PROCESS-COSTING

CHAPTER 17PROCESS-COSTING

17-1 Industries using process costing in their manufacturing area include chemical processing, oil refining, pharmaceutical, plastics, brick and tile manufacturing, semiconductor chips, beverages, and breakfast cereals.

17-2 Process costing systems separate costs into cost categories according to the timing of when costs are introduced into the process. Often, only two cost classifications, direct materials and conversion costs, are necessary. Direct materials are frequently added at one point in time, often the start or the end of the process, and all conversion costs are added at about the same time, but in a pattern different from direct materials costs.

17-3 Equivalent units is a derived amount of output units that takes the quantity of each input (factor of production) in units completed or in incomplete units in work in process, and converts the quantity of input into the amount of completed output units that could be made with that quantity of input. Each equivalent unit is comprised of the physical quantities of direct materials or conversion costs inputs necessary to produce output of one fully completed unit. Equivalent unit measures are necessary since all physical units are not completed to the same extent.

17-4 The accuracy of the estimates of completion depend on the care and skill of the estimator and the nature of the process. Aircraft blades may differ substantially in the finishing necessary to obtain a final product. The amount of work necessary to finish a product may not always be easy to ascertain in advance.

17-5 The five key steps in process costing follow:Step 1: Summarize the flow of physical units of output.Step 2: Compute output in terms of equivalent units.Step 3: Compute equivalent unit costs.Step 4: Summarize total costs to account for. Step 5: Assign total costs to units completed and to units in ending work in process.

17-6 Three inventory methods associated with process costing are: • Weighted average.• First-in, first-out.• Standard costing.

17-7 The weighted-average process-costing method calculates the equivalent-unit cost of all the work done to date (regardless of the accounting period in which it was done), assigns this cost to equivalent units completed and transferred out of the process, and to equivalent units in ending work-in-process inventory.

17-2

17-8 FIFO computations are distinctive because they assign the cost of the previous accounting period’s equivalent units in beginning work-in-process inventory to the first units completed and transferred out of the process and assigns the cost of equivalent units worked on during the current period first to complete beginning inventory, next to start and complete new units, and finally to units in ending work-in-process inventory. In contrast, the weighted-average method costs units completed and transferred out and in ending work in process at the same average cost.

17-9 FIFO should be called a modified or departmental FIFO method because the goods transferred in during a given period usually bear a single average unit cost as a matter of convenience.

17-10 A major advantage of FIFO is that managers can judge the performance in the current period independently from the performance in the preceding period.

17-11 The journal entries in process costing are basically similar to those made in job-costing systems. The main difference is that, in process costing, there is often more than one work-in-process account––one for each process.

17-12 Standard-cost procedures are particularly appropriate to process-costing systems where there are various combinations of materials and operations used to make a wide variety of similar products as in the textiles, paints, and ceramics industries. Standard-cost procedures also avoid the intricacies involved in detailed tracking with weighted-average or FIFO methods when there are frequent price variations over time.

17-13 There are two reasons why the accountant should distinguish between transferred-in costs and additional direct materials costs for a particular department:

(a) All direct materials may not be added at the beginning of the department process.(b) The control methods and responsibilities may be different for transferred-in items and

materials added in this department.

17-14 No. Transferred-in costs or previous department costs are costs incurred in a previous department that have been charged to a subsequent department. These costs may be costs incurred in that previous department during this accounting period or a preceding accounting period.

17-15 Materials are only one cost item. Other items (often included in a conversion costs pool) include labor, energy, and maintenance. If the costs of these items vary over time, this variability can cause a difference in cost of goods sold and inventory amounts when the weighted-average or FIFO methods are used.

A second factor is the amount of inventory on hand at the beginning or end of an accounting period. The smaller the amount of production held in beginning or ending inventory relative to the total number of units transferred out, the smaller the effect on operating income, cost of goods sold, or inventory amounts from the use of weighted-average or FIFO methods.

17-16 (25 min.) Equivalent units, zero beginning inventory.1. Direct materials cost per unit ($720,000 ÷ 10,000) $ 72

Conversion cost per unit ($760,000 ÷ 10,000) 76Assembly Department cost per unit $148

17-3

17-16 (Cont’d.)

2a. Solution Exhibit 17-16A calculates the equivalent units of direct materials and conversion costs in the Assembly Department of International Electronics in February 2004.

Solution Exhibit 17-16B computes equivalent units costs.2b. Direct materials cost per unit $ 72

Conversion cost per unit 80Assembly Department cost per unit $152

3. The difference in the Assembly Department cost per unit calculated in requirements 1 and 2 arises because the costs incurred in January and February are the same but fewer equivalent units of work are done in February relative to January. In January, all 10,000 units introduced are fully completed resulting in 10,000 equivalent units of work done with respect to direct materials and conversion costs. In February, of the 10,000 units introduced, 10,000 equivalent units of work is done with respect to direct materials but only 9,500 equivalent units of work is done with respect to conversion costs. The Assembly Department cost per unit is, therefore, higher.

SOLUTION EXHIBIT 17-16ASteps 1 and 2: Summarize Output in Physical Units and Compute Equivalent UnitsAssembly Department of International Electronics for February 2004

(Step 2)(Step 1) Equivalent UnitsPhysical Direct Conversion

Flow of Production Units Materials CostsWork in process, beginning 0Started during current period 10,000To account for 10,000Completed and transferred out during current period 9,000 9,000 9,000Work in process, ending* 1,000 1,000 100%; 1,000 50% 1,000 500Accounted for 10,000Work done in current period only 10,000 9,500

*Degree of completion in this department: direct materials, 100%; conversion costs, 50%.

SOLUTION EXHIBIT 17-16BCompute Equivalent Unit Costs, Assembly Department of International Electronics for February 2004

TotalProduction

CostsDirect

MaterialsConversion

Costs(Step 3)Costs added during February $1,480,000 $720,000 $760,000

Divide by equivalent units of work done in current period (Solution Exhibit 17-l6A) 10,000 9,500 Cost per equivalent unit $ 72 $ 80

17-4

17-17 (20 min.) Journal entries (continuation of 17-16).

1. Work in Process––Assembly 720,000Accounts Payable 720,000

To record $720,000 of direct materialspurchased and used in production during February 2004

2. Work in Process––Assembly 760,000Various accounts 760,000

To record $760,000 of conversion costsfor February 2004; examples include energy, manufacturing supplies, all manufacturinglabor, and plant depreciation

3. Work in Process––Testing 1,368,000Work in Process––Assembly 1,368,000

To record 9,000 units completed andtransferred from Assembly to Testingduring February 2004 at$152 9,000 units = $1,368,000

Postings to the Work in Process––Assembly account follow.

Work in Process –– Assembly Department Beginning inventory, Feb. 1 0 3. Transferred out to

1. Direct materials 720,000 Work in Process––Testing 1,368,000 2. Conversion costs 760,000

Ending inventory, Feb. 29 112,000

17-5

17-18 (25 min.) Zero beginning inventory, materials introduced in middle ofprocess.

1. Solution Exhibit 17-18A shows equivalent units of work done in the current period of Chemical P, 50,000; Chemical Q, 35,000; Conversion costs, 45,000.

2. Solution Exhibit 17-18B calculates cost per equivalent unit of work done in the current period for Chemical P, Chemical Q, and Conversion costs, summarizes the total Mixing Department costs for July 2004, and assigns these costs to units completed (and transferred out) and to units in ending work in process.

SOLUTION EXHIBIT 17-18ASteps 1 and 2: Summarize Output in Physical Units and Compute Equivalent UnitsMixing Department of Vaasa Chemicals for July 2004

(Step 1)(Step 2)

Equivalent UnitsPhysical Conversion

Flow of Production Units Chemical P Chemical Q CostsWork in process, beginning 0Started during current period 50,000To account for 50,000Completed and transferred out during current period 35,000 35,000 35,000 35,000Work in process, ending* 15,000 15,000 100%; 15,000 0%; 15,000 66 2/3% 15,000 0 10,000Accounted for 50,000Work done in current period only 50,000 35,000 45,000

*Degree of completion in this department: Chemical P, 100%; Chemical Q, 0%; conversion costs, 66 2/3%.

17-6

17-18 (Cont’d.)

SOLUTION EXHIBIT 17-18BSteps 3, 4, and 5: Compute Equivalent Unit Costs, Summarize Total Costs to Account For, and Assign Costs to Units Completed and to Units in Ending Work in Process, Mixing Department of Vaasa Chemicals for July 2004

TotalProduction

Costs Chemical P Chemical QConversion

Costs

(Step 3)Costs added during July $455,000 $250,000 $70,000 $135,000Divide by equivalent units of work done in current period (Solution Exhibit 17-l8A) 50,000 35,000 45,000 Cost per equivalent unit $ 5 $ 2 $ 3

(Step 4)Total costs to account for $455,000

(Step 5) Assignment of costs:Completed and transferred out (35,000 units) $350,000

(35,000* $5) + (35,000*$2) + (35,000*$3)

Work in process ending (15,000 units)

Chemical P 75,000 15,000† $5Chemical Q 0 0† $2Conversion costs 30,000 10,000†$3 Total work in process 105,000

Total costs accounted for $455,000

*Equivalent units completed and transferred out from Solution Exhibit 17-18A, Step 2. †Equivalent units in work in process, ending from Solution Exhibit 17-18A, Step 2.

17-7

17-19 (15 min.) Weighted-average method, equivalent units.

Under the weighted-average method, equivalent units are calculated as the equivalent units of work done to date. Solution Exhibit 17-19 shows equivalent units of work done to date for the Satellite Assembly Division of Aerospatiale for direct materials and conversion costs.

SOLUTION EXHIBIT 17-19Steps 1 and 2: Summarize Output in Physical Units and Compute Equivalent Units Weighted-Average Method of Process Costing, Satellite Assembly Division of Aerospatiale for May 2004

(Step 1) (Step 2)Physical Equivalent Units

Units Direct ConversionFlow of Production (given) Materials Costs

Work in process beginning 8Started during current period 50To account for 58Completed and transferred out during current period 46 46.0 46.0Work in process, ending* (12 60%; 12 30%) 12 7.2 3.6Accounted for 58 Work done to date 53 .2 49 .6


17-8

17-20 (20 min.) Weighted-average method, assigning costs (continuation of 17-19).

