cost chapter 8
TRANSCRIPT
©The McGraw-Hill Companies, Inc., 2008 234 Fundamentals of Cost Accounting
8 Process Costing
Solutions to Review Questions
8-1. Process costing is most likely to be used in industries that produce relatively homogeneous products using continuous processes.
8-2. Using the basic cost flow equation, rearrange the terms to solve for the unknown beginning inventory. From BB + TI – TO = EB, we have:
Beginning Inventory + Current Work – Transferred Out = Ending Inventory.
Rearranging yields:
Beginning Inventory = Transferred Out + Ending Inventory – Current Work
8-3. With FIFO costing, the units in the beginning inventory are transferred out first. These beginning inventory units carry with them the costs incurred in a previous period plus the costs incurred this period to complete the beginning inventory. The costs transferred-out will tend to be lower. The ending work-in-process inventory will be carried at a cost that is more current, hence higher.
8-4. Under FIFO costing, the equivalent units represent only the work done in the current period. Under weighted average, the equivalent units represent the work associated with all of the costs charged to work in process regardless of the period in which those costs were incurred (i.e., including costs from prior periods that are in beginning inventory).
8-5. Prior department costs behave the same as direct materials, which are typically added at the start of production. They are treated separately because they represent the accumulation of costs from previous departments rather than the receipt of materials from the stores area. It is helpful to separate prior department costs from other costs because the manager of the department receiving the transferred units has no control over the costs incurred in prior departments. Thus, the prior department costs are not useful for evaluating the performance of the manager of the department receiving the units.
©The McGraw-Hill Companies, Inc., 2008
8-6. From BB + TI – TO = EB; TO = BB + TI – EB
Solutions Manual, Chapter 8 235
©The McGraw-Hill Companies, Inc., 2008
Solutions to Critical Analysis and Discussion Questions
8-7. To assign costs to specific barrels of liquid cleaning products or similarly mass–produced items requires a considerable amount of record keeping. Assuming products are all the same, a process costing system provides sufficient information for control purposes. Record keeping is simplified since all costs in a given month are accumulated in one account and assigned at the end of the period.
8-8. This is a fairly common problem. LIFO is usually beneficial for tax purposes when prices are rising and inventory levels are steady or rising. However, maintaining internal records on a LIFO basis is often quite burdensome. To avoid the problem, companies usually maintain their internal accounting records on a FIFO or weighted-average basis and then make an estimate of the LIFO cost of inventories. The LIFO estimate is usually done on a highly aggregated basis and employs some form of “dollar value” LIFO estimation.
A company may use LIFO for tax purposes and some other method for internal accounting purposes. This is an example of the idea of “different costs for different purposes,” which was discussed in earlier chapters.
8-9. The results will be the same using either costing system. The important point is that job costing and process costing are both methods to assign costs incurred to services completed. When there is only one service, the method of accumulation and assignment does not affect the final cost.
8-10. The correct answer is (b). The difference between the weighted-average and FIFO methods of process costing is how they handle beginning WIP. When there is no beginning WIP there is no difference between the two costing methods.
Answer (a) is incorrect because both methods assume units are homogeneous. Answer (c) is incorrect because amounts in beginning inventory will differ between FIFO and weighted-average. If there are no ending inventories, then the cost of goods manufactured is the sum of the current costs, which will be the same under both methods, and the costs in beginning work in process, which can differ. Answer (d) is incorrect because the cost per equivalent unit can differ and so the costs assigned to the equivalent units in ending inventory can differ.
236 Fundamentals of Cost Accounting
©The McGraw-Hill Companies, Inc., 2008
8-11. If the percentage completion is overstated, (a) the total equivalent units for the period will be overstated, because the work-in-process ending inventory will be assumed to have more equivalent units than it actually does. (b) The costs per equivalent unit will be understated, as the cost is divided by equivalent units that are overstated. (c) Because the equivalent units in ending work-in-process are overstated, the costs transferred-out will be understated (and the ending work-in-process costs overstated).
8-12. The correct answer is (b). The weighted-average method of process costing combines the costs of work done in the previous period and the current period.
8-13. (e). None of these answers are correct.
Answers (a) and (b) are incorrect because (a) ignores stages of completion and (b) double counts units started that are still in ending inventory. Answer (c) is incorrect because the ending inventory should be multiplied by the amount of work done this period, not work necessary to complete the items. Answer (d) is incorrect because for the same reason as answer (c): the ending inventory should be multiplied by the amount of work done this period, not work necessary to complete the items.
Solutions Manual, Chapter 8 237
©The McGraw-Hill Companies, Inc., 2008
Solutions to Exercises
8-14. (20 min.) Compute Equivalent Units—Weighted-Average Method: Clean Corporation
a.
Materials b.
Conversion CostsUnits transferred out .......................................... 210,000 210,000 Equivalent units in ending inventory: Materials: 20% x 70,000a units ........................ 14,000 EU Conversion costs: 10% x 70,000 units............. 7,000 EU Total equivalent units for all work done to date.. 224,000 EU 217,000 EU a70,000 units in ending inventory
= 40,000 units in beginning inventory + 240,000 units started this period – 210,000 units transferred out.
238 Fundamentals of Cost Accounting
©The McGraw-Hill Companies, Inc., 2008
8-15. (20 min.) Compute Equivalent Units—FIFO method: Clean Corporation Compute Equivalent Units—FIFO
a. Materials
b. Conversion Costs
To complete beginning inventory: Materials: 50%a x 40,000 units .................. 20,000
EU
Conversion costs: 70%b x 40,000 units ..... 28,000 EU Started and completed during the period ..... 170,000 EU c 170,000 EU Units still in ending inventory: Materials: 20% x 70,000d units .................. 14,000 EU Conversion costs: 10% x 70,000 units ....... 7,000 EU 204,000 EU 205,000 EU
a50% = 100% – 50% already done at the beginning of the period. b70% = 100% – 30% already done at the beginning of the period. c170,000 units started and completed = 210,000 units transferred out less 40,000 units from beginning inventory. d 70,000 units in ending inventory = 40,000 units in beginning inventory + 240,000 units started this period – 210,000 units transferred out.
Alternative Method: Equivalent
units of work done this
period
=Units
transferred out
+EU
ending inventory
–
EU beginning inventory
a. Materials: 204,000 EU = 210,000 units + 14,000 EU – 20,000 EU b. Conversion Costs: 205,000 EU = 210,000 units + 7,000 EU – 12,000 EU
Solutions Manual, Chapter 8 239
©The McGraw-Hill Companies, Inc., 2008
8-16. (15 min.) Compute Equivalent Units—Weighted Average Method: Missouri Corporation.
a. Materials
b. Conversion
Costs Units transferred out ............................................... 50,000 50,000 Equivalent units in ending inventory: Materials: 100% x 20,000 units............................. 20,000 Conversion costs: 15% x 20,000 units.................. 3,000 Total equivalent units for all work done to date....... 70,000 53,000
8-17. (20 min.) Compute Equivalent Units—FIFO method: Missouri Corporation.
a. Materials
b. Conversion
Costs To complete beginning inventory: Materials: 0%b x 10,000a units ............................... 0
EU
Conversion costs: 40%c x 10,000 units .................. 4,000 EU Started and completed during the period.................. 40,000 EU d 40,000 EU Units still in ending inventory: Materials: 100% x 20,000 units............................... 20,000 EU Conversion costs: 15% x 20,000 units.................... 3,000 EU 60,000 EU 47,000 EU
a 10,000 units in beginning inventory = 50,000 units transferred out + 20,000 units in ending inventory
– 60,000 units started this period. b 0% = 100% – 100% already done at the beginning of the period. c 40% = 100% – 60% already done at the beginning of the period. d 40,000 units started and completed = 50,000 units transferred out less 10,000 units from
beginning inventory.
