INDIAN INSTITUTE OF MANAGEMENT VISAKHAPATNAM

MANACC – PGP 2021-23

Class Handout – (Session 4&5)

1. Petro Tech Company refines a variety of petrochemical products. The following data are from the firm’s
Amarillo plant.

Work in process, July 1 1,900,000 liters

Direct material 100% complete
Conversion 30% complete
Units started in process during July 750,000 liters
Work in process, July 31 250,000 liters
Direct material 100% complete
Conversion 70% complete

Required: Compute the equivalent units of direct material and conversion for the month of July.
Use the weighted average method processing costing.

WIP = 1,900,000+750,000=2,650,000
Ending WIP =250,000
Transferred=2,400,000
Completed and transferred:
 Material 100% = 2,400,000
 Conversion 100% = 2,400,000
Ending WIP:
 Material 100% = 250,000
 Conversion 70% = 175,000
Equivalent units:
 Material = 2,650,000
 Conversion = 2,575,000

2. The following data pertain to Tuscaloosa Paperboard Company, a manufacturer of cardboard boxes.

Work in process, March 1 10,000 units*

Direct material $ 10,900
Conversion $ 28,950
Cost incurred during March
Direct material $112,700
Conversion $160,200
*complete as to direct material; 35% complete as to conversion.

The equivalent units of activity for March were as follows:

Direct material (weighted – average method) 103,000
Conversion (Weighted – average method) 97,000
 Completed and transferred out 89,000

Required: Compute the following amounts using weighted-average process costing.

1. Cost of goods completed and transferred out during March.

Direct material total cost = 10,900+112,700 = 123,600

DM unit cost = 123,600/103,000 = $1.2/unit

Conversion total cost = 28,950+160,200 = 189,150

Conversion unit cost = 189,150/97000 = $1.95/unit

Cost per equivalent unit = 1.2+1.95 = $3.15

Total cost transferred out = 89000*(3.15) = $280,350

2. Cost of the March 31 work – in – process inventory.

Cost of ending WIP = [(103k-89k)*(1.2)]+ [(97k-89k)*(1.95)]

= 16.8k+15.6k
= 32,400
3. Toronto Titanium Corporation manufactures a highly specialized titanium sheathing material that is
used extensively in the aircraft industry. The following data have been compiled for the month of
June. Conversion activity occurs uniformly throughout the production process.

Work in process, June 1 - 40,000 units.

Direct material: 100% complete, cost of $110,500
Conversion: 38% complete, cost of $ 22,375
Balance in work in process, June 1 $132,875
Units started during June 190,000
Units completed during June and transferred out to finished-goods inventory 180,000
Work in process, June 30:
Direct material: 100% complete
Conversion: 55% complete
Costs incurred during June:
Direct material $430,000
Conversion costs:
Direct labor $128,000
Applied manufacturing overhead $ 192,000
Total conversion costs $320,000
Required: Prepare schedules to accomplish each of the following process costing steps for the
month of June. Use the weighted average method of process costing.

1. Analysis of physical flow of units.

Total units to account for:

Beg. WIP + Units Started = 40,000 units + 190,000 units = 230,000
Units accounted for:
Completed and Transferred Out + End. WIP. = 180,000 units + 50,000 units = 230,000
 2. Calculation of equivalent units.
Completed and transferred:
 Material 100% = 180,000
 Conversion 100% = 180,000
Ending WIP:
 Material 100% = 50,000
 Conversion 55% = 27,500
Equivalent units:
 Material = 230,000
 Conversion = 207,500

3. Computation of unit costs.

Direct material total cost = 110,500+430,000 = $540,500

DM unit cost = 540,500/230,000 = $2.35/unit

Conversion total cost = 22,375+320,000 = $342,375

Conversion unit cost = 342,375/207500 = $1.65/unit

Per unit equivalent cost = 2.35+1.65 =$4

4. Analysis of total costs.

Total cost transferred out = 180000*(4) = $720,000

Ending WIP material cost = 50000*2.35 = $117,500

Ending WIP conversion cost = 27500*1.65 = $45,375

Total costs accounted for = $882,875

4.Energy Resource Company refines a variety of petrochemical products. The following data are from
the firm’s Amarillo plant.
Work in process, November 1 2,000,000 gallons
Direct material 100% complete
Conversion 25% complete
Units started in process during November 950,000 gallons
Work in process, November 30 240,000 gallons
Direct material 100% complete
Conversion 80% complete

Required:
Compute the equivalent units of direct material and conversion for the month of November. Use the
FIFO method of process costing.
Completed and transferred:
 Material 100% = 2,710,000
 Conversion 100% = 2,710,000
Ending WIP:
  Material 100% = 240,000
 Conversion 80% = 192,000
Total units:
 Material = 2,950,000
 Conversion = 2,902,000

Equivalent units: (total – beg. inv. As per rate)

 Material = 2,950,000 – 2,000,000= 2,450,000

 Conversion = 2,902,000 - 500,000 = 2,402,000

5. Moravia Company processes and packages cream cheese. The following data have been compiled for
the month of April. Conversion activity occurs uniformly throughout the production process.

