CHAPTER 4

Process Costing and Hybrid Product-Costing

Systems

ANSWERS TO REVIEW QUESTIONS

4-1 In a job-order costing system, costs are assigned to batches or job orders of
production. Job-order costing is used by firms that produce relatively small
numbers of dissimilar products. In a process-costing system, costs are averaged
over a large number of product units. Process costing is used by firms that
produce large numbers of nearly identical products.

4-2 Process costing would be an appropriate product-costing system in the following

industries: petroleum, food processing, lumber, chemicals, textiles, and
electronics. Each of these industries is involved in the production of very large
numbers of highly similar products.

4-3 Process costing could be used in the following nonmanufacturing enterprises:

processing of tests in a medical diagnostic laboratory, processing of tax returns by
the Internal Revenue Service, and processing of loan applications in a bank.

4-4 Product-costing systems are used for the following purposes:

(a) In financial accounting: Product costs are needed to value inventory on the
balance sheet and to compute the cost-of-goods-sold expense on the income
statement.

(b) In managerial accounting: Product costs are needed for planning, for cost
control, and to provide managers with data for decision making.

(c) In reporting to interested organizations: Product cost information is used to

report on relationships between firms and various outside organizations. For
example, hospitals keep track of the costs of medical procedures that are
reimbursed by insurance companies or by the federal government under the
Medicare program.

4-5 An equivalent unit is a measure of the amount of productive effort applied in the
production process. In process costing, costs are assigned to equivalent units
rather than to physical units.

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Managerial Accounting, 8/e 4- 1
4-6 The following four steps are used in process costing:

(a) Analysis of physical flow of units: All of the units in the beginning and ending
inventories, those started during the period, and those transferred out to
finished goods are accounted for.

(b) Calculation of equivalent units: The equivalent units of activity are computed
for direct material and for conversion.

(c) Computation of unit costs: The costs per equivalent unit for direct material and
conversion are computed.

(d) Analysis of total costs: The cost of the goods completed and transferred out
and the cost of the ending work-in-process inventory are determined.

4-7 (a) Journal entry to enter direct-material costs into Work-in-Process Inventory
account:
Work-in-Process Inventory: Department A................ XXX
Raw-Material Inventory.................................. XXX
(b) Journal entry to record transfer of goods from the first to the second
department in the production sequence:
Work-in-Process Inventory: Department B................ XXX
Work-in-Process Inventory: Department A....... XXX
4-8 Transferred-in costs are the costs assigned to partially completed products that
have been completed in one production department and transferred from that
production department into the next department.

4-9 The $182,000 of transferred-in costs were incurred prior to January 1 and in the
mixing department. The costs must have been incurred prior to January 1,
because they are included in the cost of the beginning work-in-process inventory
on that date. Moreover, these costs must have been incurred in the mixing
department, because they have been transferred into the cooking department.

4-10 The name ''weighted-average method'' comes from the fact that the cost per
equivalent unit computed under this method is a weighted average of costs
incurred during the current period and costs incurred during prior periods.

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4-2 Solutions Manual
4-11 The difference between normal and actual costing lies in the calculation of the
manufacturing-overhead cost of the current period. Under actual costing, the
manufacturing-overhead cost of the current period is the actual overhead cost
incurred during the period. Under normal costing, the current-period
manufacturing overhead is computed as the product of the predetermined
overhead rate and the actual level of the cost driver used to apply manufacturing
overhead.

4-12 If manufacturing overhead were applied according to some activity base (or cost
driver) other than direct labor, then direct-labor costs and manufacturing-overhead
costs would be accounted for separately instead of being combined into one
account called "conversion costs." Thus, instead of two columns for direct-
material and conversion costs, there would be three columns: direct material,
direct labor, and manufacturing overhead.

4-13 Operation costing is a hybrid product-costing system that is used when conversion
activities are very similar across product lines, but the direct materials differ
significantly. This is often the case in batch manufacturing operations. Conversion
costs are accumulated by department, and process-costing methods are used to
assign these costs to products. In contrast, direct-material costs are accumulated
by job order or by batch, and job-order costing is used to assign direct-material
costs to products.

4-14 The departmental production report is the key document in a process-costing

system rather than the job-cost sheet used in job-order costing. The departmental
production report shows the analysis of the physical flow of units, the calculation
of equivalent units, the computation of the cost per equivalent unit, and the
analysis of the total costs incurred in the production department. The report
shows the cost of the ending work-in-process inventory as well as the cost of the
goods completed and transferred out of the department.

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Managerial Accounting, 8/e 4- 3
SOLUTIONS TO EXERCISES
EXERCISE 4-15 (10 MINUTES)

The general formula for all three cases is the following:

Work-in-process, + Units started – Units completed = Work-in-process,

beginning during month during month ending

Using this formula, the missing amounts are:

1. 9,000 pounds

2. 12,500 yards

3. 72,000 liters

EXERCISE 4-16 (20 MINUTES)

CALCULATION OF EQUIVALENT UNITS: HEALTHY LIFE STYLES, INC.

Weighted-Average Method
Percentage
of Percentage
Completion
with of
Respect to Completion Equivalent Units
Physical Direct with Direct
Units Material Respect to Material Conversion
Conversion
Work in process, January 1. . 30,000 70% 50%
Units started during the year 140,000
Total units to account for...... 170,000

Unit completed and

transferred out during the year 145,000 100% 100% 145,000 145,000
Work in process, December  25,000 75% 20% 18,750 5,000
31
Total units accounted for...... 170,000 ______ _______
Total equivalent units........... 163,750 150,000

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4-4 Solutions Manual
EXERCISE 4-17 (15 MINUTES)

CALCULATION OF EQUIVALENT UNITS: PETROTECH COMPANY - AMARILLO PLANT

Weighted-Average Method
Percentage
of
Completion
with Equivalent Units
Physical Respect to Direct
Units Conversion Material Conversion
Work in process, July 1..................... 1,900,000 30%
Units started during July....................   750,000
Total units to account for................... 2,650,000

Units completed and transferred

out during July.............................. 2,400,000 100% 2,400,00 2,400,000
0
Work in process, July 31...................   250,000 70% 250,000 175,000
Total units accounted for................... 2,650,000 ________ ________
Total equivalent units........................ 2,650,00 2,575,000
0

EXERCISE 4-18 (15 MINUTES)

1. 5,500 equivalent units (refer to (a) in the following table)

2. 4,140 equivalent units (refer to (b) in the following table)

CALCULATION OF EQUIVALENT UNITS: ANDROMEDA GLASS COMPANY

Weighted-Average Method
Percentage
of Equivalent Units
Completion with
Physical Respect to Direct
Units Conversion Material Conversion
Work in process, August 1.... 2,000 60%
Units started during August. . 3,500
Total units to account for...... 5,500

Units completed and

transferred out during August 3,800 100% 3,800 3,800
Work in process, August 31. . 1,700 20% 1,700 340
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Managerial Accounting, 8/e 4- 5
Total units accounted for...... 5,500 _____ ____
Total equivalent units........... (1) (2) 4,140
5,500
EXERCISE 4-19 (30 MINUTES)

All three of these companies manufacture large amounts of relatively homogeneous

products (i.e., lumber and paper). Therefore, process costing is an appropriate product-
costing system.

