Cost Chapter 8

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

234 Fundamentals of Cost Accounting
8-6.
From BB + TI – TO = EB; TO = BB + TI – EB

Solutions Manual, Chapter 8 235
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.

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 to Exercises
8-14. (20 min.) Compute Equivalent Units—Weighted-Average Method: Clean

Corporation
a. b.
Materials Conversion Costs
Units 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.

8-15. (20 min.) Compute Equivalent Units—FIFO method: Clean Corporation
a. b.
Compute Equivalent Units—FIFO Materials 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 EU EU
units of work = transferred + ending – beginning
done this out inventory inventory
period
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

8-16. (15 min.) Compute Equivalent Units—Weighted Average Method: Missouri
Corporation.
b.
a. Conversion
Materials Costs
Units transferred out ............................................... 50,000 50,000
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.
b.
a. Conversion
Materials Costs
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
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 EU EU
units of work = transferred + ending – beginning
done this period out inventory inventory
a. Materials: 60,000 EU = 50,000 units + 20,000 EU – 10,000 EU
b. Conversion Costs: 47,000 EU = 50,000 units + 3,000 EU – 6,000 EU

8-18. (30 min.) Compute Equivalent Units: Bears, Inc.
a. Weighted-average method:
b.
a. Conversion
Materials Costs
Units transferred out....................................................... 120,000 120,000
Materials: 100% x 18,000 units .................................... 18,000
Conversion costs: 75% x 18,000 units ......................... 13,500
Total equivalent units for all work done to date .............. 138,000 133,500
b. First-in, First-out (FIFO) method:
b.
a. Conversion
Materials Costs
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
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.

c 102,000 units started and completed
= 120,000 units transferred out less 18,000 units from beginning inventory.

8-19. (30 min.) Compute Equivalent Units—Ethical Issues: Aaron Company
a. Weighted-average method:
b.
a. Conversion
Materials Costs
Units transferred out ............................................... 210,000 210,000
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:
b.
a. Conversion
Materials Costs
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
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).
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.

8-20. (20 min.) Compute Cost per Equivalent Unit—Weighted Average Method:
Davenport Plant
Physical Materials
Units 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

8-21. (20 min.) Compute Cost per Equivalent Unit—FIFO method: Davenport Plant
Physical Materials Eq.

Units Units
Flow of units:
Beginning WIP inventory ......................................... 90,000
Units started this period .......................................... 240,000
Total units to account for ..................................... 330,000
From beginning WIP inventory (90,000 x 0%) 90,000 0
Started and completed currently (165,000a x 165,000 165,000
100%) .........................................................................
Materials (75,000 x 100%)................................... 75,000 75,000
Total units accounted for.................................. 330,000 240,000
a 165,000 units started and completed = 255,000 units transferred-out – 90,000 beginning
WIP units.
Direct
Materials
Flow of costs:
Total costs to be accounted for (current period costs only) .......... $105,600
Materials ($105,600 ÷ 240,000 units) .............................................. $ 0.44

8-22. (20 min.) Compute Equivalent Units—FIFO method: Santiago Company
Physical Conversion
Units Eq. Units
Flow of units:
Beginning WIP inventory .............................................. 90,000
Units started this period................................................ 1,020,000
Total units to account for........................................... 1,110,000
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
Conversion (150,000 x 70%)..................................... 150,000 105,000
Total units accounted for ....................................... 1,110,000 1,029,000
a 870,000 units started and completed = 960,000 units transferred-out – 90,000 beginning
WIP units.

8-23. (35 min.) Compute Costs per Equivalent Unit—Weighted-Average Method:
Matsui Lubricants
Physical
Units Equivalent Units
Materials Conversion
Eq. units Costs Eq. units
Flow of units:
Beginning WIP inventory .................... 600
Units started this period ..................... 4,000
Total units to account for ................ 4,600
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 3,640
a 3,400 units transferred out = 4,600 units to account for – 1,200 units in ending WIP
inventory.
Direct Conversion
Total Materials Costs
Flow of costs:
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 $13,832
Materials ($24,832 ÷ 3,880 units) ........... $ 6.40
Conversion costs ($13,832 ÷ 3,640 units) ....... $ 3.80

8-24. (20 min.) Assign Costs to Goods Transferred Out and Ending Inventory—
Weighted-Average Method: Matsui Lubricants
Direct Conversion
Flow of costs:
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 $13,832
Materials ($24,832 ÷ 3,880 units)................... $ 6.40
Conversion costs ($13,832 ÷ 3,640) .............. $ 3.80
Costs 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.

