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Chapter 17 Process Costing 1 of 21

65.Amana Woolens is a manufacturer of wool cloth. The information for February is as follows: Beginning work-in-process 20,000 units Units started 40,000 units Units completed 50,000 units Beginning work-in-process direct materials $12,000 Beginning work-in-process conversion $ 5,200 Direct materials added during month $60,000 Direct manufacturing labor during month $24,000 Factory overhead $10,000Beginning work-in-process was half converted as to labor and overhead. Direct materials are added at the beginning of the process. All conversion costs are incurred evenly throughout the process. Ending work-in-process was 60 percent complete. Required:Prepare a production cost worksheet using the weighted-average method. Include any necessary supporting schedules. 66.Surf Products Company uses an automated process to clean and polish its souvenir items. For March, the company had the following activities: Beginning work-in-process inventory 6,000 items, 1/3 complete Units placed in production 24,000 units Units completed 18,000 units Ending work-in-process inventory 12,000 items, 1/2 complete Cost of beginning work-in-process $ 5,000 Direct material costs, current $18,000 Conversion costs, current $15,400Direct materials are placed into production at the beginning of the process and conversion costs are incurred evenly throughout the process. Required:Prepare a production cost worksheet using the FIFO method.

PAGE 22 67.Four Seasons Company makes snow blowers. Materials are added at the beginning of the process and conversion costs are uniformly incurred. At the beginning of September, the work-in-process is 40 percent complete and at the end of the month it is 60 percent complete. Other data for the month include: Beginning work-in-process inventory 1,600 units Units started 2,000 units Units placed in finished goods 3,200 units Conversion costs $200,000 Cost of direct materials $260,000 Beginning work-in-process costs: Materials $154,000 Conversion $ 82,080Required:a. Prepare a production cost worksheet with supporting schedules using the weighted-average method of process costing.


b. Prepare journal entries to record transferring of materials to processing and from processing to finished goods. 68.The Leather Factory produces leather jackets. It has two departments that process all the items. During January, the beginning work-in-process in the tanning department was 40 percent complete as to conversion and 100 percent complete as to direct materials. The beginning inventory included $12,000 for materials and $36,000 for conversion costs. Ending work-in-process inventory in the tanning department was 40 percent complete. Direct materials are added at the beginning of the process.Beginning work-in-process in the finishing department was 60 percent complete as to conversion. Beginning inventories included $14,000 for transferred-in costs and $20,000 for conversion costs. Ending inventory was 30 percent complete.Additional information about the two departments follows: Tanning Finishing ------- --------- Beginning work-in-process units 10,000 8,000 Units started this period 28,000 Units transferred this period 32,000 36,000 Ending work-in-process units 4,000 Material costs added $36,000 Conversion costs 64,000 $38,000 Transferred-out cost 100,000Required:Prepare a production cost worksheet using weighted-average costing for the finishing department.

PAGE 23 69.Louisville Company produces baseball bats and cricket paddles. It has two departments that process all products. During July, the beginning work-in-process in the cutting department was half completed as to conversion, and complete as to direct materials. The beginning inventory included $40,000 for materials and $60,000 for conversion costs. Ending work-in-process inventory in the assembly department was 40 percent complete. Direct materials are added at the beginning of the process.Beginning work-in-process in the finishing department was 80 percent complete as to conversion. Direct materials for finishing the units are added near the end of the process. Beginning inventories included $24,000 for transferred-in costs and $28,000 for conversion costs. Ending inventory was 30 percent complete. Additional information about the two departments follows: Cutting Finishing ------- --------- Beginning work-in-process units 20,000 24,000 Units started this period 60,000 Units transferred this period 64,000 68,000 Ending work-in-process units 20,000 Material costs added $48,000 $34,000 Conversion costs 28,000 68,500 Transferred-out cost 128,000Required:Prepare a production cost worksheet using FIFO for the finishing department.