EXERCISE 4-20 (15 MINUTES)

CALCULATION OF COST PER EQUIVALENT UNIT: DULUTH GLASS COMPANY

Weighted-Average Method
Direct
Material Conversion Total
Work in process, February 1.............. $  $ 40,300 $ 83,500
 
43,200    
Costs incurred during February......... 135,000 190,000 325,000
Total costs to account for.................. $178,200 $230,300 $408,500
 
Equivalent units................................ 16,500     47,000
Costs per equivalent unit................... $10.80* $4.90 † $15.70   

*$10.80 = $178,200 ÷ 16,500

†
$4.90 =   $230,300 ÷ 47,000

EXERCISE 4-21 (15 MINUTES)

CALCULATION OF COST PER EQUIVALENT UNIT: MONTANA LUMBER COMPANY

Weighted-Average Method
Direct
Material Conversion Total
Work in process, June 1...................... $  74,900 $167,000 $   241,900    
Costs incurred during June..................  380,700  625,000 1,005,700   
Total costs to account for..................... $455,600 $792,000 $1,247,600
Equivalent units................................... 6,700 1,600
Costs per equivalent unit..................... $68* $495 † $563   

*$68 = $455,600 ÷ 6,700

†
$495 = $792,000 ÷ 1,600

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4-6 Solutions Manual
EXERCISE 4-22 (25 MINUTES)

TUSCALOOSA PAPERBOARD COMPANY

Weighted-Average Method
Direct
Material Conversion Total
Work in process, March 1................... $ 10,900 $ 28,950 $ 39,850
Costs incurred during March............... 112,700 160,200 272,900
Total costs to account for.................... $123,600 $189,150 $312,750
Equivalent units................................. 103,000 97,000
Costs per equivalent unit.................... $1.20 $1.95 $3.15

1. Cost of goods completed and

transferred out during March:

numberofunits toalcostper 
89,000$3.1 $280,350
5

    ....................................................

transfer dout equivalentunit

2. Cost remaining in March 31 work
in process:

Direct material (14,000*$1.20) $   16,800

Conversion (8,000*$1.95). . . .   15,600
Total........................................   32,400
Total costs accounted for.............. $312,750

*Equivalent units in March 31 work in process:

Direct
Material Conversion
Total equivalent units (weighted average).................. 103,000    97,000
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Managerial Accounting, 8/e 4- 7
Units completed and transferred out......................... (89,000 ) (89,000 )
Equivalent units in ending work in process................ 14,000 8,000

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4-8 Solutions Manual
EXERCISE 4-23 (25 MINUTES)

RALEIGH TEXTILES COMPANY

Weighted-Average Method
Direct
Material Conversion Total
Work in process, November 1.............. $  85,750 $ 16,900 $ 102,650
Costs incurred during November.......... 158,000 267,300 425,300
Total costs to account for..................... $243,750 $284,200 $527,950
Equivalent units................................... 62,500 49,000
Costs per equivalent unit..................... $3.90 $5.80 $9.70

1. Cost of goods completed and

transferred out during
November:

numberofunits toalcostper 
47,000$9.70 $455,900

    ..................................................

transfer dout equivalentunit

2. Cost remaining in November 30
work in process:

Direct material (15,500*$3.90) $60,450

Conversion (2,000*$5.80).... 11,600

Total.......................................   72,050
Total costs accounted for............. $527,950

*Equivalent units in November 30 work in process:

Direct
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Managerial Accounting, 8/e 4- 9
 Material Conversion
Total equivalent units (weighted average)................... 62,500    49,000
Units completed and transferred out........................... (47,000 ) (47,000 )   
Equivalent units in ending work in process.................  15,500      2,000      

3. The electronic version of the Solutions Manual “ BUILD A SPREADSHEET

SOLUTIONS” is available on your Instructors CD and on the Hilton, 8e website:
www.mhhe.com/hilton8e.

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4-10 Solutions Manual
Exercise 4-24 (45 minutes)

1. Diagram of production process:

Work-in-Process Inventory:
Preparation Department

Batch P25 Batch S33

Accumulated Conversion costs:

by Direct-labor
department Manufacturing
overhead
Work-in-Process Inventory:
Finishing Department

Batch P25 Batch S33

Accumulated Direct-
by material
batch costs

Work-in-Process Inventory:
Packaging Department

Batch P25

Finished-Goods Inventory

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Managerial Accounting, 8/e 4- 11
EXERCISE 4-24 (CONTINUED)

2. The product cost for each basketball is computed as follows:

Professional
Scholastic
Direct material:..........................................................
Batch P25 ($42,000 ÷ 2,000)................................. $21.00 -0-     
Batch S33 ($45,000 ÷ 4,000)................................. -0- $11.25     
 
Conversion: Preparation Department......................... 7.50 7.50     
 
Conversion: Finishing Department............................ 6.00 6.00     
*Conversion: Packaging Department..........................    .50    -0-      
 
Total product cost..................................................... $35.00 $24.75     

*The two production departments each worked on a total of 6,000 balls, but the
Packaging Department handled only the 2,000 professional balls.

3. Journal entries:

Work-in-Process Inventory: Preparation Department....... 39,500*

Raw-Material Inventory......................................... 39,500

*$39,500 = $42,000 of direct material

for batch P25 – $2,500 of packaging material

Work-in-Process Inventory: Preparation Department....... 45,000*

Raw-Material Inventory......................................... 45,000

*Direct-material cost for batch S33.

Work-in-Process Inventory: Preparation Department....... 45,000*

Applied Conversion Costs..................................... 45,000

*$45,000 = 6,000 units$7.50 per unit

Work-in-Process Inventory: Finishing Department.......... 129,500*

Work-in-Process Inventory: Preparation Department 129,500

*$129,500 = $39,500 + $45,000 + $45,000

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4-12 Solutions Manual
EXERCISE 4-24 (CONTINUED)

Work-in-Process Inventory: Finishing Department.......... 36,000*

Applied Conversion Costs..................................... 36,000

*$36,000 = 6,000 units$6.00 per unit

Work-in-Process Inventory: Packaging Department........ 66,500*

Finished-Goods Inventory.............................................. 99,000 †
Work-in-Process Inventory: Finishing Department. . 165,500

*$66,500 = $39,500 + (2,000$7.50) +

(2,000$6.00).
These are the costs accumulated for batch P25 only.
†
$99,000 = $45,000 + (4,000$7.50) +
(4,000$6.00).
These are the costs accumulated for batch S33 only.

