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Fifo Method of Process Costing

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# Process Costing: The First-In, First-Out Method

1

FIFO Method of Process Costing
In this supplement to Managerial Accounting we will illustrate the first-in, first-out (FIFO) method of process costing using the data for MVP Sports Equipment Company, which was given in Exhibit 4–4 in Chapter 4 of the text. Unlike the weighted-average method, the FIFO method does not commingle costs from two or more accounting periods. As the illustration will show, the costs from each period are treated separately.
Step 1: Analysis of Physical Flow of Units

The physical flow of units is unaffected by the process-costing method used. Therefore, step 1 is identical under the weighted-average and FIFO methods. See Exhibit 4–5 in the text.

Step 2: Calculation of Equivalent Units A table of equivalent units, under FIFO process costing, is presented in Exhibit 4–A.* It is identical to the table prepared under the weighted-average method except for one important difference. Under the FIFO method, the equivalent units of direct material and conversion represented by the March 1 work-in-process inventory are subtracted in the last row of the table. By subtracting the equivalent units in the beginning work in process, we are able to determine the new equivalent units of activity accomplished in March only. The 20,000 physical units in the March 1 work in process have all of their materials, so they represent 20,000 equivalent units of direct material. However, these units are only 10 percent complete with respect to conversion, so they represent only 2,000 equivalent units of conversion activity (20,000 physical units ϫ 10% complete). Step 3: Computation of Unit Costs The calculation of unit costs is presented in Exhibit 4–B. The cost per equivalent unit for direct material is computed by dividing the directmaterial cost incurred during March only by the new equivalent units of direct material added during March only. An analogous procedure is used for conversion costs. Note that the costs for direct material and conversion assigned to the beginning inventory are not added to the costs incurred during March for the purpose of calculating unit costs. Step 4: Analysis of Total Costs

To complete the process-costing procedure, we determine the total cost to be transferred out of the Cutting Department’s Work-inProcess Inventory account and into the Stitching Department’s Work-in-Process

Physical Units Work in process, March 1 . . . . . . . . . . . . . . . . . . . . . . Units started during March . . . . . . . . . . . . . . . . . . . . . Total units to account for . . . . . . . . . . . . . . . . . . . . . . . Units completed and transferred out during March . . . . Work in process, March 31 . . . . . . . . . . . . . . . . . . . . . Total units accounted for . . . . . . . . . . . . . . . . . . . . . . . Total equivalent units . . . . . . . . . . . . . . . . . . . . . . . . . Less: equivalent units represented in March 1 work in process . . . . . . . . . . . . . . . . . . . New equivalent units accomplished in March only . . . . . 20,000 30,000 50,000 40,000 10,000 50,000

Percentage of Completion with Respect to Conversion 10%

Exhibit 4–A
Equivalent Units Direct Material Conversion

Step 2: Calculation of Equivalent Units—Cutting Department (FIFO method)

100% 50%

40,000 10,000

40,000 5,000

50,000 20,000 30,000

45,000 2,000 43,000

*Numerically designated exhibits are in Chapter 4 of the text (e.g., Exhibit 4–4). Alphanumerically designated exhibits are in this supplement (e.g., Exhibit 4–A).

the remaining 20. .000 \$3. . The units in the March 1 work in process need to be completed during March. Calculating the cost of goods completed and transferred out is more complicated under the FIFO method than under the weighted-average method. . First-Out Method Exhibit 4–B Step 3: Computation of Unit Costs—Cutting Department (FIFO method) Work in process.000 \$193.500 The March 31 balance in the account agrees with that calculated in Exhibit 4–C. firstout) implies that the units in the March 1 work-in-process inventory are completed and transferred out first. . . .500 43. .50 Inventory account. .000 equivalent units of conversion is applied during March to the March 1 work in process. . . these costs are kept separate and transferred out first. . . .200 288. . The calculations from step 3 are repeated in Exhibit 4–C for convenient reference. . .2 Process Costing: The First-In.000 units in the beginning work in process) cost \$7. . .00 + \$4. . Note that the March 31 balance in the Cutting Department’s Work-in-Process Inventory account differs under the FIFO and weighted-average methods of process costing. . . . .200 283.000 30. . 18. .000 units (40.200 Cost of goods completed and transferred out of Cutting Department 52. Instead. . . . .500 288. Costs per equivalent unit . . . . . the costs assigned to the March 1 work in process are not mingled with those incurred during March. \$193.000 \$ 3. Exhibit 4–C presents this analysis of total costs. . . . .000 units completed and transferred out during March had to be started and completed during March. .500 \$340. . . These equivalent units of conversion cost \$4. March 1 (from Exhibit 4–4) . . the Cutting Department’s Work-in-Process Inventory account appears as follows: March 1 balance March cost of direct material. . Equivalent units for March only (from step 2. . . They are not included in the unit-cost calculation for March. . . .50 \$90. . . . . . .200 Costs incurred during March (from Exhibit 4–4) . . .700 30. Work-in-Process Inventory: Cutting Department . . . . . . Direct Material These costs were incurred during February. . . The remainder of the 40.00 \$ 43. . \$90. .500 283. .000 4. . . 288. . . . . . . .50 \$ 7. . . FIFO (first-in. . .000 units completed minus 20. . Thus. and applied manufacturing overhead March 31 balance Work-in-Process Inventory: Cutting Department 57. .50 per unit since they are accomplished during March. . . . . . .50 each during March. . . . direct labor. . .000 Conversion Total \$ 57. . Exhibit 4–A) .200 On March 31. . . . . The calculations in Exhibit 4–C are used as the basis for the following journal entry to transfer the cost of goods completed and transferred out to the Stitching Department. . . . . . . Total costs to account for . Since 90 percent of the conversion remains to be done. . . Work-in-Process Inventory: Stitching Department . . Under the FIFO method. . .

