Systems Design: Process Costing

Chapter 4

Systems Design: Process Costing

Solutions to Questions

Solutions Manual, Chapter 4 137

4-1 A process costing system is appropriate when a homogeneous product is produced on a continuous basis.

4-2 Process costing and job-order costing are similar in the following ways:

1. Both systems have the same basic purposes, which are to assign materials, labor, and overhead cost to products and to provide a mechanism for computing unit costs.

2. Both systems use the same basic accounts.

3. Cost flows through the accounts in basically the same way in both systems.

4-3 Costs are accumulated by department in a process costing system.

4-4 Cost accumulation is simpler under process costing because costs only need to be identified by department—not by separate job. Usually a company has only a few departments, whereas there can be hundreds or even thousands of jobs in a job-order costing system.

4-5 A Work in Process account is maintained for each separate processing department in a process costing system.

4-6 The journal entry to transfer the costs of partially completed goods from the Mixing Department to the Firing Department would be:

Work in Process, Firing / XXXX
Work in Process, Mixing / XXXX

4-7 The costs that might be added to the Firing Department’s Work in Process account would include: (1) cost transferred in from the Mixing Department, (2) materials cost, (3) labor cost, and (4) overhead cost.

4-8 Under the weighted-average method, the equivalent units of production consist of units transferred to the next department (or to finished goods) during the period plus the equivalent units in the department’s ending Work in Process inventory.

4-9 A quantity schedule shows the physical flow of units through a department during a period. It serves several purposes. First, it provides the manager with information about activity in his or her department and also shows the manager the stage of completion of any in-process units. Second, it provides data for computing the equivalent units and for preparing the other parts of the production report.

4-10 A unit of product accumulates cost in each department that it passes through, with the costs of one department added to the costs of the preceding department in a snowballing fashion.

Solutions Manual, Chapter 4 137

Brief Exercise 4-1 (30 minutes)

a. To record issuing raw materials for use in production:

Work in Process—Molding Department $28,000

Work in Process—Firing Department $5,000

Raw Materials $33,000

b. To record direct labor costs incurred:

Work in Process—Molding Department $18,000

Work in Process—Firing Department $5,000

Wages Payable $23,000

c. To record applying manufacturing overhead:

Work in Process—Molding Department $24,000

Work in Process—Firing Department $37,000

Manufacturing Overhead $61,000

d. To record transfer of unfired, molded bricks from the Molding Department to the Firing Department:

Work in Process—Firing Department $67,000

Work in Process—Molding Department $67,000

e. To record transfer of finished bricks from the Firing Department to the finished goods warehouse:

Finished Goods $108,000

Work in Process—Firing Department $108,000

f. To record Cost of Goods Sold:

Cost of Goods Sold $106,000

Finished Goods $106,000

Brief Exercise 4-2 (10 minutes)

Weighted-Average Method

Equivalent Units
Materials / Conversion
Units transferred to the next department / 410,000 / 410,000
Work in process, October 31:
30,000 units × 70% / 21,000
30,000 units × 50% / 15,000
Equivalent units / 431,000 / 425,000

Brief Exercise 4-3 (15 minutes)

Weighted-Average Method

1. / Work in process, May 1 / 80,000
Started into production during May / 300,000
Total kilograms in process / 380,000
Deduct work in process, May 31 / 50,000
Completed and transferred out during May / 330,000
2. / Kilograms to be accounted for:
Work in process, May 1 (materials 80% complete; conversion 20% complete) / 80,000
Started into production during the month / 300,000
Total kilograms to be accounted for / 380,000
Kilograms accounted for as follows:
Transferred out during the month / 330,000
Work in process, May 31 (materials 40% complete; conversion 10% complete) / 50,000
Total kilograms accounted for / 380,000

Brief Exercise 4-4 (15 minutes)

Materials / Labor / Overhead
Work in process, May 1 / $14,550 / $23,620 / $118,100
Cost added during May / 88,350 / 14,330 / 71,650
Total cost (a) / $102,900 / $37,950 / $189,750
Equivalent units of production (b) / 1,200 / 1,100 / 1,100
Cost per equivalent unit (a) ÷ (b) / $85.75 / $34.50 / $172.50

Cost per EU for materials / $85.75
Cost per EU for labor / 34.50
Cost per EU for overhead / 172.50
Total cost per EU / $292.75

Brief Exercise 4-5 (30 minutes)

1. Computation of the total cost per EU:

Cost per EU for materials / $24.00
Cost per EU for labor / 7.00
Cost per EU for overhead / 14.00
Total cost per EU / $45.00

