Professional Documents
Culture Documents
(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.
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.
(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.
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.
4.15 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.
1. 12,000 units
2. 5,300 kilograms
3. 750,000 gallons
numberofunits toalcostper
50,000$10.40 $520,000
..........................................................
Direct
Material Conversion
Total equivalent units (weighted average)......................... 60,000 52,000
McGraw-Hill/Irwin 2002 The McGraw-Hill Companies,
Inc.
4-8 Solutions Manual
Units completed and transferred out................................. (50,000) (50,000)
Equivalent units in ending work in process...................... 10,000 2,000
numberofunits toalcostper
90,000$3.10 $279,000
............................................................
Direct
Material Conversion
Accumulated Direct-
by material
batch costs
Work-in-Process Inventory:
Packaging Department
Batch P25
Finished-Goods Inventory
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:
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
2. Equivalent units:
Percentage
of
Completion
with Equivalent Units
Physical Respect to Direct
Units Conversion Material Conversion
Work in process, 1/1/x1............... 200,000 80%
Units started during 20x1............ 1,000,000
Total units to account for............ 1,200,000
Direct
Material Conversion Total
Work in process, 1/1/x1.................................. $ 200,000 $ 504,000 $ 704,000
a
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
numberofunits toalcostper
900,000$4.77 $4,293,000
..........................................................
Direct material:
equivalent equivalent
unitsof unitof
.............................................................
directmaterial directmaterial
McGraw-Hill/Irwin 2002 The McGraw-Hill Companies,
Inc.
4-18 Solutions Manual
Conversion:
equivalent equivalent
unitsof unitof
conversion conversion
Total cost of 12/31/x1 work in process...................................................... $903,000
1. Physical
Units
Work in process, June 1........................................................................... 50,000
Units started during June......................................................................... 200,000
2.
Percentage
of
Completion
with Equivalent Units
Physical Respect to Direct
Units Conversion Material Conversion
Work in process, June 1........... 50,000 40%
Units started during June......... 200,000
Total units to account for......... 250,000
3.
Direct
Material Conversion Total
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
numberofunits toalcostper
190,000$4.15 $788,500
............................................................
Direct material:
e quivalent equivalent
units of unitof
............................................................
direct material direct material
McGraw-Hill/Irwin 2002 The McGraw-Hill Companies,
Inc.
Managerial Accounting, 5/e 4- 21
Conversion:
equivalent equivalent
unitsof unitof
....................................................................
conversion conversion
Total cost of June 30 work in process........................................................ $208,200
The missing amounts are shown below. A completed production report follows.
Direct
Material Conversion Total
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**
numberofunits toalcostper
50,000$21.45 $1,072,500
....................................................................
Direct material:
15,000$8.25
equivalent equivalent
unitsof unitof
......................................................................
directmaterial directmaterial
Conversion:
6,000$13.20
equivalent equivalent
unitsof unitof
............................................................................
conversion conversion
Total cost of July 31 work in process...................................................... $202,950
1. a.
Percentage
of
Completion
with Equivalent Units
Physical Respect to Direct
Units Conversion Material Conversion
Work in process, May 1.................... 25,000 40%
Units started during May.................. 30,000
Total units to account for................. 55,000
b.
Direct
Material Conversion Total
Total costs to account for $308,000 $2,483,700
Equivalent units 55,000 51,000
numberofunits toalcostper
35,000 $54.30 $1,900,500
t ransfer dout equivalentunit
Cost remaining in May 31 work-in-process inventory:
Direct material:
equivalent equivalent
unitsof unitof
directmaterial directmaterial
Conversion:
equivalent equivalent
unitsof unitof
conversion conversion
Total cost of May 31 work in process.................................................... $891,200
2. Journal entry:
1.
Physical
Units
Work in process, April 1............................................................................ 10,000
Units started during April.......................................................................... 100,000
Total units to account for.......................................................................... 110,000
2.
Percentage
of
Completion
with Equivalent Units
Physical Respect to Direct
Units Conversion Material Conversion
Work in process, April 1...................10,000 20%
Units started during April.................
100,000
Total units to account for.................
110,000
3.
Direct
Material Conversion Total
Work in process, April 1.....................................$ 22,000 $ 4,500 $ 26,500
Costs incurred during April............................... 198,000 158,400 356,400
Total costs to account for.................................. $220,000 $162,900 $382,900
Equivalent units..................................................
110,000 90,000
Costs per equivalent unit...................................$2.00 $1.81 $3.81
numberofunits toalcostper
80,000$3.81 $304,800
.....................................................................
Direct material:
30,000$2.00
equivalent equivalent
unitsof unitof
......................................................................
directmaterial directmaterial
Conversion:
McGraw-Hill/Irwin 2002 The McGraw-Hill Companies,
Inc.
4-30 Solutions Manual
numberof costper 10,000$1.81 18,100
equivalent equivalent
unitsof unitof
............................................................................
conversion conversion
Total cost of April 30 work-in-process.................................................... $78,100
1.
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
2.
Direct
Material Conversion Total
Total costs to account for $138,000 $1,089,680
Equivalent units 120,000 106,000
..................................................................
