CHAPTER 16
Process Costing
ASSIGNMENT CLASSIFICATION TABLE
Exercises
A
Problems
B
Problems
1, 7, 16
1A
1B
1, 2, 3
1, 2, 11,
13, 14, 15,
16
1A
1B
10, 11,
12, 13
5, 10
3, 4, 5, 6,
7, 8, 10,
11, 12, 13,
14, 15, 16
2A, 3A, 4A,
5A, 6A
2B, 3B, 4B,
5B, 6B
Explain the four steps
necessary to prepare a
production cost report.
8, 9, 14,
15, 18
4, 6, 7,
8, 9
3, 4, 5, 6,
7, 8, 10,
11, 12, 13,
14, 15, 16
2A, 3A,
4A, 5A
2B, 3B,
4B, 5B
*7.
Prepare a production
cost report.
16, 17
12
5, 9, 10
2A, 3A, 4A,
5A, 6A
2B, 3B, 4B,
5B, 6B
*8.
Compute equivalent units
using the FIFO method.
21, 22
11, 12, 13
13, 14, 15,
16, 17
7A
7B
Study Objectives
Questions
*1.
Understand who uses
process cost systems.
1, 2, 19,
20
*2.
Explain the similarities
and differences between
job order and process
cost systems.
2, 3, 4
*3.
Explain the flow of costs
in a process cost system.
5, 6
*4.
Make the journal entries
to assign manufacturing
costs in a process cost
system.
6, 7
*5.
Compute equivalent
units.
*6.
Brief
Exercises
*Note: All asterisked Questions, Exercises, and Problems relate to material contained in the appendix*to
the chapter.
16-1
ASSIGNMENT CHARACTERISTICS TABLE
Problem
Number
Description
Difficulty
Level
Time
Allotted (min.)
1A
Journalize transactions.
Moderate
2030
2A
Complete four steps necessary to prepare a production
cost report.
Simple
3040
3A
Complete four steps necessary to prepare a production
cost report.
Simple
3040
4A
Assign costs and prepare a production cost report.
Moderate
2030
5A
Determine equivalent units and unit costs and assign
costs.
Moderate
2030
6A
Compute equivalent units and complete a production cost
report.
Moderate
1525
Determine equivalent units and unit costs and assign
costs for processes; prepare production cost report.
Moderate
3040
1B
Journalize transactions.
Moderate
2030
2B
Complete four steps necessary to prepare a production
cost report.
Simple
3040
3B
Complete four steps necessary to prepare a production
cost report.
Simple
3040
4B
Assign costs and prepare a production cost report.
Moderate
2030
5B
Determine equivalent units and unit costs and assign
costs.
Moderate
2030
6B
Compute equivalent units and complete a production cost
report.
Moderate
1525
Determine equivalent units and unit costs and assign
costs for processes; prepare production cost report.
Moderate
3040
*7A*
*7B*
16-2
BLOOM’S TAXONOMY TABLE
16-3
ANSWERS TO QUESTIONS
1.
(a)
(b)
(c)
(d)
Process cost.
Process cost—(Possibly job order if unique automobile).
Job order.
Job order.
2.
The primary focus of job order cost accounting is on the individual job. In process cost accounting,
the primary focus is on the processes involved in producing identical or very similar products.
3.
The similarities are: (1) all three manufacturing cost elements—direct materials, direct labor, and
manufacturing overhead—are the same; (2) the accumulation of the costs of materials, labor, and
overhead is the same; and (3) the flow of costs is the same.
4.
The features of process cost accounting are: (1) separate work in process accounts for each process, (2) production cost reports, (3) product costs computed for each accounting period, and (4)
unit costs computed based on total manufacturing costs.
5.
Tina is correct. The flow of costs is the same in process cost accounting as in job order cost
accounting. The method of assigning costs, however, is significantly different.
6.
(a) (1) Materials are charged to production on the basis of materials requisition slips.
(2) Labor is usually charged to production on the basis of the payroll register or departmental
payroll summaries.
(b) The criterion used in assigning overhead to processes is to identify the activity that “drives”
or causes the cost. In many companies this activity is machine time, not direct labor.
7.
The entry to assign overhead to production is:
July 31
Work in Process—Machining ....................................................
Work in Process—Assembly .....................................................
Manufacturing Overhead ...................................................
45,000
36,000
81,000
8.
To prepare a production cost report, four steps are followed: (a) compute the physical unit flow,
(b) compute equivalent units of production, (c) compute unit production costs, and
(d) prepare a cost reconciliation schedule.
9.
Physical units to be accounted for consist of units in process at the beginning of the period plus
units started (or transferred) into production during the period. Units accounted for consist of units
completed and transferred out during the period plus units in process at the end of the period.
10.
Equivalent units of production measure the work done during the period, expressed in fully completed units.
11.
Equivalent units are the sum of: (1) units completed and transferred out and (2) equivalent units
of ending work in process.
12.
Units started into production were 9,600 (9,000 + 600).
16-4
Questions Chapter 16 (Continued)
*13.
Equivalent Units
Materials
Conversion Costs
12,000
12,000
Units transferred out
Work in process
600 X 100%
600 X 20%
Total equivalent units
*14.
600
00,000
12,600
Units transferred out were 3,400
Units to be accounted for
Work in process (beginning)
Started into production
Total units
120
12,120
800
3,000
3,800
Units accounted for
Completed and transferred out
Work in process (ending)
Total units
3,400
400
3,800
*15.
(a) The cost of the units transferred out is $168,000 (14,000 X $12).
(b) The cost of the units in ending inventory is $10,500 [(2,000 X $3) + (500 X $9)].
*16.
(a) Jim is incorrect. The report is an internal report for management.
(b) There are four sections in a production cost report: (1) physical unit schedule, (2) equivalent
unit determination, (3) unit costs, and (4) cost reconciliation schedule.
*17.
The production cost report provides the basis for evaluating: (1) the productivity of a department,
(2) whether unit and total costs are reasonable, and (3) whether management’s predetermined
quantity and cost goals are being met.
*18.
The per unit conversion cost is $10.625. [Conversion costs = Total costs 
= $6,600
– $3,200 = $3,400. Equivalent units for conversion costs are 320 (800 X 40%); The per unit
conversion cost is $3,400 ÷ 320 = $10.625.]
*19.
Operations costing is similar to process costing in that standardized methods are used to manufacture the product. At the same time, the product may have some customized individual features that require the use of a job order cost system.
*20.
In deciding which system to use, a cost-benefit tradeoff occurs. In a job order system, detailed
information related to the cost of the product is provided. The cost of implementing this system
is often expensive. In a process cost system, an average cost of the product will suffice and
therefore the cost to implement is less. In summary, the cost of implementing the system must
be balanced against the benefits provided from the additional information.
*21.
Units transferred out were 2,600 (2,000 + 600).
*22.
(a) The cost of the units transferred out is $144,000 (12,000 X $12).
(b) The cost of the units in ending inventory is $10,500 [(2,000 X $3) + (500 X $9)].
16-5
SOLUTIONS TO BRIEF EXERCISES
BRIEF EXERCISE 16-1
May 31
31
Raw Materials Inventory .................................
Accounts Payable ....................................
60,000
Factory Labor ..................................................
Wages Payable ........................................
40,000
60,000
40,000
BRIEF EXERCISE 16-2
May 31
31
Work in Process—Assembly Department .....
Work in Process—Finishing Department ......
Raw Materials Inventory ..........................
29,000
31,000
Work in Process—Assembly Department .....
Work in Process—Finishing Department ......
Factory Labor ...........................................
28,000
12,000
60,000
40,000
BRIEF EXERCISE 16-3
May 31
Work in Process—Assembly Department .....
($28,000 X 150%)
Work in Process—Finishing Department ......
($12,000 X 150%)
Manufacturing Overhead.........................