PAGE 24 70.General Fabricators assembles its product in several departments. It has two departments that process all units. During October, the beginning work-in-process in the assembly department was half completed as to conversion, and complete as to direct materials. The beginning inventory included $12,000 for materials and $3,000 for conversion costs. Ending work-in-process inventory in the assembly department was 40 percent complete. Direct materials are added at the beginning of the process.Beginning work-in-process in the finishing department was 75 percent complete as to conversion. Direct materials are added at the end of the process. Beginning inventories included $16,000 for transferred-in costs and $20,000 for conversion costs. Ending inventory was 25 percent complete. Additional information about the two departments follows: Cutting Finishing ------- --------- Beginning work-in-process units 20,000 20,000 Units started this period 40,000 Units transferred this period 50,000 50,000 Ending work-in-process units 20,000 Material costs added $48,000 $28,000 Direct manufacturing labor 16,000 40,000 Other conversion costs 8,000 24,000Required:Prepare a production cost worksheet using weighted-average for the cutting department and FIFO for the finishing department.Critical Thinking 71.Marv and Vicki own and operate a vegetable canning plant. In recent years, their business has grown tremendously and, at any point in time, they may have 30 to 35 different vegetables being processed. Also, during the peak summer months there are several thousand bushels of vegetables in some stage of processing at any one time. With the company's growth during the past few years, the owners decided to employ an accountant to provide cost estimations on each vegetable category and prepare monthly financial statements. Although the accountant is doing exactly as instructed, Marv and Vicki are confused about the monthly operating costs. Although they process an average of 50,000 canned units a month, the monthly production report fluctuates wildly.Required:Explain how income can fluctuate when sales are relatively stable.

PAGE 25 72.Universal Industries operates a division in Brazil, a country with very high inflation rates. Traditionally, the company has used the same costing techniques in all countries so as to facilitate reporting to corporate headquarters. However, the financial accounting reports from Brazil never seem to match the actual unit results of the division. Management has studied the problem and it appears that beginning inventories may be the cause of the unmatched information, the reason being that the inventories have a different financial base because of the severe inflation.Required:How can process costing assist in addressing the problem facing Universal Industries? 73.BIG Manufacturing Products has been using FIFO process costing for tracking the costs of its manufacturing activities. However, in recent months, the system has become somewhat bogged down with details. It seems that, when the company purchased Brown Electronics last year, its product lines increased sixfold. This has caused both the accountants and the suppliers of the information, the line managers, great difficulty in keeping the costs of each product line separate. Likewise, the estimation of the completion of ending work-in-process inventories and the associated costs has become very cumbersome. The chief financial officer of the company is looking for ways to improve the reporting system of product costs.


Required:What can you recommend to improve the situation? (c) 1997 Prentice-Hall, Inc. All rights reserved.

PAGE 1 ANSWER KEY FOR TEST- UNTITLED 1.True Chapter:17 QUESTION: 1 2.False Chapter:17 QUESTION: 2 3.True Chapter:17 QUESTION: 3 4.True Chapter:17 QUESTION: 4 5.False Chapter:17 QUESTION: 5 6.False Chapter:17 QUESTION: 6 7.True Chapter:17 QUESTION: 7 8.False Chapter:17 QUESTION: 8 9.False


Chapter:17 QUESTION: 9 10.False Chapter:17 QUESTION: 12 11.True Chapter:17 QUESTION: 13 12.False Chapter:17 QUESTION: 14 13.False Chapter:17 QUESTION: 15 14.True Chapter:17 QUESTION: 16

PAGE 2 15.True Chapter:17 QUESTION: 17 16.True Chapter:17 QUESTION: 20 17.False Chapter:17 QUESTION: 10 18.b Chapter:17 QUESTION: 22 19.a Chapter:17 QUESTION: 23 20.a Chapter:17 QUESTION: 24 21.c Chapter:17 QUESTION: 25 22.d Chapter:17 QUESTION: 26 23.d Chapter:17 QUESTION: 28 24.c400 units + 1,200 units - 200 units = 1,400 units Chapter:17 QUESTION: 30 25.b Chapter:17 QUESTION: 31 26.dMaterials (0.40 x 5,000) 2,000 unitsConversion (0.50 x 5,000) 2,500 units Chapter:17 QUESTION: 32 27.d Chapter:17 QUESTION: 33