8-25. (35 min.) Compute Costs per Equivalent Unit—FIFO Method: Matsui
Lubricants
Physical
Flow of units:
Beginning WIP inventory ...................................... 600
Units started this period ....................................... 4,000
Total units to account for .................................. 4,600
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 3,322
a 3,400 units transferred out
= 4,600 units to account for – 1,200 units in ending WIP inventory.
Direct Conversion
Flow of costs:
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 $13,832
Materials ($22,880 ÷ 3,520 units) ................. $ 6.50
Conversion costs ($13,288 ÷ 3,322) ............. $ 4.00

FIFO Method: Matsui Lubricants.
Physical
Eq. units Eq. units
Flow of units:
Beginning WIP inventory ...................... 600
Units started this period........................ 4,000
Total units to account for................... 4,600
Completed and transferred outa ........... 3,400
Materials (600 x (1 – 60%)) 240
Conversion (600 x (1 – 53%)) 282
Started and completed currently
(2,800 2,800 2,800
x 100%).............................................
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 3,322
a 3,400 units transferred out = 4,600 units to account for – 1,200 units in ending WIP
inventory.

8-26. (continued)
Direct Conversion
Flow of costs:
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 $13,832
Materials ($22,880 ÷ 3,520 units) .......... $ 6.50
Conversion costs ($13,288 ÷ 3,322) ...... $ 4.00

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 29,400
completed:
Materials ($6.50 x 2,800) .................. 18,200
Conversion costs ($4.00 x 2,800) ..... 11,200
Total costs transferred out ....................... $ 34,584 $21,712 $12,872
Cost 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.

8-27. (35 min.) Compute Costs per Equivalent Unit—Weighted-Average Method:
Pacific Ink
Physical
Eq. units Eq. units
Flow of units:
Beginning WIP inventory............................ 24,000
Units started this perioda 42,000
Total units to account for.......................... 66,000
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 57,000
a 42,000 units started this period = 66,000 units to account for – 24,000 units in beginning
work-in-process inventory.
Direct Conversion
Flow of costs:
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 $1,733,940
Materials ($1,324,260 ÷ 63,000 units)........ $ 21.02
Conversion costs ($1,733,940 ÷ 57,000) ... $ 30.42

Weighted-Average Method: Pacific Ink.
Direct Conversion
Flow of costs:
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 $1,733,940
Materials ($1,324,260 ÷ 63,000 units) ...... $ 21.02
Conversion costs ($1,733,940 ÷ 57,000) .. $ 30.42
Costs assigned to units transferred out $2,623,440 $1,072,020 $1,551,420
a b
Cost of ending WIP inventory ................... 434,760 252,240 182,520

c d
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.

8-29. (35 min.) Compute Costs per Equivalent Unit—FIFO Method: Pacific Ink
Physical
Eq. units Costs Eq.
units
Flow of units:
Beginning WIP inventory............................. 24,000
Total units to account for........................... 66,000
Completed and transferred out 51,000
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 49,800
Direct Conversion
Flow of costs:
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 $1,733,940
Materials ($1,171,800 ÷ 55,800 units)........ $ 21.00
Conversion costs ($1,513,920 ÷ 49,800) ... $ 30.40

FIFO Method: Pacific Ink.
Physical
Flow of units:
Beginning WIP inventory ............................. 24,000
Total units to account for ......................... 66,000
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 49,800

8-30. (continued)
Direct Conversion
Flow of costs:
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 $1,733,940
Materials ($1,171,800 ÷ 55,800 units)....... $ 21.00
Conversion costs ($1,513,920 ÷ 49,800) .. $ 30.40

Costs from beginning WIP inventory..... $ 372,480 $ 152,460 $ 220,020
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) .... 820,800
Total costs transferred out ........................ $ 2,623,800 $1,072,260 $1,551,540
Cost 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.