42,000
18,000
60,000
BRIEF EXERCISE 16-4
Beginning work in process
Started into production
Total units to be accounted for
Transferred out
Ending work in process
Total units accounted for
16-6
January
0
25,000
25,000
March
0
34,000
34,000
July
0
60,000
60,000
20,000
5,000
25,000
30,000
4,000
34,000
50,000
10,000
60,000
BRIEF EXERCISE 16-5
January
March
July
Materials
25,000 (20,000 + 5,000)
34,000 (30,000 + 4,000)
60,000 (50,000 + 10,000)
Conversion Costs
22,000 (20,000 + 2,000)
33,000 (30,000 + 3,000)
52,500 (50,000 + 2,500)
BRIEF EXERCISE 16-6
Total materials
costs
$52,000
Total conversion
costs
$60,000
Unit materials
cost
$5.20
÷
Equivalent units
of materials
10,000
÷
Equivalent units
of conversion costs
12,000
+
Unit conversion
cost
$5.00
=
Unit materials
cost
$5.20
=
Unit conversion
cost
$5.00
=
Total manufacturing
cost per unit
$10.20
BRIEF EXERCISE 16-7
Assignment of Costs
Transferred out
Transferred out
Work in process, 3/31
Materials
Conversion costs
Total costs
Equivalent Units
Unit Cost
40,000
$23
5,000
2,000
$ 8
$15
$920,000
$40,000
30,000
70,000
$990,000
BRIEF EXERCISE 16-8
Total materials
costs
$9,000
÷
Equivalent units
of materials
20,000
16-7
=
Unit materials
cost
$.45
BRIEF EXERCISE 16-8 (Continued)
Total conversion
*costs*
$41,800
÷
Equivalent units
of conversion costs
19,000
=
Unit conversion
cost
$2.20
*$23,800 + $18,000
BRIEF EXERCISE 16-9
Costs accounted for
Transferred out
Work in process
Materials
Conversion costs
Total costs
(18,000 X $2.65)
(2,000 X $.45)
(1,000 X $2.20)
$47,700
$ 900
2,200
3,100
$50,800
BRIEF EXERCISE 16-10
Units transferred out
Work in process, November 30
Materials (3,000 X 100%)
Conversion costs (3,000 X 40%)
Total equivalent units
Materials
8,000
Conversion Costs
8,000
3,000
00,000
11,000
1,200
9,200
*BRIEF EXERCISE 16-11
Costs to Be
Assigned Assignment of Costs
Equivalent
Units
Unit
Cost
Total Costs
Assigned
Transferred out
Work in process, 3/1
Started and completed
0
30,000
$
0
$20.00
$
0
600,000
Work in process, 3/31
Materials
Conversion costs
5,000
2,000
$ 8.00
$12.00
$40,000
24,000
$600,000
$664,000
16-8
64,000
$664,000
*BRIEF EXERCISE 16-12
Equivalent Units
Conversion
Materials
Costs
Units accounted for completed
and transferred out
Work in process, March 1
Started and completed
Work in process, March 31
Total units
-030,000
5,000
35,000
-030,000
2,000
32,000
MORA COMPANY
(Partial) Production Cost Report
For the Month Ended March 31
COSTS
Materials
Unit costs
Costs in March (a)
Equivalent units (b)
Unit costs (a) ÷ (b)
Costs to be accounted for
In process, March 1
Costs in March
Total costs
Costs accounted for
Transferred out
In process, March 1
Started and completed
(30,000 units X $20.00)
In process, March 31
Materials (5,000 X $8.00)
Conversion costs
(2,000 X $12.00)
Total costs
$280,000*
35,000
$8.00
Conversion
Costs
Total
$384,000** $664,000
32,000
$12.00
$20.00
$
0
664,000
$664,000
$
0
600,000
$ 40,000
24,000
*35,000 equivalent units X $8.00 per unit
**32,000 equivalent units X $12.00 per unit
16-9
64,000
$664,000
*BRIEF EXERCISE 16-13
Total materials
costs
1
$70,0001
1
÷
=
Unit materials
cost
$3.50
=
Unit conversion
cost
$2.00
$8,000 + $62,000 = $70,000
Total conversion
costs
2
$38,0002
2
Equivalent units
of materials
20,000
÷
Equivalent units
of conversion costs
19,000
$20,000 + $18,000
16-10
SOLUTIONS TO EXERCISES
EXERCISE 16-1
March 31 Work in Process—Cooking ............................
Work in Process—Canning ............................
Raw Materials Inventory..........................
14,000
6,000
31 Work in Process—Cooking ............................
Work in Process—Canning ............................
Factory Labor ..........................................
8,500
7,000
31 Work in Process—Cooking ............................
Work in Process—Canning ............................
Manufacturing Overhead ........................
29,500
22,000
31 Work in Process—Canning ............................
Work in Process—Cooking .....................
45,000
20,000
15,500
51,500
45,000
EXERCISE 16-2
1.
2.
3.
4.
5.
Raw Materials Inventory ............................................
Accounts Payable ..............................................
56,300
Factory Labor .............................................................
Wages Payable ...................................................
55,000
Manufacturing Overhead...........................................
Cash ....................................................................
Accounts Payable ..............................................
70,000
Work in Process—Cutting.........................................
Work in Process—Assembly ....................................
Raw Materials Inventory ....................................
15,700
8,900
Work in Process—Cutting.........................................
Work in Process—Assembly ....................................
Factory Labor .....................................................
28,000
27,000
16-11
56,300
55,000
36,000
34,000
24,600
55,000
EXERCISE 16-2 (Continued)
6.
7.
8.
9.
Work in Process—Cutting ($1,640 X $20) ............
Work in Process—Assembly ($1,720 X $20) ........
Manufacturing Overhead ...............................
32,800
34,400
Work in Process—Assembly ................................
Work in Process—Cutting .............................
77,600
67,200
77,600
Finished Goods Inventory ..................................... 135,000
Work in Process—Assembly .........................
135,000
Cost of Goods Sold ............................................... 130,000
Finished Goods Inventory .............................
130,000
Accounts Receivable ............................................. 200,000
Sales................................................................
200,000
EXERCISE 16-3
(a)
January
May
Total units to be accounted for
Beginning work in process
Started into production
Total units
0
9,000
9,000
0
21,000
21,000
Total units accounted for
Transferred out
Ending work in process
Total units
7,000
2,000
9,000
16,000
5,000
21,000
(b)
(1)
January
March
May
July
Materials
9,000 ( 7,000 + 2,000)
15,000 (12,000 + 3,000)
21,000 (16,000 + 5,000)
11,500 (10,000 + 1,500)
16-12
(2)
Conversion Costs
8,400 [ 7,000 + (2,000 X 70%)]
12,900 [12,000 + (3,000 X 30%)]
20,000 [16,000 + (5,000 X 80%)]
10,600 [10,000 + (1,500 X 40%)]
EXERCISE 16-4
Equivalent Units
Conversion
(1) Materials
(2) Costs
9,000
9,000
(a)
Units transferred out
Work in process, July 31
1,000 X 100%
1,000 X 40%
Total equivalent units
1,000
0, 000
10,000
400
9,400
(b) Materials: $45,000 ÷ 10,000 = $4.50
Conversion costs: ($14,940 + $18,900) ÷ 9,400 = $3.60
Costs accounted for
Transferred out
(9,000 X $8.10)
Work in process, July 31
Materials (1,000 X $4.50)
Conversion costs
(400 X $3.60)
Total costs
$72,900
$4,500
1,440
16-13
5,940
$78,840
EXERCISE 16-5
HAN FURNITURE COMPANY
Sanding Department
Production Cost Report
For the Month Ended April 30, 2007
Physical
Units
Quantities
Units to be accounted for
Work in process, April 1
Started into production
Total units
0
15,000
15,000
Units accounted for
Transferred out
Work in process, April 30
Total units
12,000
3,000
15,000
Costs
Unit costs
Costs in April
Equivalent units
Unit costs (a) ÷ (b)
(a)
(b)
Equivalent Units
Conversion
Materials
Costs
12,000
3,000
15,000
12,000
1,200
13,200
(3,000 X 40%)
Materials
Conversion
Costs
$36,000
15,000
$2.40
$67,320
13,200
$5.10
Costs to be accounted for
Work in process, April 1
Started into production
Total costs
Total
$103,320
$7.50
$
0
103,320
$103,320
Cost Reconciliation Schedule
Costs accounted for
Transferred out (12,000 X $7.50)
Work in process
Materials (3,000 X $2.40)
Conversion costs (1,200 X $5.10)
Total costs
$ 90,000
$7,200
6,120
16-14
13,320
$103,320
EXERCISE 16-6
(a)
Units transferred out
Work in process, May 31
2,000 X 100%
2,000 X 25%
Equivalent Units
Conversion
Materials
Costs
8,000
8,000
2,000
0, 000
10,000
500
8,500
Materials
$100,000
Conversion
Costs
$75,000
$800,000
$900,000
10,000
$90
$350,000
$425,000
8,500
$50
(b)
Work in process, May 1
Costs added to production during May
Total costs
Equivalent units
Unit costs
(c) Transferred out (8,000 X $140)
Work in process
Materials (2,000 X $90)
Conversion costs (500 X $50)
Total costs
Total
$1,325,000
$140
$1,120,000
$180,000
25,000
205,000
$1,325,000
EXERCISE 16-7
(a) Work in process, July 1
Started into production
Total units to be accounted for
Less: Transferred out
Work in process, July 31
700
1,100
1,800
1,300
500
(b)
Equivalent Units
Materials
Conversion Costs
1,300
1,300
Units transferred out
Work in process, July 31
500 X 100%
500 X 40%
500
0,000
1,800
16-15
200
1,500
EXERCISE 16-7 (Continued)
Work in process, July 1
Costs added
Total materials cost
Direct
Materials
$2,900
6,100
$9,000
Conversion
Costs
$1,550
4,150
($2,500 + $1,650)
$5,700
$9,000 ÷ 1,800 = $5.00
(c) $5,700 ÷ 1,500 = $3.80
(d) Transferred out (1,300 X $8.80)
$11,440
(e) Work in process
Materials (500 X $5.00)
Conversion costs
(200 X $3.80)
$2,500
760
$3,260
EXERCISE 16-8
(a)
Physical
Units
1,600
11,000
12,600
Work in process, October 1
Units started into production
Units transferred out (12,600 – 2000)
Work in process, October 31
10,600
2,000
12,600
Equivalent Units
Materials
Conversion Costs
10,600
10,600
Units transferred out
Work in process
2,000 X 100%
2,000 X 10%
2,000
00,000
12,600
16-16
200
10,800
EXERCISE 16-8 (Continued)
(b)
Materials
Work in process, October 1
Direct materials
$ 20,000
Costs added to production
during October
162,700
Total materials cost
$182,700
$182,700 ÷ 12,600 = $14.50 (Materials cost per unit)
Conversion Costs
Work in process, October 1
Conversion costs
$ 43,180
Costs added to production
during October
Conversion costs ($100,080 + $250,940)
Total conversion costs
351,020
$394,200
$394,200 ÷ 10,800 = $36.50
(c) Costs accounted for
Transferred out
(10,600 X $51.00)
Work in process, October 31
Materials (2,000 X $14.50)
Conversion costs
(200 X $36.50)
$540,600
$29,000
7,300
Total costs
36,300
$576,900
16-17
EXERCISE 16-9
To:
Mary Mahr
From:
Student
Re:
Ending inventory
The reason for any confusion related to your department’s ending inventory quantity stems from the fact that the quantity can be measured in two
different ways, depending on what the information is used for.