Alternative Method Equivalent
units of work done this period
=Units
transferred out
+EU
ending inventory
– EU
beginning inventory
a. Materials: 60,000 EU = 50,000 units + 20,000 EU – 10,000 EUb. Conversion Costs: 47,000 EU = 50,000 units + 3,000 EU – 6,000 EU
240 Fundamentals of Cost Accounting
©The McGraw-Hill Companies, Inc., 2008
8-18. (30 min.) Compute Equivalent Units: Bears, Inc. a. Weighted-average method:
a. Materials
b. Conversion
Costs Units transferred out....................................................... 120,000 120,000Equivalent units in ending inventory: Materials: 100% x 18,000 units .................................... 18,000 Conversion costs: 75% x 18,000 units ......................... 13,500Total equivalent units for all work done to date .............. 138,000 133,500
b. First-in, First-out (FIFO) method:
a. Materials
b. Conversion
Costs To complete beginning inventory: Materials: 0%a x 18,000 units......................... 0
EU
Conversion costs: 40%b x 18,000 units .......... 7,200 EU Started and completed during the periodc.......... 102,000 EU 102,000 EU Units still in ending inventory: Materials: 100% x 18,000 units....................... 18,000 EU Conversion costs: 75% x 18,000 units............ 13,500 EU 120,000 EU 122,700 EU
a 0% = 100% – 100% already done at the beginning of the period. b 40% = 100% – 60% already done at the beginning of the period. c 102,000 units started and completed
= 120,000 units transferred out less 18,000 units from beginning inventory.
Solutions Manual, Chapter 8 241
©The McGraw-Hill Companies, Inc., 2008
8-19. (30 min.) Compute Equivalent Units—Ethical Issues: Aaron Company a. Weighted-average method:
a. Materials
b. Conversion
Costs Units transferred out ............................................... 210,000 210,000 Equivalent units in ending inventory: Materials: 0% x 40,000 units ............................... 0 Conversion costs: 40% x 40,000 units ................ 16,000 Total equivalent units for all work done to date....... 210,000 226,000
b. First-in, First-out (FIFO) method:
a. Materials
b. Conversion
Costs To complete beginning inventory: Materials: 0%a x 50,000 units ........................ 0
EU
Conversion costs: 40%b x 50,000 units.......... 20,000 EU Started and completed during the periodc ......... 160,000 EU 160,000 EU Units still in ending inventory: Materials: 0% x 40,000 units .......................... 0 EU Conversion costs: 40% x 40,000 units ........... 16,000 EU 160,000 EU 196,000 EU
a 0% = 100% – 100% already done at the beginning of the period (conversion was 60% complete).
b 40% = 100% – 60% already done at the beginning of the period. c 160,000 units started and completed = 210,000 units transferred out less 50,000 units from beginning inventory.
c.
1. The change will reduce the unit cost for the units transferred to finished goods.
2. It is not ethical; there is no reason to believe the change reflects anything other than a desire for reporting better results.
3. It is unlikely to be successful for long. An accounting system keeps track of actual costs. If a manager postpones reporting them this period, they will be reported next period or shortly thereafter.
242 Fundamentals of Cost Accounting
©The McGraw-Hill Companies, Inc., 2008
8-20. (20 min.) Compute Cost per Equivalent Unit—Weighted Average Method: Davenport Plant
Physical
Units Materials Eq. Units
Flow of units: Units to be accounted for: Beginning WIP inventory ................................ 90,000 Units started this period.................................. 240,000 Total units to account for............................. 330,000 Units accounted for: Completed and transferred out Materials (255,000 x 100%) ........................ 255,000 255,000 Units in ending inventory: Materials (75,000 x 100%) .......................... 75,000 75,000 Total units accounted for ......................... 330,000 330,000
Direct Materials Flow of costs: Costs to be accounted for: Costs in beginning WIP inventory................................. $33,000 Current period costs ..................................................... 105,600 Total costs to be accounted for ................................. $138,600 Cost per equivalent unit Materials ($138,600 ÷ 330,000 units) .......................... $0.42
Solutions Manual, Chapter 8 243
©The McGraw-Hill Companies, Inc., 2008
8-21. (20 min.) Compute Cost per Equivalent Unit—FIFO method: Davenport Plant
Physical Units
Materials Eq. Units
Flow of units: Units to be accounted for: Beginning WIP inventory ......................................... 90,000 Units started this period .......................................... 240,000 Total units to account for ..................................... 330,000 Units accounted for: Completed and transferred out From beginning WIP inventory (90,000 x 0%) 90,000 0 Started and completed currently (165,000a x 100%) .........................................................................
165,000 165,000
Units in ending inventory: Materials (75,000 x 100%)................................... 75,000 75,000 Total units accounted for.................................. 330,000 240,000a 165,000 units started and completed = 255,000 units transferred-out – 90,000 beginning WIP units.
Direct Materials
Flow of costs: Costs to be accounted for: Total costs to be accounted for (current period costs only) .......... $105,600Cost per equivalent unit Materials ($105,600 ÷ 240,000 units) .............................................. $ 0.44
244 Fundamentals of Cost Accounting
©The McGraw-Hill Companies, Inc., 2008
8-22. (20 min.) Compute Equivalent Units—FIFO method: Santiago Company Physical
Units Conversion Eq. Units
Flow of units: Units to be accounted for: Beginning WIP inventory .............................................. 90,000 Units started this period................................................ 1,020,000 Total units to account for........................................... 1,110,000 Units accounted for: Completed and transferred out From beginning WIP inventory [90,000 x (1 – 40%)] 90,000 54,000 Started and completed currently (870,000a x 100%) 870,000 870,000 Units in ending inventory: Conversion (150,000 x 70%)..................................... 150,000 105,000 Total units accounted for ....................................... 1,110,000 1,029,000a 870,000 units started and completed = 960,000 units transferred-out – 90,000 beginning
WIP units.
Solutions Manual, Chapter 8 245
©The McGraw-Hill Companies, Inc., 2008
8-23. (35 min.) Compute Costs per Equivalent Unit—Weighted-Average Method: Matsui Lubricants
Physical
Units
Equivalent Units Materials
Eq. units Conversion
Costs Eq. unitsFlow of units: Units to be accounted for: Beginning WIP inventory .................... 600 Units started this period ..................... 4,000 Total units to account for ................ 4,600 Units accounted for: Completed and transferred outa ......... 3,400 3,400 3,400 Units in ending inventory .................... 1,200 Materials (1,200 x 40%).................. 480 Conversion costs (1,200 x 20%)..... 240 Total units accounted for ................ 4,600 3,880 3,640a 3,400 units transferred out = 4,600 units to account for – 1,200 units in ending WIP inventory.
Total Direct
Materials Conversion
Costs Flow of costs: Costs to be accounted for: Costs in beginning WIP inventory........... $ 2,496 $ 1,952 $ 544 Current period costs ............................... 36,168 22,880 13,288 Total costs to be accounted for ............ $38,664 $24,832 $13,832Cost per equivalent unit Materials ($24,832 ÷ 3,880 units) ........... $ 6.40 Conversion costs ($13,832 ÷ 3,640 units) ....... $ 3.80
246 Fundamentals of Cost Accounting
©The McGraw-Hill Companies, Inc., 2008
8-24. (20 min.) Assign Costs to Goods Transferred Out and Ending Inventory—Weighted-Average Method: Matsui Lubricants
Total Direct
Materials Conversion
Costs Flow of costs: Costs to be accounted for: Costs in beginning WIP inventory .................. $ 2,496 $ 1,952 $ 544 Current period costs....................................... 36,168 22,880 13,288 Total costs to be accounted for.................... $38,664 $24,832 $13,832Cost per equivalent unit Materials ($24,832 ÷ 3,880 units)................... $ 6.40 Conversion costs ($13,832 ÷ 3,640) .............. $ 3.80Costs accounted for: Costs assigned to units transferred out $34,680 $21,760 a $12,920 b
Cost of ending WIP inventory......................... 3,984 3,072 c 912 d
Total costs accounted for............................. $38,664 $24,832 $13,832
Costs transferred out total $34,680, and costs in ending inventory total $3,984. a $21,760 = 3,400 EU x $6.40 per EU. b $12,920 = 3,400 EU x $3.80 per EU. c $3,072 = 480 EU x $6.40 per EU. d $912 = 240 EU x $3.80 per EU.
Solutions Manual, Chapter 8 247
©The McGraw-Hill Companies, Inc., 2008
8-25. (35 min.) Compute Costs per Equivalent Unit—FIFO Method: Matsui Lubricants
Physical
Units
Equivalent Units Materials
Eq. units Conversion Costs Eq. units
Flow of units: Units to be accounted for: Beginning WIP inventory ...................................... 600 Units started this period ....................................... 4,000 Total units to account for .................................. 4,600 Units accounted for: Completed and transferred outa ........................... 3,400 From beginning WIP inventory Materials (600 x (1 – 60%)) 240 Conversion (600 x (1 – 53%)) 282 Started and completed currently (2,800 x 100%) 2,800 2,800 Units in ending inventory ...................................... 1,200 Materials (1,200 x 40%).................................... 480 Conversion costs (1,200 x 20%)....................... 240 Total units accounted for .................................. 4,600 3,520 3,322a 3,400 units transferred out
= 4,600 units to account for – 1,200 units in ending WIP inventory.