8-31. (50 min.) Production Cost Report—FIFO method: El Paso Corporation
Physical Equivalent Units

Units
Prior Department
Department No. B
Flow of units:
Beginning WIP inventory .............................. 15,000
Units started this period ................................ 35,000
Total units to account for ............................ 50,000
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 30,000
Units 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

8-31. (continued)
Prior Department
Total Department No. B
Flow of costs:
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 $156,750
Prior department ($70,000 ÷ 35,000 units) ..... $ 2.00
Department. B ($149,075 ÷ 44,500 units) ....... $ 3.35

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) ................. 100,500
Total costs transferred out ................................. $237,375 $89,000 $148,375
Cost 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

8-32. (50 min.) Production Cost Report—Weighted-Average Method: El Paso
Corporation
Physical
Prior Department
Department No. B
Flow of units:
Beginning WIP inventory .............................. 15,000
Units started this period ................................ 35,000
Total units to account for ............................ 50,000
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 Conversion

Materials Costs
Flow of costs:
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 $99,000 156,750
Prior departments ($99,000 ÷ 50,000 units) ... $ 1.98
Department No. B ($156,750 ÷ 47,500).......... $ 3.30
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.

8-33. (50 min.) (20 minutes) Operations Costing: Brokia Electronics
a.
Basic Photo UrLife

(40,000 (30,000 (10,000
Total units) units) 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 $ 575,000
Total Product Cost $4,600,000 $1,300,000 $2,025,000 $1,275,000
Number of Units 40,000 30,000 10,000
Cost per unit $32.50 $67.50 $127.50
a Unit cost is $17.50 (= $1,400,000 ÷ 80,000 units)
b.
(1)
Basic Photo UrLife

(40,000 (30,000 (10,000
Total units) units) 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 $ 750,000
Total Product Cost $4,600,000 $900,000 $2,250,000 $1,450,000
Number of Units 40,000 30,000 10,000
Cost per unit $22.50 $75.00 $145.00
a 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.

8-34. Operation Costing: Ferdon Watches
a.

8-34. (continued)
b.
Gag-Gift Commuter Sport Retirement
(5,000 (10,000 (13,000 (2,000
Total units) units) units) 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 $ 34,000
Total Product Cost...... $834,000 $60,000 $250,000 $390,000 $134,000
Number of Units ......... 5,000 10,000 13,000 2,000
Cost 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 to Problems
8-35. (45 min.) Compute Equivalent Units: Multiple Choice

a. The answer is (2).
Conversion
Materials Costs
Units transferred out ............................ 395,000 395,000
a a
EU in ending inventory:
Materials 100% x 40,000 units ......... 40,000 EU
Conversion costs 30% x 40,000 12,000 EU
units .....................................................
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 Conversion
Department Materials Costs
Costs
Units transferred out ............................ 660,000 a 660,000 660,000
a a
EU in ending inventory:
Prior department costs ..................... 80,000 EU
Materialsb ......................................... –0– EU
Conversion costs 65% x 80,000 52,000 EU
units .....................................................
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 56,000 EU
units....................................................................
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

b 1,200,000 units = 1,280,000 transferred out – 80,000 from beginning inventory.
8-35. (continued)
d. The answer is (1).

Conversion
Materials Costs
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
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.
c 70,000 = 90,000 transferred out – 20,000 from beginning inventory.

8-36. (30 min) FIFO Method: McKenzie Corporation
a. Equivalent Units
Physical Conversion
Units Costs
Flow of units
Beginning WIP inventory ......................... 150,000
Units started this period ........................... 810,000
Total units to account for ..................... 960,000
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 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 from beginning WIP inventory .......... $ 258,000
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

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.

8-37. (50 min.) Prepare A Production Cost Report—Weighted Average Method: Douglas Toys.
a.
Douglas Toys
Assembling Department
Production Cost Report—Weighted Average
FLOW OF PRODUCTION UNITS
(Section 1)
Physical
units
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 Manufacturing
department Materials Labor overhead
costs
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

8-37. (continued)
DETAILS
Prior Manufacturing
Total costs department Materials Labor overhead
costs
Costs to be accounted for: (Section 3)
Costs in beginning WIP inventory .................... $ 127,600 $ 64,000 $ 40,000 $ $ 9,200
14,400
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 ($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) . $0.10
Costs accounted for: (Section 5)
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................... $520,000
Costs 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
Total costs accounted for ................................... $749,400 $384,000 $232,000 $86,400 $47,000
8-37. (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.

