Process Costing Exercises

Exercise E5.27 (Langfield)

Weighted average cost and FIFO: manufacturer
Natural Fibres Ltd manufactures natural fabrics for the clothing industry. The following data relate
to the Weaving Department for the month of December:

Weighted
average FIFO

Total equivalent units of direct material 60 000 40 000

Total equivalent units of conversion 52 000 44 000

Units completed and transferred out during 50 000 50 000

December

The cost data for December were as follows:

Work in process 1 December:

Direct material $188 000

Conversion 88 800

Costs incurred during December:

Direct material $328 000

Conversion 545 600

There were 20 000 units in process in the Weaving Department on 1 December (100 per cent
complete as to direct material and 40 per cent complete as to conversion).
Required:
1 Calculate each of the following amounts using weighted average process costing:

(a) Cost of goods completed and transferred out of the Weaving Department during December.

(b) Cost of the 31 December work in process inventory in the Weaving Department.

2 Repeat requirement 1 using the FIFO method.

E5.29LO5.4 Physical flow and equivalent units including spoilage: manufacturer

Proudly Paper Corporation manufactures cardboard boxes. In the year just
completed the following results were recorded:

Percentage of completion with respect

Units to conversion

Work in process, 1 25 000 50%

January

Work in process, 31 20 000 40%

December
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 During the year, 100 000 boxes were started in production. Of these, 10 000 were
rejected at the quality inspection process, which occurred two-thirds of the way
through the production process. All materials are added at the beginning of the
production process and conversion costs are incurred uniformly throughout the
process.
Required:
1 Prepare a schedule analysing the physical flow of units and calculating the equivalent
units of both direct material and conversion. Use weighted average process costing.

2 How would your approach differ using the FIFO method?

P5.39LO5.5 Operation costing: manufacturer

Wilkey Ltd manufactures a variety of glass windows in its Perth plant. In Department
A, clear glass sheets are produced, and some of these sheets are sold as finished
goods. Other sheets made in Department A have metallic oxides added to them in
Department B to form coloured glass sheets. Some of these coloured sheets are
sold, while others are moved to Department C for etching and are then sold. The
company uses operation costing. Wilkey's production costs, applied to products in
May, are given in the following table. There was no beginning or ending inventory of
work in process for May.

Department
Cost category A Department B Department C

Direct material $450 000 $72 000 $0

Direct labour 38 000 22 000 38 000

Manufacturing 230 000 68 000 73 500

overhead

Department A Department B
Products Units Direct material Direct material

Clear glass, sold after 11 000 $247 500 $0

Department A

Unetched coloured 4 000 90 000 32 000

glass, sold after
Department B

Etched coloured glass, 5 000 112 500 40 000

sold after Department
C

$450 000 $72 000

Each sheet of glass requires the same steps within each operation.
Required:
Calculate each of the following amounts:

1 Conversion cost per unit in Department A.

2 Conversion cost per unit in Department B.

 3 Cost of a clear glass sheet.

4 Cost of an unetched coloured glass sheet.

5 Cost of an etched coloured glass sheet.

Take Home Exercises:

P5.32LO5.2 Weighted average process costing: manufacturer
Rigby Limited's Machining Department had 20 000 units in work in process (WIP) on
1 March. These units were 40 per cent complete with respect to conversion. Direct
materials are added at the beginning of the production process, while conversion
costs are incurred uniformly throughout the process. An additional 40 000 units were
started during March, and 10 000 units were in WIP on 31 March. The units in WIP
on 31 March were 20 per cent complete with respect to conversion.

Costs incurred in the Machining Department for March were as follows:

WIP 1 March Costs incurred during March Total

Direct material $78 000 $252 000 $330 000

Conversion 23 200 132 800 156 000

$101 200 $384 800 $486 000

Required:
1 Using an example, explain the concept of equivalent units. Explain why an understanding
of equivalent units is necessary to undertake process costing.

2 Using the weighted average method of process costing, calculate the cost of goods
completed and transferred out during March and the cost of WIP at 31 March. Show all
workings.

3 Construct an Excel spreadsheet to prepare March's production report. What is the total
cost of completed units if the units in WIP on 31 March are 70 per cent complete with
respect to conversion.

