You are on page 1of 52

CHAPTER 17

PROCESS-COSTING

17-1 Industries using process costing in their manufacturing area include chemical processing,
oil refining, pharmaceutical, plastics, brick and tile manufacturing, semiconductor chips, beverages,
and breakfast cereals.

17-2 Process costing systems separate costs into cost categories according to the timing of
when costs are introduced into the process. Often, only two cost classifications, direct materials
and conversion costs, are necessary. Direct materials are frequently added at one point in time,
often the start or the end of the process, and all conversion costs are added at about the same time,
but in a pattern different from direct materials costs.

17-3 Equivalent units is a derived amount of output units that takes the quantity of each input
(factor of production) in units completed or in work in process, and converts it into the amount of
completed output units that could be made with that quantity of input. Each equivalent unit is
comprised of the physical quantities of direct materials and conversion costs inputs necessary to
produce output of one fully completed unit. Equivalent unit measures are necessary since all
physical units are not completed to the same extent.

17-4 The accuracy of the estimates of completion depend on the care and skill of the estimator
and the nature of the process. Aircraft blades may differ substantially in the finishing necessary to
obtain a final product. The amount of work may not always be easy to ascertain in advance.

17-5 The five key steps in process costing follow:


Step 1: Summarize the flow of physical units of output.
Step 2: Compute output in terms of equivalent units.
Step 3: Compute equivalent unit costs.
Step 4: Summarize total costs to account for.
Step 5: Assign total costs to units completed and to units in ending work in process.

17-6 Three inventory methods associated with process costing are:


• Weighted average.
• First-in, first-out.
• Standard costing.

17-7 The weighted-average process-costing method assigns the average equivalent unit cost of
all work done to date (regardless of when it was done) to equivalent units completed and
transferred out, and to equivalent units in ending work-in-process inventory.

17-8 FIFO computations are distinctive because they assign the cost of the earliest equivalent
units available (starting with equivalent units in beginning work-in-process inventory) to units
completed and transferred out, and the cost of the most recent equivalent units worked on during
the period to ending work-in-process inventory. In contrast, the weighted average method costs
units completed and transferred out and in ending work in process at the same average cost.

17-1
17-9 FIFO should be called a modified or departmental FIFO method because the goods
transferred in during a given period usually bear a single average unit cost as a matter of
convenience.

17-10 A major advantage of FIFO is that managers can judge the performance in the current
period independently from the performance in the preceding period.

17-11 The journal entries in process costing are basically like those made in job-costing systems.
The main difference is that, in process costing, there is often more than one work-in-process
account––one for each process.

17-12 Standard-cost procedures are particularly appropriate to process-costing systems where


there are various combinations of materials and operations. Standard-cost procedures avoid the
intricacies involved in detailed tracking with weighted-average or FIFO methods when there are
frequent price variations over time.

17-13 There are two reasons why the accountant should distinguish between transferred-in
costs and additional direct materials costs for a particular department:
(a) All direct materials may not be added at the beginning of the department process.
(b) The control methods and responsibilities may be different for transferred-in items and
materials added in this department.

17-14 No. Transferred-in costs or previous department costs are costs incurred in a previous
department that have been charged to a subsequent department. These costs may be costs incurred
in that previous department during this accounting period or a preceding accounting period.

17-15 Materials are only one cost item. Other items (often included in a conversion costs pool)
include labor, energy, and maintenance. If the costs of these items vary over time, this variability
can cause a difference when weighted-average or FIFO is used.
A second factor is the amount of inventory on hand at the beginning or end of an
accounting period. The smaller the amount of production held in beginning or ending inventory
relative to the total number of units transferred out, the smaller the effect on operating income or
inventory amounts from use of weighted-average or FIFO.

17-16 (25 min.) Equivalent units, zero beginning inventory.


1. Direct materials cost per unit ($720,000 ÷ 10,000) $ 72
Conversion cost per unit ($760,000 ÷ 10,000) 76
Assembly Department cost per unit $148

2a. Solution Exhibit 17-16A calculates the equivalent units of direct materials and conversion
costs in the Assembly Department of International Electronics in February 2001.

Solution Exhibit 17-16B computes equivalent units costs.

2b. Direct materials cost per unit $ 72


Conversion cost per unit 80
Assembly Department cost per unit $152

17-2
17-16 (Cont’d.)

3. The difference in the Assembly Department cost per unit calculated in requirements 1 and 2
arises because the costs incurred in January and February are the same but fewer equivalent units of
work are done in February relative to January. In January, all 10,000 units introduced are fully
completed resulting in 10,000 equivalent units of work done with respect to direct materials and
conversion costs. In February, of the 10,000 units introduced, 10,000 equivalent units of work is
done with respect to direct materials but only 9,500 equivalent units of work is done with respect
to conversion costs. The Assembly Department cost per unit is, therefore, higher.

SOLUTION EXHIBIT 17-16A


Steps 1 and 2: Summarize Output in Physical Units and Compute Equivalent Units
Assembly Department of International Electronics for February 2001

(Step 2)
(Step 1) Equivalent Units
Physical Direct Conversion
Flow of Production Units Materials Costs
Work in process, beginning 0
Started during current period 10,000
To account for 10,000
Completed and transferred out
during current period 9,000 9,000 9,000
Work in process, ending* 1,000
1,000 × 100%; 1,000 × 50% 1,000 500
Accounted for 10,000
Work done in current period only 10,000 9,500

*Degree of completion in this department: direct materials, 100%; conversion costs, 50%.

SOLUTION EXHIBIT 17-16B


Compute Equivalent Unit Costs,
Assembly Department of International Electronics for February 2001

Total
Production Direct Conversion
Costs Materials Costs
(Step 3)Costs added during February $1,480,000 $720,000 $760,000
Divide by equivalent units of work done
in current period (Solution Exhibit 17-l6A) ÷ 10,000 ÷ 9,500
Cost per equivalent unit $ 72 $ 80

17-3
17-17 (20 min.) Journal entries. (Continuation of 17-16)
1. Work in Process––Assembly 720,000
Accounts Payable 720,000
To record $720,000 of direct materials
purchased and used in production during
February 2001

2. Work in Process––Assembly 760,000


Various accounts 760,000
To record $760,000 of conversion costs
for February 2001; examples include energy,
manufacturing supplies, all manufacturing
labor, and plant depreciation

3. Work in Process––Testing 1,368,000


Work in Process––Assembly 1,368,000
To record 9,000 units completed and
transferred from Assembly to Testing
during February 2001 at
$152 × 9,000 units = $1,368,000

Postings to the Work in Process––Assembly account follow.

Work in Process –– Assembly Department


Beginning inventory, Feb. 1 0 3. Transferred out to
1. Direct materials 720,000 Work in Process––Testing 1,368,000
2. Conversion costs 760,000
Ending inventory, Feb. 28 112,000

17-4
17-18 (25 min.) Zero beginning inventory, materials introduced in middle of
process.
1. Solution Exhibit 17-18A shows equivalent units of work done in the current period of
Chemical P, 50,000; Chemical Q, 35,000; Conversion costs, 45,000.

2. Solution Exhibit 17-18B calculates cost per equivalent unit of work done in the current
period for Chemical P, Chemical Q, and Conversion costs, summarizes the total Mixing
Department costs for July 2001, and assigns these costs to units completed (and transferred out)
and to units in ending work in process.

SOLUTION EXHIBIT 17-18A


Steps 1 and 2: Summarize Output in Physical Units and Compute Equivalent Units
Mixing Department of Vaasa Chemicals for July 2001

(Step 2)
(Step 1) Equivalent Units
Physical Conversion
Flow of Production Units Chemical P Chemical Q Costs
Work in process, beginning 0
Started during current period 50,000
To account for 50,000
Completed and transferred out
during current period 35,000 35,000 35,000 35,000
Work in process, ending* 15,000
15,000 × 100%; 15,000 × 0%;
15,000 × 66 2/3% 15,000 0 10,000
Accounted for 50,000
Work done in current period only 50,000 35,000 45,000

*Degree of completion in this department: Chemical P, 100%; Chemical Q, 0%; conversion costs, 66 2/3%.

17-5
17-18 (Cont’d.)

SOLUTION EXHIBIT 17-18B


Steps 3, 4, and 5: Compute Equivalent Unit Costs, Summarize Total Costs to Account For, and
Assign Costs to Units Completed and to Units in Ending Work in Process, Mixing Department of
Vaasa Chemicals for July 2001

Total
Production Conversion
Costs Chemical P Chemical Q Costs
(Step 3)Costs added during February $455,000 $250,000 $70,000 $135,000
Divide by equivalent units of work
done in current period (Solution
Exhibit 17-l8A) ÷ 50,000 ÷35,000 ÷ 45,000
Cost per equivalent unit $ 5 $ 2 $ 3
(Step 4)Total costs to account for $455,000
(Step 5) Assignment of costs:
Completed and transferred out
(35,000 units) $350,000 (35,000*× $5) + (35,000*×$2) + (35,000*×$3)
Work in process ending
(15,000 units)
Chemical P 75,000 15,000† × $5
Chemical Q 0 0† × $2
Conversion costs 30,000 10,000†×$3
Total work in process 105,000
Total costs accounted for $455,000

*Equivalent units completed and transferred out from Solution Exhibit 17-18A, Step 2.

Equivalent units in work in process, ending from Solution Exhibit 17-18A, Step 2.

17-6
17-19 (15 min.) Weighted-average method, equivalent units.
Under the weighted-average method, equivalent units are calculated as the equivalent units of
work done to date. Solution Exhibit 17-19 shows equivalent units of work done to date for the
Satellite Assembly Division of Aerospatiale for direct materials and conversion costs.

SOLUTION EXHIBIT 17-19


Steps 1 and 2: Summarize Output in Physical Units and Compute Equivalent Units
Weighted-Average Method of Process Costing, Satellite Assembly Division of Aerospatiale for
May 2001

(Step 1) (Step 2)
Physical Equivalent Units
Units Direct Conversion
Flow of Production (given) Materials Costs
Work in process beginning 8
Started during current period 50
To account for 58
Completed and transferred out during current period 46 46.0 46.0
Work in process, ending* (12 × 60%; 12 × 30%) 12 7.2 3.6
Accounted for 58
Work done to date 53.2 49.6

*Degree of completion in this department: direct materials, 60%; conversion costs, 30%.

17-7
17-20 (20 min.) Weighted-average method, assigning costs. (Continuation of 17-19)
Solution Exhibit 17-20 calculates cost per equivalent unit of work done to date in the Assembly
Department of Aerospatiale, summarizes total costs to account for, and assigns costs to units
completed and to units in ending work-in-process inventory.