Total Direct
Materials Conversion
Costs Flow of costs: Costs to be accounted for: Costs in beginning WIP inventory................. $ 2,496 $ 1,952 $ 544 Current period costs ..................................... 36,168 22,880 13,288 Total costs to be accounted for .................. $38,664 $24,832 $13,832Cost per equivalent unit Materials ($22,880 ÷ 3,520 units) ................. $ 6.50 Conversion costs ($13,288 ÷ 3,322) ............. $ 4.00
248 Fundamentals of Cost Accounting
©The McGraw-Hill Companies, Inc., 2008
8-26. (20 min.) Assign Costs to Goods Transferred Out and Ending Inventory—FIFO Method: Matsui Lubricants.
Physical
Units
Equivalent Units Materials
Eq. units Conversion Costs
Eq. units Flow of units: Units to be accounted for: Beginning WIP inventory ...................... 600 Units started this period........................ 4,000 Total units to account for................... 4,600 Units accounted for: Completed and transferred outa ........... 3,400 From beginning WIP inventory Materials (600 x (1 – 60%)) 240 Conversion (600 x (1 – 53%)) 282 Started and completed currently (2,800 x 100%).............................................
2,800
2,800
Units in ending inventory ...................... 1,200 Materials (1,200 x 40%) .................... 480 Conversion costs (1,200 x 20%) ....... 240 Total units accounted for................... 4,600 3,520 3,322a 3,400 units transferred out = 4,600 units to account for – 1,200 units in ending WIP inventory.
Solutions Manual, Chapter 8 249
©The McGraw-Hill Companies, Inc., 2008
8-26. (continued)
Total Direct
Materials Conversion
Costs Flow of costs: Costs to be accounted for: Costs in beginning WIP inventory.......... $ 2,496 $ 1,952 $ 544 Current period costs .............................. 36,168 22,880 13,288 Total costs to be accounted for ........... $38,664 $24,832 $13,832Cost per equivalent unit Materials ($22,880 ÷ 3,520 units) .......... $ 6.50 Conversion costs ($13,288 ÷ 3,322) ...... $ 4.00 Costs accounted for: Costs assigned to units transferred out:
Costs from beginning WIP inventory ... $ 2,496 $ 1,952 $ 544 Current costs added to complete beginning WIP inventory .......................... 2,688
Materials ($6.50 x 240) .................. 1,560 Conversion costs ($4.00 x 282) ...... 1,128 Current costs of units started and completed:
29,400
Materials ($6.50 x 2,800) .................. 18,200 Conversion costs ($4.00 x 2,800) ..... 11,200Total costs transferred out ....................... $ 34,584 $21,712 $12,872Cost of ending WIP inventory .................. 4,080 Materials ($6.50 x 480) ..................... 3,120 Conversion costs ($4.00 x 240) ........ 960 Total costs accounted for .................... $38,664 $24,832 $13,832
Ending inventory is slightly higher under the FIFO method because the unit costs are higher under FIFO.
250 Fundamentals of Cost Accounting
©The McGraw-Hill Companies, Inc., 2008
8-27. (35 min.) Compute Costs per Equivalent Unit—Weighted-Average Method: Pacific Ink
Physical
Units
Equivalent Units Materials
Eq. units Conversion Costs
Eq. units Flow of units: Units to be accounted for: Beginning WIP inventory............................ 24,000 Units started this perioda 42,000 Total units to account for.......................... 66,000 Units accounted for: Completed and transferred out (given) ...... 51,000 51,000 51,000 Units in ending inventory............................ 15,000 Materials (15,000 x 80%) ......................... 12,000 Conversion costs (15,000 x 40%) ............ 6,000 Total units accounted for.......................... 66,000 63,000 57,000a 42,000 units started this period = 66,000 units to account for – 24,000 units in beginning work-in-process inventory.
Total Direct
Materials
Conversion Costs
Flow of costs: Costs to be accounted for: Costs in beginning WIP inventory .............. $ 372,480 $ 152,460 $ 220,020 Current period costs................................... 2,685,720 1,171,800 1,513,920 Total costs to be accounted for................ $3,058,200 $1,324,260 $1,733,940Cost per equivalent unit Materials ($1,324,260 ÷ 63,000 units)........ $ 21.02 Conversion costs ($1,733,940 ÷ 57,000) ... $ 30.42
Solutions Manual, Chapter 8 251
©The McGraw-Hill Companies, Inc., 2008
8-28. (20 min.) Assign Costs to Goods Transferred Out and Ending Inventory—Weighted-Average Method: Pacific Ink.
Total Direct
Materials Conversion
Costs Flow of costs: Costs to be accounted for: Costs in beginning WIP inventory............. $ 372,480 $ 152,460 $ 220,020 Current period costs ................................. 2,685,720 1,171,800 1,513,920 Total costs to be accounted for .............. $3,058,200 $1,324,260 $1,733,940Cost per equivalent unit Materials ($1,324,260 ÷ 63,000 units) ...... $ 21.02 Conversion costs ($1,733,940 ÷ 57,000) .. $ 30.42Costs accounted for: Costs assigned to units transferred out $2,623,440 $1,072,020
a $1,551,420
b
Cost of ending WIP inventory ................... 434,760 252,240c
182,520d
Total costs accounted for ....................... $3,058,200 $1,324,260 $1,733,940
Costs transferred out total $2,623,440 and costs in ending inventory total $434,760. a $1,072,020 = 51,000 EU x $21.02 per EU. b $1,551,420 = 51,000 EU x $30.42 per EU. c $252,240 = 12,000 EU x $21.02 per EU. d $182,520 = 6,000 EU x $30.42 per EU.
252 Fundamentals of Cost Accounting
©The McGraw-Hill Companies, Inc., 2008
8-29. (35 min.) Compute Costs per Equivalent Unit—FIFO Method: Pacific Ink Physical
Units
Equivalent Units Materials
Eq. units Conversion
Costs Eq. units
Flow of units: Units to be accounted for: Beginning WIP inventory............................. 24,000 Units started this perioda 42,000 Total units to account for........................... 66,000 Units accounted for: Completed and transferred out 51,000 From beginning WIP inventory Materials (24,000 x (1 – 30%)) ...... 16,800 Conversion (24,000 x (1 – 30%)) .. 16,800 Started and completed ......................... 27,000 27,000 Units in ending inventory............................. 15,000 Materials (15,000 x 80%) .......................... 12,000 Conversion costs (15,000 x 40%) ............. 6,000 Total units accounted for........................... 66,000 55,800 49,800a 42,000 units started this period = 66,000 units to account for – 24,000 units in beginning
work-in-process inventory.
Total Direct
Materials
Conversion Costs
Flow of costs: Costs to be accounted for: Costs in beginning WIP inventory .............. $ 372,480 $ 152,460 $ 220,020 Current period costs................................... 2,685,720 1,171,800 1,513,920 Total costs to be accounted for................ $3,058,200 $1,324,260 $1,733,940Cost per equivalent unit Materials ($1,171,800 ÷ 55,800 units)........ $ 21.00 Conversion costs ($1,513,920 ÷ 49,800) ... $ 30.40
Solutions Manual, Chapter 8 253
©The McGraw-Hill Companies, Inc., 2008
8-30. (20 min.) Assign Costs to Goods Transferred Out and Ending Inventory—FIFO Method: Pacific Ink.
Physical
Units
Equivalent Units Materials
Eq. units Conversion Costs Eq. units
Flow of units: Units to be accounted for: Beginning WIP inventory ............................. 24,000 Units started this perioda 42,000 Total units to account for ......................... 66,000 Units accounted for: Completed and transferred out 51,000 To complete beginning WIP inventory Materials (24,000 x (1 – 30%))........ 16,800 Conversion (24,000 x (1 – 30%)) .... 16,800 Started and completed ........................... 27,000 27,000 Units in ending inventory ............................. 15,000 Materials (15,000 x 80%)......................... 12,000 Conversion costs (15,000 x 40%)............ 6,000 Total units accounted for ......................... 66,000 55,800 49,800a 42,000 units started this period = 66,000 units to account for – 24,000 units in beginning work-in-process inventory.