Solution Exhibit 17-20 calculates cost per equivalent unit of work done to date in the Assembly Department of Aerospatiale, summarizes total costs to account for, and assigns costs to units completed and to units in ending work-in-process inventory.

SOLUTION EXHIBIT 17-20Steps 3, 4, and 5: Compute Equivalent Unit Costs, Summarize Total Costs to Account For, and Assign Costs to Units Completed and to Units in Ending Work in ProcessWeighted-Average Method of Process Costing, Satellite Assembly Department of Aerospatiale for May 2004

TotalProduction

CostsDirect

MaterialsConversion

Costs(Step 3) Work in process, beginning (given) $ 5,844,000 $ 4,933,600 $ 910,400

Costs added in current period (given) 46,120,000 32,200,000 13,920,000 Costs incurred to date $37,133,600 $14,830,400Divide by equivalent units of work done to date (Solution Exhibit 17-19) 53.2 49 .6 Cost per equivalent unit of work done to date $ 698,000 $ 299,000

(Step 4) Total costs to account for 51,964,000 (Step 5) Assignment of costs:

Completed and transferred out (46 units) 45,862,000 (46* $698,000) + (46* $299,000)

Work in process, ending (12 units)Direct materials 5,025,600 7.2† $698,000Conversion costs Total work in process

Total costs accounted for

1,076,400 6,102,000 $51,964,000

3.6† $299,000

*Equivalent units completed and transferred out from Solution Exhibit 17-19, Step 2.†Equivalent units in work in process, ending from Solution Exhibit 17-19, Step 2.

17-9

17-21 (15 min.) FIFO method, equivalent units.

Under the FIFO method, equivalent units are calculated as the equivalent units of work done in the current period only. Solution Exhibit 17-21 shows equivalent units of work done in May 2004 in the Assembly Department of Aerospatiale for direct materials and conversion costs.

SOLUTION EXHIBIT 17-21Steps 1 and 2: Summarize Output in Physical Units and Compute Equivalent Units FIFO Method of Process Costing, Satellite Assembly Division of Aerospatiale for May 2004

(Step 1)

(Step 2)Equivalent Units

Flow of ProductionPhysical

UnitsDirect

MaterialsConversion

Costs

Work in process, beginning (given)Started during current period (given)To account for

850 58

(work done before current period)

Completed and transferred out during current period:

From beginning work in process§

8(100% 90%); 8(100% 40%)8

0.8 4.8Started and completed 38 100%, 38 100%

38†

38.0 38.0Work in process, ending* (given)

12 60%; 12 30%12

7.2 3.6Accounted for 58 Work done in current period only 46 .0 46 .4

§Degree of completion in this department: direct materials, 90%; conversion costs, 40%.†46 physical units completed and transferred out minus 8 physical units completed and transferred out from beginning

work-in-process inventory.*Degree of completion in this department: direct materials, 60%; conversion costs, 30%.

17-10

17-22 (20 min.) FIFO method, assigning costs (continuation of 17-21).

Solution Exhibit 17-22 calculates cost per equivalent unit of work done in May 2004 in the Assembly Department of Aerospatiale, summarizes total costs to account for, and assigns costs to units completed and to units in ending work-in-process inventory.

SOLUTION EXHIBIT 17-22Steps 3, 4, and 5: Compute Equivalent Unit Costs, Summarize Total Costs to Account For, and Assign Costs to Units Completed and to Units in Ending Work in ProcessFIFO Method of Process Costing, Satellite Assembly Division of Aerospatiale for May 2004

TotalProduction

CostsDirect

MaterialsConversion

Costs

Work in process, beginning ($4,933,600 + $910,400) $ 5,844,000 (costs of work done before current period)

(Step 3) Costs added in current period (given) 46,120,000 $32,200,000 $ 13,920,000Divide by equivalent units of work done in current period (Solution Exhibit 17-21) 46 46 .4 Cost per equivalent unit of work done in current period $ 700,000 $ 300,000

(Step 4) Total costs to account for $51,964,000 (Step 5) Assignment of costs:

Completed and transferred out (46 units):Work in process, beginning (8 units)

Direct materials added in current period $ 5,844,000

560,000 0.8* $700,000Conversion costs added in current period

Total from beginning inventoryStarted and completed (38 units)

Total costs of units completed & transf. outWork in process, ending (12 units)

Direct materialsConversion costs

Total work in process, endingTotal costs accounted for

1,440,000 7,844,000

38,000,000 45,844,000

5,040,000 1,080,000 6,120,000 $51,964,000

4.8* $300,000

(38† $700,000) + (38† $300,000)

7.2# $700,0003.6# $300,000

*Equivalent units used to complete beginning work in process from Solution Exhibit 17-21, Step 2.†Equivalent units started and completed from Solution Exhibit 17-21, Step 2.#Equivalent units in work in process, ending from Solution Exhibit 17-21, Step 2.

17-11

17-23 (25-30 min.) Standard-costing method, assigning costs (Refer to the information in Exercise 17-19).

1. The calculations of equivalent units for direct materials and conversion costs are identical to the calculations of equivalent units under the FIFO method. Solution Exhibit 17-21 shows the equivalent unit calculations under standard costing given by the equivalent units of work done in May 2004 in the Assembly Department.

2. Solution Exhibit 17-23 summarizes the total costs to account for, and assigns these costs to units completed and transferred out and to units in ending work in process.

3. Solution Exhibit 17-23 shows the direct materials and conversion cost variances for

Direct materials $230,000 UConversion costs $232,000 U

SOLUTION EXHIBIT 17-23Steps 3, 4, and 5: Compute Equivalent Unit Costs, Summarize Total Costs to Account For, and Assign Costs to Units Completed and to Units in Ending Work in ProcessUse of Standard Costs in Process Costing, Satellite Assembly Division of Aerospatiale for May 2004.

TotalProduction

CostsDirect

MaterialsConversion

Costs(Step 3) Standard cost per equivalent unit (given) $ 695,000 $ 295,000

Work in process, beginning (given)Direct materials, 7.2 $695,000; Conversion costs, 3.2$295,000 $ 5,948,000

Costs added in current period at standard costsDirect materials, 46.0 $695,000; Conversion costs, 46.4 $295,000 45,658,000

$31,970,000 $13,688,000

(Step 4) Costs to account for $51,606,000 (Step 5) Assignment of costs at standard costs:


Direct materials added in current period Conversion costs added in current period

Total from beginning inventory

$ 5,948,000556,000

1,416,000 7,920,000

0.8* $695,0004.8* $295,000

Started and completed (38 units) Total costs of units transferred out

37,620,000 45,540,000

38† $695,000 + 38† $295,000

7.2# $695,0003.6#

$295,000

Work in process, ending (12 units) Direct materials 5,004,000 Conversion costs


1,062,000 6,066,000 $51,606,000

Summary of variances for current performance:Costs added in current period at standard prices (see above)Actual costs incurred (given)Variance

$31,970,000 32,200,000 $ 230,000 U

$13,688,000 13,920,000 $ 232,000 U

*Equivalent units to complete beginning work in process from Solution Exhibit 17-21, Step 2.†Equivalent units started and completed from Solution Exhibit 17-21, Step 2.#Equivalent units in work in process, ending from Solution Exhibit 17-21, Step 2.

17-12

17-24 (25 min.) Weighted-average method, assigning costs.

1. & 2. Solution Exhibit 17-24 calculates the cost per equivalent unit of work done to date for direct materials and conversion costs, summarizes total costs to account for, and assigns these costs to units completed and transferred out and to units in ending work-in-process inventory.

SOLUTION EXHIBIT 17-24Steps 3, 4, and 5: Compute Equivalent Unit Costs, Summarize Total Costs to Account For, and Assign Costs to Units Completed and to Units in Ending Work in ProcessWeighted-Average Method of Process Costing, Chatham Company for July 2004

TotalProduction

CostsDirect

MaterialsConversion

Costs

(Step 3) Work in process, beginning (given) $130,000 $ 60,000 $ 70,000Costs added in current period (given) 651,000 280,000 371,000 Costs incurred to date $340,000 $441,000Divide by equivalent units of work done to date (given) 50,000 42,000 Cost per equivalent unit of work done to date $ 6 .80 $ 10 .50

(Step 4) Total costs to account for $781,000 (Step 5) Assignment of costs:

Completed and transferred out (34,000 units) 588,200 (34,000* $6.80) + (34,000* $10.50)

Work in process, ending (16,000 units)Direct materials 108,800 16,000†$6.80Conversion costs Total work in process


84,000 192,800 $781,000

8,000† $10.50

*Equivalent units completed and transferred out (given).†Equivalent units in work in process, ending (given).

17-13

17-25 (30 min.) FIFO method, assigning costs.

1. & 2. Solution Exhibit 17-25A calculates the equivalent units of work done in the current period. Solution Exhibit 17-25B, calculates the cost per equivalent unit of work done in the current period for direct materials and conversion costs, summarizes total costs to account for, and assigns these costs to units completed and transferred out and to units in ending work-in-process inventory.

SOLUTION EXHIBIT 17-25ASteps 1 and 2: Summarize Output in Physical Units and Compute Equivalent Units FIFO Method of Process Costing, Chatham Company for July 2004

(Step 1)



UnitsDirect

MaterialsConversion

Costs


10,00040,000 50,000


Completed and transferred out during current period:From beginning work in process§

10,000 (100% 100%); 10,000 (100% – 70%)

10,0000 3,000

Started and completed 24,000 100%, 24,000 100%

24,000†

24,000 24,000Work in process, ending* (given)

16,000 100%; 16,000 50% 16,000 16,000 8,000

Accounted for 50,000 Work done in current period only 40,000 35,000

§Degree of completion in this department: direct materials, 100%; conversion costs, 70%.†34,000 physical units completed and transferred out minus 10,000 physical units completed and transferred out from

beginning work-in-process inventory.*Degree of completion in this department: direct materials, 100%; conversion costs, 50%.

