Labour Added
Units
60%
42,000
100
370,000
60
52,800
464,800
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Fundamental Accounting Principles, Eleventh Canadian Edition
Quick Study 23-8
Transferred out, Ending inventory
Quick Study 23-9
(a) Weighted-average Method
Costs from previous period …………….
Costs incurred this period ………………
Total costs incurred ………………………
$110,000
600,000
$710,000
Cost per equivalent unit = $710,000 ÷ 492,800 = $1.4407 per EU
(b) FIFO Method
Costs incurred this period ……………….
$600,000
Cost per equivalent unit = $600,000 ÷ 464,800 = $1.2909 per EU
Note: The FIFO method is superior because it considers current period activity and
costs only. In doing so, it allows managers to monitor the cost efficiency achieved
each period.
Quick Study 23-10
Goods in Process Inventory—Assembly .........................
Goods in Process Inventory—Fabricating ...............
145,000
145,000
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87
EXERCISES
Exercise 23-1
1.
2.
3.
4.
5.
6.
7.
8.
e
b
f
h
i
c
a
g
Exercise 23-2
a.
Raw Materials Inventory ....................................................
Accounts Payable .......................................................
42,000
b. Goods in Process Inventory—Sanding............................
Goods in Process Inventory—Painting............................
Raw Materials Inventory.............................................
12,600
21,000
c.
Factory Overhead ...............................................................
Raw Materials Inventory.............................................
14,700
d. Factory Payroll....................................................................
Cash .............................................................................
105,000
e.
Goods in Process Inventory—Sanding............................
Goods in Process Inventory—Painting............................
Factory Payroll ............................................................
42,000
33,600
Factory Overhead ...............................................................
Factory Payroll ............................................................
29,400
g. Factory Overhead ...............................................................
Cash .............................................................................
33,600
f.
42,000
33,600
14,700
105,000
75,600
29,400
33,600
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Fundamental Accounting Principles, Eleventh Canadian Edition
Exercise 23-2 (concluded)
h. Goods in Process Inventory—Sanding............................
Goods in Process Inventory—Painting............................
Factory Overhead .......................................................
Sanding: $42,000 × 125% = $52,500
Painting: $33,600 × 75% = $25,200
52,500
25,200
i.
Goods in Process Inventory—Painting............................
Goods in Process Inventory—Sanding ....................
97,860
j.
Finished Goods Inventory .................................................
Goods in Process Inventory—Painting ....................
189,000
k.
Accounts Receivable .........................................................
Sales.............................................................................
400,000
Cost of Goods Sold............................................................
Finished Goods Inventory..........................................
197,000
77,700
97,860
189,000
400,000
197,000
Exercise 23-3
a.
Incurred other overhead costs of $4,000.
b. Transferred completed products with a cost of $39,000 to the finished goods
inventory from the Molding Department.
c.
Incurred total labour costs of $15,000, all of which was paid in cash.
d. Purchased raw materials on credit at a cost of $31,000.
e.
Used direct materials with costs of $11,500 in Cutting and $8,500 in Molding.
f.
Used direct labour with costs of $9,000 in Cutting and $5,000 in Molding.
g. Sold products on credit for $125,000. Their accumulated cost was $50,000.
h. Transferred partially completed products with a cost of $30,000 to the Molding
Department from the Cutting Department.
i.
Used indirect materials with costs of $5,500.
j.
Applied overhead at the rates of 75% ($6,750 ÷ $9,000) of direct labour in the Cutting
Department and 140% ($7,000 ÷ $5,000) of direct labour in the Molding Department.
k.
Used indirect labour with a cost of $4,000.
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89
Exercise 23-4
Goods in Process Inventory—Shredding ........................
Goods in Process Inventory—Packing ............................
Raw Materials Inventory.............................................
252,000
378,000
Goods in Process Inventory—Shredding ........................
Goods in Process lnventory—Packing ............................
Factory Payroll ............................................................
47,250
78,850
Goods in Process Inventory—Shredding ........................
Goods in Process Inventory—Packing ............................
Factory Overhead .......................................................
Shredding: $47,250 × 120% = $56,700
Packing: $78,850 × 180% = $141,930
56,700
141,930
Goods in Process Inventory—Packing ............................
Goods in Process Inventory—Shredding.................
362,250
Finished Goods Inventory .................................................
Goods in Process Inventory—Packing.....................
633,150
Accounts Receivable .........................................................
Sales.............................................................................
960,000
Cost of Goods Sold ............................................................
Finished Goods Inventory..........................................
454,000
630,000
126,100
198,630
362,250
633,150
960,000
454,000
Exercise 23-5
a.
Units in beginning inventory .....................................
Units started and completed .....................................
Total units to finished goods ....................................
70,000
308,000
378,000
b. Equivalent units of production (direct materials) – FIFO method:
Equivalent
Units of Percent
Product
Added
Beginning goods in process ................
70,000
25%
Goods started and completed..............
308,000
100
30
Ending goods in process......................
92,400
Total units ..............................................
470,400
Direct
Materials
17,500
308,000
27,720
353,220
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Fundamental Accounting Principles, Eleventh Canadian Edition
Exercise 23-5 (concluded)
Equivalent units of production (direct labour) – FIFO method:
Equivalent
Units of Percent
Product
Added
Beginning goods in process .................
70,000
20%
Goods started and completed...............
308,000
100
10
Ending goods in process.......................
92,400
Total units ...............................................
470,400
Direct
Labour
14,000
308,000
9,240
331,240
Equivalent units of production (direct materials) – Weighted-average method:
Equivalent
Units of Percent
Direct
Product
Added
Materials
Goods transferred to finished goods ...
378,000
100%
378,000
30
27,720
Ending goods in process.......................
92,400
405,720
Total units ...............................................
470,400
Equivalent units of production (direct labour) – Weighted-average method:
Equivalent
Units of Percent
Direct
Product
Added
Labour
Goods transferred to finished goods ...
378,000
100%
378,000
10
9,240
Ending goods in process.......................
92,400
387,240
Total units ...............................................
470,400
Exercise 23-6
Cost per equivalent unit of materials: $918,372 ÷ 353,220 = $2.60
Equivalent Per Unit
Units
Cost
Beginning goods in process .................
17,500
$2.60
Goods started and completed...............
308,000
2.60
Ending goods in process.......................
27,720
2.60
Total .........................................................
353,220
Allocated
Cost
$ 45,500
800,800
72,072
$918,372
Cost per equivalent unit of labour: $728,728 ÷ 331,240 = $2.20
Equivalent Per Unit
Units
Cost
Beginning goods in process .................
14,000
$2.20
Goods started and completed...............
308,000
2.20
2.20
Ending goods in process.......................
9,240
Total .........................................................