Work-in-Process Inventory: Packaging Department........ 3,500

Raw-Material Inventory......................................... 2,500*
Applied Conversion Costs..................................... 1,000 †

*Cost of packaging material for batch P25.

†
$1,000 = 2,000 units$.50 per unit

Finished-Goods Inventory.............................................. 70,000*

Work-in-Process Inventory: Packaging Department 70,000

*$70,000 = $66,500 + $3,500

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Managerial Accounting, 8/e 4- 13
SOLUTIONS TO PROBLEMS
PROBLEM 4-25 (45 MINUTES)

1. Physical flow of units:   Physical

  Units
Work in process, June 1............................................................... 40,000
Units started during June.............................................................. 190,000
Total units to account for.............................................................. 230,000

Units completed and transferred out during June........................... 180,000

Work in process, June 30.............................................................. 50,000
Total units accounted for............................................................... 230,000

2. Equivalent units:
Percentage
of
Completion
with Equivalent Units
Physical Respect to Direct
Units Conversion Material Conversion
Work in process, June 1........ 40,000   38%
Units started during June...... 190,000 
 
Total units to account for....... 230,000 
 

Units completed and

transferred 180,000  100% 180,00 180,000   
out during June.................   0
Work in process, June 30......   55%    27,500   
50,000   50,000
Total units accounted for....... 230,000 
 
Total equivalent units............ 230,00 207,500   
0

3. Costs per equivalent unit:

Direct
Material Conversion   Total
Work in process, June 1............ $110,500 $ 22,375 $132,875
Costs incurred during June........ 430,000 320,000 750,000
Total costs to account for........... $540,500 $342,375 $882,875
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4-14 Solutions Manual
 Equivalent units......................... 230,000 207,500
Costs per equivalent unit........... $2.35 $1.65 $4.00

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Managerial Accounting, 8/e 4- 15
PROBLEM 4-25 (CONTINUED)

4. Cost of goods completed and transferred out during June:

numberofunits toalcostper 
180,000$4.0 $720,000
0

    ...................................................

transfer dout equivalentunit

Cost remaining in June 30 work-in-process inventory:

Direct material:

number of  cost per  50,000$2.3 $117,500

  
5

e quivalent  equivalent 

 u ni t s o f   un i t o f 
...................................................

  
direct material direct material
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4-16 Solutions Manual
 Conversion:

number of  cost per  27,500$1.6   45,375

  
5

equivalent  equivalent 
 uni ts o f   u nit o f 
..........................................................

  
conversion conversion
Total cost of June 30 work in process.............................................. $162,875

Check: Cost of goods completed and transferred out........................ $720,000

Cost of June 30 work-in-process inventory............................ 162,875
Total costs accounted for..................................................... $882,875

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Managerial Accounting, 8/e 4- 17
PROBLEM 4-26 (45 MINUTES)

1. Physical flow of units:

Physical
Units   
Work in process, April 1................................................................ 10,000  
Units started during April............................................................... 100,000  
Total units to account for............................................................... 110,000  

Units completed and transferred out during April............................ 80,000  

Work in process, April 30..............................................................  30,000  
Total units accounted for........................................................................110,000  

2. Equivalent units:
Percentage
of
Completion
with Equivalent Units
Physical Respect to Direct
Units Conversion Material Conversion
Work in process, April 1...............
10,000   20%
Units started during April..............
100,000 
 
Total units to account for..............
110,000 
 

Units completed and

transferred out during April....... 80,000   100% 80,000   80,000  
Work in process, April 30   33 1/3%    30,000   10,000  
30,000  
Total units accounted for..............
110,000  ______   _____  
 
Total equivalent units................... 110,000  90,000  
 

3. Cost per equivalent unit:

Direct
Material Conversion Total
Work in process, April 1............................... $  $   4,500 $ 
22,000    26,500  
Costs incurred during April..........................    158,400  
198,000    356,400  
Total costs to account for.............................
$220,000   $162,900 $382,900 
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4-18 Solutions Manual
    
Equivalent units..........................................
110,000    90,000
Costs per equivalent unit............................. $2.00*    $1.81 † $3.81  

*$2.00 = $220,000 ÷ 110,000

†
$1.81 = $162,900 ÷ 90,000

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Managerial Accounting, 8/e 4- 19
PROBLEM 4-26 (CONTINUED)

4. Cost of goods completed and transferred out during April:

 n u mb e r o f un i t s   t o a l co st p e r 
80,000$3.8 $304,800
1

   ..........................................................

t ransfer dout  equivalentunit

Cost remaining in April 30 work-in-process inventory:

Direct material:

 nu m ber of   c os t per  30,000$2.0 $60,000

   0

 equ i val en t   e qui v a l ent 

 un i ts of   uni t of   ............................................................

  
 d i r e c t m a t e r i a l  d i r e c t m a t e r i a l
  
Conversion:
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4-20 Solutions Manual
  num ber of   cost per  10,000$1.8 18,100

   1

 e qu iv ale nt   e qu iv alen t 

 unit s of   unit of 
.................................................................

   
 c o n v e r s i o n  c o n v e r s i o n
Total cost of April 30 work-in-process........................................... $78,100

Check: Cost of goods completed and transferred out................... $304,800

Cost of April 30 work-in-process inventory.......................   78,100
Total costs accounted for................................................ $382,900

5. The electronic version of the Solutions Manual “ BUILD A SPREADSHEET

SOLUTIONS” is available on your Instructors CD and on the Hilton, 8e website:
www.mhhe.com/hilton8e.

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Managerial Accounting, 8/e 4- 21
Problem 4-27 (50 minutes)

1. Physical flow of units:

Physical
Units
Work in process, 1/1/x4............................................................... 210,000
Units started during 20x4............................................................ 1,100,000
Total units to account for............................................................. 1,310,000

Units completed and transferred out during 20x4.......................... 1,000,000

Work in process, 12/31/x4...........................................................   310,000
Total units accounted for............................................................. 1,310,000

2. Equivalent units:

Percentage
of
Completion
with Equivalent Units
Physical Respect to Direct  
Units Conversion Material Conversion
Work in process, 1/1/x4........... 210,000 83%
Units started during 20x4......... 1,100,00
0
Total units to account for.......... 1,310,00
0

Units completed and transferred

out during 20x4................... 1,000,00 100% 1,000,00 1,000,000
0 0
Work in process, 12/31/x4........   48% 310,000 148,800
310,000
Total units accounted for.......... 1,310,00 ________ ________
0
Total equivalent units............... 1,310,00 1,148,800
0

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4-22 Solutions Manual
PROBLEM 4-27 (CONTINUED)