. . . . .200 Exhibit 4–C Step 4: Analysis of Total Costs—Cutting Department (FIFO method) Work in process. ( ( ) ( ) ( ) ( ) . .200 20. Cost of March 31 work-in-process inventory . . . . . Total costs accounted for . . . Comparison of Weighted-Average and FIFO Methods The graph presented in Exhibit 4–E highlights the differences between the weightedaverage and FIFO methods of process costing. . . . . . . . . . . . . . .00 43. . . . .. . .000* ϫ \$7. . . . . . . . . . . . .. . . . . . . First-Out Method 3 Direct Material Conversion Total \$ 57.. . . . . . . . . provides a convenient summary of the FIFO process-costing method. . . . . . .50 283. . .50 . These costs were incurred during February. . . . . . . .500 \$340. . . . . . . which is displayed in Exhibit 4–D. . . . . . . . . . . . . . . .50 Cost of goods completed and transferred out of the Cutting Department during March: Cost of March 1 work-in-process inventory. . . . . . ( ( ) ( ) \$ 30.000 ϫ \$3. . . . . . Cost incurred to finish the March 1 work-in-process inventory: Number Percentage of Cost per equivalent of units ϫ conversion remaining ϫ unit of conversion \$ 57. . . . .000 \$3. .000 ϫ . . . .50 \$90. . . . . 10. . . .000 units completed and transferred out minus 20. . \$288. . . . . .000 \$193. . . . . which is transferred out first . . . . . . . . . . . . Cost incurred to produce units that were both started and completed during March: Number Total cost per of units ϫ equivalent unit . .. . . . . . .50 . . . . . . . . .500 \$340. . . . . . . *Units started and completed during March: 40. . . . . . Cost remaining in March 31 work-in-process inventory in the Cutting Department: Direct material: Number of equivalent Direct-material cost units of direct material ϫ per equivalent unit . . \$90. . . . . .. . . . .. . . . . . . . .000 units in the March 1 work-inprocess inventory. . . .700 \$ \$ 7. . .. . . . . . . . . . . . . . . . . . .500 43. . . . . . .. . . . . . . . The graph is based on the same continuing illustration. . . . .000 ϫ \$4. They are not included in the unit-cost calculation for March. . .. . . . . . . . . . . . . . .. . . . .700 Departmental Production Report The tables presented in Exhibits 4–A and 4–C can now be combined to form a production report for the Cutting Department. . . . . . 20. . . . . . . . . . . . .000 Conversion: Number of equivalent Conversion cost per ϫ units of conversion equivalent unit ) ( ) . 30. .000 ) 150.. . . This report. . . .200 52. . . . . . . . . . . . . 81. . .000 30. The graph . . . . .000 \$193.500 \$ 52. . the basic data are presented in Exhibit 4–4 of the text. . . . . 5. . . . . Costs incurred during March (from Exhibit 4–4) . . . . . Equivalent units for March only (from step 2. March 1 (from Exhibit 4–4) . . . Exhibit 4–A) . . . . . . . . . . . . . . . . . .. . 22. . .90 ϫ \$4. . . . . .. . . . . . . . .00 + \$4. .200 Total cost of goods completed and transferred out . . . . . . . . . .000 Costs per equivalent unit . . . . . . . . \$ 3. . . . . . . . . . . .000 4. .. . .500 Total cost of March 31 work-in-process inventory . . . . . . . . . . . . . . . .000 \$288. . . . . .Process Costing: The First-In. . . . . . . . . . . . . . . .00 . . . . . . . . .500 Total costs to account for . . . . . .50 . . . . . . . . Check: Cost of goods completed and transferred out . .

. .000 10.50 focuses on conversion activity. Units completed and transferred out during March . . . . .000 43. . and IV are divided by the total equivalent units of conversion activity represented by areas I. . . . . . Total units accounted for . Total equivalent units . New equivalent units accomplished in March only . . . . . . Work in process. . . The resulting conversion cost per equivalent unit is a . . .50 \$90. . . .000 30. . . These costs were incurred during February.000 40. . . . . . . . .000 5. . . . The resulting conversion cost per equivalent unit is a weighted average of some of the conversion costs incurred in February (area I) and the conversion costs incurred during March (areas II. . . . . .000 50. .200 Work in process. . . . . . . but an analogous graph could be prepared for direct material. .500 \$340. . . \$90.000 45. . . . . .50 283. . . . . . III. . . 30. . Exhibit 4–A) . They are not included in the unit-cost calculation for March. \$ 3.000 2.000 40. . . . . .000 30. . March 1 (from Exhibit 4–4) . and IV. . and the percentage of conversion activity accomplished during March is graphed on the vertical axis. . .000 \$193. . .4 Process Costing: The First-In. Groups of physical units are graphed on the horizontal axis. Total units to account for . . . . . . . . III. . and IV. . .00 + \$4. . . . . In contrast. . . . III. . . . . . . . . . . . . . Less: equivalent units represented in March 1 work in process . . . .000 20. March 1 . . . . . . The key difference between the weighted-average and FIFO methods lies in the treatment of area I. . . . . III. II. III. . .000 10. . . . . . . . Area IV represents the equivalent units of conversion activity accomplished during March on the March 31 work-in-process inventory. . . Area II represents the equivalent units of conversion required during March to complete the conversion of the beginning work-in-process inventory. . . . . . Area I represents the equivalent units of conversion accomplished during February on the March 1 work-in-process inventory. . Equivalent units for March only (from step 2. . the total conversion costs associated only with areas II. .000 50. .000 \$193.500 43.000 \$ 4. . . and IV). . . under the FIFO method. . . . . . . . . . . . and IV are divided by the equivalent units of conversion activity represented by areas II. . .700 \$ 7. . . . . . . . . .000 \$3. . March 31 . . Units started during March . . II. . .000 Costs per equivalent unit . . . . . . . . . . .500 Total costs to account for . . . . . . .000 30. . Under the weighted-average method. . . the conversion costs associated with areas I. . . . . . . . . . . . .000 50. . . . . . . Direct Material 20. . . . . . . . . . . . . . .000 Conversion Total \$ 57. . . . . . . . . . .00 43. . . . . . Area III represents the equivalent units of conversion activity accomplished during March on the units that were both started and completed during March. Costs incurred during March (from Exhibit 4–4) . . . . . . . . . First-Out Method Exhibit 4–D Production Report—Cutting Department (FIFO method) Physical Units Work in process. . . . . . .000 Percentage of Completion with Respect to Conversion 10% Equivalent Units Direct Material Conversion 100% 50% 40. . .