331,240
Allocated
Cost
$ 30,800
677,600
20,328
$728,728
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91
Exercise 23-7
a.
Beginning inventory is 100% complete with respect to materials.
Ending inventory is 100% complete with respect to materials.
Units of Percent
Product
Added
Beginning goods in process ................
21,600
0%
Goods started and completed..............
64,800
100
100
Ending goods in process......................
18,000
Total units ..............................................
104,400
Equivalent
Units
–0–
64,800
18,000
82,800
b. Beginning inventory is 1/3 complete with respect to materials.
Ending inventory is 3/5 complete with respect to materials.
Units of Percent
Product
Added
Beginning goods in process ................
21,600
2/3
Goods started and completed..............
64,800
100
3/5
Ending goods in process......................
18,000
Total units ..............................................
104,400
Equivalent
Units
14,400
64,800
10,800
90,000
c.
Beginning inventory is 50% complete with respect to materials.
Ending inventory is 50% complete with respect to materials.
Units of Percent
Product
Added
Beginning goods in process ................
21,600
50%
Goods started and completed..............
64,800
100
50
Ending goods in process......................
18,000
Total units ..............................................
104,400
Equivalent
Units
10,800
64,800
9,000
84,600
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Fundamental Accounting Principles, Eleventh Canadian Edition
Exercise 23-8
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93
Exercise 23-9
SNEIDER COMPANY
Process Cost Summary for the Slicing Department
For Month Ended July 31
COSTS CHARGED TO THE DEPARTMENT
Direct materials requisitioned ....................................................
Direct labour charged..................................................................
Overhead allocated (at 150% predetermined rate) ...................
Total processing costs for the month........................................
Goods in process at the beginning of the month.....................
Total costs to be accounted for..................................................
$173,600
54,600
81,900
310,100
25,200
$335,300
EQUIVALENT UNIT PROCESSING COSTS
Beginning goods in process..................
Units started and completed..................
Ending goods in process .......................
Total .........................................................
Units of
Product
2,240
14,000
3,360
19,600
Equivalent Units
Direct
Labour &
Materials Overhead
1,120
1,680
14,000
14,000
2,240
2,520
17,360
18,200
Total material cost for July .............................................................
Material cost per equivalent unit ($173,600 ÷ 17,360 units) ........
$173,600
$ 10.00
Total labour cost for July................................................................
Labour cost per equivalent unit ($54,600 ÷ 18,200 units)............
$ 54,600
$ 3.00
Total overhead cost for July...........................................................
Overhead cost per equivalent unit ($81,900 ÷ 18,200 units) .......
$ 81,900
$ 4.50
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Fundamental Accounting Principles, Eleventh Canadian Edition
Exercise 23-9 (concluded)
ASSIGNMENT OF COSTS TO THE OUTPUT OF THE DEPARTMENT
Equivalent Cost
Units
per Unit
Goods in process, June 30,
and completed during July:
Costs from prior month..........................
Direct materials added ...........................
1,120 $10.00
Direct labour added ................................
1,680
3.00
Overhead applied....................................
1,680
4.50
Total costs to process............................
Goods started and completed during July:
Direct materials added ...........................
14,000 $10.00
Direct labour added ................................
14,000
3.00
Overhead applied....................................
14,000
4.50
Total costs to process............................
Total costs transferred to
Packaging Department
($49,000 plus $245,000) ..........................
Goods in process, July 31:
Direct materials added ...........................
2,240 $10.00
Direct labour added ................................
2,520
3.00
Overhead applied....................................
2,520
4.50
Total costs to process............................
Total costs accounted for..........................
Total
Cost
$ 25,200
11,200
5,040
7,560
$ 49,000
$140,000
42,000
63,000
$245,000
$294,000
$ 22,400
7,560
11,340
$ 41,300
$335,300
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95
PROBLEMS
Problem 23-1A (45 minutes)
Part 1
Cost of goods transferred and cost of goods sold:
Beginning inventory .................................................
Direct materials .........................................................
Direct labour ..............................................................
Overhead applied (80% and 150% of labour) .........
Total costs in Weaving .............................................
Less ending inventory in Weaving..........................
Transferred to Sewing ..............................................
Total costs in Sewing ...............................................
Less ending inventory in Sewing ............................
Transferred to finished goods .................................
Less ending inventory in finished goods ...............
Cost of goods sold....................................................
Weaving
$ 300,000
240,000
600,000
480,000
1,620,000
(330,000)
$1,290,000
Finished
Sewing
Goods
$ 570,000 $ 1,266,000
75,000
180,000
216,000
1,290,000
2,331,000
(705,000)
$1,626,000
1,626,000
(1,150,000)
$ 1,742,000
Part 2
Raw Materials Inventory ....................................................
Accounts Payable .......................................................
Purchased raw materials.
420,000
Goods in Process Inventory—Weaving ...........................
Goods in Process Inventory—Sewing..............................
Raw Materials Inventory.............................................
Used direct materials.
240,000
75,000
Factory Overhead ...............................................................
Raw Materials Inventory.............................................
Used indirect materials.
120,000
Factory Payroll.................................................................... 1,200,000
Cash .............................................................................
Incurred payroll cost.
420,000
315,000
120,000
1,200,000
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Fundamental Accounting Principles, Eleventh Canadian Edition
Problem 23-1A Part 2 (concluded)
Goods in Process Inventory—Weaving ...........................
Goods in Process Inventory—Sewing .............................
Factory Payroll ............................................................
Used direct labour.
600,000
180,000
Factory Overhead...............................................................
Factory Payroll ............................................................
Used indirect labour.
420,000
Factory Overhead...............................................................
Other Accounts...........................................................
Incurred other overhead costs.
156,000
Goods in Process Inventory—Weaving ...........................
Goods in Process Inventory—Sewing .............................
Factory Overhead .......................................................
Applied overhead to production departments using
predetermined rates.
480,000
216,000
Goods in Process Inventory—Sewing ............................. 1,290,000
Goods in Process Inventory—Weaving....................
Transferred products from the Weaving Department
to the Sewing Department.
Finished Goods Inventory ................................................. 1,626,000
Goods in Process Inventory—Sewing......................
Transferred completed products to the finished
goods inventory.
780,000
420,000
156,000
696,000
1,290,000
1,626,000
Accounts Receivable ......................................................... 2,700,000
Sales.............................................................................
Sold finished goods.
2,700,000
Cost of Goods Sold............................................................ 1,742,000
Finished Goods Inventory..........................................
To record cost of goods sold for May.
1,742,000
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97
Problem 23-2A
Part 1
Equivalent units with respect to direct labour:
Beginning goods in process ............
Goods started and completed ..........
Ending goods in process..................
Total units...........................................