3. Costs per equivalent unit:

Direct
Material Conversion Total
a
Work in process, 1/1/x4........................... $  $  620,800 $ 
300,000 920,800
b
Costs incurred during 20x4......................   3,400,000  
1,403,000 4,803,000
Total costs to account for......................... $1,703,00 $4,020,800 $5,723,80
0 0
Equivalent units....................................... 1,310,000 1,148,800
Costs per equivalent unit......................... $1.30 c $3.50 d $4.80 e

a
Conversion cost = direct labor + overhead
= direct labor + (100%direct labor)
= 200%direct labor
= 200%$310,400
= $620,800
b
Conversion cost = 200%direct labor
= 200%$1,700,000
= $3,400,000
c
$1.30 = $1,703,000 ÷ 1,310,000
d
$3.50 = $4,020,800 ÷ 1,148,800
e
$4.80 = $1.30 + $3.50

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Managerial Accounting, 8/e 4- 23
PROBLEM 4-27 (CONTINUED)

4. Cost of ending inventories:

Cost of goods completed and transferred out:

 nu m b e r o f u ni ts   to a l co st p e r 
1,000,000$4. $4,800,000
80

   ..................................................

t ransfer dout  equivalentunit

Cost remaining in 12/31/x4 work-in-process inventory:

Direct material:

 num be r o f   c os t p er  310,000$1.30 $403,000

  
 equ i v al ent   e qui v a l ent 
 un i ts of   uni t of   ....................................................

   
 d i r e c t m a t e r i a l  d i r e c t m a t e r i a l
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4-24 Solutions Manual
 Conversion:

 n u mb e r o f   c o st p e r  148,800$3.50  520,800

  
 e q u i va le n t   e q u iv a l e n t 

 u n its o f   u n it o f 
   
 c o n v e r s i o n  c o n v e r s i o n
Total cost of 12/31/x4 work in process............................................ $923,800

Check: Cost of goods completed and transferred out..................... $4,800,000

Cost of 12/31/x4 work-in-process inventory........................    923,800
Total costs accounted for................................................... $5,723,800

The cost of the ending work-in-process inventory is $923,800.

Ending finished-goods inventory: Of the 1,000,000 units completed during 20x4,

250,000 units remain in finished-goods inventory on December 31, 20x4.
Therefore:

$4,800,000(250,000 ÷ 1,000,000) = $1,200,000*

The cost of the ending finished-goods inventory is $1,200,000.

*Also, $1,200,000 = 250,000$4.80 per unit

PROBLEM 4-28 (40 MINUTES)

1. Equivalent units:

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Managerial Accounting, 8/e 4- 25
 Percentage
of
Completion
with Equivalent Units
Physical Respect to Direct
Units Conversion Material Conversion
Work in process, August 1............ 40,000 80%
Units started during August..........  80,000
Total units to account for.............. 120,000

Units completed and

transferred 100,000 100% 100,000 100,000
out during August.....................
Work in process, August 31..........  20,000 30% 20,000 6,000
Total units accounted for.............. 120,000 ______ ______
Total equivalent units................... 120,000 106,000

2. Costs per equivalent unit:

Direct
Material Conversion Total
Total costs to account for $138,000 $1,089,680
Equivalent units 120,000 106,000

Costs per equivalent unit $1.15 $10.28 $11.43*

*$11.43 = $1.15 + $10.28

3. Cost of goods completed and transferred out during August:

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4-26 Solutions Manual
  n um b e r o f un its   to al c os t p e r 
100,000$11.4 $1,143,00
3 0

   ........................................................

t ransfer dout  equivalentunit

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Managerial Accounting, 8/e 4- 27
PROBLEM 4-28 (CONTINUED)

4. Cost remaining in August 31 work-in-process inventory:

Direct material:

 nu m ber of   c os t per  20,000$1.15 $23,000

  
 equ i val en t   e qui v a l ent 
 un i ts of   uni t of   ............................................................

  
 d i r e c t m a t e r i a l  d i r e c t m a t e r i a l
  
Conversion:

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4-28 Solutions Manual
  num ber of   cost per  6,000$10.28  61,680

  
 e qu iv ale nt   e qu iv alen t 

 unit s of   unit of 
.................................................................

   
 c o n v e r s i o n  c o n v e r s i o n
Total cost of August 31 work in process........................................... $  84,680

Check: Cost of goods completed and transferred out........................ $1,143,00

0
Cost of August 31 work-in-process inventory.........................     
84,680
Total costs accounted for..................................................... $1,227,68
0

5. Journal entry:

Finished-Goods Inventory........................................ 1,143,000

Work-in-Process Inventory.............................. 1,143,000

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Managerial Accounting, 8/e 4- 29
PROBLEM 4-29 (40 MINUTES)

1. a. Equivalents units:
Percentage
of
Completion
with Equivalent Units
Physical Respect to Direct
Units Conversion Material Conversion
Work in process, June 1............... 30,000 35%
Units started during June............. 34,000
Total units to account for.............. 64,000

Units completed and

transferred out during June....... 40,000 100% 40,000 40,000
Work in process, June 30............. 24,000 75% 24,000 18,000
Total units accounted for.............. 64,000 _____ _____
Total equivalent units................... 64,000 58,000

b. Unit costs:
Direct
Material Conversion Total
Total costs to account for $348,800 $2,844,900
Equivalent units
64,000 58,000

Costs per equivalent unit $5.45 $49.05 $54.50*

*$54.50 = $5.45 + $49.05

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4-30 Solutions Manual
PROBLEM 4-29 (CONTINUED)

c. Cost of goods completed and transferred out during June:

 num ber of uni ts   t o a l co st p er 

40,000  $54.50 $2,180,000

  
t ransfer dout  equivalentunit
Cost remaining in June 30 work-in-process inventory:

Direct material:

 n u m b e r of   c o st p e r  24,000  $130,800

  
$5.45

 e q u i v al e n t   e q u i va l e n t 
 u n its o f   u nit o f  
  
 d i r e c t m a t e r i a l  d i r e c t m a t e r i a l
  
Conversion:
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Managerial Accounting, 8/e 4- 31
  n umbe r of   c ost pe r  ..........................18,000  882,900

  
$49.05

 e q u i va le n t   e q u iv a l e n t 

 u n i ts o f   u n it o f 
  
 c o n v e r s i o n   c o n v e r s i o n
  
Total cost of June 30 work in process.......................................... $1,013,700

Check: Cost of goods completed and transferred out....................... $2,180,000

Cost of June 30 work-in-process inventory ........................   
1,013,700
Total costs accounted for.................................................... $3,193,700

2. Journal entry:

Finished-Goods Inventory....................................... 2,180,000

1,900,500
Work-in-Process Inventory....................................................... 2,180,000

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4-32 Solutions Manual
PROBLEM 4-30 (35 MINUTES)

1. Direct material cost was $1,390,000:

JR1163........................... $ 225,000
JY1065........................... 710,000
DC0766.......................... 455,000
Total......................... $1,390,000

Texarkana Corporation’s total direct-labor payroll amounted to $134,274 for 6,394

hours of work ($134,274 ÷ $21 per hour). Thus, conversion cost was $575,460:

Direct labor………………………………. $134,274

……..
Overhead applied (6,394 hours x $69) 441,186
……..
Total……………………………………… $575,460
…..