254 Fundamentals of Cost Accounting
©The McGraw-Hill Companies, Inc., 2008
8-30. (continued)
Total Direct
Materials
Conversion Costs
Flow of costs: Costs to be accounted for: Costs in beginning WIP inventory ............. $ 372,480 $ 152,460 $ 220,020 Current period costs.................................. 2,685,720 1,171,800 1,513,920 Total costs to be accounted for............... $3,058,200 $1,324,260 $1,733,940Cost per equivalent unit Materials ($1,171,800 ÷ 55,800 units)....... $ 21.00 Conversion costs ($1,513,920 ÷ 49,800) .. $ 30.40 Costs accounted for: Costs assigned to units transferred out:
Costs from beginning WIP inventory..... $ 372,480 $ 152,460 $ 220,020 Current costs added to complete beginning WIP inventory .............. 863,520
Materials ($21.00 x 16,800) ................. 352,800 Conversion costs ($30.40 x 16,800) .... 510,720 Current costs of units started and completed: .................................... 1,387,800
Materials ($21.00 x 27,000) ................. 567,000 Conversion costs ($30.40 x 27,000) .... 820,800Total costs transferred out ........................ $ 2,623,800 $1,072,260 $1,551,540Cost of ending WIP inventory.................... 434,400 Materials ($21.00 x 12,000) ................. 252,000 Conversion costs ($30.40 x 6,000) ...... 182,400 Total costs accounted for ........................ $3,058,200 $1,324,260 $1,733,940 Ending inventory is slightly lower under the FIFO method because the unit costs are lower under FIFO. This means that current costs are slightly lower than last period’s costs. Because ending WIP inventory is carried at current costs under FIFO, the ending WIP costs are lower under FIFO.
Solutions Manual, Chapter 8 255
©The McGraw-Hill Companies, Inc., 2008
8-31. (50 min.) Production Cost Report—FIFO method: El Paso Corporation
Physical Units
Equivalent Units
Prior Department
DepartmentNo. B
Flow of units: Units to be accounted for: Beginning WIP inventory .............................. 15,000 Units started this period................................ 35,000 Total units to account for ............................ 50,000 Units accounted for: Completed and transferred out From beginning WIP inventory ................... 15,000 Prior department....................................... 0 Dept. B [15,000 units x (1–20%)].............. 12,000 Started and completed currently................. 30,000 30,000 30,000Units in ending WIP inventory......................... 5,000 Prior department......................................... 5,000 Department B (5,000 units x 50%) ............. 2,500 Total units accounted for .......................... 50,000 35,000 44,500
256 Fundamentals of Cost Accounting
©The McGraw-Hill Companies, Inc., 2008
8-31. (continued)
Total Prior
Department Department
No. B Flow of costs: Costs to be accounted for: Costs in beginning WIP inventory .................... $ 36,675 $29,000 $ 7,675 Current period costs......................................... 219,075 70,000 149,075 Total costs to be accounted for...................... $255,750 $99,000 $156,750Cost per equivalent unit Prior department ($70,000 ÷ 35,000 units) ..... $ 2.00 Department. B ($149,075 ÷ 44,500 units) ....... $ 3.35 Costs accounted for: Costs assigned to units transferred out:
Costs from beginning WIP inventory.............. $ 36,675 $29,000 $ 7,675 Current costs added to complete beginning WIP inventory..................................................... 40,200
Prior department .......................................... 0 Department B ($3.35 x 12,000 units) .......... 40,200 Current costs of units started and completed: . 160,500 Prior department ($2.00 x 30,000) ............... 60,000 Department B ($3.35 x 30,000) ................. 100,500Total costs transferred out ................................. $237,375 $89,000 $148,375Cost of ending WIP inventory............................. 18,375 Prior department ($2.00 x 5,000) ................ 10,000 Department B ($3.35 x 2,500) .................... 8,375 Total costs accounted for............................... $255,750 $99,000 $156,750
Solutions Manual, Chapter 8 257
©The McGraw-Hill Companies, Inc., 2008
8-32. (50 min.) Production Cost Report—Weighted-Average Method: El Paso Corporation
Physical Units
Equivalent Units
Prior Department
Department No. B
Flow of units: Units to be accounted for: Beginning WIP inventory .............................. 15,000 Units started this period................................ 35,000 Total units to account for ............................ 50,000 Units accounted for: Completed and transferred out ..................... 45,000 45,000 45,000 Units in ending inventory .............................. 5,000 Prior department (5,000 units x 100%) ....... 5,000 Department No. B (5,000 units x 50%) ....... 2,500 Total units accounted for .......................... 50,000 50,000 47,500 Total Direct
Materials Conversion
Costs Flow of costs: Costs to be accounted for: Costs in beginning WIP inventory................... $ 36,675 $29,000 $ 7,675 Current period costs ....................................... 219,075 70,000 149,075 Total costs to be accounted for .................... $255,750 $99,000 156,750Cost per equivalent unit Prior departments ($99,000 ÷ 50,000 units) ... $ 1.98 Department No. B ($156,750 ÷ 47,500).......... $ 3.30Costs accounted for: Costs assigned to units transferred out .......... $237,600 $89,100 $148,500 Costs of ending WIP inventory ....................... 18,150 9,900 8,250 Total costs accounted for ............................. $255,750 $99,000 $156,750
The ending inventory is lower under the weighted-average method than under the FIFO method. Under weighted-average, the ending inventory is $18,150. This is $225 less than FIFO, which is $18,375. The difference is due to the differences in costs per equivalent unit between FIFO and weighted-average.
258 Fundamentals of Cost Accounting
©The McGraw-Hill Companies, Inc., 2008
8-33. (50 min.) (20 minutes) Operations Costing: Brokia Electronics a.
Total
Basic (40,000 units)
Photo (30,000 units)
UrLife (10,000 units)
Materials...................... $2,800,000 $600,000 $1,500,000 $700,000 Conversion Assemblya .............. $ 1,400,000 700,000 525,000 175,000 Special Packaging.. 400,000 –0– –0– 400,000 Total conversion .. $ 1,800,000 $700,000 $525,000 $ 575,000Total Product Cost $4,600,000 $1,300,000 $2,025,000 $1,275,000Number of Units 40,000 30,000 10,000Cost per unit $32.50 $67.50 $127.50a Unit cost is $17.50 (= $1,400,000 ÷ 80,000 units)
b. (1)
Total
Basic (40,000 units)
Photo (30,000 units)
UrLife (10,000 units)
Materials $2,800,000 $600,000 $1,500,000 $700,000 Conversion Assemblya $ 1,400,000 300,000 750,000 350,000 Special Packaging 400,000 –0– –0– 400,000 Total conversion cost $ 1,800,000 $300,000 $750,000 $ 750,000Total Product Cost $4,600,000 $900,000 $2,250,000 $1,450,000Number of Units 40,000 30,000 10,000Cost per unit $22.50 $75.00 $145.00a Unit cost is 50% of material dollars (= $1,400,000 ÷ $2,800,000 material dollars)
(2) If there is a reason that conversion costs are related to material dollars (for example, because of the difficulty of working with different materials), this change might be justified. If it is done simply to shift cost to the cost-plus customer, this is not ethical.
Solutions Manual, Chapter 8 259
©The McGraw-Hill Companies, Inc., 2008
8-34. Operation Costing: Ferdon Watches a.
260 Fundamentals of Cost Accounting
©The McGraw-Hill Companies, Inc., 2008
8-34. (continued) b.
Total
Gag-Gift(5,000 units)
Commuter(10,000 units)
Sport (13,000 units)
Retirement(2,000 units)
Materials..................... $ 535,000 $25,000 $150,000 $260,000 $100,000 Conversion Assemblya .............. $120,000 $20,000 $40,000 $52,000 $ 8,000 Polishingb ............... 69,000 –0– 30,000 39,000 –0– Special Finishingc.... 20,000 –0– –0– –0– 20,000 Packagingd.............. 90,000 15,000 30,000 39,000 6,000 Total conversion ... $299,000 $35,000 $100,000 $130,000 $ 34,000Total Product Cost...... $834,000 $60,000 $250,000 $390,000 $134,000Number of Units ......... 5,000 10,000 13,000 2,000Cost per unit ............... $12.00 $25.00 $30.00 $67.00
a Unit cost is $4.00 (= $120,000 ÷ 30,000 units) b Unit cost is $3.00 (= $69,000 ÷ 23,000 units) c Unit cost is $10.00 (= $20,000 ÷ 2,000 units) d Unit cost is $3.00 (= $90,000 ÷ 30,000 units)
Solutions Manual, Chapter 8 261
©The McGraw-Hill Companies, Inc., 2008
Solutions to Problems
8-35. (45 min.) Compute Equivalent Units: Multiple Choice a. The answer is (2).
