Solutions Solution Manual04

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.
McGraw-Hill/Irwin  2002 The McGraw-Hill Companies,

Inc.
Managerial Accounting, 5/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 transferred from one production department into the next department.
4-9 The $175,000 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.

Inc.
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.
4.15 There is no direct material in the March 1 work in process for the stitching
department because direct material (rawhide lacing) is added at the end of the
process in that department.

Inc.
SOLUTIONS TO EXERCISES
EXERCISE 4-16 (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. 12,000 units
2. 5,300 kilograms
3. 750,000 gallons
All three of these companies manufacture large numbers of relatively homogeneous

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

Inc.
1. 6,000 equivalent units (refer to (a) in the following table)
2. 4,400 equivalent units (refer to (b) in the following table)
CALCULATION OF EQUIVALENT UNITS: RAINBOW GLASS COMPANY

Weighted-Average Method
Percentage
of Equivalent Units
Completion with
Physical Respect to Direct
Units Conversion Material Conversion
Work in process, October 1. . 1,000 60%
Units started during October. 5,000
Total units to account for...... 6,000
Units completed and

transferred out during October 4,000 100% 4,000 4,000
Work in process, October 31 2,000 20% 2,000 400
Total units accounted for...... 6,000 _____ ____
Total equivalent units........... (a) (b) 4,400
6,000
CALCULATION OF EQUIVALENT UNITS: TERRA ENERGY COMPANY - LODI PLANT

Percentage
of
Completion
with Equivalent Units
Work in process, November 1............ 2,000,000 25%
Units started during November.......... 950,000
Total units to account for................... 2,950,000
Units completed and transferred

out during November..................... 2,710,000 100% 2,710,00 2,710,000
0
Work in process, November 30.......... 240,000 80% 240,000 192,000
Inc.
Total units accounted for................... 2,950,000 ________ ________
Total equivalent units........................ 2,950,00 2,902,000
0
CALCULATION OF EQUIVALENT UNITS: FIT-FOR-LIFE FOODS CORPORATION

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. . 20,000 80% 60%
Units started during the year 120,000
Total units to account for...... 140,000
Unit completed and

transferred out during the year 125,000 100% 100% 125,000 125,000
Work in process, December 15,000 70% 30% 10,500 4,500
31
Total units accounted for...... 140,000 ______ _______
Total equivalent units........... 135,500 129,500
CALCULATION OF COST PER EQUIVALENT UNIT: IDAHO LUMBER COMPANY

Direct
Material Conversion Total
Work in process, November 1.............. $ 65,000 $180,000 $ 245,000
Costs incurred during November.......... 425,000 690,000 1,115,000
Total costs to account for..................... $490,000 $870,000 $1,360,000
Equivalent units................................... 7,000 1,740
Costs per equivalent unit..................... $70* $500 † $570
*$70 = $490,000 ÷ 7,000

†
$500 = $870,000 ÷ 1,740

Inc.
CALCULATION OF COST PER EQUIVALENT UNIT: OTSEGO GLASS COMPANY

Direct
Work in process, June 1.................... $ $ 36,750 $ 73,750

37,000
Costs incurred during June................ 230,000 380,000
150,000
Total costs to account for.................. $187,000 $266,750 $453,750

Equivalent units................................ 17,000 48,500
Costs per equivalent unit................... $11.00* $5.50 † $16.50
*$11.00 = $187,000 ÷ 17,000

†
$5.50 = $266,750 ÷ 48,500

Inc.
SAVANNAH TEXTILES COMPANY

Direct
Work in process, September 1............. $ 94,000 $ 44,400 $138,400
Costs incurred during September......... 164,000 272,800 436,800
Total costs to account for..................... $258,000 $317,200 $575,200
Equivalent units................................... 60,000 52,000
Costs per equivalent unit..................... $4.30 $6.10 $10.40
1. Cost of goods completed and

transferred out during
September:
numberofunits toalcostper 
50,000$10.4 $520,000
0
    ..................................................
transfer dout equivalentunit

2. Cost remaining in September 30
work in process:
Direct material (10,000*$4.30) $43,000
Conversion (2,000*$6.10).... 12,200

Total....................................... 55,200
Total costs accounted for............. $575,200
*Equivalent units in September 30 work in process:
Direct
Inc.
Material Conversion
Total equivalent units (weighted average)................... 60,000 52,000
Units completed and transferred out........................... (50,000) (50,000)
Equivalent units in ending work in process................. 10,000 2,000

Inc.
TULSA PAPERBOARD COMPANY

Direct
Work in process, February 1............... $ 5,500 $ 17,000 $ 22,500
Costs incurred during February........... 110,000 171,600 281,600
Total costs to account for.................... $115,500 $188,600 $304,100
Equivalent units................................. 110,000 92,000
Costs per equivalent unit.................... $ 1.05 $ 2.05 $ 3.10
1. Cost of goods completed and

transferred out during February:
90,000$3.1 $279,000
0
    ....................................................

