mba 504 ch3 solutions

Chapter 3Process Costing

QUESTIONS

1. Job-order costing systems and process costing systems are the two primary accounting

systems used to record production costs.

2. Equivalent units is the quantity of partially completed units expressed in terms of wholeunits. The number is used in calculating the average unit costs under process costing.

3. Direct labor and overhead, together, are called conversion costs.

4. The costs associated with units received from a preceding department within the companyfor further processing are called transferred-in costs.

5. Material may enter at the start of a production process while labor and overhead are

incurred throughout the process.

6. Cost per equivalent unit = (Cost in beginning work in process + Cost incurred in currentperiod) ÷ (Units completed + Equivalent units in ending work in process).

7. Cost to account for = (Cost in beginning work in process + Cost incurred in current period).

8. Reconciliation helps to ensure that mistakes are not made in calculations and units are not“lost.”

9. Transferred-in costs are the costs associated with units received from a preceding

department within the company received for further processing. Therefore, they occur in allproduction departments except the first.

10. The four steps involved in preparing a production cost report are as follows:a. Account for the number of physical unitsb. Calculate the cost per equivalent unit for material, labor, and overheadc. Assign costs to items completed and items in ending work in processd. Account for the amount of product cost

Jiambalvo Managerial Accounting3-2

EXERCISES

E1. In the production of chips, much of manufacturing overhead is a fixed cost.

This cost is assigned to completed items and work in process. By starting alarge number of items at year end, and given the simplifying assumption that

items in process are 50% complete, a significant proportion of the fixed

manufacturing overhead will end up in work in process, which reduces thecost of finished items and ultimately the cost of goods sold. The result is that

profit will be artificially inflated.

This approach to increasing profit may mislead investors and other

stakeholders and cause them to make bad decisions. Thus, the behavior is notethical.

E2. Cost per equivalent unit is calculated for material, labor and overhead. For

each of these items, we sum the cost in beginning work in process and the cost

incurred during the period. This becomes the numerator of the calculation.Then, we determine the number of units completed and the equivalent units in

ending work in process. This becomes the denominator of the calculation.

It is important to note that the equivalent units in ending work in process may

be different for material, labor, and overhead. This is because material, labor,and overhead enter the production process at different times.

E3. a. There are 11 steps:

Brew HouseStep 1, malted barley—barley is mixed with water, dried and cured.

Step 2, mill—the grain is cracked by steel grinders.

Step 3, mash tun—malt is mixed with warm water in the mash tun.Step 4, lauter tun—the mash is pumped into the lauter tun where it is sprayed

with hot water to help extract sugar from the malt.

Chapter 3 Process Costing 3-3

Step 5, brew kettle–the base of beer, or “wort,” is pumped into the brew kettlewhere it is boiled, concentrated and clarified.

Step 6, heat exchanger—the wort is cooled before it is moved to afermentation cellar where it will become beer. In order to speed the cooling

process, it is passed through a heat exchanger.

In the cellarStep 7, fermenter—here, specially cultured yeast, Saccharomyces cerevisiae,is added to induce fermentation.

Step 8, filtration—after the beer has been cold cellared in the fermenter, it is

passed through a filter.

PackagingStep 9, bottling—the bottling line is made up of several components. At the

heart of the system is a counter-pressured filler which is capable of filling 400

bottles a minute.Step 10, kegging—Redhook uses ‘Snakey’ kegs, which have the advantage of

being much easier to sterilize and fill than older types such as ‘Golden Gates.’

Step 11, shipping—ales are shipped out to stores and pubs across the UnitedStates in refrigerated trucks to keep them fresh.

b. For each type of beer that Red Hook produces, a large number of identical

units are produced in a continuous process. Thus, the company is likely to

use process costing.

c. Barley is added at the start. In step 7, yeast is added.

d. The process is capital intensive. Large pieces of equipment are maintained

by only one or two workers. For example, the automated bottling line fills400 bottles a minute.


E4. Units in beginning work in process 1,000Units started in July 43,000

Units to account for 44,000 cans

Units completed 40,000Units in ending work in process ?