2. Computation of equivalent units in ending inventory:

Materials / Labor / Overhead
Units in ending inventory / 1,500 / 1,500 / 1,500
Percentage completed / 90% / 40% / 40%
Equivalent units of production / 1,350 / 600 / 600

3. Cost Reconciliation

Total Cost / Materials / Labor / Over-head
Cost accounted for as follows:
Transferred to the next department: 18,000 units at $45.00 per unit / $810,000 / 18,000 / 18,000 / 18,000
Work in process, ending:
Materials, at $24.00 per EU / 32,400 / 1,350
Labor, at $7.00 per EU / 4,200 / 600
Overhead, at $14.00 per EU / 8,400 / 600
Total work in process / 45,000
Total cost / $855,000

Exercise 4-6 (15 minutes)

Work in Process—Mixing / 330,000
Raw Materials Inventory / 330,000
Work in Process—Mixing / 260,000
Work in Process—Baking / 120,000
Wages Payable / 380,000
Work in Process—Mixing / 190,000
Work in Process—Baking / 90,000
Manufacturing Overhead / 280,000
Work in Process—Baking / 760,000
Work in Process—Mixing / 760,000
Finished Goods / 980,000
Work in Process—Baking / 980,000

Exercise 4-7 (20 minutes)

Weighted-Average Method

Quantity Schedule
Pounds to be accounted for:
Work in process, May 1 (materials 100% complete, labor and overhead 55% complete) / 30,000
Started into production during May / 480,000
Total pounds to be accounted for / 510,000
Equivalent Units
Materials / Labor & Overhead
Pounds accounted for as follows:
Transferred to Packing Department during May* / 490,000 / 490,000 / 490,000
Work in process, May 31 (materials 100% complete, labor and overhead 90% complete) / 20,000 / 20,000 / 18,000
Total pounds accounted for / 510,000 / 510,000 / 508,000

*30,000 + 480,000 – 20,000 = 490,000.

Solutions Manual, Chapter 4 143

Exercise 4-8 (30 minutes)

Weighted-Average Method

1. For the sake of brevity, only the portion of the quantity schedule from which the equivalent units are computed is shown below.

Quantity / Equivalent Units (EU)
Schedule / Materials / Conversion
Units accounted for as follows:
Transferred to the next process / 300,000 / 300,000 / 300,000
Work in process, June 30 (materials 50% complete, conversion 25% complete) / 40,000 / 20,000 / 10,000
Total units accounted for / 340,000 / 320,000 / 310,000
2. / Total Cost / Materials / Conversion / Whole Unit
Cost to be accounted for:
Work in process, June 1 / $71,500 / $56,600 / $14,900
Cost added by the department / 599,500 / 385,000 / 214,500
Total cost to be accounted for (a) / $671,000 / $441,600 / $229,400
Equivalent units (b) / 320,000 / 310,000
Cost per equivalent unit (a) ÷ (b) / $1.38 / + / $0.74 / = / $2.12

Solutions Manual, Chapter 4 145

Exercise 4-9 (20 minutes)

Weighted-Average Method

Total / Equivalent Units (EU)
Cost / Materials / Conversion
Cost accounted for as follows:
Transferred to the next process:
300,000 units at $2.12 each / $636,000 / 300,000 / 300,000
Work in process, June 30:
Materials, at $1.38 per EU / 27,600 / 20,000
Conversion, at $0.74 per EU / 7,400 / 10,000
Total work in process / 35,000
Total cost accounted for / $671,000

Exercise 4-10 (30 minutes)

Weighted-Average Method

1. / Quantity Schedule
Gallons to be accounted for:
Work in process, May 1 (materials 80% complete, labor and overhead 75% complete) / 80,000
Started into production / 760,000
Total gallons accounted for / 840,000
Equivalent Units
Materials / Labor / Overhead
Gallons accounted for as follows:
Transferred to the next department / 790,000 / 790,000 / 790,000 / 790,000
Work in process, May 31 (materials 60% complete, labor and overhead 20% complete) / 50,000 / 30,000 / 10,000 / 10,000
Total gallons accounted for / 840,000 / 820,000 / 800,000 / 800,000

Solutions Manual, Chapter 4 147

Exercise 4-10 (continued)

