Chapter 6

Process Costing Questions
1. A company that produces homogeneous goods in mass quantities is likely to use a process costing system. The company can either have a single department or multiple departments. Job order costing and process costing are similar in that they are both methods of assigning costs to products. Also, the methods use similar product accounts (raw materials, work in process, finished goods, cost of goods sold) to capture the costs associated with production and use similar cost pools (DM, DL, OH). Job order costing and process costing differ in the way in which costs are gathered. In a job order costing system, costs are accumulated by department and by job; in a process costing system, costs are accumulated by production departments for the products that flow through those departments. In process costing, production must be determined on the basis of equivalent units to properly allocate the costs associated with each cost component to the work that was completed during the period and to the work that is still in process at the end of the period. Equivalent units of production are unnecessary in job order costing. 2. The only difference between weighted average and FIFO equivalent units of production is in the treatment of the work that was completed on beginning inventory in the prior period. Under weighted average, the work performed on beginning inventory in the prior period is combined with the work performed during the current period. Under FIFO, the work performed on beginning inventory during the prior period is held out separately and not commingled with the work performed during the current period. The FIFO method more accurately portrays the actual physical flow of units through the manufacturing process, because it is most likely that the units in beginning inventory will be the first units to be completed during the current period - thus a first-in, first-out flow. 111
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3. Equivalent units of production is an approach to put partially completed and wholly completed units on a comparable basis. Without use of equivalent units, partially completed and fully completed units would be combined as if they were homogeneous measures of output. This would result in meaningless data since fully and partially completed units are different outputs. 4. The units "started and completed" in a period are calculated as the total units completed during the period minus the units that were in the beginning inventory. This figure can be used in both the weighted average and FIFO methods shown in the chapter. (There are, however, other methods of computing EUP in which the units started and completed are not shown separately.) This calculation is not necessary for the weighted average method because work performed on the current period’s beginning inventory in the prior period need not be separated from work performed to complete the beginning inventory in the current period. This calculation is necessary for the FIFO method because work in the prior period cannot be commingled with work performed in the current period. Under weighted average, costs are assigned to ending inventory by multiplying the cost per EUP for each cost component times the EUP calculated for that component; these costs are then totaled. Costs are assigned to the units completed/transferred out by multiplying the total cost per EUP times the number of units that have been completed and transferred out during the period. The cost assigned to ending inventory is handled the same way for FIFO as for weighted average. In determining the cost of the units completed and transferred out, however, the cost of completing the beginning inventory must first be determined by multiplying the equivalent units of production performed this period for each cost component times the cost per EUP for each

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cost component. The cost of completing the beginning inventory is then added to the original beginning inventory cost to find the total cost of producing the beginning inventory units. The cost of the units started and completed in the current period is found by multiplying the total cost per EUP times the number of units started and completed this period. Adding the total cost of producing beginning inventory to the cost of the units started and completed will give the total cost transferred out of the department during the period. 5. The only difference between process costing in a multi-department environment and a single department environment is that there will be a cost component labeled "Transferred In." The costs of previous departments must follow the flow of goods into successor departments to determine the full cost of production. 6. Under a standard costing system, the Material, In-Process, and Finished Goods Inventory accounts are accounted for at standard costs. The actual costs of each process or each department are also captured in a standard costing system and variances can be computed as differences between the standard and actual amounts for each cost component. The variances provide information to management about the efficiency of operations because the variances reflect differences between expected (standard) and actual costs. 7. A hybrid costing system is one in which process costing is used to account for certain product costs and job order costing is used to account for other product costs. Hybrid costing is common in environments that have, for example, material costs that vary substantially from one production run to another (gold versus copper), but require all products to flow

through the same physical conversion processes. In this example, the material would be accounted for on a job order basis and the conversion would be accounted for using process costing. 8. Normal loss refers to an expected reduction in production quantity based on the production technology and production practices of the company. Abnormal loss refers to a quantity of loss above the normal loss quantity. Normal loss creates an expected cost of production so the cost of such a loss is inventoriable as part of the cost of good production using the “method of neglect.” The method of neglect requires no specific computations regarding spoiled units; all costs are assigned to good units. The cost of spoiled units that have been found at an inspection point will be assigned to all units that have passed the inspection point. Thus, the method of neglect assigns spoilage costs by simply ignoring (neglecting) the spoiled units. The method of neglect raises the cost per equivalent unit because no costs are assigned to the spoiled units. Abnormal spoilage cost is not expected, and, thus, it is not inventoriable. Abnormal losses would be more likely to be preventable than normal losses because abnormal losses are less likely to be caused by factors that are inherent in the materials or production methods. For example, a known amount of material loss (waste) is to be expected if lower quality materials are utilized. However, any loss beyond the expected amount would likely be caused by other factors that are subject to management control, e.g., production errors.

Exercises
9.
a.,b. Beginning inventory Started To account for 360,000 510,000 870,000 Beginning inventory Started and completed Ending inventory Accounted for 360,000 420,000 90,000 870,000

Units

DM

CC

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Beginning inventory Started & completed Ending inventory (40%) Equivalent units 10.
a.,b. Beginning inventory Started To account for

360,000 420,000 90,000

360,000 420,000 90,000 870,000

360,000 420,000 36,000 816,000
360,000 420,000 90,000 870,000

360,000 510,000 870,000

Beginning inventory Started and completed Ending inventory Accounted for

Beginning WIP completed Started & completed Ending inventory (40%) Equivalent units 11.
a.,b. Beginning inventory Started To account for

Units 360,000 420,000 90,000

DM 0 420,000 90,000 510,000

CC 108,000 420,000 36,000 564,000
25,000 250,000 30,000 305,000

25,000 280,000 305,000

Beginning inventory Started and completed Ending inventory Accounted for

Beginning inventory Started & completed Ending inventory Equivalent units b. Beginning inventory Started & completed Ending inventory Equivalent units c. Equivalent units (WA) EUPs - Beginning WIP Equivalent units (FIFO) 12. a. Beginning inventory Units started Units to account for b. Units completed Beginning inventory Started & completed c. Units to account for Units completed

Units 25,000 250,000 30,000

DM 25,000 250,000 30,000 305,000 DM 0 250,000 30,000 280,000 305,000 (25,000) 280,000

DL 25,000 250,000 12,000 287,000 DL 7,500 250,000 12,000 269,500 287,000 (17,500) 269,500

OH 25,000 250,000 18,000 293,000 OH 6,250 250,000 18,000 274,250 293,000 (18,750) 274,250

Units 25,000 250,000 30,000

3,600 187,000 190,600 184,200 (3,600) 180,600 190,600 (184,200)

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Units in EI

6,400

Beginning inventory Started & completed Ending inventory EUP (WA) d. Beginning inventory Started & completed Ending inventory EUP (FIFO) e. EUP (WA) Equivalent units in BI EUP (FIFO) 13.