Total units accounted for 44,000 cans

Units in ending work in process = 44,000 - 40,000 = 4,000 cans.

E5. Units in beginning work in process 10,000

Units started in August ? Units to account for 52,000 gallons

Units completed 40,000

Units in ending work in process 12,000Total units accounted for 52,000 gallons

Units started in August = 52,000 - 10,000 = 42,000 gallons.


E6. Direct LaborBeginning WIP $120,000

Cost incurred in May 500,000Total cost $620,000

Units

Units completed 10,000 poundsEquivalent units, ending WIP

(2,000 pounds × 50%) 1,000

Total 11,000 pounds

Cost per equivalent unit = $620,000 ÷ 11,000 pounds = $56.36 per pound

E7. Let X = the cost in beginning work in process

Material:($140,000 + X) ÷ (30,000 + 10,000) = $5

X = $60,000

Labor:($60,000 + X) ÷ (30,000 + 2,000) = $2

X = $4,000

Overhead:($87,000 + X) ÷ (30,000 + 2,000) = $3

X = $9,000


E8. The denominator is equal to units completed plus equivalent units in endingwork in process.

MaterialUnits completed 2,700Equivalent units in ending work in process 400

Total 3,100

LaborUnits completed 2,700Equivalent units in ending work in process 250

Total 2,950

OverheadUnits completed 2,700Equivalent units in ending work in process 250

Total 2,950

E9. a. Cost per equivalent unit for material is $6.10. Material cost in itemscompleted is $244,000. Therefore, the number of completed units is 40,000(i.e., $244,000 ÷ $6.10).

Units in beginning work in process 1,000Units started in July 43,000Units to account for 44,000 cans

Units completed 40,000Units in ending work in process ? Total units accounted for 44,000

This implies that 4,000 units are in ending work in process.

b. Cost of ending work in process is $5,800 as follows:

Material (.2 × 4,000 units × $6.10) $4,880Labor and overhead (.1 × 4,000 units × $2.30) 920

Ending work in process $5,800


E10. Ending Work in ProcessMaterial (800 × 1.0 × $0.50) $400

Labor and overhead (800 × .8 × $0.90) 576Total $976

Cost of Items CompletedMaterial (4,000 × $0.50) $2,000Labor and overhead (4,000 × $0.90) 3,600

Total $5,600

E11. Ending Work in ProcessMaterial (4 × .8 × $2,500) $ 8,000Labor (4 × .6 × $1,000) 2,400

Overhead (4 × .6 × $2,000) 4,800

Total $15,200

Cost of Items CompletedMaterial (85 × $2,500) $212,500

Labor (85 × $1,000) 85,000Overhead (85 × $2,000) 170,000

Total $467,500


E12. a. Material:Cost in beginning work in process $ 18,000

Cost incurred during the period 404,180Total $422,180

Conversion costs:

Cost in beginning work in process $ 9,000Cost incurred during the period 371,880

Total $380,880

Equivalent units in ending work in process:

Material (1,000 units × .8) 800

Conversion costs (1,000 × .4) 400

Cost per equivalent unit for material:

$422,180 ÷ (41,000 + 800) $10.10Cost per equivalent unit for conversion costs:

$380,880 ÷ (41,000 + 400) 9.20

Total cost per equivalent units $19.30

b. Cost of items completed in October:

41,000 units × $19.30 $791,300

c. Cost of ending work in process:

Material cost (800 × $10.10) $ 8,080

Conversion cost (400 × $9.20) 3,680

Total cost of ending work in process $11,760


PROBLEMS

P1. a. The company started the month with 5,000 units and 100,000 units wereentered into production. Thus, the company must account for 105,000units. At the end of the month, the company had 2,000 units in endingwork in process. This implies that 103,000 units were completed(105,000 - 2,000).