PAGE 3 28.b Direct materials Conversion costs ---------------- ----------------Completed and transferred out: 900 900.0Work-in-process, ending: 150 112.5 ----- -------Total equivalent units: 1,050 1,012.5 ===== ======= Chapter:17 QUESTION: 34 29.a Chapter:17 QUESTION: 35 30.b$1,000,000 + $1,000,000 = $2,000,000 Chapter:17 QUESTION: 36 31.b60,000 cushions + X - 40,000 cushions = 140,000 cushionsX = 140,000 cushions - 20,000 cushions; X = 120,000 cushions Chapter:17 QUESTION: 40 32.a120,000 cushions + 60,000 cushions = 180,000 cushions; or140,000 cushions + 40,000 cushions = 180,000 cushions Chapter:17 QUESTION: 41 33.b(40,000 cushions x 50%) = 20,000 cushions20,000 cushions + 140,000 cushions = 160,000 cushions Chapter:17 QUESTION: 42 34.b Chapter:17 QUESTION: 44 35.d Chapter:17 QUESTION: 45 36.b Chapter:17 QUESTION: 46 37.c$60,000/26,700 = $2.25 Chapter:17 QUESTION: 47


PAGE 4 38.d Chapter:17 QUESTION: 48 39.a100,000 + 200,000 270,000 = 30,000 ending inventory200,000 - 30,000 = 170,000 started and completed units Chapter:17 QUESTION: 50 40.b$244,000 + $176,000 - $36,600 = $383,400 Chapter:17 QUESTION: 52 41.d Chapter:17 QUESTION: 53 42.c Chapter:17 QUESTION: 54 43.c Chapter:17 QUESTION: 55 44.d Chapter:17 QUESTION: 56 45.b10 units x $4,000 = $ 40,00010 units x 50% x $16,000 = 80,000 --------

### ======== Chapter:17 QUESTION: 57 46.c$1,680,000 - $1,400,000 = $280,000 conversion cost variances Chapter:17 QUESTION: 59 47.b40 x $4,000 = $160,000$160,000 x 0.9 = $144,000 Chapter:17 QUESTION: 60 48.c Chapter:17 QUESTION: 61 49.d Chapter:17 QUESTION: 63

PAGE 5 50.d Chapter:17 QUESTION: 64


51.cCompleted and transferred out 350,000 unitsEnding work-in-process (25,000 x 0.65) 32,500 units ------- 382,500 units ======= Chapter:17 QUESTION: 67 52.dBeginning work-in-process (100,000 x 0.10) 10,000 unitsCompleted and transferred out 250,000 unitsEnding work-in-process (50,000 x 0.65) 32,500 units ------- 292,500 units ======= Chapter:17 QUESTION: 68 53.b350,000 units + 0 units = 350,000 units Chapter:17 QUESTION: 69 54.b100,000 units + 250,000 units + 0 = 350,000 units Chapter:17 QUESTION: 70 55.bDirect materials per unit ($200,000/400 units) $ 500Conversion costs per unit ($200,000/(400 x 0.40) units) 1,250 ------Total costs per unit $1,750 ====== Chapter:17 QUESTION: 29 56.d$180,000 + $1,000,000 = $1,180,000$1,180,000 / 1,050 units = $1,123.81 Chapter:17 QUESTION: 37 57.a$270,000 + $1,000,000 = $1,270,000$1,270,000 / 1,012.5 = $1,254.32 Chapter:17 QUESTION: 38

PAGE 6 58.c(150 units x 75%) x $1,254.32 = $141,111 Chapter:17 QUESTION: 39 59.cMaterials (20,000 units x $8.00) $160,000Labor (20,000 units x $5.00) 100,000


Overhead (22,400 units x $9.00) 201,600Beginning 18,000 --------

### ======== Chapter:17 QUESTION: 49 60.c$244,000/200,000 units = $1.22 per unit$1.22 x 30,000 = $36,600 Chapter:17 QUESTION: 51 61.a70 units x 75% x $16,000 = $ 840,000(40 - 10 units) x $16,000 = 480,00010 units x 50% x $16,000 = 80,000 ---------- Budgeted $1,400,000 ==========$1,400,000 x 1.20% = $1,680,000 Chapter:17 QUESTION: 58

