Process Costing Problems & Solutions

Problem no 1:
Meghna Company began 1993 with 3000 units in wprk-in-process. These units were 60%
complete. Costs attached to these units were tk. 29500 for materials, tk. 36000 for labor
and tk. 14400 for overhead. During 1993, work was begun on an additional 18000 units.
The firm ended the year with 5000 units, 20% complete. The costs incurred during the
period were tk. 180500 for materials, tk. 184500 for labor and tk. 130590 for overhead.
Units are inspected when they are 80% complete. Rejected units are returned to the point
where units are 35% complete for rework. Management considers 10% of the number of
good units completed in a year to be normal to be normal number of units reworked.
During the year 2000 units were reworked. Materials are added at the beginning of the
process, direct labor is added when the units are 50% complete and overhead costs are
incurred uniformly. The company uses the weighted average process costing.
Determine the cost of goods completed, the cost of ending work in process, and the loss
from abnormal rework.
Problem no 2:
S. L. Company uses Weighted Average Process costing method. Materials are added at
the beginning of the period, labor is added when the products are 50% complete, and
overhead is incurred uniformly. The firm started the period with 3000 units, 25%
complete. Work was begun on another additional 35000 units. The firm ended the period
with 7000 units, 80% complete. When the units are 60% complete, they are inspected for
rework. Rejected units are returned for rework to 40% level of completion. Normal
rework is considered 1% of the units surviving the inspection. During the period 39000
units were inspected for rework. Units are again inspected when they are 90% complete.
Rejected units are thrown out as spoiled and 1% of the units that survive the inspection is
treated as normal spoilage. During the period, 500 units were rejected as spoiled. The
costs attached to beginning inventory were tk. 15000 for material and tk. 3500 for
overhead. Current period costs were tk. 178800 for material, tk. 228150 for labor and tk.
116100 for overhead.
Compute the costs of goods completed, cost of ending inventory, cost of abnormal
rework and abnormal spoilage.
Problem no 3:
Silver Line Company uses Weighted Average method of process costing for its product.
The company puts raw material into the process when the product is 50% complete.
Labor and overhead costs incurred uniformly. The company started the period with 6000
units, 30% complete. During the period another 70000 units were put into production in
the process. The period ended with 14000 units, 75% complete. When the units are 60%
complete, they are inspected for rework. Rejected units are returned to 40% level for
rework. Normal rework is considered 1% of good units passing the inspection point.
During the period 78000 units were inspected for rework. Units are again inspected when
they are 90% complete. Rejected units are thrown out as spoiled. But only 1% of the units
that survive the inspection is treated as normal spoilage. During the year 1000 units were
rejected as spoiled. The costs attached to beginning WIP inventory were tk. 30000 for
labor and tk. 7000 for overhead. Current period costs were tk. 360000 for material; tk.
525000 for labor and tk. 230000 for overhead.

Calculate the costs of goods completed, cost of ending inventory, cost of abnormal
rework and abnormal spoilage.
Problem no 4:
Del Co. Ltd. began the current period with 1000 units, which were 60% complete. During
the period, works on additional 50000 units were started. Materials are added at the start
of the process while labor is added when units are 40% complete. Overhead costs are
incurred uniformly. Units are inspected for rework when they are 50% complete.
Rejected units are returned to 20% complete point for rework. Normal rework is 3% of
the units inspected. Units are again inspected when they are 70% complete. Rejected
units are thrown away as spoiled. Normal spoilage is 1% of the units inspected. There
were 52000 units inspected for rework and 800 units were rejected as spoilage. Ending
work in process consists of 6000 units, 80% complete. Costs attached to opening
inventory were tk. 45000 for material, tk. 21000 for labor and tk. 50000 for overheads;
Current costs were material tk. 225000, labor tk. 106100 and tk. 421680 for overhead.
Using weighted average method, find out
i)
Cost of goods completed
ii)
Cost of ending work in process
iii)
Cost of abnormal rework and
iv)
Cost of abnormal spoilage.
Solution: (problem 4)
Statement of production and Equivalent Units of production
Element of production
Inputs
Opening WIP
Introduced during the
period
Units accounts for
Outputs
Finished Goods
Ending WIP
Normal Spoilage
Abnormal Spoilage
Normal Rework
Abnormal Rework
Equivalent Units

Physical
Units

Material
Units
%

Equivalent Units
Labor
Overhead
Units
%
Units
%

1000
50000
51000
44200
6000
510
290
51000

44200
6000
510
290
51000

100
100
100
100
-

44200
6000
510
290
1560
440
53000

100
100
100
100
100
100

44200
4800
357
203
468
132
50160

100
80
70
70
30
30

Statement of costs and costs per equivalent unit

Elements of costs
Total
Material
Labor
Costs transferred in:
Opening inventory of WIP
116000
45000
21000
Current years costs
752680
225000
106100
Total Costs
868680
270000
121100
Equivalent units
Cost per equivalent units

51 000
5.29

53 000
2.40

Statement showing the evaluation of different elements of production:

Category
Costs
Shifted Ratio
to
Cost of Normal
L: 1560*2.40 = 3744
FG
44200/51000
Rework
O: 468*9.40 = 4399
WIP
6000/51000
Total
8143
NS
510/51000
AS
290/51000
Cost of Abnormal L: 440*2.40 = 1056
Rework
O: 132*9.40 = 1241
Total
2297
Cost of Normal
M: 510*5.29 = 2698
FG
44200/50200
Spoilage
L: 510*2.40 = 1224
WIP
6000/50200
O: 357*9.40 = 3356
Share of NR = 83
Total
7361
Cost of Abnormal M: 290*5.29 = 1534
Spoilage
L: 290*2.40 = 696
O: 203*9.40 = 1908
Share of NR = 47
Total
4185
Cost of ending
M: 6000*5.29 = 31740
WIP
L: 6000*2.40 = 14400
O: 4800*9.40 = 45120
Share of NR = 957
Share of NS = 878
Total
93095
Cost of Finished
M: 44200*5.29 = 233818
Goods
L: 44200*2.40 = 106080
O: 44200*9.40 = 415480
Share of NR = 7056
Share of NS = 6482
Total
= 768916

Overhead
50000
421680
471680
50 160
9.40
Amount
7056
957
83
47

6482
878

Elements of costs

Units

WIP, beginning
Material
Labor
Overhead

1000

Introduced during the

year

Process Account
Costs
Elements of
Production
Abnormal Rework
45 000 Abnormal Spoilage
21 000 Normal Spoilage
50 000 Finished Goods
Balance c/d
(WIP, ending)

Units

290
510
4420
0
6000

Costs
2 297
4 186
7 68 916
93 096

5000
0

Material
Labor
Overhead
5100
0

2 25 000
1 06 100
4 21 680
8 68 780

5100
0

8 68 780