. . . . . . . . . . performance evaluation based partially on costs incurred in prior periods is less timely. . . . . . . . \$288. . because areas II. . . . . . . . . . . . . . .. . Most product costing systems were designed before the wide use of computers. . . . . . . . . . .. . . . . . To provide incentives for departmental managers to control costs. .50 . . . .000 Conversion: Number of equivalent Conversion cost per ϫ units of conversion equivalent unit ) ( ) . . . . .000* ϫ \$7. 22. . .. . . . .000 units completed and transferred out minus 20. . . . . . . . . FIFO process costing is superior to the weighted-average method. . . \$ 57. . . it is important to evaluate their performance on the basis of current-period costs only. . . .. . . . . . . . . . . . . .200 Cost incurred to finish the March 1 work-in-process inventory: Number Percentage of Cost per equivalent of units ϫ conversion remaining ϫ unit of conversion . . \$288. . . . . When current-period and prior-period costs are averaged. . . . . . . . . . . . . . . . . . . First-Out Method 5 Exhibit 4–D Cost of goods completed and transferred out of the Cutting Department during March: Cost of March 1 work-in-process inventory. . . . . . Under the JIT philosophy. . . 81. which is transferred out first . . . . . . . . . .50 . . . . . . . . . . . 150. . . . Total costs accounted for . .. and IV represent conversion costs and activity of March only. .000 Cost incurred to produce units that were both started and completed during March: Number Total cost per of units ϫ equivalent unit . . . Moreover. . . . . . . . .. . . . . . . .000 ϫ \$4. .500 Total cost of March 31 work-in-process inventory . . . . .000 ϫ . . . . Nowadays. . Evaluation of Weighted-Average and FIFO The weighted-average method of process costing is more widely used than the FIFO method. . . . . . . . . . . . . . . . .90 ϫ \$4. The difference that arises between weighted-average and FIFO process costing calculations is due to the different treatment of each period’s beginning work-in-process . . . . . 20. . . .00 . .200 Cost remaining in March 31 work-in-process inventory in the Cutting Department: Direct material: Number of equivalent Direct-material cost units of direct material ϫ per equivalent unit ( ( ) ( ) . . . . . . . . . . . . . . . . . . . all inventories are kept to an absolute minimum. . . a departmental manager’s current performance is less clear. . .000 ϫ \$3. \$ 52. . . Cost of March 31 work-in-process inventory . when the complexity of the system was an important consideration. 20. .700 pure March unit cost. . . . . . Behavioral scientists generally agree that for performance evaluation to be most effective. . . . .000 units in the March 1 work-in-process inventory. .50 . III. . . . .200 52. . . . . . .. . .500 *Units started and completed during March: 40. . . . . . . operating a process costing system is equally simple when using either the weighted-average method or the FIFO method. . . . . . . . . . . . . 5. . . . \$ 30. . . . most product costing systems are computerized. .Process Costing: The First-In. . . . . . . . . . ... .000 (concluded) ( ( ) ( ) ( ) ( ) ) Total cost of goods completed and transferred out . . it should be done on a timely basis. . . . . . . probably because it is somewhat simpler. . . . . . . . . . . . . . . . . . . . . . . . .500 \$340. Just-in-Time (JIT) Inventory Methods The difference between weighted-average and FIFO process costing becomes much less significant when the firm uses the just-intime approach to inventory and production management. . . . . . including work-in-process inventories. .. Behavioral Implications For purposes of cost control and performance evaluation. .. . . . . . . . . . . . . . . . Check: Cost of goods completed and transferred out . . . . . . . .. . . . 10. . . . . . . . . . . . .

IV Conversion cost per equivalent unit (weighted-average)= Total equivalent units of conversion activity in areas I. 20. 5. There the cut-out pieces are stitched together.000 ϫ 90%) III. The cost of goods completed and transferred out of the Cutting Department is transferred as shown in the following display. IV FIFO Method: Conversion cost per equivalent unit (March only) = Total costs for conversion activity in areas II.000 physical units started and completed during March 10. you may wish to review Exhibit 4–C.000 equivalent units (20. IV . Since the cost of the thread used in the stitching is very small.000 ϫ 10%) II.000 physical units in the March 31 work-in-process inventory                      IV. Sequential Production Departments Sequential Production Departments In manufacturing operations with sequential production departments. there will be little or no difference in the process costing calculations under the weighted-average and FIFO methods. II.6 Process Costing: The First-In. II. (To see this most clearly. 2.000 ϫ 50%) 10% of conversion complete on March 1 90% of conversion yet to be completed during March inventory under the two methods. At the end of the process in the Stitching Department. III.) Since work-in-process inventories are very small or nonexistent under JIT.                     I.000 equivalent units (20.000 physical units in the March 1 work-in-process inventory 20.000 ϫ 50%) 50% of conversion to be completed in a future period Weighted-Average Method: Total costs for conversion activity in areas I. The rawhide lacing is treated as a direct material. IV Total equivalent units of conversion activity in areas II.000 equivalent units (10. First-Out Method Exhibit 4–E Comparison of WeightedAverage and FIFO Methods 20. III.000 equivalent units (20. the costs assigned to the units transferred out of one department remain assigned to those units as they enter the next department. 5. the partially completed baseball gloves transferred out of the Cutting Department go next to the Stitching Department. In our illustration. it is treated as an indirect-material cost and included in manufacturing overhead. rawhide lacing is woven through the fingers and along some edges of each baseball glove. III. III.000 ϫ 100%)                   50% of conversion completed during March V.000 equivalent units (10. 18.