2. Goods completed during April cost $2,002,000 (26,000 units x $77) as the
following calculations show:

Percentage
Of
Completion Equivalent Units
With
Physical Respect to Direct
Units Conversion Material
Conversion

Work in process, April 3,000 80%

1……………….
Units started during 27,000
April……………..
Total units to account 30,000
for……………..

Units completed and transferred

out during 26,000 100% 26,000 26,000
April……………………..
Work in process, April 4,000 45% 4,000 1,800
30……………..
Total units accounted 30,000

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Managerial Accounting, 8/e 4- 33
 for……………...
Total equivalent 30,000 27,800
units…………………..

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4-34 Solutions Manual
PROBLEM 4-30 (CONTINUED)

Direct
Material Conversion Total

Work in process, April $ $ 63,940 $

1…………………… 230,000 293,940
Costs incurred during 1,390,00 575,460 1,965,46
April………………. 0 0
Total costs to account $1,620,00 $639,400 $2,259,40
for…………………. 0 0
Equivalent 30,000 27,800
units……………………………...
Cost per equivalent $54 a $23 b $77 c
unit……………………
a
$1,620,000 ÷ 30,000 = $54
b
$639,400 ÷ 27,800 = $23
c
$54 + $23 = $77

3. The cost of the ending work-in-process inventory is $257,400:

Direct material (4,000 x $54) $216,00

…….. 0
Conversion cost (1,800 x $23) 41,40
….. 0
Total………………………… $257,40
…. 0

4. (a) No material would be added during May. All material is introduced at the
start of the manufacturing process, and these units were begun in April.

(b) Since the work-in-process inventory is 45% complete at the end of April,
55% of the conversion would be done in May.

5. Given that the ending work-in-process inventory is at the 45% stage of

completion, these units would not have reached the 75% point in April where
TH55 is added. Therefore, there would be zero equivalent units with respect to
part TH55 in the ending work-in-process inventory.

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Managerial Accounting, 8/e 4- 35
PROBLEM 4-31 (50 MINUTES)

The missing amounts are shown below. A completed production report follows.

Work in process, October 1 (in units)....................................................... 10,000

Units completed and transferred out during October................................. 75,000
Total equivalent units: conversion............................................................ 78,500

Work in process, October 1: conversion................................................... $   30,225

Costs incurred during October: direct material.......................................... 600,000
Cost per equivalent unit: conversion........................................................ 11.85
Cost of goods completed and transferred out during October .................... 1,556,250
Cost remaining in ending work-in-process inventory: direct material .......... 44,500

PRODUCTION REPORT: FANTASIA FLOUR MILLING COMPANY

Weighted-Average Method
Percentage
of
Completion
with Equivalent Units
Physical Respect to Direct
Units Conversion Material Conversion
Work in process, October 1....... 10,000 15%
Units started during October...... 70,000
Total units to account for........... 80,000

Units completed and transferred

out during October........... 75,000 100% 75,000 75,000
Work in process, October 31...... 5,000 70% 5,000 3,500
Total units accounted for........... 80,000 _____ _____
Total equivalent units................. 80,000 78,500

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4-36 Solutions Manual
PROBLEM 4-31 (CONTINUED)

Direct
Material Conversion Total
Work in process, October 1....... $112,000 $  30,225 $  142,225
Costs incurred during October. . .  600,000  900,000  1,500,000
Total costs to account for........... $712,000 $930,225 $1,642,225
Equivalent units........................ 80,000 78,500
Costs per equivalent unit........... $8.90* $11.85 † $20.75**

*$8.90 = $712,000 ÷ 80,000

†
$11.85 = $930,225 ÷ 78,500
**$20.75 = $8.90 + $11.85

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Managerial Accounting, 8/e 4- 37
PROBLEM 4-31 (CONTINUED)

Cost of goods completed and transferred out during October:

 n u mbe r o f un it s   t o al c o s t p e r 
   ........................................................ 75,000$20.75 $1,556,250

t ransfer dout  equivalentunit

Cost remaining in October 31 work-in-process inventory:

Direct material:

 n um ber of   c os t per 
  
 eq ui v al ent   equ i v al ent 
 u ni ts o f   un i t of   .......................................................... 5,000$8.90 $44,500

   
 d i r e c t m a t e r i a l  d i r e c t m a t e r i a l
Conversion:
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4-38 Solutions Manual
 number of   c ost per 
  
 equivalent   equiv alent 

 units of   unit of 
............................................................... 3,500$11.85  41,475

   
 c o n v e r s i o n  c o n v e r s i o n
Total cost of October 31 work-in-process............................................... $85,975

Check: Cost of goods completed and transferred out. . . $1,556,250

Cost of October 31 work-in-process inventory. .    85,975
Total costs accounted for................................. $1,642,225

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Managerial Accounting, 8/e 4- 39
PROBLEM 4-32 (30 MINUTES)

1. The ending work-in-process inventory consisted of 400 units (200 + 800 – 600).

2. The cost of goods completed during June totaled $57,000 (600 units x $95):

Percentage
Of
Completion Equivalent Units
With _________________
Physical Respect to _
Units Conversion Direct
Material Conversion
_______ _________ _____ __________
_ _ _
Work in process, June 200 25%
1……………….
Units started during 800
June……………..
Total units to account 1,000
for……………...

Units completed and transferred

during 600 100% 600 600
June…………………………..
Work in process, June 400 75% 400 300
30……………...
Total units accounted 1,000
for………………
Total equivalent 1,000 900
units…………………..

Direct
Material Conversion Total
______ _________ ______
_ _
Work in process, June $12,000 $ 6,000 $18,000
1……………………
Costs incurred during 43,000 30,000 73,000
June……………….
Total costs to account $55,000 $36,000 $91,000
for………………….
Equivalent 1,000 900
units……………………………...
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4-40 Solutions Manual
 Cost per equivalent $55 a $40 b $95 c
unit…………………….
a
$55,000 ÷ 1,000 = $55
b
$36,000 ÷ 900 = $40
c
$55 + $40 = $95

Finished-Goods Inventory…………………………… 57,000

Work-in-Process Inventory………………….
57,000

3. The cost of the June 30 work-in-process inventory is $34,000:

Direct material (400 x $55) $22,000

……...
Conversion cost (300 x $40) 12,000
……..
Total…………………………… $34,000
…
PROBLEM 4-32 (CONTINUED)

4. Equivalent units measure the amount of manufacturing activity (i.e., for direct
material or conversion) that has been applied to a batch of physical units. If, for
example, a company has 1,000 physical units in process that are 30% complete
as to conversion, the firm has done the equivalent amount of conversion activity
as would be required to do all of the conversion work for 300 units (1,000 x 30%).

