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PROCESS COSTING
1. The W Company uses a process in its two producing departments. On April 1, Department B had
no units in beginning inventory. During April, 25,000 units were transferred from Department A
to Department B. On April 30, Department B had 5,000 unit of work in process, 60% complete as
to labor and 40% complete as to factory overhead. During the month, 20,000 units were
transferred from Department B to Finished Goods Inventory. Materials are added in the
beginning of the process in Department B. The following journal entries summarize April activity:
Required: Prepare a cost of production report under weighted average method and FIFO
method.
3. H Corporation manufactures a product in three departments. The product is cut out of sheet
metal in the Cutting Department, then transferred to the forming Department where it is bent to
shape and certain parts purchased from outside vendors are added to the unit. The product is
finally transferred to the Painting Department, where it is primed painted, and packaged.
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Exercise 7 – Process Costing
Assistant Professor Ron Reyes
Required: Prepare a cost of production report under weighted average and FIFO methods.
4. Pop Cola Company produces a soft drink in three departments, Syrup, Carbonation, and Bottling.
Syrup, which gives the drink its flavor, is produced in the first department. The syrup is then
transferred to the second department, where carbonated water is added to give the drink its
fizz. After carbonated water has been added, the liquid drink is bottled for storage and transport
to customers. A process cost system is used to account for work in process inventories. Data
related to operations in the Carbonation Department during the month of October are:
Units un beginning inventory (100% materials, 40% labor and overhead) 1,000
Units received from the Syrup Department this period 2,000
Units added to process in the Carbonation Department this period 6,000
Units transferred to Bottling Department this period 7,800
Units in ending inventory (100% materials, 25% labor and overhead) 1,200
Beg. Inventory Added this Period
Costs charged to the Department:
Costs from the preceding department P11,200 P96,800
Materials 1,920 16,080
Direct labor 646 15,554
Factory overhead 1,215 31,185
Required: Prepare a cost of production report for Carbonation Department using weighted
average method and FIFO method.
5. The Able Medicine Company manufactures an all-purpose capsule. Four direct materials are put
into production in Department A. Department B places the units received from Department A
into quick-dissolving capsules. Raw materials (all direct) are placed into production in
Department A as follows:
Raw material 101 (aspirin): Beginning of process.
Raw material 102 (caffeine): When units are 40% complete.
Raw material 103 (decongestant): When units are 60% complete.
Raw material 104 (muscle relaxer): When units are 95% complete.
July data, Department A:
Units started in process 300,000
Units transferred out 250,000
Ending units in process: (30% are 45% complete, 35% are
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Exercise 7 – Process Costing
Assistant Professor Ron Reyes
50% complete. 15% are 65% complete, 20% are 98% complete 50,000
Costs incurred:
Direct Materials: 101 P60,000,00
102 30,000,00
103 93,625,00
104 130,000,00
Conversion costs Direct Labor P812,507.50
Factory Overhead P364,227.50
SPOILED UNITS
7. The D Manufacturing Company uses a process cost system. In the second department,
Department X, spoiled units occur during operations. Inspection of spoiled units occurs when
units are 70% complete. Direct materials are added at the end of the process. Conversion costs
are incurred evenly throughout the process. Spoiled goods are considered by management as
internal failure and charged to Factory Overhead Control account.
Data pertaining to December’s activity in Department X are shown below:
Units Costs
Beginning in process – 90% complete 17,000
Cost from preceding department P9,110.00
Direct labor 5,377.50
Factory overhead applied 3,375.00
Received from preceding department (Dept. W) 38,000 48,640.00
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Exercise 7 – Process Costing
Assistant Professor Ron Reyes
Required: Prepare a cost of production report for Department X using average and FIFO
methods.
8. The Juanito Manufacturing Company produces china figurines. The Molding Department
inspects for spoiled units when units are 80% complete. Direct materials are added at the
beginning of the process, and direct labor and factory overhead are incurred evenly throughout
the process. Juanito’s data for the department are as follows:
Beginning units in process (100% direct materials, 1/3 conversion costs) 3,390 units
Cost of beginning work in process inventory:
Cost prior department P56,613.00
Direct materials 3,823.80
Conversion costs 2,202.52 P62,639.32
Units transferred in during the period 12,150 units
Costs transferred in during the period P202,905.00
Units transferred out 11,000 units
Ending units in process (100% direct materials, 60% conversion costs) 3,040 units
Spoiled units: Normal 800 units
Abnormal 700 units
Cost added during the period: Direct materials P104,490.00
Conversion costs 68,338.20
Additional Information:
The Company’s policy is to treat the cost of normal spoiled units in productions
as a separate element of cost in the department in which the spoilage occurs.
Required: Prepare a cost of production report for Molding Department using weighted
average and FIFO methods.
9. Edwin Company uses average costing in accounting for its three manufacturing departments.
Department 2 receives units from Department 1 and applies conversion costs to these units at a
uniform rate. When the units are 80% complete, they are inspected and material is then added
to the good units. A Department 2 spoilage rate of 5% of is considered normal.
For December, the following information is available:
(a) 3,000 units were in process on December 1, estimated to be 30% complete, with cost from
Department 1 of P15,960 and Department 2 costs of P2,726.
(b) 32,000 units were received from Department 1 at a cost of P180,000.
(c) Department 2 costs were: materials, P12,075; conversion, P96,700.
(d) 30,000 units were completed and transferred to Department 3.
(e) 4,500 units were in process December 31, estimated to be 90% complete.
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Exercise 7 – Process Costing
Assistant Professor Ron Reyes
10. M Company uses process costing. All materials are added at the beginning of the process. The
product is inspected when it is 80% converted, and spoilage is identified only at that point.
Normal spoilage is expected to be 3% of good output.
During March, 10,500 units were put into process. Current costs were P52,530 for materials;
P39,933 for labor; and P29,580 for factory overhead. The 3,000 units still in process at the end of
March were estimated to be 90% complete. A total of 7,000 units were transferred to finished
goods.
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