Direct material:
20,000$1.15
equivalent equivalent
unitsof unitof
......................................................................
directmaterial directmaterial
Conversion:
6,000$10.28
equivalent equivalent
unitsof unitof
............................................................................
conversion conversion
Total cost of August 31 work in process.................................................... $ 84,680
5. Journal entry:
XY634……….. $ 267,000
AA788………. 689,000
GU321………. 448,000
Total……. $1,404,000
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:
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
Physical Respect to Direct
Units Conversion Material Conversion
Direct
Material Conversion Total
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.
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
Physical Respect to Direct
Units Conversion Material Conversion
Direct
Material Conversion Total
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%).
The missing amounts are shown below. A completed production report follows.
Direct
Material Conversion Total
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**
numberofunits toalcostper
.................................................................. 65,000$21.65 $1,407,250
Direct material:
numberof costper
equivalent equivalent
unitsof unitof
.................................................................... 10,000$9.40 $94,000
directmaterial directmaterial
Conversion:
McGraw-Hill/Irwin 2002 The McGraw-Hill Companies,
Inc.
4-42 Solutions Manual
numberof costper
equivalent equivalent
unitsof unitof
.......................................................................... 6,000$12.25 73,500
conversion conversion
Total cost of May 31 work-in-process............................................................... $167,500
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 28.... 125 80% 100 100
Total returns accounted for............ 1,025 ____ ____
Total equivalent units of activity.... 1,000 1,000
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
Percentage
of
Completion
with Equivalent Units
Physical Respect to Direct
Units Conversion Material Conversion
Work in process, November 1....... 4,000 75%
Units started during November.... 16,000
Total units to account for.............. 20,000
Direct
Material Conversion Total
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
numberofunits toalcostper
..................................................................15,000$20.42 $306,300
Direct material:
numberof costper
equivalent equivalent
unitsof unitof
...................................................................... 5,000$5.22 $26,100
directmaterial directmaterial
Conversion
conversion conversion
Total cost of November 30 work in process..................................................... $41,300
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:
2. Journal entries:
*Note that all of the products sold after processing in departments I, II, or III were
produced orginally in department I.
*Note that all of the products sold after processing in departments II and III were
colored in department II.
1. Conversion costs:
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.................................. 450,000a 187,500a 112,500a 750,000
Molding................................ 175,000b 105,000b 280,000
Punching.............................. 200,000c 120,000c 320,000
Dipping................................ _______ ________ 112,500d 112,500
Total cost.................................... $930,000 $762,500 $600,000 $2,292,500
Units manufactured.................... 12,000 5,000 3,000
Unit cost...................................... $77.50 $152.50 $200.00
a
Number of unitsrolling cost per unit ($37.50)
b
Number of unitsmolding cost per unit ($35.00)
c
Number of unitspunching cost per unit ($40.00)
d
Number of unitsdipping cost per unit ($37.50)
3. Journal entries:
Finished-Goods Inventory...............................................................
930,000*
Work-in-Process Inventory: Rolling...................................... 930,000
Finished-Goods Inventory...............................................................
762,500*
Work-in-Process Inventory: Punching.................................. 762,500
Finished-Goods Inventory...............................................................
600,000*
Work-in-Process Inventory: Dipping..................................... 600,000
Cost per
Equivalent Equivalent
Input Units Unit Cost
3,500
Transferred-in...................................................... $5.00 = $17,500
3,500
Direct material..................................................... $1.00 = 3,500
3,50040%
Conversion.......................................................... $3.00 = 4,200
Total cost of May 31 work-in-process inventory..............................................
$25,200
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.
numberofunits toalcostper
7,000$6.10 $42,700
..................................................................
Direct material:
1,000$3.30
equivalent equivalent
unitsof unitof
......................................................................
directmaterial directmaterial
Conversion:
500$2.80
equivalent equivalent
unitsof unitof
............................................................................
conversion conversion
Total cost of October 31 work in process............................................... $4,700
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).
Competence:
Objectivity:
Direct
Material Conversion Total
Work in process, November 1............................ -0- -0- -0-
Costs incurred during November...................... $265,680 $86,400 $352,080
Total costs to account for.................................. $265,680 $86,400 $352,080
Equivalent units.................................................. 36,000 36,000
Costs per equivalent unit................................... $7.38 $2.40 $9.78
....................................................................
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
Total costs to account for.................................. $365,930 $89,670 $455,600
Equivalent units.................................................. 37,600 36,600
Costs per equivalent unit................................... $9.7322 $2.45 $12.1822
*Cost of goods completed and transferred out of Grading Department during November,
under the weighted-average method.
numberofunits toalcostper
35,600$12.1822 $433,686†
..................................................................
Transferred-in costs:
equivalent costper
unitsof equivalent
.............................................................
transfer ed-incost unit
Direct material:
None
Conversion:
equivalent costper
unitsof equivalent
............................................................................
conversion unit
McGraw-Hill/Irwin 2002 The McGraw-Hill Companies,
Inc.
Managerial Accounting, 5/e 4- 65
Total cost of November 30 work in process........................................... $21,914
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.
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.