Chapter 4

1.The ledger of Kinsler Company has the following work in process account.

Work in Process—Painting
5/1 Balance 5,390 5/31 Transferred out ?
5/31 Materials 7,740
5/31 Labor 4,110
5/31 Overhead 2,470
5/31 Balance ?

Production records show that there were 700 units in the beginning inventory, 30% complete,
2,900 units started, and 3,100 units transferred. The beginning work in process had materials
cost of $3,060 and conversion costs of $2,330. The units in ending inventory were 40%
complete. Materials are entered at the beginning of the painting process.

Instructions
(a) How many units are in process at May 31?
(b) What is the unit materials cost for May?
(c) What is the unit conversion cost for May?
(d) What is the total cost of units transferred out in May?
(e) What is the cost of the May 31 inventory?
Solution
(a) Work in process, May 1 700
Started into production 2,900
Total units to be accounted for 3,600
Less: Transferred out 3,100
Work in process, May 31 500

(b) Equivalent Units

Materials Conversion Costs
Units transferred out 3,100 3,100
Work in process, May 31
500  100% 500
500  40% 200
3,600 3,300

Direct
Materials Conversion Costs
Work in process, May 1 $3,060 $2,330
Costs added 7,740 6,580
Total materials cost 10,800 8,910

$10,800 ÷ 3,600 = $3.00

(c) $8,910 ÷ 3,300 = 2.70

(d) Transferred out (3,100  5.70) $17,670

(e) Work in process

Materials (500  $3.00) $1,500
Conversion costs (200  $2.70) 540
$2,040
2. Mayer Company uses a process cost system. The Molding Department adds materials at the
beginning of the process and conversion costs are incurred uniformly throughout the process.
Work in process on May 1 was 75% complete and work in process on May 31 was 40%
complete.

Instructions
Complete the Production Cost Report for the Molding Department for the month of May using
the above information and the information below.
MAYER COMPANY
Molding Department
Production Cost Report
For the Month Ended May 31, 2013
Equivalent Units
QUANTITIES Physical Units Materials Conversion Costs
Units to be accounted for
Work in process, May 1 8,000
Started into production 27,000
Total units 35,000

Units accounted for

Transferred out 30,000
Work in process, May 31 5,000
Total units 35,000

COSTS
Unit costs Materials Conversion Costs Total
Costs in May $140,000 $160,000 $300,000
Equivalent units
Unit costs $ $ $

Costs to be accounted for

Work in process, May 1 $ 60,000
Started into production 240,000
Total costs $300,000

Cost Reconciliation Schedule

Costs accounted for
Transferred out $
Work in process, May 31
Materials $
Conversion costs
Total costs $300,000
Solution
MAYER COMPANY
Molding Department
Production Cost Report
For the Month Ended May 31, 2013
Equivalent Units
QUANTITIES Physical Units Materials Conversion Costs
Units to be accounted for
Work in process, May 1 8,000
Started into production 27,000
Total units 35,000

Units accounted for

Transferred out 30,000 30,000 30,000
Work in process, May 31 5,000 5,000 2,000 (5,000 × 40%)
Total units 35,000 35,000 32,000

COSTS
Unit costs Materials Conversion Costs Total
Costs in May $140,000 $160,000 $300,000
Equivalent units 35,000 32,000
Unit costs $ 4 $ 5 $ 9

Costs to be accounted for

Work in process, May 1 $ 60,000
Started into production 240,000
Total costs $300,000

Cost Reconciliation Schedule

Costs accounted for
Transferred out (30,000 × $9) $270,000
Work in process, May 31
Materials (5,000 × $4) $ 20,000
Conversion costs (2,000 × $5) 10,000 30,000
Total costs $300,000
Chapter 6
1.Webster, Inc. began operations at the start of the current year, having a production
target of 60,000 units. Actual production totaled 60,000 units, and the company sold 95%
of its manufacturing output at $50 per unit. The following costs were incurred:

   

Required:

A. Assuming the use of variable costing, compute the cost of Webster's ending finished-
goods inventory.
B. Compute the company's contribution margin. Would Webster disclose the contribution
margin on a variable-costing income statement or an absorption-costing income
statement?
C. Assuming the use of absorption costing, how much fixed selling and administrative
cost would Webster include in the ending finished-goods inventory?
D. Compute the company's gross margin. 
 

A. Variable production costs total $1,080,000 ($240,000 + $480,000 + $360,000), or $18

per unit ($1,080,000 ÷ 60,000 units). Since 3,000 units remain in inventory [0 + 60,000 -
(60,000 × 95%)], the ending finished goods totals $54,000 (3,000 × $18).

B.

   

The contribution margin is disclosed on a variable-costing income statement.

C. None. All fixed selling and administrative cost is treated as a period cost and
expensed against revenue.
D. The cost of a unit would increase by $10 ($600,000 ÷ 60,000 units) because of the
addition of fixed manufacturing overhead. Thus:
    

 
2. Kim, Inc. began business at the start of the current year and maintains its accounting
records on an absorption-cost basis. The following selected information appeared on the
company's income statement and end-of-year balance sheet:

   

Kim achieved its planned production level for the year. The company's fixed
manufacturing overhead totaled $141,000, and the firm paid a 10% commission based
on gross sales dollars to its sales force.

Required:

A. How many units did Kim plan to produce during the year?
B. How much fixed manufacturing overhead did the company apply to each unit
produced?
C. Compute Kim's cost of goods sold.
D. How much variable cost did the company attach to each unit manufactured? 
 
Solution

A. Sales (35,000 units) + ending finished-goods inventory (12,000 units) = production

(47,000 units). Note: There is no beginning finished-goods inventory.
B. Because planned and actual production figures are the same, Kim applied $3 to each
unit ($141,000 ÷ 47,000 units).

C.

   

D. Kim attached $13 to each unit. This figure can be derived by analyzing cost of goods
sold:

   

The same $13 figure can be obtained by studying the ending finished-goods inventory:
   

$156,000 ÷ 12,000 units = $13

3. Coastal Corporation, which uses throughput costing, began operations at the start of the
current year. Planned and actual production equaled 20,000 units, and sales totaled
17,500 units at $95 per unit. Cost data for the year were as follows:

   

Required:

A. Compute the company's total cost for the year.

B. How much of this cost would be held in year-end inventory under (1) absorption
costing and (2) variable costing?
C. How much of the company's total cost for the year would appear on the period's
income statement under (1) absorption costing and (2) variable costing? 
 

A.

   

B. The year-end inventory of 2,500 units (20,000 - 17,500) is costed as follows:

   

C. The total costs would be allocated between the current period's income statement and
the year-end inventory on the balance sheet. Thus:
Absorption costing: $1,570,000 - $142,500 = $1,427,500
Variable costing: $1,570,000 - $100,000 = $1,470,000