Units of
Product
100,000
375,000
225,000
700,000
Percent
Added
60%
100
30
Equivalent
Units
60,000
375,000
67,500
502,500
Units of
Product
100,000
375,000
225,000
700,000
Percent
Added
75%
100
25
Equivalent
Units
75,000
375,000
56,250
506,250
Equivalent units with respect to direct materials:
Beginning goods in process ............
Goods started and completed ..........
Ending goods in process..................
Total units...........................................
Part 2
Direct labour cost per equivalent unit = $854,250 ÷ 502,500 units = $1.70
Direct materials cost per equivalent unit = $556,875 ÷ 506,250 units = $1.10
Part 3
Allocation of labour cost to products:
Beginning goods in process ............
Goods started and completed ..........
Ending goods in process..................
Total ....................................................
Equivalent
Units
60,000
375,000
67,500
502,500
Per Unit Allocated
Cost
Cost
$1.70 $ 102,000
1.70
637,500
1.70
114,750
$ 854,250
Equivalent
Units
75,000
375,000
56,250
506,250
Per Unit
Allocated
Cost
Cost
$1.10
$ 82,500
1.10
412,500
1.10
61,875
$ 556,875
Allocation of materials cost to products:
Beginning goods in process ............
Goods started and completed ..........
Ending goods in process..................
Total ....................................................
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Fundamental Accounting Principles, Eleventh Canadian Edition
Problem 23-2A (concluded)
Part 4
If the units in ending inventory were 60% complete instead of 30% with respect to labour,
the number of equivalent units in the ending inventory with respect to labour would be
understated by half, and the total equivalent units produced for the period would also be
understated. Because 75% of the direct materials are added when the process is 50%
complete with respect to labour, the number of equivalent units in the ending inventory
with respect to materials would be understated by 75% of the work in process, and the
total equivalent units produced for the period would also be understated. If the correct
percentage of completion with respect to labour were used, both the direct labour cost
and the direct materials cost per equivalent unit would be smaller. However, both ending
inventories would be assigned a larger portion of June’s costs because the percentage of
equivalent units produced during the period remaining in ending inventory would be
greater.
Therefore, the error would cause an overstatement of cost of goods sold and an understatement of net income on the income statement for June. On the June 30 balance sheet,
goods in process inventory, total assets, retained earnings, total liabilities, and
shareholders’ equity would all be understated.
This error represents a timing concern. Why? If ending inventory percent is correct in
July, the understatement in June ending inventory results in an overstatement in July
EUP of beginning inventory. However, this type of error is usually immaterial for external
financial reporting purposes.
Problem 23-3A (60 minutes)
Part 1
Raw materials purchases:
Raw Materials Inventory ....................................................
Accounts Payable .......................................................
218,120
Direct materials usage:
Goods in Process Inventory—Spinning...........................
Goods in Process Inventory—Cutting .............................
Raw Materials Inventory.............................................
160,000
37,120
Indirect materials usage:
Factory Overhead...............................................................
Raw Materials Inventory.............................................
40,560
218,120
197,120
40,560
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99
Problem 23-3A Part 1 (continued)
Factory payroll costs:
Factory Payroll....................................................................
Cash .............................................................................
166,864
Direct labour usage:
Goods in Process Inventory—Spinning...........................
Goods in Process Inventory—Cutting..............................
Factory Payroll ............................................................
71,400
58,464
Indirect labour usage:
Factory Overhead ...............................................................
Factory Payroll ............................................................
37,000
Other overhead costs:
Factory Overhead ...............................................................
Other Accounts ...........................................................
92,000
Application of overhead:
Goods in Process Inventory—Spinning...........................
Goods in Process Inventory—Cutting..............................
Factory Overhead .......................................................
89,250
87,696
166,864
129,864
37,000
92,000
176,946
Transferring partially completed goods from Spinning to Cutting:
Goods in Process Inventory—Cutting.............................. 278,750
Goods in Process Inventory—Spinning ...................
278,750
Transferring completed products to finished goods inventory:
Finished Goods Inventory ................................................. 467,460
Goods in Process Inventory—Cutting ......................
467,460
Sales of the finished goods:
Cash (10,000 × $130) .......................................................... 1,300,000
Sales.............................................................................
1,300,000
Cost of goods sold:
Cost of Goods Sold ............................................................
Finished Goods...........................................................
556,500
Overapplied overhead closed:
Factory Overhead ...............................................................
Cost of Goods Sold ....................................................
7,386
556,500
7,386
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Fundamental Accounting Principles, Eleventh Canadian Edition
Problem 23-3A (continued)
Part 2
Equivalent units of production for the Spinning Department:
Direct materials:
Beginning goods in process .............
Goods started and completed...........
Ending goods in process...................
Total units............................................
Units of
Product
4,000
12,000
8,000
24,000
Percent
Added
0%
100
100
Equivalent
Units
–0–
12,000
8,000
20,000
Materials cost per equivalent unit = $160,000 ÷ 20,000 = $8.00 per unit
Direct labour and overhead:
Beginning goods in process .............
Goods started and completed...........
Ending goods in process...................
Total units............................................
Units of
Product
4,000
12,000
8,000
24,000
Percent
Added
75%
100
25
Equivalent
Units
3,000
12,000
2,000
17,000
Labour cost per equivalent unit = $71,400 ÷ 17,000 = $4.20 per unit
Overhead cost per equivalent unit = $89,250 ÷ 17,000 = $5.25 per unit
Part 3
Cost of units in process in Spinning at end of the month:
Equivalent
Units
Direct materials added .......................
8,000
Direct labour added............................
2,000
Overhead added..................................
2,000
Total cost.............................................
Cost
per Unit
$8.00
4.20
5.25
Total
Cost
$64,000
8,400
10,500
$82,900
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101
Problem 23-3A (concluded)
Part 4
If equivalent units of production for the Spinning Department’s ending inventory for
August were understated, total equivalent units of production would also be understated.
Therefore, the cost per equivalent unit would be overstated, and the manager of the
Spinning Department would be paid a smaller bonus in August than should be the case.
However, in September, because the percentage of completion of the units of production
in beginning inventory would be understated, total equivalent units of production for the
period would be overstated. Therefore, the cost per equivalent unit would be understated,
and the manager of the Spinning Department would be paid a larger bonus than should be
the case.
The units transferred to the Cutting Department would, of course, be 100% complete with
respect to production in the Spinning Department. Because managers are only
responsible for production in their own department, the error would have no impact on
the bonus paid to the manager of the Cutting Department in August or September.
Problem 23-4A (60 minutes)
Part 1
Labour, materials, and overhead equivalent units:
Beginning goods in process ............
Goods started and completed ..........
Ending goods in process..................
Total units...........................................