17-14

17-25 (Cont’d.)

SOLUTION EXHIBIT 17-25BSteps 3, 4, and 5: Compute Equivalent Unit Costs, Summarize Total Costs to Account For, and Assign Costs to Units Completed and to Units in Ending Work in ProcessFIFO Method of Process Costing, Chatham Company for July 2004

TotalProduction

CostsDirect

MaterialsConversion

Costs

Work in process, beginning ($60,000 + $70,000) $130,000 (costs of work done before current period)

(Step 3) Costs added in current period (given) 651,000 $280,000 $371,000

Divide by equivalent units of work done in current period (Solution Exhibit 17-25A)

40,000 35,000

Cost per equivalent unit of work done in current period $ 7 $ 10.60

(Step 4) Total costs to account for $781,000

(Step 5) Assignment of costs:Completed and transferred out (34,000 units):

Work in process, beginning (10,000 units)Direct materials added in current period

$130,0000 0* $7

Conversion costs added in current periodTotal from beginning inventory

Started and completed (24,000 units)Total costs of units completed & transferred out

Work in process, ending (16,000 units)Direct materialsConversion costs


31,800 161,800

422,400 584,200

112,000 84,800 196,800 $781,000

3,000* $10.60

24,000† $7 + 24,000† 10.60

16,000# $78,000# $10.60

*Equivalent units used to complete beginning work in process from Solution Exhibit 17-25A, Step 2. †Equivelant units started and completed from Solution Exhibit 17-25A, Step 2.#Equivalent units in work in process, ending from Solution Exhibit 17-25A, Step 2.

17-15

17-26 (30 min.) Standard-costing method, assigning costs (Refer to the information in Exercise 17-24).

1. The calculations of equivalent units for direct materials and conversion costs are identical to the calculations of equivalent units under the FIFO method. Solution Exhibit 17-25A shows the equivalent unit calculations for standard costing given by the equivalent units of work done in July 2004. Solution Exhibit 17-26 uses the standard costs (direct materials, $6.50; conversion costs, $10.30) to summarize total costs to account for, and to assign these costs to units completed and transferred out and to units in ending work-in-process inventory.

2. Solution Exhibit 17-26 shows the direct materials and conversion costs variances for

Direct materials $20,000 UConversion costs $10,500 U

SOLUTION EXHIBIT 17-26Steps 3, 4, and 5: Compute Equivalent Unit Costs, Summarize Total Costs to Account For, and Assign Costs to Units Completed and to Units in Ending Work in ProcessUse of Standard Costs in Process Costing, Chatham Company for July 2004.

TotalProduction

CostsDirect

MaterialsConversion

Costs(Step 3) Standard cost per equivalent unit (given) $ 6 .50 $ 10 .30

Work in process, beginning (given)Direct materials, 10,000 $6.50; Conversion costs, 7,000 $10.30 $137,100

Costs added in current period at standard costsDirect materials, 40,000 $6.50; Conversion costs, 35,000 $10.30 620,500 260,000 360,500

(Step 4) Costs to account for $757,600 (Step 5) Assignment of costs at standard costs:

Completed and transferred out (34,000 units):Work in process, beginning (10,000 units)



$137,1000

30,900 168,000

0* $6.503,000* $10.30

Started and completed (24,000 units) Total costs of units transferred out

403,200 571,200

(24,000† $6.50) + (24,000† $10.30)

Work in process, ending (16,000 units) Direct materials 104,000 16,000# $6.50 Conversion costs


82,400 186,400 $757,600

8,000# $10.30

Summary of variances for current performance:Costs added in current period at standard prices (see above)Actual costs incurred (given)Variance

$260,000 280,000 $ 20,000 U

$360,500 371,000 $ 10,500 U

*Equivalent units to complete beginning work in process from Solution Exhibit 17-25A, Step 2.†Equivalent units started and completed from Solution Exhibit 17-25A, Step 2.#Equivalent units in work in process, ending from Solution Exhibit 17-25A, Step 2.

17-16

17-27 (35–40 min.) Transferred-in costs, weighted-average method.

1. & 2. Solution Exhibit 17-27A calculates the equivalent units of work done to date. Solution Exhibit 17-27B calculates the cost per equivalent unit of work done to date for transferred-in costs, direct materials, and conversion costs, summarizes total costs to account for, and assigns these costs to units completed and transferred out and to units in ending work-in-process inventory.

SOLUTION EXHIBIT 17-27ASteps 1 and 2: Summarize Output in Physical Units and Compute Equivalent UnitsWeighted-Average Method of Process CostingCooking Department of Hideo Chemicals for June 2004

(Step 1) (Step 2) Physical Equivalent Units

Flow of ProductionUnits

(given)Transferred-

in CostsDirect

MaterialsConversion

Costs

Work in process, beginning 40Transferred in during current period 80To account for 120Completed and transferred out during current period 90 90 90 90Work in process, ending* 30 30 100%; 30 0%; 30 50% 30 0 15Accounted for 120 Work done to date 120 90 105

*Degree of completion in this department: transferred-in costs, 100%; direct materials, 0%; conversion costs, 50%.

17-17

17-27 (Cont’d.)

SOLUTION EXHIBIT 17-27BSteps 3, 4, and 5: Compute Equivalent Unit Costs, Summarize Total Costs to Account For, and Assign Costs to Units Completed and to Units in Ending Work in ProcessWeighted-Average Method of Process CostingCooking Department of Hideo Chemicals for June 2004

TotalProduction

CostsTransferred

-in CostsDirect

MaterialsConversion

Costs

(Step 3) Work in process, beginning (given) $ 58,000 $ 40,000 $ 0 $18,000Costs added in current period (given) 172,925 87,200 36,000 49,725 Costs incurred to date $127,200 $36,000 $67,725Divide by equivalent units of work done to date (Solution Exhibit 17-27A) 120 90 105 Equivalent unit costs of work done to date $ 1,060 $ 400 $ 645


Completed and transferred out (90 units) $189,450 (90* $1,060) + (90* $400) + (90* $645)

Work in process, ending (30 units)Transferred-in costsDirect materials

31,8000

30† $1,060 0† $400

Conversion costs Total work in process, ending


9,675 41,475 $230,925

15†$645

*Equivalent units completed and transferred out from Solution Exhibit 17-27A, Step 2.†Equivalent units in work in process, ending from Solution Exhibit 17-27A, Step 2.

17-28 (35–40 min.) Transferred-in costs, FIFO method.

1. & 2. Solution Exhibit 17-28A calculates the equivalent units of work done in the current period (for transferred-in costs, direct-materials, and conversion costs) to complete beginning work-in-process inventory, to start and complete new units, and to produce ending work in process. Solution Exhibit 17-28B calculates the cost per equivalent unit of work done in the current period for transferred-in costs, direct materials, and conversion costs, summarizes total costs to account for, and assigns these costs to units completed and transferred out and to units in ending work-in-process inventory.

17-18

17-28 (Cont’d.)

SOLUTION EXHIBIT 17-28ASteps 1 and 2: Summarize Output in Physical Units and Compute Equivalent Units FIFO Method of Process CostingCooking Department of Hideo Chemicals for June 2004

(Step 1)(Step 2)

Equivalent Units


UnitsTransferred-

in CostsDirect

MaterialsConversion

Costs

Work in process, beginning (given)Transferred in during current period (given)To account for

40 80 120



40(100% 100%); 40(100% 0%); 40(100% 75%)

40

0 40 10Started and completed 50100%; 50100%; 50100%

50†

50 50 50Work in process, ending* (given)

30100%; 300%; 3050%30

30 0 15

Accounted for 120 Work done in current period only 80 90 75

§Degree of completion in this department: Transferred-in costs, 100%; direct materials, 0%; conversion costs, 75%.†90 physical units completed and transferred out minus 40 physical units completed and transferred out from beginning

work-in-process inventory.*Degree of completion in this department: transferred-in costs, 100%; direct materials, 0%; conversion costs, 50%.

17-19

17-28 (Cont’d.)

SOLUTION EXHIBIT 17-28BSteps 3, 4, and 5: Compute Equivalent Unit Costs, Summarize Total Costs to Account For, and Assign Costs to Units Completed and to Units in Ending Work in ProcessFIFO Method of Process CostingCooking Department of Hideo Chemicals for June 2004

TotalProduction

CostsTransferred-in Costs

DirectMaterials

ConversionCosts

Work in process, beginning ($39,200 + $0 + $18,000) $ 57,200 (Costs of work done before current period)

(Step 3) Costs added in current period (given) 171,325 $85,600 $36,000 $49,725Divide by equivalent units of work done in current period (Solution Exhibit 17-28A) 80 90 75 Cost per equiv. unit of work done in current period $ 1,070 $ 400 $ 663


Completed and transferred out (90 units):Work in process, beginning (40 units) Transferred-in costs added in current period

Direct materials added in current period

$ 57,2000

16,0000*$1,070

40*$400Conversion costs added in current period


Total costs of units completed & tfd. outWork in process, ending (30 units)

Transferred-in costsDirect materialsConversion costs Total work in process, ending


6,630 79,830

106,650 186,480

32,1000

9,945 42,045 $228,525

10*$663

(50†$1,070) + (50† $400)+ (50†$663)

30#$1,070 0#$400

15#$663

*Equivalent units used to complete beginning work in process from Solution Exhibit 17-28A, Step 2.†Equivalent units started and completed from Solution Exhibit 17-28A, Step 2.#Equivalent units in work in process, ending from Solution Exhibit 17-28A, Step 2.

17-20

17-29 (15 min.) Operation costing (Chapter Appendix).

Costs of Work Order 815 and Work Order 831 are as follows:

Work Order 815 Work Order 831Number of units (pairs) 1,000 5,000Direct materials costs $30,000 $ 50,000Conversion costs:

Cutting (1,000; 5,000 × $10) 10,000 50,000Sewing (1,000; 5,000 × $15) 15,000 75,000Lining (1,000; 0 × $8) 8,000 –Packing (1,000; 5,000 × $2) 2,000 10,000

Total costs $65,000 $185,000

Total cost per unit = $65 = $37

17-30 (25 min.) Weighted-average method.