. † \$ 61. . . . . . . . . . However. Balance in work in process. . February. . . . . . . . Direct material: none . . . . . . . March 1 . . .000† \$230. Conversion: 20% complete. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transferred-in costs are conceptually similar to direct-material costs. . . . . . . . . . . . . . . . . . . . . . . . . . *These costs were incurred during the prior month. . . . . . . . . . . . Units transferred in from Cutting Department during March . . . . . . . Work in process. . . . . . . . . . . . . . . . . . . . . . . . . . Conversion costs: Direct labor . . . First-Out Method 7 Work-in-Process Inventory: Cutting Department Direct material Cost of goods completed and transferred out Work-in-Process Inventory: Stitching Department Transferredin costs Direct material Conversion: Direct labor Manufacturing overhead Conversion: Direct labor Manufacturing overhead As the T-accounts show. . . . . . . . . whereas transferredin costs relate to partially completed products. .000 115. . . cost of . . . . . . . . March 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . March 1—10. . . .000 = \$115. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .000 units that received some work in the Stitching Department during February but were not completed. . . . . . . . .000 units 20. . Exhibit 4–F presents the basic data for our illustration of process costing in the Stitching Department. Direct material . . . . . . Units completed during March and transferred out to finished-goods inventory . the Cutting Department has two cost elements: direct-material and conversion costs. . .500 \$115. . . . . . .000 ( Predetermined overhead rate ) ( labor cost ) .000* –0– 7. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . the Stitching Department has three cost elements: direct-material. . . . . . . . . . . . . Note that any partially completed baseball glove in the Stitching Department must have received all of its Exhibit 4–F Work in process. . . . . . . . . . . . . . The only difference is that direct-material costs relate to raw materials. . .000 units Basic Data for Illustration— Stitching Department \$288. . . . . . . . . . . . . . . . . Applied manufacturing overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The \$61.000 Directϫ = 100% ϫ \$115. . . . . . . . . .600* \$ 68. . . . . . . . . . . . . . . . . . . .000 of transferred-in costs in the March 1 work-in-process inventory are costs that were transferred into the Stitching Department’s Work-in-Process Inventory account during February. . . . and transferred-in costs. . Total conversion costs . . . . . . . . . . . . . . . . . . . . . .000 units: Transferred-in: 100% complete. . . . . . . . . . . . . . . . . . . . . .200 \$ 7. . The March 1 work-in-process inventory in the department consists of 10. . . . . . . . . Transferred in: 100% complete Direct material: none Conversion: 90% complete Costs incurred during March: Transferred in from Cutting Department (assumes that the FIFO method was used for the Cutting Department) . . . . . . . . . . . . . . . . . . . . . . . . . . . Transferred-in costs are the costs assigned to the units transferred from the Cutting Department to the Stitching Department. . . . . . . .600* 40. . . cost of .Process Costing: The First-In. . . conversion.000 units 30. . . . . .

. . . . .000 40. Units completed and transferred out during March . .000 \$7. . Units transferred in during March . . . . . Costs per equivalent unit . . 525. transferred-in input. Equivalent units for March only . They are not included in the unit-cost calculation for March. .000 30. First-Out Method Exhibit 4–G Production Report—Stitching Department (FIFO method) STEP 1 Percentage of Completion with Respect to Conversion 20% STEP 2 Equivalent Units Transferred in Direct Material Conversion Physical Units Work in process. . which shows that 40.000 STEP 3 Transferred in Work in process.455 \$288.500 \$230. . because the direct material (rawhide lacing) is not added until the end of the process. . . The Stitching Department completed 30. . . .8 Process Costing: The First-In. . . .000 46. . . . . . . . . . .000 20. . .000 90% 30. .000 units were transferred into the Stitching Department during March.000 units in the Stitching Department’s March 31 work-in-process inventory. . . . .200* \$ 7. . . . . . . . . . . . 40. . As Exhibit 4–F shows. .000 30.000 units were completed and transferred out of the Cutting Department during March. .000 \$7. March 1 (from Exhibit 4–F) . .000 10. Less equivalent units represented in March 1 work in process .000 5.205 30. . . Total units to account for . . Total equivalent units . . . . . March 31 .000 –0– 30.000 50. . Total costs to account for .000 50. . . . . . .700 \$594. . . . . . 10. . .000 50.300 40.00 \$ 12.000 48. March 1 .000 40.000 20.500 30. .000 –0– 30. . . . .000 Costs incurred during March (from Exhibit 4–F) . . . . .205 +\$.000 2. . . . Total units accounted for . .600 These costs were incurred during February. This agrees with Exhibit 4–4 in the text. . . . . \$288. . . Direct Material Conversion Total \$ 68. . . . . . .000 46.000 \$230. . . . . .25 \$ 46.25 +\$5. . . . New equivalent units accomplished in March only . Work in process. . .000 \$ 7. . This left 20. .000 \$ . . . . .000 units during March and transferred them to finished-goods inventory. . . . . or it would not have been transferred from the Cutting Department. . .000 18. The March 1 work-in-process inventory has not yet received any direct material in the Stitching Department.00 *Cost of goods completed and transferred out of Cutting Department during March. under the FIFO method (calculated in Exhibit 4–C). . . . . .200 40.000 30. . . .