Units of
Product
30,000
120,000
22,500
172,500
Percent
Added
60%
100
70
Equivalent
Units
18,000
120,000
15,750
153,750
Part 2
SCOTIA COMPANY
Process Cost Summary
For Month Ended October 31
COSTS CHARGED TO THE DEPARTMENT
Direct materials requisitioned ....................................................
Direct labour charged..................................................................
Overhead allocated......................................................................
Total processing costs for the month........................................
Goods in process at the beginning of the month.....................
Total costs to be accounted for..................................................
$ 92,250
307,500
123,000
522,750
40,800
$563,550
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Fundamental Accounting Principles, Eleventh Canadian Edition
Problem 23-4A Part 2 (continued)
EQUIVALENT UNIT PROCESSING COSTS
Beginning goods in process .................................
Units started and completed .................................
Ending goods in process.......................................
Total .........................................................................
Units of
Product
30,000
120,000
22,500
172,500
Equivalent
Units of
Production
18,000
120,000
15,750
153,750
Total material cost for October ......................................................
Material cost per equivalent unit ($92,250 ÷ 153,750 units) ........
$ 92,250
$ 0.60
Total labour cost for October .........................................................
Labour cost per equivalent unit ($307,500 ÷ 153,750 units)........
$307,500
$ 2.00
Total overhead cost for October ....................................................
Overhead cost per equivalent unit ($123,000 ÷ 153,750 units) ...
$123,000
$ 0.80
ASSIGNMENT OF COSTS TO THE OUTPUT OF THE DEPARTMENT
Equivalent Cost
Units
per Unit
Goods in process, October 1,
and completed during October:
Costs from prior month................................
Direct materials added ................................. 18,000
$0.60
Direct labour added ...................................... 18,000
2.00
Overhead applied.......................................... 18,000
0.80
Total costs to process..................................
Goods started and completed during October:
Direct materials added ................................. 120,000
$0.60
Direct labour added ...................................... 120,000
2.00
Overhead applied.......................................... 120,000
0.80
Total costs to process..................................
Total costs transferred to finished goods
(unit cost = $510,000 ÷ 150,000 units = $3.40)
Goods in process, October 31:
Direct materials added ................................. 15,750
$0.60
Direct labour added ...................................... 15,750
2.00
Overhead applied ......................................... 15,750
0.80
Total costs to process..................................
Total costs accounted for................................
Total
Cost
$ 40,800
10,800
36,000
14,400
$102,000
$ 72,000
240,000
96,000
$408,000
$510,000
$ 9,450
31,500
12,600
$ 53,550
$563,550
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103
Problem 23-4A (concluded)
Part 3
Finished Goods Inventory .................................................
Goods in Process Inventory ......................................
510,000
510,000
Problem 23-5A
Part 1
Materials equivalent units:
Beginning goods in process ............
Goods started and completed ..........
Ending goods in process..................
Total units...........................................
Units of
Product
3,000
19,200
2,400
24,600
Percent
Added
0%
100
100
Equivalent
Units
–0–
19,200
2,400
21,600
Units of
Product
3,000
19,200
2,400
24,600
Percent
Added
60%
100
80
Equivalent
Units
1,800
19,200
1,920
22,920
Labour and overhead equivalent units:
Beginning goods in process ............
Goods started and completed ..........
Ending goods in process..................
Total units...........................................
Part 2
Total material cost for May .............................................................
Material cost per equivalent unit ($521,640 ÷ 21,600) ..................
$ 521,640
$
24.15
Total labour cost for May ................................................................
Labour cost per equivalent unit ($1,244,880 ÷ 22,920 units).......
$1,244,880
$
54.31
Total overhead cost for May ...........................................................
Overhead cost per equivalent unit ($995,904 ÷ 22,920 units) .....
$ 995,904
$
43.45
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Fundamental Accounting Principles, Eleventh Canadian Edition
Problem 23-5A (continued)
Part 3
ALPHONSE COMPANY
Process Cost Summary
For Month Ended May 31
COSTS CHARGED TO THE DEPARTMENT
Direct materials requisitioned ....................................................
Direct labour charged..................................................................
Overhead allocated......................................................................
Total processing costs for the month .......................................
Goods in process at the beginning of the month.....................
Total costs to be accounted for .................................................
EQUIVALENT UNITS OF PRODUCTION
Beginning goods in process..................
Units started and completed..................
Ending goods in process.......................
Total .........................................................
Units of
Product
3,000
19,200
2,400
24,600
$ 521,640
1,244,880
995,904
2,762,424
190,386
$2,952,810
Direct
Labour &
Materials Overhead
–0–
1,800
19,200
19,200
2,400
1,920
21,600
22,920
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105
Problem 23-5A Part 3 (concluded)
ASSIGNMENT OF COSTS TO THE OUTPUT OF THE DEPARTMENT
Equivalent Cost
Total
Units
per Unit
Cost
Goods in process, May 1,
and completed during May:
Costs from prior month................................
$ 190,386
Direct materials added (none) .....................
–0–
Direct labour added ...................................... 1,800
$54.31
97,758
Overhead applied.......................................... 1,800
43.45
78,210
Total costs to process..................................
$ 366,354
Goods started and completed during May:
Direct materials added ................................. 19,200
$24.15 $ 463,680
Direct labour added ...................................... 19,200
54.31 1,042,752
Overhead applied.......................................... 19,200
43.45
834,240
Total costs to process..................................
$2,340,672
Total costs transferred to finished goods
(unit cost = ($2,707,026 ÷ 22,200 units = $121.94)
$2,707,026
Goods in process, May 31:
Direct materials added ................................. 2,400
$24.15 $ 57,960
Direct labour added ...................................... 1,920
54.31
104,275
Overhead applied ......................................... 1,920
43.45
83,424
Total costs to process..................................
$ 245,659
Total costs accounted for ................................
$2,952,685
Part 4
Finished Goods Inventory ................................................. 2,707,026
Goods in Process Inventory ......................................
2,707,026
Part 5
a.
The two major estimates are: (1) percent of dollars allocated to factory overhead, and
(2) percent of completion for material, labour, and factory overhead.
b. Management would try to have the least amount of factory overhead applied to their
respective production process, and you could anticipate that they would routinely
underestimate the percentage of completion. If materials are added at the beginning,
then this number would be difficult to manage. Typically, however, management will
underestimate the percent complete because this will reduce the EU of labour and
factory overhead, resulting in a reduction of the dollar value assigned to these
components of ending inventory.
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Fundamental Accounting Principles, Eleventh Canadian Edition
ALTERNATE PROBLEMS
Problem 23-1B
Part 1
Cost of goods transferred and cost of goods sold:
Beginning inventory .................................................
Direct materials .........................................................
Direct labour..............................................................
Overhead applied (80% and 120% of labour) .........
Total costs in Carving ..............................................
Less ending inventory in Carving ...........................
Transferred to Assembly..........................................
Total costs in Assembly...........................................