SOLUTION EXHIBIT 17-20


Steps 3, 4, and 5: Compute Equivalent Unit Costs, Summarize Total Costs to Account For, and
Assign Costs to Units Completed and to Units in Ending Work in Process
Weighted-Average Method of Process Costing, Satellite Assembly Department of Aerospatiale for
May 2001

Total
Production Direct Conversion
Costs Materials Costs
(Step 3) Work in process, beginning (given) $ 5,844,000 $ 4,933,600 $ 910,400
Costs added in current period (given) 46,120,000 32,200,000 13,920,000
Costs incurred to date $37,133,600 $14,830,400
Divide by equivalent units of work done to
date (Solution Exhibit 17-19) ÷ 53.2 ÷ 49.6
Cost per equivalent unit of work done to date $ 698,000 $ 299,000
(Step 4) Total costs to account for 51,964,000
(Step 5) Assignment of costs:
Completed and transferred out (46 units) 45,862,000 (46*× $698,000) + (46* × $299,000)
Work in process, ending (12 units)
Direct materials 5,025,600 7.2†× $698,000
Conversion costs 1,076,400 3.6† × $299,000
Total work in process 6,102,000
Total costs accounted for $51,964,000
*
Equivalent units completed and transferred out from Solution Exhibit 17-19, Step 2.

Equivalent units in work in process, ending from Solution Exhibit 17-19, Step 2.

17-8
17-21 (15 min.) FIFO method, equivalent units.

Under the FIFO method, equivalent units are calculated as the equivalent units of work done in the
current period only. Solution Exhibit 17-21 shows equivalent units of work done in May 2001 in
the Assembly Department of Aerospatiale for direct materials and conversion costs.

SOLUTION EXHIBIT 17-21


Steps 1 and 2: Summarize Output in Physical Units and Compute Equivalent Units
FIFO Method of Process Costing, Satellite Assembly Division of Aerospatiale for May 2001

(Step 2)
(Step 1) Equivalent Units
Physical Direct Conversion
Flow of Production Units Materials Costs
Work in process, beginning (given) 8 (work done before current period)
Started during current period (given) 50
To account for 58
Completed and transferred out during current
period:
From beginning work in process§ 8
8 × (100% − 90%); 8 × (100% − 40%) 0.8 4.8

Started and completed 38
38 × 100%, 38 × 100% 38.0 38.0
Work in process, ending* (given) 12
12 × 60%; 12 × 30% 7.2 3.6
Accounted for 58
Work done in current period only 46.0 46.4
§
Degree of completion in this department: direct materials, 90%; conversion costs, 40%.

46 physical units completed and transferred out minus 8 physical units completed and transferred out from
beginning work-in-process inventory.
*Degree of completion in this department: direct materials, 60%; conversion costs, 30%.

17-9
17-22 (20 min.) FIFO method, assigning costs. (Continuation of 17-21)
Solution Exhibit 17-22 calculates cost per equivalent unit of work done in May 2001 in the
Assembly Department of Aerospatiale, summarizes total costs to account for, and assigns costs to
units completed and to units in ending work-in-process inventory.

SOLUTION EXHIBIT 17-22


Steps 3, 4, and 5: Compute Equivalent Unit Costs, Summarize Total Costs to Account For, and
Assign Costs to Units Completed and to Units in Ending Work in Process
FIFO Method of Process Costing, Satellite Assembly Division of Aerospatiale for May 2001

Total
Production Direct Conversion
Costs Materials Costs
Work in process, beginning ($4,933,600 + $910,400) $ 5,844,000 (costs of work done before current
period)
(Step 3) Costs added in current period (given) 46,120,000 $32,200,000 $ 13,920,000
Divide by equivalent units of work done in
current period (Solution Exhibit 17-21) ÷ 46 ÷ 46.4
Cost per equivalent unit of work done in current $ 700,000 $ 300,000
period
(Step 4) Total costs to account for $51,964,000
(Step 5) Assignment of costs:
Completed and transferred out (46 units):
Work in process, beginning (8 units) $ 5,844,000
Direct materials added in current period 560,000 0.8*× $700,000
Conversion costs added in current period 1,440,000 4.8*× $300,000
Total from beginning inventory 7,844,000
38,000,000 (38 × $700,000) + (38 × $300,000)
† †
Started and completed (38 units)
Total costs of units completed & transf. out 45,844,000
Work in process, ending (12 units)
Direct materials 5,040,000 7.2# × $700,000
Conversion costs 1,080,000 3.6#× $300,000
Total work in process, ending 6,120,000
Total costs accounted for $51,964,000

*Equivalent units used to complete beginning work in process from Solution Exhibit 17-21, Step 2.

Equivalent units started and completed from Solution Exhibit 17-21, Step 2.
#
Equivalent units in work in process, ending from Solution Exhibit 17-21, Step 2.

17-10
17-23 (25-30 min.) Standard-costing method, assigning costs.
1. The calculations of equivalent units for direct materials and conversion costs are identical to
the calculations of equivalent units under the FIFO method. Solution Exhibit 17-21 shows the
equivalent unit calculations under standard costing given by the equivalent units of work done in
May 2001 in the Assembly Department.

2. Solution Exhibit 17-23 summarizes the total costs to account for, and assigns these costs to
units completed and transferred out and to units in ending work in process.

3. Solution Exhibit 17-23 shows the direct materials and conversion cost variances for

Direct materials $230,000 U


Conversion costs $232,000 U

SOLUTION EXHIBIT 17-23


Steps 3, 4, and 5: Compute Equivalent Unit Costs, Summarize Total Costs to Account For, and
Assign Costs to Units Completed and to Units in Ending Work in Process
Use of Standard Costs in Process Costing, Satellite Assembly Division of Aerospatiale for May
2001.

Total
Production Direct Conversion
Costs Materials Costs
(Step 3) Standard cost per equivalent unit (given) $ 695,000 $ 295,000
Work in process, beginning (given)
Direct materials, 7.2 × $695,000; Conversion
costs, 3.2 × $295,000 $ 5,948,000
Costs added in current period at standard costs
Direct materials, 46.0 × $695,000; Conversion
costs, 46.4 × $295,000 45,658,000 $31,970,000 $13,688,000
(Step 4) Costs to account for $51,606,000
(Step 5) Assignment of costs at standard costs:
Completed and transferred out (46 units):
Work in process, beginning (8 units) $ 5,948,000
Direct materials added in current period 556,000 0.8* × $695,000
Conversion costs added in current period 1,416,000 4.8* × $295,000
Total from beginning inventory 7,920,000
Started and completed (38 units) 37,620,000 38† × $695,000 + 38† ×
Total costs of units transferred out 45,540,000 $295,000

7.2#× $695,000
3.6# × $295,000
Work in process, ending (12 units)
Direct materials 5,004,000
Conversion costs 1,062,000
Total work in process, ending 6,066,000
Total costs accounted for $51,606,000
Summary of variances for current performance:
Costs added in current period at standard prices (see above) $31,970,000 $13,688,000
Actual costs incurred (given) 32,200,000 13,920,000
Variance $ 230,000 U $ 232,000 U

17-11
*Equivalent units to complete beginning work in process from Solution Exhibit 17-21, Step 2.

Equivalent units started and completed from Solution Exhibit 17-21, Step 2.
#
Equivalent units in work in process, ending from Solution Exhibit 17-21, Step 2.

17-24 (25 min.) Weighted-average method, assigning costs.


1. & 2. Solution Exhibit 17-24 calculates the cost per equivalent unit of work done to date for
direct materials and conversion costs, summarizes total costs to account for, and assigns these costs
to units completed and transferred out and to units in ending work-in-process inventory.

SOLUTION EXHIBIT 17-24


Steps 3, 4, and 5: Compute Equivalent Unit Costs, Summarize Total Costs to Account For, and
Assign Costs to Units Completed and to Units in Ending Work in Process
Weighted-Average Method of Process Costing, Chatham Company for July 2001

Total
Production Direct Conversion
Costs Materials Costs
(Step 3) Work in process, beginning (given) $130,000 $ 60,000 $ 70,000
Costs added in current period (given) 651,000 280,000 371,000
Costs incurred to date $340,000 $441,000
Divide by equivalent units of work done to
date (given) ÷ 50,000 ÷ 42,000
Cost per equivalent unit of work done to date $ 6.80 $ 10.50
(Step 4) Total costs to account for $781,000
(Step 5) Assignment of costs:
Completed and transferred out (34,000 units) 588,200 (34,000* × $6.80) + (34,000* ×
$10.50)
Work in process, ending (16,000 units)
Direct materials 108,800 16,000† × $6.80
Conversion costs 84,000 8,000† × $10.50
Total work in process 192,800
Total costs accounted for $781,000

*Equivalent units completed and transferred out (given).



Equivalent units in work in process, ending (given).

17-12
17-25 (30 min.) FIFO method, assigning costs.
1. & 2. Solution Exhibit 17-25A calculates the equivalent units of work done in the current period.
Solution Exhibit 17-25B, calculates the cost per equivalent unit of work done in the current period
for direct materials and conversion costs, summarizes total costs to account for, and assigns these
costs to units completed and transferred out and to units in ending work-in-process inventory.

SOLUTION EXHIBIT 17-25A


Steps 1 and 2: Summarize Output in Physical Units and Compute Equivalent Units
FIFO Method of Process Costing, Chatham Company for July 2001

(Step 2)
(Step 1) Equivalent Units
Physical Direct Conversion
Units Materials Costs
Flow of Production
Work in process, beginning (given) 10,000 (work done before current period)
Started during current period (given) 40,000
To account for 50,000
Completed and transferred out during current period:
From beginning work in process§ 10,000
10,000 × (100% − 100%); 10,000 × (100% – 70%) 0 3,000

Started and completed 24,000
24,000 × 100%, 24,000 × 100% 24,000 24,000
Work in process, ending* (given) 16,000
16,000 × 100%; 16,000 × 50% 16,000 8,000
Accounted for 50,000
Work done in current period only 40,000 35,000
§
Degree of completion in this department: direct materials, 100%; conversion costs, 70%.

34,000 physical units completed and transferred out minus 10,000 physical units completed and transferred out
from beginning work-in-process inventory.
*Degree of completion in this department: direct materials, 100%; conversion costs, 50%.

17-13
17-25 (Cont’d.)

