# Accounting 10 Cost Accounting, Process costing

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Accounting for Process Costing FIFO Method, Weighted Average...

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ACG 4361 CHAPTER 17 STUDY PROBES SOLUTION Problem 1. Production data for the Mashing Department for November, Dignan's first month of operations follows: Costs charged in November: Materials Labor Overhead

\$27,936 6,400 15,032

During this first month of operations, 4,000 units were started into production. During November, 3,400 units were completed. The remaining units are 80% completed with respect to materials and 60% complete with respect to conversion costs. How much is the total cost of the units completed under the weighted average method of process costing in the Mashing Department? \$43,860 First track the physical flow, then collect the costs to allocate separately for materials (\$27,396) and for conversion costs (\$6,400 + \$15,032). Calculate the rate per equivalent unit and then allocate the costs to units completed during the month. Note that the entire production report is presented though not required.

Total Equivalent units Beginning inventory Started during November Units to account for

0 4,000 4,000

Completed & trans. out Ending WIP Units accounted for

3,400 100% 600 80% 4,000

Materials

3,400 100% 480 60% 3,880

Conversion Costs

3,400 360 3,760

Costs to be allocated Beginning inventory Costs incurred Costs to account for

\$0 \$27,936 \$27,936

\$0 \$21,432 \$21,432

Costs to account for Equivalent units Rate per equivalent unit

\$27,936 3,880 \$7.20

\$21,432 3,760 \$5.70

Costs accounted for Units transferred out

\$24,480

\$19,380

\$7.20*3,400

\$5.70*3,400

\$3,456

\$2,052

\$7.20*480

\$5.70*360

Units in ending WIP Costs accounted for

Problem 2. Dingo Company has three departments--assembly, checking, and packaging, and it uses the weighted average method of process costing. The assembly department had 7,500 units in beginning inventory. Associated with these beginning units were \$20,200 in direct materials and \$25,000 in conversion costs. During the period, the department incurred \$79,800 in direct materials and \$151,800 in conversion costs and started 50,000 units. Ending inventory consisted of 2,000 units which were 60% complete with respect to conversion costs. Dingo adds materials when the units are 20% complete. Calculate the following for the assembly department for the month: a. b. c. d.

Calculate the equivalent units for materials and conversion costs. Calculate the cost per equivalent unit for materials and conversion costs. Calculate the cost of units transferred out. Calculate the cost of the ending work in process.

a. Beginning work in process Units started Units to account for Units completed Ending work in process Units accounted for

Physical Flow 7,500 50,000 57,500 55,500 2,000 57,500

%

100% 100%

Materials

55,500 2,000 A 57,500

%

100% 60%

Conversion

55,500 1,200 A 56,700

b. Costs Beginning work in process Cost incurred during period Costs to account for

Materials \$20,200 79,800 \$100,000

Conversion \$25,000 151,800 \$176,800

Cost per unit Costs to account for Equivalent units Cost per equivalent unit

\$100,000 57,500 B \$1.7391

\$176,800 56,700 B \$3.1182

\$96,520

\$173.060

55,500*\$1.7391

55,500*\$3.1182

c. Cost of units transferred out

Total

\$276,800

C \$269,580

d. Cost of ending WIP

\$3,478 2,000*\$1.7391

3,742

D

1,200*\$3.1182

Costs accounted for

\$276,800

Problem 3 - Foretold Corporation has three departments in which it produces widgets-cutting, molding, and packaging. On November 1, Foretold Corporation’s packaging department had Work in Process inventory of 6,000 units that were 75% complete with respect to materials and 30% complete with respect to conversion costs. The cost of these units was \$93,525 (\$60,000 transferred in from previous departments, \$26,775 in materials, and \$6,750 in labor and overhead). During November, 125,000 units were transferred into packaging from molding. These units had accumulated costs in previous departments of \$1,218,560. The packaging department incurred costs of \$756,225 for materials and \$488,010 for conversion costs in November, and transferred 130,000 units out of the department during the period. The units remaining in ending inventory are 20% complete with respect to conversion costs. One-half of the materials have been added during November. Foretold uses the weighted average method of process costing. a. How much is the cost per equivalent unit for transferred-in costs, material, and conversion costs in the packaging department in November? b. How much is the cost of the units transferred out of the packaging department in November? c. How much is reported on the balance sheet for WIP at November 30 for the packaging department? Transferred in