The ending inventory quantity can be measured in physical units or equivalent units. Physical units are actual units present without regard to the
stage of completion. Your department’s ending inventory in physical units
is at least double the amount reported as equivalent units.
Equivalent units measure the work done on the physical units, expressed
in terms of fully completed units. Therefore, if your ending inventory contains
2,000 units which are 50% complete, that is equivalent to having 1,000
completed units at month end. Therefore, that ending inventory could be
expressed as containing 2,000 physical units or 1,000 equivalent units.
I hope this clears up any misunderstandings. Please contact me if you have
any further questions.
16-18
EXERCISE 16-10
MARLIN MANUFACTURING COMPANY
Welding Department
Production Cost Report
For the Month Ended February 28, 2007
Quantities
Physical
Units
Equivalent Units
Conversion
Materials
Costs
(Step 1)
(Step 2)
Units to be accounted for
Work in process, February 1
Started into production
Total units
15,000
60,000
75,000
Units accounted for
Transferred out
Work in process, February 28
Total units
49,000
26,000
75,000
Costs
Unit costs (Step 3)
Costs in February
Equivalent units
Unit costs (a) ÷ (b)
49,000
26,000
75,000
49,000
5,200
54,200
Materials
Conversion
Costs
(a) $195,000
(b)
75,000
$2.60
$130,080*
54,200
$2.40
Costs to be accounted for
Work in process, February 1
Started into production
($180,000 + $35,100 + $64,545)
Total costs
Total
$325,080
$5.00
$ 45,435
279,645
$325,080
Cost Reconciliation Schedule (Step 4)
Costs accounted for
Transferred out (49,000 X $5.00)
Work in process, February 28
Materials (26,000 X $2.60)
Conversion costs (5,200 X $2.40)
Total costs
$245,000
$67,600
12,480
*($30,435 + $35,100 + $64,545)
16-19
80,080
$325,080
EXERCISE 16-11
(a) Containers in transit, April 1
Containers loaded
Total containers
0
800
800
Containers off-loaded
Containers in transit, April 30
Total containers
(b)
Containers off-loaded
Containers in transit, April 30
Total equivalent units
*350 x 40% = 140
**350 x 30% = 105
450
350
800
Equivalent Units
Physical
Direct
Conversion
Units
Materials
Costs
450
450
450
350
140*
105**
590
555
EXERCISE 16-12
(a)
Materials
800
200*
1,000
Applications transferred out
Work in process, September 30
Equivalent units
Conversion
Costs
800
120**
920
*100 + 900 – 800 = 200
**200 X 60% = 120
(b)
Materials: $5,000 ÷ 1,000 = $5.00
Conversion costs: $25,400* ÷ 920 = $27.609
Costs accounted for:
Transferred out (800 X $32.609)
Work in process, September 30
Materials (200 X $5.00)
Conversion costs (120 X $27.609)
Total costs
*($4,000 + $12,000 + $9,400)
16-20
$26,087
$1,000
3,313
4,313
$30,400
EXERCISE 16-13
(a)
Applications completed:
Work in process, September 1
Started and completed
Work in process, September 30
Total units
Physical
Units
Equivalent Units
Conversion
Materials
Costs
100
700
200
1,000
0
700
200
900
60
700
120
880
(b)
Materials: $4,000 ÷ 900 = $4.444
Conversion costs: $21,400* ÷ 880 = $24.318
*($12,000 + $9,400)
Costs accounted for:
Applications completed:
Work in process, September 1
Conversion costs (60 x $24.318)
Started and completed (700 x $28.762)
Work in process, September 30:
Materials (200 x $4.444)
Conversion costs (120 x $24.318)
Total costs
$5,000
1,459
$ 6,459
20,134*
889
2,918
$26,593
3,807
$30,400**
*Adjusted for $1 rounding error
**Total costs to be accounted for: $1,000 + $4,000 + $4,000 + $12,000 +
$9,400 = $30,400
16-21
*EXERCISE 16-14
(a) (1) Materials:
Production Data
Physical
Units
Materials Added
This Period
Equivalent
Units
0
8,000
1,000
9,000
%100
100%
100%
0
8,000
1,000
9,000
Work in process, August 1
Started and completed
Work in process, August 31
Total
(2) Conversion Costs:
Physical
Units
Production Data
Work in process, August 1
Started and completed
Work in process, August 31
Total
(b) Unit costs are:
Materials
Conversion costs
Total
Costs to Be
Assigned
0
8,000
1,000
9,000
Equivalent
Units
%
0
100
40
0
8,000
400
8,400
$45,000 ÷ 9,000 = $5
$33,600 ÷ 8,400 = 4
$9
Assignment of Costs
Total mfg. costs Transferred out
Work in process, August 1
$78,600 (1)
Started and completed
Work in process, August 31
Materials
Conversion costs
(1) $45,000 + $14,700 + $18,900.
16-22
Equivalent Unit
Units
Cost
Total Costs
Assigned
0
8,000
$0
$9
$
0
72,000
1,000
400
$5
$4
$5,000
1,600
$72,000
6,600
$78,600
*EXERCISE 16-15
(a) (1)
Materials
Work in process,
September 1
Started and completed
Work in process,
September 30
Total
(2)
Conversion Costs
Work in process,
September 1
Started and completed
Work in process,
September 30
Total
(b) Materials
Conversion costs
(c)
Costs to Be
Assigned
Total mfg. costs
*$218,200*
Physical
Units
Materials Added
This Period
Q
0%
100%
Equivalent
Units
1,000
14,000
100%
1,000
12,000
Physical
Units
Work Added
This Period
Equivalent
Units
2,000
11,000
80%
100%
1,600
11,000
1,000
14,000
40%
400
13,000
Unit
Cost
Total Costs
Assigned
2,000
11,000
0
11,000
$ 60,000 ÷ 12,000 = $ 5
$143,000 ÷ 13,000 = 11
$16
Assignment of Costs
Equivalent
Units
Transferred out
Work in process, 9/1
0
Conversion costs
1,600
Started and completed
11,000
Total costs transferred out
Work in process, 9/30
Materials
1,000
Conversion costs
400
Total costs
$ 0
$11
$16
$15,200
17,600
$ 5
$11
$5,000
4,400
$ 32,800
176,000
208,800
9,400
$218,200
*Work in process, September 1, $15,200 + materials costs $60,000 + labor and overhead
costs $143,000.
16-23
*EXERCISE 16-16
(a) Work in process, March 1
Started into production
Total units to be accounted for
Less: Transferred out
Work in process, March 31
800
1,000
1,800
1,300
500
(b) Materials:
Physical Materials Added Equivalent
Production Data
Units
This Period
Units
Work in process, March 1
800
%100
0
Started and completed
500
100%
500
Work in process, March 31
500
100%
500
Total
1,800
1,000
Unit cost = $6,600 ÷ 1,000 = $6.60.