Materials Conversion
Costs Units transferred out ............................ 395,000
a 395,000
a
EU in ending inventory: Materials 100% x 40,000 units ......... 40,000 EU Conversion costs 30% x 40,000 units .....................................................
12,000 EU
EU produced this period ...................... 435,000 EU 407,000 EU aUnits transferred out = units started + beg. inventory – ending inventory = 360,000 + 75,000 – 40,000 = 395,000 b. The answer is (4). Prior
Department Costs
Materials
Conversion Costs
Units transferred out ............................ 660,000 a 660,000a
660,000a
EU in ending inventory: Prior department costs ..................... 80,000 EU Materialsb......................................... –0– EU Conversion costs 65% x 80,000 units .....................................................
52,000 EU
EU produced this period ...................... 740,000 EU 660,000 EU 712,000 EU a640,000 started + 100,000 in beg. inv. – 80,000 in ending inv. = 660,000 transferred out. bMaterials are added at the end of the process. c. The answer is (4).
EU to complete beginning inventory 70%a x 80,000 units....................................................................
56,000 EU
Started and completedb...................................... 1,200,000 EU EU in ending inventory 70% x 160,000 units ...... 112,000 EU EU done this period............................................ 1,368,000 EU
a70% = 100% – 30% already done at the beginning of the period.
262 Fundamentals of Cost Accounting
©The McGraw-Hill Companies, Inc., 2008
b 1,200,000 units = 1,280,000 transferred out – 80,000 from beginning inventory. 8-35. (continued) d. The answer is (1).
Materials
Conversion Costs
To complete beginning inventory:
Materials: 0%a x 20,000 units ..................... 0
Conversion costs: 30%b x 20,000 units....... 6,000 EU Started and completed during the period........ 70,000 c EU 70,000 EU Units still in ending inventory: Materials: 100% x 16,000 units ................... 16,000 EU Conversion costs: 50% x 16,000 units ........ 8,000 EU Work done in current period............................ 86,000 EU 84,000 EU
a 0% = 100% – 100% already done at the beginning of the period. b 30% = 100% – 70% already done at the beginning of the period. c 70,000 = 90,000 transferred out – 20,000 from beginning inventory.
Solutions Manual, Chapter 8 263
©The McGraw-Hill Companies, Inc., 2008
8-36. (30 min) FIFO Method: McKenzie Corporation a.
Physical Units
Equivalent Units Conversion
Costs Flow of units Units to be accounted for: Beginning WIP inventory ......................... 150,000 Units started this period........................... 810,000 Total units to account for ..................... 960,000 Units accounted for: Completed and transferred out From beginning WIP inventory .............. 150,000 (150,000 x 20%) .................................. 30,000 Started and completed currently............ 450,000 450,000 Units in ending WIP inventory.................. 360,000 (360,000 x 50%) .................................. 180,000 Total units accounted for ................... 960,000 660,000 Conversion Costs Flow of costs: Costs to be accounted for: Costs in beginning WIP inventory .................. $ 258,000 Current period costs....................................... 1,452,000 Total costs to be accounted for................... $1,710,000 Cost per equivalent unit ($1,452,000 ÷ 660,000) $ 2.20 Costs accounted for: Costs assigned to units transferred out: Costs from beginning WIP inventory .......... $ 258,000 Current costs added to complete beginning WIP inventory:
Conversion costs ($2.20 x 30,000) ........ 66,000 Current costs of units started and completed: Conversion costs ($2.20 x 450,000) .......... 990,000 Total costs transferred out ............................. $1,314,000 Cost of ending WIP inventory: Conversion costs ($2.20 x 180,000) ....... 396,000 (Answer) Total costs accounted for............................ $1,710,000
264 Fundamentals of Cost Accounting
©The McGraw-Hill Companies, Inc., 2008
8-36. (continued) b. Cost per unit for the previous period is $2.15 [= $258,000 ÷ (150,000 equiv. units x 80%)] Cost per unit for the current period is $2.20 as calculated in (a) above.
Solutions Manual, Chapter 8 265
8-37. (50 min.) Prepare A Production Cost Report—Weighted Average Method: Douglas Toys.
a.
Douglas Toys Assembling Department
Production Cost Report—Weighted Average
©The McGraw-Hill Companies, Inc., 2008
FLOW OF PRODUCTION UNITS (Section 1)
Physical units
Units to be accounted for: Beginning WIP inventory ..................... 100,000 Units started this period....................... 500,000 Total units to be accounted for ................ 600,000 (Section 2)
COMPUTE EQUIVALENT UNITS
Prior department costs
Materials
Labor
Manufacturing overhead
Units accounted for: Units completed and transferred out: From beginning inventory ................... 100,000 Started and completed currently ......... 300,000 Total transferred out............................ 400,000 400,000 400,000 400,000 400,000 Units in ending WIP inventory ............... 200,000 200,000 180,000 (90%) 140,000 (70%) 70,000 (35%)Total units accounted for ......................... 600,000 600,000 580,000 540,000 470,000
266 Fundamentals of Cost Accounting
©The McGraw-Hill Companies, Inc., 2008 Solutions Manual, Chapter 8 267
8-37. (continued) DETAILS
Total costs Prior
department costs
Materials
Labor
Manufacturingoverhead
Costs to be accounted for: (Section 3) Costs in beginning WIP inventory .................... $ 127,600 $ 64,000 $ 40,000 $
14,400$ 9,200
Current period costs.........................................
621,800 320,000 192,000 72,000 37,800Total costs to be accounted for .......................... $749,400 $384,000 $232,000 $86,400 $47,000Cost per equivalent unit: (Section 4) Prior department costs ($384,000 ∏ 600,000).. $0.64 Materials ($232,000 ∏ 580,000) ....................... $0.40 Labor ($86,400 ∏ 540,000)............................... $0.16 Manufacturing overhead ($47,000 ∏ 470,000) . $0.10Costs accounted for: (Section 5) Costs assigned to units transferred out: Prior department costs ($0.64 x 400,000)...... $256,000 $256,000 Materials ($0.40 x 400,000) ...........................
160,000 $ 160,000
Labor ($0.16 x 400,000)................................. 64,000 $64,000 Manufacturing overhead ($0.10 x 400,000) ... 40,000 $40,000 Total costs of units transferred out................... $520,000Costs assigned to ending WIP inventory: Prior department costs ($0.64 x 200,000)...... $128,000 128,000 Materials ($0.40 x 180,000) ........................... 72,000 72,000 Labor ($0.16 x 140,000).................................
22,400 22,400 Manufacturing overhead ($0.10 x 70,000) ..... 7,000 7,000 Total ending WIP inventory .............................. $229,400
©The McGraw-Hill Companies, Inc., 2008
Total costs accounted for ................................... $749,400 $384,000 $232,000 $86,400 $47,0008-37. (continued) b. The report to management should include the following items: Materials: The $0.40 per unit goal set by management is currently being achieved by the Assembling Dept. Labor: Equivalent unit labor costs per unit ($.16) is below management’s goal of $0.20. Manufacturing overhead: overhead costs per unit ($0.10) is slightly higher than management’s goal of $0.09.
268 Fundamentals of Cost Accounting
8-38. (50 min.) Prepare a Production Cost Report—FIFO Method: Douglas Toys.
a.
Douglas Toys Assembling Department
Production Cost Report—FIFO FLOW OF PRODUCTION UNITS
(Section 1)(Section 2)
COMPUTE EQUIVALENT UNITS
Physical units
Prior department
costs
Materials
Labor
Manufacturing
overhead Units to be accounted for: Beginning WIP inventory....................... 100,000 Units started this period ........................ 500,000 Total units to be accounted for ................ 600,000 Units accounted for: Units completed and transferred out: From beginning inventory ................... 100,000 –0– –0– 40,000 (40%)
a50,000 (50%) b
Started and completed currently ......... 300,000 300,000 300,000 300,000 300,000 Units in ending WIP inventory ............... 200,000 200,000 180,000 (90%) 140,000 (70%) 70,000 (35%) Total units accounted for ......................... 600,000 500,000 480,000 480,000 420,000
a40% = 100% – 60% already done at the beginning of the period. b50% = 100% – 50% already done at the beginning of the period.
