ACCT3203 Contemporary Managerial Accounting

Lecture Illustration Examples with Solutions

Process Costing I

Unit Coordinator & Lecturer

Dr Thanes Subraamanniam
UWA Business School
The University of Western Australia

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LECTURE EXAMPLE 1

PART ONE:

Alpha Pty Ltd produces children's toys in high quantities. Operations are carried out in two
departments: Assembly and Finishing

Materials are introduced at the start of the assembly process and assembled products are
transferred to the Finishing Department for detailing.
The factory costs of the Assembly Department for June 2022 were:

Direct materials added $72,000

Conversion costs $76,000

There was no beginning work-in-process (WIP) in the Assembly Department and material
was introduced for and work was commenced on 10,000 toys in June. Only 9,000 toys were
transferred to the Finishing Department during the period. All the material parts of the WIP
were ready for manufacture but only 50% of the required labour had been incurred.

REQUIRED
a. Compute the equivalent units and cost per equivalent unit of the Assembly
Department for June 2022.

b. Calculate:
i. the cost of the toys transferred from the Assembly Department to the
Finishing Department; and

ii. the cost of the WIP in the Assembly Department at the end of June 2022.

PART TWO:
During June 2022, the Finishing Department of Alpha Pty Ltd incurred the following costs,
in addition to those associated with the Assembly Department.

Direct materials added (at commencement) $18,000

Conversion costs $26,625

No beginning WIP existed in June 2022. 500 toys were partly completed, 75% of the
conversion costs being incurred on these 500 units. The remainder of the output was
transferred to finished goods.

REQUIRED
a. Compute the equivalent units and cost per equivalent unit of the Finishing
Department for June 2022.

b. Calculate:
i. the cost of the toys transferred to the finished goods; and
ii. the cost of the WIP in the Finishing Department at the end of June 2022.

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SOLUTION TO EXAMPLE 1

PART ONE: Assembly Department

a. (Step 1) (Step 2)
Equivalent Units

Physical % Direct % Conversion

Flow of Production Units Comp Materials Comp Costs
Work-in-process, beginning 0
Started during current period 10,000
To account for [Input] 10,000

Completed and Transferred out during current period:

9,000 100 9,000 100 9,000
Work-in-process, ending 1,000 100 1,000 50 500
Account for [Output] 10,000
Work done in current period only 10,000 9,500

Total Production
Costs Direct Conversion
Materials Costs
(Step 3) Costs added during current period
$148,000 $72,000 $76,000
Divide by equivalent unit of work done in
current period ÷10,000 ÷9,500
Cost per equivalent unit $ 7.20 $ 8.00

(Step 4) Total costs to account for: $148,000

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 b. (Step 5) Assignment of Costs:
Direct Conversion
Materials Costs
i. Completed and transferred out $136,800 9,000 x $7.20 9,000 x $8.00

= $64,800 =$72,000
Work-in-process, ending:
Direct materials 7,200 1,000 x $7.20
Conversion costs 4,000 500 x $8.00
ii. Total Ending work-in-process $ 11,200
Total costs accounted for*: $148,000

*Total costs accounted for = (a) + (b) = $136,800 +$11,200 = $148,000

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PART TWO: Finishing Department

a. (Step 1) (Step 2)
Equivalent Units

Physical % Transferred-In % Direct % Conversion

Flow of Production Units Comp Units Comp Materials Comp Costs
Work-in-process, beginning 0
Started during current period 9,000
To account for [Input] 9,000

Completed and Transferred out during

current period: 8,500 100 8,500 100 8,500 100 8,500
Work-in-process, ending 500 100 500 100 500 75 375
Account for [Output] 9,000
Work done in current period only 9,000 9,000 8,875

Total Production
Costs Transferred-In Direct Conversion
Costs Materials Costs
(Step 3) Costs added during current period
$181,425 $136,800 $18,000 $26,625
Divide by equivalent unit of work
done in current period 9,000 9,000 8,875
Cost per equivalent unit $ 15.20 $ 2.00 $ 3.00
(Step 4) Total costs to account for: $181,425

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 b. (Step 5) Assignment of Costs:

Transferred-In Direct Conversion

Costs Materials Costs
i. Completed and transferred out $171,700 8,500 x $15.20 8,500 x $2.00 8,500 x $3.00
=$129,200 =$17,000 =$25,500
Work-in-process, ending:
Transferred-in costs $ 7,600 500 x $15.20
Direct materials 1,000 500 x $2.00
Conversion costs 1,125 375 x $3.00
ii. Total work-in-process $ 9,725
Total costs accounted for: $181,425

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LECTURE EXAMPLE 2

Beta Company manufactures large quantities of meat pies operating in two departments:
Mixing and Baking.