Equivalent units are needed to state manufacturing activity on a common

measurement scale. One cannot add completed units to units in process. Such a
combination is like adding apples and oranges, as some units are complete and
some are incomplete. Instead, these units are first converted to equivalent units,
and the latter are then used in unit-cost calculations.

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Managerial Accounting, 8/e 4- 41
PROBLEM 4-33 (30 MINUTES)

1. a. Equivalent units:
Percentage
of
Completion
with Respect
Tax to
Returns Conversion
(physical (labor and Equivalent Units
units) overhead) Labor Overhead
Returns in process, February 1. . . 300   20%
Returns started in February........   900
Total returns to account for......... 1,200

Returns completed
during February..................... 800   100% 800    800   
Returns in process, February 400   75% 300     300   
28
Total returns accounted for......... 1,200 ____    ____   
Total equivalent units of 1,100    1,100   
activity.......................................

b. Costs per equivalent

unit:
Labo Overhea Total
r d
Returns in process, February 1............... £  3,500 £  4,000 £   7,500
Costs incurred during February.............. 90,000 51,000 141,000
Total costs to account for....................... £93,500 £55,000 £148,500
Equivalent units..................................... 1,100 1,100
Costs per equivalent unit........................ £85.00 £50.00 £135.00

2. Cost of returns in process on February 28:

Labor: equivalent unitscost per equivalent unit

300£85.00............................................. £25,500
Overhead: equivalent unitscost per equivalent unit
300£50.00.............................................  15,000
Total cost of returns in process on February 28................................. £40,500

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4-42 Solutions Manual
PROBLEM 4-34 (50 MINUTES)

The missing amounts are shown below. A completed production report follows.

Units started during January.................................................................... 55,000

Units completed and transferred out during January................................. 60,000
Total equivalent units: conversion............................................................ 66,000

Work in process, January 1: conversion................................................... $ 110,600

Costs incurred during January: direct material.......................................... 400,000
Cost per equivalent unit: conversion........................................................ 14.10
Cost of goods completed and transferred out during January .................... 1,320,000
Cost remaining in ending work-in-process inventory: direct material .......... 158,000

PRODUCTION REPORT: CANANDAIGUA CARPET COMPANY

Weighted­Average Method
Percentage
of
Completion
with Equivalent Units
Physical Respect to Direct
Units Conversion Material Conversion
Work in process, January 1.......... 25,000 25%
Units started during January......... 55,000
Total units to account for.............. 80,000

Units completed and transferred

out during January................... 60,000 100% 60,000 60,000  
Work in process, January 31........ 20,000 30% 20,000 6,000  
Total units accounted for.............. 80,000 _____ _____  
Total equivalent units................... 80,000 66,000  

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Managerial Accounting, 8/e 4- 43
PROBLEM 4-34 (CONTINUED)

Direct
Material Conversion Total
Work in process, January 1......................... $232,000 $110,600 $ 342,600
Costs incurred during January..................... 400,000 820,000 1,220,000
Total costs to account for............................. $632,000 $930,600 $1,562,600
Equivalent units.......................................... 80,000 66,000
Costs per equivalent unit............................. $7.90 $14.10 $22.00

*$7.90 = $632,000 ÷ 80,000

†
$14.10 = $930,600 ÷ 66,000
**$22.00 = $7.90 + $14.10

Cost of goods completed and transferred out during January:

 n u m b e r o f u n i ts   to a l co st p e r 
60,000$22.00 $1,320,00
0

   ..........................................................

t ransfer dout  equivalentunit

Cost remaining in January 31 work-in-process inventory:

Direct material:

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4-44 Solutions Manual
  nu m ber of   cost pe r  20,000$7.90 $  158,000

  
 equi va l ent   equ i val ent 
 un i ts o f   un i t of   ............................................................

   
 d i r e c t m a t e r i a l  d i r e c t m a t e r i a l
Conversion:

 numb er of   cost per  6,000$14.10  84,600

  
 e quiv alent   equiv ale nt 

 unit s o f   uni t o f 
.................................................................

  
 c o n v e r s i o n  c o n v e r s i o n
  
Total cost of January 31 work in process....................................... $242,600

Check: Cost of goods completed and transferred out. $1,320,00

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Managerial Accounting, 8/e 4- 45
 0
Cost of January 31 work-in-process inventory   
242,600
Total costs accounted for.............................. $1,562,60
0
PROBLEM 4-35 (45 MINUTES)

1. PRODUCTION REPORT: MIXING DEPARTMENT

(Weighted-Average Method)
November 20x5
Percentage
of
Completion
with Equivalent Units
Physical Respect to Direct
Units Conversion Material Conversion
Work in process, November 1... . 5,000     70%
Units started during November... 17,000
Total units to account for........... 22,000

Units completed and transferred

out during November........ 16,000 100% 16,000 16,000
Work in process, November 30 6,000 30% 6,000 1,800
Total units accounted for........... 22,000 ____ _   _ ____
Total equivalent units................. 22,000 17,800

Direct
Material Conversion Total
Work in process, November 1... . $ 31,600 $ 55,220 $ 86,820
Costs incurred during November  85,000*   210,000 †  295,000
Total costs to account for........... $116,600 $265,220 $381,820
Equivalent units........................ 22,000 17,800
Costs per equivalent unit........... $5.30 $14.90 $20.20

*$85,000 = $16,000 + $44,000 + (5,000 ÷ 12,000)($60,000)

†
$210,000 = $70,000 + (1.50)($70,000) + $35,000

McGraw-Hill/Irwin  2009 The McGraw-Hill Companies,

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4-46 Solutions Manual
PROBLEM 4-35 (CONTINUED)

Cost of goods completed and transferred out during November:

 n um b e r o f un its   to al c os t p e r 
   ........................................................ 16,000$20.20 $323,200

t ransfer dout  equivalentunit

Cost remaining in November 30 work-in-process inventory

Direct material:

 nu m ber of   c os t per 
  
 equ i v al en t   e qui v a l ent 
 un i t s of   uni t of   ............................................................ 6,000$5.30 $31,800

  
 d i r e c t m a t e r i a l  d i r e c t m a t e r i a l
  
Conversion

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Managerial Accounting, 8/e 4- 47
  number of   c o st per 
  
 e quivalent   equ iv ale nt 

 units of   unit of 
............................................................... 1,800$14.90  26,820

   
 c o n v e r s i o n  c o n v e r s i o n
Total cost of November 30 work in process............................................ $58,620

Check: Cost of goods completed and transferred out..... $323,200

Cost of November 30 work-in-process inventory 58,620
Total costs accounted for.................................. $381,820

2. a. Work-in-Process Inventory: Mixing Department......... 85,000

Raw-Material Inventory.................................... 85,000

b. Work-in-Process Inventory: Mixing Department......... 70,000

Wages Payable............................................... 70,000

c. Work-in-Process Inventory: Mixing Department......... 140,000*

Manufacturing Overhead.................................. 140,000

*$140,000 = (1.50)($70,000) + ($35,000)

d. Work-in-Process Inventory: Finishing Department..... 323,200

Work-in-Process Inventory: Mixing Department. 323,200

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4-48 Solutions Manual
PROBLEM 4-36 (35 MINUTES)

1. Conversion cost per unit in department I:

direct labor  manufacturing overhead


units produced *
$76,000 $460,000

5,500  2,000  2,500
 $53.60per uni t

*Note that all of the products sold after processing in departments I, II, or III were
produced orginally in department I.