Work in process, April 1—10,000 units:

Direct material: 100% complete, cost of $ 22,000
Conversion: 20% complete, cost of 4,500
Balance in work in process, April 1 $ 26,500
Units started during April 100,000
Units completed during April and transferred out to finished-goods inventory 80,000
Work in process, April 30
Direct material: 100% complete
Conversion: 33 1/3% complete
Costs incurred during April:
Direct material $198,000
Conversion costs:
Direct labor $ 52,800
Applied manufacturing overhead 105,600
Total conversion costs $158,400

Required:
Prepare schedules to accomplish each of the following process-costing steps for the month of April.
Use the FIFO method of process costing.

1. Analysis of physical flow of units.

Total units to account for:
Beg. WIP + Units Started = 10,000 units + 100,000 units = 110,000
Units accounted for:
Completed and Transferred Out + End. WIP. = 80,000 units + 30,000 units = 110,000

2. Calculation of equivalent units.

Completed and transferred:
 Material 100% = 80,000
 Conversion 100% = 80,000
Ending WIP:
 Material 100% = 30,000
 Conversion 33 1/3% = 10,000
Total units:
  Material = 80,000+30,000 = 110,000
 Conversion = 80,000+10,000 = 90,000

Equivalent units: (total – beg. inv. As per rate)

 Material = 110,000-10,000 = 100,000

 Conversion = 90,000-2,000 = 88,000

3. Computation of unit costs.

Direct cost incurred in april = 198,000

DM unit cost = 198,000/100,000 = $1.98/unit

Conversion cost incurred in april = 158,400

Conversion unit cost = 158,400/88,000 = $1.8/unit

Per unit equivalent cost = 1.98+1.8 =$3.78

4. Analysis of total costs.

Cost of WIP transferred first = 26,500

Cost incurred to finish the April 1 WIP = 10,000*(1-20%) * (1.8) = 14,400

Cost incurred on transferred out in april = (80000-10000) * (3.78) = 264,600

Ending WIP material cost = 30,000*1.98= 59,400

Ending WIP conversion cost = 10,000*1.8 = 18,000

Total costs accounted for = $382,900

5. Celestial Glass Company manufactures a variety of glass windows in its Charleston plant. In
department I clear glass sheets are produced, and some of these sheets are sold as finished goods.
Other sheets made in department I have metallic oxides added in department II to form colored
glass sheets. Some of these colored sheets are sold; others are moved to department III for
etching and then are sold. The company uses operation costing.
Celestial Glass Company’s production costs applied to products in August are given in the
following table.

There was no beginning or ending inventory of work in process for August.

Cost Category Dept. I Dept. II Dept. III
Direct material $900,000 $144,000 -0-
Direct labor 76,000 44,000 $76,000
Manufacturing overheads 460,000 136,000 147,500

Products Dept. I Dept.II

Units Dir.Mat. Dir. Mat.
Clear glass, sold after dept. I 5,500 $495,000 -0-
 Unetched colored glass, sold after dept. II 2,000 180,000 $64,000
Etched colored glass, sold after dept. III 2,500 225,000 80,000

Each sheet of glass requires the same steps within each operation.

Required:
Compute each of the following amounts.
1. The conversion cost per unit in department I
= (Direct labour+Manufacturing OH)/units produced
= (76000+460000) / (5500+2000+2500)
= 536000/10000
= $53.6
2. The conversion cost per unit in department II
= (Direct labour+Manufacturing OH)/units produced
= (44000+136000) / (2000+2500)
= 180000/4500
= $40
3. The cost of a clear glass sheet.
= (Direct material/unit in dept. I) + conversion cost per unit in dept I
= (900000/10000) + 53.6
= 90+53.6
= $143.6
4. The cost of a unetched colored glass sheet.
= The cost of a clear glass sheet + (Direct material/unit in dept. II) + conversion cost per unit in
dept II
= 143.6 + (144000/4500) + 40
= 143.6 + 32 + 40
= $215.6
5. The cost of an etched colored glass sheet.
= The cost of a unetched coloured glass sheet + (Direct material/unit in dept. III) + conversion
cost per unit in dept III
= 215.6 + 0 + 89.4
= $305