000 units completed and transferred out minus 10. .. .000 ϫ \$7..100 Total cost of goods completed and transferred out . . . . . . . . \$144. .. Check: Cost of goods completed and transferred out . .200.. . . . . .. . unit ( )( ( ( ) 20. . . . . . .. . . . . . . . . . . Exhibit 4–G presents a production report for the Stitching Department using the FIFO process-costing method. . . . . 40. . . . . . . . . . . . . . .. \$360. . . . . . . . . . . .000 ϫ 80% ϫ \$5. \$360. . 90. which is transferred out first ... . . . . . . . . . . . 2.000 units in the March 1 work-inprocess inventory. . ... .00 . . . . . .. .600 Cost incurred to finish the March 1 work-in-process inventory: Number Percentage of Cost per of units ϫ direct material ϫ equivalent unit remaining . . . . . .205 . . .. . . .100 \$594. . . . . Total costs accounted for . . . . . . . . .500 for direct material. . . . . . . .000 ϫ \$12. . . .. . .. . . . . .300 Exhibit 4–F shows that the costs incurred in the Stitching Department during March were \$7.. . . . . . \$115. . . . .000 for applied manufacturing overhead. 10. . . ..500 of material ( )( ( )( Number of units ϫ Percentage of ϫ conversion remaining )( )( Cost per equivalent unit of conversion ) ) . . . . . the calculation of equivalent units. . . .. . . . .. . . . † 249. .000 for direct labor. . . . . The amount of this cost depends on whether the weighted-average or FIFO process-costing method is used in the Cutting Department. . . . . . . . . . the equivalent units in the March 1 work-in-process . . . . .00 . . . . . .. . . . .Process Costing: The First-In.. . . .. . . . \$288.. . . . . . .200 234. . . ..455 . . . .000 ϫ 100% ϫ \$. . . . Step 1 details the physical flow of units. The March transferred-in cost in the Stitching Department is the cost of goods completed and transferred out of the Cutting Department. . . . . Cost of March 31 work-in-process inventory . .. . . . First-Out Method 9 Exhibit 4–G STEP 4 (concluded) Cost of goods completed and transferred out of the Stitching Department during March: Cost of March 1 work-in-process inventory. . . . . .. .. assumes that the FIFO method was used in the Cutting Department. . .. . . . . ..000 ϫ \$5. . . . . . . .. .100 †Units started and completed during March: 30. . . . . . . . . . . . .. 18. .. . . . . .. 10. . This amount comes from Exhibit 4–C. . . .. .200 Cost remaining in March 31 work-in-process inventory in the Stitching Department: Transferred-in costs: Number of equivalent Transferred-in units of transferred.ϫ cost per in costs equivalent unit )( )( ) ) . . . . . . .000 Cost incurred to produce units that were both started and completed during March: Number Total cost per of units ϫ equivalent . The predetermined overhead rate in the Stitching Department is 100 percent of direct-labor cost. . . . . . . . . . .25 .. . . . .. . . . \$234. .. . .. . . . . . . . . . . . . .. . . . . . . . In step 2. . . . . . . . .. . and \$115. . . . . . . . . Note that the predetermined overhead rates are different in the two production departments. . . . \$ 68. . . . . .100 Conversion: Number of equivalent ϫ units of conversion Conversion cost per equivalent unit .000 Total cost of March 31 work-in-process inventory . . . The amount shown in Exhibit 4–F. . . . . . . . . . . 20. .

. . \$12.000 lb. The transferred-in cost per equivalent unit in March. This is the cost of goods completed and transferred out of the Cutting Department. . the cost remaining in the Stitching Department’s Work-inProcess Inventory account on March 31 includes not only conversion costs but also transferred-in costs. . . . and it is handled as a distinct cost element in the process-costing calculations. . . . To transfer the cost of goods completed. . Note that the cost incurred to complete the March 1 work-in-process inventory includes the cost of direct material since direct material is not added in the Stitching Department until the end of the process. . . . . . . 3. Direct Material 80% 70% Conversion 60% 30% Work in process. 2. . . . The following journal entry is made to transfer the cost of the units completed to the Finished-Goods Inventory account. . . . . . . .200. . . . .455. How are the costs of the beginning work-in-process inventory treated differently under the weighted-average and FIFO methods? Exercises Exercise 4 Physical Flow and Equivalent Units. . and conversion. . . . . under FIFO.600. . . . . . . . . . .000 pounds of material in production. . . .000 by the total cost per equivalent unit computed in step 3. . . . . as computed under the FIFO method. . . . . . . . . The March transferred-in cost is \$288. FIFO Exercises The Portsmouth plant of Health Foods Corporation produces low-fat salad dressing. . \$68. the cost assigned to the March 1 work-inprocess inventory. The cost of the 20. . . Under FIFO. . . . the cost assigned to the units completed in each department is transferred to the next department’s Workin-Process Inventory account. Percentage of Completion Units 20. . . . . the cost assigned to the March 1 work-in-process inventory is not added to the cost incurred during March. Finished-Goods Inventory . 15.200 360. . . . What are the implications of the JIT approach for process costing? Explain how the computation of equivalent units differs between the weighted-average and FIFO methods.000 units started and completed in the Stitching Department during March is found by multiplying 20.000 lb. . . .205 (see step 3). . This cost is termed transferred-in cost. . An analysis of the total costs in the Stitching Department is presented in step 4 of Exhibit 4–G. . direct material. . . December 31 . is \$7. . First-Out Method inventory are subtracted to arrive at the new equivalent units of activity for March only. Work-in-Process Inventory: Stitching Department . In this way. . . . . computed using the FIFO method (Exhibit 4–C). Work in process. . January 1 . This is done for transferred-in activity. . Review Questions Review Questions 1. . During the year the company started 120. . .200 Summary of Transferred-in Costs When manufacturing is done in sequential production departments. . The costs per equivalent unit are computed in step 3. The following data pertain to the year just ended. Finally. 360. . the final cost of the product is built up cumulatively as the product progresses through the production sequence. is transferred out first. . . . .10 Process Costing: The First-In. Under the FIFO method. . . . . JIT inventory and production management systems are coming into widespread use. . .