1. Solution Exhibit 17-30A shows equivalent units of work done to dateDirect materials 100 equivalent unitsConversion costs 97 equivalent units

2. & 3. Solution Exhibit 17-30B calculates cost per equivalent unit of work done to date, summarizes the total Assembly Department costs for October 2004, and assigns these costs to units completed (and transferred out) and to units in ending work in process using the weighted-average method.

17-21

17-30 (Cont’d.)

SOLUTION EXHIBIT 17-30ASteps 1 and 2: Summarize Output in Physical Units and Compute Equivalent Units Weighted-Average Method of Process Costing, Assembly Department of Global Defense Inc. for October 2004



Work in process, beginning 20Started during current period 80To account for 100Completed and transferred out during current period 90 90 90Work in process, ending* 10 10 100%; 10 70% 10 7Accounted for 100 Work done to date 100 97*Degree of completion in this department: direct materials, 100%; conversion costs, 70%.

SOLUTION EXHIBIT 17-30BSteps 3, 4, and 5: Compute Equivalent Unit Costs, Summarize Total Costs to Account For, and Assign Costs to Units Completed and to Units in Ending Work in ProcessWeighted-Average Method of Process Costing, Assembly Department of Global Defense Inc. for October 2004

TotalProduction

CostsDirect

MaterialsConversion

Costs

(Step 3) Work in process, beginning (given) $ 580,000 $ 460,000 $ 120,000Costs added in current period (given) 2,935,000 2,000,000 935,000 Costs incurred to date $2,460,000 $1,055,000Divide by equivalent units of work done to date (Solution Exhibit 17-30A) 100 97 Cost per equivalent unit of work done to date $ 24,600 $10,876 .29


Completed and transferred out (90 units) $3,192,866 (90* $24,600) + (90* $10,876.29)

Work in process, ending (10 units)Direct materials 246,000 10† $24,600Conversion costs Total work in process, ending


76,134 322,134 $3,515,000

7† $10,876.29


17-22

17-30 (Cont’d.)

17-30 Excel ApplicationProcess Costing

Global Defense, Inc.Original Data

Physical Units Direct Conversion(Missiles) Materials Costs

Work in process, October 1 20 $460,000 $120,000 Started during October 2004 80

Completed during October 2004 90 Work in process, October 31 10

Costs added during October 2004 $2,000,000 $935,000

Problem 1Direct Conversion

Flow of Production Physical Units Materials CostsWork in process, beginning 20Started during current period 80 To account for 100Good units completed and transferred out during current period 90 90 90Work in process, ending 10 10 x 100%; 10 x 70% 10 7Accounted for 100Work done to date 100 97

Problem 2Total Direct Conversion

Production Materials CostsCosts

Work in process, beginning $ 580,000 $ 460,000 $ 120,000Costs added in current period 2,935,000 2,000,000 935,000 Costs incurred to date $2,460,000 $1,055,000Equivalent units of work done to date 100 97Cost per equivalent unit of work done to date $24,600 $10,876.29

Problem 3Total

Production Direct ConversionCosts Materials Costs

Total costs to account for $3,515,000Assignment of costs:Completed and transferred out $3,192,866 2,214,000 978,866 Work in process, ending Direct materials 246,000 Conversion costs 76,134Total work in process ending 322,134

17-23

Total costs accounted for $3,515,000

17-24

17-31 (10 min.) Journal entries (continuation of 17-30).

1. Work in Process––Assembly Department 2,000,000Accounts Payable 2,000,000

Direct materials purchased and used in production in October.

2. Work in Process––Assembly Department 935,000Various accounts 935,000

Conversion costs incurred in October.

3. Work in Process––Testing Department 3,192,866Work in Process––Assembly Department 3,192,866

Cost of goods completed and transferred out in October from the Assembly Department to the Testing Department.

Work in Process––Assembly DepartmentBeginning inventory, October 1 580,0001. Direct materials 2,000,0002. Conversion costs 935,000

3. Transferred out toWork in Process–Testing 3,192,866

Ending Inventory, October 31 322,134

17-25

17-32 (20 min.) FIFO method (continuation of 17-30 and 17-31).

1. The equivalent units of work done in the current period in the Assembly Department in October 2004 for direct materials and conversion costs are shown in Solution Exhibit 17-32A.

2. The cost per equivalent unit of work done in the current period in the Assembly Department in October 2004 for direct materials and conversion costs is calculated in Solution Exhibit 17-32B.

3. Solution Exhibit 17-32B summarizes the total Assembly Department costs for October 2004, and assigns these costs to units completed (and transferred out) and units in ending work in process under the FIFO method.

The cost per equivalent unit of beginning inventory and of work done in the current period differ:

Beginning Inventory

Work Done in Current Period


$23,000 ($460,000 20 equiv. units)$10,000 ($120,000 12 equiv. units)

$25,000$11,000

DirectMaterials

ConversionCosts

Cost per equivalent unit (weighted-average) $24,600* $10,876.29*Cost per equivalent unit (FIFO) $25,000** $11,000**

*from Solution Exhibit 17-30B**from Solution Exhibit 17-32BThe cost per equivalent unit differs between the two methods because each method uses different costs to calculate the numerator of the calculation. FIFO uses only the costs added during the period whereas weighted-average uses the costs from the beginning work-in-process as well as costs added during the period. Both methods also use different equivalent units in the denominator.

The following table summarizes the costs assigned to units completed and those still in process under the weighted-average and FIFO process-costing methods for our example.

Weighted Average(Solution

Exhibit 17-30B)

FIFO(Solution

Exhibit 17-32B) Difference

Cost of units completed and transferred outWork in process, endingTotal costs accounted for

$3,192,866 322,134 $3,515,000

$3,188,000 327,000 $3,515,000

–$4,866+$4,866

The FIFO ending inventory is higher than the weighted-average ending inventory by $4,866. This is because FIFO assumes that all the lower-cost prior-period units in work in process are the first to be completed and transferred out while ending work in process consists of only the higher-cost current-period units. The weighted-average method, however, smoothes out cost per equivalent unit by assuming that more of the higher-cost units are completed and transferred out, while some of the lower-cost units in beginning work in process are placed in ending work in process. Hence, in this case, the weighted-average method results in a higher cost of units completed and transferred out and a lower ending work-in-process inventory relative to FIFO.

17-26

17-32 (Cont’d.)

SOLUTION EXHIBIT 17-32ASteps 1 and 2: Summarize Output in Physical Units and Compute Equivalent Units FIFO Method of Process Costing, Assembly Department of Global Defense Inc. for October 2004

(Step 1)



UnitsDirect

MaterialsConversion

Costs


20 80 100


Completed and transferred out during current period:

From beginning work in process§

20 (100% 100%); 20 (100% 60%)20

0 8Started and completed 70 100%, 70 100%

70†

70 70Work in process, ending* (given)

10 100%; 10 70%10

10 7Accounted for 100 Work done in current period only 80 85

§Degree of completion in this department: direct materials, 100%; conversion costs, 60%.†90 physical units completed and transferred out minus 20 physical units completed and transferred out from


17-27

17-32 (Cont’d.)

SOLUTION EXHIBIT 17-32BSteps 3, 4, and 5: Compute Equivalent Unit Costs, Summarize Total Costs to Account For, and Assign Costs to Units Completed and to Units in Ending Work in ProcessFIFO Method of Process Costing, Assembly Department of Global Defense Inc. for October 2004

TotalProduction

CostsDirect

MaterialsConversion

Costs

Work in process, beginning ($460,000 + $120,000) $ 580,000 (costs of work done before current period)

(Step 3) Costs added in current period (given) 2,935,000 $2,000,000 $935,000Divide by equivalent units of work done in current period (Solution Exhibit 17-32A) 80 85 Cost per equivalent unit of work done in current period $ 25,000 $ 11,000



Direct materials added in current period$ 580,000

0 0*$25,000Conversion costs added in current period


Total costs of units completed & transf. outWork in process, ending (10 units)



88,000 668,000

2,520,000 3,188,000

250,000 77,000 327,000 $3,515,000

8*$11,000

(70† $25,000) + (70† $11,000)

10#$25,0007#$11,000

*Equivalent units used to complete beginning work in process from Solution Exhibit 17-32A, Step 2.†Equivelant units started and completed from Solution Exhibit 17-32A, Step 2.#Equivalent units in work in process, ending from Solution Exhibit 17-32A, Step 2.

17-33 (30 min.) Transferred-in costs, weighted-average method (related to 17-30 to 17-32).

1. Transferred-in costs are 100% complete, and direct materials are 0% complete in both beginning and ending work-in-process inventory. The reason is that transferred-in costs are always 100% complete as soon as they are transferred in from the Assembly Department to the Testing Department. Direct materials in beginning or ending work in process for the Testing Department are 0% complete because direct materials are added only when the testing process is 90% complete and the units in beginning and ending work in process are only 70% and 60% complete respectively.

2. Solution Exhibit 17-33A computes the equivalent units of work done to date in the Testing Department for transferred-in costs, direct materials, and conversion costs.

3. Solution Exhibit 17-33B calculates the cost per equivalent unit of work done to date in the Testing Department for transferred-in costs, direct materials, and conversion costs, summarizes total Testing Department costs for October 2004, and assigns these costs to units completed and transferred out and to units in ending work in process using the weighted-average method.

17-28

17-33 (Cont’d.)

4. Journal entries:a. Work in Process––Testing Department 3,192,866

Work in Process––Assembly Department 3,192,866Cost of goods completed and transferred out

during October from the Assembly Department to the Testing Department

b. Finished Goods 9,303,123Work in Process––Testing Department 9,303,123

Cost of goods completed and transferred outduring October from the Testing Departmentto Finished Goods inventory

SOLUTION EXHIBIT 17-33ASteps 1 and 2: Summarize Output in Physical Units and Compute Equivalent UnitsWeighted-Average Method of Process CostingTesting Department of Global Defense Inc. for October 2004



(given)Transferred-in

CostsDirect

MaterialsConversion

Costs

Work in process, beginning 30Transferred in during current period 90To account for 120Completed and transferred out during current period 105 105 105 105Work in process, ending* 15 15 100%; 15 0%; 15 60% 15 0 9Accounted for 120 Work done to date 120 105 114


17-29

17-33 (Cont’d.)