DM

Beginning WIP Units started

6,000 125,000

Units to account for

131,000

Units started and completed

130,000

100%

130,000

100%

1,000

100%

1,000

50%

Ending WIP Units accounted for Costs to be accounted for Beginning WIP Added during period

7,220

131,000

\$

130,00 0 50 0

131,000

130,500

60,000

\$ 26,775 756,22 5

1,218,560

CC

100%

130,000

20%

200 130,200

\$

6,750

488,010

Costs to be accounted for

\$1,278,560

\$783,000

\$1,278,560

\$783,000 130,50 0

\$494,760

\$2,556,320

Cost per unit: Costs incurred EUP

131,000

Cost per unit A

\$

9.76

\$

6.00

\$494,76 0 130,200 \$

3.80

Cost of units transferred out: EUP

130,000 \$9.76

130,000 \$6.00

130,000 \$3.80

\$ 1,268,800

\$780,000

\$494,000

Cost per unit

1,000 \$ 9.76

500 \$ 6.00

200 \$ 3.80

Cost transferred out

\$9,760

\$ 3,000

\$

Cost per unit Costs transferred out Cost of ending WIP EUP

B \$2,542,80 0

760

Costs accounted for

13,520 C \$2,556,320

d. List the amounts that would be posted on the debit side of the WIP t-account for the packaging department during November. \$1,218,560 + \$756,225 + \$488,010

Problem 4 Jones, Inc. uses a weighted average process costing system. The company has three departments--washing, mixing, and chopping. During May, 4,200 units were transferred into the mixing department from the washing department at a cost of \$31,790. Direct materials are added when the process is 40% complete. Additional information follows for the mixing department: On May 1:

Beginning inventories = 1,000 units, 45% complete Direct materials costs = \$4,800 Conversion costs = \$4,780 Transferred-in costs = \$11,370

During May: Direct materials costs incurred = \$22,825 Conversion costs incurred = \$31,500 On May 31: Ending inventory = 950 units, 25% complete A. In good form, summarize total physical and equivalent units for the mixing department for May.

Physical Flow

Units in beg.work in process Units started Units to account for

1,000 4,200 5,200

Units completed

4,250

Units in ending WIP Units accounted for

950 5,200

%

100 % 100 %

Transf. in

%

4,250

Materials

100 %

950 0% 5,200

%

Conversion

4,250 100%

4,250

0 4,250

238 4,488

25%

*Transferred in units are treated as a separate DM as if the materials are added at the beginning of the process. B. In good form, calculate ‘costs to account for’ and compute costs per equivalent unit for the mixing department for May. Costs Beginning work in process Cost incurred during period Costs to account for Cost per unit Total costs Total EUP Cost per equivalent unit

Transf. in

Materials

Conversion

Total

\$11,370 31,790 \$ 43,160

\$ 4,800 22,825 \$27,625

\$ 4,780 31,500 \$36,280

\$107,065

\$43,160 5,200 \$8.30

\$27,625 4,250 \$6.50

\$36,280 4,488 \$8.0838

\$22.8838

Problem 5 Sit-Down Company manufacturers a standard recliner in three departments--assembly, upholstery, and hardware. During February, the firm's assembly department started production of 75,000 chairs. During the month, the assembly department completed 80,000 chairs, and transferred them to the hardware department. The assembly department ended the month with 10,000 chairs in ending inventory. There were 15,000 chairs in beginning inventory in the assembly department. All direct materials costs are added at the beginning of the production cycle and conversion costs are added uniformly throughout the production process. The FIFO method of process costing is used. In the assembly department, beginning work in process was 30% complete as to conversion costs, while ending work in process was 80% complete as to conversion costs. The following is provided for the assembly department during the month of February: Beginning inventory: Direct materials \$24,000 Conversion costs \$35,000

Manufacturing costs added during the accounting period: Direct materials \$168,000 Conversion costs \$278,000 A. Prepare a production cost report for the month of February for the assembly department. Materia ls