Material 3,600 180,600 2,560 186,760 Material 1,440 180,600 2,560 184,600 Material 186,760 (2,160) 184,600

Labor 3,600 180,600 1,600 185,800 Labor 2,160 180,600 1,600 184,360 Labor 185,800 (1,440) 184,360 60,000 800,000 860,000 860,000 (35,000) 825,000 (60,000) 765,000

Overhead 3,600 180,600 640 184,840 Overhead 2,880 180,600 640 184,120 Overhead 184,840 (720) 184,120

a. Total tons to account for: Beginning inventory Tons started Total b. Total tons to account for: Less tons in ending inventory Tons transferred out Less tons in beginning inventory Tons started & completed (tons) c. Weighted average: Beginning inventory Started & completed Ending inventory EUP d. FIFO: Complete beginning inventory Started and completed Ending inventory EUP

Material 60,000 765,000 31,500 856,500 Material 0 765,000 31,500 796,500 DL $ 36,200 79,800* $116,000

Conversion 60,000 765,000 21,000 846,000 Conversion 36,000 765,000 21,000 822,000 Overhead $ 9,900 42,600 $52,500

14. Beginning inventory Current period Total costs

DM $14,920 78,880 $93,800

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Divided by EUP Cost per EUP
* **

26,800 $3.50

24,400 $4.75**

21,000 $2.50

Direct Labor = Conversion Cost – Overhead = $122,400 - $42,600 = $79,800 rounded

15. EUPs - (WA) EUPs - Beginning WIP EUPs - (FIFO) Current period cost Divided by EUP Cost per EUP
*

DM 26,800 (3,600) 23,200 $78,880 23,200 $3.40

DL 24,400 (4,000) 20,400 $79,800 20,400 $3.91*

Overhead 21,000 (3,960) 17,040 $42,600 17,040 $2.50

rounded

16.

a. Beginning WIP Current period Total b. Total costs EUPs - (WA) Cost per EUP c. Current costs EUPs - (FIFO) Cost per EUP d. EUPs - (WA) EUPs - (FIFO) EUPs – Beg. WIP Percent complete

DM $ 9,800 27,000 $36,800 $36,800 80,000 $0.46 $27,000 60,000 $0.45 80,000 60,000 20,000 100%
9,800 81,500 91,300

DL $ 3,160 17,360 $20,520 $20,520 76,000 $0.27 $17,360 62,000 $0.28 76,000 62,000 14,000 70%

OH $ 5,010 42,240 $47,250 $47,250 75,000 $0.63 $42,240 66,000 $0.64 75,000 66,000 9,000 45%
Units

Total $ 17,970 86,600 $104,570 $104,750 $1.36 $ 86,600 $1.37

17.
Beginning inventory Units started Units to account for

Units Beginning inventory Started & completed Ending inventory Accounted for

9,800 76,900 4,600 91,300

EUP computation: Other Canisters Materials 9,800 9,800 76,900 76,900 4,600 1,380 91,300 88,080 DL 9,800 76,900 1,150 87,850 OH 9,800 76,900 460 87,160

Beginning WIP Started & completed EI EUPs - (WA)

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Costs: Beginning WIP Current Total costs Divided by EUPs Cost per EUP 18. a.

Other Canisters Materials DL $ 7,382 $ 6,188 $ 3,963 65,658 86,296 78,616 $73,040 $92,484 $82,579 91,300 88,080 87,850 $1.05 $0.94 $0.80 Units 1,000 3,800 4,800 1,000 3,000 4,000 800 4,800 Material 300 3,000 320 3,620

OH $ 3,432 157,814 $161,246 87,160 $1.85

Total $ 20,965 388,384 $409,349 $4.64

Beginning inventory Units started Units to account for Beginning inventory completed Units started & completed Total units completed Ending inventory Units accounted for

Units in beginning inventory Units started & completed Equivalent units in ending inventory EUP (FIFO) b. Current costs Divided by EUP (FIFO) Cost per EUP 19. Material $66,970 3,620 $18.50

Conversion 150 3,000 480 3,630 Total $96,010 $26.50

Conversion $29,040 3,630 $8.00

a. 520,000 × ($3.75 + $4.50 + $5.10) = 520,000 x $13.35 = $6,942,000 b. DM: $3.75 x (74,000 x 100%) DL: $4.50 x (74,000 x 30%) OH: $5.10 x (74,000 x 45%) Total c. Cost of goods transferred out Ending WIP Total $277,500 99,900 169,830 $547,230 $6,942,000 547,230 $7,489,230

20.

a. Material: 27,000 ÷ 27,000 Packaging: 0 ÷ 27,000 Labor: 8,100 ÷ 27,000 Overhead: 9,450 ÷ 27,000

= 100% = 0% = 30% = 35%

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b. Beginning WIP Material Labor Overhead Complete Beginning WIP Packaging $1.50 (27,000 × 100%) Labor $6.42 (27,000 × 70%) Overhead $3.84 (27,000 × 65%) Total

$344,520 95,931 72,954 $ 40,500 121,338 67,392

$513,405

229,230 $742,635

c. (185,000 - 27,000) × ($12.75 + $1.50 + $6.42 + $3.84) = 158,000 x $24.51 = $3,872,580 d. Material ($12.75 × 6,000 × 100%) Labor ($6.42 × 6,000 × 40%) Overhead ($3.84 × 6,000 × 55%) Total 21. a. Beginning WIP Started Units to account for Beginning WIP Started & completed Ending WIP Units accounted for 500 4,200 4,700 500 4,050 150 4,700 Material 200 4,050 120 4,370 Conversion 350 4,050 105 4,505 $ 76,500 15,408 12,672 $104,580

Beginning WIP Started & completed Ending inventory EUP (FIFO)