. . . . . . . . . . . . . . . . . Vancouver Glass Company manufactures window glass for automobiles. . . . . . . . . . . . . . . . . . . . . . . . . . . . .Process Costing: The First-In. . . . . . . . . . . . . . . Use FIFO process costing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .000 gallons 100% complete 25% complete 950. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .000 5. . . . . . . . . . . . . . . . . . . . . . . . . . . .000 Exercise 5 Equivalent Units. . . . . . . . manufactures decorative glass products. . Direct material . . . . . . . . . . . . . . . . . . . . . . . . . . . . Required: Calculate the cost per equivalent unit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Units started and completed during October . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The following data pertain to the Plate Glass Department.000 equivalent units of conversion activity. . . . . . . . . . . . . . . Units started during October . . . . . . . . .000 2. . . . . . . . . . .000 gallons 100% complete 80% complete Exercise 6 Equivalent Units. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \$ 37. . FIFO Required: Calculate each of the following amounts using FIFO process costing.000 6. . . . . . . . . . . . . . . . . . . . . . . . . . . . .000 230. . . . . . . . . . . . . . . . . The company’s production schedule for October follows. . . Work in process. . . . . . . . . 2. . . June 1: Direct material . . . . . . . . . . . . . . . . . . . . . . . and conversion costs are incurred uniformly throughout the process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .000 Exercise 7 Cost per Equivalent Unit.000 36. . . . . . Conversion . . . . . . . . . Units started in process during November .000 6. . . . during June. . . .000 3. . . Equivalent units of conversion activity during October. . . . . . . . . . . . . . . Direct material . . . . . . . . FIFO Compute the equivalent units of direct material and conversion for the month of November. . . . . . Required: 2. . . . . . . . . . . . . . . . . . adapted) Energy Resource Company refines a variety of petrochemical products. . . . . . . . . November 1 . . . . . . . . . . Work in process. . . . . . . . . . . . . . . Equivalent units of direct material during October. . . November 30 . . . . . .000 gallons 240.000 1. . . . . . . . . . . 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .000. . . Use the FIFO method of process costing. . . . . . . . . for both direct material and conversion. . . . . Work in process on October 31 (20% complete as to conversion) . . . . . . . . . . . . . . . . . . were as follows: 15. . . . . . . . . .000 equivalent units of direct material. . . . . . . All direct materials are added at the beginning of the process. . . . . . . . . . . . . The following data are from the firm’s Amarillo plant. . . . . . . . . . . . . . . . Total units to account for . . . . Work in process. . . . . . . . . . Costs incurred during June: Direct material . . . . . . . . . Conversion . . . . . . . . . . . . . . . (CMA. . . . Work in process on October 1 (60% complete as to conversion) .750 \$150. . . . . . . . . . . . . . . and 46. . . . . . Conversion . . . . . . . . . . . . . . . Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FIFO The equivalent units of activity for June. . . . . . . . . . . . which were completed and transferred out during October . . . . . . The firm employs a process-costing system for its manufacturing operations. . . . . . Glass Creations. . . . . . . . . . Conversion . Units 1. . . . . . . . . . . . . under FIFO process costing. . First-Out Method 11 Required: Prepare a schedule analyzing the physical flow of units and computing the equivalent units of both direct material and conversion for the year. . . . . . Total units accounted for . . . . . . . . . . . . . . . . . . . . . . . Use FIFO process costing. . . . . . . . . . Units from beginning work in process. . . . . . .

. . . . . . . . . . . . . . . .000 180. . . . . . . . Required: Compute each of the following amounts using FIFO process costing. . . . were as follows: 4. . Cost of the September 30 work-in-process inventory in the Weaving Department. . . . . . . . . . Equivalent units of direct material . . . . . 2. . . . . . . . . . . . . . . . . . . . . . . . . under FIFO process costing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171. . . . Exercise 10 Analysis of Total Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . and 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conversion . . . . . . . 100. . . . . . . . The following data pertain to the firm’s sawmill during November. . . harvests. . during November. . . . . . . . . . . . . . . . . . . . . . . . The equivalent units of activity for February were as follows: Direct material (FIFO method) . . FIFO Montana Lumber Company grows. Cost of goods completed and transferred out of the Weaving Department during September. . . . . . Units completed and transferred out during September . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Costs incurred during November: Direct material . . . . . . . . . . . . . . . . . . . . . . . .000 The cost data for September are as follows: Work in process. . . . . . .000 88. . . . . . . . . . . . . . . . . . . Conversion . . . . . . . . . FIFO The following data pertain to Birmingham Paperboard Company. . . . . . . . . . . . . . . . . . and processes timber for use in construction. . . . . . . . . . . . . . . . . . . . . . . . . . . . .400 \$164. . . . Completed and transferred out . . . . . . . Exercise 9 Analysis of Total Costs. . . . . . . . . . . . . . . Use FIFO process costing. . . . . . . . . . . . . . . . . . . . . .250 equivalent units of direct material. . Work in Process. . . . . . . . . . . . . . . . . 10. Conversion . . . . . . . . . . . . . . The equivalent units in the ending work in process are 10. . . . . . . . . . . . . . . . . . 1. . .000 for conversion. . . . . . . . . . . . .000 for direct material and 2. . . . .000 50. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .000 units in process in the Weaving Department on September 1 (complete as to direct material. . . . . Required: Calculate the cost per equivalent unit.000 \$425. . . . . . . . . . FIFO Richmond Textiles Company manufactures a variety of natural fabrics for the clothing industry. First-Out Method Exercise 8 Cost per Equivalent Unit. . . . . . . . . . . . . . . . . . . . . Costs incurred during September Direct material . . . . . . and 40% complete as to conversion). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .500 Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40% complete as to conversion. . . . . . . . Equivalent units of conversion . . . . . . . . . . . . . . . . .12 Process Costing: The First-In. . . . . . . . . . . . . . . . . . . . \$ 94. . . . . . . . . . . . . . \$ 5. . . . . . . . . . . . . . . . . . . . . .000 690. . Conversion (FIFO method) . . . . . . . . . . . . . . .000 272. . . . . . . Work in process. . . . . . . . . . . . . . . .000 Conversion . . . . . . . . . . . . . 40. . . . . . . . . . . . . . . . . . .000 units* Direct material . . . . . . . 17. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .000 Costs incurred during February Direct material . . . . . February 1 . . . . . . . . . . . . . . . . . . . . . \$110. . . . . . . . . . . . .000 44. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .000 equivalent units of conversion activity. .600 *Complete as to direct material. . . . . . . for both direct material and conversion. . . . November 1: Direct material . . . . . . . .000 44. .000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \$ 65. . . . . . . . . . . . . . . . . . . . . . . .000 90. . . . . . . . . . . . . . . . . . . . . . . . . . . Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . The following data pertain to the Weaving Department for the month of September. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . September 1 Direct material . . . . . . . . . . . . . . . . . . . .000 The equivalent units of activity for November. . . . . . . . . . . . . . . . . . . . . . a manufacturer of cardboard boxes. .800 There were 20. . . . . . . . . . . . . . .

