To assign costs to specific lots of cereal or similarly mass–produced items requires a lot of record-keeping. Assuming products are all the same, a process costing system provides sufficient information for control purposes. Recordkeeping is simplified since all costs in a given month are accumulated in one account and assigned at the end of the period.
5–8.
This is a fairly common problem. LIFO is usually beneficial for tax purposes when prices are rising and inventory levels are steady or rising. However, maintaining internal records on a LIFO basis is often quite burdensome. To avoid the problem, companies usually maintain their internal accounting records on a FIFO or weighted-average basis and then make an estimate of the LIFO cost of inventories. The LIFO estimate is usually done on a highly aggregated basis and employs some form of “dollar value” LIFO estimation.
A company may use LIFO for tax purposes and some other method for internal accounting purposes. This is an example of the idea of “different costs for different purposes” which was discussed in earlier chapters.
5–9.
Carbonated water and cola syrup are combined in the first stage. Empty cans are filled in the second stage. Tops are placed on the cans in the third stage. Finally, the cans are packaged and prepared for shipping.
5–10.
The correct answer is (2). When cost of goods manufactured is the same under FIFO and weighted- average, the difference between the weighted-average and FIFO methods of process costing is how they handle beginning WIP. When there is no beginning WIP there is no difference between the two costing methods.
5–11.
The correct answer is (1). If the percentage of completion assigned is lower than actually attained, equivalent units will be understated. For example, if the correct percentage should be 75%, but 50% is assigned to 100 units in ending inventory, EU will be 50 instead of 75. This error results in higher (overstated) costs per equivalent unit and higher (overstated) costs assigned to goods transferred out.
5–12.
The correct answer is (2). The weighted-average method of process costing combines the costs of work done in the previous period and the current period.
5–13.
(5). None of these answers are correct. Answers (1) and (2) are incorrect because (1) ignores stages of completion and (2) double counts units started that are still in ending inventory. Answer (3) is incorrect because the ending inventory should be multiplied by the amount of work done this period, not work
necessary to complete the items. Answer (4) is incorrect because it defines weighted-average EU produced, and it has the same error as answer (3).
Solutions to Exercises
5–14. (20 min.) Compute equivalent units—weighted average method. Computation of Equivalent Units Produced—Weighted Average
a. Materials
b. Conversion
Costs Units transferred out... 9,000 9,000 Equivalent units in ending inventory:
Materials: 10% x 6,500a units ... 650 E.U.
Conversion costs: 15% x 6,500 units... 975 E.U. Total equivalent units for all work done to date ... 9,650 E.U. 9,975 E.U.
a6,500 units in ending inventory = 3,500 units in beginning inventory + 12,000 units
© The McGraw-Hill Companies, Inc., 1997
120 Cost Accounting, 5/e
5–15. (20 min.) Compute equivalent units—FIFO method.
Compute Equivalent Units—FIFO
a. Materials
b. Conversion
Costs To complete beginning inventory:
Materials: 80%a x 3,500 units... 2,800 E.U.
Conversion costs: 85%b x 3,500 units... 2,975 E.U.
Started and completed during the period... 5,500 E.U.c 5,500 E.U.
Units still in ending inentory:
Materials: 10% x 6,500d units... 650 E.U.
Conversion costs: 15% x 6,500 units ... 975 E.U. 8,950 E.U. 9,450 E.U.
a80% = 100% – 20% already done at the beginning of the period. b85% = 100% – 15% already done at the beginning of the period.
C5,500 units started and completed = 9,000 units transferred out less 3,500 units from
beginning inventory.
d6,500 ending inventory = 3,500 units beginning inventory + 12,000 units started this
period – 9,000 units transferred out.
Alternative Method
Equivalent units of work done this period
= Units transferred out + E.U. ending inventory – E.U. beginning inventory a. Materials: 8,950 E.U. = 9,000 units + 650 E.U. – 700 E.U. b. Conversion Costs: 9,450 E.U. = 9,000 units + 975 E.U. – 525 E.U.
