MODULE 3

EXERCISES

PROBLEM 1
A. Equivalent units are needed as a measure of production volume. At
the end of the period, manufacturing costs must be spread over the
units produced, and it is incorrect to combine fully completed units
with those that are still in production (akin to adding apples and
oranges). Separate totals are needed because materials are often
introduced at specific points in production whereas conversion is
often introduced uniformly throughout manufacturing.

B. No. The units are still in production, so none of them are fully
completed. It would be correct to say that the firm has done the
work equivalent to manufacturing 9,000 finished units.

PROBLEM 2
A. Operation costing is used by firms that produce different models of
similar products. The products go through essentially the same
manufacturing process, so conversion costs can be assigned in a
manner similar to that used in process-costing systems. Materials,
on the other hand, are unique to the individual goods being
produced and, accordingly, the cost is assigned by batch (or in a
manner similar to that used in job costing).

B. A sweater manufacturer produces multiple versions of its single

product: sweaters. The garments likely incur roughly the same
labor and overhead cost, with the major difference among models
being in the areas of fabric, color, and patterns (i.e., materials).
Thus, the material cost will often differ and the manufacturer
should take these differences into account, not spread costs equally
over all units produced as would be done in a process-cost-type of
procedure.

PROBLEM 3
A. Transferred-in costs are costs attached to units that are transferred
from one processing department to the next. More specifically,
these are the manufacturing costs incurred in the "sending"
department (i.e., direct materials, direct labor, and applied
manufacturing overhead).

B. The receiving department should view these units to be the

equivalent of direct materials (namely, partially completed units),
or units to be worked on and processed by the addition of (possibly
still) more material, direct labor, and manufacturing overhead.
PROBLEM 4

1. Work in process 98,500

Materials 98,500

2. Work in process 156,000

Payroll 156,000

3. Work in process 118,500

FO Applied 118,500

4. Finished goods 343,000

Work in Process 343,000

Job 201 -
190,000 - 190000
Job 202 - 94,000
Job 203 - 59,000
Total 343000

5. Accounts receivable 350,000

Sales 350,000

Cost of goods sold 284,000

Finished goods 284,000

Cost of goods sold statement

Direct materials 98,500

Direct labor 156,000
Factory overhead 118,500
Total manufacturing costs 373,000
Less: Work in process, end 30,000
Cost of goods manufactured 343,000
Less: Finished goods, end 59,000
Cost of goods sold 284,000
PROBLEM 5

1.
Materials - April 1 64,000
Purchases 84,000
Materials – April 30 (60,000)
Direct materials used (78,000)
Indirect materials used 10,000

2.

Accrued payroll – April 30 6,000

Payroll paid 44,000
Direct labor cost (32,000)
Indirect labor 18,000

3.

Direct labor cost 32,000

Factory overhead rate 125%

Factory overhead applied 40,000

4.

Direct materials 78,000

Direct labor 32,000
Factory overhead 40,000
Total manufacturing costs 150,000
Work in process, beg. 82,000
Work in process, end (94,000)

Cost of goods manufactured 138,000

5.

Cost of goods manufactured 138,000

Finished goods, April 1 296,000
Finished goods, April 30 -304,000

Cost of goods sold 130,000

PROBLEM 6

Department 1 Deparment 2
Materials Conversion Materials Conversion
Actual EP EP Actual EP EP
Started/ received 60,000 40,000

Completed 40,000 40,000 40,000 30,000 30,000 30,000

IP, end 20,000 20,000 15,000 10,000 5,000 8,000
60,000 60,000 55,000 40,000 35,000 38,000

Costs charged to the department

Cost from preceding dept. 720,000 18.00

Cost added in the dept.
Materials 480,000 8.00 245,000 7.00
Labor 330,000 6.00 190,000 5.00
Overhead 220,000 4.00 114,000 3.00
Total costs added 1,030,000 18.00 549,000 15.00
Total costs 1,030,000 18.00 1,269,000 33.00

Total costs accounted for as follows:

( 33,000 x 33
C & T (40,000 x 18) 720,000 ) 990,000

IP end

Cost added in the dept. (10,000 x 18) 180,000

Materials ( 20,000 x 8) 160,000 ( 5,000 x 7 ) 35,000

Labor (15,000 x 6) 90,000 ( 8,000 x 5 ) 40,000

Overhead (15,000 x 4) 60,000 310,000 ( 8,000 x 3 ) 24,000 279,000

Total costs accounted for 1,030,000 1,269,000

PROBLEM 7

A. Equivalent units:
Direct
Material Conversio
n
Transferred to finished goods 70,000 70,000
Work in process, June 30 20,000 12,000
Total 90,000 82,000

B. Cost per equivalent unit:

Work in process, June 1 $120,000 $272,000
Costs added during June 258,000 695,600
Total costs $378,000 $967,600
Equivalent units ÷ ÷ 82,000
90,000
Cost per equivalent unit $4.20 $11.80