©The McGraw-Hill Companies, Inc., 2008 Solutions Manual, Chapter 8 269
8-38. (continued) COSTS DETAILS
Total Costs
Prior department costs
Materials
Labor
Manufacturingoverhead
Costs to be accounted for: (Section 3) Costs in beginning WIP inventory...................
$ 127,600 $ 64,000 $ 40,000 $ 14,400 $ 9,200
Current period costs ....................................... 621,800 320,000 192,000 72,000 37,800
Total costs to be accounted for .......................... $749,400 $384,000 $232,000 $86,400 $47,000
Cost per equivalent unit: (Section 4)
Prior department costs ($320,000 ∏ 500,000)
$0.64
Materials ($192,000 ∏ 480,000).................... $0.40
Labor ($72,000 ∏ 480,000) ............................. $0.15
Manufacturing overhead ($37,800 ∏ 420,000) $0.09
©The McGraw-Hill Companies, Inc., 2008 270 Fundamentals of Cost Accounting
8-38. (continued)
©The McGraw-Hill Companies, Inc., 2008
Details
Total CostsPrior
department costs
Materials
Labor
Manufacturing overhead
Costs accounted for: (Section 5) Costs assigned to units transferred out: Costs from beginning WIP inventory.............. $ 127,600 $ 64,000 $ 40,000 $
14,400$ 9,200
Current costs added to complete beginning WIP inventory:
Prior department costs................................. –0– –0– Materials ......................................................
–0– –0– Labor ($0.15 x 40,000) ................................ 6,000 6,000 Manufacturing overhead ($0.09 x 50,000) ... 4,500 4,500 Total costs from beginning inventory ............. $138,100Current costs of units started and completed: Prior department costs ($0.64 x 300,000)...... 192,000 192,000 Materials ($0.40 x 300,000) ........................... 120,000 120,000 Labor ($0.15 x 300,000)................................. 45,000 45,000 Manufacturing overhead ($0.09 x 300,000) ... 27,000 27,000 Total costs of units started and completed....... $384,000Total costs of units transferred out ..................... $522,100Costs assigned to ending WIP inventory: Prior department costs ($0.64 x 200,000) ........ $128,000 128,000 Materials ($0.40 x 180,000) .............................
72,000 72,000 Labor ($0.15 x 140,000)................................... 21,000 21,000 Manufacturing overhead ($0.09 x 70,000) ....... 6,300 6,300Total ending WIP inventory ................................ $227,300
Solutions Manual, Chapter 8 271
©The McGraw-Hill Companies, Inc., 2008
Total costs accounted for ................................... $749,400 $384,000 $232,000 $86,400 $47,0008-38. (continued)
b. The report to management should include the following items:
Materials: The equivalent unit materials cost per unit ($0.40) is the same as management’s goal of $0.40.
Labor: Equivalent unit labor costs per unit ($0.15) is below management’s goal of $0.20.
Manufacturing overhead: Overhead costs per unit ($0.09) is equal to management’s goal of $0.09.
272 Fundamentals of Cost Accounting
8-39. (60 min.) Prepare a Production Cost Report and Adjust Inventory Balances—Weighted Average Method: Elmhurst Parts.
a. Elmhurst Parts
Production Cost Report—Weighted Average
©The McGraw-Hill Companies, Inc., 2008
Flow Of Production Units (Section 1)
Physical units
Units to be accounted for: Beginning WIP inventory............................ 400,000 Units started this period ............................. 2,000,000Total units to be accounted for ..................... 2,400,000
(Section 2)COMPUTE EQUIVALENT UNITS
Materials Labor Overhead
Units accounted for: Units completed and transferred out: From beginning inventory ........................
400,000 Started and completed currently .............. 1,400,000 Total transferred out................................. 1,800,000 1,800,000 1,800,000 1,800,000 Units in ending WIP inventory ....................
600,000 600,000 240,000 (40%) 240,000 (40%)
Total units accounted for .............................. 2,400,000 2,400,000 2,040,000 2,040,000
Solutions Manual, Chapter 8 273
8-39. (continued)
©The McGraw-Hill Companies, Inc., 2008
Costs Details
Total costs Labor Materials Overhead
Costs to be accounted for: (Section 3) Costs in beginning WIP inventory .................... $ 2,038,000
$ 400,000 $ 910,000 $ 728,000
Current period costs......................................... 9,224,000 2,600,000 3,680,000 2,944,000Total costs to be accounted for .......................... $11,262,000 $3,000,000 $4,590,000 $3,672,000Cost per equivalent unit: (Section 4) Materials ($3,000,000 ∏ 2,400,000) ............... $1.25 Labor ($4,590,000 ∏ 2,040,000)..................... $2.25 Overhead ($3,672,000 ∏ 2,040,000) .............. $1.80Costs accounted for: (Section 5) Costs assigned to units transferred out: Materials ($1.25 x 1,800,000) ........................ $2,250,000 $2,250,000 Labor ($2.25 x 1,800,000)..............................
4,050,000 $4,050,000 Overhead ($1.80 x 1,800,000) ....................... 3,240,000 $3,240,000 Total costs of units transferred out................... 9,540,000Costs assigned to ending WIP inventory: Materials ($1.25 x 600,000) ........................... 750,000 750,000 Labor ($2.25 x 240,000)................................. 540,000 540,000 Overhead ($1.80 x 240,000) .......................... 432,000 432,000 Total ending WIP inventory .............................. 1,722,000Total costs accounted for ................................... $11,262,000 $3,000,000 $4,590,000 $3,672,000
274 Fundamentals of Cost Accounting
©The McGraw-Hill Companies, Inc., 2008
8-39. (continued) b. Adjustment required: Work in
Process Finished
Goods Per problem statement.......... $1,321,920 $562,600 Correct .................................. 1,722,000 530,000 a
Difference.............................. ($400,080) $32,600
Journal entry:
Work in Process.................. 400,080 Finished Goods................. 32,600 Cost of Goods Sold........... 367,480
Additional computations: a100,000 units of finished-goods inventory ($1.25 + 2.25 + 1.80) = $530,000
c. Income would have been understated. Work in process would have been understated. Finished goods would have been overstated.
Solutions Manual, Chapter 8 275
©The McGraw-Hill Companies, Inc., 2008
8-40. (70 min.) Show Cost Flows—FIFO Method: Vermont Co.
Work in Process
Beginning Balance 716,000 Transferred out: Current work: materials (given) 300,400
716,000a From beginning inventory From current work
conversion (given) 1,287,000 240,320a materials 833,976b conversion costs
513,104 Ending Balance
Additional computations: a $240,320 = 40,000 EU transferred x ($300,400 ÷ 50,000 EU for materials) (40,000 EU = 50,000 – 10,000 in ending inventory)
1,790,296
b $833,976 = 40,500 EU transferred out x ($1,287,000 ÷ 62,500 EU for conversion costs; 40,500 EU = 62,500 – 22,000 in ending inventory)
Finished Goods
Transferred in 1,432,237 To Cost of Goods Sold (80%)a
Balance 358,059 aFrom total credits in Work in Process.
Cost of Goods Sold From Finished Goods 1,432,237 Overapplied overhead
(See explanation below)55,000
Overhead applied in beginning WIP inventory is 125% of direct labor costs (i.e., $325,000 ÷ $260,000). Since the application rate has not changed, the ratio of applied overhead to total conversion costs found in the beginning inventory should also hold for conversion costs this period.
For this period, 1.25 D.L. + D.L. = $1,287,000
2.25 D.L. $1,287,000
Based on the balance in the manufacturing overhead account, actual overhead is $660,000. Therefore, overhead is overapplied by $55,000 (i.e., $715,000 – $660,000).
=D.L. = $572,000
So, total conversion costs – direct labor = overhead applied$1,287,000 – $572,000 = $715,000
276 Fundamentals of Cost Accounting
©The McGraw-Hill Companies, Inc., 2008
8-40. (continued)
The journal entry to assign the overapplied overhead to cost of goods sold is: Overapplied overhead ...................................55,000
55,000
8-41. (40 min.) Prepare a Production Cost Report and Show Cost Flows Through Accounts—FIFO method: Recyclers, Inc..
(Section 2) Compute Equivalent
Units (Section 1)
Physical unitsConversion
costs Units to be accounted for: Beginning WIP inventory.................................