(c) Conversion costs:
Physical
Production Data
Units
Work in process, March 1
800
Started and completed
500
Work in process, March 31
500
Total
1,800
Work Added
This Period
70%
100%
40%
Equivalent
Units
560
500
200
1,260
Unit cost = $2,500 + $1,280 = $3,780 ÷ 1,260 = $3.00.
(d) In process, March 1 .........................................................
Conversion costs (560 X $3.00) ......................................
Total cost ..........................................................................
$3,680
1,680
$5,360
(e) 500 X ($6.60 + $3.00) = $4,800.
(f)
Materials (500 X $6.60) .....................................................
Conversion costs (200 X $3.00) ......................................
Total cost of work in process, March 31 ........................
16-24
$3,300
600
$3,900
*EXERCISE 16-17
HIROHAMA MANUFACTURING COMPANY
Welding Department
Production Cost Report
For the Month Ended February 28, 2007
Quantities
Physical
Units
(Step 1)
Units to be accounted for
Work in process, February 1
Started into production
Total units
15,000
60,000
75,000
Units accounted for
Completed and transferred out
Work in process, February 1
Started and completed
Total
Work in process, February 28
Total units
15,000
35,000*
50,000
25,000
75,000
Equivalent Units
Conversion
Materials
Costs
(Step 2)
0
35,000
35,000
25,000
60,000
13,500 (15,000 X 90%)
35,000
48,500
5,000 (25,000 X 20%)
53,500
*(60,000 – 25,000)
Costs
Unit costs (Step 3)
Costs in February
Equivalent units
Unit costs (a) ÷ (b)
Materials
(a) $192,000 (1)
(b)
60,000
$3.20
Costs to be accounted for
Work in process, February 1
Started into production
Total costs
Conversion
Costs
Total
$107,000 (2) $299,000
53,500
$2.00
$5.20
$ 32,175
299,000
$331,175
16-25
*EXERCISE
16-17 (Continued)
Cost Reconciliation Schedule
Costs accounted for (Step 4)
Transferred out
Work in process, February 1
Costs to complete beginning
work in process
Conversion costs
(13,500 X $2.00)
Total costs
Units started and completed (35,000 X $5.20)
Total costs transferred out
Work in process, February 28
Materials (25,000 X $3.20)
Conversion costs (5,000 X $2.00)
Total costs
$32,175
27,000
(1) Cost of materials added $57,000 plus costs transferred in $135,000.
(2) Labor $35,100 plus overhead $71,900.
16-26
$ 59,175
182,000
$241,175
80,000
10,000
90,000
$331,175
SOLUTIONS TO PROBLEMS
PROBLEM 16-1A
1.
2.
3.
4.
5.
6.
7.
8.
9.
Raw Materials Inventory ............................................
Accounts Payable ..............................................
25,000
Work in Process—Blending ......................................
Work in Process—Packaging ...................................
Raw Materials Inventory ....................................
16,800
7,200
Factory Labor .............................................................
Wages Payable ...................................................
18,770
Work in Process—Blending ......................................
Work in Process—Packaging ...................................
Factory Labor .....................................................
12,230
6,540
Manufacturing Overhead...........................................
Accounts Payable ..............................................
41,300
Work in Process—Blending (900 X $35) ..................
Work in Process—Packaging (300 X $35) ................
Manufacturing Overhead ...................................
31,500
10,500
Work in Process—Packaging ...................................
Work in Process—Blending ..............................
54,940
Finished Goods Inventory.........................................
Work in Process—Packaging ............................
74,490
Accounts Receivable .................................................
Sales ...................................................................
85,000
Cost of Goods Sold ...................................................
Finished Goods Inventory .................................
62,000
16-27
25,000
24,000
18,770
18,770
41,300
42,000
54,940
74,490
85,000
62,000
PROBLEM 16-2A
(a) Physical units
Units to be accounted for
Work in process, January 1
Started into production
Total units
Units accounted for
Completed and transferred out
Work in process, January 31
Total units
0
43,000
43,000
40,000
3,000
43,000
(b) Equivalent units
Units transferred out
Work in process, January 31
3,000 X 100%
3,000 X 40%
Total equivalent units
(c)
Materials
Conversion costs
Total manufacturing
Materials
40,000
Conversion
Costs
40,000
3,000
00,000
43,000
1,200
41,200
Unit Costs
$12.80 ($550,400 ÷ 43,000)
$7.20 ($296,640* ÷ 41,200)
$20.00 ($12.80 + $7.20)
*$126,640 + $170,000
(d) Costs accounted for
Transferred out (40,000 X $20.00)
Work in process, January 31
Materials (3,000 X $12.80)
Conversion costs (1,200 X $7.20)
Total costs
16-28
$800,000
$38,400
8,640
47,040
$847,040
PROBLEM 16-2A (Continued)
(e)
ZION CORPORATION
Molding Department
Production Cost Report
For the Month Ended January 31, 2007
Quantities
Physical
Units
Equivalent Units
Conversion
Materials
Costs
(Step 1)
(Step 2)
Units to be accounted for
Work in process, January 1
Started into production
Total units
0
43,000
43,000
Units accounted for
Transferred out
Work in process, January 31
Total units
40,000
3,000
43.000
Costs
Unit costs (Step 3)
Costs in January
Equivalent units
Unit costs [(a) ÷ (b)]
40,000
3,000
43,000
40,000
1,200
41,200
Materials
Conversion
Costs
(a) $550,400
(b)
43,000
$12.80
$296,640
41,200
$7.20
Costs to be accounted for
Work in process, January 1
Started into production
Total costs
(3,000 X 40%)
Total
$847,040
$20
$
0
847,040
$847,040
Cost Reconciliation Schedule (Step 4)
Costs accounted for
Transferred out (40,000 X $20)
Work in process, January 31
Materials (3,000 X $12.80)
Conversion costs (1,200 X $7.20)
Total costs
$800,000
$38,400
8,640
16-29
47,040
$847,040
PROBLEM 16-3A
(a) (1) Physical units
R12
Refrigerators
F24
Freezers
Units to be accounted for
Work in process, June 1
Started into production
Total units
0
20,000
20,000
0
20,000
20,000
Units accounted for
Transferred out
Work in process, June 30
Total units
18,000
2,000
20,000
17,000
3,000
20,000
(2) Equivalent units
R12 Refrigerators
Conversion
Materials
Costs
18,000
18,000
Units transferred out
Work in process, June 30
(2,000 X 100%)
(2,000 X 70%)
Total equivalent units
2,000
00,000
20,000
1,400
19,400
F24 Freezers
Conversion
Materials
Costs
17,000
17,000
Units transferred out
Work in process, June 30
(3,000 X 100%)
(3,000 X 50%)
Total equivalent units
3,000
00,000
20,000
16-30
1,500
18,500
PROBLEM 16-3A (Continued)
(3) Unit costs
Materials ($840,000 ÷ 20,000)
($700,000 ÷ 20,000)
Conversion costs ($620,800* ÷ 19,400)
($555,000** ÷ 18,500)
Total
Plant A
R12
Refrigerators
$42
Plant B
F24
Freezers
$35
32
000
$74
30
$65
*$200,800 + $420,000
**$236,000 + $319,000
(4)
Plant A
R12 Refrigerators
Costs accounted for
Transferred out (18,000 X $74)
Work in process
Materials (2,000 X $42)
Conversion costs
(1,400 X $32.00)
Total costs
$1,332,000
$84,000
44,800
128,800
$1,460,800
Plant B
F24 Freezers
Costs accounted for
Transferred out (17,000 X $65)
Work in process
Materials (3,000 X $35)
Conversion costs
(1,500 X $30)
Total costs
16-31
$1,105,000
$105,000
45,000
150,000
$1,255,000
PROBLEM 16-3A (Continued)
(b)
STEIN CORPORATION
Stamping Department—Plant A
Production Cost Report
For the Month Ended June 30, 2007
Quantities
Physical
Units
Equivalent Units
Conversion
Materials
Costs
(Step 1)
(Step 2)
Units to be accounted for
Work in process, June 1
Started into production
Total units
0
20,000
20,000
Units accounted for
Transferred out
Work in process, June 30
Total units
18,000
2,000
20,000
Costs
Unit costs (Step 3)
Costs in June
Equivalent units
Unit costs [(a) ÷ (b)]
18,000
2,000
20,000
18,000
1,400
19,400
Materials
Conversion
Costs
(a) $840,000
(b)
20,000
$42
$620,800
19,400
$32
Costs to be accounted for
Work in process, June 1
Started into production
Total costs
(2,000 X 70%)
Total
$1,460,800
$74
$
0
1,460,800
$1,460,800
Cost Reconciliation Schedule (Step 4)
Costs accounted for
Transferred out (18,000 X $74)
Work in process, June 30
Materials (2,000 X $42)
Conversion costs (1,400 X $32)
Total costs