Material ($31,464 ÷ 4,370) Conversion ($11,713 ÷ 4,505) Total cost per FIFO EUP

$7.20 2.60 $9.80

b. Transferred out: Costs in BI Cost to complete BI DM (200 × $7.20) CC (350 × $2.60) Started & completed (4,050 × $9.80) Total cost transferred

$2,364 1,440 910

$ 4,714 39,690 $44,404

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c. Beginning WIP Started & completed Ending inventory EUP

Material 500 4,050 120 4,670

Conversion 500 4,050 105 4,655

Material ($33,391 ÷ 4,670) Conversion ($12,150 ÷ 4,655) Total cost per WA EUP d. Ending WIP DM (120 x $7.15) CC (105 x $2.61) Total 22. a. Fabrication:
Beginning inventory Started Units to account for 5,000 40,000 45,000

$7.15 (rounded) 2.61 (rounded) $9.76

$ 858.00 274.05 $1,132.05

Beginning inventory Started & completed Ending inventory Units accounted for

5,000 33,200 6,800 45,000

Beginning WIP Started & completed Ending inventory EUP (WA)
Assembly: Beginning inventory Started Units to account for 2,000 38,200 40,200

Units 5,000 33,200 6,800 45,000

Material 5,000 33,200 6,800 45,000

Conversion 5,000 33,200 4,080 42,280
2,000 32,100 6,100 40,200

Beginning inventory Started & completed Ending inventory Units accounted for

Units Beginning WIP 2,000 Started & completed 32,100 6,100 Ending inventory EUP (WA) 40,200 b. Fabrication Beginning inventory Started & completed Ending inventory EUP (FIFO) Units 5,000 33,200 6,800 45,000

Trans-in 2,000 32,100 6,100 40,200

Material 2,000 32,100 0 34,100

Conversion 2,000 32,100 915 35,015

Trans-in 5,000 33,200 6,800 45,000

Material 0 33,200 6,800 40,000

Conversion 3,750 33,200 4,080 41,030

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Assembly: Beginning inventory Started & completed Ending inventory EUP (FIFO) 23. Units 2,000 32,100 6,100 40,200 Trans-In 2,000 32,100 6,100 40,200 Material Conversion 2,000 1,300 32,100 32,100 0 915 34,100 34,315

a. 18,000 x 100% x $0.10 = 18,000 x 45% x $0.09 = Total cost in BI

$1,800 729 $2,529

b. 14,400 x 100% x $0.10 = $1,440.00 842.40 14,400 x 65% x $0.09 = Total cost in EI $2,282.40 c. Beginning inventory Started Units to account for Total units Units in EI Units transferred out 18,000 130,000 148,000 148,000 (14,400) 133,600

Cost transferred out = 133,600 × $0.19 = $25,384 d. To complete BI (units) Started & completed Ending inventory Equivalent units (FIFO) Multiply by unit cost Standard cost of period Actual cost of period Variance Material 0 115,600 14,400 130,000 x 0.10 $13,000 (18,400) $ (5,400)U Labor 9,900 115,600 9,360 134,860 x 0.02 $2,697.20 (2,698.00) $ (0.80)U 13,000.00 5,400.00 18,400.00 2,697.20 .80 2,698.00 9,440.20 5,759.80 15,200.00 OH 9,900 115,600 9,360 134,860 x 0.07 $ 9,440.20 (15,200.00) $(5,759.80)U

e. Work in Process Inventory Material Variance Raw Material Inventory Work in Process Inventory Labor Variance Wages Payable (or Cash) Work in Process Inventory Underapplied Overhead Manufacturing Overhead

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24.

a. Units to account for: Beginning inventory Started Total Beginning WIP Started & completed Ending WIP Units accounted for Beginning WIP Started and completed Ending inventory EUP (FIFO)

6,000 155,000 161,000 6,000 151,000 4,000 161,000 Ingred. 0 151,000 4,000 155,000 Packaging 6,000 151,000 0 157,000 Conversion 1,800 151,000 2,400 155,200

b. Cost of goods completed: 157,000 x $0.68 = $106,760 c. Cost of ending work in process: Ingredients (4,000 x $0.45) Conversion (2,400 x $0.18) Total 25. a. Units to account for:
Beginning inventory Started Total 0 2,500 2,500 Started & completed Ending inventory Units accounted for 2,400 100 2,500

$1,800 432 $2,232

Started and completed Ending inventory EUP

Material 2,400 100 2,500

Labor 2,400 25 2,425

Overhead 2,400 35 2,435

Cost of goods transferred to finished goods: Direct material: Dacron (280 × $10) $ 2,800 Denim (470 × $8) 3,760 19,800 $26,360 Cotton (1,650 × $12) Direct labor (2,400 × $12) 28,800 21,600 Overhead (2,400 × $9) Total $76,760 b. Cost of ending work in process: Direct material: Dacron (20 × $10) Denim (30 × $8) Cotton (50 × $12) Direct labor (25 × $12)

$ 200 240 600

$ 1,040 300

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Overhead (35 × $9) Total 26. 27. 28.

315 $ 1,655

Each student will have a different answer. No answer provided. Each student will have a different answer. No answer provided. All spoilage is normal because the 1,400 gallons is less than 0.01 x 180,000. a and b. Beginning inventory (60%; 70%) Gallons started Gallons to account for Beginning inventory completed Gallons started and completed Total gallons transferred Ending inventory (40%; 20%) Normal spoilage Gallons accounted for (FIFO EUP) Units 8,000 180,000 188,000 8,000 174,600 182,600 4,000 1,400 188,000 Material Conversion

3,200 174,600 1,600 0 179,400

2,400 174,600 800 0 177,800

29.

a. 10,000 + 60,000 = 70,000 units b. 60,000 × 0.05 = 3,000 units c. 70,000 - (58,200 + 8,000 + 3,000) = 800 units d. Beginning inventory Units started Units to account for Transferred out Ending inventory Normal spoilage Abnormal spoilage Units accounted for Units 10,000 60,000 70,000 58,200 8,000 3,000 800 70,000 Material Conversion

58,200 8,000 0 800 67,000

58,200 1,600 0 800 60,600

e. Cost of normal spoilage is automatically spread among all of the remaining units produced. This is done by using the method of neglect and omitting these spoiled units from the EUP calculations. f. Cost of abnormal spoilage is written off as a period cost (loss).

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30.