5–16. (15 min.) Compute equivalent units—weighted average method. a. Materials b. Conversion Costs Units transferred out... 30,000 30,000 Equivalent units in ending inventory:
Materials: 25% x 10,000 units... 2,500
Conversion costs: 15% x 10,000 units... 1,500 Total equivalent units for all work done to date .. 32,500 31,500
© The McGraw-Hill Companies, Inc., 1997
122 Cost Accounting, 5/e
5–17. (20 min.) Compute equivalent units—FIFO method.
a. Materials
b. Conversion
Costs To complete beginning inventory:
Materials: 45%b x 5,000a units ... 2,250 E.U.
Conversion costs: 30%c x 5,000 units... 1,500 E.U.
Started and completed during the period... 25,000 E.U.d 25,000 E.U.
Units still in ending inentory:
Materials: 25% x 10,000d units... 2,500 E.U.
Conversion costs: 15% x 10,000d units... 1,500 E.U.
29,750 E.U. 28,000 E.U.
a5,000 units in beginning inventory = 30,000 units transferred out + 10,000 units in ending
inventory – 35,000 units started this period.
b45% = 100% – 55% already done at the beginning of the period. c30% = 100% – 70% already done at the beginning of the period.
d25,000 units started and completed = 30,000 units transferred out less 5,000 units from
beginning inventory.
Alternative Method
Equivalent units of work done this period
= Units transferred out + E.U. ending inventory – E.U. beginning inventory a. Materials: 29,750 E.U. = 30,000 units + 2,500 E.U. – 2,750 E.U. b. Conversion Costs: 28,000 E.U. = 30,000 units + 1,500 E.U. – 3,500 E.U.
5–18. (20 min.) Compute equivalent units—weighted average method: Keanu Co. The answer is (a).
Conversion Costs:
Units transferred out ... 40,000 Equivalent units in ending inventory (16,000 units x 75%) ... 12,000 Total equivalent units for conversion costs... 52,000
5–19 (20 min.) Compute equivalent units—FIFO method: Alyssa Co. The answer is (d) Materials Eq. units Conversion Costs Eq. units To complete beginning inventory:
Materials: all complete ... 0
Conv. costs: 250 units x (1–40%) ... 150 Started and completed during the period
(1,050 units trans. out—250 beg. Invent.) ... 800 800 Units in ending inventory:
Materials (200 x 100%)... 200
Conv. costs (200 x 25%)... 50 Equivalent units of production ... 1,000 1,000
© The McGraw-Hill Companies, Inc., 1997
124 Cost Accounting, 5/e
5–20. (20 min.) Compute cost per equivalent unit—weighted average method: Alexis Co.
The answer is (9).
Physical
Units Materials Eq. Units Flow of units:
Units to be accounted for:
Beginning WIP inventory ... 60,000 Units started this period ... 160,000 Total units to account for ... 220,000 Units accounted for:
Completed and transferred out
Materials (170,000 x 100%)... 170,000 170,000 Units in ending inventory:
Materials (50,000 x 100%)... 50,000 50,000 Total units accounted for... 220,000 220,000
Direct Materials Flow of costs:
Costs to be accounted for:
Costs in beginning WIP inventory ... $11,000 Current period costs ... 35,200 Total costs to be accounted for ... $46,200 Cost per equivalent unit
5–21. (20 min.) Compute equivalent units—FIFO method: Juan Co. The answer is (b). Physical Units Equiv. units Conversion Costs Flow of units:
Units to be accounted for:
Beginning WIP inventory ... 40,000 Units started this period ... 680,000 Total units to account for... 720,000 Units accounted for:
Completed and transferred out From beginning WIP inventory:
Conv. costs 40,000 x (1–60%) ... 40,000 16,000 Started and completed currently ... 600,000 600,000 Units in ending WIP inventory:
Conv. costs 80,000 x 40% ... 80,000 32,000 Total units accounted for ... 720,000 648,000
© The McGraw-Hill Companies, Inc., 1997
126 Cost Accounting, 5/e
5–22. (35 min.) Compute cost per equivalent unit—weighted average method.