$1,332,000
$84,000
44,800
16-32
128,800
$1,460,800
PROBLEM 16-4A
(a)
Physical
Units
Units to be accounted for
Work in process, October 1
Started into production
Total units
35,000
415,000
450,000
Units accounted for
Transferred out
Work in process, October 31
Total units
405,000
45,000
450,000
Equivalent Units
Conversion
Materials
Costs
405,000
45,000
450,000
405,000
9,000*
414,000
*(45,000 X 20%)
Materials cost
Beginning work in
process
Added during month
Total
Equivalent units
Cost per unit
$
9,000
1,071,000
$1,080,000
450,000
$2.40
Conversion costs
Beginning work in
process
Added during month
Total
Equivalent units
Cost per unit
$ 27,400
221,000
$248,400
($90,000 + $131,000)
414,000
$.60
(b) Costs accounted for
Transferred out (405,000 X $3.00)
Work in process, October 31
Materials (45,000 X $2.40)
Conversion costs (9,000 X $.60)
Total costs
16-33
$1,215,000
$108,000
5,400
113,400
$1,328,400
PROBLEM 16-4A (Continued)
(c)
ELITE COMPANY
Assembly Department
Production Cost Report
For the Month Ended October 31, 2007
Quantities
Physical
Units
Equivalent Units
Conversion
Materials
Costs
(Step 1)
(Step 2)
Units to be accounted for
Work in process, October 1
Started into production
Total units
35,000
415,000
450,000
Units accounted for
Transferred out
Work in process, October 31
Total units
405,000
45,000
450,000
Costs
Unit costs (Step 3)
Costs in October
Equivalent units
Unit costs [(a) ÷ (b)]
405,000
45,000
450,000
405,000
9,000 (45,000 X 20%)
414,000
Materials
Conversion
Costs
(a) $1,080,000
(b)
450,000
$2.40
$248,400
414,000
$.60
Costs to be accounted for
Work in process, October 1
Started into production
Total costs
Total
$1,328,400
$3
$ 36,400
1,292,000*
$1,328,400
Cost Reconciliation Schedule (Step 4)
Costs accounted for
Transferred out (405,000 X $3.00)
Work in process, October 31
Materials (45,000 X $2.40)
Conversion costs (9,000 X $.60)
Total costs
$1,215,000
$108,000
5,400
*($1,071,000 + $90,000 + $131,000)
16-34
113,400
$1,328,400
PROBLEM 16-5A
(a)
(1)
Physical
Units
(2)
Units to be accounted for
Work in process, July 1
Started into production
Total units
400
1,100
1,500
Units accounted for
Transferred out
Work in process, July 31
Total units
1,000
500
1,500
Materials cost
Beginning work in
process
Added during month
Total
Equivalent units
Cost per unit
$10,000
50,000
$60,000
1,500
$40
Equivalent Units
Conversion
Materials
Costs
1,000
500
1,500
Conversion costs
Beginning work in
process
Added during month
Total
Equivalent units
Cost per unit
1,000
50
1,050
(500 X 10%)
$ 9,300
53,700 ($23,700 + $30,000)
$63,000
1,050
$60
(3) Costs accounted for
Transferred out (1,000 X $100)
Work in process, July 31
Materials (500 X $40)
Conversion costs (50 X $60)
Total costs
16-35
$100,000
$20,000
3,000
23,000
$123,000
PROBLEM 16-5A (Continued)
(b)
SPRAGUE COMPANY
Bicycle Department
Production Cost Report
For the Month Ended July 31, 2007
Quantities
Physical
Units
Equivalent Units
Conversion
Materials
Costs
(Step 1)
(Step 2)
Units to be accounted for
Work in process, July 1
Started into production
Total units
400
1,100
1,500
Units accounted for
Transferred out
Work in process, July 31
Total units
1,000
500
1,500
1,000
500
1,500
Costs
Unit costs (Step 3)
Costs in July
Equivalent units
Unit costs [(a) ÷ (b)]
(a)
(b)
1,000
50
1,050
Materials
Conversion
Costs
$60,000
1,500
$40
$63,000
1,050
$60
Costs to be accounted for
Work in process, July 1
Started into production
Total costs
(500 X 10%)
Total
$123,000
$100
$ 19,300
103,700*
$123,000
Cost Reconciliation Schedule (Step 4)
Costs accounted for
Transferred out (1,000 X $100)
Work in process, July 31
Materials (500 X $40)
Conversion costs (50 X $60)
Total costs
$100,000
$20,000
3,000
*($50,000 + $23,700 + $30,000)
16-36
23,000
$123,000
PROBLEM 16-6A
(a) Computation of equivalent units
Physical
Units
Units accounted for
Transferred out
Work in process, May 31
(3/4 materials,
(1/4 conversion costs)
Total units
Equivalent Units
Conversion
Materials
Costs
95,000
95,000
95,000
12,000
107,000
9,000
104,000
3,000
98,000
(b) Computation of May unit costs
Materials: $166,400 ÷ 104,000 units =
$1.60
Conversion cost: $98,000 ÷ 98,000 units = 1.00
Total unit cost, May
$2.60
(c) Cost Reconciliation Schedule
Costs accounted for
Transferred out (95,000 X $2.60)
Work in process, May 31
Materials (9,000 X $1.60)
Conversion costs (3,000 X $1.00)
Total costs
16-37
$247,000
$14,400
3,000
17,400
$264,400
*PROBLEM 16-7A
(a) Bicycles
(1) Equivalent units—Materials
Materials
Added
This Period
Physical
Units
Work in process, March 1
Started and completed
Work in process, March 31
Total
200
800 (1,000 – 200)
200
1,200
*
0%*
100%
100%
Equivalent
Units
0
800
200
1,000
*All materials are added at the beginning of the production process
Equivalent units—Conversion
Conversion
Added
This Period
Physical
Units
Work in process, March 1
Started and completed
Work in process, March 31
Total
200
800 (1,000 – 200)
200
1,200
Equivalent
Units
20% (1 – .8)
100%
40%
40
800
80
920
(2) Unit costs
Materials
$50,000
1,000
$50
Costs in March (a)
Equivalent units (b)
Unit costs (a) ÷ (b)
Conversion
**$55,200**
920
$60
**Direct Labor $25,200 + Manufacturing Overhead $30,000
16-38
*PROBLEM 16-7A (Continued)
(3) Assignment of costs to units transferred out and in process
Costs to Be
Assigned
Total mfg. costs
***$124,480***
Assignment of Costs
Transferred out
Work in process, March 1
Conversion
Started and completed
Total costs transferred out
Work in process, March 31
Materials
Conversion costs
Total costs
Equivalent Unit
Units
Cost
40
800
$ 60
$110
Total Costs
Assigned
$19,280
2,400
88,000
$109,680
200
80
$50
$60
10,000
4,800
14,800
$124,480
***Work in process, March 1, $19,280 + Materials $50,000 + Labor $25,200 + Overhead
$30,000
Tricycles
(1) Equivalent units—Materials
Physical
Units
Work in process, March 1
Started and completed
Work in process, March 31
Total
100
740 (800 – 60)
60
900
Materials
Added
This Period
*
0%*
100%
100%
Equivalent
Units
0
740
60
800
*All materials are added at the beginning of the production process
Equivalent units—Conversion
Physical
Units
Work in process, March 1
Started and completed
Work in process, March 31
Total
100
740 (800 – 60)
60
900
16-39
Conversion
Added
This Period
25% (1 – .75)
100%
25%
Equivalent
Units
25
740
15
780
*PROBLEM 16-7A (Continued)
(2) Unit costs
Materials
$38,400
800
$48
Costs in March (a)
Equivalent units (b)
Unit costs (a) ÷ (b)
Conversion
**$35,100**
780
$45
**Direct Labor $15,100 + Manufacturing Overhead $20,000
(3) Assignment of costs to units transferred out and in process
Costs to Be
Assigned
Assignment of Costs
Total mfg. costs Transferred out
Work in process, March 1
***$79,625*** Conversion
Started and completed
Total costs transferred out
Work in process, March 31
Materials
Conversion costs
Total costs
Equivalent Unit
Units
Cost
25
740
Total Costs
Assigned
$ 6,125
$45
1,125
$93 68,820
$76,070
60
15
$48
$45
2,880
675
3,555
$79,625
***Work in process, March 1, $6,125 + Materials $38,400 + Labor $15,100 + Overhead
$20,000
16-40
*PROBLEM 16-7A (Continued)
(b)
NICHOLAS COMPANY
Production Cost Report—Bicycles
For the Month Ended March 31
Quantities
Physical
Units
Equivalent Units
Conversion
Materials
Costs
(Step 1)
(Step 2)
Units to be accounted for
Work in process, March 1
Started into production
Total units
200
1,000
1,200
Units accounted for
Completed and transferred out
Work in process, March 1
Started and completed
Work In process, March 31
Total units
200
800
200
1,200
Costs
Unit costs (Step 3)
Costs in March (a)
Equivalent units (b)
Unit costs [(a) ÷ (b)]
0
800
200
1,000
40
800
80
920
Materials
Conversion
Costs
$50,000
1,000
$50
$55,200
920
$60
Costs to be accounted for
Work in process, March 1
Started into production
Total costs
$ 19,280
105,200*
$124,480
Cost Reconciliation Schedule (Step 4)
Costs accounted for
Transferred out
Work in process, March 1
Conversion costs to complete
beginning inventory (40 X $60)
Started and completed (800 X $110)
Work in process, March 31
Materials (200 X $50)
Conversion costs (80 X $60)
Total costs
$19,280
2,400
88,000
$10,000
4,800
*($50,000 + $25,200 + $30,000)
16-41
$109,680
14,800
$124,480
PROBLEM 16-1B
1.