SOLUTION EXHIBIT 17-25B


Steps 3, 4, and 5: Compute Equivalent Unit Costs, Summarize Total Costs to Account For, and
Assign Costs to Units Completed and to Units in Ending Work in Process
FIFO Method of Process Costing, Chatham Company for July 2001

Total
Production Direct Conversion
Costs Materials Costs
Work in process, beginning ($60,000 + $70,000) $130,000 (costs of work done before
current period)
(Step 3) Costs added in current period (given) 651,000 $280,000 $371,000
Divide by equivalent units of work done in
current period (Solution Exhibit 17-25A)
÷ 40,000 ÷ 5,000
Cost per equivalent unit of work done in current period $ 7 $ 10.60
(Step 4) Total costs to account for $781,000
(Step 5) Assignment of costs:
Completed and transferred out (34,000 units):

Work in process, beginning (10,000 units) $130,000


Direct materials added in current period 0 0* × $7
Conversion costs added in current period 31,800 3,000* × $10.60
Total from beginning inventory 161,800
Started and completed (24,000 units) 422,400 24,000† × $7 + 24,000† ×
Total costs of units completed & transferred out 584,200 10.60
Work in process, ending (16,000 units)
Direct materials 112,000
Conversion costs 84,800 16,000# × $7
Total work in process, ending 196,800 8,000# × $10.60
Total costs accounted for $781,000

*Equivalent units used to complete beginning work in process from Solution Exhibit 17-25A, Step 2.

Equivelant units started and completed from Solution Exhibit 17-25A, Step 2.
#
Equivalent units in work in process, ending from Solution Exhibit 17-25A, Step 2.

17-14
17-26 (30 min.) Standard-costing method, assigning costs.
1. The calculations of equivalent units for direct materials and conversion costs are identical to
the calculations of equivalent units under the FIFO method. Solution Exhibit 17-25A shows the
equivalent unit calculations for standard costing given by the equivalent units of work done in July
2001. Solution Exhibit 17-26 uses the standard costs (direct materials, $6.50; conversion costs,
$10.30) to summarize total costs to account for, and to assign these costs to units completed and
transferred out and to units in ending work-in-process inventory.

2. Solution Exhibit 17-26 shows the direct materials and conversion costs variances for

Direct materials $20,000 U


Conversion costs $10,500 U

SOLUTION EXHIBIT 17-26


Steps 3, 4, and 5: Compute Equivalent Unit Costs, Summarize Total Costs to Account For, and
Assign Costs to Units Completed and to Units in Ending Work in Process
Use of Standard Costs in Process Costing, Chatham Company for July 2001.

Total
Production Direct Conversion
Costs Materials Costs
(Step 3) Standard cost per equivalent unit (given) $ 6.50 $ 10.30
Work in process, beginning (given)
Direct materials, 10,000 × $6.50; Conversion costs,
7,000 × $10.30 $137,100
Costs added in current period at standard costs
Direct materials, 40,000 × $6.50;
Conversion costs, 35,000 × $10.30 620,500 260,000 360,500
(Step 4) Costs to account for $757,600
(Step 5) Assignment of costs at standard costs:
Completed and transferred out (34,000 units):
Work in process, beginning (10,000 units) $137,100
Direct materials added in current period 0 0* × $6.50
Conversion costs added in current period 30,900 3,000*× $10.30
Total from beginning inventory 168,000
Started and completed (24,000 units) 403,200 (24,000†× $6.50) + (24,000†×
Total costs of units transferred out 571,200 $10.30)

Work in process, ending (16,000 units)


Direct materials 104,000 16,000#× $6.50
Conversion costs 82,400 8,000# × $10.30
Total work in process, ending 186,400
Total costs accounted for $757,600
Summary of variances for current performance:
Costs added in current period at standard prices (see above) $260,000 $360,500
Actual costs incurred (given) 280,000 371,000
Variance $ 20,000 U $ 10,500 U

*Equivalent units to complete beginning work in process from Solution Exhibit 17-25A, Step 2.

Equivalent units started and completed from Solution Exhibit 17-25A, Step 2.
#
Equivalent units in work in process, ending from Solution Exhibit 17-25A, Step 2.

17-15
17-16
17-27 (35–40 min.) Transferred-in costs, weighted-average method.
1. & 2. Solution Exhibit 17-27A calculates the equivalent units of work done to date. Solution
Exhibit 17-27B calculates the cost per equivalent unit of work done to date for transferred-in costs,
direct materials, and conversion costs, summarizes total costs to account for, and assigns these
costs to units completed and transferred out and to units in ending work-in-process inventory.

SOLUTION EXHIBIT 17-27A


Steps 1 and 2: Summarize Output in Physical Units and Compute Equivalent Units
Weighted-Average Method of Process Costing
Cooking Department of Hideo Chemicals for June 2001

(Step 1) (Step 2)
Physical Equivalent Units
Units Transferred- Direct Conversion
Flow of Production (given) in Costs Materials Costs
Work in process beginning 40
Transferred in during current period 80
To account for 120
Completed and transferred out
during current period 90 90 90 90
Work in process, ending* 30
30 × 100%; 30 × 0%; 30 × 50% 30 0 15
Accounted for 120
Work done to date 120 90 105

*Degree of completion in this department: transferred-in costs, 100%; direct materials, 0%; conversion costs, 50%.

17-17
17-27 (Cont’d.)

SOLUTION EXHIBIT 17-27B


Steps 3, 4, and 5: Compute Equivalent Unit Costs, Summarize Total Costs to Account For, and
Assign Costs to Units Completed and to Units in Ending Work in Process
Weighted-Average Method of Process Costing
Cooking Department of Hideo Chemicals for June 2001

Total
Production Transferred Direct Conversion
Costs -in Costs Materials Costs
(Step 3) Work in process, beginning (given) $ 58,000 $ 40,000 $ 0 $18,000
Costs added in current period (given) 172,925 87,200 36,000 49,725
Costs incurred to date $127,200 $36,000 $67,725
Divide by equivalent units of work done
to date (Solution Exhibit 17-27A) ÷ 120 ÷ 90 ÷ 105
Equivalent unit costs of work done to date $ 1,060 $ 400 $ 645
(Step 4) Total costs to account for $230,925
(Step 5) Assignment of costs:
Completed and transferred out (90 units) $189,450 (90*× $1,060) + (90* × $400) + (90*×
$645)
Work in process, ending (30 units)
Transferred-in costs 31,800 30†× $1,060
Direct materials 0 0† × $400
Conversion costs 9,675 15† × $645
Total work in process 41,475
Total costs accounted for $230,925

*Equivalent units completed and transferred out from Solution Exhibit 17-27A, Step 2.
†Equivalent units in work in process, ending from Solution Exhibit 17-27A, Step 2.

17-28 (35–40 min.) Transferred-in costs, FIFO method.


1. & 2. Solution Exhibit 17-28A calculates the equivalent units of work done in the current period
(for transferred-in costs, direct-materials, and conversion costs) to complete beginning work-in-
process inventory, to start and complete new units, and to produce ending work in process.
Solution Exhibit 17-28B calculates the cost per equivalent unit of work done in the current period
for transferred-in costs, direct materials, and conversion costs, summarizes total costs to account
for, and assigns these costs to units completed and transferred out and to units in ending work-in-
process inventory.

17-18
17-28 (Cont’d.)

SOLUTION EXHIBIT 17-28A


Steps 1 and 2: Summarize Output in Physical Units and Compute Equivalent Units
FIFO Method of Process Costing
Cooking Department of Hideo Chemicals for June 2001

(Step 2)
(Step 1) Equivalent Units
Physical Transferred- Direct Conversion
Flow of Production Units in Costs Materials Costs
Work in process, beginning (given) 40 (work done before current period)
Transferred-in during current period (given) 80
To account for 120
Completed and transferred out during current period:
From beginning work in process§ 40
40 × (100% − 100%); 40 × (100% − 0%);
40 × (100% − 75%) 0 40 10

Started and completed 50
50 × 100%; 50 × 100%; 50 × 100% 50 50 50
Work in process, ending* (given) 30
30 × 100%; 30 × 0%; 30 × 50% 30 0 15
Accounted for 120
Work done in current period only 80 90 75

§
Degree of completion in this department: Transferred-in costs, 100%; direct materials, 0%; conversion costs, 75%.

90 physical units completed and transferred out minus 40 physical units completed and transferred out from
beginning work-in-process inventory.
*Degree of completion in this department: transferred-in costs, 100%; direct materials, 0%; conversion costs, 50%.

17-19
17-28 (Cont’d.)

SOLUTION EXHIBIT 17-28B


Steps 3, 4, and 5: Compute Equivalent Unit Costs, Summarize Total Costs to Account For,
and Assign Costs to Units Completed and to Units in Ending Work in Process
FIFO Method of Process Costing
Cooking Department of Hideo Chemicals for June 2001

Total
Production Transferred Direct Conversion
Costs -in Costs Materials Costs
Work in process, beginning
($39,200 + $0 + $18,000) $ 57,200 (Costs of work done before current
period)
(Step 3) Costs added in current period (given) 171,325 $85,600 $36,000 $49,725
Divide by equivalent units of work done in
current period (Solution Exhibit 17-28A) ÷ 80 ÷ 90 ÷ 75
Cost per equiv. unit of work done in current period $ 1,070 $ 400 $ 663
(Step 4) Total costs to account for $228,525
(Step 5) Assignment of costs:
Completed and transferred out (90 units):
Work in process, beginning (40 units) $ 57,200
Transferred-in costs added in current period 0 0*×$1,070
Direct materials added in current period 16,000 40*×$400
Conversion costs added in current period 6,630 10*×$663
Total from beginning inventory 79,830
Started and completed (50 units) 106,650 (50†×$1,070) + (50†× $400)+ (50†×$663)
Total costs of units completed & tfd. out 186,480
Work in process, ending (30 units)
Transferred-in costs 32,100 30#×$1,070
Direct materials 0 0#×$30
Conversion costs 9,945 15#×$663
Total work in process, ending 42,045
Total costs accounted for $228,525

*Equivalent units used to complete beginning work in process from Solution Exhibit 17-28A, Step 2.

Equivalent units started and completed from Solution Exhibit 17-28A, Step 2.
#
Equivalent units in work in process, ending from Solution Exhibit 17-28A, Step 2.

17-20
17-29 (20 min.) Operation costing.
1. Conversion costs of each operation, the total units produced and the conversion cost per unit
for the month of June are as follows:

Framing Assembly Staining Painting


Conversion costs $75,000 $105,000 $36,000 $54,000
Total units produced 3,000 3,000 1,500 1,500
Conversion cost per unit $25 $35 $24 $36

2. Costs of Work Order 626 and Work Order 750 are as follows:

Work Order 626 Work Order 750


Number of windows 50 100
Direct materials costs $ 5,500 $ 9,800
Conversion costs:
Framing (50; 100 × $25) 1,250 2,500
Assembly (50; 100 × $35) 1,750 3,500
Staining (0; 100 × $24) – 2,400
Painting (50; 0 × $36) 1,800 –
Total costs $10,300 $18,200

Total cost per window $10,300 $18,200


50 = $206 100 = $182

17-30 (25 min.) Weighted-average method.