SOLUTION EXHIBIT 17-33BSteps 3, 4, and 5: Compute Equivalent Unit Costs, Summarize Total Costs to Account For, and Assign Costs to Units Completed and to Units in Ending Work in ProcessWeighted-Average Method of Process CostingTesting Department of Global Defense Inc. for October 2004

TotalProduction

CostsTransferred

-in CostsDirect

MaterialsConversion

Costs(Step 3) Work in process, beginning (given) $1,317,600 $ 985,800 $ 0 $ 331,800

Costs added in current period (given) 8,658,866 3,192,866 3,885,000 1,581,000 Costs incurred to date $4,178,666 $3,885,000 $1,912,800Divide by equivalent units of work done to date (Solution Exhibit 17-33A) 120 105 114 Equivalent unit costs of work done to date $ 34,822 .22 $ 37,000 $ 16,778 .95


Completed and transferred out (105 units) $9,303,123 (105* $34,822.22) +(105*$37,000) + (105*$16,778.95)


522,3330

15† $34,822.22 0† $37,000



151,010 673,343 $9,976,466

9†$16,778.95


17-34 (30 min.) Transferred-in costs, FIFO method (continuation of 17-33).

1. As explained in Problem 17-33, requirement 1, transferred-in costs are 100% complete and direct materials are 0% complete in both beginning and ending work-in-process inventory.

2. The equivalent units of work done in October 2004 in the Testing Department for transferred-in costs, direct materials, and conversion costs are calculated in Solution Exhibit 17-34A.

3. Solution Exhibit 17-34B calculates the cost per equivalent unit of work done in October 2004 in the Testing Department for transferred-in costs, direct materials, and conversion costs, summarizes total Testing Department costs for October 2004, and assigns these costs to units completed and transferred out and to units in ending work in process using the FIFO method.

4. Journal entries:a. Work in Process––Testing Department 3,188,000

Work in Process––Assembly Department 3,188,000Cost of goods completed and transferred out during October from the Assembly Dept. to the Testing Dept.

17-30

17-34 (Cont’d.)

b. Finished Goods 9,281,527 Work in Process––Testing Department 9,281,527Cost of goods completed and transferred out during October from the Testing Department to Finished Goods inventory.

SOLUTION EXHIBIT 17-34ASteps 1 and 2: Summarize Output in Physical Units and Compute Equivalent Units FIFO Method of Process CostingTesting Department of Global Defense Inc. for October 2004

(Step 1)(Step 2)

Equivalent Units


UnitsTransferred-

in CostsDirect

MaterialsConversion

Costs

Work in process, beginning (given)Transferred-in during current period (given)To account for

30 90 120



30(100% 100%); 30(100% 0%); 30(100% 70%)

30

0 30 9Started and completed 75100%; 75100%; 75100%

75†

75 75 75Work in process, ending* (given)

15100%; 150%; 1560%15

15 0 9

Accounted for 120 Work done in current period only 90 105 93

§ Degree of completion in this department: Transferred-in costs, 100%; direct materials, 0%; conversion costs, 70%.†105 physical units completed and transferred out minus 30 physical units completed and transferred out from

beginning work-in-process inventory.*Degree of completion in this department: transferred-in costs, 100%; direct materials, 0%; conversion costs, 60%.

17-31

17-34 (Cont’d.)

SOLUTION EXHIBIT 17-34BSteps 3, 4, and 5: Compute Equivalent Unit Costs, Summarize Total Costs to Account For, and Assign Costs to Units Completed and to Units in Ending Work in ProcessFIFO Method of Process CostingTesting Department of Global Defense Inc. for October 2004

TotalProduction


DirectMaterials

ConversionCosts

Work in process, beginning ($331,800 + $0 + $980,060)) $1,311,860 (Costs of work done before current period)

(Step 3) Costs added in current period (given) 8,654,000 $3,188,000 $3,885,000 $1,581,000Divide by equivalent units of work done in current period (Solution Exhibit 17-34A) 90

105 93

Cost per equiv. unit of work done in current period $ 35,422 .22 $ 37,000 $ 17,000 (Step 4) Total costs to account for $9,965,860(Step 5) Assignment of costs:

Completed and transferred out (105 units):Work in process, beginning (30 units) Tfd-in costs added in current period


$1,311,8600

1,110,0000* $35,422.22

30*$37,000Conversion costs added in current period





153,0002,574,860

6,706,667 9,281,527

531,3330

153,000 684,333$9,965,860

9*$17,000

(75†$35,422.22)+(75†$37,000)+(75†$17,000)

15# $35,422.22 0#$37,000

9#$17,000


17-32

17-35 (25 min.) Weighted-average method.

Solution Exhibit 17-35A shows equivalent units of work done to date of

Direct materials 2,500 equivalent unitsConversion costs 2,125 equivalent units

Note that direct materials are added when the Forming Department process is 10% complete. Both the beginning and ending work in process are more than 10% complete and hence are 100% complete with respect to direct materials.

Solution Exhibit 17-35B calculates cost per equivalent unit of work done to date for direct materials and conversion costs, summarizes the total Forming Department costs for April 2004, and assigns these costs to units completed (and transferred out), and to units in ending work in process using the weighted-average method.

SOLUTION EXHIBIT 17-35ASteps 1 and 2: Summarize Output in Physical Units and Compute Equivalent Units Weighted-Average Method of Process Costing, Forming Department of Star Toys for April 2004



Work in process, beginning 300Started during current period 2,200To account for 2,500Completed and transferred out during current period 2,000 2,000 2,000Work in process, ending* 500 500 100%; 500 25% 500 125Accounted for 2,500 Work done to date 2,500 2,125


17-33

17-35 (Cont’d.)

SOLUTION EXHIBIT 17-35BSteps 3, 4, and 5: Compute Equivalent Unit Costs, Summarize Total Costs to Account For, and Assign Costs to Units Completed and to Units in Ending Work in ProcessWeighted-Average Method of Process Costing, Forming Department of Star Toys for April 2004

TotalProduction

CostsDirect

MaterialsConversion

Costs(Step 3) Work in process, beginning (given) $ 9,625 $ 7,500 $ 2,125

Costs added in current period (given) 112,500 70,000 42,500 Costs incurred to date $77,500 $44,625Divide by equivalent units of work done to date (Solution Exhibit 17-35A) 2,500 2,125 Cost per equivalent unit of work done to date $ 31 $ 21


Completed and transferred out (2,000 units) $104,000 2,000* $31 + 2,000* $21

Work in process, ending (500 units)Direct materials 15,500 500†$31Conversion costs Total work in process, ending


2,625 18,125 $122,125

125†$21


17-36 (5–10 min.) Journal entries (continuation of 17-35).

1. Work in Process––Forming Department 70,000Accounts Payable 70,000

To record direct materials purchased andused in production during April

2. Work in Process––Forming Department 42,500Various Accounts 42,500

To record Forming Department conversioncosts for April

3. Work in Process––Finishing Department 104,000Work in Process––Forming Department 104,000

To record cost of goods completed and transferred out in April from the Forming Departmentto the Finishing Department

17-34

17-36 (Cont’d.)

Work in Process––Forming Department Beginning inventory, April 1 9,625 3. Transferred out to1. Direct materials 70,000 Work in Process––Finishing 104,000

2. Conversion costs 42,500 Ending inventory, April 30 18,125

17-37 (20 min.) FIFO method (continuation of 17-35).

The equivalent units of work done in April 2004 in the Forming Department for direct materials and conversion costs are shown in Solution Exhibit 17-37A.

Solution Exhibit 17-37B calculates the cost per equivalent unit of work done in April 2004 in the Forming Department for direct materials and conversion costs, summarizes the total Forming Department costs for April 2004, and assigns these costs to units completed (and transferred out) and to units in ending work in process under the FIFO method.

The equivalent units of work done in beginning inventory is: direct materials, 300 100% = 300; and conversion costs 300 40% = 120. The cost per equivalent unit of beginning inventory and of work done in the current period are:

Beginning Inventory


(Calculated Under FIFO Method)


$25 ($7,500 300)$17.708 ($2,125 120)

$31.818$21.197



Exhibit 17-35B)

FIFO(Solution

Exhibit 17-37B) Difference

Cost of units completed and transferred outWork in process, endingTotal costs accounted for

$104,000 18,125 $122,125

$103,566 18,559 $122,125

–$434+$434

The FIFO ending inventory is higher than the weighted-average ending inventory by $434. This is because FIFO assumes that all the lower-cost prior-period units in work in process are the first to be completed and transferred out while ending work in process consists of only the higher-cost current-period units. The weighted-average method, however, smoothes out cost per equivalent unit by assuming that more of the higher-cost units are completed and transferred out, while some of the lower-cost units in beginning work in process are placed in ending work in process. Hence, in this case, the weighted-average method results in a higher cost of units completed and transferred out and a lower ending work-in-process inventory relative to FIFO.

17-35

17-37 (Cont’d.)

SOLUTION EXHIBIT 17-37ASteps 1 and 2: Summarize Output in Physical Units and Compute Equivalent Units FIFO Method of Process Costing, Forming Department of Star Toys for April 2004

(Step 1)



UnitsDirect

MaterialsConversion

Costs


3002,200 2,500



300(100% 100%); 300(100% 40%)300

0 180Started and completed 1,700 100%; 1,700 100%

1,700†

1,700 1,700Work in process, ending* (given)

500 100%; 500 25%500

500 125Accounted for 2,500 Work done in current period only 2,200 2,005

§Degree of completion in this department: direct materials, 100%; conversion costs, 40%.†2,000 physical units completed and transferred out minus 300 physical units completed and transferred out from


17-36

17-37 (Cont’d.)