C. Cost of completed production:

Material (70,000 x $4.20) $ 294,000
Conversion (70,000 x $11.80) 826,000
Total $1,120,000

D Cost of work in process at June 30:

.
Material (20,000 x $4.20) $ 84,000
Conversion (12,000 x $11.80) 141,600
Total $ 225,600

PROBLEM 8

1.
Actual Strawberry Chocolate Conversions
Units started 100,000 WD EP WD EP WD EP

Completed 90,000 100% 90,000 100% 90,000 100% 90,000

IP, end 10,000 100% 10,000 70% 7,000
100,000 100,000 90,000 97,000

2.
Strawberry = 180,000/100,000 = 1.80
Chocolate = 135,000/ 90,000 = 1.50
Concersion = 116,400/97,000 = 1.20
3.
Completed & transferred (90,000 x 4.50) 405,000

4.
In process, end
Strawberry ( 10,000 x 1.80) 18,000
Chocolate
Conversion ( 7,000 x 1.20) 8,400
26,400

PROBLEM 9

Started/received 60,000 36,000

Increase in units 9,000
60,000 45,000
Completed 36,000 36,000 36,000 39,000 39,000 39,000
IP, end 9,000 9,000 3,000 6,000 6,000 2,400
Lost 15,000
60,000 45,000 39,000 45,000 45,000 41400

Cost from preceding dept. 230,400 5.12

Cost added in the dept.
Materials 180,000 4.00 135,000 3.00
Labor 78,000 2.00 82,800 2.00
Overhead 15,600 0.40 41,400 1.00
Total costs added 273,600 6.40 259,200 6.00
Total costs 273,600 6.40 489,600 11.12
Costs accounted for as follows:
Completed ( 36,000 x 230,40 (30,000 x 433,68
6.40) 0 11.12) 0
IP end
( 6,000 x 5.12
Cost from prec. Dept. ) 30,720
( 6,000 x
Mat. ( 9,00 x 4) 36,000 3.00) 18,000
Labor ( 3,000 x (2,400 x
2) 6000 2.00) 4,800
OH ( 3,000 x (2,400 x
0.40) 1,200 43,200 1.00) 2,400 55,920
273,60 489,60
0 0
PROBLEM 10

Unit Received 55,000

Increase in units 5,000
60,000
Units completed 48,000 100% 48,000 100% 48,000
Units IP end 12,000 100% 12,000 70% 8,400
60,000 60,000 56,400
Costs charged to th department
Cost from prec. Dept. 24,750 0.4125
Cost added in the dept.
Materials 7,200 0.12
Conversion cost 53,580 0.95
Total added 60,780 1.07
Total costs 85,530 1.4825
Total costs accounted for as follows:
Completed ( 48,000 x .4125 ) 71,160
IP end 4,950
Cost from prec. Dept. ( 12,000 x
.4125 ) 1,440
Materials ( 12,000 x .12 ) 7,980 14,370
Conversion cost ( 8,400 x .95 ) 85,530

PROBLEM 11

1) FIFO
Units in process, beg. 6,000
Units started 42,000
48,000
Units completed & transferred
(40,000)
IP beg. 6,000 80% 4,800 70% 4,200
Started & completed 34,000 100% 34,000 100% 34,000
Units in process, end 8,000 10% 800 15% 1,200
48,000 39,600 39,400
2) AVERAGE
Units in process, beg. 6,000
Units started 42,000
48,000

Units completed 40,000 100% 40,000 100% 40,000

Units IP end 8,000 10% 800 15% 1,200
48,000 40,800 41,200
PROBLEM 12

1.)
Units in process beg. 300
Units started 2,000
2.3

Units comp. & transferred

(1,700)
IP beg. 300 40% 120 70% 210
Started & completed 1,400 100% 1,400 100% 1,400
Units in process, end 600 40% 240 20% 120
2300 1760 1730

2.)
540
Unit cost -Materials 3714 /1760 = 2.110227
Conversion 2258 /1730 = 1.305202
6512 3.415429

3.) Cost of units transferred out

From IP beg.
Cost last month 540
Cost added material ( 120 x 2.110227) 253
Conversion ( 210 x 1.305202) 274 1,067
From units started & completed (1,400 x 3.415429) 4,782
5,849

4. )Cost of ending inventory

Materials (240 x 2.110227) 507

Conversion ( 120 x 1.305202) 156

663
PROBLEM 13

a. Average
1) Units in process beg. 15,000
Units started 250,000
265,000

Units completed &

transf. 245,000 100% 245,000 100% 245,000
Units in process end 20,000 100% 20,000 40% 8,000
265,000 265,000 253,000