1. Solution Exhibit 17-30A shows equivalent units of work done to date
Direct materials 100 equivalent units
Conversion costs 97 equivalent units

2. & 3. Solution Exhibit 17-30B calculates cost per equivalent unit of work done to date,
summarizes the total Assembly Department costs for October 2001, and assigns these costs to units
completed (and transferred out) and to units in ending work in process using the weighted-average
method.

17-21
17-30 (Cont’d.)

SOLUTION EXHIBIT 17-30A


Steps 1 and 2: Summarize Output in Physical Units and Compute Equivalent Units
Weighted-Average Method of Process Costing, Assembly Department of Global Defense Inc. for
October 2001

(Step 1) (Step 2)
Physical Equivalent Units
Units Direct Conversion
Flow of Production (given) Materials Costs
Work in process beginning 20
Started during current period 80
To account for 100
Completed and transferred out
during current period 90 90 90
Work in process, ending* 10
10 × 100%; 10 × 70% 10 7
Accounted for 100
Work done to date 100 97
*Degree of completion in this department: direct materials, 100%; conversion costs, 70%.

SOLUTION EXHIBIT 17-30B


Steps 3, 4, and 5: Compute Equivalent Unit Costs, Summarize Total Costs to Account For, and
Assign Costs to Units Completed and to Units in Ending Work in Process
Weighted-Average Method of Process Costing, Assembly Department of Global Defense Inc. for
October 2001

Total
Production Direct Conversion
Costs Materials Costs
(Step 3) Work in process, beginning (given) $ 580,000 $ 460,000 $ 120,000
Costs added in current period (given) 2,935,000 2,000,000 935,000
Costs incurred to date $2,460,000 $1,055,000
Divide by equivalent units of work done to
date (Solution Exhibit 17-30A) ÷ 100 ÷ 97
Cost per equivalent unit of work done to date $ 24,600 $10,876.29
(Step 4) Total costs to account for $3,515,000
(Step 5) Assignment of costs:
Completed and transferred out (90 units) $3,192,866 (90* × $24,600) + (90* ×
$10,876.29)
Work in process, ending (10 units)
Direct materials 246,000 10† × $24,600
Conversion costs 76,134 7† × $10,876.29
Total work in process 322,134
Total costs accounted for $3,515,000

*Equivalent units completed and transferred out from Solution Exhibit 17-30A, Step 2.

Equivalent units in work in process, ending from Solution Exhibit 17-30A, Step 2.

17-22
17-31 (10 min.) Journal entries.
1. Work in Process––Assembly Department 2,000,000
Accounts Payable 2,000,000
Direct materials purchased and used in
production in October.

2. Work in Process––Assembly Department 935,000


Various accounts 935,000
Conversion costs incurred in October.

3. Work in Process––Testing Department 3,192,866


Work in Process––Assembly Department 3,192,866
Cost of goods completed and transferred out
in October from the Assembly Department
to the Testing Department.

Work in Process––Assembly Department


Beginning inventory, October 1 580,000 3. Transferred out to
1. Direct materials 2,000,000 Work in Process–Testing 3,192,866
2. Conversion costs 935,000
Ending Inventory, October 31 322,134

17-23
17-32 (20 min.) FIFO method.
1. The equivalent units of work done in the current period in the Assembly Department in
October 2001 for direct materials and conversion costs are shown in Solution Exhibit 17-32A.

2. The cost per equivalent unit of work done in the current period in the Assembly Department
in October 2001 for direct materials and conversion costs is calculated in Solution Exhibit 17-32B.

3. Solution Exhibit 17-32B summarizes the total Assembly Department costs for October 2001,
and assigns these costs to units completed (and transferred out) and units in ending work in process
under the FIFO method.

The cost per equivalent unit of beginning inventory and of work done in the current period
differ:

Beginning Work Done in


Inventory Current Period
Direct materials $23,000 ($460,000 ÷ 20 equiv. units) $25,000
Conversion costs $10,000 ($120,000 ÷ 12 equiv. units) $11,000

The following table summarizes the costs assigned to units completed and those still in
process under the weighted-average and FIFO process-costing methods for our example.

Weighted
Average FIFO
(Solution (Solution
Exhibit 17-30B) Exhibit 17-32B) Difference
Cost of units completed and transferred out $3,192,866 $3,188,000 –$4,866
Work in process, ending 322,134 327,000 +$4,866
Total costs accounted for $3,515,000 $3,515,000

The FIFO ending inventory is higher than the weighted-average ending inventory by $4,866.
This is because FIFO assumes that all the lower-cost prior-period units in work in process are the
first to be completed and transferred out while ending work in process consists of only the higher-
cost current-period units. The weighted-average method, however, smoothes out cost per
equivalent unit by assuming that more of the higher-cost units are completed and transferred out,
while some of the lower-cost units in beginning work in process are placed in ending work in
process. Hence, in this case, the weighted-average method results in a higher cost of units
completed and transferred out and a lower ending work-in-process inventory relative to FIFO.

17-24
17-32 (Cont’d.)

SOLUTION EXHIBIT 17-32A


Steps 1 and 2: Summarize Output in Physical Units and Compute Equivalent Units
FIFO Method of Process Costing, Assembly Department of Global Defense Inc. for October 2001

(Step 2)
(Step 1) Equivalent Units
Physical Direct Conversion
Flow of Production Units Materials Costs
Work in process, beginning (given) 20 (work done before current
Started during current period (given) 80 period)
To account for 100
Completed and transferred out during current
period:
From beginning work in process§ 20
20 × (100% − 100%); 20 × (100% − 60%) 0 8

Started and completed 70
70 ×100%, 70 × 100% 70 70
Work in process, ending* (given) 10
10 × 100%; 10 × 70% 10 7
Accounted for 100
Work done in current period only 80 85
§
Degree of completion in this department: direct materials, 100%; conversion costs, 60%.

90 physical units completed and transferred out minus 20 physical units completed and transferred out from
beginning work-in-process inventory.
*Degree of completion in this department: direct materials, 100%; conversion costs, 70%.

17-25
17-32 (Cont’d.)

SOLUTION EXHIBIT 17-32B


Steps 3, 4, and 5: Compute Equivalent Unit Costs, Summarize Total Costs to Account For, and
Assign Costs to Units Completed and to Units in Ending Work in Process
FIFO Method of Process Costing, Assembly Department of Global Defense Inc. for October 2001

Total
Production Direct Conversion
Costs Materials Costs
Work in process, beginning ($460,000 + $120,000) $ 580,000 (costs of work done before
current period)
(Step 3) Costs added in current period (given) 2,935,000 $2,000,000 $935,000
Divide by equivalent units of work done in
current period (Solution Exhibit 17-32A) ÷ 80 ÷ 85
Cost per equivalent unit of work done in current $ 25,000 $ 11,000
period
(Step 4) Total costs to account for $3,515,000
(Step 5) Assignment of costs:
Completed and transferred out (90 units):
Work in process, beginning (20 units) $ 580,000
Direct materials added in current period 0 0* × $25,000
Conversion costs added in current period 88,000 8* × $11,000
Total from beginning inventory 668,000
Started and completed (70 units) 2,520,000 (70†× $25,000) + (70† × $11,000)
Total costs of units completed & transf. out 3,188,000
Work in process, ending (10 units)
Direct materials 250,000 10# × $25,000
Conversion costs 77,000 7# × $11,000
Total work in process, ending 327,000
Total costs accounted for $3,515,000

*Equivalent units used to complete beginning work in process from Solution Exhibit 17-32A, Step 2.

Equivelant units started and completed from Solution Exhibit 17-32A, Step 2.
#
Equivalent units in work in process, ending from Solution Exhibit 17-32A, Step 2.

17-33 (30 min.) Transferred-in costs, weighted average. (Related to 17-30 to 17-32)
1. Transferred-in costs are 100% complete, and direct materials are 0% complete in both
beginning and ending work-in-process inventory. The reason is that transferred-in costs are always
100% complete as soon as they are transferred in from the Assembly Department to the Testing
Department. Direct materials in beginning or ending work in process for the Testing Department
are 0% complete because direct materials are added only when the testing process is 90% complete
and the units in beginning and ending work in process are only 70% and 60% complete
respectively.

2. Solution Exhibit 17-33A computes the equivalent units of work done to date in the Testing
Department for transferred-in costs, direct materials, and conversion costs.

3. Solution Exhibit 17-33B calculates the cost per equivalent unit of work done to date in the
Testing Department for transferred-in costs, direct materials, and conversion costs, summarizes
total Testing Department costs for October 2001, and assigns these costs to units completed and
transferred out and to units in ending work in process using the weighted-average method.

17-26
17-33 (Cont’d.)

4. Journal entries:
a. Work in Process––Testing Department 3,192,866
Work in Process––Assembly Department 3,192,866
Cost of goods completed and transferred out
during October from the Assembly
Department to the Testing Department

b. Finished Goods 9,303,123


Work in Process––Testing Department 9,303,123
Cost of goods completed and transferred out
during October from the Testing Department
to Finished Goods inventory

SOLUTION EXHIBIT 17-33A


Steps 1 and 2: Summarize Output in Physical Units and Compute Equivalent Units
Weighted-Average Method of Process Costing
Testing Department of Global Defense Inc. for October 2001

(Step 1) (Step 2)
Physical Equivalent Units
Units Transferred- Direct Conversion
Flow of Production (given) in Costs Materials Costs
Work in process beginning 30
Transferred in during current period 90
To account for 120
Completed and transferred out
during current period 105 105 105 105
Work in process, ending* 15
15 × 100%; 15 × 0%; 15 × 60% 15 0 9
Accounted for 120
Work done to date 120 105 114

*Degree of completion in this department: transferred-in costs, 100%; direct materials, 0%; conversion costs, 60%.

17-27
17-33 (Cont’d.)

SOLUTION EXHIBIT 17-33B


Steps 3, 4, and 5: Compute Equivalent Unit Costs, Summarize Total Costs to Account For, and
Assign Costs to Units Completed and to Units in Ending Work in Process
Weighted-Average Method of Process Costing
Testing Department of Global Defense Inc. for October 2001

Total
Production Transferred Direct Conversion
Costs -in Costs Materials Costs
(Step 3) Work in process, beginning (given) $1,317,600 $ 985,800 $ 0 $ 331,800
Costs added in current period (given) 8,658,866 3,192,866 3,885,000 1,581,000
Costs incurred to date $4,178,666 $3,885,000 $1,912,800
Divide by equivalent units of work done
to date (Solution Exhibit 17-33A) ÷ 120 ÷ 105 ÷ 114
Equivalent unit costs of work done to date $ 34,822.22 $ 37,000 $ 16,778.95
(Step 4) Total costs to account for $9,976,466
(Step 5) Assignment of costs:
Completed and transferred out (105 units) $9,303,123 (105*×
$34,822.22)+(105*×$37,000)+(105*×$16,778.95)
Work in process, ending (15 units)
Transferred-in costs 522,333 15†× $34,822.22
Direct materials 0 0† × $37,000
Conversion costs 151,010 9† × $16,778.95
Total work in process 673,343
Total costs accounted for $9,976,466

*Equivalent units completed and transferred out from Solution Exhibit 17-33A, Step 2.