. . . Journal Entries. the following journal entry was made to record the cost of goods completed and transferred out of the Molding Department. . . . . . . . . . . . Analysis of total costs. . cost of . . . . . . . . . . . . . . . . . . . . . . . . . . . .000 4. 2. . . A partially completed production report for the month of May follows. . . . . . . . . . cost of . . . . .400 Prepare schedules to accomplish each of the following process-costing steps for the month of April. . . . . . . Applied manufacturing overhead . . . . . . . . . . . . . . . . Work-in-Process Inventory: Molding Department . . the Molding Department of Camden Plastics Company had no work-in-process inventory due to the implementation of a just-in-time inventory system. . . . . . . 2. . . . . . . . . . . Finished-Goods Inventory . . . . . April 1 . . . . . \$176. . . . . First-Out Method 13 Required: Compute each of the following amounts using FIFO process costing. . Neptune Corporation accumulates costs for its single product using process costing. . . . . . Work in process. .600 \$158. . . . . April 1—10. . . . . . . . . 4. . . . . . . . . . . . . . . On January 31. . . Conversion activity occurs uniformly throughout the production process. . . . . . . . . . . .800 105. . . Use the FIFO method of process costing. . . . . . . . . . . . . The following data have been compiled for the month of April. . . .000 Exercise 11 JIT. . . . . . . Calculation of equivalent units. Conversion costs: Direct labor . . . Cost of goods completed and transferred out during February. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. . . . .000 Problem 12 Straightforward FIFO Process Costing. . . . . . . .000 80. . . . . . . . . and conversion activity occurs uniformly throughout the process. . . . .000 units: Direct material: 100% complete. . . . . . April 30 Direct material: 100% complete Conversion: 331⁄3% complete Costs incurred during April: Direct material . . . . . . . . . . . . . . . . . . . . . . . . . . . Units started during April . . . . . . . . Analysis of physical flow of units. . . . . . Step-byStep Approach \$198. . . . . . .000 \$176. . . . . . . . . . . . . . Required: \$ 22. . . . . . . . . . . . . . . . . . . . . . . . . Computation of unit costs. . . . . . . . . . . . . . . . . . Units completed during April and transferred out to finished-goods inventory . . . Cost of the February 28 work-in-process inventory. . FIFO Method . . 1. . . . . . . . . . . .000 for direct material and 2. . . . . . . . . Balance in work in process. . . . . . . . . . . . Journal Entry The company uses weighted-average process costing. . . . On January 1. .500 100. . . . .Process Costing: The First-In. . l. . . . . . . . . . . . . . . . . .000 for conversion. Problem 13 Partial Production Report. . . . . . Required: What would the amount in the journal entry have been if Camden Plastics Company had used the FIFO method of process costing? Why? Problems Moravia Company processes and packages cream cheese.500 \$ 26. . . . . . . . . . . . . . . . . . . Total conversion costs . . . . . . . . . . . . . . . . The equivalent units in the ending work in process are 20. . . . . . . . . . . . . . . . . . . . . . . . Direct material is added at the beginning of the production process. . . . . . . . . .000 \$ 52. . . Weighted-Average versus FIFO. . . . . . . Conversion: 20% complete. . . . . . . . . . Work in process. .