The denominators for the calculations of cost per equivalent are:

Units Equivalent UnitsCompleted in Ending WIP Total

Material 103,000 2,000 105,000Labor 103,000 1,600 104,600Overhead 103,000 1,600 104,600

Beginning WIP Cost Added Total Denominator Cost per EUMaterial $3,000 $65,250 $68,250 105,000 $0.65Labor 125 6,151 6,276 104,600 0.06Overhead 175 7,147 7,322 104,600 0.07

Total $3,300 $78,548 $81,848 $0.78

b. Cost of items completed in May is $80,340:103,000 units × $0.78 = $80,340

Cost of items in ending work in process:Material (2,000 equivalent units × $0.65) $1,300Labor (1,600 equivalent units × $0.06) 96Overhead (1,600 equivalent units × $0.07) 112

Total $1,508

c. Beginning work in process $ 3,300Cost added 78,548Total $81,848

Cost of items completed $80,340Cost of ending WIP 1,508Total $81,848


P2. a. The company started the month with 600 units and 3,200 units wereentered into production. Thus, the company must account for 3,800 units.At the end of the month, the company had 800 units in ending work inprocess. This implies that 3,000 units were completed (3,800 - 800).

The denominators for the calculations of cost per equivalent are:

Units Equivalent UnitsCompleted in Ending WIP Total

Material 3,000 480 3,480Labor 3,000 400 3,400Overhead 3,000 400 3,400

Beginning Cost per WIP Cost Added Total Denominator EU

Material $ 48,000 $ 317,400 $ 365,400 3,480 $105.00Labor 12,600 94,500 107,100 3,400 31.50Overhead 84,000 590,900 674,900 3,400 198.50

Total $144,600 $1,002,800 $1,147,400 $335.00

b. Cost of items completed in May is $1,005,000:3,000 units × $335.00 = $1,005,000

Cost of items in ending work in process:Material (480 equivalent units × $105.00) $ 50,400Labor (400 equivalent units × $31.50) 12,600Overhead (400 equivalent units × $198.50) 79,400

Total $142,400

c. Beginning work in process $ 144,600Cost added 1,002,800Total $1,147,400

Cost of items completed $1,005,000Cost of ending WIP 142,400Total $1,147,400


P3. a. Olympic Laminators—SeptemberUnit ReconciliationUnits in beg. WIP (60% material, 30% conversion costs) 3,000Units started during 4,000Units to account for 7,000

Units completed 2,000*Units in ending WIP (50% material, 20% conversion costs) 5,000Units accounted for 7,000

*Computed as 7,000 - 5,000 = 2,000.

Cost per Equivalent Unit Calculation

Material Labor Overhead TotalCostBeginning WIP $144,000 $120,000 $ 20,000 $ 284,000Cost incurred during Sept. 216,000 531,000 52,000 799,000Total $360,000 $651,000 $72,000 $1,083,000

UnitsUnits completed 2,000 2,000 2,000Equivalent units,

ending WIP 2,500 1,000 1,000Total 4,500 3,000 3,000

Cost per equivalent unit $80 $217 $24 $321

Cost Reconciliation

Total cost to account for $1,083,000

Cost of completed units (2,000 units × $321) $ 642,000Cost of ending WIP Material (2,500 equivalent units × $80) $200,000 Labor (1,000 equivalent units × $217) 217,000 Overhead (1,000 equivalent units × $24) 24,000 441,000Total cost accounted for $1,083,000

b. Finished Goods Inventory 642,000Work in Process Inventory 642,000


P4. Aussie Yarn Company—AugustUnit ReconciliationUnits in beg. WIP ((100% material, 60% conversion costs) 5,000Units started during 25,000Units to account for 30,000

Units completed 26,000*Units in ending WIP (100% material, 40% conversion costs) 4,000Units accounted for 30,000

*Computed as 30,000 - 4,000 = 26,000.