Less ending inventory in Assembly........................
Transferred to finished goods .................................
Less ending inventory in finished goods ...............
Cost of goods sold ...................................................
Carving
$ 100,000
80,000
200,000
160,000
540,000
(110,000)
$ 430,000
Assembly
$ 190,000
25,000
60,000
72,000
430,000
777,000
(235,000)
$542,000
Finished
Goods
$ 422,000
542,000
(402,000)
$ 562,000
Part 2
Raw Materials Inventory ....................................................
Accounts Payable .......................................................
Purchased raw materials.
140,000
Goods in Process Inventory—Carving.............................
Goods in Process Inventory—Assembly .........................
Raw Materials Inventory.............................................
Used direct materials.
80,000
25,000
Factory Overhead...............................................................
Raw Materials Inventory.............................................
Used indirect materials.
40,000
Factory Payroll....................................................................
Cash .............................................................................
Incurred payroll cost.
400,000
Goods in Process Inventory—Carving.............................
Goods in Process Inventory—Assembly .........................
Factory Payroll ............................................................
Used direct labour.
200,000
60,000
140,000
105,000
40,000
400,000
260,000
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107
Problem 23-1B Part 2 (concluded)
Factory Overhead ................................................................. 140,000
Factory Payroll ..............................................................
Used indirect labour.
Factory Overhead .................................................................
Other Accounts .............................................................
Incurred other overhead costs.
50,000
140,000
50,000
Goods in Process Inventory—Carving (200,000 × .8) ....... 160,000
Goods in Process Inventory—Assembly (60,000 × 1.2).... 72,000
Factory Overhead .........................................................
Applied overhead to production departments using
predetermined rates.
232,000
Goods in Process Inventory—Assembly ........................... 430,000
Goods in Process Inventory—Carving .......................
Transferred products from the Carving Department
to the Assembly Department.
430,000
Finished Goods Inventory ................................................... 542,000
Goods in Process Inventory—Assembly....................
Transferred completed products to the finished
goods inventory.
542,000
Accounts Receivable ........................................................... 905,000
Sales...............................................................................
Sold finished goods.
905,000
Cost of Goods Sold .............................................................. 562,000
Finished Goods Inventory............................................
To record cost of goods sold for June.
562,000
Cost of Goods Sold ..............................................................
Factory Overhead .........................................................
To charge underapplied overhead to CGS for June.
2,000
2,000
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Fundamental Accounting Principles, Eleventh Canadian Edition
Problem 23-2B (60 minutes)
Part 1
(a) Equivalent units with respect to direct labour:
Beginning goods in process .............
Goods started and completed...........
Ending goods in process...................
Total units............................................
Units of
Product
16,000
54,000
8,000
78,000
(b) Equivalent units with respect to direct materials:
Units of
Product
Beginning goods in process .............
16,000
Goods started and completed...........
54,000
Ending goods in process...................
8,000
Total units............................................
78,000
Percent
Added
0%
100
50
Equivalent
Units
0
54,000
4,000
58,000
Percent
Added
40%
100
20
Equivalent
Units
6,400
54,000
1,600
62,000
Part 2
Direct labour cost per unit = $1,705,200 ÷ 58,000 units = $29.40
Direct materials cost per equivalent unit = $682,000 ÷ 62,000 units = $11.00
Part 3
Allocation of labour cost to products:
Beginning goods in process .............
Goods started and completed...........
Ending goods in process...................
Total .....................................................
Equivalent
Units
0
54,000
4,000
58,000
Per Unit Allocated
Cost
Cost
$29.40 $
0
29.40
1,587,600
29.40
117,600
$1,705,200
Equivalent
Units
6,400
54,000
1,600
62,000
Per Unit
Cost
$11.00
11.00
11.00
Allocation of materials cost to products:
Beginning goods in process .............
Goods started and completed...........
Ending goods in process...................
Total .....................................................
Allocated
Cost
$ 70,400
594,000
17,600
$682,000
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Solutions Manual for Chapter 23
109
Problem 23-2B (concluded)
Part 4
If the units in ending inventory were 75% complete instead of 20% with respect to
materials, the number of equivalent units in the ending inventory with respect to materials
would be understated, and the total equivalent units produced for the period would also
be understated. Because half of the direct labour is added when the process is 50%
complete with respect to materials, the number of equivalent units in the ending inventory
with respect to labour would be understated by 50%, and the total equivalent units
produced for the period would also be understated. If the correct percentage of
completion with respect to materials were used, both the direct labour cost and the direct
materials cost per equivalent unit would be smaller. However, both ending inventories
would be assigned a larger portion of October’s costs because the percentage of
equivalent units produced during the period remaining in ending inventory would be
greater.
Therefore, the error would cause an overstatement of cost of goods sold and an understatement of net income on the income statement for October. On the October 31 balance
sheet, goods in process inventory, total assets, retained earnings, total liabilities, and
shareholders’ equity would all be understated. Assuming the correct ending balance in
October, this error will reverse in the following period.
Problem 23-3B
Part 1
Raw materials purchases:
Raw Materials Inventory ....................................................
Accounts Payable .......................................................
700,000
Direct materials usage:
Goods in Process Inventory—Tooling .............................
Goods in Process Inventory—Machining ........................
Raw Materials Inventory.............................................
347,480
249,480
Indirect materials usage:
Factory Overhead ...............................................................
Raw Materials Inventory.............................................
142,240
Factory payroll costs:
Factory Payroll....................................................................
Cash .............................................................................
560,000
700,000
596,960
142,240
560,000
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Fundamental Accounting Principles, Eleventh Canadian Edition
Problem 23-3B Part 1 (continued)
Direct labour usage:
Goods in Process Inventory—Tooling .............................
Goods in Process Inventory—Machining ........................
Factory Payroll ............................................................
445,200
49,896
Indirect labour usage:
Factory Overhead...............................................................
Factory Payroll ............................................................
64,904
Other overhead costs:
Factory Overhead...............................................................
Other Accounts...........................................................
68,728
Application of overhead:
Goods in Process Inventory—Tooling .............................
Goods in Process Inventory—Machining ........................
Factory Overhead .......................................................
178,080
99,792
495,096
64,904
68,728
277,872
Transferring partially completed goods from Tooling
to Machining:
Goods in Process Inventory—Machining ........................ 1,008,000
Goods in Process Inventory—Tooling .....................
1,008,000
Transferring completed products to the finished
goods inventory:
Finished Goods Inventory ................................................. 1,434,720
Goods in Process Inventory—Machining.................
1,434,720
Sales of the finished goods:
Cash (80,000 × $28) ............................................................ 2,240,000
Sales.............................................................................
2,240,000
Cost of goods sold:
Cost of Goods Sold............................................................ 1,400,560
Finished Goods Inventory..........................................