Normal spoilage allowed = 60,000 pounds x 0.08 = 4,800 pounds Beginning inventory Pounds started Pounds to account for Beginning inventory completed Pounds started and completed Ending inventory Normal spoilage Pounds accounted for (FIFO) Beginning inventory cost Current costs Total costs Divided by EUP Cost per EUP Units 18,000 60,000 78,000 18,000 45,000 10,800 4,200 78,000 Total $12,400 37,458 $49,858 $0.65 Material Conversion

0 45,000 10,800 0 55,800 Material $19,530 55,800 $0.35

12,600 45,000 2,160 0 59,760 Conversion $17,928 59,760 $0.30

Cost Assignment Transferred out: Beginning inventory cost Conversion cost to complete (12,600 x $0.30) Total cost of beginning inventory Started & completed (45,000 x $0.65) Ending inventory: Material (10,800 x $0.35) Conversion (2,160 x $0.30) Total costs accounted for 31. a. Beginning inventory Pounds started Pounds to account for BI completed Started & completed Ending inventory Normal spoilage Abnormal spoilage EUP (FIFO) b. Ending inventory: Material (10,000 x $2.40) Conversion (2,500 x $4.70) Total cost Units 40,000 425,000 465,000 40,000 405,000 10,000 2,000 8,000 465,000 $24,000 11,750 $35,750

$12,400 3,780 $16,180 29,250 $ 3,780 648 Material

$45,430

4,428 $49,858 Conversion

0 405,000 10,000 0 8,000 423,000

6,000 405,000 2,500 0 5,600 419,100

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c. Abnormal spoilage: Material (8,000 x $2.40) Conversion (5,600 x $4.70) Total cost (treated as a loss)

$19,200 26,320 $45,520

Problems
32. a. Wyeth Products Cost of Production Report For the Month of February 2006 Units 800 11,400 12,200 Material Labor Overhead

Production Data Beginning inventory Units started Units to account for

Beginning inventory units 800 Units started & completed 11,000 400 Ending inventory EUP 12,200 Cost Data Cost in BI Current costs Total cost to account for Divided by EUP Cost per EUP

800 11,000 280 12,080

800 11,000 360 12,160

800 11,000 320 12,120

Total $ 14,942 505,538 $520,480 $43

Material Labor $ 6,748 $ 2,484 259,012 58,316 $265,760 $60,800 12,080 12,160 $22 $5

Overhead $ 5,710 188,210 $193,920 12,120 $16

Cost Assignment Transferred out (11,800 units x $43) Ending inventory: Material (280 x $22) Labor (360 x $5) Overhead (320 x $16) Total cost accounted for b. Raw Material Inventory Accounts Payable WIP Inventory Raw Material Inventory WIP Inventory Wages Payable

$507,400 $6,160 1,800 5,120

13,080 $520,480

XXX XXX 259,012 259,012 58,316 58,316

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WIP Inventory 188,210 Manufacturing Overhead Manufacturing Overhead XXX Accounts Payable Finished Goods Inventory WIP Inventory Cost of Goods Sold Finished Goods Inventory c. Raw Materials Beg XXX Purch XXX 259,012 Issued 507,400

188,210 XXX

507,400 XXX XXX WIP Inventory Beg DM DL OH 14,942 259,012 58,316 188,210 507,400 CGM

End

XXX Wages Payable 58,316 DL

End 13,080 Finished Goods Beg. XXX XXX COGS CGM 507,400 End XXX Accounts Payable XXX RM Purch XXX Actual MOH

Manufacturing Overhead Actual XXX 188,210 Applied

Cost of Goods Sold From FG XXX

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33.

a.

Wyeth Products Cost of Production Report For the Month of February 2006 Units 800 11,400 12,200 800 11,000 400 12,200 Total $ 14,942 505,538 $520,480 $43.06 Material Labor Overhead

Production Data: Beginning inventory Units started Units to account for Beginning inventory units Units started & completed Ending inventory Units accounted for Cost Data: Cost in BI Current costs Total cost to account for Divided by EUP Cost per EUP
*

440 11,000 280 11,720

280 11,000 360 11,640

480 11,000 320 11,800 Overhead $188,210 11,800 $15.95

Material $259,012 11,720 $22.10

Labor $58,316 11,640 $5.01*

rounded

Cost Assignment Transferred out: Beginning WIP $14,942 Complete Beginning WIP Material (440 x $22.10) 9,724 Labor (280 x $5.01) 1,403 7,656 Overhead (480 x $15.95) Started & Completed (11,000 x $43.06) Ending inventory: Material (280 × $22.10) $6,188 Labor (360 × $5.01) 1,804 5,104 Overhead (320 × $15.95) Total cost accounted for (off due to rounding)

$ 33,725 473,660

13,096 $520,481

b. The differences that exist between weighted average and FIFO process costing occur because of the difference in the treatment of the work performed in the prior period on beginning WIP inventory. WA includes such work in the determination of equivalent units of production, whereas FIFO does not. In addition, because WA includes the beginning inventory work in EUP, this method also includes the cost of beginning inventory in the determination of cost per EUP (whereas FIFO excludes it). These two items cause the cost per EUP to differ and, thus, the cost of the goods transferred out as well as the cost of ending inventory.
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34.

a. BI Units started Units to account for BI Units S&C EI EUP b. Cost in BI Current cost
Total cost to account for

Units 400,000 2,000,000 2,400,000 400,000 1,400,000 600,000 2,400,000 Material $ 400,000 2,600,000 $3,000,000 2,400,000 $1.25

Material

Conversion

400,000 1,400,000 600,000 2,400,000 Labor $ 576,000 3,204,000 $3,780,000 2,100,000 $1.80

400,000 1,400,000 300,000 2,100,000 Overhead $ 345,600 1,922,400 $2,268,000 2,100,000 $1.08

Divided by EUP Cost per EUP

Total cost to account for = $3,000,000 + $3,780,000 + $2,268,000 = $9,048,000 c. Transferred out (1,800,000 × $4.13) Ending inventory: Material (600,000 × $1.25) Conversion (300,000 × $2.88) Total cost accounted for 35. a. (1) BI units Units started & completed EI unit EUP (2) BI costs Current Total Divided by EUP Cost per EUP $7,434,000 $750,000 864,000