2. Conversion cost per unit in department II:

direct labor  manufacturing overhead

units produced *
$44,000 $136,000

2,000 2,500
 $40.00per unit

*Note that all of the products sold after processing in departments II and III were
colored in department II.

3. Cost of a clear glass sheet:

direct material per conversion cost per
= unit in department I + unit in department I
$900,000
  $53.60
10,000
 $143.60per sheet

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Managerial Accounting, 8/e 4- 49
PROBLEM 4-36 (CONTINUED)

4. Cost of an unetched, colored glass sheet:

cost per clear direct material conversion cost per
= glass sheet + per unit in department + unit in department II
II
$144,000
 $143.60  $40.00
4,500
 $215.60per sheet

5. Cost of an etched, colored glass sheet:

cost per unetched conversion cost per
= colored glass sheet + unit in department III
$76,000 $147,500
 $215.60
2,500
 $305.00per sheet

PROBLEM 4-37 (40 MINUTES)

1. The unit costs and total costs for each of the products manufactured by Plattsburg
Plastics Corporation during the month of March are calculated as follows:

Extrusion Form Trim Finish

Units produced................. 32,000 22,000 10,000 4,000
Material costs................... $288,000 $ 66,000 $22,500 $18,000
Unit material cost........ 9.00 3.00 2.25 4.50
Conversion costs*............. 588,000 198,000 103,500 63,000
Unit conversion cost.... 18.375 9.00 10.35 15.75

*Direct labor and manufacturing overhead.

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4-50 Solutions Manual
PROBLEM 4-37 (CONTINUED)

Plastic Standard Deluxe Executive

Unit Costs Sheets Model Model Model
Material costs:
Extrusion.................... $9.00 $9.00 $9.00 $9.00   
Form.......................... 3.00 3.00 3.00
Trim............................ 2.25 2.25
Finish......................... 4.50
Conversion costs:
Extrusion.................... 18.375 18.375 18.375 18.375
Form.......................... 9.00 9.00 9.00
Trim............................ 10.35 10.35
Finish......................... _ _    15.75   
_
Total unit cost................... $27.375 $39.375 $51.975 $72.225
Units produced.................    12,000    6,000    4,000   
10,000
Total product cost*............ $273,75 $472,500 $311,850 $288,900
0

*Total costs accounted for:

Total
Product Product
Costs
Plastic sheets $ 273,750
Standard model 472,500
Deluxe model 311,850
Executive model 288,900
Total $1,347,000

2. Journal entries:

Work-in-Process Inventory: Extrusion........................ 876,000

Raw-Material Inventory.................................... 288,000
Applied Conversion Costs................................ 588,000

Finished-Goods Inventory......................................... 273,750

Work-in-Process Inventory: Extrusion............... 273,750

Work-in-Process Inventory: Forming.......................... 866,250

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Managerial Accounting, 8/e 4- 51
 Work-in-Process Inventory: Extrusion............... 602,250
Raw-Material Inventory.................................... 66,000
Applied Conversion Costs................................ 198,000

PROBLEM 4-37 (CONTINUED)

Finished-Goods Inventory......................................... 472,500

Work-in-Process Inventory: Forming................. 472,500

Work-in-Process Inventory: Trimming......................... 519,750

Work-in-Process Inventory: Forming................. 393,750
Raw-Material Inventory.................................... 22,500
Applied Conversion Costs................................ 103,500

Finished-Goods Inventory......................................... 311,850

Work-in-Process Inventory: Trimming................ 311,850

Work-in-Process Inventory: Finishing......................... 288,900

Work-in-Process Inventory: Trimming................ 207,900
Raw-Material Inventory.................................... 18,000
Applied Conversion Costs................................ 63,000

Finished-Goods Inventory......................................... 288,900

Work-in-Process Inventory: Finishing................ 288,900

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4-52 Solutions Manual
PROBLEM 4-38 (45 MINUTES)

1. Conversion costs:

Rollin Molding Punching Dipping

g
Direct labor............................. $ $224,000 $256,000 $ 90,000  
600,000
Manufacturing overhead............ 900,000  336,000  384,000 135,000  
Total conversion cost................ $1,500,00 $560,000 $640,000 $225,000  
0

Total units produced:

Rolling only........................ 10,000
Rolling, molding, punching 4,000 4,000
Rolling, molding, punching,
and dipping 1,500  
Conversion cost per unit........... $150 $140 $160 $150  

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Managerial Accounting, 8/e 4- 53
PROBLEM 4-38 (CONTINUED)

2. Product costs:

Ceralam
Sheets Non
Sold reflective Relective
after Ceralam Ceralam Total
Rolling Housings Housings Costs
Direct material:
Ceralam sheets................ $ 960,000 $ $ $1,600,00
     
400,000 240,000 0
Chemical dip.................... 60,000    60,000

Conversion costs:
Rolling............................. 900,000 a
375,000 a 225,000 a 1,500,000
Molding........................... 350,000 b 210,000 b 560,000
Punching......................... 400,000 c 240,000 c 640,000
Dipping............................ _______  ________   225,000 d   
 
225,000
Total cost............................... $1,860,000 $1,525,00 $1,200,00 $4,585,00
0    0    0
Units manufactured................ 6,000 2,500 1,500
Unit cost................................ $310 $610 $800

a
Number of unitsrolling cost per unit ($150)
b
Number of unitsmolding cost per unit ($140)
c
Number of unitspunching cost per unit ($160)
d
Number of unitsdipping cost per unit ($150)

3. Journal entries:

Work-in-Process Inventory: Rolling........................................

3,100,000
Raw-Material Inventory................................................. 1,600,000
*
Applied Conversion Costs............................................ 1,500,000 †

*$1,600,000 =  direct-material cost for ceralam sheets

†
$1,500,000  =  conversion cost in rolling operation

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4-54 Solutions Manual
PROBLEM 4-38 (CONTINUED)

Finished-Goods Inventory.....................................................
1,860,000*
Work-in-Process Inventory: Rolling............................... 1,860,000

*$1,860,000  =  6,000 ceralam sheets sold after

rolling$310 per unit

Cost of Goods Sold...............................................................