1,400,560
Adjust overapplied overhead
Factory Overhead...............................................................
Cost of Goods Sold ....................................................
2,000
2,000
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Solutions Manual for Chapter 23
111
Problem 23-3B (continued)
Part 2
Equivalent units of production for the Tooling Department:
Direct materials:
Beginning goods in process ............
Goods started and completed ..........
Ending goods in process..................
Total units...........................................
Units of
Product
40,000
120,000
20,000
180,000
Percent
Added
20%
100
90
Equivalent
Units
8,000
120,000
18,000
146,000
Materials cost per equivalent unit = $347,480 ÷ 146,000 = $2.38 per unit
Direct labour and overhead:
Beginning goods in process ............
Goods started and completed ..........
Ending goods in process..................
Total units...........................................
Units of
Product
40,000
120,000
20,000
180,000
Percent
Added
60%
100
75
Equivalent
Units
24,000
120,000
15,000
159,000
Labour cost per equivalent unit = $445,200 ÷ 159,000 = $2.80 per unit
Overhead cost per equivalent unit = $178,080 ÷ 159,000 = $1.12 per unit
Part 3
Cost of units in process in Tooling at end of the month:
Equivalent
Units
Direct materials added ......................
18,000
Direct labour added ...........................
15,000
Overhead added.................................
15,000
Total cost............................................
Cost
per Unit
$2.38
2.80
1.12
Total
Cost
$ 42,840
42,000
16,800
$101,640
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Fundamental Accounting Principles, Eleventh Canadian Edition
Problem 23-3B (concluded)
Part 4
If equivalent units of production for the Tooling Department’s ending inventory for May
were overstated, total equivalent units of production would also be overstated. Therefore,
the cost per equivalent unit would be understated, and the manager of the Tooling
Department would be paid a larger bonus in May than should be the case. However, in
June, because the percentage of completion of the units of production in beginning
inventory would be overstated, total equivalent units of production for the period would
be understated. Therefore, the cost per equivalent unit would be overstated, and the
manager of the Tooling Department would be paid a smaller bonus than should be the
case.
The units transferred to the Machining Department would be 100% complete with respect
to production in the Tooling Department. Because managers are only responsible for
production in their own department, the error would have no impact on the bonus paid to
the manager of the Machining Department in May or June.
Problem 23-4B
Part 1
EQUIVALENT UNITS
Beginning goods in process .............
Goods started and completed...........
Ending goods in process...................
Total units............................................
Units of
Product
7,500
82,500
12,000
102,000
Percent
Added
25%
100
20
Equivalent
Units
1,875
82,500
2,400
86,775
Part 2
MANITOBA COMPANY
Process Cost Summary
For Month Ended November 30
COSTS CHARGED TO THE DEPARTMENT
Direct materials requisitioned ....................................................
Direct labour charged..................................................................
Overhead allocated......................................................................
Total processing costs for the month .......................................
Goods in process at the beginning of the month.....................
Total costs to be accounted for .................................................
$ 104,130
381,810
496,353
982,293
60,000
$1,042,293
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Solutions Manual for Chapter 23
113
Problem 23-4B Part 2 (continued)
EQUIVALENT UNIT PROCESSING COSTS
Units of
Product
Beginning goods in process .................................
7,500
Units started and completed .................................
82,500
Ending goods in process.......................................
12,000
Total ......................................................................... 102,000
Total material cost for November...................................................
Material cost per equivalent unit ($104,130 ÷ 86,775 units) ........
Total labour cost for November .....................................................
Labour cost per equivalent unit ($381,810 ÷ 86,775 units)..........
Total overhead cost for November ................................................
Overhead cost per equivalent unit ($496,353 ÷ 86,775 units) .....
Equivalent
Units of
Production
1,875
82,500
2,400
86,775
$104,130
$ 1.20
$381,810
$ 4.40
$600,000
$ 5.72
ASSIGNMENT OF COSTS TO THE OUTPUT OF THE DEPARTMENT
Equivalent Cost
Total
Units
per Unit
Cost
Goods in process, November 1,
and completed during November:
Costs from prior month................................
$ 60,000
Direct materials added ................................. 1,875
$1.20
2,250
Direct labour added ...................................... 1,875
4.40
8,250
Overhead applied.......................................... 1,875
5.72
10,725
Total costs to process..................................
$ 81,225
Goods started and completed during
November:
Direct materials added ................................. 82,500
$1.20 $ 99,000
Direct labour added ...................................... 82,500
4.40
363,000
Overhead applied.......................................... 82,500
5.72
471,900
Total costs to process..................................
$ 933,900
Total costs transferred to finished goods
(unit cost = [($81,225 + $933,900) ÷ 90,000] = $11.279*)
$1,015,125
Goods in process, June 30:
Direct materials added ................................. 2,400
$1.20 $
2,880
Direct labour added ...................................... 2,400
4.40
10,560
Overhead applied.......................................... 2,400
5.72
13,728
Total costs to process..................................
$ 27,168
Total costs accounted for ................................
$1,042,293
*Rounded.
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Problem 23-4B (concluded)
Part 3
Finished Goods Inventory ................................................. 1,015,125
Goods in Process Inventory ......................................
1,015,125
Problem 23-5B
Part 1
MATERIALS EQUIVALENT UNITS:
Beginning goods in process .............
Goods started and completed...........
Ending goods in process...................
Total units............................................
Units of
Product
20,000
200,000
40,000
260,000
Percent
Added
25%
100
50
Equivalent
Units
5,000
200,000
20,000
225,000
Units of
Product
20,000
200,000
40,000
260,000
Percent
Added
40%
100
30
Equivalent
Units
8,000
200,000
12,000
220,000
LABOUR AND OVERHEAD EQUIVALENT UNITS:
Beginning goods in process .............
Goods started and completed...........
Ending goods in process...................
Total units............................................
Parts 2 & 3
JIFFY MANUFACTURING COMPANY
Process Cost Summary
For Month Ended January 31
COSTS CHARGED TO THE DEPARTMENT
Direct materials requisitioned ....................................................
Direct labour charged..................................................................
Overhead allocated......................................................................
Total processing costs for the month .......................................
Goods in process at the beginning of the month.....................
Total costs to be accounted for .................................................
$112,500
176,000
440,000
$728,500
41,100
$769,600
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Solutions Manual for Chapter 23
115
Problem 23-5B Parts 2 & 3 (continued)
EQUIVALENT UNIT PROCESSING COSTS
Beginning goods in process..................
Units started and completed..................
Ending goods in process .......................
Total .........................................................
Units of
Direct
Product Materials
20,000
5,000
200,000
200,000
40,000
20,000
260,000
225,000
Labour &
Overhead
8,000
200,000
12,000
220,000
Total material cost for January ......................................................