Units

Conver sion

15,0 Beginning WIP

00

Units started Units to be accounted for

00

75,0 90,0 00 15,0 Beginning WIP Started and completed

00

0%

65,0 00 10,0

Ending WIP 00 Units accounted 90,0 for 00 Costs to account for Beginning WIP Added during period Costs to account for

Cost per unit:

70 % 00

-

100 % 00

65,0 100

100 % 00

10,0 80

EUP Cost per EUP

65,0

% 00

8,0

% 00

75,0 00

\$ 24,00 0 168,0 00 \$192,0 00 Costs added

10,5

\$168,0 00 75,0 00 \$ 2.240 0

83,5 00

\$ 35,0 \$ 00 59,000 278,0 00 \$313,0 \$505,00 00 0 \$278, 000 83,5 00 \$ 3.32934

Costs transferred out: Beginning inventory

EUP Cost per unit

65,0 00 \$2.240 00

\$59,000 75,5 00 \$3.329 34

DM

CC

\$145,6 00

\$251,3 65

10,0 00 \$2.240 00 \$ 22,4 00

8,0 00 \$3.329 34 \$ 26,6 35

396, 965 455, 965

Costs transferred out Cost in ending WIP

EUP Cost per unit

Costs accounted for

49, 035 \$505,00 0

Answer the following for the assembly department during February: B. How many of the units that were started during February were completed during February? 75,000 - 10,000 = 65,000 The 10,000 units in WIP are incomplete. C.

What were the equivalent units for conversion costs during February? (15,000 � 0.7) + 65,000 + (10,000 � 0.8) = 83,500

D. What is the amount of direct materials cost assigned to ending work-in-process inventory at the end of February? \$168,000/75,000 = \$2.24 � 10,000 = \$22,400 E. What is the cost of the goods transferred out of the assembly department during February? See above in yellow. \$455,965 Problem 6 Aero Flyer company manufacturers replica plastic airplane and motorized vehicle models in three departments--assembly, motorizing, and finishing. During October, the firm's assembly department started production of 60,000 models. During the month, the assembly department completed 66,000 models, and transferred them to the motorizing department. The assembly department ended the month of October with 22,000 models in ending inventory. There were 28,000 models at October 1 in the assembly department. All direct materials costs are added when the units are 20% through the process, and conversion costs are added uniformly throughout the production process. The FIFO method of process costing is used by Aero. Beginning work in process was 25% complete as to conversion costs, while ending work in

process was 50% complete as to conversion costs for the assembly department. Costs for the assembly department for the month of October follow: Beginning inventory: Direct materials costs \$39,200 Conversion costs \$30,800 Manufacturing costs added during October: Direct materials costs \$90,000 Conversion costs \$280,000 Calculate the following for the month of October for the assembly department: A. How many of the units that were started during October were completed during October? 60,000 - 22,000 = 38,000 B. What were the equivalent units for conversion costs during October? 70,000 C. What is the cost of the goods transferred out during October? \$363,000 A partial production cost report is prepared to show the calculations of the solutions: DM Beginning WIP Units started Units to be accounted for

28,000 60,000 88,000

Beginning WIP Started and completed Ending WIP Units accounted for

28,000 38,000 22,000 88,000

0% 100% 100%

Costs to be accounted for Beginning WIP Added during period Costs to be accounted for Costs per unit:

Costs added EUP Cost per unit

Transferred out cost:

Beg inventory

38,000 22,000 60,000

CC

75% 100% 50%

21,000 38,000 11,000 70,000

\$ 39,200 90,000 \$129,200

\$ 30,800 280,000 \$310,800

\$90,000 60,000 \$1.50

\$280,000 70,000 \$4.00

\$70,000 \$440,000

\$

70,000

Layer:

\$1.50*38000 =

57,000

\$4.00*(21,000+38000) +

236,000

Costs transferred out

293,000 \$ 363,000

Problem 7 Pet Products Company uses an automated process to manufacture its pet products. For June, the company had the following activities in department 2: Beginning work in process inventory Units transferred in from dept. 1

4,500 items, 1/4 complete 15,000 units

Units completed Ending work in process inventory

17,500 units 2,000 items, 3/4 complete

Cost of beginning work in process Direct material costs, current Conversion costs, current