8-38. (50 min.) Prepare a Production Cost Report—FIFO Method: Douglas Toys.
a.
Douglas Toys
Production Cost Report—FIFO
FLOW OF PRODUCTION UNITS (Section 2)
(Section 1) COMPUTE EQUIVALENT UNITS
Prior
Physical department Manufacturing
units costs Materials Labor overhead
Beginning WIP inventory....................... 100,000
Units started this period ........................ 500,000
Total units to be accounted for ................ 600,000
From beginning inventory ................... 100,000 –0– –0– 40,000 (40%) 50,000 (50%) b
a
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


8-38. (continued)
COSTS DETAILS
Prior
Total Costs department Manufacturing
costs Materials Labor overhead
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

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

8-38. (continued)
Details
Prior Manufacturing
Total Costs department Materials Labor overhead
costs
Costs from beginning WIP inventory.............. $ 127,600 $ 64,000 $ 40,000 $ $ 9,200
14,400
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 ............. $138,100
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....... $384,000
Total costs of units transferred out ..................... $522,100
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 6,300
Total ending WIP inventory ................................ $227,300

Total costs accounted for ................................... $749,400 $384,000 $232,000 $86,400 $47,000
8-38. (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.

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
Flow Of Production Units
(Section 1)
Physical units
Beginning WIP inventory............................ 400,000
Units started this period ............................. 2,000,000
Total units to be accounted for ..................... 2,400,000
(Section 2)
COMPUTE EQUIVALENT UNITS
Materials Labor Overhead
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

8-39. (continued)
Costs Details
Total costs Materials Labor Overhead
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 2,944,000
Total costs to be accounted for .......................... $11,262,000 $3,000,000 $4,590,000 $3,672,000
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) .............. $1.80
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................... 9,540,000
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 .............................. 1,722,000
Total costs accounted for ................................... $11,262,000 $3,000,000 $4,590,000 $3,672,000

8-39. (continued)
b. Adjustment required:
Work in Finished
Process 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.

8-40. (70 min.) Show Cost Flows—FIFO Method: Vermont Co.
Work in Process
Beginning Balance 716,000 Transferred out:
Current work: 716,000a From beginning inventory
materials (given) 300,400 From current work
conversion (given) 1,287,000 240,320 a materials
833,976 b conversion costs
Ending Balance 513,104
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)
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 1,790,296 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 55,000
(See explanation below)
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
D.L. = $572,000
So, total conversion costs – direct labor = overhead applied
$1,287,000 – $572,000 = $715,000
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).

8-40. (continued)
The journal entry to assign the overapplied overhead to cost of goods sold is:
Overapplied overhead ...................................55,000
Cost of goods sold ............................. 55,000
8-41. (40 min.) Prepare a Production Cost Report and Show Cost Flows Through
Accounts—FIFO method: Recyclers, Inc..
Recyclers, Inc.
a.
Compute Equivalent
Units
(Section 1) Conversion
Physical units costs
Beginning WIP inventory.................................. 300
Units started this period ................................... 2,700
Total units to be accounted for ........................... 3,000
From beginning inventory .............................. 300 120 (40%)a
Started and completed currently .................... 2,550 2,550
Units in ending WIP inventory .......................... 150 30 (20%)
Total units accounted for.................................... 3,000 2,700

8-41. (continued)
COSTS Total costs Conversion
costs
Costs in beginning WIP inventory....................... $ 168 $ 168
Current period costs ........................................... 10,800 10,800
Total costs to be accounted for............................. $10,968 $10,968
Conversion costs ($10,800 ∏ 2,700)................... $4.00
Costs from beginning inventory ........................ $ 168 $ 168
Current costs added to complete beginning
WIP inventory:
Conversion costs ($4.00 x 120)...................... 480 480
Total costs from beginning inventory .................. $ 648
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
Conversion costs ($4.00 x 30).......................... 120 120
Total ending WIP inventory................................. $ 120
Total costs accounted for...................................... $10,968 $10,968
b. Work in Process
Beginning inventory:
Conversion costs 168
This period's costs:
Conversion costs 10,800 10,848a To Finished Goods Inventory
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.