Physical
Units Equivalent Units Materials
Eq. units
Conversion Costs Eq. units Flow of units:
Units to be accounted for:
Beginning WIP inventory ... 150 Units started this period ... 1,000 Total units to account for ... 1,150 Units accounted for:
Completed and transferred out ... 850 850 850 Units in ending inventory ... 300
Materials (300 x 40%)... 120
Conv. costs (300 x 20%)... 60 Total units accounted for ... 1,150 970 910
Total Direct Materials Conversion Costs Flow of costs:
Costs to be accounted for:
Costs in beginning WIP inventory ... $ 624 $ 488 $ 136 Current period costs ... 9,042 5,720 3,322 Total costs to be accounted for ... $9,666 $6,208 $3,458 Cost per equivalent unit
Materials ($6,208/970 units) ... $ 6.40
5–23. (20 min.) Assign costs to goods transferred out and ending inventory— weighted average method.
Physical
Units Equivalent Units Materials
Eq. units
Conversion Costs Eq. units Flow of units:
Units to be accounted for:
Beginning WIP inventory ... 150 Units started this period ... 1,000 Total units to account for... 1,150 Units accounted for:
Completed and transferred out ... 850 850 850 Units in ending inventory ... 300
Materials (300 x 40%) ... 120
Conv. costs (300 x 20%) ... 60 Total units accounted for... 1,150 970 910
Total Direct Materials Conversion Costs Flow of costs:
Costs to be accounted for:
Costs in beginning WIP inventory... $ 624 $ 488 $ 136 Current period costs ... 9,042 5,720 3,322 Total costs to be accounted for ... $9,666 $6,208 $3,458 Cost per equivalent unit
Materials ($6,208/970 units) ... $ 6.40
Conv. costs ($3,458/910) ... $ 3.80 Costs accounted for:
Costs assigned to units transferred out $8,670 $5,440 $3,230 Cost of ending WIP inventory ... 996 768 228 Total costs accounted for ... $9,666 $6,208 $3,458
© The McGraw-Hill Companies, Inc., 1997
128 Cost Accounting, 5/e
5–24. (35 min.) Compute cost per equivalent unit—FIFO method. Physical
Units Equivalent Units Materials
Eq. units
Conversion Costs Eq. units Flow of units:
Units to be accounted for:
Beginning WIP inventory ... 150 Units started this period ... 1,000 Total units to account for ... 1,150 Units accounted for:
Completed and transferred out
From beginning WIP inventory ... 150
Materials 150 x (1–60%) ... 60
Conv. costs 150 x (1–30%) ... 105 Started and completed currently... 700 700 700 Units in ending WIP inventory 300
Materials (300 x 40%)... 120
Conv. costs (300 x 20%)... 60 Total units accounted for... 1,150 880 865
Total Direct Materials Conversion Costs Flow of costs:
Costs to be accounted for:
Costs in beginning WIP inventory ... $ 624 $ 488 $ 136 Current period costs ... 9,042 5,720 3,322 Total costs to be accounted for ... $9,666 $6,208 $3,458 Cost per equivalent unit
Materials ($5,720/880 units) ... $ 6.50
5–25. (20 min.) Assign costs to goods transferred out and ending inventory— FIFO method.