\$5,250 \$16,500 \$23,945

Direct materials are placed into production at the beginning of the process and conversion costs are incurred evenly throughout the process. Prepare the physical and equivalent units section of the production cost report using the FIFO method for Department 2 for June. Transferred in Beginning WIP Units started Units to account for

4,500 15,000 19,500

Beginning WIP Started and completed Ending WIP Units accounted for

4,500 0% 13,000 13,000 100% 2,000 2,000 100% 19,500 15,000

Materials

0% 100% 100%

13,000 2,000 15,000

Conversion Cos

75% 100% 75%

Under FIFO, the ending WIP units have ‘begun,’ so 100% of the effort is assumed to be performed during June. The beginning units were started during a previous month, so no additional materials have been added during June. The EUP are 0% for DM because 100% of the materials are assumed to be added for the units in the previous period (May)--the period during which they were started.

Problem 8 Taco Ranch uses a process cost system. Production begins in the Crafting Department where materials are added at the beginning of the process and conversion

3,375 13,000 1,500 17,875

costs are incurred uniformly throughout the process. On November 1, the beginning work in process inventory consisted of 5,000 units which were 60% complete and had a cost of \$190,000, \$100,000 of which were materials costs. During November, the following occurred in the crafting department: Materials added in November Conversion costs incurred in November Units completed and transferred out in November Units in ending work in process November 30 (20% complete)

\$225,000 \$45,000 20,000 12,500

A. Prepare a production cost report using weighted average cost flow for the crafting department for November. Answer the following questions. 1. What are the equivalent units of production for materials and conversion costs in the crafting department for the month of November?

2. What are the costs assigned to the ending work in process inventory on November 30?

3. What are the costs assigned to units completed and transferred out during November? Direct materials

Weighted Average Beginning WIP Started Units to account for

5,000 27,500 32,500

Comp. & TO Ending WIP Units accounted for

20,000 12,500 32,500

100% 100%

20,000 12,500 32,500

Conversion Costs

100% 20%

20,000 2,500 22,500

Costs to be accounted for: Beginning inventory Added Costs to be accounted for

\$100,000 225,000 \$325,000

\$90,000 45,000 \$135,000

Cost per EUP: Costs to be accounted for EUP Per unit cost

\$325,000 32,500 \$10.00

\$135,000 22,500 \$6.00

A1

A1

Costs accounted for: Completed and transferred out:

20,000*\$10

20000*\$6

\$200,000 Ending work in process:

12500*\$10

+

\$120,000

2500*\$6

\$125,000

+

\$15,000

Costs accounted for

B. Prepare a production cost report using a FIFO cost flow for the crafting department for November. FIFO Beginning inventory Started Units to account for

Beginning WIP Comp. & TO Ending WIP Units accounted for

Direct materials

5,000 15,000 12,500 32,500

15,000 12,500 27,500

0% 100% 100%

Costs to be accounted for: Beginning inventory Added

Per unit cost Costs accounted for: Completed and transferred out: Beg. WIP Costs added

2,000 15,000 2,500 19,500

40% 100% 20%

\$ 100,000 225,000 \$325,000

\$90,000 45,000 \$135,000

\$225,000 27,500 \$8.181818

\$ 45,000 19,500 \$2.307692

Costs to account for Cost per EUP: Costs added EUP

Conversion Costs

5,000 27,500 32,500

15,000*\$8.1818181

17000*\$2.307892

\$122,727

\$39,231

12500*\$8.1818181

2500*\$2.307892

Completed & transferred out Ending work in process:

\$102,273 Costs accounted for

*rounding

\$5,769

C. Draw a Work in Process t-account for the Crafting Department and post the respective amounts to it during November under the FIFO method. WIP - Crafting 190,000 225,000 45,000 351,958 108,042

Problem 9. North Face makes 3 flavors of coffee-Macadamia nut, French vanilla, and Columbian. All flavors go through the same assembly line but they differ as to the materials used. All models utilize all processes. North Face uses operation costing and allocates conversion costs using one cost pool based on the number of pounds processed. The following information is provided: Macadamia Nut

Materials Pounds processed

\$16,200 3,600

French Vanilla

\$10,500 2,800

Columbian

\$17,920 5,600

Total

\$44,620 12,000

Direct labor costs

\$13,000

Overhead costs: Cleaning Roasting Flavoring Packaging Total

11,000 14,000 13,400 12,800 \$51,200

How much is the cost per unit of each pound of French Vanilla coffee?