Material cost per equivalent unit ($112,500 ÷ 225,000 units) ......
$112,500
$ 0.50
Total labour cost for January .........................................................
Labour cost per equivalent unit ($176,000 ÷ 220,000 units)........
$176,000
$ 0.80
Total overhead cost for January ....................................................
Overhead cost per equivalent unit ($440,000 ÷ 220,000 units) ...
$440,000
$ 2.00
ASSIGNMENT OF COSTS TO THE OUTPUT OF THE DEPARTMENT
Equivalent Cost
Units per Unit
Goods in process, January 1,
and completed during January:
Costs from prior month..................................
Direct materials added ...................................
5,000
$0.50
Direct labour added ........................................
8,000
0.80
Overhead applied............................................
8,000
2.00
Total costs to process....................................
Goods started and completed during January:
Direct materials added ................................... 200,000
$0.50
Direct labour added ........................................ 200,000
0.80
Overhead applied............................................ 200,000
2.00
Total costs to process....................................
Total costs transferred to finished goods
(unit cost = $726,000 ÷ 220,000 units = $3.30)
Goods in process, January 31:
Direct materials added ................................... 20,000
$0.50
Direct labour added ........................................ 12,000
0.80
Overhead applied............................................ 12,000
2.00
Total costs to process....................................
Total costs accounted for ..................................
Total
Cost
$ 41,100
2,500
6,400
16,000
$ 66,000
$100,000
160,000
400,000
$660,000
$726,000
$ 10,000
9,600
24,000
$ 43,600
$769,600
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Fundamental Accounting Principles, Eleventh Canadian Edition
Problem 23-5B (concluded)
Part 4
Finished Goods Inventory .................................................
Goods in Process Inventory ......................................
726,000
726,000
Part 5
a.
The two major estimates are: (1) percent of dollars allocated to factory overhead, and
(2) percent of completion for material, labour, and factory overhead.
b. Management would try to have the least amount of factory overhead applied to their
respective production process, and you could anticipate that they would routinely
underestimate the percentage of completion. If materials are added at the beginning,
then this number would be difficult to manage. Typically, however, management will
underestimate the percent complete because this will reduce the EU of labour and
factory overhead, resulting in a reduction of the dollar value assigned to these
components of ending inventory.
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Solutions Manual for Chapter 23
117
COMPREHENSIVE PROBLEM (190 minutes)
Part 1
July journal entries:
a.
Raw Materials Inventory ....................................................
Cash .............................................................................
Purchased raw materials for cash.
200,000
b. Goods in Process Inventory—Dept. One .........................
Goods in Process Inventory—Dept. Two.........................
Factory Overhead ...............................................................
Raw Materials ..............................................................
To record use of raw materials.
72,000
89,600
42,000
c.
Factory Payroll....................................................................
Cash .............................................................................
Paid factory payroll with cash.
360,000
d. Goods in Process Inventory—Dept. One .........................
Goods in Process Inventory—Dept. Two.........................
Factory Overhead ...............................................................
Factory Payroll ............................................................
To record direct and indirect labour.
200,000
100,000
60,000
e.
Factory overhead................................................................
Cash .............................................................................
Paid other factory overhead with cash.
48,000
f.
Goods in Process Inventory—Dept. One .........................
Goods in Process Inventory—Dept. Two.........................
Factory Overhead .......................................................
Allocated factory overhead costs at 50% of
direct labour costs.
100,000
50,000
Overhead costs for July:
Indirect materials
Indirect labour
Other
Direct labour costs for July:
Dept. One
Dept. Two
200,000
203,600
360,000
360,000
48,000
150,000
$42,000
60,000
48,000
$150,000
$200,000
100,000
$300,000
Overhead allocation rate = $150,000 ÷ $300,000 = 50%
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118
Fundamental Accounting Principles, Eleventh Canadian Edition
COMPREHENSIVE PROBLEM (continued)
Part 2
Equivalent units and per unit costs:
(i) DEPARTMENT ONE:
Direct materials
Units of
Product
Beginning
500
Started and completed 2,000
Ending
1,000
Total
3,500
Percentage
Added
50%
100%
15%
Equivalent
Units
250
2,000
150
2,400
Cost per
Unit
$30.00
$30.00
$30.00
Total
Cost
$ 7,500
60,000
4,500
$ 72,000
Cost per
Unit
$80.00
$80.00
$80.00
Total
Cost
$ 24,000
160,000
16,000
$200,000
Cost per
Unit
$40.00
$40.00
$40.00
Total
Cost
$ 12,000
80,000
8,000
$100,000
Cost per unit = $72,000 ÷ 2,400 equivalent units = $30.00
Direct labour
Units of
Product
Beginning
500
Started and completed 2,000
Ending
1,000
Total
3,500
Percentage
Added
60%
100%
20%
Equivalent
Units
300
2,000
200
2,500
Cost per unit = $200,000 ÷ 2,500 equivalent units = $80.00
Overhead
Units of
Product
Beginning
500
Started and completed 2,000
Ending
1,000
Total
3,500
Percentage
Added
60%
100%
20%
Equivalent
Units
300
2,000
200
2,500
Cost per unit = $100,000 ÷ 2,500 equivalent units = $40.00
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Solutions Manual for Chapter 23
119
COMPREHENSIVE PROBLEM (continued)
(ii) DEPARTMENT TWO:
Direct materials
Units of
Product
Beginning
1,000
Started and Completed 1,800
Ending
1,600
Total
4,400
Percentage
Added
60%
100%
25%
Equivalent
Units
600
1,800
400
2,800
Cost per
Unit
$32.00
$32.00
$32.00
Total
Cost
$19,200
57,600
12,800
$89,600
Cost per
Unit
$40.00
$40.00
$40.00
Total
Cost
$ 15,200
72,000
12,800
$100,000
Cost per
Unit
$20.00
$20.00
$20.00
Total
Cost
$ 7,600
36,000
6,400
$50,000
Cost per unit = $89,600/2,800 equivalent units = $32.00
Direct labour
Units of
Product
Beginning
1,000
Started and Completed 1,800
Ending
1,600
Total
4,400
Percentage
Added
38%
100%
20%
Equivalent
Units
380
1,800
320
2,500
Cost per unit = $100,000/2,500 equivalent units = $40.00
Overhead
Units of
Product
Beginning
1,000
Started and Completed 1,800
Ending
1,600
Total
4,400
Percentage
Added
38%
100%
20%
Equivalent
Units
380
1,800
320
2,500
Cost per unit = $50,000/2,500 equivalent units = $20
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120
Fundamental Accounting Principles, Eleventh Canadian Edition
COMPREHENSIVE PROBLEM (continued)
Part 3
Cost of units transferred from Department One to Department Two:
Total
Cost
Beginning inventory (given) .................................. $128,440
Direct materials (250 × $30) ...............................