1,614,000 $9,048,000

Material Labor Overhead 100,000 100,000 100,000 1,100,000 1,100,000 1,100,000 400,000 240,000 240,000 1,600,000 1,440,000 1,440,000 Material Labor Overhead $ 750,000 $ 215,000 $ 150,500 5,650,000 4,105,000 2,873,500 $6,400,000 $4,320,000 $3,024,000 1,600,000 1,440,000 1,440,000 $4.00 $3.00 $2.10 $ 0 10,920,000 $10,920,000 (124,000) $10,796,000 10,920,000 10,920,000 10,796,000

Total $ 1,115,500 12,628,500 $13,744,000 $9.10

(3) Beginning FG CGM (1,200,000 × $9.10) Goods available for sale Ending inventory CGS b. Finished Goods Inventory Work in Process Inventory Cost of Goods Sold

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Finished Goods Inventory 36. a. Beginning inventory Units started Units to account for Units 5,000 80,400 85,400 Material

10,796,000 Conversion

Beginning inventory in units 5,000 0 3,000 Units started & completed 76,400 76,400 76,400 4,000 4,000 3,200 Ending inventory EUP 85,400 80,400 82,600 Total Material Conversion b. Current cost $495,712 $388,332 $107,380 EUPs (FIFO) 80,400 82,600 $4.83 $1.30 Cost per EUP $6.13 c. Beginning inventory costs Complete WIP CC (3,000 x $1.30) Std. & Comp. (76,400 x $6.13) Costs transferred d. DM (4,000 x $4.83) CC (3,200 x $1.30) Total cost of EI 37. a. Gallons transferred out Gallons in ending WIP Total gallons to account for Gallons in beginning WIP Gallons started b. Beginning WIP Started & completed Ending WIP EUP - FIFO Current costs EUP - FIFO Cost per EUP Material $1,136,025 229,500 $4.95 $26,790 3,900 $ 30,690 468,332 $499,022

$19,320 4,160 $23,480 242,000 23,500 265,500 (36,000) 229,500 Material 0 206,000 23,500 229,500 Labor 16,200 206,000 3,525 225,725 Overhead 10,800 206,000 2,350 219,150

Labor $451,450 225,725 $2.00

Overhead $723,195 219,150 $3.30 $298,840

Beginning WIP ($178,000 + $39,100 + $81,740) Completion of Beginning WIP DL (16,200 x $2.00) $32,400 35,640 CC (10,800 x $3.30) Total cost of BI transferred

68,040 $366,880

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c. Total cost per EUP = $4.95 + $2.00 + $3.30 = $10.25 Total cost of BI transferred Started & completed (206,000 x $10.25) Total cost of goods completed d. $2,478,380 ÷ 242,000 = $10.24 (rounded) e. DM (23,500 × $4.95) DL (3,525 × $2.00) OH (2,350 × $3.30) Total EI 38. a. $116,325 7,050 7,755 $131,130 $ 366,880 2,111,500 $2,478,380

Nile Queen Corporation Cost of Production Report For the Month of October 2006 Production Data: Beginning inventory Units started Units to account for Units 6,000 45,000 51,000 Units 6,000 35,000 10,000 51,000 Material 6,000 35,000 10,000 51,000 Labor 6,000 35,000 4,000 45,000 Overhead 6,000 35,000 8,000 49,000

Beginning inventory in units Units started & completed Ending inventory EUP (WA) Cost Data: Cost in BI Current costs Cost to account for Divided by EUP Cost per EUP Total $ 9,782 103,308 $113,090 $2.31

Material $ 6,510 45,000 $51,510 51,000 $1.01

Labor $ 954 22,896 $23,850 45,000 $0.53

Overhead $ 2,318 35,412 $37,730 49,000 $0.77

Cost Assignment: Transferred out (41,000 × $2.31) Ending inventory: Material (10,000 × $1.01) Direct labor (4,000 × $0.53) Overhead (8,000 × $0.77) Total cost accounted for

$ 94,710 $10,100 2,120 6,160

18,380 $113,090

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b.

Nile Queen Corporation Cost of Production Report For the Month of October 2006 Production Data: Units Beginning inventory Units started Units to account for

6,000 45,000 51,000 Units 6,000 35,000 10,000 51,000 Material 0 35,000 10,000 45,000 Labor 4,200 35,000 4,000 43,200 Overhead 2,400 35,000 8,000 45,400

Beginning inventory in units Units started & completed Ending inventory EUP (FIFO) Cost Data: Cost in BI Current costs Cost to account for Divided by EUP Cost per EUP Total $ 9,782 103,308 $113,090 $2.31

Material $45,000 45,000 $1.00

Labor $22,896 43,200 $0.53

Overhead $35,412 45,400 $0.78

Cost Assignment: Transferred out: Beginning WIP Complete Beginning WIP DL (4,200 × $0.53) OH (2,400 × $0.78) Started & completed (35,000 × $2.31) Ending inventory: Material (10,000 × $1.00) Direct labor (4,000 × $0.53) Overhead (8,000 × $0.78) Total cost accounted for

$ 9,782 2,226 1,872

$ 13,880 80,850

$10,000 2,120 6,240

18,360 $113,090

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39.

a.

Starbing Paints Cost of Production Report For Month Ended May 31, XXXX Production data: Beginning inventory Units started Units to account for 4,000 21,000 25,000 Direct Materials Chemicals Cans 4,000 4,000 16,000 16,000 5,000 0 25,000 20,000 Conversion 4,000 16,000 4,000 24,000

Beginning inventory Started & completed Ending inventory Equivalent units Cost data:

Beginning inventory Current costs Total costs Divided by EUP Cost per equivalent unit *rounded

Direct Materials Chemicals Cans $ 45,600 $ 0 228,400 7,000 $274,000 $ 7,000 25,000 20,000 $0.35 $10.96

Conversion $ 8,125 45,500 $53,625 24,000 $2.23*

Cost assignment: Completed goods ($13.54 × 20,000) Ending WIP Chemicals (5,000 × $10.96) $54,800 8,920 Conversion (4,000 × $2.23) Total costs (off due to rounding)

$270,800

63,720 $334,520

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b.