Physical
Units Equivalent Units Materials
Eq. units
Conversion Costs Eq. units Flow of units:
Units to be accounted for:
Beginning WIP inventory ... 150 Units started this period ... 1,000 Total units to account for... 1,150 Units accounted for:
Completed and transferred out
From beginning WIP inventory... 150
Materials 150 x (1–60%)... 60
Conv. costs 150 x (1–30%) ... 105 Started and completed currently ... 700 700 700 Units in ending WIP inventory... 300
Materials (300 x 40%) ... 120
Conv. costs (300 x 20%) ... 60 Total units accounted for ... 1,150 880 865
© The McGraw-Hill Companies, Inc., 1997
130 Cost Accounting, 5/e
5–25. (continued) Total Direct Materials Conversion Costs Flow of costs:
Costs to be accounted for:
Costs in beginning WIP inventory ... $ 624 $ 488 $ 136 Current period costs ... 9,042 5,720 3,322 Total costs to be accounted for ... $9,666 $6,208 $3,458 Cost per equivalent unit
Materials ($5,720/880 units) ... $ 6.50
Conv. costs ($3,322/865 units) ... $ 3.84 Costs accounted for:
Costs assigned to units transferred out
Costs from beginning WIP inventory ... $ 624 $ 488 $ 136 Current costs added to complete
beginning WIP inventory ... 794
Materials ($6.50 x 60 units) ... 390
Conv. costs ($3.84 x 105 units) ... 404* Current costs of units started and completed.... 7,238
Materials ($6.50 x 700) ... 4,550
Conv. costs ($3.84 x 700) ... 2,688 Total costs transferred out ... $8,656 $5,428 $3,228 Cost of ending WIP inventory ... 1,010
Materials ($6.50 x 120) ... 780
Conv. costs ($3.84 x 60) ... 230 Total costs accounted for ... $9,666 $6,208 $3,458
*Includes $1 rounding error.
5–26. (35 min.) Compute cost per equivalent unit—weighted average method. Physical
Units Equivalent Units Materials
Eq. units
Conversion Costs Eq. units Flow of units:
Units to be accounted for:
Beginning WIP inventory ... 8,000 Units started this period ... 14,000 Total units to account for... 22,000 Units accounted for:
Completed and transferred out ... 17,000 17,000 17,000 Units in ending WIP inventory... 5,000
Materials (5,000 x 80%) ... 4,000
Conv. costs (5,000 x 40%) ... 2,000 Total units accounted for ... 22,000 21,000 19,000
Total Direct Materials Conversion Costs Flow of costs:
Costs to be accounted for:
Costs in beginning WIP inventory... $ 124,160 $ 50,820 $ 73,340 Current period costs ... 895,240 390,600 504,640 Total costs to be accounted for ... $1,019,400 $441,420 $577,980 Cost per equivalent unit
Materials ($441,420/21,000 units) ... $ 21.02
© The McGraw-Hill Companies, Inc., 1997
132 Cost Accounting, 5/e
5–27. (20 min.) Assign costs to goods transferred out and ending inventory— weighted average method.
Physical
Units Equivalent Units Materials
Eq. units
Conversion Costs Eq. units Flow of units:
Units to be accounted for:
Beginning WIP inventory ... 8,000 Units started this period ... 14,000 Total units to account for ... 22,000 Units accounted for:
Completed and transferred out ... 17,000 17,000 17,000 Units in ending inventory ... 5,000
Materials (5,000 x 80%)... 4,000
Conv. costs (5,000 x 40%)... 2,000 Total units accounted for... 22,000 21,000 19,000
Total Direct Materials Conversion Costs Flow of costs:
Costs to be accounted for:
Costs in beginning WIP inventory ... $ 124,160 $ 50,820 $ 73,340 Current period costs ... 895,240 390,600 504,640 Total costs to be accounted for ... $1,019,400 $441,420 $577,980 Cost per equivalent unit
Materials ($441,420/21,000 units) ... $ 21.02
Conv. costs ($577,980/19,000 units) ... $ 30.42 Costs accounted for:
Costs assigned to units transferred out.... $ 874,480 $357,340 $517,140 Costs of ending WIP inventory ... 144,920 84,080 60,840 Total costs accounted for ... $1,019,400 $441,420 $577,980
5–28. (35 min.) Compute cost per equivalent unit—FIFO method. Physical
Units Equivalent Units Materials
Eq. units
Conversion Costs Eq. units Flow of units:
Units to be accounted for:
Beginning WIP inventory ... 8,000 Units started this period ... 14,000 Total units to account for... 22,000 Units accounted for:
Completed and transferred out
From beginning WIP inventory... 8,000
Materials 8,000 x (1–30%)... 5,600
Conv. costs 8,000 x (1–30%) ... 5,600 Started and completed currently ... 9,000 9,000 9,000 Units in ending WIP inventory ... 5,000
Materials (5,000 x 80%) ... 4,000
Conv. costs (5,000 x 40%) ... 2,000 Total units accounted for ... 22,000 18,600 16,600
Total Direct Materials Conversion Costs Flow of costs:
Costs to be accounted for:
Costs in beginning WIP inventory... $ 124,160 $ 50,820 $ 73,340 Current period costs ... 895,240 390,600 504,640 Total costs to be accounted for ... $1,019,400 $441,420 $577,980 Cost per equivalent unit
Materials ($390,600/18,600 units) ... $ 21.00
Conv. costs ($504,640/16,600 units) . $ 30.40
The unit costs are slightly higher under weighted-average than under FIFO. The costs per unit in beginning inventory were slightly higher than the cost per unit incurred this period,
© The McGraw-Hill Companies, Inc., 1997
134 Cost Accounting, 5/e
5–29. (20 min.) Assign costs to goods transferred out and ending inventory— FIFO method.
Physical
Units Equivalent Units Materials
Eq. units
Conversion Costs Eq. units Flow of units:
Units to be accounted for:
Beginning WIP inventory ... 8,000 Units started this period ... 14,000 Total units to account for ... 22,000 Units accounted for:
Completed and transferred out
From beginning WIP inventory ... 8,000
Materials 8,000 x (1–30%) ... 5,600
Conv. costs 8,000 x (1–30%) ... 5,600 Started and completed currently... 9,000 9,000 9,000 Units in ending WIP inventory... 5,000
Materials (5,000 x 80%)... 4,000
Conv. costs (5,000 x 40%)... 2,000 Total units accounted for... 22,000 18,600 16,600
5–29. (continued) Total Direct Materials Conversion Costs Flow of costs:
Costs to be accounted for:
Costs in beginning WIP inventory... $ 124,160 $ 50,820 $ 73,340 Current period costs ... 895,240 390,600 504,640 Total costs to be accounted for ... $1,019,400 $441,420 $577,980 Cost per equivalent unit
Materials ($390,600/18,600 units) ... $ 21.00
Conv. costs ($504,640/16,600 units) ... $ 30.40 Costs accounted for:
Costs assigned to units transferred out:
Costs from beginning WIP inventory... $ 124,160 $ 50,820 $ 73,340 Current costs added to complete beginning
WIP inventory ... 287,840
Materials ($21 x 5,600) ... 117,600
Conv. costs ($30.40 x 5,600) ... 170,240 Current costs of units started and completed: 462,600
Materials ($21 x 9,000) ... 189,000
Conv. costs ($30.40 x 9,000) ... 273,600 Total costs transferred out ... $ 874,600 $357,420 $517,180 Cost of ending WIP inventory... 144,800
Materials ($21 x 4,000) ... 84,000
Conv. costs ($30.40 x 2,000) ... 60,800 Total costs accounted for ... $1,019,400 $441,420 $577,980 Ending inventory is slightly higher under the weighted-average method because the unit costs are higher under weighted-average. Under FIFO, the unit costs are $21 for
materials and $30.40 for conversion costs. Under weighted-average, the unit costs are $21.02 for materials and $30.42 for conversion costs. The reason for the difference in unit cost is explained in Exercise 5–28.