2.
3.
4.
5.
6.
7.
8.
9.
Raw Materials Inventory ..................................
Accounts Payable ....................................
500,000
Work in Process—Mixing ................................
Work in Process—Packaging .........................
Raw Materials Inventory ..........................
210,000
45,000
Factory Labor ...................................................
Wages Payable .........................................
238,900
Work in Process—Mixing ................................
Work in Process—Packaging .........................
Factory Labor ...........................................
182,000
56,900
Manufacturing Overhead .................................
Accounts Payable ....................................
800,000
Work in Process—Mixing (28,000 X $24)........
Work in Process—Packaging .........................
(7,000 X $24)
Manufacturing Overhead .........................
672,000
168,000
Work in Process—Packaging .........................
Work in Process—Mixing ........................
999,000
500,000
255,000
238,900
238,900
800,000
840,000
999,000
Finished Goods Inventory ............................... 1,455,000
Work in Process—Packaging ..................
1,455,000
Accounts Receivable ....................................... 2,500,000
Sales..........................................................
2,500,000
Cost of Goods Sold ......................................... 1,500,000
Finished Goods Inventory .......................
1,500,000
16-42
PROBLEM 16-2B
(a) Physical units
Units to be accounted for
Work in process, June 1
Started into production
Total units
0
20,000
20,000
Units accounted for
Completed and transferred out
Work in process, June 30
Total units
15,000
5,000
20,000
(b) Equivalent units
Units transferred out
Work in process, June 30
5,000 X 100%
5,000 X 40%
Total equivalent units
(c)
Materials
Conversion costs
Total unit cost
Materials
15,000
Conversion Costs
15,000
5,000
00,000
20,000
2,000
17,000
Unit Costs
$14.30 ($286,000 ÷ 20,000)
$12.70 ($215,900* ÷ 17,000)
$27.00 ($14.30 + $12.70)
*$114,000 + $101,900
(d) Costs accounted for
Transferred out (15,000 X $27.00)
Work in process, June 30
Materials (5,000 X $14.30)
Conversion costs (2,000 X $12.70)
Total costs
16-43
$405,000
$71,500
25,400
96,900
$501,900
PROBLEM 16-2B (Continued)
(e)
AQUATIC COMPANY
Molding Department
Production Cost Report
For the Month Ended June 30, 2007
Quantities
Physical
Units
Equivalent Units
Conversion
Materials
Costs
(Step 1)
(Step 2)
Units to be accounted for
Work in process, June 1
Started into production
Total units
0
20,000
20,000
Units accounted for
Transferred out
Work in process, June 30
Total units
15,000
5,000
20,000
Costs
15,000
5,000
20,000
Materials
Unit costs (Step 3)
Costs in June
Equivalent units
Unit costs [(a) ÷ (b)]
(a) $286,000
(b)
20,000
$14.30
15,000
2,000
17,000
(5,000 X 40%)
Conversion
Costs
$215,900
17,000
$12.70
Costs to be accounted for
Work in process, June 1
Started into production
Total costs
Total
$501,900
$27
$
0
501,900
$501,900
Cost Reconciliation Schedule (Step 4)
Costs accounted for
Transferred out (15,000 X $27)
Work in process, June 30
Materials (5,000 X $14.30)
Conversion costs (2,000 X $12.70)
Total costs
$405,000
$71,500
25,400
16-44
96,900
$501,900
PROBLEM 16-3B
(a) (1) Physical units
Plant 1
T12
Tables
Plant 2
C10
Chairs
Units to be accounted for
Work in process, August 1
Started into production
Total units
0
20,000
20,000
0
15,000
15,000
Units accounted for
Transferred out
Work in process, August 31
Total units
18,000
2,000
20,000
14,500
500
15,000
(2) Equivalent units
Units transferred out
Work in process, August 31
(2,000 X 100%)
(2,000 X 50%)
Total equivalent units
Units transferred out
Work in process, August 31
(500 X 100%)
(500 X 80%)
Total equivalent units
16-45
Plant 1
T12 Tables
Conversion
Materials
Costs
18,000
18,000
2,000
00,000
20,000
1,000
19,000
Plant 2
C10 Chairs
Conversion
Materials
Costs
14,500
14,500
500
00,000
15,000
400
14,900
PROBLEM 16-3B (Continued)
(3) Unit costs
Materials ($380,000 ÷ 20,000)
($225,000 ÷ 15,000)
Conversion costs ($266,000* ÷ 19,000)
($178,800** ÷ 14,900)
Total
T12
Tables
$19
C10
Chairs
$15
14
000
$33
12
$27
*$190,000 + $76,000
**$118,100 + $60,700
(4)
T12 Tables
Costs accounted for
Transferred out (18,000 X $33)
Work in process
Materials (2,000 X $19)
Conversion costs (1,000 X $14)
Total costs
$594,000
$38,000
14,000
52,000
$646,000
C10 Chairs
Costs accounted for
Transferred out (14,500 X $27)
Work in process
Materials (500 X $15)
Conversion costs (400 X $12)
Total costs
16-46
$391,500
$7,500
4,800
12,300
$403,800
PROBLEM 16-3B (Continued)
(b)
FREEDO INDUSTRIES INC.