8-42. (60 min.) FIFO Process Costing: Pantanal, Inc.
Pantanal, Inc.
(Section 1) COMPUTE EQUIVALENT UNITS
Prior
Physical units department
costs Materials Conversion
Beginning WIP inventory ........................... 10,000
Units started this period ............................ 102,000
Total units to be accounted for .................... 112,000
From beginning inventory........................ 10,000 –0– 4,000 (40)% 6,000 (60%)
a b
Started and completed currently ............. 86,000 86,000 86,000 86,000

Units in ending WIP inventory ................... 16,000 16,000 14,400 (90%) 8,000 (50%)
Total units accounted for ............................. 112,000 102,000 104,400 100,000


8-42. (continued)
COSTS DETAILS
Prior
department
Total Costs costs Materials Conversion
Costs in beginning WIP inventory .................... $323,400 $ 98,000 $ 164,400 $ 61,000
Current period costs......................................... 3,306,600 2,142,000 939,600 225,000
Total costs to be accounted for .......................... $3,630,000 $2,240,000 $1,104,000 $286,000
Prior department costs ($2,142,000 ∏ 102,000) $21.00
Materials ($939,600 ∏ 104,400) ....................... $9.00
Conversion ($225,000 ∏ 100,000).................... $2.25

8-42. (continued)
Details
Prior
department
Total Costs 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 36,000
Conversion ($2.25 x 6,000)................................................ 13,500 13,500
Total costs from beginning inventory .................................... $ 372,900
Prior department costs ($21.00 x 86,000) ............................. $1,806,000 1,806,000
Materials ($9.00 x 86,000) .................................................... 774,000 774,000
Conversion ($2.25 x 86,000)................................................. 193,500 193,500
Total costs of units started and completed.............................. $2,773,500
Total costs of units transferred out ............................................ $3,146,400
Prior department costs ($21.00 x 16,000) ............................... $ 336,000 336,000
Materials ($9.00 x 14,400) ...................................................... 129,600 129,600
Conversion ($2.25 x 8,000) ..................................................... 18,000 18,000
Total ending WIP inventory ....................................................... $ 483,600
Total costs accounted for .......................................................... $3,630,000 $2,240,000 $1,104,000 $286,000

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
800 = 1,000X
X = 80%
Also, using BB = TO + EB – TI
= (4,500 + 1,000) + 900 – 5,600
= 800 units
800 = 1,000X
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 = $8.70 per EU
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
(c) to start the ending inventory
which, for the problem are: 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.

8-43. (continued)
c.
Units started and completed equals the units transferred out (units completed this
period) less the units started in a previous period (beginning inventory):
40,000 units transferred out

–5,000 units in beginning inventory
35,000 units started and completed.
d.
Current units started equals units transferred out minus beginning inventory plus
ending inventory or, in equation form:
Current units started = TO – BB + EB

= 9,500 – 4,000 + 3,000
= 8,500 units

8-44. (50 min.) Solving For Unknowns—Weighted-Average Method
a. Units transferred out equals beginning inventory plus current work minus ending
inventory. In equation form:
TO = BB + TI (current work) – EB
= 12,300 + 10,500 – 10,000
= 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).
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 = $270,000
and solving for TI:
TI = $270,000 – $56,800
= $213,200

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 = $4,800 ÷ $4
= 1,200 EU
d. The materials cost per equivalent unit is:

$26,880 ÷ 12,800 units transferred out = $2.10 per EU
Since ending inventory contains direct materials cost of $5,040, it must contain
2,400 ( = $5,040 ÷ $2.10) equivalent units.
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
2,400 EU = .25 (units in EB)
Then
units in EB = 2,400 ÷ .25
= 9,600

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.
a.
The material costs per unit are:
Material Number of Unit Material

Product Cost Units Cost
X-10 .......... $50,000 ÷ 500 = $100

X-20 .......... 90,000 ÷ 300 = 300
X-40 .......... 160,000 ÷ 200 = 800
The conversion costs per equivalent unit are:

Department A:
Physical Conversion Costs

Flow of units:
Beginning WIP inventory .................... –0–
Total units to account for ................ 1,000
Completed and transferred outb 840 840
Units in ending inventoryc 160
Conversion costs (160 x 25%)........ 40
Total units accounted for ................ 1,000 880
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.

8-45. (continued)
Conversion
Total Costs
Flow of costs:
Costs in beginning WIP inventory ...... $ –0– $ –0–
Current period costs........................... 264,000 264,000
Total costs to be accounted for........ $ 264,000 $ 264,000
Conversion costs ($264,000 ÷ 880) ... $ 300
Department B:
Physical Conversion Costs

Flow of units:
Beginning WIP inventory ................... –0–
Units started this perioda 440
Total units to account for................ 440
Completed and transferred outb 390 390
Units in ending inventoryc 50
Conversion costs (50 x 60%) ......... 30
Total units accounted for................ 440 420
a 440 units = 260 X-20 + 180 X-40
b 390 units = 225 X-20 + 165 X-40
a 50 units = 440 units started – 390 units transferred out.
Conversion
Total Costs
Flow of costs:
Costs in beginning WIP inventory ...... $ –0– $ –0–
Current period costs........................... 42,000 42,000
Total costs to be accounted for........ $ 42,000 $ 42,000
Conversion costs ($42,000 ÷ 420) ..... $ 100