P5.37LO5.4 Process costing with spoilage; journal entries: manufacturer

Steelworx Ltd accumulates costs for its single product using weighted average
process costing. Direct material is added at the beginning of the production process,
and conversion occurs uniformly throughout the process. All spoilage is detected at
the quality inspection point, which occurs after production is 25 per cent complete. A
partially completed production report for the month of April follows:

Production Report April

Percentage of Equivalent units

completion with
Physical respect to Direct
units conversion material Conversion
 Work in 100 000 60%
process, 1 April

Units started 200 000

during April

Total units to 300 000

account for

Units 220 000 ? ?

completed and
transferred out
during April

Units spoiled 60 000 ? ?

during
production

Work in 20 000 80% ?

process, 30
April

Total units 300 000

accounted for

Direct material Conversion Total

Work in process, 1 April $58 500 $24 000 $82 500

Costs incurred during April 114 000 76 400 190 400

Total costs to account for $172 500 $100 400 $272 900
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Required:
1 Prepare a schedule of equivalent units for Steelworx.

2 Calculate the costs per equivalent unit.

3 Calculate the cost of goods completed and transferred out during April.

4 Calculate the cost of spoiled units during April.

5 Calculate the cost remaining in the work in process inventory on 30 April.

6 Prepare a journal entry to record the transfer of the cost of goods completed and
transferred out during April, assuming:

(a) spoiled units represent normal spoilage.

(b) spoiled units represent abnormal spoilage.

7 How would the production report above be different if the company used FIFO process
costing?

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P5.40LO5.5
Operation costing; unit costs; cost flow; journal entries:
manufacturer
Orbital Industries Ltd manufactures a variety of materials and equipment for the
aerospace industry. A team of R & D engineers in the firm's Technology Park plant
has developed a new material that will be useful for a variety of purposes in orbiting
satellites and spacecraft. Trade-named Ceralam, the material combines some of the
best properties of both ceramics and laminated plastics. Ceralam is already being
used for a variety of housing in satellites produced in three different countries.
Ceralam sheets are produced in an operation called rolling, in which the various
materials are rolled together to form a multilayer laminate. Orbital Industries sells
many of these Ceralam sheets just after the rolling operation to aerospace firms
worldwide. However, Orbital also processes many of the Ceralam sheets further in
the Technology Park plant. After rolling, the sheets are sent to the moulding
operation, where they are formed into various shapes used to house a variety of
instruments. After moulding, the sheets are sent to the punching operation, where
holes are punched in the moulded sheets to accommodate protruding instruments,
electrical conduits and so forth. Some of the moulded and punched sheets are then
sold. The remaining units are sent to the dipping operation, in which the moulded
sheets are dipped in a special chemical mixture to give them a reflective surface.

During the month of November, the following products were manufactured at the
Technology Park plant (the direct material costs are also shown):

Direct material
used in Ceralam Direct material
Units products used in dipping

Ceralam sheets (sold after 12 000 $480 000

the rolling operation)

Non-reflective Ceralam 5 000 200 000

housings (sold after the
punching operation)

Reflective Ceralam 3 000 120 000 $30 000

housings (sold after the
dipping operation)

Total 20 000 $800 000 $30 000

The costs incurred in producing the various Ceralam products at the Technology
Park plant during November are shown in the following table.

Rolling Moulding Punching Dipping

Direct material $800 000 0 0 $ 30 000

Direct labour 300 000 $112 000 $128 000 45 000

Manufacturing overhead 450 000 168 000 192 000 67 500

Total $1 550 000 $280 000 $320 000 $142 500

Orbital Industries uses operation costing for its Ceralam operations at the
Technology Park plant. (There were no inventories of work in process or finished
goods on 1 November or 30 November.)
Required:
1 Prepare a table that includes the following information for each of the four operations:
 (a) Total conversion costs.

(b) Units manufactured.

(c) Conversion cost per unit.

2 Prepare a second table that includes the following information for each product(i.e. rolled
Ceralam sheets, non-reflective Ceralam housings and reflective Ceralam housings):

(a) Total manufacturing costs.

(b) Units manufactured.

(c) Total cost per unit.

3 Prepare journal entries to record the flow of all manufacturing costs through the
Technology Park plant's Ceralam operations during November. (Ignore the journal entries
to record sales revenue.)

4 Construct an Excel® spreadsheet to solve requirements 1 and 2 above. Show how the
solution will change if the cost of direct material used in dipping was $45 000 and
manufacturing overhead across the plant was applied at 200% of direct labour cost.