Cutting Department—Plant 1
Production Cost Report
For the Month Ended August 31, 2007
Quantities
Physical
Units
Equivalent Units
Conversion
Materials
Costs
(Step 1)
(Step 2)
Units to be accounted for
Work in process, August 1
Started into production
Total units
0
20,000
20,000
Units accounted for
Transferred out
Work in process, August 31
Total units
18,000
2,000
20,000
Costs
Unit costs (Step 3)
Costs in August
Equivalent units
Unit costs [(a) ÷ (b)]
18,000
2,000
20,000
18,000
1,000
19,000
Materials
Conversion
Costs
(a) $380,000
(b)
20,000
$19
$266,000
19,000
$14
Costs to be accounted for
Work in process, August 1
Started into production
Total costs
(2,000 X 50%)
Total
$646,000
$33
$
0
646,000
$646,000
Cost Reconciliation Schedule (Step 4)
Costs accounted for
Transferred out (18,000 X $33)
Work in process, August 31
Materials (2,000 X $19)
Conversion costs (1,000 X $14)
Total costs
$594,000
$38,000
14,000
16-47
52,000
$646,000
PROBLEM 16-4B
(a)
Physical
Units
Units to be accounted for
Work in process, November 1
Started into production
Total units
30,000
640,000
670,000
Units accounted for
Transferred out
Work in process, November 30
Total units
645,000
25,000
670,000
Materials cost
Conversion costs
Beginning work in
Beginning work in
process
$ 70,000
process
Added during month 1,270,000
Added during month
Total
$1,340,000
Total
Equivalent units
Cost per unit
670,000
$2.00
Equivalent units
Cost per unit
Equivalent Units
Conversion
Materials
Costs
645,000
25,000
670,000
645,000
10,000
655,000
$ 48,000
738,000 ($358,000 + $380,000)
$786,000
655,000
$1.20
(b) Costs accounted for
Transferred out (645,000 X $3.20)
Work in process, November 30
Materials (25,000 X $2.00)
Conversion costs (10,000 X $1.20)
Total costs
16-48
$2,064,000
$50,000
12,000
62,000
$2,126,000
PROBLEM 16-4B (Continued)
(c)
WANG COMPANY
Assembly Department
Production Cost Report
For the Month Ended November 30, 2007
Quantities
Physical
Units
Equivalent Units
Conversion
Materials
Costs
(Step 1)
(Step 2)
Units to be accounted for
Work in process, November 1
Started into production
Total units
30,000
640,000
670,000
Units accounted for
Transferred out
Work in process, November 30
Total units
645,000
25,000
670,000
645,000
25,000
670,000
Costs
Unit costs (Step 3)
Costs in November
Equivalent units
Unit costs [(a) ÷ (b)]
Materials
(a) $1,340,000
(b)
670,000
$2.00
645,000
10,000 (25,000 X 40%)
655,000
Conversion
Costs
$786,000
655,000
$1.20
Costs to be accounted for
Work in process, November 1
Started into production
Total costs
Total
$2,126,000
$3.20
$ 118,000
2,008,000*
$2,126,000
Cost Reconciliation Schedule (Step 4)
Costs accounted for
Transferred out (645,000 X $3.20)
Work in process, November 30
Materials (25,000 X $2.00)
Conversion costs
(10,000 X $1.20)
Total costs
$2,064,000
$50,000
12,000
*($1,270,000 + $358,000 + $380,000)
16-49
62,000
$2,126,000
PROBLEM 16-5B
(a) (1)
Physical
Units
(2)
Units to be accounted for
Work in process, July 1
Started into production
Total units
500
1,600
2,100
Units accounted for
Transferred out
Work in process, July 31
Total units
1,500
600
2,100
Equivalent Units
Conversion
Materials
Costs
Materials cost
Conversion costs
Beginning work in
Beginning work in
process
$ 540
process
Added during month 2,400
Added during month
Total
$2,940
Total
1,500
600
2,100
$ 500
2,980
$3,480
Equivalent units
2,100
Equivalent units
1,740
Cost per unit
$1.40
Cost per unit
$2.00
1,500
240
1,740
($1,600 + $1,380)
(3) Costs accounted for
Transferred out (1,500 X $3.40)
Work in process, July 31
Materials (600 X $1.40)
Conversion costs (240 X $2.00)
Total costs
16-50
$5,100
$840
480
1,320
$6,420
PROBLEM 16-5B (Continued)
(b)
CLEMENTE COMPANY
Basketball Department
Production Cost Report
For the Month Ended July 31, 2007
Quantities
Physical
Units
Equivalent Units
Conversion
Materials
Costs
(Step 1)
(Step 2)
Units to be accounted for
Work in process, July 1
Started into production
Total units
500
1,600
2,100
Units accounted for
Transferred out
Work in process, July 31
Total units
1,500
600
2,100
Costs
Unit costs (Step 3)
Costs in July
Equivalent units
Unit costs [(a) ÷ (b)]
(a)
(b)
1,500
600
2,100
1,500
240
1,740
Materials
Conversion
Costs
$2,940
2,100
$1.40
$3,480
1,740
$2.00
Costs to be accounted for
Work in process, July 1
Started into production
Total costs
(600 X 40%)
Total
$6,420
$3.40
$1,040
5,380*
$6,420
Cost Reconciliation Schedule (Step 4)
Costs accounted for
Transferred out (1,500 X $3.40)
Work in process, July 31
Materials (600 X $1.40)
Conversion costs (240 X $2.00)
Total costs
$5,100
$840
480
*($2,400 + $1,600 + $1,380)
16-51
1,320
$6,420
PROBLEM 16-6B
(a) Computation of equivalent units
Equivalent Units
Physical
Conversion
Units
Materials
Costs
Units accounted for
Transferred out
Work in process, November 30
(50% materials,
(25% conversion costs)
Total units
130,000
130,000
130,000
40,000
170,000
20,000
150,000
10,000
140,000
(b) Computation of November unit costs
Materials: $240,000 ÷ 150,000 units =
$1.60
Conversion cost: $98,000 ÷ 140,000 units = .70
Total unit cost, November
$2.30
(c) Cost Reconciliation Schedule
Costs accounted for
Transferred out (130,000 X $2.30)
Work in process, November 30
Materials (20,000 X $1.60)
Conversion costs (10,000 X $0.70)
Total costs
16-52
$299,000
$32,000
7,000
39,000
$338,000
*PROBLEM 16-7B
(a) Basketballs
(1) Equivalent units—Materials
Materials
Added
This Period
Physical
Units
Work in process, August 1
Started and completed
Work in process, August 31
Total
500
1,000 (1,600 – 600)
600
2,100
*
Equivalent
Units
0%*
100%
100%
0
1,000
600
1,600
*All materials are added at the beginning of the production process
Equivalent units—Conversion
Conversion
Added
This Period
Physical
Units
Work in process, August 1
Started and completed
Work in process, August 31
Total
500
1,000 (1,600 – 600)
600
2,100
Equivalent
Units
40% (1 – .6)
100%
50%
200
1,000
300
1,500
(2) Unit costs
Materials
$1,600
1,600
$1
Costs in August (a)
Equivalent units (b)
Unit costs [(a) ÷ (b)]
Conversion
**$2,175**
1,500
$1.45
**Direct Labor $1,175 + Manufacturing Overhead $1,000
16-53
*PROBLEM 16-7B (Continued)
(3) Assignment of costs to units transferred out and in process
Costs to Be
Assigned
Assignment of Costs
Total mfg. costs Transferred out
Work in process, August 1
***$4,900***
Conversion
Started and completed
Total costs transferred out
Work in process, August 31
Materials
Conversion costs
Total costs
Equivalent Unit
Units
Cost
200
1,000
1.45
2.45
Total Costs
Assigned
$1,125
290
2,450
$3,865
600
300
1.00
1.45
600
435
1,035
$4,900
***Work in process, August 1, $1,125 + Materials $1,600 + Labor $1,175 + Overhead $1,000
Soccer balls
(1) Equivalent units—Materials
Physical
Units
Work in process, August 1
Started and completed
Work in process, August 31
Total
200
1,850 (2,000 – 150)
150
2,200
Materials
Added
This Period
*
0%*
100%
100%
Equivalent
Units
0
1,850
150
2,000
*All materials are added at the beginning of the production process
Equivalent units—Conversion
Physical
Units
Work in process, August 1
Started and completed
Work in process, August 31
Total
200
1,850 (2,000 – 150)
150
2,200
16-54
Conversion
Added
This Period
Equivalent
Units
20% (1 – .8)
40
100%
1,850
70%
105
1,995
*PROBLEM 16-7B (Continued)
(2) Unit costs
Materials
$2,600
2,000
$1.30
Costs in August (a)
Equivalent units (b)
Unit costs (a) ÷ (b)
Conversion
**$1,995**
1,995
$1
**Direct Labor $1,000 + Manufacturing Overhead $995
(3) Assignment of costs to units transferred out and in process
Costs to Be
Assigned
Assignment of Costs
Total mfg. costs Transferred out
Work in process, August 1
***$5,045***
Conversion
Started and completed
Total costs transferred out
Work in process, August 31
Materials
Conversion costs
Total costs
Equivalent Unit
Units
Cost
40
1,850
$1.00
$2.30
Total Costs
Assigned
$ 450
40
4,255
$4,745
150
105
$1.30
$1.00
195
105
300
$5,045
***Work in process, August 1, $450 + Materials $2,600 + Labor $1,000 + Overhead
$995
16-55
*PROBLEM 16-7B (Continued)
(b)
JESSICA COMPANY
Production Cost Report—Basketballs
For the Month Ended August 31
Quantities
Physical
Units
Equivalent Units
Conversion
Materials
Costs
(Step 1)
(Step 2)
Units to be accounted for
Work in process, August 1
Started into production
Total units
500
1,600
2,100
Units accounted for
Completed and transferred out
Work in process, August 1
Started and completed
Work in process, August 31
Total units
500
1,000
600
2,100
Costs
Unit costs (Step 3)
Costs in August (a)
Equivalent units (b)
Unit costs [(a) ÷ (b)]
0
1,000
600
1,600
200
1,000
300
1,500
Materials
Conversion
Costs
$1,600
1,600
$1
$2,175
1,500
$1.45
Costs to be accounted for
Work in process, August 1
Started into production
Total costs
$1,125
3,775*
$4,900
Cost Reconciliation Schedule
Costs accounted for
Transferred out
Work in process, August 1
Conversion costs to complete
beginning inventory (200 X $1.45)
Started and completed
(1,000 X $2.45)
Work in process, August 31
Materials (600 X $1)
Conversion costs (300 X $1.45)
Total costs
$1,125
290
2,450
$ 600
435
*($1,600 + $1,175 + $1,000)
16-56
$3,865
1,035
$4,900
.
BYP 16-1
GROUP DECISION CASE
(a) The unit cost suggests that Joe took the total costs and divided these
costs by the units started into production. Total costs charged to the
Mixing Department ($88,000 + $600,000 + $785,800) divided by the units
started during July (100,000 gallons), results in a per unit cost of $14.738
(1,473,800 ÷ 100,000).