2. Cost remaining in February 28 work
in process:
Direct material (20,000*$1.05) $ 21,000

Conversion (2,000*$2.05). . . . 4,100
Total........................................ 25,100
Total costs accounted for.............. $304,100
*Equivalent units in February 28 work in process:
Direct
Material Conversion
Total equivalent units (weighted average).................. 110,000 92,000
Inc.
Units completed and transferred out......................... (90,000) (90,000)
Equivalent units in ending work in process................ 20,000 2,000

Inc.
1. Diagram of production process:

Work-in-Process Inventory:
Preparation Department
Batch P25 Batch S33
Accumulated Conversion costs:

by Direct-labor
department Manufacturing
overhead
Finishing Department
Batch P25 Batch S33
Accumulated Direct-
by material
batch costs
Packaging Department
Batch P25
Finished-Goods Inventory

Inc.
EXERCISE 4-25 (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

*Direct-material cost for batch S33.

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

Inc.
EXERCISE 4-25 (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

Inc.
1. Work-in-Process Inventory: Pouring Department........... 1,090,000

Wages Payable.................................................... 340,000
Manufacturing Overhead...................................... 680,000
2. Work-in-Process Inventory: Finishing Department......... 900,000

Work-in-Process Inventory: Pouring Department.... 900,000
3. Work-in-Process Inventory: Finishing Department......... 725,000

Raw-Material Inventory....................................... 25,000
Wages Payable................................................... 280,000
Manufacturing Overhead..................................... 420,000
4. Finished-Goods Inventory............................................ 400,000

Work-in-Process Inventory: Finishing Department 400,000

Inc.
SOLUTIONS TO PROBLEMS
PROBLEM 4-27 (50 MINUTES)
1. Physical flow of units:
Physical
Units
Work in process, 1/1/x1............................................................... 200,000
Units started during 20x1............................................................ 1,000,000
Total units to account for............................................................. 1,200,000
Units completed and transferred out during 20x1.......................... 900,000

Work in process, 12/31/x1........................................................... 300,000
Total units accounted for............................................................. 1,200,000
2. Equivalent units:
Percentage
of
Completion
Work in process, 1/1/x1........... 200,000 80%
Units started during 20x1......... 1,000,00
0
Total units to account for.......... 1,200,00
0

out during 20x1................... 900,000 100% 900,000 900,000
Work in process, 12/31/x1........ 50% 300,000 150,000
300,000
Total units accounted for.......... 1,200,00 ________ ________
0
Total equivalent units............... 1,200,00 1,050,000
0

Inc.
PROBLEM 4-27 (CONTINUED)
3. Costs per equivalent unit:
Direct
a
Work in process, 1/1/x1........................... $ $ 504,000 $
200,000 704,000
b
Costs incurred during 20x1...................... 3,192,000
1,300,000 4,492,000
Total costs to account for......................... $1,500,00 $3,696,000 $5,196,00
0 0
Equivalent units....................................... 1,200,000 1,050,000
Costs per equivalent unit......................... $1.25 c $3.52 d $4.77 e
a
Conversion cost = direct labor + overhead
= direct labor + (60%direct labor)
= 160%direct labor
= 160%$315,000
= $504,000
b
Conversion cost = 160%direct labor
= 160%$1,995,000
= $3,192,000
c
$1.25 = $1,500,000 ÷ 1,200,000
d
$3.52 = $3,696,000 ÷ 1,050,000
e
$4.77 = $1.25 + $3.52

Inc.
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 
900,000$4.77 $4,293,000
   ..................................................
t ransfer dout  equivalentunit

Cost remaining in 12/31/x1 work-in-process inventory:
Direct material:
 num be r o f   c os t p er  300,000$1.25 $375,000
  
 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
Inc.
Conversion:
 n u mb e r o f   c o st p e r  150,000$3.52 528,000
  
 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/x1 work in process............................................ $903,000
Check: Cost of goods completed and transferred out..................... $4,293,000

Cost of 12/31/x1 work-in-process inventory........................ 903,000
Total costs accounted for................................................... $5,196,000
The cost of the ending work-in-process inventory is $903,000
Ending finished-goods inventory: Of the 900,000 units completed during 20x1,

200,000 units remain in finished-goods inventory on December 31, 20x1.
Therefore:
$4,293,000(200,000 ÷ 900,000) = $954,000*
The cost of the ending finished-goods inventory is $954,000.
*Also, $954,000 = 200,000$4.77 per unit

1. Physical
Units
Work in process, June 1............................................................... 50,000
Units started during June.............................................................. 200,000
Inc.
Total units to account for.............................................................. 250,000
Units completed and transferred out during June........................... 190,000

Work in process, June 30.............................................................. 60,000
Total units accounted for............................................................... 250,000
2.
Percentage
of
Completion
Work in process, June 1........ 50,000 40%
Units started during June...... 200,000

Total units to account for....... 250,000

Units completed and

transferred 190,000 100% 190,00 190,000
out during June................. 0
Work in process, June 30...... 60% 36,000
60,000 60,000
Total units accounted for....... 250,000

Total equivalent units............ 250,00 226,000
0
3.
Direct
Work in process, June 1............ $120,000 $ 34,400 $154,400
Costs incurred during June........ 492,500 349,800 842,300
Total costs to account for........... $612,500 $384,200 $996,700
Equivalent units......................... 250,000 226,000
Costs per equivalent unit........... $2.45 $1.70 $4.15

Inc.
4. Cost of goods completed and transferred out during June:
190,000$4.1 $788,500
5
    ...................................................