Equivalent units in work in process, ending from Solution Exhibit 17-33A, Step 2.

17-34 (30 min.) Transferred-in costs, FIFO method. (Continuation of 17-33)


1. As explained in Problem 17-33, requirement 1, transferred-in costs are 100% complete and
direct materials are 0% complete in both beginning and ending work-in-process inventory.

2. The equivalent units of work done in October 2001 in the Testing Department for transferred-
in costs, direct materials, and conversion costs are calculated in Solution Exhibit 17-34A.

3. Solution Exhibit 17-34B calculates the cost per equivalent unit of work done in October 2001
in the Testing Department for transferred-in costs, direct materials, and conversion costs,
summarizes total Testing Department costs for October 2001, and assigns these costs to units
completed and transferred out and to units in ending work in process using the FIFO method.

4. Journal entries:
a. Work in Process––Testing Department 3,188,000
Work in Process––Assembly Department 3,188,000
Cost of goods completed and transferred out
during October from the Assembly Dept. to
the Testing Dept.

17-28
17-34 (Cont’d.)

b. Finished Goods 9,281,527


Work in Process––Testing Department 9,281,527
Cost of goods completed and transferred out
during October from the Testing Department
to Finished Goods inventory.

SOLUTION EXHIBIT 17-34A


Steps 1 and 2: Summarize Output in Physical Units and Compute Equivalent Units
FIFO Method of Process Costing
Testing Department of Global Defense Inc. for October 2001

(Step 2)
(Step 1) Equivalent Units
Physical Transferred- Direct Conversion
Flow of Production Units in Costs Materials Costs
Work in process, beginning (given) 30 (work done before current period)
Transferred-in during current period (given) 90
To account for 120
Completed and transferred out during current period:
From beginning work in process§ 30
30 × (100% − 100%); 30 × (100% − 0%);
30 × (100% − 70%) 0 30 9
Started and completed 75†
75 × 100%; 75 × 100%; 75 × 100% 75 75 75
Work in process, ending* (given) 15
15 × 100%; 15 × 0%; 15 × 60% 15 0 9
Accounted for 120
Work done in current period only 90 105 93

§
Degree of completion in this department: Transferred-in costs, 100%; direct materials, 0%; conversion costs, 70%.

105 physical units completed and transferred out minus 30 physical units completed and transferred out from
beginning work-in-process inventory.
*Degree of completion in this department: transferred-in costs, 100%; direct materials, 0%; conversion costs, 60%.

17-29
17-34 (Cont’d.)

SOLUTION EXHIBIT 17-34B


Steps 3, 4, and 5: Compute Equivalent Unit Costs, Summarize Total Costs to Account For,
and Assign Costs to Units Completed and to Units in Ending Work in Process
FIFO Method of Process Costing
Testing Department of Global Defense Inc. for October 2001

Total
Production Transferred Direct Conversion
Costs -in Costs Materials Costs
Work in process, beginning
($331,800 + $0 + $980,060)) $1,311,860 (Costs of work done before current period)
(Step 3) Costs added in current period (given) 8,654,000 $3,188,000 $3,885,000 $1,581,000
Divide by equivalent units of work done in
current period (Solution Exhibit 17-34A) ÷ 90 ÷ 105 ÷ 93
Cost per equiv. unit of work done in current $ 35,422.22 $ 37,000 $ 17,000
period
(Step 4) Total costs to account for $9,965,860
(Step 5) Assignment of costs:
Completed and transferred out (105 units):
Work in process, beginning (30 units) $1,311,860
Tfd-in costs added in current period 0 0*× $35,422.22
Dir materials added in current period 1,110,000 30*×$37,000
Conversion costs added in current period 153,000 9*×$17,000
Total from beginning inventory 2,574,860
Started and completed (75 units) 6,706,667 (75†×$35,422.22)+(75†×$37,000)+(75†×$17,000)
Total costs of units completed & tfd. out 9,281,527
Work in process, ending (15 units)
531,333 15 × $35,422.22
#
Transferred-in costs
Direct materials 0 0#×$37,000
Conversion costs 153,000 9#×$17,000
Total work in process, ending 684,333
Total costs accounted for $9,965,860

*Equivalent units used to complete beginning work in process from Solution Exhibit 17-34A, Step 2.

Equivalent units started and completed from Solution Exhibit 17-34A, Step 2.
#
Equivalent units in work in process, ending from Solution Exhibit 17-34A, Step 2.

17-30
17-35 (25 min.) Weighted-average method.
Solution Exhibit 17-35A shows equivalent units of work done to date of

Direct materials 2,500 equivalent units


Conversion costs 2,125 equivalent units

Note that direct materials are added when the Forming Department process is 10% complete.
Both the beginning and ending work in process are more than 10% complete and hence are 100%
complete with respect to direct materials.

Solution Exhibit 17-35B calculates cost per equivalent unit of work done to date for direct
materials and conversion costs, summarizes the total Forming Department costs for April 2001, and
assigns these costs to units completed (and transferred out), and to units in ending work in process
using the weighted-average method.

SOLUTION EXHIBIT 35A


Steps 1 and 2: Summarize Output in Physical Units and Compute Equivalent Units
Weighted-Average Method of Process Costing, Forming Department of Star Toys for April 2001

(Step 1) (Step 2)
Physical Equivalent Units
Units Direct Conversion
Flow of Production (given) Materials Costs
Work in process beginning 300
Started during current period 2,200
To account for 2,500
Completed and transferred out
during current period 2,000 2,000 2,000
Work in process, ending* 500
500 × 100%; 500 × 25% 500 125
Accounted for 2,500
Work done to date 2,500 2,125

*Degree of completion in this department: direct materials, 100%; conversion costs, 25%.

17-31
17-35 (Cont’d.)

SOLUTION EXHIBIT 35B


Steps 3, 4, and 5: Compute Equivalent Unit Costs, Summarize Total Costs to Account For, and
Assign Costs to Units Completed and to Units in Ending Work in Process
Weighted-Average Method of Process Costing, Forming Department of Star Toys for April 2001

Total
Production Direct Conversion
Costs Materials Costs
(Step 3) Work in process, beginning (given) $ 9,625 $ 7,500 $ 2,125
Costs added in current period (given) 112,500 70,000 42,500
Costs incurred to date $77,500 $44,625
Divide by equivalent units of work done to
date (Solution Exhibit 17-35A) ÷ 2,500 ÷ 2,125
Cost per equivalent unit of work done to date $ 31 $ 21
(Step 4) Total costs to account for $122,125
(Step 5) Assignment of costs:
Completed and transferred out (2,000 units) $104,000 2,000* × $31 + 2,000* × $21
Work in process, ending (500 units)
Direct materials 15,500 500† × $31
Conversion costs 2,625 125† × $21
Total work in process 18,125
Total costs accounted for $122,125

*Equivalent units completed and transferred out from Solution Exhibit 17-35A, Step 2.

Equivalent units in work in process, ending from Solution Exhibit 17-35A, Step 2.

17-36 (5–10 min.) Journal entries. (Continuation of 17-35)


1. Work in Process––Forming Department 70,000
Accounts Payable 70,000
To record direct materials purchased and
used in production during April

2. Work in Process––Forming Department 42,500


Various Accounts 42,500
To record Forming Department conversion
costs for April

3. Work in Process––Finishing Department 104,000


Work in Process––Forming Department 104,000
To record cost of goods completed and transferred
out in April from the Forming Department
to the Finishing Department

17-32
17-36 (Cont’d.)

Work in Process––Forming Department


Beginning inventory, April 1 9,625 3. Transferred out to
1. Direct materials 70,000 Work in Process––Finishing 104,000
2. Conversion costs 42,500
Ending inventory, April 30 18,125

17-37 (20 min.) FIFO method. (Continuation of 17-35)


The equivalent units of work done in April 2001 in the Forming Department for direct
materials and conversion costs are shown in Solution Exhibit 17-37A.

Solution Exhibit 17-37B calculates the cost per equivalent unit of work done in April 2001 in
the Forming Department for direct materials and conversion costs, summarizes the total Forming
Department costs for April 2001, and assigns these costs to units completed (and transferred out)
and to units in ending work in process under the FIFO method.

The equivalent units of work done in beginning inventory is: direct materials, 300 × 100% =
300; and conversion costs 300 × 40% = 120. The cost per equivalent unit of beginning inventory
and of work done in the current period are:

Work Done in
Current Period
Beginning (Calculated Under
Inventory FIFO Method)
Direct materials $25 ($7,500 ÷ 300) $31.818
Conversion costs $17.708 ($2,125 ÷ 120) $21.197

The following table summarizes the costs assigned to units completed and those still in
process under the weighted-average and FIFO process-costing methods for our example.

Weighted
Average FIFO
(Solution (Solution
Exhibit 17-35B) Exhibit 17-37B) Difference
Cost of units completed and transferred out $104,000 $103,566 –$434
Work in process, ending 18,125 18,559 +$434
Total costs accounted for $122,125 $122,125

The FIFO ending inventory is higher than the weighted-average ending inventory by $434.
This is because FIFO assumes that all the lower-cost prior-period units in work in process are the
first to be completed and transferred out while ending work in process consists of only the higher-
cost current-period units. The weighted-average method, however, smoothes out cost per
equivalent unit by assuming that more of the higher-cost units are completed and transferred out,
while some of the lower-cost units in beginning work in process are placed in ending work in
process. Hence, in this case, the weighted-average method results in a higher cost of units
completed and transferred out and a lower ending work-in-process inventory relative to FIFO.
17-33
17-37 (Cont’d.)

SOLUTION EXHIBIT 17-37A


Steps 1 and 2: Summarize Output in Physical Units and Compute Equivalent Units
FIFO Method of Process Costing, Forming Department of Star Toys for April 2001

(Step 2)
(Step 1) Equivalent Units
Physical Direct Conversion
Flow of Production Units Materials Costs
Work in process, beginning (given) 300 (work done before current period)
Started during current period (given) 2,200
To account for 2,500
Completed and transferred out during current period:
From beginning work in process§ 300
300 × (100% − 100%); 300 × (100% − 40%) 0 180

Started and completed 1,700
1,700 × 100%; 1,700 × 100% 1,700 1,700
Work in process, ending* (given) 500
500 × 100%; 500 × 25% 500 125
Accounted for 2,500
Work done in current period only 2,200 2,005
§
Degree of completion in this department: direct materials, 100%; conversion costs, 40%.