Production activity begins in the Mixing Department; after mixing, the uncooked pies are
transferred to the Baking Department for cooking and finishing before being transferred to
finished goods.

All of the material required for mixing is introduced at the beginning of the mixing process
and conversion costs in the mixing department are incurred uniformly as work progresses.

Costs and other data for June 2022 include the following for Mixing Department.

Work in progress, beginning

Pies in process (stage of completion) 30%

Cost in the beginning WIP:

Material cost $ 8,000
Labour cost $ 3,600
Factory overhead cost $ 5,400
$17,000

Material for the mixing of 180,000 pies was issued during June and 170,000 mixed pies were
transferred to the Baking Department.

Cost incurred during June 2022:

Materials $ 63,000
Labour cost $ 88,000
Factory overhead allocated $132,000

Ending Work in progress (WIP):

Pies in process 30,000

Stage of completion 40%

REQUIRED

Calculate the cost of the production transferred to the Baking Department from the Mixing
Department during June and the cost of the work-in-process (WIP) in the Mixing
Department at the end of June using:

a. F.I.F.O.; and
b. Weighted Average methods of process costing.

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SOLUTION TO EXAMPLE 2
a. FIFO Method: Mixing Department
(Step 1) (Step 2)
Equivalent Units

Physical % Direct % Conversion

Flow of Production Units Comp Materials Comp Costs
Work-in-process, beginning 20,000*
Started during current period 180,000
To account for [Input] 200,000

Completed and Transferred out during current

period:
From beginning work-in-process 20,000 - - 70 14,000
Started and completed 150,000 100 150,000 100 150,000
Work-in-process, ending 30,000 100 30,000 40 12,000
Account for [Output] 200,000
Work done in current period only 180,000 176,000
*work done before current period

Total Production Direct Conversion

Costs Materials Costs
Work-in-process, beginning $ 17,000* - -
(Step 3) Costs added during current period
$283,000 $ 63,000 $220,000
Divide by equivalent unit of work done in
current period ÷180,000 ÷176,000
Cost per equivalent unit of work done in $ 0.35 $ 1.25
current period
(Step 4) Total costs to account for: $300,000
*Costs of work done before current period

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 (Step 5) Assignment of Costs:

Direct Conversion
Materials Costs
Completed and transferred out:
Work-in-process, beginning $ 17,000*
Direct materials 0 0 x $0.35
Conversion costs 17,500 14,000 x $1.25
Total from beginning inventory $ 34,500
Started and completed $240,000 (150,000 x $0.35) + (150,000 x $1.25)
Total costs of units completed and transferred out
(a) $274,500

Work-in-process, ending:
Direct materials $ 10,500 30,000 x $0.35
Conversion costs 15,000 12,000 x $1.25
(b) Total work-in-process, ending $ 25,500
Total costs accounted for: $300,000

*(a) + (b) = $274,500 + $25,500 = $300,000

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b. Weighted Average Method: Mixing Department
(Step 1) (Step 2)
Equivalent Units

Physical % Direct % Conversion

Flow of Production Units Comp Materials Comp Costs
Work-in-process, beginning 20,000*
Started during current period 180,000
To account for [Input] 200,000

Completed and Transferred out during current 170,000 100 170,000 100 170,000
period:
Work-in-process, ending 30,000 100 30,000 40 12,000
Account for [Output] 200,000
Work done to date 200,000 182,000
*work done before current period

Total Production
Costs Direct Conversion
Materials Costs
Work-in-process, beginning $ 17,000* $ 8,000 $ 9,000
(Step 3) Costs added during current period
$283,000 63,000 220,000
Cost incurred to date $71,000 $229,000
Divide by equivalent unit of work done to date
200,000 182,000
Cost per equivalent unit $ 0.355 $ 1.258
(Step 4) Total costs to account for: $300,000

*Costs of work done before current period

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(Step 5) Assignment of Costs:

Direct Conversion
Materials Costs
Completed and transferred out: $274,210 (170,000 x $0.355) + (170,000 x $1.258)

Work-in-process, ending:
Direct materials $ 10,650 30,000 x $0.355
Conversion costs 15,096 12,000 x $1.258
Total work-in-process, ending $ 25,746
Total costs accounted for: $ 299,956**

**Error due to rounding

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