Cost remaining in June 30 work-in-process inventory:
Direct material:
number of  cost per  60,000$2.4 $147,000
  
5
e quivalent  equivalent 

 u ni t s o f   un i t o f 
...................................................
  
direct material direct material
Inc.
Conversion:
number of  cost per  36,000$1.7 61,200
  
0
equivalent  equivalent 
 uni ts o f   u nit o f 
..........................................................
  
conversion conversion
Total cost of June 30 work in process.............................................. $208,200
Check: Cost of goods completed and transferred out........................ $788,500

Cost of June 30 work-in-process inventory............................ 208,200
Total costs accounted for..................................................... $996,700

Inc.
The missing amounts are shown below. A completed production report follows.
Units started during July.......................................................................... 45,000

Units completed and transferred out during July....................................... 50,000
Total equivalent units: conversion............................................................ 56,000
Work in process, July 1: conversion......................................................... $ 79,800

Costs incurred during July: direct material............................................... 371,850
Cost per equivalent unit: conversion........................................................ 13.20
Cost of goods completed and transferred out during July .......................... 1,072,500
Cost remaining in ending work-in-process inventory: direct material .......... 123,750
PRODUCTION REPORT: VESUVIUS TILE COMPANY

WeightedAverage Method
Percentage
of
Completion
Work in process, July 1................ 20,000 30%
Units started during July.............. 45,000
Total units to account for.............. 65,000

out during July........................ 50,000 100% 50,000 50,000
Work in process, July 31.............. 15,000 40% 15,000 6,000
Total units accounted for.............. 65,000 _____ _____
Total equivalent units................... 65,000 56,000

Inc.
Direct
Work in process, July 1............................... $164,400 $ 79,800 $
244,200
Costs incurred during July........................... 371,850 659,400
1,031,250
Total costs to account for............................. $536,250 $739,200 $1,275,450

Equivalent units.......................................... 65,000 56,000
Costs per equivalent unit............................. $8.25* $13.20 † $21.45**
*$8.25 = $536,250 ÷ 65,000

†
$13.20 = $739,200 ÷ 56,000
**$21.45 = $8.25 + $13.20
Cost of goods completed and transferred out during July:
 n u m b e r o f u n i ts   to a l co st p e r 
50,000$21.45 $1,072,50
0
   ..........................................................

Cost remaining in July 31 work-in-process inventory:
Direct material:

Inc.
 nu m ber of   cost pe r  15,000$8.25 $ 123,750
  
 equi va l ent   equ i val ent 
 un i ts o f   un i t of   ............................................................
   
Conversion:
 numb er of   cost per  6,000$13.20 79,200
  
 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 July 31 work in process............................................. $202,950
Check: Cost of goods completed and transferred out. $1,072,50

Inc.
0
Cost of July 31 work-in-process inventory......
202,950
Total costs accounted for.............................. $1,275,45
0
1. a.
Percentage
of
Completion
Work in process, May 1................ 25,000 40%
Units started during May.............. 30,000
Units completed and

transferred out during May........ 35,000 100% 35,000 35,000
Work in process, May 31.............. 20,000 80% 20,000 16,000
b.
Direct
Total costs to account for $308,000 $2,483,700
Equivalent units 55,000 51,000
Costs per equivalent unit $5.60 $48.70 $54.30*
*$54.30 = $5.60 + $48.70

Inc.
c. Cost of goods completed and transferred out during May:
 num ber of uni ts   t o a l co st p er 

35,000  $54.30 $1,900,500
  
Cost remaining in May 31 work-in-process inventory:
Direct material:
 n u m b e r of   c o st p e r  ...................20,000  $112,000
  
$5.60
 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:
Inc.
 n umbe r of   c ost pe r  ..........................16,000  779,200
  
$48.70
 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 May 31 work in process........................................... $891,200
Check: Cost of goods completed and transferred out....................... $1,900,50

0
Cost of May 31 work-in-process inventroy .........................
891,200
Total costs accounted for.................................................... $2,791,70
0
2. Journal entry:
Finished-Goods Inventory....................................... 1,900,500

1,900,500
Work-in-Process Inventory....................................................... 1,900,500

Inc.
1.
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.
Percentage
of
Completion
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 ______ _____


3.
Direct
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
Inc.

Equivalent units..........................................
110,000 90,000
Costs per equivalent unit.............................$ 2.00 $1.81 $3.81

Inc.
4. Cost of goods completed and transferred out during April:
 n um be r o f un i t s   t o al c o s t pe r 
80,000$3.8 $304,800
1
   ...........................................................
t ransfer dout equivalentu it

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   ............................................................
  
  
Conversion:
Inc.
 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 
.................................................................
   
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

Inc.
1.
Percentage
of
Completion
Work in process, August 1............ 40,000 80%
Units started during August.......... 80,000
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 ______ ______
2.
Direct
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:

Inc.
 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
   ........................................................

Inc.
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   ............................................................
  
  
Conversion:

Inc.
 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 
.................................................................
   
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

Inc.
1. Direct material cost was $1,404,000:
XY634……… $
.. 267,000
AA788……… 689,00
. 0
GU321……… 448,00
. 0
Total…… $1,404,00
. 0
Goodson’s total direct-labor payroll amounted to $126,500 for 6,325 hours of work
($126,500 ÷ $20 per hour). Thus, conversion cost was $506,000:
Direct labor………………………………. $126,500

……..
Overhead applied (6,325 hours x $60) 379,500
……..
Total……………………………………… $506,000
…..
2. Goods completed during April cost $1,872,000 (24,000 units x $78) as the
following calculations show:
Percentage
Of
Completion Equivalent Units
With
Units Conversion Material
Conversion
Work in process, April 4,000 75%

1……………….
Units started during 25,000
April……………..
Total units to account 29,000
for……………..

out during 24,000 100% 24,000 24,000

Inc.
April……………………..
Work in process, April 5,000 40% 5,000 2,000
30……………..
Total units accounted 29,000
for……………...
Total equivalent 29,000 26,000
units…………………..