PAGE 7 62.a. Materials Conversion Totals --------- ---------- ------ Cost to account for: $399,750 $165,000 $564,750 Equivalent units: ö 75,000 ö 55,000 -------- --------


Cost per equivalent unit $5.33 $3.00 $8.33 ===== ===== =====b. Assigned to completed units: (55,000 x $8.33) = $458,150c. Transferred out: (55,000 x $8.33) = $458,150d. Ending work-in-process inventory: Direct materials (20,000 x $5.33) $106,600 Conversion (0 x $3.00) 0 -------- Total $106,600 ======== Chapter:17 QUESTION: 71

PAGE 8 63.a. Direct materials: Beginning inventory 0 liters Units started 440,000 liters -------


Equivalent units 440,000 liters ======= Conversion costs: Beginning inventory 0 liters Units started 440,000 liters ------- To account for 440,000 liters Units transferred out 420,000 liters ------- Ending inventory 20,000 liters ======= Units transferred out 420,000 liters Ending inventory 30 percent complete 6,000 liters ------- Equivalent units 426,000 liters =======b. Direct materials: Beginning inventory, 100% 24,000 liters Units started 440,000 liters ------- Equivalent units 464,000 liters ======= Conversion costs: Completed and transferred out 444,000 liters Ending inventory 30 percent complete 6,000 liters ------- Equivalent units 450,000 liters ======= Chapter:17 QUESTION: 72

PAGE 9 64.a. Physical Units: Equivalent units: Beginning inventory 20,000 Units completed 144,000 Units started 160,000 Ending inventory 36,000


------- ------- To account for 180,000 Equivalent units 180,000 Units completed -144,000 ======= ------- Ending inventory 36,000 =======b. Materials Cost to account for: --------- Beginning work-in-process $ 1,000 Current period 26,000 ------- Total costs to account for $27,000 Equivalent units ö180,000 ------- Cost per equivalent unit $ 0.15 ======= Assigned to good units (144,000 x $0.15) $21,600c. Ending work-in-process (36,000 x $0.15) $ 5,400 Chapter:17 QUESTION: 73

PAGE 10 65. Production Cost Worksheet Flow of production Phys. units Direct materials Conversion


------------------ ----------- ---------------- ----------Work-in-process, beginning 20,000Started during period 40,000 ------To account for 60,000 ======Units completed 50,000 50,000 50,000Work-in-process ending 10,000 10,000 6,000 ------ ------ ------Accounted for 60,000 60,000 56,000 ====== ====== ====== Costs Totals Direct materials Conversion ----- ------ ---------------- ----------Work-in-process, beginning $ 17,200 $12,000 $ 5,200Costs added during period 94,000 60,000 34,000 -------- ------- -------Total costs to account for $111,200 $72,000 $39,200Divided by equivalent units ö60,000 ö56,000 ------- -------Equivalent unit costs $1.90 $1.20 $0.70 ===== ===== =====Assignment of costs: Costs transferred out (50,000 x $1.90) $ 95,000 Work-in-process, ending Direct materials (10,000 x $1.20) 12,000 Conversion (10,000 x $0.70 x 0.60) 4,200 -------- Costs accounted for $111,200 ======== Chapter:17 QUESTION: 74

PAGE 11 66. Production Cost Worksheet Flow of production Physical units Direct materials Conversion ------------------ -------------- ---------------- ----------


Work-in-process, beginning 6,000Started during period 24,000 ------To account for 30,000 ======Units completed: Beginning work-in-process 6,000 4,000 Started and completed 12,000 12,000 12,000 Ending work-in-process 12,000 12,000 6,000 ------ ------ ------Accounted for 30,000 24,000 22,000 ====== ====== ====== Costs Totals Direct materials Conversion ----- ------ ---------------- ----------Work-in-process, beginning $ 5,000 Costs added during period 33,400 $18,000 $15,400 ------- ------- -------Total costs to account for $38,400 $18,000 $15,400Divided by equivalent units ö24,000 ö22,000 ------- ------- Equivalent unit costs $1.45 $0.75 $0.70Assignment of costs: Work-in-process, beginning $ 5,000 Completion of beginning (4,000 x $0.70) 2,800 ------- Total beginning inventory $ 7,800 Started and Completed (12,000 x $1.45) 17,400 ------- Total costs transferred out $25,200 Work-in-process, ending Direct materials (12,000 x $0.75) $9,000 Conversion (12,000 x $0.70 x 0.50) 4,200 13,200 ------ ------- Costs accounted for $38,400 ======= Chapter:17 QUESTION: 77