The conversion costs MUST be allocated in one pool since this company is using operation costing.

Rate = (\$13,000 + \$51,200)/12,000 = \$5.35 per pound

Direct materials Conversion costs

\$10,500/2,800 pds.

\$3.75 5.35

Total cost per pound

\$9.10

Problem 10. Surf Products manufactures two styles of board shorts. The standard style is made of microfiber. The quick dry style is made of polyester/spandex. All other components of both brands are identical. During July, a total of 3,600 standard style shorts were manufactured with a materials cost of \$7,920, and 1,600 pairs of quick dry were manufactured with a materials cost of \$11,520. Conversion costs are allocated based on the number of pairs of board shorts produced. During July, \$7,800 of factory overhead and \$8,320 of direct labor were incurred in manufacturing the board shorts. Show the calculation of the cost of each pair of quick dry board shorts during the month of July using operation costing.

Conversion cost rate = (\$7,800 + \$8,320) / (3,600 + 1,600) = \$3.10 per pair Unit cost = (\$11,520/1,600) + \$3.10 = \$10.30 each Note: Conversion costs must be in ONE cost pool for allocation purposes.

Problem 11. Chief Deli creates deli platters for catering services. The deli platter orders require the same assembly operations but different ingredients. The company uses operation costing and assigns conversion costs based on the pounds of meat used. The following information was available for May orders: Order Order 328 Total 324 Pounds of deli meats 1,120 480 1,600 Cost per pound of deli meat \$4.80 \$5.50 Direct labor hours 162 Labor cost per hour \$15.00 Total production overhead costs \$1,650 Show the calculation of the unit product cost of Order 328. With operations costing, conversion costs are allocated to products and direct materials are traced.

Conversion costs rate: Direct labor: 162*\$15.00 Overhead: Total conversion costs to be allocated Cost driver - pounds of deli meat

\$2,430 1,650 \$4,080 1,600 \$2.55 per pound of deli meat

Order 328: DM 480*\$5.50 DL & Overhead: \$2.55*480 Total cost of order 328 Note: Conversion costs must be in ONE cost pool for allocation purposes.

Multiple Choice

1. When using weighted average process costing A. The costs attached to beginning work in process are kept separate from all other costs. B. The current period costs will be added to the beginning work in process costs. C. Units in the ending inventory are not considered in making equivalent unit computations. D. Transferred-in units are always the same percentage complete for materials and conversion costs as for conversion costs. 2. Which of the following statement (s) concerning conversion costs is correct? A. Estimating the degree of completion of direct materials in a partially completed unit is usually easier to calculate than estimating the degree of completion for conversion costs. B. Companies that produce homogeneous products incur no conversion costs. C. Estimates are not considered acceptable for GAAP purposes. D. Both (b) and (c) are correct. 3. Under the weighted-average method, the stage of completion of beginning work in process A. is relevant in determining the equivalent units. B. must be combined with the work done during the current period in determining the equivalent units. C. is irrelevant in determining the equivalent unit calculation. D. impacts the cost per equivalent unit. 4. Operation costing systems are used when the products have A. used a standardized method of processing that is repeatedly performed. B. common characteristics and no individual characteristics. C. individual characteristics and no common characteristics. D. been mass produced in a continuous production process. E. some common characteristics and some individual characteristics. They are often referred to as hybrid systems.