Inc.
Direct
Work in process, April $ $ 66,000 $

1…………………… 220,000 286,000
Costs incurred during 1,404,00 506,000 1,910,00
April………………. 0 0
Total costs to account $1,624,00 $572,000 $2,196,00
for…………………. 0 0
Equivalent 29,000 26,000
units……………………………...
Cost per equivalent $56 a $22 b $78 c
unit……………………
a
$1,624,000 ÷ 29,000 = $56
b
$572,000 ÷ 26,000 = $22
c
$56 + $22 = $78
3. The cost of the ending work-in-process inventory is $324,000:
Direct material (5,000 x $56) $280,00

…….. 0
Conversion cost (2,000 x $22) 44,00
….. 0
Total………………………… $324,00
…. 0
4. (a) No material would be added during May. All material is introduced at the
start of Goodson’s manufacturing process, and these units were begun in April.
(b) Since the work-in-process inventory is 40% complete at the end of April,
60% of the conversion would be done in May.
5. Given that the ending work-in-process inventory is at the 40% stage of

completion, these units would not have reached the 70% point in April where
HH887 is added. Therefore, there would be zero equivalent units with respect to
part HH887 in the ending work-in-process inventory.

Inc.
1. The ending work-in-process inventory consisted of 500 units (300 + 900 – 700).
2. The cost of goods completed during June totaled $57,400 (700 units x $82):
Percentage
Of
Completion Equivalent Units
With
Work in process, June 300 30%

1……………….
Units started during 900
June……………..
Total units to account 1,200
for……………...

during 700 100% 700 700
June…………………………..
Work in process, June 500 60% 500 300
30……………...
Total units accounted 1,200
for………………
Total equivalent 1,200 1,000
units…………………..
Direct
Work in process, June $15,000 $ 6,300 $21,300

1……………………
Costs incurred during 45,000 25,700 70,700
June……………….
Total costs to account $60,000 $32,000 $92,000
for………………….
Equivalent 1,200 1,000
units……………………………...
Cost per equivalent $50 a $32 b $82 c
unit…………………….

Inc.
a
$60,000 ÷ 1,200 = $50
b
$32,000 ÷ 1,000 = $32
c
$50 + $32 = $82
Finished-Goods Inventory…………………………… 57,400

Work-in-Process Inventory………………….
57,400
3. The cost of the June 30 work-in-process inventory is $34,600:
Direct materials (500 x $50) $25,000

……...
Conversion cost (300 x $32) 9,60
…….. 0
Total…………………………… $34,600
…
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 600 physical units in process that are 40% 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 240 units (600 x 40%).
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.

Inc.
The missing amounts are shown below. A completed production report follows.
Work in process, May 1 (in units)............................................................. 15,000

Units completed and transferred out during May....................................... 65,000
Total equivalent units: conversion............................................................ 71,000
Work in process, May 1: conversion......................................................... $ 37,500

Costs incurred during May: direct material............................................... 570,000
Cost per equivalent unit: conversion........................................................ 12.25
Cost of goods completed and transferred out during May.......................... 1,407,250
Cost remaining in ending work-in-process inventory: direct material .......... 94,000
PRODUCTION REPORT: HERCULES TIRE AND RUBBER COMPANY

Percentage
of
Completion
Work in process, May 1............. 15,000 20%
Units started during May............ 60,000
Total units to account for........... 75,000

out during May................. 65,000 100% 65,000 65,000
Work in process, May 31........... 10,000 60% 10,000 6,000
Total units accounted for........... 75,000 _____ _____
Total equivalent units................. 75,000 71,000

Inc.
Direct
Work in process, May 1............. $135,000 $ 37,500 $ 172,500
Costs incurred during May......... 570,000 832,250 1,402,250
Total costs to account for........... $705,000 $869,750 $1,574,750
Equivalent units........................ 75,000 71,000
Costs per equivalent unit........... $9.40* $12.25 † $21.65**
*$9.40 = $705,000 ÷ 75,000

†
$12.25 = $869,750 ÷ 71,000
**$21.65 = $9.40 + $12.25

Inc.
Cost of goods completed and transferred out during May:
 n u mbe r o f un it s   t o al c o s t p e r 
   ........................................................ 65,000$21.65 $1,407,250

Cost remaining in May 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   .......................................................... 10,000$9.40 $94,000
   
Conversion:
Inc.
 number of   c ost per 
  
 equivalent   equiv alent 

 units of   unit of 
............................................................... 6,000$12.25 73,500
   
Total cost of May 31 work-in-process..................................................... $167,500
Check: Cost of goods completed and transferred out. . . $1,407,250

Cost of May 31 work-in-process inventory........ 167,500
Total costs accounted for................................. $1,574,750