(b) The principal errors made by Joe were: (1) he did not compute equivalent
units of production; (2) he did not use the weighted-average costing
method; and (3) he did not assign costs to ending work-in-process.
16-57
BYP 16-1 (Continued)
(c)
BRITISH BEACH COMPANY
Mixing Department
Production Cost Report
For the Month Ended July 31, 2007
Quantities
Physical
Units
Equivalent Units
Conversion
Materials
Costs
(Step 1)
(Step 2)
Units to be accounted for
Work in process, July 1
Started into production
Total units
8,000
100,000
108,000
Units accounted for
Transferred out
Work in process, July 31
Total units
103,000
5,000
108,000
Costs
Unit costs (Step 3)
Costs in July
Equivalent units
Unit costs [(a) ÷ (b)]
103,000
5,000
108,000
103,000
1,000
104,000
Materials
Conversion
Costs
(a) $621,000
(b) 108,000
$5.75
$852,800
104,000
$8.20
Costs to be accounted for
Work in process, July 1
Started into production
Total costs
Total
$1,473,800
$13.95
$ 88,000
1,385,800*
$1,473,800
Cost Reconciliation Schedule (Step 4)
Costs accounted for
Transferred out (103,000 X $13.95)
Work in process, July 31
Materials (5,000 X $5.75)
Conversion costs (1,000 X $8.20)
Total costs
$1,436,850
$28,750
8,200
*($600,000 + $785,800)
16-58
36,950
$1,473,800
BYP 16-2
MANAGERIAL ANALYSIS
(a) The unit cost of materials is $140 ($420,000 ÷ 3,000).
(b) The materials cost of the goods transferred out is $350,000 (2,500 X
$140). Conversion costs, therefore, are $200,000 ($550,000 – $350,000),
and per unit conversion cost is $80 ($200,000 ÷ 2,500).
(c) There are 500 units in ending work-in-process inventory (3,000 started –
2,500 transferred out). The materials cost is $70,000 (500 X $140). Thus,
the conversion costs in the May 31 or ending inventory are $10,000.
$10,000 divided by $80 per unit conversion cost equals 125 units or
25% (125 ÷ 500) complete.
16-59
BYP 16-3
REAL-WORLD FOCUS
(a) Three types of manufacturing costs are accumulated in work in process:
materials, labor, and manufacturing overhead.
(b) To compute equivalent units, General Microwave must know when materials and conversion costs are used in production. If they are used at
the same time, only one computation of equivalent units is required.
However, if they are used at different times in the production process,
separate computations must be made for materials and conversion
costs. When separate computations are required, it is necessary to
know for materials and for conversion costs:
1.
The units transferred out during the period.
2.
The percentage of work done on the ending work in process during
the period.
(c) In costing completed units that are transferred out, General Microwave
must make the following assignments of manufacturing costs:
1.
Units transferred out—total cost is computed by applying the
manufacturing cost per unit for the current period to the units
transferred out.
2.
In addition, the ending work in process is assigned both materials
and conversion costs based on per unit costs and percentage of
completion.
16-60
BYP 16-4
EXPLORING THE WEB
Answers will vary depending on companies chosen by students.
16-61
BYP 16-5
COMMUNICATION ACTIVITY
To:
Jenna Haines, Regional Sales Manager
From:
Student, Accounting Manager
Re:
Production Cost Reports
Jenna, congratulations again on your promotion! It’s going to be great working with you. It reminds me of our days at Dairy-Freeze after school
(although this work is more fun, and it certainly pays better!).
I’ll try to clear up some of the questions you raised in your fax. Here in the
Snack Foods Division we use process costing rather than the job order system that Special Projects uses. The reason for this is that we produce all our
products in a more or less continuous process, even when we run occasional special orders. You see, all our workers are assigned a particular part of
the process to control. One might be in charge of making sure the mixing
machines work properly, while another verifies the weight of the finished
products. Whichever job a worker is assigned, he or she stays with it to
completion, or at least the completion of that particular process. That’s different from what you had in Special Projects, where workers moved from job
to job. That’s why we don’t usually track the orders separately. Our special
orders are for various quantities of the foods we produce, so only the Packing Department needs to be concerned with the particular set of products
shipped to the particular customer—which is its ordinary concern anyway.
Your next question was about what an equivalent unit is. Well, you know
already that Special Projects bids on various jobs, and then costs are
recorded when the jobs are complete. The costs accumulated on jobs that
aren’t complete are reflected in Work in Process Inventory. We in Snack
Foods can’t use that method for a simple reason—we produce our products
in huge batches that we keep going fairly continuously. Or, in other words,
we don’t have a “job” that we can record as “complete.” A batch may contain
enough of our product to fill thirty or more orders, so we may have thirty or
more “jobs” in each batch. One job may happen to be filled from two batches. Since the cost of each batch is about the same, it isn’t worth keeping track
of separately.
16-62
BYP 16-5 (Continued)
At the end of the month, we need to record what we finished and what still
remains undone. Equivalent units are the way we measure the amount of
work we have done on our work in process. It’s kind of like comparing the
contents of 4-ounce cups with the contents of 12-ounce cups. It doesn’t
make sense to compare by counting the number of cups you have. You
need to find out how many ounces you have in one set; then you can get a
meaningful comparison with the ounces you have in the other set. We
compare by the number of “units” of materials or labor that are required to
finish a product completely. If it requires 12 ounces of flour and 15 minutes
of labor for a finished bag of pretzels, for example, then the 12 ounces and
15 minutes are “finished equivalents.” If we have enough pretzels to fill 30
bags, but we’ve only spent 5 minutes (or 1/3 of the total required) of labor
on them at the end of the month, we could have used the same amount of
time and completely finished 10 bags. Thus, we have the “equivalent” of 10
bags worth of labor.
Your last question is the easiest to answer. You get four reports because
we use four processes here in Snack Foods Division. Each process has to
report its status at the end of every month. It’s kind of like we have four
miniature factories, each reporting “completion” of a certain number of
products. The products from one department are used as raw materials for
other departments, so we have a chain of reports. Notice that the units and
costs transferred out of Process 1 are the same as the units and costs
transferred in to Process 2, and so on.
I hope this helps. Call, e-mail, write, or fax me any time!
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BYP 16-6
RESEARCH ASSIGNMENT
(a) Proview International earns just 21/2 cents on every dollar of sales—
that is, its profit margin ratio is 2.5%. It is so thin because the technology has not changed much, thus it is very difficult for competitors to differentiate their products.
(b) The company has taken the following steps to control costs:
i.
ii.
iii.
iv.
v.
vi.
vii.
viii.
It was one of the first electronics companies to build a plant in
China.
It buys its key components from a single source, thus increasing
its buying power. This has resulted in price discounts and delivery
priority.
It makes monitors for a dozen different companies, thus
expanding its volume and increasing its ability to buy parts
inexpensively.
By producing in large volumes it is able to take advantage of
economies of scale in its manufacturing processes.
It gives customers a new monitor if theirs breaks, rather than fixing
it in the U.S. Then it ships the broken monitor back to China. This
saves money because it is relatively cheap to ship goods to China
from the U.S. compared to the cost of shipping goods from China
to the U.S., and the labor cost of repairing a monitor is much lower
in China.
It uses a single chassis for over 300 different monitor models. This
provides significant savings in materials costs as well as delivery
flexibility.
It has begun to “vertically integrate” by buying a key supplier of
one of its main components—the deflection yoke. This saves it
$1.50 per monitor.
it built its own “clean room” for assembling LCD monitors. This
reduced its cost by $8 per monitor.
(c) It continues to build tube-based monitors because it believes that its
ability to be the low-cost provider will provide it with profits as long as
some people continue to buy these monitors. It expects that even
though the market for tube-based monitors is shrinking, its share of
the market will continue to increase as others leave the market.
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BYP 16-6 (Continued)
(d) Mr. Wang’s final comment is that cost is the most important aspect of
its business. This is true because it has such thin profit margins and
operates in such a competitive environment. It can’t raise its prices,
thus it must be constantly vigilant about cutting costs.
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BYP 16-7
ETHICS CASE
(a) The stakeholders in this situation are:




Barb Crusmer, molding department head.
Wayne Terrago, quality control inspector.
Customers of C. C. Daibo Company.
The department manager of the assembly department.
(b) Wayne is placed in an ethical dilemma. He can offend his department
head by disregarding Barb’s instructions and lose the support of his
supervisor, maybe his job. He can follow Barb’s instructions and be in
violation of company policy. He can also report Barb’s instructions to
supervisors (plant superintendent or vice-president of production).
The company should make the position of quality control inspector
responsible to someone other than the department head. Wayne should
not report to Barb.
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