Starbing Paints Cost of Production Report For Month Ended May 31, XXXX Production data: Beginning inventory Units started Units to account for

4,000 21,000 25,000 Direct Materials Chemicals Cans 0 4,000 16,000 16,000 5,000 0 21,000 20,000

Beginning inventory Started & completed Ending inventory Equivalent units Cost data:

Conversion 3,000 16,000 4,000 23,000

Direct Materials Chemicals Cans Conversion May costs incurred $228,400 $ 7,000 $45,500 Divided by EUP 21,000 20,000 23,000 $0.35 $1.98* Costs per equivalent unit $10.88* *rounded Cost assignment: Completed goods: Beg. WIP $53,725 Complete Beg. WIP Cans (4,000 × $.35) 1,400 5,940 $ 61,065 CC (3,000 × $1.98) 211,360 Started & completed (16,000 × $13.21) Ending WIP Chemicals (5,000 × $10.88) $54,400 7,920 Conversion (4,000 × $1.98) Total costs (off due to rounding)

$272,425

62,320 $334,745

c. The weighted average method is generally easier to use because the calculations are simpler. However, this method tends to obscure current period costs because the cost per equivalent unit includes both current costs and prior costs that were in the beginning inventory. This method is most appropriate when conversion costs, inventory levels, and raw material prices are stable.

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The FIFO method is based on the work done in the current period only. This method is most appropriate when conversion costs, inventory levels, or raw material prices fluctuate. This method should also be used when accuracy in current equivalent unit costs is important or when a standard cost system is used. (CMA adapted) 40. Xena Corp. Curing Dept. Cost of Production Report For the Month Ended May 31, 2006 Production Data: Beginning inventory Units started Units to account for To complete BI Started & completed Ending inventory Units accounted for Cost Data: Cost in BI Current costs Total to acct. for Divided by EUP Cost per EUP Total TI $ 206,010 1,308,000 $760,000 $1,514,010 40,000 $19 $32 DM $161,600 40,400 $4 DL $256,800 42,800 $6 OH $129,600 43,200 $3 Units 8,000 40,000 48,000 8,000 36,000 4,000 48,000 TI DM DL OH

0 36,000 4,000 40,000

1,600 36,000 2,800 40,400

4,800 36,000 2,000 42,800

5,600 36,000 1,600 43,200

Cost Assignment: Transferred out: Beginning inventory Complete BI DM (1,600 × $4) DL (4,800 × $6) OH (5,600 × $3) S & C (36,000 × $32) Ending inventory: TI (4,000 × $19) DM (2,800 × $4) DL (2,000 × $6) OH (1,600 × $3) Total cost accounted for

$ 206,010 $ 6,400 28,800 16,800

52,000 1,152,000

$1,410,010

$76,000 11,200 12,000 4,800

104,000 $1,514,010 (CPA adapted)

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41.

a.

Big Piney Corp. Cutting Dept. Cost of Production Report For the Month Ended October 31, 2006

Production Data: Beginning inventory Units started Units to account for Units 8,000 36,000 44,000 Units 8,000 32,400 3,600 44,000 Material Conversion 8,000 8,000 32,400 32,400 3,600 2,520 44,000 42,920

Beginning inventory in units Units started & completed Ending inventory EUP Cost Data: Cost in beginning inventory Current costs Total cost to account for Divided by EUP Cost per EUP

Total $ 93,250 668,110 $761,360 $17.50

Material $ 73,250 344,750 $418,000 44,000 $9.50

Conversion $ 20,000 323,360 $343,360 42,920 $8.00

Cost Assignment: Transferred out (40,400 × $17.50) Ending inventory: Material (3,600 × $9.50) Conversion (2,520 × $8.00) Total cost accounted for

$707,000 $34,200 20,160

54,360 $761,360

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b.

Big Piney Corp. Boxing Dept. Cost of Production Report For the Month Ended October 31, 2006

Production Data: Beginning inventory Units started Units to account for BI Units S & C Ending inventory Units accounted for Cost Data: Cost in BI Current costs Total to acct. for Divided by EUP Cost per EUP Total $ 43,705 864,440 $908,145 $21.25 Trans. In $ 41,605 707,000 $748,605 42,900 $17.45 Material $ 0 95,910 $95,910 41,700 $2.30 Conversion $ 2,100 61,530 $63,630 42,420 $1.50 Units 2,500 40,400 42,900 2,500 39,200 1,200 42,900 Trans. In Material Conversion

2,500 39,200 1,200 42,900

2,500 39,200 0 41,700

2,500 39,200 720 42,420

Cost Assignment: Transferred out (41,700 × $21.25) Ending inventory: Transferred in (1,200 × $17.45) $20,940 1,080 Conversion (720 × $1.50) Total cost accounted for 42. a. Striping Dept.: Beginning inventory Current costs: DM DL OH ($80,000 × 0.8) Total Less ending inventory Costs transferred to Adhesion

$886,125

22,020 $908,145

$ 20,000 90,000 80,000 64,000 $254,000 (17,000) $237,000

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b. Adhesion Dept.: (let CC = conversion costs) BI + TI + DM + CC – TO = EI $70,000 + $237,000 + $22,600 + CC - $480,000 = $20,600 CC - $150,400 = $20,600 CC = $171,000 DL + OH = CC DL + 0.8DL = CC 1.8DL = $171,000 DL = $95,000 OH = $95,000 x 0.80 = $76,000 c. Cost of goods manufactured is equal to the cost of goods transferred into Finished Goods ($880,000). OH = 0.8DL $90,000 = 0.8DL DL = $112,500 BI + TI + DM + DL + OH – CGM = $40,000
$150,000 + $480,000 + DM + $112,500 + $90,000 - $880,000 = $40,000

DM - $47,500 = $40,000 DM = $87,500 d. WIP - Adhesion WIP - Striping WIP - Packaging WIP - Adhesion Finished Goods Inventory WIP - Packaging

237,000 237,000 480,000 480,000 880,000 880,000

Cost of Goods Sold 720,000 Finished Goods Inventory 720,000 43. a. Cutting Process: Beginning inventory Units started Units to account for Beginning inventory completed Units started & completed Ending inventory EUP (FIFO) Units 1,300 4,800 6,100 1,300 3,700 1,100 6,100 Material Conversion

260 3,700 440 4,400

325 3,700 220 4,245

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Pressure Process: Units 900 5,000 5,900 900 3,600 1,400 5,900 Trans. In Material Conversion

Beginning inventory Units started Units to account for BI completed Units S & C Ending inventory EUP (FIFO) b. Cutting Process:

0 3,600 1,400 5,000

900 3,600 0 4,500

360 3,600 560 4,520

Cost in beginning inventory Current costs Total cost to account for Divided by EUP Cost per EUP