7,500
Direct labour (300 × $80) ....................................
24,000
Overhead (300 × $40)..........................................
12,000
Started and completed units:
Direct materials (2,000 × $30) ............................
60,000
Direct labour (2,000 × $80) .................................
160,000
Overhead (2,000 × $40).......................................
80,000
Total cost of goods transferred from
Department One to Department Two ................ $471,940
Cost of units transferred from Department Two to Finished Goods:
Total
Cost
Beginning inventory (given) .................................. $ 50,000
Direct materials (600 × $32) ...............................
19,200
Direct labour (380 × $40) ....................................
15,200
Overhead (380 × $20)..........................................
7,600
Started and completed units:
Department One costs........................................
471,940
Direct materials (1,800 × $32) ............................
57,600
Direct labour (1,800 × $40) .................................
72,000
Overhead (1,800 × $20).......................................
36,000
Total cost of goods transferred from
Department Two to Finished Goods ................. $729,540
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Solutions Manual for Chapter 23
121
COMPREHENSIVE PROBLEM Part 3 (continued)
Additional entries for July:
a.
Goods in Process Inventory—Dept. Two.........................
Goods in Process Inventory—Dept. One..................
Transferred goods from Dept. One to Dept. Two.
471,940
b. Finished Goods Inventory ................................................. 729,540
Goods in Process Inventory—Dept. Two .................
Transferred goods from Dept. Two to Finished Goods.
c.
Cash..................................................................................... 1,300,000
Sales.............................................................................
Sold finished goods for cash.
Cost of Goods Sold ............................................................
Finished Goods...........................................................
Transferred cost from Finished Goods to
cost of goods sold.
535,600
471,940
729,540
1,300,000
535,600
Part 4
Ledger accounts:
Raw Materials Inventory
Explanation
Date
June 30
(a)
(b)
Balance
Purchases
Usage
Debit
Date
June 30
(b)
(d)
(f)
(g)
Goods in Process Inventory—Department One
Explanation
Debit
Balance
Direct materials
72,000
Direct labour
200,000
Overhead allocation
100,000
Transfer out to Dept. Two
200,000
Acct. No. 132
Credit
Balance
64,000
264,000
203,600
60,400
Acct. No. 133
Credit
Balance
128,440
200,440
400,440
500,440
471,940
28,500
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122
Fundamental Accounting Principles, Eleventh Canadian Edition
COMPREHENSIVE PROBLEM Part 4 (concluded)
Date
June 30
(b)
(d)
(f)
(g)
(h)
Date
June 30
(h)
(i)
Date
(i)
Date
(i)
Date
(c)
(d)
Date
(b)
(d)
(e)
(f)
Goods in Process Inventory—Department Two
Explanation
Debit
Balance
Direct materials
89,600
Direct labour
100,000
Overhead allocation
50,000
Transfer in from Dept. One
471,940
Transfer out to Finished Goods
Finished Goods Inventory
Explanation
Balance
Transfer in from Dept. Two
July sales
July sales
July sales
July costs
Allocation
Sales
Explanation
Cost of Goods Sold
Explanation
Factory Payroll
Explanation
Factory Overhead
Explanation
Indirect materials
Indirect labour
Other overhead costs
Overhead application
Debit
729,540
Debit
Debit
535,600
Debit
360,000
Debit
42,000
60,000
48,000
Acct. No. 134
Credit
Balance
50,000
139,600
239,600
289,600
761,540
729,540
32,000
Acct. No. 135
Credit
Balance
220,000
949,540
535,600
413,940
Acct. No. 413
Credit
Balance
1,250,000 1,250,000
Acct. No. 502
Credit
Balance
535,600
Acct. No. 530
Balance
360,000
360,000
0
Credit
Acct. No. 540
Credit
Balance
42,000
102,000
150,000
150,000
0
Part 5
Calculation of gross profit:
Sales .................................................................... $1,300,000
Cost of goods sold .............................................
(535,600)
Gross profit ............................................................. $ 764,400
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Solutions Manual for Chapter 23
123
ANALYTICAL & REVIEW PROBLEMS
A&R Problem 23-1 (35 minutes)
1.
The overhead rate is 12% of direct labour cost
$42,700 ÷ $35,000 = 122%
2.
Total amount in beginning work in process =
Direct labour (given)
Overhead (4,900 × 1.22)
Direct materials (25,900 – [4,900 + 5,978])
3.
Beginning WIP
Started and completed
Ending WIP
4.
Cost added
Divide by EU’s [see Part 4]
Cost ÷ EU
$25,900
$ 4,900
5,978
15,022
Materials
—
9,800
7,000
16,800
Labour
2,100
9,800
2,100
14,000
Overhead
2,100
9,800
2,100
14,000
Materials
$48,720
16,800
$2.90
Labour
$35,000
14,000
$2.50
Overhead
$42,700
14,000
$3.05 = $8.45
Ending WIP:
Materials (7,000 × $2.90)
Direct labour (2,100 × $2.50)
Overhead (2,100 × $3.05)
$20,300.00
5,250.00
6,405.00
$31,955.00
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124
Fundamental Accounting Principles, Eleventh Canadian Edition
A&R Problem 23-2
There would likely be little change in the process cost system itself. However, there would
be a shift in the production costs from labour to overhead. In addition, one would expect a
reduction in the overall labour and overhead costs because of increased efficiencies.
A&R Problem 23-3
The facts of this problem indicate that direct labour of $8,750 was incorrectly charged to
the Smelting Department when it should have been charged to the Turning Department.
Because overhead is charged to the Smelting Department at the rate of 100% of direct
labour cost, the department's overhead was also overstated by $8,750. Thus, the total
costs charged to the Smelting Department were overstated by $17,500. These overstated
amounts were charged to the department on the process cost summary. Since the
Smelting Department has no ending inventory, the process cost summary also overstated
the cost of the units transferred from the Smelting Department to the Turning Department.
Because overhead is charged to the Turning Department at 180% of direct labour, the
$8,750 understatement of direct labour also had the effect of understating the amount of
overhead charged to the department by $8,750 × 180% = $15,750. Thus, the direct labour
and overhead costs added by the Turning Department were understated by $24,500. The
department's process cost summary would show these understated amounts and also
show the cost transferred in from Smelting to be overstated by $17,500.
Because the overhead charged to Smelting was overstated $8,750 and the overhead
charged to Turning was understated $15,750, the total amount of overhead charged to
departments was understated $7,000. However, because the company has no goods in
process or finished goods inventories, any under- or overapplied balance that exists is
closed entirely to Cost of Goods Sold. In fact, all of the company’s manufacturing costs
are charged to cost of goods sold. Thus, the income statement and balance sheet are not
affected by the error.
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125