SOLUTION EXHIBIT 17-37BSteps 3, 4, and 5: Compute Equivalent Unit Costs, Summarize Total Costs to Account For, and Assign Costs to Units Completed and to Units in Ending Work in ProcessFIFO Method of Process Costing, Forming Department of Star Toys for April 2004

TotalProduction

CostsDirect

MaterialsConversion

CostsWork in process, beginning (given: $7,500 + $2,125) $ 9,625 (work done before current period)

(Step 3) Costs added in current period (given) 112,500 $70,000 $42,500Divide by equivalent units of work done in current period (Exhibit 17-37A) 2,200 2,005 Cost per equivalent unit of work done in current period $31.818 $21.197


Completed and transferred out (2,000 units):Work in process, beginning (300 units)

Direct materials added in current period$ 9,625

0 0*$31.818Conversion costs added in current period

Total from beginning inventoryStarted and completed (1,700 units)

Total costs of units completed & tsfd. outWork in process, ending (100 units)



3,815 13,440

90,126 103,566

15,909 2,650 18,559 $122,125

180* $21.197

(1,700† $31.818) + (1,700† $21.197)

500# $31.818125#

$21.197

*Equivalent units used to complete beginning work in process from Solution Exhibit 17-37A, Step 2.†Equivelant units started and completed from Solution Exhibit 17-37A, Step 2.#Equivalent units in work in process, ending from Solution Exhibit 17-37A, Step 2.

17-37

17-38 (30 min.) Transferred-in costs, weighted average

(related to 17-35 through 17-37).

1. Solution Exhibit 17-38A computes the equivalent units of work done to date in the Finishing Department for transferred-in costs, direct materials, and conversion costs.

Solution Exhibit 17-38B calculates the cost per equivalent unit of work done to date in the Finishing Department for transferred-in costs, direct materials, and conversion costs, summarizes total Finishing Department costs for April 2004, and assigns these costs to units completed and transferred out and to units in ending work in process using the weighted-average method.

2. Journal entries:a. Work in Process––Finishing Department 104,000

Work in Process––Forming Department 104,000Cost of goods completed and transferred out

during April from the Forming Departmentto the Finishing Department

b. Finished Goods 168,552Work in Process––Finishing Department 168,552

Cost of goods completed and transferred outduring April from the Finishing Departmentto Finished Goods inventory

SOLUTION EXHIBIT 17-38ASteps 1 and 2: Summarize Output in Physical Units and Compute Equivalent UnitsWeighted-Average Method of Process CostingFinishing Department of Star Toys for April 2004



(given)Transferred-

in CostsDirect

MaterialsConversion

CostsWork in process, beginning 500Transferred in during current period 2,000To account for 2,500Completed and transferred out during current period 2,100 2,100 2,100 2,100Work in process, ending* 400 400 100%; 400 0%; 400 30% 400 0 120Accounted for 2,500 Work done to date 2,500 2,100 2,220


17-38

17-38 (Cont’d.)

SOLUTION EXHIBIT 17-38BSteps 3, 4, and 5: Compute Equivalent Unit Costs, Summarize Total Costs to Account For, and Assign Costs to Units Completed and to Units in Ending Work in ProcessWeighted-Average Method of Process CostingFinishing Department of Star Toys for April 2004

TotalProduction

CostsTransferred

-in CostsDirect

MaterialsConversion

Costs

(Step 3) Work in process, beginning (given) $ 25,000 $ 17,750 $ 0 $ 7,250Costs added in current period (given) 165,500 104,000 23,100 38,400 Costs incurred to date $121,750 $23,100 $45,650Divide by equivalent units of work done to date (Solution Exhibit 17-38A) 2,500 2,100 2,220 Equivalent unit costs of work done to date $ 48 .70 $ 11 $20.563


Completed and transferred out (2,100 units) $168,552 (2,100*$48.70) + (2,100* $11) + (2,100* $20.563)


19,4800

400†$48.70 0† $11



2,468 21,948$190,500

120† $20.563


17-39 (30 min.) Transferred-in costs, FIFO method (continuation of 17-38).

1. Solution Exhibit 17-39A calculates the equivalent units of work done in April 2004 in the Finishing Department for transferred-in costs, direct materials, and conversion costs.

Solution Exhibit 17-37B calculates the cost per equivalent unit of work done in April 2004 in the Finishing Department for transferred-in costs, direct materials, and conversion costs, summarizes total Finishing Department costs for April 2004, and assigns these costs to units completed and transferred out and to units in ending work in process using the FIFO method.

Journal entries:a. Work in Process––Finishing Department 103,566

Work in Process––Forming Department 103,566Cost of goods completed and transferred out during April from the Forming Dept. to the Finishing Dept.

17-39

17-39 (Cont’d.)

b. Finished Goods 166,723 Work in Process––Finishing Department 166,723Cost of goods completed and transferred out

during April from the Finishing Departmentto Finished Goods inventory.

2. The equivalent units of work done in beginning inventory is: Transferred-in costs, 500 100% = 500; direct materials, 500 0% = 0; and conversion costs, 500 60% = 300. The cost per equivalent unit of beginning inventory and of work done in the current period are:

Beginning Inventory


Transferred-in costs (weighted average)Transferred-in costs (FIFO)Direct materialsConversion costs

$35.50 ($17,750 500)$35.04 ($17,520 500)

—$24.167 ($7,250 300)

$52 ($104,000 2,000)$51.783 ($103,566

2,000)$11$20



Exhibit 17-38B)

FIFO(Solution

Exhibit 17-39B) DifferenceCost of units completed and transferred outWork in process, endingTotal costs accounted for

$168,552 21,948 $190,500

$166,723 23,113 $189,836

–$1,829+$1,165

The FIFO ending inventory is higher than the weighted-average ending inventory by $1,165. This is because FIFO assumes that all the lower-cost prior-period units in work in process (resulting from the lower transferred-in costs in beginning inventory) are the first to be completed and transferred out while ending work in process consists of only the higher-cost current-period units. The weighted-average method, however, smoothes out cost per equivalent unit by assuming that more of the higher-cost units are completed and transferred out, while some of the lower-cost units in beginning work in process are placed in ending work in process. Hence, in this case, the weighted-average method results in a higher cost of units completed and transferred out and a lower ending work-in-process inventory relative to FIFO. Note that the difference in cost of units completed and transferred out (–$1,829) does not fully offset the difference in ending work-in-process inventory (+$1,165). This is because the FIFO and weighted-average methods result in different values for transferred-in costs with respect to both beginning inventory and costs transferred in during the period.

17-40

17-39 (Cont’d.)

SOLUTION EXHIBIT 17-39ASteps 1 and 2: Summarize Output in Physical Units and Compute Equivalent Units FIFO Method of Process CostingFinishing Department of Star Toys for April 2004

(Step 1)(Step 2)

Equivalent Units


UnitsTransferred-

in CostsDirect

MaterialsConversion

Costs


5002,000 2,500



500(100% 100%); 500(100% 0%); 500(100% 60%)

500

0 500 200Started and completed 1,600100%; 1,600100%; 1,600100%

1,600†

1,600 1,600 1,600Work in process, ending* (given)

400100%; 4000%; 40030%400

400 0 120

Accounted for 2,500 Work done in current period only 2,000 2,100 1,920

§Degree of completion in this department: Transferred-in costs, 100%; direct materials, 0%; conversion costs, 60%.

†2,100 physical units completed and transferred out minus 500 physical units completed and transferred out from beginning work-in-process inventory.


17-41

17-39 (Cont’d.)

SOLUTION EXHIBIT 17-39BSteps 3, 4, and 5: Compute Equivalent Unit Costs, Summarize Total Costs to Account For, and Assign Costs to Units Completed and to Units in Ending Work in ProcessFIFO Method of Process CostingFinishing Department of Star Toys for April 2004

TotalProduction


DirectMaterials

ConversionCosts

Work in process, beginning (given)

($17,520 + $0 + $7,250) $ 24,770 (Costs of work done before current period)

(Step 3) Costs added in current period (given) 165,066 $103,566 $23,100 $38,400Divide by equivalent units of work done in current period (Solution Exhibit 17-39A) 2,000 2,100 1,920 Cost per equiv. unit of work done in current period $ 51.783 $ 11 $ 20


Completed and transferred out (2,100 units):Work in process, beginning (500 units) Transferred-in costs added in current period


$ 24,7700

5,500 0*$51.783

500*$11Conversion costs added in current period



Transferred-in costsDirect materials



4,000 34,270

132,453 166,723

20,7130

2,400 23,113 $189,836

200*$20

(1,600† $51.783)+ (1,600†$11)+ (1,600†$20)

400#$51.7830# $11

120# $20


17-42

17-40 (45 min.) Transferred-in costs, weighted-average and FIFO methods.

1. Solution Exhibit 17-40A computes the equivalent units of work done to date in the Drying and Packaging Department for transferred-in costs, direct materials, and conversion costs. Solution Exhibit 17-40B calculates the cost per equivalent unit of work done to date in the Drying and Packaging Department for transferred-in costs, direct materials, and conversion costs, summarizes total Drying and Packaging Department costs for week 37, and assigns these costs to units completed and transferred out and to units in ending work in process using the weighted-average method.

2. Solution Exhibit 17-40C computes the equivalent units of work done in week 37 in the Drying and Packaging Department for transferred-in costs, direct materials, and conversion costs. Solution Exhibit 17-40D calculates the cost per equivalent unit of work done in week 37 in the Drying and Packaging Department for transferred-in costs, direct materials, and conversion costs, summarizes total Drying and Packaging Department costs for week 37, and assigns these costs to units completed and transferred out and to units in ending work in process using the FIFO method.