PAGE 12 67.a. Production Cost Worksheet Flow of production Physical units Direct materials Conversion ------------------ -------------- ---------------- ----------


Work-in-process, beginning 1,600 Started during period 2,000 ----- To account for 3,600 ===== Units completed 3,200 3,200 3,200 Work-in-process ending 400 400 240 ----- ----- ----- Accounted for 3,600 3,600 3,440 ===== ===== ===== Costs Totals Direct materials Conversion ----- ------ ---------------- ---------- Work-in-process, beginning $236,080 $154,000 $ 82,080 Costs added during period 460,000 260,000 200,000 -------- -------- -------- Total costs to account for $696,080 $414,000 $282,080 Divided by equivalent units ö 3,600 ö 3,440 -------- -------- Equivalent unit costs $197 $115 $82 Assignment of costs: Completed units (3,200 x $197) $630,400 Work-in-process, ending Direct materials (400 x $115) $46,000 Conversion (400 x $82 x 0.60) 19,680 65,680 ------- -------- Costs accounted for $696,080 ========b. Work-in-process $260,000 Materials Inventory $260,000 Finished Goods $630,400 Work-in-process $630,400 Chapter:17 QUESTION: 76

PAGE 13 68. Production Cost Worksheet Finishing Department Weighted-Average Method Flow of production Phys. units Conversion Trans.in ------------------ ----------- ---------- --------


Work-in-process, beginning 8,000Transferred in during period 32,000 ------To account for 40,000 ======Units transferred out 36,000 36,000 36,000Work-in-process ending 4,000 1,200 4,000 ------ ------ ------Accounted for 40,000 37,200 40,000 ====== ====== ====== Costs Totals Conversion Trans.in ----- ------ ---------- --------Work-in-process, beginning $ 34,000 $20,000 $ 14,000Costs added during period 138,000 38,000 100,000 ------- ------- --------Total costs to account for $172,000 $58,000 $114,000 Divided by equivalent units ö37,200 ö40,000 ------- --------Equivalent unit costs $4.41 $1.56 $2.85Assignment of costs: Transferred out (36,000 x $4.41) $158,760 Work-in-process, ending Transferred-in costs (4,000 x $2.85) $11,400 Conversion (1,200 x $1.56) 1,872 13,272 ------- -------- Costs accounted for $172,032 ======== Chapter:17 QUESTION: 78

PAGE 14 69. Production Cost Worksheet Finishing Department FIFO Method Flow of production Phy. units D. mat. Conversion Trans.-in


------------------ ---------- ------- ---------- ---------Work-in-process, beginning 24,000Started during period 64,000 ------To account for 88,000 ======Good units completed: Beginning work-in-process 24,000 24,000 4,800 Started and completed 44,000 44,000 44,000 44,000 Ending work-in-process 20,000 0 6,000 20,000 ------ ------ ------ ------Accounted for 88,000 68,000 54,800 64,000 ====== ====== ====== ====== Costs Totals D. mat. Conversion Trans.-in ----- ------ ------- ---------- ---------Work-in-process, beginning $ 52,000 Costs added during period 230,500 $34,000 $68,500 $128,000 -------- ------- ------- --------Total costs to account for $282,500 $34,000 $68,500 $128,000Divided by equivalent units ö68,000 ö54,800 ö64,000 -------- ------- ------- --------Equivalent unit costs $3.75 $0.50 $1.25 $2.00Assignment of costs: Work-in-process, beginning $ 52,000 Completion of beginning: D. mat. (24,000 x $0.50) $12,000 Conv. (4,800 x $1.25) 6,000 18,000 ------- -------- Total beginning inventory $ 70,000 Started and Completed (44,000 x $3.75) 165,000 -------- Total costs transferred out $235,000 Work-in-process, ending Trans.-in (20,000 x $2.00) $40,000 Conversion (20,000 x $1.25 x 0.30) 7,500 47,500 ------- -------- Costs accounted for $282,500