. . . . . . . . . . . . . . . .280 880. . . May 31 . Costs incurred during August . .000 \$2. August 1 . . . . . . . . . . . Work in process. . . . . . . . Units started during August . . . . . .791. . . . . . Required: Direct Material \$143. . . . . .000 165.000 80. . . . . . . . . . . .000 96. . . .483. . . .000 35. . . . . . . Compute the cost remaining in the work-in-process inventory on May 31. . . . . . . . . . . . . .000 35. . . . . . . . . . . . . . .000 \$138. . . .000 16. . . . . . . . . . . . .14 Process Costing: The First-In. Production Report For the Month of August Percentage of Completion with Respect to Conversion 80% Equivalent Units Direct Material Conversion Work in process. . . . Total costs to account for . . . . . . . . . . . . . .700 2. . . . . . Compute the cost of goods completed and transferred out during May. . . . . . . . .000 120. . . .000 Conversion \$ 305. .000 20. . . . and conversion activity occurs uniformly throughout the process. . May 1 . . Total units to account for . The company accumulates costs for its product using process costing. . . Compute the costs per equivalent unit.680 . Units completed and transferred out during May . . . . . . . . . . . . . . . . . . . .700 Use FIFO process costing to complete the following requirements. . . . . . . . 3.000 80% 35. First-Out Method Production Report For the Month of May Percentage of Completion with Respect to Conversion 40% Equivalent Units Direct Material Conversion Work in process. . . . . . . .000 6. .174. Work in process. . . . .000 30. . .000 55. . . . 6. . . . . .000 20. . . . .400 \$1. . Physical Units 25. . .000 \$2. . .000 30% 100. . . 2. Total units to account for . Prepare a schedule of equivalent units.227. .700 2.680 Total \$ 347. . . Total units accounted for . .000 100. . . . . . . . . . . . . . . . . . . . . . . May 1 . Units started during May . . . . . . . . .000 Conversion \$ 474. . . . . . . . . . . . . . . but salt-water taffy is by far its most important product. . .280 784. . FIFO Method Atlantic City Taffy Company produces various kinds of candy. . . . . . . . . . . .000 55. . . . . l. . . . . . 4. August 1 . . Direct Material \$ 42.000 20. .000 Work in process. . . . . . . . Direct material is added at the beginning of the production process. . .009. . . . . . . . . . . . . . . .400 \$1. . . . .000 20. . . . .000 \$308. Total units accounted for . . . . . . . . . . Costs incurred during May . . . . . . . . . . Units completed and transferred out during August . . . .089. . . . . . . .700 Total \$ 617. . . . . .000 120. Prepare a journal entry to record the transfer of the cost of goods completed and transferred out during May. . . . . . .000 100. Total costs to account for . Physical Units 40. . . . . . . August 31 . . . . . . . . . . . . . . . . . . . . . . . . . . 5. Journal Entries. . . .000 Work in process. . . How would the production report be different if the company used weighted-average process costing? Problem 14 Partial Production Report.

. . . . . . . . . . . . . . . . . August 1: direct material . . . . . .000 ? ? 1. . . . . . . . . . August 31 (in units) . . . . . . . . . . . .400 ? ? ? ? ? ? ? Problem 15 Missing Data. Work in process. . . Cost remaining in ending work-in-process inventory: conversion . . . . . . . . . . . . . . Required: Compute the missing amounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The August 31 work in process was 40 percent complete as to conversion. The following information is available for the month of November. . . . . . . . . . . 2. . . . . . . . . . . . . . . . . . . . (Appendix to Chapter 4) . . . . . . . . . . . . . . ? ? ? 70. . . . . . . . . . . .493. . . . . . . . . . . . . . . . . . . . . . . . . Total equivalent units: conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .400 1. . . . . . . . . . . . . . . . . . . Costs incurred during August: conversion . . . . . . . . . . . . . . . . . . . . . . . Cases Garden Life Company manufactures a plant nutrient known as Garden Pride. . . . . . . Cost per equivalent unit: direct material . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of goods completed and transferred out during August . . . . . . . . . . . . . . . .000 ? ? 80. . . . . . . The August 1 work in process was 30 percent complete as to conversion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . the output is transferred to the Saturating Department for the final phase of production. Total cost per equivalent unit . . . . . . . . . . . . . . . . First-Out Method 15 Required: 1. . . and the water is virtually cost-free. . . . . . . . . . . . . . . a. . . . . . . . . . . . . . . . . . . . . . . Total costs incurred during August . . . . . . . . . . 3. . . . . Prepare a journal entry to record the transfer of the cost of goods completed and transferred out during August. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FIFO. . . . Units completed and transferred out during August . . . . . c. . . . . . . . . b. . . . . . . . . . . . . . . . . . . . . . . . . . . FIFO Additional Information: s s s s Direct material is added at the beginning of the production process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .000 ? \$304. . Total units to account for . . . . . . . . . . . . . . . . . . . . . . . . . .000 ? 612. . . . . . . . . . .933. Case 16 Sequential Production Departments. . . . . . . . . . . . . . August 1: total cost . . . . . . . . . . . . . . . . . Costs incurred during August: direct material . . . . . . . . . . . . . . . . . . . . . . . . . . . . Work in process. . .000 50. . . . . . . . . . . . . . . . There is no weight gain in the process. . . . . . . . . . . . . . . . . . . . New equivalent units accomplished in August: direct material . . . . . . . . . . . . . . . . . . Computation of unit costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Calculation of equivalent units. . . . . . . . . . Total cost of August 31 work in process . . . . . . . . . . . . . . . . . . . . Cost per equivalent unit: conversion . . . . . . . . .Process Costing: The First-In. . . . . . . . . . . Work in process. . Trenton Ceramics Company uses FIFO process costing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . How would the production report be different if the company used weighted-average process costing? The following data pertain to the Coating Department of Trenton Ceramics Company for August. . . . . . . . . . . . . . . . . . Analysis of total costs. . . . . . . . . . . . . . . . . . Cost remaining in ending work-in-process inventory: direct material . . . Here the product is saturated with water and then dried again. . . . . . . . . . Upon completion of processing in the Grading Department. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total equivalent units: direct material . . . . . . . . . . . . . . . . . . . . . . . . New equivalent units accomplished in August: conversion . . . . and prepare the August production report for the Coating Department. . . . Total costs to account for . . . . . . . Work in process. . Units started during August . . . . . . . . . . . . . . . Complete each of the following process-costing steps using FIFO process costing. . . . . Work in process. . . . . . . . . Production Report. . . . . . . . . . . . . . . . . . . . . . August 1: conversion . August 1 (in units) . . The manufacturing process begins in the Grading Department when raw materials are started in process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . and conversion activity occurs uniformly throughout the process. . . . . . . . . . . . . . . .