SOLUTION EXHIBIT 17-40ASteps 1 and 2: Summarize Output in Physical Units and Compute Equivalent UnitsWeighted-Average Method of Process CostingDrying and Packaging Department of Frito-Lay Inc. for Week 37



(given)Transferred-

in CostsDirect

MaterialsConversion

CostsWork in process, beginning 1,250Transferred in during current period 5,000To account for 6,250Completed and transferred out during current period 5,250 5,250 5,250 5,250Work in process, ending* 1,000 1,000 100%; 1,000 0%; 1,000 40% 1,000 0

400Accounted for 6,250 Work done to date 6,250 5,250 5,650


17-43

17-40 (Cont’d.)

SOLUTION EXHIBIT 17-40BSteps 3, 4, and 5: Compute Equivalent Unit Costs, Summarize Total Costs to Account For, and Assign Costs to Units Completed and to Units in Ending Work in ProcessWeighted-Average Method of Process CostingDrying and Packaging Department of Frito-Lay Inc. for Week 37

TotalProduction

CostsTransferred

-in CostsDirect

MaterialsConversion

Costs

(Step 3) Work in process, beginning (given) $ 38,060 $ 29,000 $ 0 $ 9,060Costs added in current period (given) 159,600 96,000 25,200 38,400 Costs incurred to date $125,000 $25,200 $47,460Divide by equivalent units of work done to date (Solution Exhibit 17-40A) 6,250 5,250 5,650 Equivalent unit costs of work done to date $ 20 $ 4 .80 $ 8 .40


Completed and transferred out (5,250 units) $174,300 5,250* $20 + 5,250* $4.80 + 5,250* $8.40

Work in process, ending (1,000 units)Transferred-in costsDirect materials

20,0000

1,000† $20 0† $4.80



3,360 23,360 $197,660

400†$8.40


17-44

17-40 (Cont’d.)

SOLUTION EXHIBIT 17-40CSteps 1 and 2: Summarize Output in Physical Units and Compute Equivalent Units FIFO Method of Process CostingDrying and Packaging Department of Frito-Lay Inc. for Week 37

(Step 1)(Step 2)

Equivalent Units


UnitsTransferred-

in CostsDirect

MaterialsConversion

Costs


1,2505,000 6,250



1,250(100% 100%); 1,250(100% 0%); 1,250(100% 80%)

1,250

0 1,250 250Started and completed4,000100%; 4,000100%; 4,000100%

4,000†


1,000100%; 1,0000%; 1,00040%1,000 1,000 0 400

Accounted for 6,250 Work done in current period only 5,000 5,250 4,650

§Degree of completion in this department: Transferred-in costs, 100%; direct materials, 0%; conversion costs, 80%.†5,250 physical units completed and transferred out minus 1,250 physical units completed and transferred out from

beginning work-in-process inventory.*Degree of completion in this department: transferred-in costs, 100%; direct materials, 0%; conversion costs, 40%.

17-45

17-40 (Cont’d.)

SOLUTION EXHIBIT 17-40DSteps 3, 4, and 5: Compute Equivalent Unit Costs, Summarize Total Costs to Account For, and Assign Costs to Units Completed and to Units in Ending Work in ProcessFIFO Method of Process CostingDrying and Packaging Department of Frito-Lay Inc. for Week 37

TotalProduction

CostsTransferred

-in CostsDirect

MaterialsConversion

CostsWork in process, beginning ($9,060 + $0 + $28,920) $ 37,980 (Costs of work done before current period)

(Step 3) Costs added in current period (given) 157,600 $94,000 $25,200 $38,400Divide by equivalent units of work done in current period (Solution Exhibit 17-40C) 5,000 5,250 4,650 Cost per equiv. unit of work done in current period $ 18 .80 $ 4.80 $ 8.258


Completed and transferred out (5,250 units):Work in process, beginning (1,250 units) Transferred-in costs added in current period


$ 37,9800

6,000 0* $18.80

1,250* $4.80Conversion costs added in current period


Total costs of units completed & tfd. outWork in process, ending (1,000 units)



2,065 46,045

127,432 173,477

18,8000

3,303 22,103 $195,580

250* $8.258

(4,000† $18.80)+(4,000† $4.80) +(4,000†$8.258)

1,000#$18.80 0#$4.80

400#$8.258

*Equivalent units used to complete beginning work in process from Solution Exhibit 17-40C, Step 2.†Equivalent units started and completed from Solution Exhibit 17-40C, Step 2.#Equivalent units in work in process, ending from Solution Exhibit 17-40C, Step 2.

17-46

17-41 (25 min.) Standard costing with beginning and ending work in process.

1. Solution Exhibit 17-41A shows equivalent units of work done in the current period of

Direct materials 20,000 equivalent unitsConversion costs 18,700 equivalent units

Solution Exhibit 17-41B uses the standard costs of work done in the current period: direct materials, $6; conversion costs, $3; to summarize the total Cooking Department costs for May 2004, and assign these costs to units completed (and transferred out) and to units in ending work in process using the standard costing method.

2. May variances for direct materials and conversion costs are as follows:

Direct Materials Conversion Costs

Output in equivalent units for MayStandard costs of May month's output Direct materials, $6; Conversion costs, $3Actual costs incurred during May (given)Variances

20,000

$120,000 125,000 $ 5,000 U

18,700

$56,100 57,000 $ 900 U

SOLUTION EXHIBIT 17-41ASteps 1 and 2: Summarize Output in Physical Units and Compute Equivalent UnitsUse of Standard Costs in Process Costing, Cooking Department of Victoria Corporation for May 2004

(Step 1)(Step 2)

Equivalent Units


UnitsDirect

MaterialsConversion

Costs


3,00020,000 23,000

Completed and transferred out during current period: From beginning work in process§

3,000 (100% 100%); 3,000 (100% 60%)3,000

0 1,200 Started and completed 15,000 100%; 15,000 100%

15,000||

15,000 15,000Work in process, ending* (given) 5,000 100%; 5,000 50%

5,000 5,000 2,500

Accounted for 23,000 Work done in current period only 20,000 18,700

§Degree of completion in this department: direct materials, 100%; conversions, 60%.||18,000 physical units completed and transferred out minus 3,000 physical units completed and transferred out from


17-47

17-41 (Cont’d.)

SOLUTION EXHIBIT 17-41BSteps 3, 4, and 5: Compute Equivalent Unit Costs, Summarize Total Costs to Account For, and Assign Costs to Units Completed and to Units in Ending Work in ProcessUse of Standard Costs in Process Costing, Cooking Department of Victoria Corporation for May 2004.

TotalProduction

CostsDirect

MaterialsConversion

Costs(Step 3) Standard cost per equivalent unit (given) $ 6 $ 3

Work in process, beginning (given)Direct materials, 3,000 $6; Conversion costs, 1,800$3 $ 23,400

Costs added in current period at standard costsDirect materials, 20,000$6; Conversion costs, 18,700$3 176,100 120,000 56,100

(Step 4) Costs to account for $199,500 (Step 5) Assignment of costs at standard costs:

Completed and transferred out (18,000 units):Work in process, beginning (3,000 units)



$ 23,4000

3,600 27,000

0* $61,200* $3

Started and completed (15,000 units) Total costs of units transferred out

135,000 162,000

(15,000† $6)+(15,000†$3)

Work in process, ending (5,000 units) Direct materials 30,000 5,000#$6 Conversion costs


7,500 37,500 $199,500

2,500# $3

Summary of variances for current performanceCosts added in current period at standard prices (see step 3 above)Actual costs incurred (given)Variance

$120,000 125,000 $ 5,000 U

$56,100 57,000 $ 900 U

*Equivalent units to complete beginning work Solution Exhibit 17-41A, Step 2. †Equivalent units started and completed from Solution Exhibit 17-41A, Step 2.#Equivalent units in work in process, ending from Solution Exhibit 17-41A, Step 2.

17-42 (25-30 min.) Operation costing, equivalent units.

17-48

1. Materials and conversion costs of each operation, the total units produced, and the material and conversion cost per unit for the month of May are as follows:

Extrusion Form Trim Finish1. Units produced 11,000 11,000 5,000 2,0002. Materials costs $132,000 $ 44,000 $15,000 $12,0003. Materials cost per unit (2 ÷1) 12.00 4.00 3.00 6.004. Conversion costs 269,500 132,000 69,000 42,0005. Conversion cost per unit (4 ÷ 1) 24.50 12.00 13.80 21.00

The unit cost and total costs in May for each product are as follows:

Standard Deluxe Executive Cost Elements Model Model Model

Extrusion materials $ 12.00 $ 12.00 $ 12.00Form materials 4.00 4.00 4.00Trim materials – 3.00 3.00Finish materials – – 6.00Extrusion conversion 24.50 24.50 24.50Form conversion 12.00 12.00 12.00Trim conversion – 13.80 13.80Finish conversion – – 21.00Total unit cost $ 52.50 $ 69.30 $ 96.30Multiply by units produced × 6,000 × 3,000 × 2,000Total product costs $315,000 $207,900 $192,600

2. Equivalent Unit Cost Units Total Costs Deluxe model work-in process costs at the trim operationExtrusion material (100% complete when transferred in) $12.00 1,000 $12,000Extrusion conversion (100% complete when transferred in) 24.50 1,000 24,500Form material (100% complete when transferred in) 4.00 1,000 4,000Form conversion (100% complete when transferred in) 12.00

1,000 12,000

Trim material (100% complete) 3.00 1,000 3,000Trim conversion (60% complete) 13.80 600* 8,280Work-in-process costs $63,780

*1,000 units × 60% complete

17-49

17-43 (20 min.) Equivalent-unit computations, benchmarking, ethics.

1. The reported monthly cost per equivalent unit of either direct materials or conversion costs is lower when the plant manager overestimates the percentage of completion of ending work in process; the overestimate increases the denominator and, thus, decreases the cost per equivalent unit. The plant manager has two motivations to report lower cost per equivalent unit numbers: (1) to get a bonus and (2) to be recognized in the company newsletter.

2. While the plant controller has responsibility for preparing the accounting reports for the plant, in most cases, the plant controller reports directly to the plant manager. If this reporting relationship exists, Major may create a conflict of interest situation for the plant controller. Only if the plant controller reports directly to the corporate controller, and indirectly to the plant manager, should Major show the letters to the plant controller without simultaneously showing them to the plant manager.