Inc.
1. a.
Percentage
of
Completion
with Respect
Tax to
Returns Conversion
(physical (labor and Equivalent Units
units) overhead) Labor Overhead
Returns in process, February 1. . . 200 25%
Returns started in February........ 825
Total returns to account for......... 1,025
Returns completed
during February..................... 900 100% 900 900
Returns in process, February 125 80% 100 100
28
Total returns accounted for......... 1,025 ____ ____
Total equivalent units of 1,000 1,000
activity.......................................
b.
Labor Overhead Total
Returns in process, February 1............... £ 6,000 £ 2,500 £ 8,500
Costs incurred during February.............. 89,000 45,000 134,000
Total costs to account for....................... £95,000 £47,500 £142,500
Equivalent units..................................... 1,000 1,000
Costs per equivalent unit........................ £95.00 £47.50 £142.50
2. Cost of returns in process on February 28:
Labor: equivalent unitscost per equivalent unit

100£95.00............................................. £ 9,500
Overhead: equivalent unitscost per equivalent unit
100£47.50............................................. 4,750
Total cost of returns in process on February 28................................. £14,250

Inc.
1. PRODUCTION REPORT: MIXING DEPARTMENT

(Weighted-Average Method)
Percentage
of
Completion
Work in process, November 1... . 4,000 75%
Units started during November... 16,000
Total units to account for........... 20,000

out during November........ 15,000 100% 15,000 15,000
Work in process, November 30 5,000 20% 5,000 1,000
Total units accounted for........... 20,000 ____ _ _ ____
Total equivalent units................. 20,000 16,000
Direct

Work in process, November 1... . $ 22,800 $ 46,510 $ 69,310
Costs incurred during November 81,600* 196,690 † 278,290
Total costs to account for........... $104,400 $ 243,200 $347,600
Equivalent units........................ 20,000 16,000
Costs per equivalent unit........... $5.22 $15.20 $20.42
*$81,600 = $10,000 + $51,000 + (4,000 ÷ 10,000)($51,500)

†
$196,690 = $103,350 + (.40)($103,350) + $52,000

Inc.
Cost of goods completed and transferred out during November:
   ........................................................ 15,000$20.42 $306,300

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   ............................................................ 5,000$5.22 $26,100
  
  
Conversion

Inc.
 number of   c o st per 
  
 e quivalent   equ iv ale nt 

 units of   unit of 
............................................................... 1,000$15.20 15,200
   
Total cost of November 30 work in process............................................ $41,300
Check: Cost of goods completed and transferred out..... $306,300

Cost of November 30 work-in-process inventory 41,300
Total costs accounted for.................................. $347,600
2. a. Work-in-Process Inventory: Mixing Department......... 81,600

Raw-Material Inventory.................................... 81,600
b. Work-in-Process Inventory: Mixing Department......... 103,350

Wages Payable............................................... 103,350
c. Work-in-Process Inventory: Mixing Department......... 93,340*

Manufacturing Overhead.................................. 93,340
*$93,340 = (.40)($103,350) + ($52,000)
d. Work-in-Process Inventory: Finishing Department..... 306,300

Work-in-Process Inventory: Mixing Department. 306,300

Inc.
1. The unit costs and total costs for each of the products manufactured by Plasto
Corporation during the month of May are calculated as follows:
Extrusion Form Trim Finish

Units produced................. 16,000 11,000 5,000 2,000
Material costs................... $192,000 $ 44,000 $15,000 $12,000
Unit material cost........ 12.00 4.00 3.00 6.00
Conversion costs*............. 392,000 132,000 69,000 42,000
Unit conversion cost.... 24.50 12.00 13.80 21.00
*Direct labor and manufacturing overhead.

Inc.
Plastic Standard Deluxe Executive

Unit Costs Sheets Model Model Model
Material costs:
Extrusion.................... $12.00 $12.00 $12.00 $12.00
Form.......................... 4.00 4.00 4.00
Trim............................ 3.00 3.00
Finish......................... 6.00
Conversion costs:
Extrusion.................... 24.50 24.50 24.50 24.50
Form.......................... 12.00 12.00 12.00
Trim............................ 13.80 13.80
Finish......................... _ _ 21.00
_
Total unit cost................... $36.50 $52.50 $69.30 $96.30
Units produced.................   6,000  3,000  2,000
5,000
Total product cost*............ $182,50 $315,000 $207,900 $192,600
0
*Total costs accounted for:
Product Total Product Costs

Plastic sheets $182,500
Standard model 315,000
Deluxe model 207,900
Executive model 192,600
Total $898,000
2. Journal entries:
Work-in-Process Inventory: Extrusion........................ 584,000

Applied Conversion Costs................................ 392,000
Finished-Goods Inventory......................................... 182,500

Work-in-Process Inventory: Extrusion............... 182,500
Work-in-Process Inventory: Forming.......................... 577,500

Work-in-Process Inventory: Extrusion............... 401,500
Inc.