2,000 physical units completed and transferred out minus 300 physical units completed and transferred out from
beginning work-in-process inventory.
*Degree of completion in this department: direct materials, 100%; conversion costs, 25%.

17-34
17-37 (Cont’d.)

SOLUTION EXHIBIT 17-37B


Steps 3, 4, and 5: Compute Equivalent Unit Costs, Summarize Total Costs to Account For, and
Assign Costs to Units Completed and to Units in Ending Work in Process
FIFO Method of Process Costing, Forming Department of Star Toys for April 2001

Total
Production Direct Conversion
Costs Materials Costs
Work in process, beginning
(given: $7,500 + $2,125) $ 9,625 (work done before current period)
(Step 3) Costs added in current period (given) 112,500 $70,000 $42,500
Divide by equivalent units of work done in
current period (Exhibit 17-37A) ÷ 2,200 ÷ 2,005
Cost per equivalent unit of work done in current
period $31.818 $21.197
(Step 4) Total costs to account for $122,125
(Step 5) Assignment of costs:
Completed and transferred out (2,000 units):
Work in process, beginning (300 units) $ 9,625
Direct materials added in current period 0 0* × $31.818
Conversion costs added in current period 3,815 180* × $21.197
Total from beginning inventory 13,440
Started and completed (1,700 units) 90,126 (1,700† × $31.818) + (1,700† × $21.197)
Total costs of units completed & tsfd. out 103,566
Work in process, ending (100 units)
Direct materials 15,909 500# × $31,818
Conversion costs 2,650 125# × $21.197
Total work in process, ending 18,559
Total costs accounted for $122,125

*Equivalent units used to complete beginning work in process from Solution Exhibit 17-37A, Step 2.

Equivelant units started and completed from Solution Exhibit 17-37A, Step 2.
#
Equivalent units in work in process, ending from Solution Exhibit 17-37A, Step 2.

17-35
17-38 (30 min.) Transferred-in costs, weighted average.
(Related to 17-35 through 17-37)

1. Solution Exhibit 17-38A computes the equivalent units of work done to date in the Finishing
Department for transferred-in costs, direct materials, and conversion costs.

Solution Exhibit 17-38B calculates the cost per equivalent unit of work done to date in the
Finishing Department for transferred-in costs, direct materials, and conversion costs, summarizes
total Finishing Department costs for April 2001, and assigns these costs to units completed and
transferred out and to units in ending work in process using the weighted-average method.

2. Journal entries:
a. Work in Process––Finishing Department 104,000
Work in Process––Forming Department 104,000
Cost of goods completed and transferred out
during April from the Forming Department
to the Finishing Department

b. Finished Goods 168,552


Work in Process––Finishing Department 168,552
Cost of goods completed and transferred out
during April from the Finishing Department
to Finished Goods inventory

SOLUTION EXHIBIT 17-38A


Steps 1 and 2: Summarize Output in Physical Units and Compute Equivalent Units
Weighted-Average Method of Process Costing
Finishing Department of Star Toys for April 2001

(Step 1) (Step 2)
Physical Equivalent Units
Units Transferred- Direct Conversion
Flow of Production (given) in Costs Materials Costs
Work in process beginning 500
Transferred in during current period 2,000
To account for 2,500
Completed and transferred out
during current period 2,100 2,100 2,100 2,100
Work in process, ending* 400
400 × 100%; 400 × 0%; 400 × 30% 400 0 120
Accounted for 2,500
Work done to date 2,500 2,100 2,220

*Degree of completion in this department: transferred-in costs, 100%; direct materials, 0%; conversion costs, 30%.

17-36
17-38 (Cont’d.)

SOLUTION EXHIBIT 17-38B


Steps 3, 4, and 5: Compute Equivalent Unit Costs, Summarize Total Costs to Account For, and
Assign Costs to Units Completed and to Units in Ending Work in Process
Weighted-Average Method of Process Costing
Finishing Department of Star Toys for April 2001

Total
Production Transferred Direct Conversion
Costs -in Costs Materials Costs
(Step 3) Work in process, beginning (given) $ 25,000 $ 17,750 $ 0 $ 7,250
Costs added in current period (given) 165,500 104,000 23,100 38,400
Costs incurred to date $121,750 $23,100 $45,650
Divide by equivalent units of work done
to date (Solution Exhibit 17-38A) ÷ 2,500 ÷ 2,100 ÷ 2,220
Equivalent unit costs of work done to date $ 48.70 $ 11 $20.563
(Step 4) Total costs to account for $190,500
(Step 5) Assignment of costs:
Completed and transferred out (2,100 units) $168,552 (2,100*×$48.70)+(2,100* × $11)+(2,100*×
$20.563)
Work in process, ending (400 units)
Transferred-in costs 19,480 400†×$48.70
Direct materials 0 0† × $11
Conversion costs 2,468 120† × $20.563
Total work in process 21,948
Total costs accounted for $190,500

*Equivalent units completed and transferred out from Solution Exhibit 17-38A, Step 2.

Equivalent units in work in process, ending from Solution Exhibit 17-38A, Step 2.

17-39 (30 min.) Transferred-in costs, FIFO method. (Continuation of 17-38)


1. Solution Exhibit 17-39A calculates the equivalent units of work done in April 2001 in the
Finishing Department for transferred-in costs, direct materials, and conversion costs.

Solution Exhibit 17-37B calculates the cost per equivalent unit of work done in April 2001 in
the Finishing Department for transferred-in costs, direct materials, and conversion costs,
summarizes total Finishing Department costs for April 2001, and assigns these costs to units
completed and transferred out and to units in ending work in process using the FIFO method.

Journal entries:
a. Work in Process––Finishing Department 103,566
Work in Process––Forming Department 103,566
Cost of goods completed and transferred out
during April from the Forming Dept. to
the Finishing Dept.

17-37
17-39 (Cont’d.)

b. Finished Goods 166,723


Work in Process––Finishing Department 166,723
Cost of goods completed and transferred out
during April from the Finishing Department
to Finished Goods inventory.

2. The equivalent units of work done in beginning inventory is: Transferred-in costs, 500 ×
100% = 500; direct materials, 500 × 0% = 0; and conversion costs, 500 × 60% = 300. The cost
per equivalent unit of beginning inventory and of work done in the current period are:

Beginning Work Done in


Inventory Current Period
Transferred-in costs (weighted average) $35.50 ($17,750 ÷ $52 ($104,000 ÷ 2,000)
Transferred-in costs (FIFO) 500) $51.783 ($103,566 ÷ 2,000)
Direct materials $35.04 ($17,520 ÷ $11
Conversion costs 500) $20

$24.167 ($7,250 ÷
300)

The following table summarizes the costs assigned to units completed and those still in
process under the weighted-average and FIFO process-costing methods for our example.

Weighted
Average FIFO
(Solution (Solution
Exhibit 17-38B) Exhibit 17-39B) Difference
Cost of units completed and transferred out $168,552 $166,723 –$1,829
Work in process, ending 21,948 23,113 +$1,165
Total costs accounted for $190,500 $189,836

The FIFO ending inventory is higher than the weighted-average ending inventory by $1,165.
This is because FIFO assumes that all the lower-cost prior-period units in work in process
(resulting from the lower transferred-in costs in beginning inventory) are the first to be completed
and transferred out while ending work in process consists of only the higher-cost current-period
units. The weighted-average method, however, smoothes out cost per equivalent unit by assuming
that more of the higher-cost units are completed and transferred out, while some of the lower-cost
units in beginning work in process are placed in ending work in process. Hence, in this case, the
weighted-average method results in a higher cost of units completed and transferred out and a
lower ending work-in-process inventory relative to FIFO. Note that the difference in cost of units
completed and transferred out (–$1,829) does not fully offset the difference in ending work-in-
process inventory (+$1,165). This is because the FIFO and weighted average methods result in
different values for transferred-in costs with respect to both beginning inventory and costs
transferred in during the period.

17-38
17-39 (Cont’d.)

SOLUTION EXHIBIT 17-39A


Steps 1 and 2: Summarize Output in Physical Units and Compute Equivalent Units
FIFO Method of Process Costing
Finishing Department of Star Toys for April 2001

(Step 2)
(Step 1) Equivalent Units
Physical Transferred- Direct Conversion
Flow of Production Units in Costs Materials Costs
Work in process, beginning (given) 500 (work done before current period)
Transferred-in during current period (given) 2,000
To account for 2,500
Completed and transferred out during current period:
From beginning work in process§ 500
500 × (100% − 100%); 500 × (100% − 0%);
500 × (100% − 60%) 0 500 200

Started and completed 1,600
1,600 × 100%; 1,600 × 100%; 1,600 × 100% 1,600 1,600 1,600
Work in process, ending* (given) 400
400 × 100%; 400 × 0%; 400 × 30% 400 0 120
Accounted for 2,500
Work done in current period only 2,000 2,100 1,920

§
Degree of completion in this department: Transferred-in costs, 100%; direct materials, 0%;
conversion costs, 60%.

2,100 physical units completed and transferred out minus 500 physical units completed and transferred out from
beginning work-in-process inventory.
*Degree of completion in this department: transferred-in costs, 100%; direct materials, 0%; conversion costs, 30%.

17-39
17-39 (Cont’d.)

SOLUTION EXHIBIT 17-39B


Steps 3, 4, and 5: Compute Equivalent Unit Costs, Summarize Total Costs to Account For,
and Assign Costs to Units Completed and to Units in Ending Work in Process
FIFO Method of Process Costing
Finishing Department of Star Toys for April 2001

Total
Production Transferred Direct Conversion
Costs -in Costs Materials Costs
Work in process, beginning (given)
($17,520 + $0 + $7,250) $ 24,770 (Costs of work done before current period)
(Step 3) Costs added in current period (given) 165,066 $103,566 $23,100 $38,400
Divide by equivalent units of work done in
current period (Solution Exhibit 17-39A) ÷ 2,000 ÷ 2,100 ÷ 1,920
Cost per equiv. unit of work done in current period
$ 51.783 $ 11 $ 20
(Step 4) Total costs to account for $189,836
(Step 5) Assignment of costs:
Completed and transferred out (2,100 units):
Work in process, beginning (500 units) $ 24,770
Transferred-in costs added in current period 0 0*×$51.783
Direct materials added in current period 5,500 500*×$11
Conversion costs added in current period 4,000 200*×$20
Total from beginning inventory 34,270
Started and completed (1,600 units) 132,453 (1,600† × $51.783)+(1,600†×$11)+(1,600†×$20)
Total costs of units completed & tfd. out 166,723
Work in process, ending (400 units)
20,713 400 ×$51.783
#
Transferred-in costs
Direct materials 0 0* × $11
Conversion costs 2,400 120* × $20
Total work in process, ending 23,113
Total costs accounted for $189,836

*Equivalent units used to complete beginning work in process from Solution Exhibit 17-39A, Step 2.