3. The plant controller’s ethical responsibilities to Major and to Leisure Suits are the same. These include:

Competence: The plant controller is expected to have the competence to make equivalent unit computations. This competence does not always extend to making estimates of the percentage of completion of a product. In Leisure Suits’s case, however, the products are probably easy to understand and observe. Hence, a plant controller could obtain reasonably reliable evidence on percentage of completion at a plant.

Objectivity: The plant controller should not allow the possibility of the plant being written up favorably in the company newsletter to influence the way equivalent unit costs are computed. The plant controller has a responsibility to communicate information fairly and objectively.

4. Major could seek evidence on possible manipulations as follows:a. Have plant controllers report detailed breakdowns on the stages of production and then

conduct end-of-month audits to verify the actual stages completed for ending work in process.

b. Examine trends in ending work in process. Divisions that report low amounts of ending work in process relative to total production are not likely to be able to greatly affect equivalent unit cost amounts by manipulating percentage of completion estimates. Divisions that show sizable quantities of total production in ending work in process are more likely to be able to manipulate equivalent cost computations by manipulating percentage of completion estimates.

17-50

17-44 (45 min.) Transferred-in costs, equivalent unit costs, working backward.

1. The equivalent units of work done in the current period for each cost category are computed in Solution Exhibit 17-44B using data on costs added in current period and cost per equivalent unit of work done in current period.

Transferred- Direct ConversionIn Costs Materials Costs

Costs added in current period $58,500 $57,000 $57,200Divided by cost per equivalent unit of work done in current period $6.50 $3 $5 .20 Equivalent units of work done in current period 9,000 19,000 11,000

2.

= 15,000 + 9,000 5,000 = 19,000

Solution Exhibit 17-44A shows the equivalent units of work done in June to complete beginning work in process and the equivalent units of work done in June to start and complete 4,000 units. Note that direct materials in beginning work in process is 0% complete because it is added only when the process is 80% complete and the beginning WIP is only 60% complete. We had calculated the total equivalent units of work done in the current period in requirement 1: transferred-in costs, 9,000; direct materials, 19,000; and conversion costs, 11,000. The missing number is the equivalent units of each cost category in ending work in process (see Solution Exhibit 17-44A).

Transferred-in costs 5,000Direct materials 0Conversion costs 1,000

3. Percentage of completion for each cost category in ending work in process can be calculated by dividing equivalent units in ending work in process for each cost category by physical units of work in process (5,000 units).

Transferred-in costs 5,000 5,000 = 100%Direct materials 0 5,000 = 0%Conversion costs 1,000 5,000 = 20%

4. Solution Exhibit 17-44B summarizes the total costs to account for, and assigns these costs to units completed and transferred out and to units in ending work in process.

17-51

17-44 (Cont’d.)

SOLUTION EXHIBIT 17-44ASteps 1 and 2: Summarize Output in Physical Units and Compute Equivalent Units FIFO Method of Process CostingThermo-assembly Department of Lennox Plastics for June 2004

(Step 1)(Step 2)

Equivalent Units


UnitsTransferred-

in CostsDirect

MaterialsConversion

Costs


15,000 9,000 24,000



15,000 (100% 100%); 15,000 (100% 0%); 15,000 (100% 60%)

15,000

0 15,000 6,000Started and completed 4,000 100%; 4,000 100%; 4,000 100%

4,000†


5,000 100%; 5,000 0%; 5,000 20%5,000

5,000 0 1,000

Accounted for 24,000 Work done in current period only (from Solution Exhibit 17-44B) 9,000 19,000 11,000

§Degree of completion in this department: Transferred-in costs, 100%; direct materials, 0%; conversion costs, 60%.

†19,000 physical units completed and transferred out minus 15,000 physical units completed and transferred out from beginning work-in-process inventory.


17-52

17-44 (Cont’d.)

SOLUTION EXHIBIT 17-44BSteps 3, 4, and 5: Compute Equivalent Unit Costs, Summarize Total Costs to Account For, and Assign Costs to Units Completed and to Units in Ending Work in ProcessFIFO Method of Process CostingThermo-assembly Department of Lennox Plastics for June 2004

TotalProduction

CostsTransferred

-in CostsDirect

MaterialsConversion

CostsWork in process, beginning ($90,000 + $0 + $45,000) $135,000 (Costs of work done before current period)

(Step 3) Costs added in current period (given) 172,700 $58,500 $57,000 $57,200Divide by equivalent units of work done in current period 9,000 19,000 11,000 Cost per equiv. unit of work done in current period $ 6 .50 $ 3 $ 5 .20


Completed and transferred out (19,000 units):Work in process, beginning (15,000 units) Transferred-in costs added in current period


$135,0000

45,0000* $6.50

15,000* $3Conversion costs added in current period


Total costs of units completed & tfd. outWork in process, ending (5,000 units)



31,200 211,200

58,800 270,000

32,5000

5,200 37,700 $307,700

6,000* $5.20

(4,000† $6.50) + (4,000† $3) + (4,000† $5.20)

5,000#$6.50 0# $3

1,000#$5.20


Chapter 17 Internet Exercise

The Internet exercise is available to students only on the Prentice Hall Companion Website www.prenhall.com/horngren. Students can click on Cost Accounting, 11th ed., and access the Internet Exercise for the chapter, which links to the Web site of a company or organization. The Internet Exercise on the Web will be updated periodically so that it is current with the latest information available on the subject organization's Web site. A printout copy of the Internet exercise for this chapter as of early 2002 appears below.The solution to the Internet exercise, which will also be updated periodically, is available to instructors from the Companion Website's faculty view. To access the solution, click on Cost Accounting, 11th ed., Faculty link, and then register once to obtain your password through the online form. After the initial registration, you will have a personal login ID and password to use to log in. A printout of the solution to the Internet exercise for this chapter as of early 2002 follows. The exercise and solution provide instructors with an idea of the content of the Internet exercise for this chapter.

17-53

http://www.prenhall.com/horngren

Internet Exercise (Cont’d.)

Internet Exercise

In this exercise you will take a tour of the Golden Cheese Company of California, the world’s largest fully integrated cheese plant. To take the tour go to: http://ourworld.compuserve.com/homepages/gccc/.

1a. Click on the “Welcome” link. What are the primary products of the Golden Cheese Company?

1b. What are the secondary products of the manufacturing process? 1c. Are there any residual waste byproducts?1d. What journal entry is made to record the transfer of milk into the production process?

2a. Click on the “Process Schematic.” What is the first product transferred out of the cheese production process? What journal entry is made to record this transfer?

2b. What is the second product transferred out of the cheese production process? What journal entry is made to record this transfer?

3a. Whey cream is either sold as a finished product or processed further. What journal entries are made to record the transfer for final sale?

3b. What journal entry is made to record the transfer of whey cream for further processing?

4. Briefly describe the “Cheddaring” and “Blocking” steps in the cheese production process.

5. What proportion of milk solids is converted into cheese? What happens to the rest?

Solution to Internet Exercise

1a. The Golden Cheese Company produces a variety of cheese products, including specialized whey and protein concentrate products (used in baby foods and nutritional supplements).

1b. Even the residual milk sugar is fermented and distilled into ethyl alcohol that is used as a fuel additive.

1c. All the components of the milk are utilized. The residual milk sugar is fermented and distilled into ethyl alcohol, which is used as a fuel additive. Remaining milk solids are concentrated into an animal feed. Only water is left after all the products and byproducts are extracted, and the water is used in cleaning the plant.

1d. Work in Process – Cheese XXXMaterials Inventory – Milk XXX

2a. Sweet cream is the first byproduct transferred out of the cheese production process into the whey cream production process. The journal entry to record the transfer is:

Work in Process – Whey Cream XXXWork in Process – Cheese XXX

2b. The second product transferred out of the cheese production process is sweet whey. The journal entry to record the transfer is

Work in Process – Whey Cream XXXWork in Process – Cheese XXX

17-54

http://ourworld.compuserve.com/homepages/gccc/

Internet Exercise (Cont’d.)

3a. The following journal entry is used to record whey cream transferred to finished goods.

Finished Goods – Whey Cream XXXWork in Process – Whey Cream XXX

3b. The journal entry to record the transfer of whey cream to whey protein concentrate processing is

Work in Process – Whey Protein Concentrate XXXWork in Process – Whey Cream XXX

4. After curds and whey are separated, the curds go through a “cheddaring” process. In the cheddaring process curds are blown into the cheddar-master tower where they are stacked for two hours. This increases lactic acid production, which controls curd moisture and leads to proper curd texture. Next, the curd is blown into blockformers where the curd is pressed into 44-pound blocks, and cooled to 50 degrees. Then the cheese is transferred to the shredding process where it is weighed and cut for sale.

5. Approximately half of the solids in milk are converted to cheese; the remaining solids, and virtually all of the liquid, are drained from the cheese curd as whey.

Chapter 17 Video Case

The video case can be discussed using only the case writeup in the chapter. Alternatively, instructors can have students view the videotape of the company that is the subject of the case. The videotape can be obtained by contacting your Prentice Hall representative. The case questions challenge students to apply the concepts learned in the chapter to a specific business situation.

NANTUCKET NECTARS: PROCESS COSTING

1. In a process-costing system, the unit cost of a product or service is obtained by assigning total costs to many identical or similar units, in this case, single-serve juice beverage bottles.

2.

Direct Material Item Stage in Production ProcessRaw ingredients for juices (water, cane sugar, fruit juice concentrates, etc.)

Beginning

Bottles and caps MiddleLabels, cardboard trays, shrink-wrap End

3. Conversion costs include labor associated with the production line, depreciation on production equipment, plant utilities, plant maintenance costs, and plant property taxes.

4. In the process described for the manufacture of Nantucket Nectars juices, there is no partially completed inventory, as the product is mixed and bottled within a few hours each production day. Accordingly, the calculation of equivalent units in this case makes little sense. As there is no partially completed ending inventory, there will be no difference between the cost of the units transferred out under the weighted average or FIFO methods.

17-55

PROCESS-COSTING

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Transcript of PROCESS-COSTING