Work-in-Process Inventory: Forming................. 315,000
Work-in-Process Inventory: Trimming......................... 346,500

Work-in-Process Inventory: Forming................. 262,500

Work-in-Process Inventory: Trimming................ 207,900
Work-in-Process Inventory: Finishing......................... 192,600

Work-in-Process Inventory: Trimming................ 138,600

Work-in-Process Inventory: Finishing................ 192,600

Inc.
1. Conversion cost per unit in department I:
direct labor  manufacturing overhead


units produced *
$38,000 $230,000

11,000 4,000 5,000
 $13.40per 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 *
$22,000 $68,000

4,000 5,000
 $10.00per 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
$450,000
  $13.40
20,000
 $35.90per sheet

Inc.
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
$72,000
 $35.90  $10.00
9,000
 $53.90per sheet
5. Cost of an etched, colored glass sheet:

cost per unetched conversion cost per
= colored glass sheet + unit in department III
$38,000 $73,750
 $53.90
5,000
 $76.25per sheet
1. Conversion costs:
Rolling Molding Punching Dipping

Direct labor............................. $300,00 $112,000 $128,000 $ 45,000
0
Manufacturing overhead............ 168,000 192,000 67,500
450,000
Total conversion cost................ $750,00 $280,000 $320,000 $112,500
0
Total units produced:

Rolling only........................ 20,000
Rolling, molding, punching 8,000 8,000
Rolling, molding, punching,
dipping.......................... 3,000
Conversion cost per unit........... $37.50 $35.00 $40.00 $37.50

Inc.
2. Product costs:
Ceralam
Sheets
Sold Nonreflective Reflective
after Ceralam Ceralam Total
Rolling Housings Housings Costs
Direct material:
Ceralam sheets................ $480,000 $200,000 $120,000 $
800,000
Chemical dip.................... 30,000 30,000
Conversion costs:
Rolling............................. 450,000 a 187,500 a 112,500 a 750,000
Molding........................... 175,000 b 105,000 b 280,000
Punching......................... 200,000 c 120,000 c 320,000
Dipping............................ _______ ________ 112,500 d
112,500
Total cost............................... $930,000 $762,500 $600,000 $2,292,50
0
Units manufactured................ 12,000 5,000 3,000
Unit cost................................ $77.50 $152.50 $200.00
a
Number of unitsrolling cost per unit ($37.50)
b
Number of unitsmolding cost per unit ($35.00)
c
Number of unitspunching cost per unit ($40.00)
d
Number of unitsdipping cost per unit ($37.50)
3. Journal entries:
Work-in-Process Inventory: Rolling........................................

1,550,000
Raw-Material Inventory................................................. 800,000*
Applied Conversion Costs............................................ 750,000 †
*$800,000 = direct-material cost for ceralam sheets

†
$750,000 = conversion cost in rolling operation

Inc.
Finished-Goods Inventory.....................................................
930,000*
Work-in-Process Inventory: Rolling............................... 930,000
*$930,000 = 12,000 ceralam sheets sold after

rolling$77.50 per unit
Cost of Goods Sold...............................................................

930,000*
Finished-Goods Inventory............................................. 930,000
*$930,000 = cost of ceralam sheets sold after

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

620,000*
Work-in-Process Inventory: Rolling............................... 620,000
*$620,000 = cost remaining in Work-in-

Process
Inventory: Rolling
= $1,550,000 – $930,000
Work-in-Process Inventory: Molding.......................................

280,000*
Applied Conversion Costs............................................. 280,000
*$280,000 = conversion cost in molding

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

900,000*
Work-in-Process Inventory: Molding.............................. 900,000
*$900,000 = cost remaining in Work-in-

Process
Inventory: Molding
= $620,000 + $280,000
Work-in-Process Inventory: Punching....................................

320,000*
Applied Conversion Costs............................................. 320,000
*$320,000 = conversion cost in punching operation

Inc.
762,500*
Work-in-Process Inventory: Punching............................ 762,500
*$762,500= 5,000 nonreflective ceralam housings

sold after punching$152.50 per
unit

762,500*
*$762,500= cost of nonreflective ceralam

housings sold after punching
Work-in-Process Inventory: Dipping.......................................

457,500*
Work-in-Process Inventory: Punching............................ 457,500
*$457,500= cost remaining in Work-in-Process

Inventory: Punching
= $900,000 + $320,000 – $762,500
Work-in-Process Inventory: Dipping.......................................142,500

Raw-Material Inventory................................................. 30,000*
Applied Conversion Costs............................................. 112,500 †
*$30,000 = direct-material cost for chemical dip

†
$112,500 = conversion cost in dipping operation
600,000*
Work-in-Process Inventory: Dipping.............................. 600,000
*$600,000= 3,000 reflective ceralam housings

sold after dipping$200.00 per unit

600,000

Inc.
1. a. Cost of units completed and transferred to finished-goods inventory during

May:
Units completed and transferred out...................................... 11,900

Total cost per equivalent unit.................................................  _ $9.00
Cost of units completed and transferred out........................... $107,100
b. To compute the cost of the Finishing Department's work-in-process

inventory on May 31, first determine the number of units in ending work-in-
process inventory, as follows:
Work-in-process inventory, May 1 (in units)............................ 1,400

Add: Units transferred in....................................................... 14,000
Units to account for............................................................... 15,400
Less: Units transferred to finished goods............................... 11,900
Work-in-process inventory, May 31 (in units).......................... 3,500
Then compute the transferred-in, direct-material, and conversion costs in

the May 31 work-in-process inventory:
Cost per
Equivalent Equivalent
Input Units Unit Cost
3,500
Transferred-in.............................................  $5.00 = $17,500
3,500
Direct material............................................  $1.00 = 3,500
3,50040% 
Conversion................................................. $3.00 = 4,200
Total cost of May 31 work-in-process inventory......................................
$25,200
2. Equivalent units of transferred-in costs........................................... 15,400

Transferred-in cost per equivalent unit...........................................  $5.00
Total transferred-in cost................................................................. $77,000
Deduct: Transferred-in cost in May 1 work-in-process inventory ...... 6,750
Total cost transferred in from the Assembly Department.................. $70,250
Journal entry to record transfer:
Work-in-Process Inventory: Finishing Department..................70,250

Work-in-Process Inventory: Assembly Department........... 70,250

Inc.
SOLUTIONS TO CASES
CASE 4-42 (45 MINUTES)
1. Equivalent units of material........................................................................8 ,000

Equivalent units of conversion....................................................................7 ,500
2. Cost per equivalent unit of material............................................................$ 3.30

Cost per equivalent unit of conversion........................................................$ 2.80
3. October 31 work-in-process inventory........................................................