Material Labor Overhead TotalCostBeginning WIP $ 4,000 $ 1,050 $ 1,450 $ 6,500Cost incurred during Sept. 22,280 9,990 11,522 43,792Total $26,280 $11,040 $12,972 $50,292


ending WIP 4,000 1,600 1,600Total 30,000 27,600 27,600

Cost per equivalent unit $0.876 $0.400 $0.470 $1.746

Cost Reconciliation

Total cost to account for $50,292

Cost of completed units (26,000 units × $1.746) $45,396Cost of ending WIP Material (4,000 equivalent units × $0.876) $3,504 Labor (1,600 equivalent units × $0.400) 640 Overhead (1,600 equivalent units × $0.470) 752 4,896Total cost accounted for $50,292


P5. a. Work in process, dept. 1 80,000Material inventory 80,000

To record material used in department 1

Work in process, dept. 2 20,000Material inventory 20,000

To record material used in department 2

b. Work in process, dept. 1 45,000Wages payable 45,000

To record labor in department 1

Work in process, dept. 2 55,000Wages payable 55,000

To record labor in department 2

c. Work in process, dept. 1 230,000Manufacturing overhead 230,000

To record overhead applied in department 1

Work in process, dept. 2 110,000Manufacturing overhead 110,000

To record overhead applied in department 2

d. Work in process, dept. 2 381,000Work in process, dept. 1 381,000

To record cost of units transferred from department 1 to department 2Note: This includes all beginning costs and costs incurred, since there isno ending work in process in this department (26,000 + 80,000 + 45,000+ 230,000).

Finished goods inventory 576,000Work in process, dept. 2 576,000

To record cost units completed and transferred to finished goods.Note: 46,000 + 20,000 + 55,000 + 110,000 + 381,000 – 36,000 =576,000.


P6. a. Work in process 40,000Material inventory 40,000

To record material used in production

b. Work in process 8,000Wages payable 8,000

To record labor

c. Work in process 32,000Manufacturing overhead 32,000

To record overhead applied

d. Finished goods inventory 80,000Work in process 80,000

To record cost of units completed

e. Cost of goods sold 80,000Finished goods inventory 80,000

To record cost of units sold

P7. a. 300b. 2,000c. 300d. 180e. 180f. 2,000g. 1,880h. 1,880i. 2.25j. 5.40k. 10.80l. 18.45


P8. Step 1.Cost per equivalent unit = 1.6667 + 1.3091 + 2.6182 = 5.594

Cost of completed items (given) = $2,797,000

Cost per equivalent unit = $5.594Therefore, the number of completed units = $2,797,000 ÷ 5.594 = 500,000

Step 2.Units in ending WIP (given) 10,000

Add number of completed units 500,000

Units accounted for 510,000

Step 3.

Units to account for = units accounted for 510,000

Less units in beginning WIP (given) 20,000Units started during December 490,000

Step 4.Equivalent units, ending WIP:

Material (10,000 × 100%) 10,000

Labor (10,000 × 10%) 1,000Overhead (10,000 × 10%) 1,000

Step 5.

Units completed (calculated above) 500,000Total units for cost per equivalent unit calculation:

Material = 500,000 + 10,000 510,000Labor and Overhead = 500,000 + 1,000 501,000


Step 6.Total cost in cost per equivalent unit calculation:

Material = 510,000 × $1.6667 $850,017.00Labor = 501,000 × 1.3091 $655,859.10

Overhead = 501,000 × 2.6182 $1,311,718.20

Step 7.Cost incurred in December:

Material = $850,017.00 - 33,334.00 $816,683.00

Labor = $655,859.10 - 5,236.40 $650,622.70Overhead = $1,311,718.20 - 10,472.80 $1,301,245.40

Step 8.Cost Reconciliation:

Total cost to account for $2,817,594.30

Cost of completed units (500,000 × $5.594) $2,797,000.00Cost of Ending WIP

Materials (10,000 × $1.6667) $16,667.00

Labor (1,000 × $1.3091) 1,309.10Overhead (1,000 × $2.6182) 2,618.20 20,594.30

Total cost accounted for: $2,817,594.30


P9. Mixing Department, Oral Care Toothpaste—April

Unit ReconciliationUnits in beg. WIP (100% material, 80% conversion costs) 10,000

Units started during 600,000Units to account for 610,000

Units completed 590,000*Units in ending WIP (100% material, 70% conversion costs) 20,000


*Computed as 610,000 - 20,000 = 590,000.