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136 Cost Accounting, 5/e
5–30. (50 min.) Production Cost Report: Overland Co.—FIFO method. Physical
Units Equivalent Units Prior
Department
Department No. 2 Flow of units:
Units to be accounted for:
Beginning WIP inventory ... 3,000 Units started this period ... 7,000 Total units to account for ... 10,000 Units accounted for:
Completed and transferred out
From beginning WIP inventory ... 3,000
Prior department ... 0
Department No. 2 [3,000 units x (1–20%)]. 2,400 Started and completed currently... 6,000 6,000 6,000 Units in ending WIP inventory... 1,000
Prior department ... 1,000
Department No. 2 (1,000 units x 45%) ... 450 Total units accounted for... 10,000 7,000 8,850
5–30. (continued) Total Prior Department Department No. 2 Flow of costs:
Costs to be accounted for:
Costs in beginning WIP inventory... $ 18,406 $14,500 $ 3,906 Current period costs ... 107,240 32,900 74,340 Total costs to be accounted for ... $125,646 $47,400 $78,246 Cost per equivalent unit
Prior department ($32,900/7,000 units) ... $ 4.70
Dept. No. 2 ($74,340/8,850 units) ... $ 8.40 Costs accounted for:
Costs assigned to units transferred out:
Costs from beginning WIP inventory... $ 18,406 $14,500 $ 3,906 Current costs added to complete beginning
WIP inventory ... 20,160
Prior department ... 0
Dept. No. 2 ($8.40 x 2,400 units) ... 20,160 Current costs of units started and completed: .. 78,600
Prior department ($4.70 x 6,000) ... 28,200
Dept. No. 2 ($8.40 x 6,000) ... 50,400 Total costs transferred out ... $117,166 $42,700 $74,466 Cost of ending WIP inventory... 8,480
Prior department ($4.70 x 1,000) ... 4,700
Dept. No. 2 ($8.40 x 450) ... 3,780 Total costs accounted for ... $125,646 $47,400 $78,246
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138 Cost Accounting, 5/e
5–31. (50 min.) Production cost report—weighted average method: Overland Co. Physical
Units Equivalent Units Prior
Department
Department No. 2 Flow of units:
Units to be accounted for:
Beginning WIP inventory ... 3,000 Units started this period ... 7,000 Total units to account for ... 10,000 Units accounted for:
Completed and transferred out ... 9,000 9,000 9,000 Units in ending inventory ... 1,000
Prior department (1,000 units x 100%) ... 1,000
Department No. 2 (1,000 units x 45%) ... 450 Total units accounted for... 10,000 10,000 9,450
Total Direct Materials Conversion Costs Flow of costs:
Costs to be accounted for:
Costs in beginning WIP inventory ... $ 18,406 $14,500 $ 3,906 Current period costs ... 107,240 32,900 74,340 Total costs to be accounted for ... $125,646 $47,400 78,246 Cost per equivalent unit
Prior departments ($47,400/10,000 units)... $ 4.74
Department No. 2 ($78,246/9,450) ... $ 8.28 Costs accounted for:
Costs assigned to units transferred out... $117,180 $42,660 $74,520 Costs of ending WIP inventory ... 8,466 4,740 3,726 Total costs accounted for ... $125,646 $47,400 $78,246 The ending inventory is lower under the weighted-average method than under the FIFO method. Under weighted-average, the ending inventory is $8,466. This is $14 less than FIFO, which is $8,480. The difference is due to the differences in costs per equivalent unit between FIFO and weighted-average.
Solutions to Problems
5–32. (45 min.) Compute equivalent units—multiple choice. a. The answer is (2).
Materials
Conversion Costs Units transferred out... 132,500a 132,500a
E.U. in ending inventory:
Materials 100% x 12,500 units... 12,500 E.U.
Conversion costs 40% x 12,500 units. 5,000 E.U. E.U. produced this period... 145,000 E.U. 137,500 E.U.
aUnits transferred out = units started + beg. inventory – ending inventory
= 120,000 + 25,000 – 12,500 = 132,500 b. The answer is (4). Prior Department Costs Materials Conversion Costs Units transferred out... 330,000a 330,000a 330,000a
E.U. in ending inventory:
Prior department costs ... 40,000 E.U.