2. / Total Costs / Materials / Labor / Overhead / Whole Unit
Cost to be accounted for:
Work in process, May 1 / $146,600 / $68,600 / $30,000 / $48,000
Cost added during the month / 1,869,200 / 907,200 / 370,000 / 592,000
Total cost to be accounted for (a) / $2,015,800 / $975,800 / $400,000 / $640,000
Equivalent units (b) / — / 820,000 / 800,000 / 800,000
Cost per equivalent unit (a) ÷ (b) / $1.19 / + / $0.50 / + / $0.80 / = / $2.49

Solutions Manual, Chapter 4 13

Problem 4-11 (30 minutes)

Weighted-Average Method

1. The computation of equivalent units would be:

Quantity / Equivalent Units (EU)
Schedule / Materials / Labor / Overhead
Units accounted for as follows:
Transferred to the next department / 35,600 / 35,600 / 35,600 / 35,600
Work in process, April 30 (materials 80% complete, labor and overhead 60% complete) / 7,400 / 5,920 / 4,440 / 4,440
Total units and equivalent units of production / 43,000 / 41,520 / 40,040 / 40,040

2. The cost reconciliation follows:

Total / Equivalent Units (EU)
Cost / Materials / Labor / Overhead
Cost accounted for as follows:
Transferred to the next department: 35,600 units × $2.90 per unit / $103,240 / 35,600 / 35,600 / 35,600
Work in process, April 30:
Materials, at $0.50 per EU / 2,960 / 5,920
Labor, at $1.10 per EU / 4,884 / 4,440
Overhead, at $1.30 per EU / 5,772 / 4,440
Total work in process / 13,616
Total cost / $116,856

Problem 4-12 (45 minutes)

Weighted-Average Method

1. The equivalent units for the month would be:

Quantity / Equivalent Units (EU)
Schedule / Materials / Conversion
Units accounted for as follows:
Transferred to next department / 92,000 / 92,000 / 92,000
Work in process, May 30 (materials 75% complete; conversion 50% complete) / 14,000 / 10,500 / 7,000
Total units and equivalent units of production / 106,000 / 102,500 / 99,000
2. / Total Cost / Materials / Conversion / Whole Unit
Work in process, May 1 / $16,400 / $5,900 / $10,500
Cost added during the month / 431,200 / 194,200 / 237,000
Total cost (a) / $447,600 / $200,100 / $247,500
Equivalent units of production (b) / 102,500 / 99,000
Cost per EU (a) ÷ (b) / $1.95 / + / $2.50 / = / $4.45
3. / Total units transferred / 92,000
Less units in the beginning inventory / 6,000
Units started and completed during May / 86,000

4. No, the manager should not be rewarded for good cost control. The reason for the Mixing Department’s low unit cost for May is traceable to the fact that costs of the prior month have been averaged in with May’s costs in computing the lower, $1.95 per unit figure. This is a major criticism of the weighted-average method in that the figures computed for product costing purposes can’t be used to evaluate cost control or measure performance for the current period.

Problem 4-13 (60 minutes)

Weighted-Average Method

Quantity Schedule and Equivalent Units

Quantity Schedule
Units to be accounted for:
Work in process, April 1 (materials 85% complete; conversion 60% complete) / 7,000
Started into production / 88,000
Total units / 95,000
Equivalent Units (EU)
Materials / Conversion
Units accounted for as follows:
Transferred to bottling: / 82,000 / 82,000 / 82,000
Work in process, April 30 (materials 60% complete, conversion 20% complete) / 13,000 / 7,800 / 2,600
Total units and equivalent units of production 5 / 95,000 / 89,800 / 84,600

Solutions Manual, Chapter 4 151

Problem 4-13 (continued)

Costs per Equivalent Unit

Total
Cost / Materials / Conversion / Whole Unit
Cost to be accounted for:
Work in process, April 1 / $14,800 / $6,800 / $8,000
Cost added during April / 249,730 / 105,450 / 144,280
Total cost (a) / $264,530 / $112,250 / $152,280
Equivalent units of production (b) / 89,800 / 84,600
Cost per EU (a) ÷ (b) / $1.25 / + / $1.80 / = / $3.05

Cost Reconciliation

Total / Equivalent Units (EU)
Cost / Materials / Conversion
Cost accounted for as follows:
Transferred to bottling:
82,000 units × $3.05 per unit / $250,100 / 82,000 / 82,000
Work in process, April 30:
Materials, at $1.25 per EU / 9,750 / 7,800
Conversion, at $1.80 per EU / 4,680 / 2,600
Total work in process / 14,430
Total cost / $264,530

Solutions Manual, Chapter 4 17

Problem 4-14 (60 minutes)

Weighted-Average Method