Equivalent units started and completed from Solution Exhibit 17-39A, Step 2.
#
Equivalent units in work in process, ending from Solution Exhibit 17-39A, Step 2.

17-40
17-40 (45 min.) Transferred-in costs, weighted-average and FIFO.
1. Solution Exhibit 17-40A computes the equivalent units of work done to date in the Drying
and Packaging Department for transferred-in costs, direct materials, and conversion costs. Solution
Exhibit 17-40B calculates the cost per equivalent unit of work done to date in the Drying and
Packaging Department for transferred-in costs, direct materials, and conversion costs, summarizes
total Drying and Packaging Department costs for week 37, and assigns these costs to units
completed and transferred out and to units in ending work in process using the weighted-average
method.

2. Solution Exhibit 17-40C computes the equivalent units of work done in week 37 in the
Drying and Packaging Department for transferred-in costs, direct materials, and conversion costs.
Solution Exhibit 17-40D calculates the cost per equivalent unit of work done in week 37 in the
Drying and Packaging Department for transferred-in costs, direct materials, and conversion costs,
summarizes total Drying and Packaging Department costs for week 37, and assigns these costs to
units completed and transferred out and to units in ending work in process using the FIFO method.

SOLUTION EXHIBIT 17-40A


Steps 1 and 2: Summarize Output in Physical Units and Compute Equivalent Units
Weighted-Average Method of Process Costing
Drying and Packaging Department of Frito-Lay Inc. for Week 37

(Step 1) (Step 2)
Physical Equivalent Units
Units Transferred- Direct Conversion
Flow of Production (given) in Costs Materials Costs
Work in process beginning 1,250
Transferred in during current period 5,000
To account for 6,250
Completed and transferred out
during current period 5,250 5,250 5,250 5,250
Work in process, ending* 1,000
1,000 × 100%; 1,000 × 0%; 1,000 × 40% 1,000 0 400
Accounted for 6,250
Work done to date 6,250 5,250 5,650

*Degree of completion in this department: transferred-in costs, 100%; direct materials, 0%; conversion costs, 40%.

17-41
17-40 (Cont’d.)

SOLUTION EXHIBIT 17-40B


Steps 3, 4, and 5: Compute Equivalent Unit Costs, Summarize Total Costs to Account For, and
Assign Costs to Units Completed and to Units in Ending Work in Process
Weighted-Average Method of Process Costing
Drying and Packaging Department of Frito-Lay Inc. for Week 37

Total
Production Transferred Direct Conversion
Costs -in Costs Materials Costs
(Step 3) Work in process, beginning (given) $ 38,060 $ 29,000 $ 0 $ 9,060
Costs added in current period (given) 159,600 96,000 25,200 38,400
Costs incurred to date $125,000 $25,200 $47,460
Divide by equivalent units of work done
to date (Solution Exhibit 17-40A) ÷ 6,250 ÷ 5,250 ÷ 5,650
Equivalent unit costs of work done to date $ 20 $ 4.80 $ 8.40
(Step 4) Total costs to account for $197,660
(Step 5) Assignment of costs:
Completed and transferred out (5,250 units) $174,300 5,250*× $20 + 5,250*× $4.80 + 5,250*×
$8.40
Work in process, ending (1,000 units)
Transferred-in costs 20,000 1,000†× $20
Direct materials 0 0† × $480
Conversion costs 3,360 400† × $8.40
Total work in process 23,360
Total costs accounted for $197,660

*Equivalent units completed and transferred out from Solution Exhibit 17-40A, Step 2.
†Equivalent units in work in process, ending from Solution Exhibit 17-40A, Step 2.

17-42
17-40 (Cont’d.)

SOLUTION EXHIBIT 40C


Steps 1 and 2: Summarize Output in Physical Units and Compute Equivalent Units
FIFO Method of Process Costing
Drying and Packaging Department of Frito-Lay Inc. for Week 37

(Step 2)
(Step 1) Equivalent Units
Physical Transferred- Direct Conversion
Flow of Production Units in Costs Materials Costs
Work in process, beginning (given) 1,250 (work done before current period)
Transferred-in during current period (given) 5,000
To account for 6,250
Completed and transferred out during current period:
From beginning work in process§ 1,250
1,250 × (100% − 100%); 1,250 × (100% − 0%);
1,250 × (100% − 80%) 0 1,250 250

Started and completed 4,000
4,000 × 100%; 4,000 × 100%; 4,000 × 100% 4,000 4,000 4,000
Work in process, ending* (given) 1,000
1,000 × 100%; 1,000 × 0%; 1,000 × 40% 1,000 0 400
Accounted for 6,250
Work done in current period only 5,000 5,250 4,650

§
Degree of completion in this department: Transferred-in costs, 100%; direct materials, 0%; conversion costs, 80%.

5,250 physical units completed and transferred out minus 1,250 physical units completed and transferred out from
beginning work-in-process inventory.
*Degree of completion in this department: transferred-in costs, 100%; direct materials, 0%; conversion costs, 40%.

17-43
17-40 (Cont’d.)

SOLUTION EXHIBIT 17-40D


Steps 3, 4, and 5: Compute Equivalent Unit Costs, Summarize Total Costs to Account For,
and Assign Costs to Units Completed and to Units in Ending Work in Process
FIFO Method of Process Costing
Drying and Packaging Department of Frito-Lay Inc. for Week 37

Total
Production Transferred Direct Conversion
Costs -in Costs Materials Costs
Work in process, beginning
($9,060 + $0 + $28,920) $ 37,980 (Costs of work done before current period)
(Step 3) Costs added in current period (given) 157,600 $94,000 $25,200 $38,400
Divide by equivalent units of work done in
current period (Solution Exhibit 17-40C) ÷ 5,000 ÷ 5,250 ÷ 4,650
Cost per equiv. unit of work done in current $ 18.80 $ 4.80 $ 8.258
period
(Step 4) Total costs to account for $195,580
(Step 5) Assignment of costs:
Completed and transferred out (5,250 units):
Work in process, beginning (1,250 units) $ 37,980
Transferred-in costs added in current period 0 0*× $18.80
Direct materials added in current period 6,000 1,250*× $4.80
Conversion costs added in current period 2,065 250*× $8.258
Total from beginning inventory 46,045
Started and completed (4,000 units) 127,432 (4,000†× $18.80)+(4,000†× $4.80) +(4,000†×$8.258)
Total costs of units completed & tfd. out 173,477
Work in process, ending (1,000 units)
18,800 1,000 ×$18.80
#
Transferred-in costs
Direct materials 0 0#×$4.80
Conversion costs 3,303 400#×$8.258
Total work in process, ending 22,103
Total costs accounted for $195,580

*Equivalent units used to complete beginning work in process from Solution Exhibit 17-40C, Step 2.

Equivalent units started and completed from Solution Exhibit 17-40C, Step 2.
#
Equivalent units in work in process, ending from Solution Exhibit 17-40C, Step 2.

17-44
17-41 (25 min.) Standard costing with beginning and ending work in
process.
1. Solution Exhibit 17-41A shows equivalent units of work done in the current period of

Direct materials 20,000 equivalent units


Conversion costs 18,700 equivalent units

Solution Exhibit 17-41B uses the standard costs of work done in the current period: direct
materials, $6; conversion costs, $3; to summarize the total Cooking Department costs for May
2001, and assign these costs to units completed (and transferred out) and to units in ending work in
process using the standard costing method.

2. May variances for direct materials and conversion costs are as follows:

Direct Materials Conversion Costs


Output in equivalent units for May 20,000 18,700
Standard costs of May month's output
Direct materials, $6; Conversion costs, $3 $120,000 $56,100
Actual costs incurred during May (given) 125,000 57,000
Variances $ 5,000 U $ 900 U

SOLUTION EXHIBIT 17-41A


Steps 1 and 2: Summarize Output in Physical Units and Compute Equivalent Units
Use of Standard Costs in Process Costing, Cooking Department of Victoria Corporation. for May
2001

(Step 2)
(Step 1) Equivalent Units
Physical Direct Conversion
Flow of Production Units Materials Costs
Work in process, beginning (given) 3,000
Started during current period (given) 20,000
To account for 23,000
Completed and transferred out during current period:
From beginning work in process§ 3,000
3,000 × (100% − 100%); 3,000 × (100% − 60%) 0 1,200
Started and completed 15,000||
15,000 × 100%; 15,000 × 100% 15,000 15,000
Work in process, ending* (given) 5,000
5,000 × 100%; 5,000 × 50% 5,000 2,500
Accounted for 23,000
Work done in current period only 20,000 18,700

§
Degree of completion in this department: direct materials, 100%; conversions, 60%.
||
18,000 physical units completed and transferred out minus 3,000 physical units completed and transferred out from
beginning work-in-process inventory.
*Degree of completion in this department: direct materials, 100%; conversion costs, 50%.

17-45
17-41 (Cont’d.)

SOLUTION EXHIBIT 17-41B


Steps 3, 4, and 5: Compute Equivalent Unit Costs, Summarize Total Costs to Account For, and
Assign Costs to Units Completed and to Units in Ending Work in Process
Use of Standard Costs in Process Costing, Cooking Department of Victoria Corporation for May
2001.

Total
Production Direct Conversion
Costs Materials Costs
(Step 3) Standard cost per equivalent unit (given) $ 6 $ 3
Work in process, beginning (given)
Direct materials, 3,000 × $6; Conversion costs, 1,800 × $3 $ 23,400
Costs added in current period at standard costs
Direct materials, 20,000 × $6; Conversion costs, 176,100 120,000 56,100
18,700 × $3
(Step 4) Costs to account for $199,500
(Step 5) Assignment of costs at standard costs:
Completed and transferred out (18,000 units):
Work in process, beginning (3,000 units) $ 23,400
Direct materials added in current period 0 0* × $6
Conversion costs added in current period 3,600 1,200* × $3
Total from beginning inventory 27,000
Started and completed (15,000 units) 135,000 (15,000†× $6)+(15,000†×$3)
Total costs of units transferred out 162,000

Work in process, ending (5,000 units)


Direct materials 30,000 5,000# × $6
Conversion costs 7,500 2,500# × $3
Total work in process, ending 37,500
Total costs accounted for $199,500
Summary of variances for current performance
Costs added in current period at standard prices (see step 3 above) $120,000 $56,100
Actual costs incurred (given) 125,000 57,000
Variance $ 5,000 $ 900 U
U

*Equivalent units to complete beginning work Solution Exhibit 17-41A, Step 2.