2.) Unit cost Materials 210,000 + 3,500,000 = 14.00

265,000

Conversion 60,000 + 1,458,000 = 6.00

253,000
20.00

3) Completed & transferred (245000 x

20) 4,900,000
4) IP end
Materials ( 20,000 x 14) 280,000
Conversion ( 8000 x 6) 48,000 328,000
5,228,000

b) FIFO

1) Units completed (
245,000)
IP beg 15,000 - 1/3 5,000
Started & completed 230,000 100% 230,000 100% 230,000
Units IP beg. 20,000 100% 20,000 40% 8,000
265,000 250,000 243,000

2)Unit cost: Materials 3,500,000/250,000 = 14

Conversion 1,458,000/243,000 = 6
3) Completed& transferred
From IP beg.
Cost last month 270,000
Cost added ( 5,000 x 6) 30,000 300,000
From started & completed ( 230,000
x 20) 4,600,000 4,900,000

4) IP end
Materials ( 20,000 x 14) 280,000
Conversion (8,000 x 6) 48,000 328,000
5,228,000

PROBLEM 14

AVERAGE METHOD

Units IP beg. 1,000

Units started 9,000
10,000

Units completed &

transferred 8,000 100% 8,000 100% 8,000 100% 8,000
Units IP end 1,500 100% 1,500 75% 1,125 50% 750%

Units lost – abnormal 500 100% 500 100% 500 100% 500
10,000 10,000 9,625 9,250

Cost to be accounted for

Cost IP beg Cost added Unit cost

Materials 2,520 72,480 7.50
Labor 1,540 21,560 2.40
Overhead 2,800 43,450 5.00
6,860 137,490 14.90
Page 3
Cost accounted for as following
( 8,000 x 14.90
Completed & transferred ) 119,200
Factory Overhead ( 500 x 14.90 ) 7,450
In process, end
Materials ( 1,500 x 7.50 ) 11,250
Labor ( 1,125 x 2,40 ) 2,700
Overhead ( 750 x 5.00 ) 3,750 17,700
Total costs as accounted for 144,350

Problem 9 - Norman Corporation

FIFO METHOD

Units completed & transferred

Units IP beg 1,000 40% 400 65% 650 75% 750
Started & completed 7,000 100% 7,000 100% 7,000 100% 7,000
Units IP end 1,500 100% 1,500 75% 1,125 50% 750
Units lost – abnormal 500 100% 500 100% 500 100% 500
10,000 9400 9275 9,000

Costs accounted for

Cost IP beg. 6,860
Cost added
Materials 72,480 7.71064
Labor 21,560 2.32453
Overhead 43,450 4.82778
137,490 14.8629
Total costs to be accounted 144,350 14.8629

Costs accounted for as follows:

Completed & transferred
IP beg.
Cost – last month 6,860
Cost added
M ( 400 x 7.710638) 3,084
L ( 650 x 2.324528) 1,511
O ( 750 x 4.827778) 3,621
Started & comp.(7,000 x 14.862944) 104,041 119,117
Factory overhead control ( 500 x 14.862944) 7,432
In Process, end
Materials ( 1,500 x 7.710638) 11,566
Labor ( 1,125 x 2.324528) 2,615
Overhead ( 750 x 4.827778) 3,620 17,801
144,350
PROBLEM 15
1.
Market value method
Product SV at SO Percentage Share in JC Add’l Cost Total Cost
A 420,000 60% 252,000 88,000 340,000
B 270,000 162,000 30,000 192,000
C 60,000 36,000 12,000 48,000
450,000 130,000 580,000

2.
Average unit cost
method
Product Units Produced Ave UC Share in JC Add’l Cost Total Cost
A 50,000 4.5 225,000 88,000 313,000
B 40,000 180,000 30,000 210,000
C 10,000 45,000 12,000 57,000
450,000 130,000 580,000

PROBLEM 16

1. Sales value – Z 12,000

Further processing cost -4,000
Marketing & adm. Exp. -2,000
Desired profit -2,000
Share of Z in the joint cost 4,000

Hypothetical MV
Total Share in
2. Product Units Per Unit HMV Percentage JC
X 8,000 20-5 120,000 40% 80,000
Y 10,000 25-7 180,000 60% 120,000
300,000 200,000

PROBLEM 17

1.

East West Total

Sales 17,500 8,500 26,000
Less: Cost of goods sold
Share in Joint cost 6,480 3,600 10,080
Cost after split-off 3,000 - 3,000
Total mfg. cost 9,480 3,600 13,080
Less: Inventory end 1,580 7,900 540 3,060 2,120 10,960
Gross profit 9,600 5,440 15,040
Less: Selling & Adm. Exp. 3,500 1,700 5,200
Net income 6,1 00 3,740 9,840
 Schedule allocating the joint cost to “East” and “West”
Hypothetical MV
Product Percentag Share in
s Units Produced Per Unit Total e JC
East 3,000 7– 1.00 18,000 36% 6,480

West 2,000 5 10,000 3,600

28,000 10,080

Total joint cost 10,260.00

Less: Net revenue of by-product
Sales value 200
Less: Selling & adm. Exp -20 180.00
Net joint cost to be allocated 10,080.00

- done -