Total $16,065 56,425 $72,490 $13

Material $35,200 4,400 $8

Conversion $21,225 4,245 $5

c. Cost transferred out of Cutting (FIFO): Cost of BI Cost to complete BI Material (260 x $8) $ 2,080 Conversion (325 x $5) 1,625 48,100 S&C (3,700 x $13) Total cost of goods transferred Ending WIP: DM (440 x $8) $ 3,520 1,100 CC (220 x $5) Total d. Cost per EUP: Cost in BI Current costs Total Divided by EUP Cost per EUP Total $13,514 84,102 $97,616 $17.17 Trans. In $67,870 5,000 $13.574

$16,065

51,805 $67,870

4,620 $72,490

Material $4,932 4,500 $1.096

Conversion $11,300 4,520 $2.50

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e. Cost Assignment: Transferred out Beginning inventory cost Cost to complete: Material (900 × $1.096) Conversion (360 × $2.50) Units S&C (3,600 × $17.17) Total cost transferred out Ending inventory: Transferred in (1,400 × $13.574) Conversion (560 × $2.50) Cost accounted for

$13,514.00 986.40 900.00

$15,400.40 61,812.00 $77,212.40

$19,003.60 1,400.00

20,403.60 $97,616.00

f. Because there was no beginning or ending FG Inventory, cost of goods sold is equal to cost of goods manufactured (transferred to FG) for the period. Thus, CGS = $77,212.40. 44. a. Beginning inventory Units started Units to account for Units 10,000 180,000 190,000 Material Conversion

Beginning inventory completed 10,000 150,000 Units started & completed Units completed 160,000 30,000 Ending inventory EUP 190,000

0 150,000 30,000 180,000

3,000 150,000 18,000 171,000

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140

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b.

Dark Out Cost of Production Report For the Month of May 2006 Production Data: Beginning inventory Units started Units to account for Units Material 10,000 180,000 190,000 0 150,000 30,000 180,000 Conversion

Beginning inventory completed 10,000 Units started & completed 150,000 30,000 Ending inventory EUP 190,000 Cost Data (all at standard): BI: DM (10,000 x $5.50) CC (7,000 x $12.50) Current costs DM (180,000 x $5.50) CC (171,000 x $12.50) Total cost to account for $ Total 55,000 87,500 $

3,000 150,000 18,000 171,000

Material 55,000

Conversion $ 87,500

990,000 2,137,500 $3,270,000 $1,045,000

990,000 2,137,500 $2,225,000

Cost Assignment Transferred out (160,000 × $18) Ending inventory: Material (30,000 × $5.50) Conversion (18,000 × $12.50) Total costs assigned

$2,880,000 $165,000 225,000

390,000 $3,270,000

c. Total variance = Total actual cost - Total standard cost = $3,126,000 - $3,127,500 = $1,500 favorable Material: Current actual cost $ 981,000 (990,000) Standard cost (180,000 × $5.50) Direct material variance $ (9,000) favorable Conversion: Current actual cost Standard cost (171,000 × $12.50) Conversion cost variance Direct material variance Conversion cost variance

$2,145,000 (2,137,500) $ 7,500 unfavorable 9,000 7,500

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Cost of Goods Sold 45. a. Units produced Material costs Unit cost Conversion costs* Unit cost
*

1,500 Extrusion Form 16,000 11,000 $192,000 $12.00 $392,000 $24.50 $ 44,000 $4.00 $132,000 $12.00 Trim 5,000 $15,000 $3.00 $69,000 $13.80 Finish 2,000 $12,000 $6.00 $42,000 $21.00

Direct labor and factory overhead

Unit costs: Extrusion material Form material Trim material Finish material Extrusion conversion Form conversion Trim conversion Finish conversion Total unit cost Times units produced Total product cost b. Entering trim operation: 2,000 Deluxe units 1,000 Deluxe units 2,000 Executive units Total equivalent units Deluxe model WIP costs: Extrusion material Form material Trim material (100%) Extrusion conversion Form conversion Trim conversion (60%) Work-in-process costs
*

Plastic Standard Deluxe Executive Sheets Model Model Model $12.00 $12.00 $12.00 $12.00 4.00 4.00 4.00 3.00 3.00 6.00 24.50 24.50 24.50 24.50 12.00 12.00 12.00 13.80 13.80 21.00 $36.50 $52.50 $69.30 $96.30 x 5,000 x 6,000 x 3,000 x 2,000 $182,500 $315,000 $207,900 $192,600 Equivalent Units Material Conversion % Qty. % Qty. 100 2,000 100 2,000 100 1,000 60 600 100 2,000 100 2,000 5,000 4,600 Unit Cost $12.00 4.00 3.00 24.50 12.00 9.00* $64.50 Total Costs $12,000 4,000 3,000 24,500 12,000 9,000* $64,500 (CMA adapted)

Conversion cost = ($30,000 + $39,000) ÷ 4,600 = $15 per equivalent unit.

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46.

a. Beginning pounds Started Pounds to account for Pounds transferred Pounds in EI Pounds of shrinkage

1,000 125,000 126,000 (119,100) (3,000) 3,900

b. Normal shrinkage = 125,000 × 0.03 = 3,750 pounds For accounting purposes, normal shrinkage is simply ignored, which means its costs will be spread over all good units produced. c. Abnormal shrinkage = 3,900 – 3,750 = 150 pounds The cost of abnormal shrinkage is treated as a loss of the period. d. Beginning inventory Started To account for Beginning inventory Started and completed Ending inventory Normal spoilage Abnormal spoilage EUP (WA) e. Beginning WIP costs Current costs Total costs Divide by EUP Cost per EUP Total 1,000 125,000 126,000 1,000 118,100 3,000 3,750 150 126,000 Material Conversion

1,000 118,100 3,000 150 122,250 Total $ 1,028 125,902 $126,930 $1.04

1,000 118,100 900 150 120,150 Material $ 953 113,962 $114,915 122,250 $0.94 $123,864 Conversion $ 75 11,940 $ 12,015 120,150 $0.10

Transferred out (119,100 × $1.04) Ending inventory: Material (3,000 × $0.94) $2,820 90 Conversion (900 × $0.10) Abnormal spoilage (150 × $1.04) Total cost accounted for