8-45. (continued)
Cost of units transferred to finished goods:
Unit Unit Unit

Product Material Department Department Unit Cost
Cost A Cost B Cost
X-10 .......... $100 + $ 300 + $ –0– = $ 400

X-20 .......... 300 + 300 + 100 = 700
X-40 .......... 800 + 300 + 100 = 1,200
b.
Work-in-Process Ending Inventory Balances are:
Department A:
Material cost Number Unit

of Units Cost Total Cost
X-10 ........................ 100 × $100 $ 10,000
X-20 ........................ 40 × 300 12,000
X-30 ........................ 20 × 800 16,000
Total material cost ..... $ 38,000
Conversion costs ....... 40 × 300 12,000

Total ........................... $ 50,000
Department B:
Material cost Number Unit

of Units Cost Total Cost
X-20 ........................ 35 × $300 10,500
X-30 ........................ 15 × 800 12,000
Total material cost ..... $ 22,500
Conversion costs .......

From Dept. A .......... 50 × 300 15,000
From Dept. B .......... 30 × 100 3,000
Total........................... $ 40,500

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.

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) materials labor Overhead
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 $76,000 $90,000 $150,000
Costs incurred during the period $95,000 $102,000 $150,000

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
Units in beginning WIP inventory 250,000
Units started during the period 365,000
Total units to be accounted for 615,000
Equivalent Units
Direct Direct
Units accounted for materials labor Overhead
Units completed and transferred out 390,000 390,000 390,000 390,000
Units in ending WIP inventory 225,000 180,000 191,250 202,500
Total units accounted for 615,000 570,000 581,250 592,500
check total units to be accounted for = total units accounted for? If so, amount = $0 ----> 0
Step 2: Summary of Costs to be Accounted for

Direct Direct
Costs to be accounted for materials labor Overhead Total
Costs in beginning WIP inventory $76,000 $90,000 $150,000 $316,000
Costs incurred during the period 95,000 102,000 150,000 347,000
Total costs to be accounted for $171,000 $192,000 $300,000 $663,000
check total costs to be accounted for = total costs accounted for? If so, amount = $0 ----> 0
Step 3: Calculation of Cost per Equivalent Unit
Direct Direct
materials labor Overhead Total
Total costs to be accounted for (a) $171,000 $192,000 $300,000
Total equivalent units accounted for 570,000 581,250 592,500
Cost per equivalent unit (a) / (b) $0.3000 $0.3303 $0.5063 $1.1367
Step 4: Assign Costs to Units Transferred Out and Units in Ending WIP Inventory
Direct Direct
materials labor Overhead Total
Costs assigned to units transferred out $117,000 $128,826 $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

8-46. (continued)
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.
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.


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8

Solutions to Review Questions

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8-14. (20 min.) Compute Equivalent Units—Weighted-Average Method: Clean

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a50% = 100% – 50% already done at the beginning of the period.

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8-17. (20 min.) Compute Equivalent Units—FIFO method: Missouri Corporation.

a 10,000 units in beginning inventory

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a 0% = 100% – 100% already done at the beginning of the period.

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Physical Materials Eq.

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a $21,760 = 3,400 EU x $6.40 per EU.

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Costs accounted for:

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Cost of ending WIP inventory ................... 434,760 252,240 182,520

Total costs accounted for ....................... $3,058,200 $1,324,260 $1,733,940

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Costs accounted for:

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Physical Equivalent Units

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Costs accounted for:

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Total Direct Conversion

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Basic Photo UrLife

Basic Photo UrLife

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a Unit cost is $4.00 (= $120,000 ÷ 30,000 units)

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8-35. (45 min.) Compute Equivalent Units: Multiple Choice

aUnits transferred out = units started + beg. inventory – ending inventory

c. The answer is (4).

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d. The answer is (1).

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Cost per equivalent unit ($1,452,000 ÷ 660,000) $ 2.20

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b. The report to management should include the following items:

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a40% = 100% – 60% already done at the beginning of the period.

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Cost per equivalent unit: (Section 4)

Materials ($192,000 ∏ 480,000).................... $0.40