Equivalent units started and completed from Solution Exhibit 17-41A, Step 2.
#
Equivalent units in work in process, ending from Solution Exhibit 17-41A, Step 2.

17-46
17-42 (15–30 min.) Operation costing, equivalent units.
1. Materials and conversion costs of each operation, the total units produced, and the material
and conversion cost per unit for the month of May are as follows:

Extrusion Form Trim Finish


Units produced 16,000 11,000 5,000 2,000
Materials costs $192,000 $ 44,000 $15,000 $12,000
Materials cost per unit 12.00 4.00 3.00 6.00
Conversion costs* 392,000 132,000 69,000 42,000
Conversion cost per unit 24.50 12.00 13.80 21.00

*Direct manufacturing labor and manufacturing overhead

The unit cost and total costs in May for each product are as follows:

Plastic Standard Deluxe Executive


Cost Elements Sheets Model Model Model
Extrusion materials (EM) $ 12.00 $ 12.00 $ 12.00 $ 12.00
Form materials (FM) – 4.00 4.00 4.00
Trim materials (TM) – – 3.00 3.00
Finish materials – – – 6.00
Extrusion conversion (EC) 24.50 24.50 24.50 24.50
Form conversion (FC) – 12.00 12.00 12.00
Trim conversion (TC) – – 13.80 13.80
Finish conversion – – – 21.00
Total unit cost $ 36.50 $ 52.50 $ 69.30 $ 96.30
Multiply by units produced × 5,000 × 6,000 × 3,000 × 2,000
Total product costs $182,500 $315,000 $207,900 $192,600

17-47
17-42 (Cont’d.)

2. Equivalent Units
Materials Conversion Costs
Percent Percent
Entering trim operation: Complete Quantity Complete Quantity
2,000 Deluxe units 100 2,000 100 2,000
1,000 Deluxe units 100 1,000 60 600
2,000 Executive units 100 2,000 100 2,000
Total equivalent units 5,000 4,600

Conversion cost per equivalent unit in trim operation:


($30,000 + $39,000) ÷ 4,600 units = $15 per unit

Materials cost per equivalent unit in trim operation (as before)


$15,000 ÷ 5,000 units = $3 per unit

Equivalent
Unit Cost Units Total Costs
Deluxe model work-in-process costs at the
trim operation
Extrusion material
(100% complete when transferred in) $12.00 1,000 $12,000
Extrusion conversion
(100% complete when transferred in) 24.50 1,000 24,500
Form material
(100% complete when transferred in) 4.00 1,000 4,000
Form conversion
(100% complete when transferred in) 12.00 1,000 12,000
Trim material (100% complete) 3.00 1,000 3,000
Trim conversion (60% complete) 15.00 600 9,000
Work-in-process costs $70.50 $64,500

17-43 (20–25 min.) Equivalent-unit computations, benchmarking, ethics.


1. The reported monthly cost per equivalent unit of either direct materials or conversion costs is
lower when the plant manager overestimates the percentage of completion of ending work in
process; the overestimate increases the denominator and, thus, decreases the cost per equivalent
whole unit. By reporting a lower cost per equivalent unit, the plant manager increases the
likelihood of being in the top three ranked plants for the benchmarking comparisons.

A plant manager can manipulate the monthly estimate of percentage of completion by


understating the number of steps yet to be undertaken before a suit becomes a finished good.

17-48
17-43 (Cont’d.)

2. There are several options available:


a. Major shows the letters to the line executive to whom the plant managers report in a
hard-line way (say, the corporate manager of manufacturing). This approach is
appropriate if the letters allege it is the plant managers who are manipulating the
percentage of completion estimates.
b. Major, herself, shows the letters to the plant managers. This approach runs the danger
of the plant managers ignoring or reacting negatively to someone to whom they do not
report in a line-mode questioning their behavior. Much will depend here on how Major
raises the issue. Unsigned letters need not have much credibility unless they contain
specific details.
c. Major discusses the letters with the appropriate plant controllers without including the
plant manager in the discussion. While the plant controller has responsibility for
preparing the accounting reports from the plant, the plant controller, in most cases,
reports hard-line to the plant manager. If this reporting relationship exists, Major may
create a conflict of interest situation for the plant controller. Only if the plant controller
reports hard-line to the corporate controller and dotted-line to the plant manager should
Major show the letters to the plant controller without simultaneously showing them to
the plant manager.
3. The plant controller's ethical responsibilities to Major and to Leisure Suits should be the
same. These include:
• Competence: The plant controller is expected to have the competence to make
equivalent unit computations. This competence does not always extend to making
estimates of the percentage of completion of a product. In Leisure Suits's case,
however, the products are probably easy to understand and observe. Hence, a plant
controller could obtain reasonably reliable evidence on percentage of completion at a
specific plant.
• Objectivity: The plant controller should not allow the possibility of the division being
written up favorably in the company newsletter to influence the way equivalent unit
costs are computed.

4. Major could seek evidence on possible manipulations as follows:


a. Have plant controllers report detailed breakdowns on the stages of production and then
conduct end-of-month audits to verify the actual stages completed for ending work in
process.
b. Examine trends over time in ending work in process. Divisions that report low amounts
of ending work in process relative to total production are not likely to be able to greatly
affect equivalent cost amounts by manipulating percentage of completion estimates.
Divisions that show sizable quantities of total production in ending work in process are
more likely to be able to manipulate equivalent cost computations by manipulating
percentage of completion estimates.

17-49
17-44 (45 min.) Transferred-in costs, equivalent unit costs, working
backwards.
1. The equivalent units of work done in the current period for each cost category are computed
in Solution Exhibit 17-44B using data on costs added in current period and cost per equivalent unit
of work done in current period.

Transferred- Direct Conversion


In Costs Materials Costs
Costs added in current period $58,500 $57,000 $57,200
Divided by equivalent units of work
done in current period ÷ $6.50 ÷ $3 ÷ $5.20
Equivalent units of work done
in current period 9,000 19,000 11,000

2. Physical units completed Physical units in beginning Physical Physical units in ending
= + −
and transferred out work in process units added work in process
= 15,000 + 9,000 − 5,000 = 19,000

Solution Exhibit 17-44A shows the equivalent units of work done in June to complete
beginning work in process and the equivalent units of work done in June to start and complete
4,000 units. Note that direct materials in beginning work in process is 0% complete because it is
added only when the process is 80% complete and the beginning WIP is only 60% complete. We
had calculated the total equivalent units of work done in the current period in requirement 1:
transferred-in costs, 9,000; direct materials, 19,000; and conversion costs, 11,000. The missing
number is the equivalent units of each cost category in ending work in process (see Solution Exhibit
17-44A).

Transferred-in costs 5,000


Direct materials 0
Conversion costs 1,000

3. Percentage of completion for each cost category in ending work in process can be calculated
by dividing equivalent units in ending work in process for each cost category by physical units of
work in process (5,000 units).

Transferred-in costs 5,000 ÷ 5,000 = 100%


Direct materials 0 ÷ 5,000 = 0%
Conversion costs 1,000 ÷ 5,000 = 20%

4. Solution Exhibit 17-44B summarizes the total costs to account for, and assigns these costs to
units completed and transferred out and to units in ending work in process.

17-50
17-44 (Cont’d.)

SOLUTION EXHIBIT 17-44A


Steps 1 and 2: Summarize Output in Physical Units and Compute Equivalent Units
FIFO Method of Process Costing
Thermo-assembly Department of Lennox Plastics for September 2001

(Step 2)
(Step 1) Equivalent Units
Physical Transferred- Direct Conversion
Flow of Production Units in Costs Materials Costs
Work in process, beginning (given) 15,000 (work done before current period)
Transferred-in during current period (given) 9,000
To account for 24,000
Completed and transferred out during current period:
From beginning work in process§ 15,000
15,000 × (100% − 100%); 15,000 × (100% − 0%);
15,000 × (100% − 60%) 0 15,000 6,000
Started and completed 4,000†
4,000 × 100%; 4,000 × 100%; 4,000 × 100% 4,000 4,000 4,000
Work in process, ending* (given) 5,000
5,000 × 100%; 5,000 × 0%; 5,000 × 20% 5,000 0 1,000
Accounted for 24,000
Work done in current period only
(from Solution Exhibit 17-44B) 9,000 19,000 11,000

§
Degree of completion in this department: Transferred-in costs, 100%; direct materials, 0%;
conversion costs, 60%.

19,000 physical units completed and transferred out minus 15,000 physical units completed and transferred out
from beginning work-in-process inventory.
*Degree of completion in this department: transferred-in costs, 100%; direct materials, 0%; conversion costs, 80%.

17-51
17-44 (Cont’d.)

SOLUTION EXHIBIT 17-44B


Steps 3, 4, and 5: Compute Equivalent Unit Costs, Summarize Total Costs to Account For,
and Assign Costs to Units Completed and to Units in Ending Work in Process
FIFO Method of Process Costing
Thermo-assembly Department of Lennox Plastics for September 2001

Total
Production Transferred Direct Conversion
Costs -in Costs Materials Costs
Work in process, beginning
($90,000 + $0 + $45,000) $135,000 (Costs of work done before current period)
(Step 3) Costs added in current period (given) 172,700 $58,500 $57,000 $57,200
Divide by equivalent units of work done in
current period ÷ 9,000 ÷19,000 ÷11,000
Cost per equiv. unit of work done in current period $ 6.50 $ 3 $ 5.20
(Step 4) Total costs to account for $307,700
(Step 5) Assignment of costs:
Completed and transferred out (19,000 units):
Work in process, beginning (15,000 units) $135,000
Transferred-in costs added in current period 0 0*× $6.50
Direct materials added in current period 45,000 15,000* × $3
Conversion costs added in current period 31,200 6,000*× $5.20
Total from beginning inventory 211,200
Started and completed (4,000 units) 58,800 (4,000†× $6.50) + (4,000†× $3) + (4,000† × $5.20)
Total costs of units completed & tfd. out 270,000
Work in process, ending (5,000 units)
32,500 5,000 ×$6.50
#
Transferred-in costs
Direct materials 0 0# × $3
Conversion costs 5,200
Total work in process, ending 37,700 1,000#×$5.20
Total costs accounted for $307,700

*Equivalent units used to complete beginning work in process from Solution Exhibit 17-44A, Step 2.

Equivalent units started and completed from Solution Exhibit 17-44A, Step 2.
#
Equivalent units in work in process, ending from Solution Exhibit 17-44A, Step 2.

17-52