Cost of goods sold .............................
Recyclers, Inc. Production Cost Report—FIFO
a. FLOW OF PRODUCTION UNITS
. 300 Units started this period ................................... 2,700 Total units to be accounted for ........................... 3,000 Units accounted for: Units completed and transferred out: From beginning inventory .............................. 300 120 (40%)a
Started and completed currently .................... 2,550 2,550 Units in ending WIP inventory .......................... 150 (20%) 30 Total units accounted for.................................... 3,000 2,700 a40% = 100% – 60% already done at the beginning of the period.
Solutions Manual, Chapter 8 277
©The McGraw-Hill Companies, Inc., 2008
8-41. (continued) COSTS Total
$ 16810,800
Total costs to be accounted for.............................
costs Conversion costs
Costs to be accounted for: (Section 3) Costs in beginning WIP inventory....................... $ 168 Current period costs ........................................... 10,800
$10,968 $10,968 Cost per equivalent unit: (Section 4) Conversion costs ($10,800 ∏ 2,700)................... $4.00 Costs accounted for: (Section 5) Costs assigned to units transferred out: Costs from beginning inventory ........................ $ 168 $ 168 Current costs added to complete beginning
Conversion costs ($4.00 x 120)...................... 480 480 $ 648
WIP inventory:
Total costs from beginning inventory .................. Current costs of units started and completed: Conversion costs ($4.00 x 2,550)..................... 10,200 10,200 Total costs of units started and completed ......... $10,200 Total costs of units transferred out ..................... $10,848 Costs assigned to ending WIP inventory: Conversion costs ($4.00 x 30).......................... 120
120
Total ending WIP inventory................................. $ 120 Total costs accounted for...................................... $10,968 $10,968 b.
168
Work in Process Beginning inventory: Conversion costs
This period's costs: Conversion costs 10,800
To Finished Goods Inventory 10,848a
Ending inventory 120 All costs have been accounted for.
Various Payables Finished Goods Inventory 10,800 10,848
a$10,848 = $648 + $10,200
c. The company’s target has been achieved. Production costs total $4.00 per unit, less than management’s target of $4.25.
278 Fundamentals of Cost Accounting
8-42. (60 min.) FIFO Process Costing: Pantanal, Inc.
Pantanal, Inc. Assembling Department
Production Cost Report—FIFO
Prior department
costs Materials Conversion
FLOW OF PRODUCTION UNITS (Section 1)
(Section 2) COMPUTE EQUIVALENT UNITS
Physical units
Units to be accounted for: Beginning WIP inventory
........................... 10,000
Units started this period ............................ 102,000 Total units to be accounted for .................... 112,000 Units accounted for: Units completed and transferred out: From beginning inventory........................ 10,000 –0– 4,000 (40)% 6,000 (60%)
b
Started and completed currently ............
a
. 86,000 86,000 86,000 86,000 Units in ending WIP inventory ................... 16,000 16,000 8,000 (50%)Total units accounted for ............................
14,400 (90%). 112,000 100,000102,000 104,400
a40% = 100% – 60% already done at the beginning of the period. b60% = 100% – 40% already done at the beginning of the period.
©The McGraw-Hill Companies, Inc., 2008 Solutions Manual, Chapter 8 279
8-42. (continued)
COSTS
Total Costs
Prior department
costs
Materials
DETAILS
Conversion Costs to be accounted for: (Section 3) Costs in beginning WIP inventory .................... $323,400 $ 98,000 $ 164,400 Current period costs......................................... 3,306,600 939,600Total costs to be accounted for .......................... $3,630,000 $286,000
$ 61,000225,0002,142,000
$2,240,000 $1,104,000Cost per equivalent unit: (Section 4) Prior department costs ($2,142,000 ∏ 102,000) $21.00
Materials ($939,600 ∏ 104,400) ....................... $9.00 Conversion ($225,000 ∏ 100,000).................... $2.25
©The McGraw-Hill Companies, Inc., 2008 280 Fundamentals of Cost Accounting
8-42. (continued)
Details
Costs accounted for: (Section 5) Costs assigned to units transferred out:
36,000
13,500
Total Costs
Prior department
costs
Materials
Conversion
Costs from beginning WIP inventory..................................... $ 323,400 $ 98,000 $ 164,400 $61,000
Current costs added to complete beginning WIP inventory: Prior department costs........................................................ –0– –0– Materials ($9.00 x 4,000) ................................................... 36,000 Conversion ($2.25 x 6,000)................................................ 13,500
Total costs from beginning inventory .................................... $ 372,900 Current costs of units started and completed: Prior department costs ($21.00 x 86,000)............................. Materials ($9.00 x 86,000) ....................................................
$1,806,000 1,806,000774,000 774,000
Conversion ($2.25 x 86,000)................................................. Total costs of units started and completed..............................
193,500 193,500 $2,773,500
Total costs of units transferred out ............................................ $3,146,400 Costs assigned to ending WIP inventory: Prior department costs ($21.00 x 16,000) ............................... $ 336,000
336,000
Total ending WIP inventory ....................................................... $
Materials ($9.00 x 14,400) ...................................................... Conversion ($2.25 x 8,000) .....................................................
129,600 129,60018,000
483,600
18,000
Total costs accounted for .......................................................... $3,630,000 $2,240,000 $1,104,000 $286,000
©The McGraw-Hill Companies, Inc., 2008 Solutions Manual, Chapter 8 281
©The McGraw-Hill Companies, Inc., 2008
8-43. (40 min.) Solving For Unknowns—FIFO Method a. Equivalent units =
Beginning inventory x (1 – percentage of completion of beginning inventory)
+ 100% of units started and completed + ending inventory times its percentage of completion = 5,600 equivalent units Let X be the unknown percentage of completion. Then,
5,600 = 1,000 (1 – X) + 4,500 + (3,000 x 30%) 5,600 = 1,000 – 1,000X + 5,400
collecting terms: 5,600 – 5,400 – 1,000 = –1,000X
1,000X
800 = X = 80%
(4,500 + 1,000) + 900 – 5,600 = 800 units
800 = 1,000X
Also, using BB = TO + EB – TI =
X = 80% b. The cost per equivalent unit is obtained by dividing the ending inventory costs by the equivalent units in ending inventory;
$87,000 ÷ 10,000
Equivalent units worked this period are the sum of the equivalent units to:
(a) complete the beginning inventory
(b) start and complete some units, and
which, for the problem are:
= $8.70 per EU
(c) to start the ending inventory
42,000 + 60,000 + 10,000 = 112,000
The total costs incurred are the cost per equivalent unit times the equivalent units worked this period, that is 112,000 × $8.70 = $974,400.
282 Fundamentals of Cost Accounting
©The McGraw-Hill Companies, Inc., 2008
8-43. (continued)
Units started and completed equals the units transferred out (units completed this period) less the units started in a previous period (beginning inventory):
units transferred out –5,000
c.
40,000
units in beginning inventory 35,000 units started and completed.
d.
= TO – BB + EB 9,500 – 4,000 + 3,000
=
Current units started equals units transferred out minus beginning inventory plus ending inventory or, in equation form:
Current units started
= 8,500 units
Solutions Manual, Chapter 8 283
©The McGraw-Hill Companies, Inc., 2008
8-44. (50 min.) Solving For Unknowns—Weighted-Average Method
BB + TI (current work) – EB 12,300 + 10,500 – 10,000 =
a. Units transferred out equals beginning inventory plus current work minus ending inventory. In equation form:
TO = =
12,800
Of the 12,800 units transferred out, 12,300 were from the beginning inventory. Therefore, 500 units were started and completed. That is, 12,800 completed this period less 12,300 started in a prior period equals the 500 started and completed this period.
b. The inventory equation yields:
BB + TI = TO + EB
Given the information in the problem, we can compute the right hand side. There are 4,800 (24,000 x 20%) equivalent units in ending inventory at a cost of $18,000. The cost per equivalent unit is $3.75 (or $18,000 ÷ 4,800 EU).
$270,000
TI $270,000 – $56,800
The right hand side of the equation is the total equivalent units represented by all costs in the account (72,000 EU) times the cost per equivalent unit ($3.75). The resulting $270,000 and the beginning inventory cost of $56,800 are entered in the equation:
$56,800 + TI =
and solving for TI: =
= $213,200
284 Fundamentals of Cost Accounting
©The McGraw-Hill Companies, Inc., 2008
8-44. (continued)
c. First, we compute the cost of ending inventory:
BB + TI (current work) = TO + EB
$11,400 + $108,600 $115,200 + EB EB $120,000 – $115,200
= $4,800
= =
Equivalent units in ending inventory equals $4,800 divided by the cost per equivalent unit.