$4,700
Cost of goods completed and transferred out..............................................
$42,700
4. Weighted-average unit cost of completed leather belts................................$ 6.10
These answers are supported by the following process-costing schedules. The firm's cost
per belt used for planning and control, $5.35, is substantially lower than the actual cost
per belt incurred in October, $6.10. 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: LAREDO LEATHER CO. - DALLAS PLANT

Percentage
of
Completion
Work in process, October 1.......... 400 25%
Units started during October......... 7,600

out during October..................... 7,000 100% 7,000 7,000
Work in process, October 31........ 1,000 50% 1,000 500
Total units accounted for.............. 8,000

Inc.
CASE 4-42 (CONTINUED)
CALCULATION OF COSTS PER EQUIVALENT UNIT: DALLAS PLANT

Direct
Work in process, October 1......................... $ 1,250 $ 300 $ 1,550
Costs incurred during October..................... 25,150 20,700 45,850
Total costs to account for............................. $26,400 $21,000 $47,400
Costs per equivalent unit............................. $3.30 $2.80 $6.10
ANALYSIS OF TOTAL COSTS: DALLAS PLANT

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 
7,000$6.10 $42,700
   ........................................................

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

Inc.
 nu m ber of   cost pe r  1,000$3.30 $3,300
  
 equi va l ent   equ i val ent 
 un i ts o f   un i t of   ............................................................
   
Conversion:
 numb er of   cost per  500$2.80 1,400
  
 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....................................... $4,700

Inc.
Check: Cost of goods completed and transferred $42,700

out...............................................................
Cost of October 31 work-in-process 4,700
inventory......................................................
Total costs accounted for................................. $47,400
5. If the units were 60 percent complete as of October 31, there would be 7,600
equivalent units with respect to conversion. (To see this, just change the 500 in
the right-hand column of the table in the solution to requirement (4) to 600. This
changes the last number in the right-hand column from 7,500 to 7,600.)
Now the unit cost of conversion drops from $2.80, as currently computed,
to $2.76 (rounded, $21,000 ÷ 7,600). Thus, the unit cost drops from $6.10 to
$6.06 (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.

Inc.
CASE 4-43 (60 MINUTES)
PRODUCTION REPORT: HOME GARDEN COMPANY - GRADING DEPARTMENT

Percentage
of
Completion
Work in process, November 1....... -0- —
Units started during November..... 36,000

out during November............... 36,000 100% 36,000 36,000
Work in process, November 30..... -0- — -0- -0-
Direct
Work in process, November 1...................... -0- -0- -0-
Costs incurred during November.................. $265,680 $86,400 $352,080
Cost of goods completed and transferred out of the Grading

Department during November:

Inc.
 n u m b e r o f u n i ts   t o a l co st p e r 
36,000$9.78 $352,080
   ..........................................................

Cost remaining in November 30 work-in-process inventory in the
Grading Department......................................................................... -0-
Check: Cost of goods completed and transferred out.......... $352,08

0
Cost of November 30 work-in-process inventory... . . -0-
Total costs accounted for....................................... $352,08
0

Inc.
PRODUCTION REPORT: HOME GARDEN COMPANY - SATURATING DEPARTMENT

Percentage
of
Completion
Physical Respect to Transferred
Units Conversion in Conversion
Work in process, November 1....... 1,600 50%
Units transferred in during 36,00
November....................................... 0
0

out during November............... 35,60 100% 35,600 35,600
0
Work in process, November 30..... 50% 2,000 1,000
2,000
0
Transferred
In Conversion Total
Work in process, November 1...................... $ 13,850 $ 3,750 $ 17,600
Costs incurred during November.................. 352,080* 85,920 438,000
*Cost of goods completed and transferred out of Grading Department during November,
under the weighted-average method.

Inc.
Cost of goods completed and transferred out of the Saturating

Department during November:
35,600$12.182 $433,686 †
2
   ........................................................

