Cost Accounting, 14e, Chapter 4 Solutions
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Cost Accounting, 14e by Garrison Chapter 4 exercise solutions...
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Chapter 4 Process Costing
Chapter 4 Process Costing Solutions to Questions 4-1
A process costing system should should be used in situations situations where a homogeneous homogeneous product is is produced on a continuous continuous basis. basis.
Job-order and processing costing are similar in the following ways: 1. Job-order costing costing and process costing costing have the same same basic purposes—to purposes—to assign materials, materials, labor, and overhead overhead cost to products products and to provide a mechanism for computing unit product costs. 2. oth system systems s use the same same basic manufac manufacturi turing ng accounts. accounts. !. "osts flow flow through through the account accounts s in basically basically the same same way in both both systems. systems.
4-2
"ost accumulation is simpler under process costing because costs only need to be assigned to departments—not individual #obs. A company usually has a small number of processing departments, whereas a #ob-order costing system often must $eep trac$ of the costs of hundreds or even thousands of #obs.
4-3
4-4
%n a process costing system, a &or$ in 'rocess account is maintained for each processing department.
4-5
(he #ournal entry to record the transfer of wor$ in process from the )i*ing +epartment to the iring +epartment is: &or$ in 'rocess, iring........ &or$ in 'rocess, )i*ing
(he costs that might be added in the iring +epartment include: 1/ costs transferred in from the )i*ing +epartment0 2/ materials costs added in the iring +epartment0 !/ labor costs added in the iring +epartment0 and / overhead costs added in the iring +epartment.
4-6
nder the weighted-average method, e3uivalent units of production consist of units transferred to the ne*t department or to finished goods/ during the period plus the e3uivalent units in the department4s ending wor$ in process inventory.
4-7
(he company will want to distinguish between the costs of the metals used to ma$e the medallions, but the medals are otherwise identical 4-8 and go through the same production processes. (hus, operation costing is ideally suited for the company4s needs.
4-1
Chapter 4 Process Costing
Exercise 4-1 25 minutes/
a. (o record issuing raw materials for for use in production: production:
4-2
Chapter 4 Process Costing
&or$ in in 'r 'rocess—)olding +e +epartment &or$ in 'rocess—iring +e +epartment 8aw )aterials !!,555 b. (o record record direct direct labor labor costs incurred incurred:: &or$ in in 'r 'rocess—)olding +e +epartment &or$ in 'rocess—iring +e +epartment &ages 'ayable 2!,555 c. (o record record applying manufacturing manufacturing overhead: overhead: &or$ in in 'r 'rocess—)olding +e +epartment &or$ in 'rocess—iring +epartment )anufacturing verhead
26,555 7,555
16,555 7,555
2,555 !9,555 ;1,555
d. (o record transfer of unfired, unfired, molded bric$s from the the )olding +epartment +epartment to the iring +epartment: +epartment: &or$ in 'rocess—iring +epartment ;9,555 &or$ in 'rocess—)olding +epartment ;9,555 e. (o record transfer of finished finished bric$s from the iring +epartment +epartment to the finished goods goods warehouse: warehouse: inished nit cost ecause the cost of goods sold must be reduced down to ;1,712,755, the unit cost must be 2;.57 ;1,712,755 C 275,555 units/. (hus, the re3uired percentage completion, , to obtain the ;2,755 reduction in cost of goods sold can be found by solving the following e3uation: A162.!5 E
A1;,!25,555 F A2;.57 275,555 E 25,555
A1;,!25,555 F A2;.57 - A162.!5 275,555 E 25,555 A1;,!25,555 F A;!.97 275,555 E 25,555 275,555 E 25,555
F
1
Chapter 4 Process Costing
Case 4-19 continued/
!. continued/ "omputation of the "ost of 162.!5 per unit E ;!.97 per unit/ F ;1,712,755.
Chapter 4 Process Costing
Case 4-19 continued/
rom a broader perspective, if the net profit figures reported by the managers in a division cannot be trusted, then the company would be foolish to base bonuses on the net profit figures. A bonus system based on divisional net profits presupposes the integrity of the accounting system. (he company should perhaps reconsider how it determines the bonus. %t is 3uite common for companies to pay an Nall or nothingO bonus contingent on ma$ing a particular target. (his inevitably creates powerful incentives to bend the rules when the target has not 3uite been attained. %t might be better to have a bonus without this Nall or nothingO feature. or e*ample, managers could be paid a bonus of *? of profits above target profits rather than a bonus that is a preset percentage of their base salary. nder such a policy, the effect of adding that last dollar of profits that #ust pushes the divisional net profits over the target profit will add a few pennies to the manager4s compensation rather than thousands of dollars. (herefore, the incentives to misstate the net operating income are reduced. &hy tempt people unnecessarilyQ
Chapter 4 Process Costing
Case 4-2 7 minutes/
&eighted-Average )ethod 1. (he revised computations follow: @3uivalent nits of 'roduction: Transerred 'n
(ransferred to ne*t department.......................... @nding wor$ in process: (ransferred in: 7,555 units * 155? complete... )aterials: 7,555 units * 5? complete.............. "onversion: 7,555 units * 5? complete......... @3uivalent units of production............................
155,555
Materials
155,555
Conversio n
155,555
7,555 5 157,555
155,555
2,555 152,555
"ost per @3uivalent nit: Transerred 'n Costs
"ost of beginning wor$ in process.................... "ost added during the period............................ (otal cost a/..................................................... @3uivalent units of production b/...................... "ost per e3uivalent unit, a/ C b/......................
4-38
6,625 61,65 B5,!55 157,555 5.6;
Materials
!,55 29,;55 !1,555 155,555 5.!1
Conversio n
15,255 B;,B55 159,155 152,555 1.57
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