Materialsb... –0– E.U.
Conversion costs 90% x 40,000 units. 36,000 E.U. E.U. produced this period... 370,000 E.U. 330,000 E.U. 366,000 E.U.
a320,000 started + 50,000 in beg. inv. – 40,000 in ending inv. = 330,000 transferred out. bMaterials are added at the end of the process.
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140 Cost Accounting, 5/e
5–32. (continued) c. The answer is (2).
E.U. to complete beginning inventory 40%a x 16,000 units... 6,400 E.U.
Started and completedb... 240,000 E.U.
E.U. in ending inventory 40% x 32,000 units... 12,800 E.U. E.U. done this period ... 259,200 E.U.
a40% = 100% – 60% already done at the beginning of the period.
b240,000 units = 256,000 transferred out – 16,000 from beginning inventory.
d. The answer is (1).
Materials
Conversion Costs To complete beginning inventory:
Materials: 0%a x 10,000 units ... 0
Conversion costs: 30%b x 10,000 units ... 3,000 E.U.
Started and completed during the period ... 35,000cE.U. 35,000 E.U.
Units still in ending inventory:
Materials: 100% x 8,000 units... 8,000 E.U.
Conversion costs: 50% x 8,000 units... 4,000 E.U. Work done in current period ... 43,000 E.U. 42,000 E.U.
a0% = 100% – 100% already done at the beginning of the period. b30% = 100% – 70% already done at the beginning of the period. c35,000 = 45,000 transferred out – 10,000 from beginning inventory.
5–33. (30 min) Production report to find conversion costs in ending WIP inventory— FIFO method a. The answer is (3) Physical Units Equivalent Units Conversion Costs Flow of units
Units to be accounted for:
Beginning WIP inventory ... 50,000 Units started this period ... 270,000 Total units to account for ... 320,000 Units accounted for:
Completed and transferred out
From beginning WIP inventory... 50,000
(50,000 x 20%) ... 10,000 Started and completed currently ... 150,000 150,000 Units in ending WIP inventory... 120,000
(120,000 x 50%) ... 60,000 Total units accounted for... 320,000 220,000
© The McGraw-Hill Companies, Inc., 1997
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5–33. (continued)
Conversion Costs Flow of costs:
Costs to be accounted for:
Costs in beginning WIP inventory ... $ 86,000 Current period costs ... 484,000 Total costs to be accounted for ... $570,000 Cost per equivalent unit ($484,000/220,000) ... $ 2.20 Costs accounted for:
Costs assigned to units transferred out:
Costs from beginning WIP inventory ... $ 86,000 Current costs added to complete
beginning WIP inventory:
Conv. costs ($2.20 x 10,000) ... 22,000 Current costs of units started and completed:
Conv. costs ($2.20 x 150,000) ... 330,000 Total costs transferred out ... $438,000 Cost of ending WIP inventory:
Conv. costs ($2.20 x 60,000) ... 132,000 (Answer) Total costs accounted for ... $570,000
b. The answer is (2).
Cost per unit for the previous period is $2.15 [= $86,000/(50,000 equiv. units x 80%)] Cost per unit for the current period is $2.20 as calculated in (a) above.
5–34. (50 min.) Prepare a production cost report—weighted average method: Baja Corporation.
a.