2,910 156 $126,930

f. The easiest way to decrease shrinkage loss is to buy higher quality material at a higher input cost per pound. Higher quality ground beef would have a lower fat content and consequently would shrink less. However,
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because of the reduced shrinkage, the cost of conversion per pound of finished product might decline and the company would probably be able to sell its product at a higher price. 47. Maximum normal spoilage = 70,000 × 0.03 = 2,100 units Robbin Darrell Company Cost of Production Report For the Month Ended May 31, 2006 Units 5,600 74,400 80,000 5,600 64,400 7,500 2,100 400 80,000 Total $ 7,632 106,168 $113,800 $1.44 Material Conversion

Beginning inventory Units started Units to account for BI completed Units S & C Ending inventory Normal spoilage Abnormal spoilage EUP (FIFO)

0 64,400 7,500 2,100 400 74,400 Material $74,400 74,400 $1.00

2,800 64,400 2,500 2,100 400 72,200 Conversion $31,768 72,200 $0.44 $ 7,632 1,232 $ 8,864 92,736

Beg. inventory cost Current costs Total costs Divided by EUP Cost per EUP

Cost Assignment: Beginning inventory cost Cost to complete Conversion (2,800 × $0.44) Total cost of BI Started & comp. (64,400 × $1.44) Normal spoilage DM: (2,100 × $1) CC: (2,100 × $0.44) Ending inventory: Material (7,500 × $1) Conversion (2,500 × $0.44) Abnormal spoilage Material (400 × $1) Conversion (400 × $0.44) Total costs accounted for

$2,100 924

3,024 $ 7,500 1,100 $ 400 176

$104,624

8,600

576 $113,800

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48.

Robbin Darrell Company Cost of Production Report For the Month Ended May 31, 2006 Units 5,600 74,400 80,000 5,600 64,400 7,500 2,100 400 80,000 Total $ 7,632 106,168 $113,800 $1.45 Material Conversion

Beginning inventory Units started Units to account for BI completed Units S & C Ending inventory Normal spoilage Abnormal spoilage Units accounted for

5,600 64,400 7,500 2,100 400 80,000 Material $ 6,400 74,400 $80,800 80,000 $1.01

5,600 64,400 2,500 2,100 400 75,000 Conversion $ 1,232 31,768 $33,000 75,000 $0.44

Beg. inventory cost Current costs Total costs Divided by EUP Cost per EUP

Cost Assignment: Units completed (70,000 × $1.45) Normal spoilage DM: (2,100 × $1.01) CC: (2,100 × $0.44) Ending inventory: Material (7,500 × $1.01) Conversion (2,500 × $0.44) Abnormal spoilage Material (400 × $1.01) Conversion (400 × $0.44) Total costs accounted for

$101,500 $2,121 924 $

3,045 7,575 1,100 404 176

$104,545

8,675

$

580 $113,800

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49.

a.

Shelley Brian Tools Grinding Department Cost of Production Report For the Month Ended August 31, 2006 Units 1,000 50,800 51,800 Units 1,000 48,000 1,800 650 350 51,800 Total $ 7,355 235,557 $242,912 $4.725 Trans. In 1,000 48,000 1,800 650 350 51,800 Material 1,000 48,000 0 0 0 49,000 Labor 1,000 48,000 720 650 350 50,720 OH 1,000 48,000 1,170 650 350 51,170

BI Transferred in Units to account for

BI Units S & C Ending inventory Normal spoilage Abnormal spoilage EUP (WA)

BI cost Current costs Total costs Divided by EUP Cost per EUP

Trans. In Material $ 6,050 $ 0 49,350 12,250 $155,400 $12,250 51,800 49,000 $3.00 $0.25

Labor $ 325 23,767 $24,092 50,720 $0.475

OH $ 980 50,190 $51,170 51,170 $1.00

Cost Assignment: Transferred out: Good units (49,000 × $4.725) Normal spoilage (650 × $4.475) Ending inventory: Transferred in (1,800 × $3.00) Labor (720 × $0.475) Overhead (1,170 × $1.00) Abnormal spoilage (350 × $4.475) Total costs accounted for b. Loss on Abnormal Spoilage Work in Process - Grinding 50. a. Beginning inventory Transferred in Units to account for Transferred out Ending inventory Bikes lost Units accounted for

$231,525 2,909 $ 5,400 342 1,170

$234,434

6,912 1,566 $242,912

1,566 1,566

3,000 45,000 48,000 40,000 4,000 4,000 48,000

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(1) Bikes passing through Assembly Minus bikes in EI (have not reached the inspection point so there is no way to determine acceptability) Bikes reaching the inspection point Normal defective rate Normal number of defective bikes (2) Total bikes lost Normal number of defective bikes Abnormal number of defective bikes b. Transferred out Ending inventory Normal loss Abnormal loss EUP (WA) c. BI Current Total cost Divided by EUP Cost per EUP Units 40,000 4,000 2,200 1,800 48,000 Trans. In 40,000 4,000 2,200 1,800 48,000

48,000

(4,000) 44,000 x 0.05 2,200 4,000 (2,200) 1,800 Material Conversion 40,000 40,000 2,000 800 2,200 2,200 1,800 1,800 46,000 44,800 Conversion $ 13,930 241,430 $255,360 44,800 $5.70

Total Trans. In Material $ 102,790 $ 82,200 $ 6,660 1,576,070 1,237,800 96,840 $1,678,860 $1,320,000 $103,500 48,000 46,000 $27.50 $2.25 $35.45

d. (1) Normal defective bikes: 2,200 x $35.45 = $77,990 (2) Abnormal defective bikes: 1,800 x $35.45 = $63,810 (3) Good bikes completed: 40,000 x $35.45 = $1,418,000 (4) Ending WIP Transferred-in (4,000 x $27.50) Material (2,000 x $2.25) Conversion (800 x $5.70) Total $110,000 4,500 4,560 $119,060

e. Total cost transferred = Cost of good bikes + Normal spoilage cost = $1,418,000 + $77,990 = $1,495,990 (or an average cost per bike of $37.40) f. Normal spoilage cost is an expected cost of producing good units. As such, it is not an extra cost but thought to be inherent in producing good units. Normal spoilage may occur because of material or labor quality, machine malfunctions, or human error. Management should do cost=benefit studies to determine if it is economically sensible to reduce spoilage. Three
This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied, or distributed without the prior consent of the publisher.

Chapter 6

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questions should be addressed: (1) What does the spoilage actually cost? (2) Why does it occur? (3) How can it be controlled? (CMA adapted)

This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied, or distributed without the prior consent of the publisher.

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