PAGE 15 ======== Chapter:17 QUESTION: 79


PAGE 16


70. Production Cost Worksheet Cutting Department Weighted-Average Method Flow of Production Physical units Direct materials Conversion ------------------ -------------- ---------------- ----------Work-in-process, beginning 20,000Started during period 40,000 ------To account for 60,000 ======Units transferred out 50,000 50,000 50,000Work-in-process, ending 10,000 10,000 4,000 ------ ------ ------Accounted for 60,000 60,000 54,000 ====== ====== ====== Costs Totals Direct materials Conversion ----- ------ ---------------- ----------Work-in-process, beginning $15,000 $12,000 $ 3,000Costs added during period 72,000 48,000 24,000 ------- ------- -------Total costs to account for $87,000 $60,000 $27,000Divided by equivalent units ö60,000 ö54,000 ------- -------Equivalent unit costs $1.50 $1.00 $0.50Assignment of costs: Transferred out (50,000 x $1.50) $75,000 Work-in-process, ending Direct materials (10,000 x $1.00) $10,000 Conversion (10,000 x 0.40 x $0.50) 2,000 12,000 ------- ------- Costs accounted for $87,000 ======= Production Cost Worksheet Finishing Department FIFO Method Flow of Production Phy. units D. mat. Conversion Trans.-in ------------------ ---------- ------- ---------- ---------Work-in-process, beginning 20,000Started during period 50,000

PAGE 17 ------


To account for 70,000 ======Good units completed: Beginning work-in-process 20,000 20,000 5,000 Started and completed 30,000 30,000 30,000 30,000 Ending work-in-process 20,000 0 5,000 20,000 ------ ------ ------ ------Accounted for 70,000 50,000 40,000 50,000 ====== ====== ====== ====== Costs Totals D. mat. Conversion Trans.-in ----- ------ ------- ---------- ---------Work-in-process, beginning $ 36,000 Costs added during period 167,000 $28,000 $64,000 $75,000 -------- ------- ------- -------Total costs to account for $203,000 $28,000 $64,000 $75,000Divided by equivalent units ö50,000 ö40,000 ö50,000 -------- ------- ------- --------Equivalent unit costs $3.66 $0.56 $1.60 $1.50Assignment of costs: Work-in-process, beginning $ 36,000 Completion of beginning: D. mat. (20,000 x $0.56) $11,200 Conv. (20,000 x 0.25 x $1.60) 8,000 19,200 ------- -------- Total beginning inventory $ 55,200 Started and Completed (30,000 x $3.66) 109,800 -------- Total costs transferred out $165,000 Work-in-process, ending Trans.-in (20,000 x $1.50) $30,000 Conversion (20,000 x $1.65 x 0.25) 8,000 38,000 ------- -------- Costs accounted for $203,000 ======== Chapter:17 QUESTION: 80

PAGE 18 71.It appears that the accountant may not be using equivalent units of production but is only including completed units when preparing the monthly reports. Particularly with large summer inventories, the number and value associated costs with ending work-in-process could cause wide fluctuations between months if the equivalent unit concept is ignored. The accountant should start using equivalent units to determine the costs to assign to finished goods and ending work-in-process each month.


Chapter:17 QUESTION: 81 72.Probably the best way to address the problem of inflation is to use FIFO costing. This method keeps the cost of beginning inventories separate from production units started and completed in a given period. Therefore, the company may be able to track the cost of items that were actually produced in a given period, versus mixing the units and costs of multiple periods. Chapter:17 QUESTION: 82 73.A beginning point would be to change to a standard costing system. Standard costing eliminates many of the problems of FIFO costing in tracking actual costs to products. With standard costing, only the equivalent units have to be determined immediately, not the actual cost of the period. A standard cost for materials and conversion are then applied to the equivalent units for the reporting period. Actual costs and variances from standard costing can be determined later. This approach is very appropriate for a company that has many products. Chapter:17 QUESTION: 83

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