Baja Corporation Assembly Department
Production Cost Report—Weighted Average FLOW OF PRODUCTION UNITS
(Section 1) Physical
units
Units to be accounted for:
Beginning WIP inventory ... 1,000 Units started this period ... 5,000 Total units to be accounted for ... 6,000
(Section 2)
COMPUTE EQUIVALENT UNITS Prior
department
costs Materials Labor
Manufacturing overhead
Units accounted for:
Units completed and transferred out:
From beginning inventory... 1,000 Started and completed currently ... 3,000
© The McGraw-Hill Companies, Inc., 1997 144 5–34. a. (continued) DETAILS Total costs Prior department
costs Materials Labor
Manufacturing overhead
Costs to be accounted for: (Section 3)
Costs in beginning WIP inventory... $ 64,700 $ 32,000 $ 20,000 $ 7,200 $ 5,500 Current period costs ... 310,000 160,000 96,000 36,000 18,000 Total costs to be accounted for ... $374,700 $192,000 $116,000 $43,200 $23,500 Cost per equivalent unit: (Section 4)
Prior department costs ($192,000 ÷ 6,000) .... $32.00
Materials ($116,000 ÷ 5,800)... $20.00
Labor ($43,200 ÷ 5,400) ... $8.00
Manufacturing overhead ($23,500 ÷ 4,700).... $5.00 Costs accounted for: (Section 5)
Costs assigned to units transferred out:
Prior department costs ($32 x 4,000)... $128,000 $128,000
Materials ($20 x 4,000) ... 80,000 $ 80,000
Labor ($8 x 4,000)... 32,000 $32,000
Manufacturing overhead ($5 x 4,000) ... 20,000 $20,000 Total costs of units transferred out ... 260,000
Costs assigned to ending WIP inventory:
Prior department costs ($32 x 2,000)... 64,000 64,000
Materials ($20 x 1,800) ... 36,000 36,000
Labor ($8 x 1,400)... 11,200 11,200
Manufacturing overhead ($5 x 700) ... 3,500 3,500 Total ending WIP inventory... $114,700
5–34. a. (continued)
Prior Department
Costs Materials Labor
Manufacturing Overhead
Costs accounted for: (Section 5)
Costs assigned to units transferred out:
Prior department costs ($32 x 4,000)... $128,000 $128,000
Materials ($20 x 4,000) ... 80,000 $ 80,000
Labor ($8 x 4,000)... 32,000 $32,000
Manufacturing overhead ($5 x 4,000) ... 20,000 $20,000 Total costs of units transferred out ... 260,000
Costs assigned to ending WIP inventory:
Prior department costs ($32 x 2,000) ... 64,000 64,000
Materials ($20 x 1,800) ... 36,000 36,000
Labor ($8 x 1,400)... 11,200 11,200
Manufacturing overhead ($5.00 x 700) ... 3,500 3,500 Total ending WIP inventory... $114,700
Total costs accounted for ... $374,700 $192,000 $116,000 $43,200 $23,500
b. The report to management should include the following items:
• Materials: The $20 per unit goal set by management is currently being achieved by the Assembly Dept. • Labor: Equivalent unit labor costs per unit ($8) is below management’s goal of $10.
© The McGraw-Hill Companies, Inc., 1997
146
5–35. (50 min.) Prepare a production cost report—FIFO method: Baja Corporation.
a.
Baja Corporation
Assembly Department Production Cost Report—FIFO FLOW OF PRODUCTION UNITS
(Section 1)
(Section 2)
COMPUTE EQUIVALENT UNITS Physical
units
Prior department
costs Materials Labor
Manufacturing overhead
Units to be accounted for:
Beginning WIP inventory ... 1,000 Units started this period ... 5,000 Total units to be accounted for ... 6,000 Units accounted for:
Units completed and transferred out:
From beginning inventory... 1,000 –0– –0– 400 (40)%a 500 (50%)b
Started and completed currently ... 3,000 3,000 3,000 3,000 3,000
Units in ending WIP inventory... 2,000 2,000 1,800 (90%) 1,400 (70%) 700 (35%) Total units accounted for ... 6,000 5,000 4,800 4,800 4,200
a40% = 100% – 60% already done at the beginning of the period. b50% = 100% – 50% already done at the beginning of the period.
5–35. a. (continued) COSTS DETAILS Total Costs Prior department
costs Materials Labor
Manufacturing overhead
Costs to be accounted for: (Section 3)