Costs per equivalent unit is the $115,200 transferred out costs divided by the units transferred out:
$115,200 ÷ 28,800 units $4 per E.U=
Cost assigned to ending inventory is based on the relationship:
$4,800 = Equivalent units in EB times $4.00 and solving for EU in EB
EU in EB =
= 1,200 EU$4,800 ÷ $4
d. The materials cost per equivalent unit is: $2.10 per EU
$26,880 ÷ 12,800 units transferred out =
Since ending inventory contains direct materials cost of $5,040, it must contain
If the inventory is 25% complete with respect to direct materials costs, then these 2,400 equivalent units represent 25% of the physical count of units in the ending inventory. Therefore, since
Then units in EB = 9,600
2,400 ( = $5,040 ÷ $2.10) equivalent units.
2,400 EU = .25 (units in EB)
= 2,400 ÷ .25
Solutions Manual, Chapter 8 285
©The McGraw-Hill Companies, Inc., 2008
8-45. (50 min.) Operation Costing—Work-in-Process Inventory: Washington, Inc.
The solution to this problem is to apply process costing methods for the conversion costs and then add the cost of materials for each product. Because there is no beginning work-in-process inventory, FIFO and weighted-average process costing gives the same results.
The material costs per unit are:
Number Unit Material Cost
90,000 300 = 300 X-40 .......... 160,000 200 = 800
Physical
Units Conversion Costs
Flow of units:
Units started this perioda 1,000
a.
Product Material
Cost of
Units
X-10 .......... $50,000 ÷ 500 = $100 X-20 .......... ÷
÷
The conversion costs per equivalent unit are:
Department A:
Equivalent Units
Units to be accounted for: Beginning WIP inventory.................... –0–
1,000 Total units to account for ................ Units accounted for: Completed and transferred outb
Total units accounted for ................ 1,000
840 840 Units in ending inventoryc 160 Conversion costs (160 x 25%)........ 40
880
a 1,000 units = 500 X-10 + 300 X-20 + 200 X-40
b 840 units = 400 X-10 + 260 X-20 + 180 X-40 c 160 units = 1,000 units started – 840 units transferred out.
286 Fundamentals of Cost Accounting
©The McGraw-Hill Companies, Inc., 2008
8-45. (continued)
Total
Flow of costs: Costs to be accounted for: Costs in beginning WIP inventory ...... $ –0– Current period costs........................... Total costs to be accounted for........ $ 264,000
Conversion
Costs
$ –0–264,000 264,000
$ 264,000Cost per equivalent unit Conversion costs ($264,000 ÷ 880) ... $ 300
Conversion Costs
Flow of units:
440
Department B:
Physical Units Equivalent Units
Units to be accounted for: Beginning WIP inventory ................... –0– Units started this perioda 440 Total units to account for................ Units accounted for: Completed and transferred outb 390 390
30 Total units accounted for................ 440
Units in ending inventoryc 50 Conversion costs (50 x 60%) .........
420a 440 units = 260 X-20 + 180 X-40 b 390 units = 225 X-20 + 165 X-40
Total
$ –0– Current period costs........................... 42,000 Total costs to be accounted for........
a 50 units = 440 units started – 390 units transferred out.
Conversion Costs
Flow of costs: Costs to be accounted for: Costs in beginning WIP inventory ...... $ –0–
42,000$ 42,000 $ 42,000
Cost per equivalent unit Conversion costs ($42,000 ÷ 420) ..... $ 100
Solutions Manual, Chapter 8 287
©The McGraw-Hill Companies, Inc., 2008
8-45. (continued)
Cost of units transferred to finished goods:
Product Material Cost
Unit Department
A Cost
Unit Department
B Cost Unit Cost
X-10 .......... $100 $ –0– $ 400
300 300 + 100 700 800 + + 100 1,200
b.
Work-in-Process Ending Inventory Balances are:
Department A:
Material cost Total Cost
X-10........................ 100 × $100 40 ×
× 16,000
Unit
+ $ 300 + =
X-20 .......... + =X-40 .......... 300 =
Number of Units
Unit Cost
$ 10,000 X-20........................ 300 12,000 X-30........................ 20 800
Total material cost .....
Conversion costs ....... 300 12,000
$ 38,000
40 ×Total ........................... $ 50,000
Department B:
Number of Units
Unit Cost Total Cost
35 15 800
Material cost
X-20........................ × $300 10,500 X-30........................ × 12,000
Total material cost ..... $ 22,500
Conversion costs ....... ×
30 100 3,000
From Dept. A .......... 50 300 15,000 From Dept. B .......... ×Total........................... $ 40,500
288 Fundamentals of Cost Accounting
©The McGraw-Hill Companies, Inc., 2008
8-46. (50 min.) Process Costing and Ethics – Increasing Production to Boost Profits: Pacific Siding, Inc.
a. The CEO and CFO expect to produce profits by reducing the unit cost of each sold. This will occur because of the fixed overhead costs. (Recall “most of the overhead costs are fixed.”) Because each unit transferred out in March will have a lower unit costs, reported costs of goods sold will be lower. Therefore, profit will be higher.
Solutions Manual, Chapter 8 289
8-46. (continued)
b. See the revised data entry section and production cost report below:
Data Entry Section
Unit Information Percent Complete Units (board Direct Direct feet) Overhead materials labor Units in beginning WIP inventory (all completed this period) 250,000 n/a n/a n/a Units started and completed during the period 140,000 100% 100% 100%Units started and partially completed during the period 225,000 80% 85% 90% Direct Direct Cost Information materials labor Overhead Costs in beginning WIP inventory $90,000 $76,000 $150,000 Costs incurred during the period $95,000 $102,000 $150,000
©The McGraw-Hill Companies, Inc., 2008 290 Fundamentals of Cost Accounting
8-46. (continued) Revised Production Cost Report
Month Ending March 31
Step 1: Summary of Physical Units and Equivalent Unit Calculations
Physical
Units to be accounted for Units
250,000
Units in beginning WIP inventory
Units started during the period 365,000
Total units to be accounted for 615,000
Equivalent Units
Direct
Units accounted for
Direct
materials labor Overhead
390,000
Units in ending WIP inventory 225,000
Units completed and transferred out 390,000 390,000 390,000
180,000 191,250 202,500
Total units accounted for 570,000 592,500
check total units to be accounted for = total units accounted for? If so, amount = $0 ----> 0
615,000 581,250
Step 2: Summary of Costs to be Accounted for
Direct Direct
Costs to be accounted for materials labor Total
Costs in beginning WIP inventory $90,000
Costs incurred during the period
Overhead
$76,000 $150,000 $316,000
95,000 102,000 150,000 347,000
Total costs to be accounted for $171,000 $192,000
check total costs to be accounted for = total costs accounted for? If so, amount = $0 ---->
$300,000 $663,000
0 ©The McGraw-Hill Companies, Inc., 2008 Solutions Manual, Chapter 8 291
Step 3: Calculation of Cost per Equivalent Unit
Direct
materials Overhead
Total costs to be accounted for (a)
Total equivalent units accounted for 570,000 581,250
Cost per equivalent unit (a) / (b) $0.3000 $0.5063
Direct
labor Total
$171,000 $192,000 $300,000
592,500
$0.3303 $1.1367
Step 4: Assign Costs to Units Transferred Out and Units in Ending WIP Inventory
Direct
materials
$128,826
Direct
labor Overhead Total
Costs assigned to units transferred out $117,000 $197,468 $443,294
Costs assigned to ending WIP inventory 54,000 63,174 102,532 219,706
Total costs accounted for $171,000 $192,000 $300,000 $663,000
©The McGraw-Hill Companies, Inc., 2008 292 Fundamentals of Cost Accounting
©The McGraw-Hill Companies, Inc., 2008
8-46. (continued)
d. This is not ethical. The reason for the production increase was solely to manipulate income and distort results for the year. There is no indication that the increase in production was to meet much larger demand.
c. The costs assigned to units transferred out has decreased from $541,621 to $443,294, or $98,327. Because all the units transferred out will be sold before the end of March, profits will be $98,327 higher than originally planned.
Solutions Manual, Chapter 8 293