1,860,000*
Finished-Goods Inventory............................................. 1,860,000

*$1,860,000  =  cost of ceralam sheets sold

after
rolling

Work-in-Process Inventory: Molding.......................................

1,240,000*
Work-in-Process Inventory: Rolling............................... 1,240,000

*$1,240,000  =  cost remaining in Work-in-

Process Inventory: Rolling
= $3,100,000 – $1,860,000

Work-in-Process Inventory: Molding.......................................

560,000*
Applied Conversion Costs............................................. 560,000

*$560,000 = conversion cost in molding

operation

Work-in-Process Inventory: Punching....................................

1,800,000*
Work-in-Process Inventory: Molding.............................. 1,800,000

*$1,800,000  =  cost remaining in Work-in-

Process Inventory: Molding
=  $1,240,000 + $560,000

Work-in-Process Inventory: Punching....................................

640,000*
Applied Conversion Costs............................................. 640,000

*$640,000  =  conversion cost in punching operation

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Managerial Accounting, 8/e 4- 55
PROBLEM 4-38 (CONTINUED)

Finished-Goods Inventory.....................................................
1,525,000*
Work-in-Process Inventory: Punching............................ 1,525,000

*$1,525,000 =  2,500 nonreflective ceralam

housings sold after punching$610
per unit

Cost of Goods Sold...............................................................

1,525,000*
Finished-Goods Inventory............................................. 1,525,000

*$1,525,000 =  cost of nonreflective ceralam

housings sold after punching

Work-in-Process Inventory: Dipping.......................................

915,000*
Work-in-Process Inventory: Punching............................ 915,000

*$915,000=  cost remaining in Work-in-Process

Inventory: Punching
=  $1,800,000 + $640,000 –
$1,525,000

Work-in-Process Inventory: Dipping.......................................285,000

Raw-Material Inventory................................................. 60,000*
Applied Conversion Costs............................................. 225,000 †

*$60,000 = direct-material cost for chemical dip

†
$225,000 = conversion cost in dipping operation

Finished-Goods Inventory.....................................................
1,200,000*
Work-in-Process Inventory: Dipping.............................. 1,200,000

*$1,200,000 =  1,500 reflective ceralam housings

sold after dipping$800 per unit

Cost of Goods Sold...............................................................

1,200,000
Finished-Goods Inventory............................................. 1,200,000

4. The electronic version of the Solutions Manual “ BUILD A SPREADSHEET

SOLUTIONS” is available on your Instructors CD and on the Hilton, 8e website:
www.mhhe.com/hilton8e.
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4-56 Solutions Manual
SOLUTION TO CASE
CASE 4-39 (45 MINUTES)

1. Equivalent units of material........................................................................8 ,500

Equivalent units of conversion....................................................................8 ,260

2. Cost per equivalent unit of material............................................................$ 6.00

Cost per equivalent unit of conversion........................................................$ 7.00

3. October 31 work-in-process inventory........................................................

$3,520
Cost of goods completed and transferred out..............................................
$105,300

4. Weighted-average unit cost of completed leather belts................................

$13.00

These answers are supported by the following process-costing schedules. The firm's cost
per belt used for planning and control, $11.50, is substantially lower than the actual cost
per belt incurred in October, $13.00. Management should investigate this situation to
determine whether production costs can be reduced. If not, then the cost used for
planning and control purposes should be changed to reflect the firm's actual experience.

CALCULATION OF EQUIVALENT UNITS: LYCOMING LEATHER CO. - HARRISBURG

PLANT
Weighted-Average Method
Percentage
of
Completion
with Equivalent Units
Physical Respect to Direct
Units Conversion Material Conversion
Work in process, October 1.......... 500 30%
Units started during October......... 8,000
Total units to account for.............. 8,500

Units completed and transferred

out during October..................... 8,100 100% 8,100 8,100
Work in process, October 31........ 400 40% 400 160
Total units accounted for.............. 8,500
Total equivalent units................... 8,500 8,260

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Managerial Accounting, 8/e 4- 57
CASE 4-39 (CONTINUED)

CALCULATION OF COSTS PER EQUIVALENT UNIT: HARRISBURG PLANT

Weighted-Average Method
Direct
Material Conversion Total
Work in process, October 1......................... $ 2,000 $ 2,500 $ 4,500
Costs incurred during October..................... 49,000 55,320 104,320
Total costs to account for............................. $51,000 $57,820 $108,820
Equivalent units.......................................... 8,500 8,260
Costs per equivalent unit............................. $6.00 $7.00 $13.00

ANALYSIS OF TOTAL COSTS: HARRISBURG PLANT

Weighted-Average Method

Cost of goods completed and transferred out during October:

 n um b e r o f un it s   t o al co st p e r 
8,100$13.00 $105,300

   ........................................................

t ransfer dout  equivalentunit

Cost remaining in October 31 work-in-process inventory:

Direct material:

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4-58 Solutions Manual
  nu m ber of   cost pe r  400$6.00 $2,400

  
 equi va l ent   equ i val ent 
 un i ts o f   un i t of   ............................................................

   
 d i r e c t m a t e r i a l  d i r e c t m a t e r i a l
Conversion:

 numb er of   cost per  160$7.00  1,120

  
 e quiv alent   equiv ale nt 

 unit s o f   uni t o f 
.................................................................

  
 c o n v e r s i o n  c o n v e r s i o n
  
Total cost of October 31 work in process....................................... $3,520

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Managerial Accounting, 8/e 4- 59
CASE 4-39 (CONTINUED)

Check: Cost of goods completed and transferred $105,300

out...............................................................
Cost of October 31 work-in-process 3,520
inventory......................................................
Total costs accounted for................................. $108,820

5. If the units were 50 percent
equivalent units with respect
the right-hand column of the
requirement (4) to 200. This
from 8,260 to 8,300.)
complete as of October 31, there would be 8,300
to conversion. (To see this, just change the 160 in
equivalent-units part of the table in the solution to
changes the last number in the right-hand column

Now the unit cost of conversion drops from $7.00, as currently computed,
to $6.97 (rounded, $57,820 ÷ 8,300). Thus, the unit cost drops from $13.00 to
$12.97 (rounded).

As controller, Jeff Daley has an ethical obligation to refuse his friend's

request to alter the estimate of the percentage of completion. What Daley can
do is to help Murray think of some legitimate ways to bring about real cost
reductions. Several ethical standards for management accountants (listed in
Chapter 1) apply in this situation. Among the relevant standards are the
following:

Competence:

 Prepare complete and clear reports and recommendations after appropriate

analyses of relevant and reliable information.

Objectivity:

 Communicate information fairly and objectively.

 Disclose fully all relevant information that could reasonably be expected to

influence an intended user's understanding of the reports, comments, and
recommendations presented.

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4-60 Solutions Manual