\$2,640 1,224 \$3,864

5. Which of the following are considered alternative options when a company is selecting an option to operation costing? A. Variable costing and throughput costing B. Absorption costing and variable costing C. Job costing and process costing D. Process costing and throughput costing Absorption costing, variable costing, and throughput costing are methods of determining which costs are considered to be product costs vs. period costs. Job costing, process costing, and operation costing differ in which costs are traced to products and which costs are allocated. 6. Additional materials are added in the second department of a four-department production process. This addition does not increase the number of units being produced in the second department. This will A. increase the equivalent units of production. B. increase the cost per unit. C. decrease the value of the transferred-in costs. D. decrease the total costs to account for. Costs added will increase, leading to an increase in the cost per unit. 7. In a production cost report using FIFO process costing, transferred-in costs are most similar to A. material added at the beginning of the process. B. conversion costs added during the process. C. costs transferred-out to the next process. D. costs included in beginning inventory. 8. The loan department of a financial corporation makes loans to businesses. The costs of processing these loans are often several thousand dollars. All loans are initially evaluated using the same financial analysis software, but some require outside services such as appraisals and legal services. Which is the most appropriate costing system for the loan department? A. job-order costing B. process costing C. operation costing D. batch costing 9. In the manufacturing operations of a company using process costing, A. there will be multiple work in process accounts in the general ledger. B. direct material and direct labor are referred to as conversion costs. C. transferred in costs occur only in the departments that have no direct labor costs. D. the process costing system can only be used until the point where the product enters the packaging department. There is one WIP account for each process. Direct material and direct labor are prime costs.

10. When using weighted average process costing, A. The costs attached to beginning work in process are kept separate from all other cost B. The current period costs will be added to the beginning work in process costs C. Units in the ending inventory are not considered in making equivalent unit computations D. Ending WIP units are always 100% complete for materials. When inspection occurs at different points throughout production, spoiled units will be less than 100% complete. 11. Which of the following is the correct journal entry to transfer costs out of the Finishing Department, the last processing department? A. Debit Work in Process Inventory – Finishing Department and credit Finished Goods Inventory B. Debit Cost of Goods Sold and credit Finished Goods Inventory C. Debit Cost of Goods Sold and credit Work in Process Inventory – Finishing Department D. Debit Finished Goods Inventory and credit Work in Process Inventory – Finishing Department 12. In a process costing system, transferred in costs A. Are costs that are part of beginning inventory completed during the previous period B. Are costs for units that required no current period work C. Are the costs recorded in preceding departments D. Are the costs of the completed units These costs must continue to be tracked as they are part of the cost of the products that are not yet finished. 13. A distinct feature of the FIFO process costing method is that the A. work done on beginning inventory before the current period is blended with the work done during the current period in the calculation of equivalent units B. work done on beginning inventory before the current period is kept separate from the work done during the current period in the calculation of equivalent units C. work done on ending inventory is kept separate from the work done during the current period in the calculation of equivalent units and is not included in the equivalent units calculation D. units in ending inventory are excluded from the cost per equivalent unit 14. On occasion, the FIFO and the weighted-average methods of process costing will result in the same dollar amount of costs being transferred to the next department. Which of the following scenarios would have that result? A. when the beginning and ending inventories are equal in terms of physical units B. when the beginning and ending inventories are equal in terms of the percentage of completion for both direct materials, and conversion costs C. when there is no ending inventory

D. when there is no beginning inventory 15. In the computation of the cost per equivalent unit, the FIFO method of process costing considers A. all the costs entering work in process from the units in beginning inventory plus the costs for the work completed during the current accounting period. B. all the costs that have entered work in process during the current accounting period. C. all the costs that have entered work in process during the current accounting period from the units started or transferred in minus the costs associated with ending inventory. D. all the costs that have entered work in process during the current accounting period plus the costs associated with beginning inventory. 16. Under the FIFO process costing method, the stage of completion of beginning work in process a. is relevant in determining the equivalent units. b. must be must be added to the work done during the current period in determining the equivalent units. c. is irrelevant in determining the equivalent unit calculation. d. has no effect on the cost per equivalent unit.

True False Questions 1. The weighted-average method assumes all beginning units are completed during the previous month. False. 2.

Examples of industries that would use process costing include the pet food industry. True. 3.

The principal difference between process costing and job costing is that in job costing an averaging process is used to compute the unit costs of products or services. False. 4.

In weighted average process costing, equivalent units in beginning work in process plus units started during the current period equals equivalent units completed and transferred out in the current period minus equivalent units in ending work in process. False.

5.

In the weighted average costing method, the costs of direct materials in beginning inventory are not included in the cost per unit calculation if direct materials are added at the start of the production process. False.