Cost remaining in November 30 work-in-process inventory in the
Saturating Department:
Transferred-in costs:

Inc.
numberof  transfer ed-in 2,000$9.7322 $19,464 †
  
 equivalent   cost pe r 

 units of   equivalent 
....................................................
   
transfer ed-incost unit 
Direct material:
None
Conversion:
 n u m b e r o f   c o n v e r s i o n 1,000$2.45 2,450
  
 e quiv alent   c os t per 

 unit s o f   equiv ale nt 
.................................................................
   
 c o n v e r s i o n  u n i t 
Inc.
Total cost of November 30 work in process................................... $21,914
Check: Cost of goods completed and transferred out.......... $433,686

Cost of November 30 work-in-process inventory... . . 21,914
Total costs accounted for....................................... $455,600
†
Rounded

Inc.
CURRENT ISSUES IN MANAGERIAL ACCOUNTING
ISSUE 4-44
"BOTTLED UP: PROFITS AREN'T FLOWING LIKE THEY USED TO AT PACKAGED-
GOODS COMPANIES. GREEN KETCHUP AND TUNA IN A POUCH SAVE HEINZ?,
" FORTUNE , SEPTEMBER 18, 2000, JULIE CRESWELL.
1. Heinz is a food processor and manufactures large quantities of relatively

homogeneous products. Thus, process costing would be an appropriate product
costing system for Heintz.
2. Heinz has recently begun to compete for more noticeable and attractive shelve
space, and, after years of neglect, the company has begun to market and package
to reflect the growing demographic changes in America. By bringing on the
StarKist Tuna in a Pouch it has recognized that eating habits have changed in
America. The green ketchup in an EZ Squirt bottle is an attempt to gain a young
audience because eating habits begin early. Fruit and Vegetable Wash is a new
product offering.
ISSUE 4-45
“INTERNATIONAL PAPER SHUTTING PLANTS TO CUT SUPPLY,” THE WALL STREET
JOURNAL , OCTOBER 19, 2000, ALLANNA SULLIVAN.
1. International paper would use process costing since they produce large
quantities of relatively homogeneous products.
2. Paper supply costs and total production costs should be reduced. The fixed
costs of the closed plants would be eliminated while the fixed costs of the
remaining plants would remain stable. Production of the remaining plants
would increase.
ISSUE 4-46
“U.S. IS UNLIKELY TO RELEASE MORE OIL SOON,” THE WALL STREET JOURNAL ,
OCTOBER 19, 2000, JOHN J. FLAKA. ALSO SEE “NO SURGE IN CRUDE
DELIEVERIES EXPECTED,” THE WALL STREET JOURNAL , OCTOBER 16, 2000,
BHUSHAN BAHREE.
1. The government's release of 30 million gallons of crude oil is only about one
day's supply of oil for the United States, so I would have a negligible effect on
the oil companies.

Inc.
2. Oil companies would use process costing since they produce large quantities
of relatively homogeneous products.
ISSUE 4-47
“GEORGIA-PACIFIC PROFIT DECLINES BY 43 PERCENT: SLUGGISH BUILDING

PRODUCTS SECTOR CITED,” THE WALL STREET JOURNAL , OCTOBER 19,
2000, BETSY MCKAY.
1. Georgia-Pacific would use process costing since the company produces large
quantities of relatively homogeneous products.
2. Lower prices for building materials would not directly affect the company’s
product costs, but lower prices would pressure management to attempt to
reduce product costs in order to remain price competitive in a weakening
market.

Inc.

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CHAPTER 4

Process Costing and Hybrid Product-Costing

ANSWERS TO REVIEW QUESTIONS

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

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

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

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

McGraw-Hill/Irwin  2002 The McGraw-Hill Companies,

McGraw-Hill/Irwin  2002 The McGraw-Hill Companies,

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

McGraw-Hill/Irwin  2002 The McGraw-Hill Companies,

The general formula for all three cases is the following:

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

Using this formula, the missing amounts are:

EXERCISE 4-17 (30 MINUTES)

All three of these companies manufacture large numbers of relatively homogeneous

McGraw-Hill/Irwin  2002 The McGraw-Hill Companies,

1. 6,000 equivalent units (refer to (a) in the following table)

2. 4,400 equivalent units (refer to (b) in the following table)

CALCULATION OF EQUIVALENT UNITS: RAINBOW GLASS COMPANY

Units completed and

EXERCISE 4-19 (15 MINUTES)

CALCULATION OF EQUIVALENT UNITS: TERRA ENERGY COMPANY - LODI PLANT

Units completed and transferred

CALCULATION OF EQUIVALENT UNITS: FIT-FOR-LIFE FOODS CORPORATION

Unit completed and

EXERCISE 4-21 (15 MINUTES)

CALCULATION OF COST PER EQUIVALENT UNIT: IDAHO LUMBER COMPANY

*$70 = $490,000 ÷ 7,000

McGraw-Hill/Irwin  2002 The McGraw-Hill Companies,

CALCULATION OF COST PER EQUIVALENT UNIT: OTSEGO GLASS COMPANY

*$11.00 = $187,000 ÷ 17,000

McGraw-Hill/Irwin  2002 The McGraw-Hill Companies,

SAVANNAH TEXTILES COMPANY

1. Cost of goods completed and

transfer dout equivalentunit

Direct material (10,000*$4.30) $43,000

Conversion (2,000*$6.10).... 12,200

*Equivalent units in September 30 work in process:

McGraw-Hill/Irwin  2002 The McGraw-Hill Companies,

TULSA PAPERBOARD COMPANY

1. Cost of goods completed and

transfer dout equivalentunit

Direct material (20,000*$1.05) $ 21,000

*Equivalent units in February 28 work in process:

McGraw-Hill/Irwin  2002 The McGraw-Hill Companies,

1. Diagram of production process:

Batch P25 Batch S33

Accumulated Conversion costs:

Batch P25 Batch S33

McGraw-Hill/Irwin  2002 The McGraw-Hill Companies,

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

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

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

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

*Direct-material cost for batch S33.

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

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

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

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

McGraw-Hill/Irwin  2002 The McGraw-Hill Companies,

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

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