Material Labor Overhead TotalCostBeginning WIP $ 4,000 $ 800 $ 1,680 $ 6,480

Cost incurred during April 246,100 65,640 119,120 430,860

Total $250,100 $66,440 $120,800 $437,340


ending WIP 20,000 14,000 14,000

Total 610,000 604,000 604,000



Cost Reconciliation


Cost of completed units (590,000 units × $0.72) $ 424,800

Cost of ending WIP Material (20,000 equivalent units × $.41) $8,200

Labor (14,000 equivalent units × $.11) 1,540 Overhead (14,000 equivalent units × $.20) 2,800 12,540

Total cost accounted for $437,340

Packing Department, Oral Care Toothpaste—AprilUnit ReconciliationUnits in Beg. WIP (50% material, 40% conversion costs) 10,500




*Computed as 600,500 - 30,000 = 570,500.



Material Labor Overhead Trans.In Total

CostBeginning WIP $ 630 $ 42 $ 84 $ 7,455 $ 8,211Cost incurred during Sept. 77,045 5,903 11,890 424,800 519,638

Total $77,675 $5,945 $11,974 $432,255 $527,849

UnitsUnits completed 570,500 570,500 570,500 570,500

Equivalent units,ending WIP 27,000 24,000 24,000 30,000

Total 597,500 594,500 594,500 600,500

Cost per equivalent unit $0.130 $0.010 $0.020 $0.720 $0.880

Cost ReconciliationTotal cost to account for $527,849

Cost of completed units (570,500 units × $0.880) $ 502,040Cost of ending WIP

Material (27,000 equivalent units × $.130) $ 3,510

Labor (24,000 equivalent units × $.010) 240 Overhead (24,000 equivalent units × $.020) 480

Trans. in (30,000 equivalent units × $.720) 21,600 25,830Total cost accounted for $527,870*

* Difference between cost to account for and cost

accounted for due to rounding.


P10. Mixing Department, Carnival Caramel Company—March

Unit ReconciliationUnits in beg. WIP (100% material, 80% conversion costs) 2,000




*Computed as 42,000 - 1,000 = 41,000.


Material Labor Overhead TotalCostBeginning WIP $ 2,000 $ 800 $ 960 $ 3,760

Cost incurred during Sept. 40,840 20,832 23,168 84,840

Total $42,840 $21,632 $24,128 $88,600


ending WIP 1,000 600 600

Total 42,000 41,600 41,600



Cost Reconciliation


Cost of completed units (41,000 units × $2.12) $86,920

Cost of ending WIP Material (1,000 equivalent units × $1.02) $1,020

Labor (600 equivalent units × $.52) 312 Overhead (600 equivalent units × $.58) 348 1,680

Total cost accounted for $88,600

Shaping Department, Carnival Caramel Company—MarchUnit ReconciliationUnits in beg. WIP (70% conversion costs) 3,000


Units completed 43,500*Units in ending WIP (50% conversion costs) 500


*Computed as 44,000 – 500 = 43,500.



Material Labor Overhead Trans.In Total

CostBeginning WIP — $ 450 $ 290.00 $ 6,360 7,100.00

Cost incurred during Sept. — 11,800 8,022.50 86,920 106,742.50Total — $12,250 $8,312.50 $93,280 $113,842.50

UnitsUnits completed 43,500 43,500 43,500Equivalent units, ending WIP 250 250 500

Total 43,750 43,750 44,000


Cost ReconciliationTotal cost to account for $113,842.50

Cost of completed units (43,500 units × $2.59) $ 112,665.00

Cost of ending WIP

Material $ 0.00 Labor (250 equivalent units × $.28) 70.00

Overhead (250 equivalent units × $.19) 47.50 Trans. in (500 equivalent units × $2.12) 1,060.00 1,177.50

Total cost accounted for $113,842.50

mba 504 ch3 solutions

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