Solution manual cost and managerial accounting 3rd by barfield process costing

In process costing, production must be determined on the basis of equivalent units to properly allocate the costs associated with each cost component to the work that was completed durin

Process Costing

Questions

1 A company that produces homogeneous goods in mass quantities

is likely to use a process costing system The company can either have a single department or multiple departments

2 In any costing system, the assignment of costs to units of

product is essentially an averaging process because total costs incurred must be applied to the units that have been produced This is done by dividing cost by production, which produces an "average" cost per unit

3 Job order costing and process costing are similar in that they

are both methods of assigning costs to products Also, the methods use similar product accounts (raw materials, work in process, finished goods, cost of goods sold) to capture the costs associated with production and use similar cost pools (DM, DL, OH)

Job order costing and process costing differ in the way

in which costs are gathered In a job order costing system, costs are accumulated by department and by job; in a process costing system, costs are accumulated by production

departments for the products that flow through those

departments In process costing, production must be

determined on the basis of equivalent units to properly

allocate the costs associated with each cost component to the work that was completed during the period and to the work that

is still in process at the end of the period Equivalent units of production are unnecessary in job order costing

4 Equivalent units of production is an approach to put partially

completed and wholly completed units on a comparable basis Without use of equivalent units, partially completed and fullycompleted units would be combined as if they were homogeneous measures of output This would result in meaningless data since fully and partially completed units are different

outputs

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5 The only difference between weighted average and FIFO

equivalent units of production is in the treatment of the workthat was completed on beginning inventory in the prior period.Under weighted average, the work performed on beginning

inventory in the prior period is combined with the work

performed during the current period Under FIFO, the work performed on beginning inventory during the prior period is held out separately and not commingled with the work performedduring the current period

The FIFO method more accurately portrays the actual physical flow of units through the manufacturing process, because it is most likely that the units in beginning

inventory will be the first units to be completed during the current period - thus a first-in, first-out flow

6 It is necessary to prepare separate equivalent units of

production schedules for each cost component because each component will most likely have a different degree of

completion at the end of the period This is because all production components are not placed into production

simultaneously

If the cost components do have the same degree of completion, then it is not necessary to prepare separate EUP schedules This is often the case with labor and overhead which may be combined into an EUP schedule labeled

"Conversion."

7 The units "started and completed" in a period are calculated

as the total units completed during the period minus the unitsthat were in the beginning inventory This figure can be used

in both the weighted average and FIFO methods shown in the chapter (There are, however, other methods of computing EUP

in which the units started and completed are not shown

separately.) This calculation is not necessary for the

weighted average method because work performed on the current period’s beginning inventory in the prior period need not be separated from work performed to complete the beginning

inventory in the current period This calculation is

necessary for the FIFO method because work in the prior periodcannot be commingled with work performed in the current

period

8 Whole units are used in steps 1 and 2 - the units to account

for and the units accounted for Equivalent units are used insteps 3, 5, and 6 - the computation of EUP, the determination

of cost per EUP, and the assignment of cost to inventories at the end of the period The only step in which neither is used

is step 4 In this step, total costs are computed and no physical measurement is required

9 a Under weighted average, costs are assigned to ending

inventory by multiplying the cost per EUP for each cost component times the EUP calculated for that component; these costs are then totaled Costs are assigned to the units completed/transferred out by multiplying the total cost per EUP times the number of units that have been completed/transferred out during the period

b The cost assigned to ending inventory is handled the same

way for FIFO as for weighted average In determining thecost of the units completed/transferred out, however, thecost of completing the beginning inventory must first be determined by multiplying the equivalent units of

production performed this period for each cost component times the cost per EUP for each cost component The cost

of completing the beginning inventory is then added to the original beginning inventory cost to find the total cost of producing the beginning inventory units The cost of the units started and completed in the current period is found by multiplying the total cost per EUP times the number of units started and completed this period Adding the total cost of producing beginning inventory to the cost of the units started and completed will give the total cost transferred out of the

department during the period

10 The cost of production report is prepared for each department

or each process and accounts for the costs that have been incurred during the period It assigns these costs either to the ending WIP or to the goods that have been transferred out

to either the next downstream department or to the finished goods inventory These reports assist accountants in making entries regarding inventory amounts, cost of goods

manufactured, and cost of goods sold

11 The computation is correct, fast, and easy However, the risk

of making such a computation is that a mistake in computing the cost of the ending work in process will result in an

incorrect cost of goods transferred out

12 Multiple computations are required under FIFO because the

beginning WIP inventory is valued at a different unit cost foreach cost pool than the current period’s unit costs This difference requires separate lines for the cost of the

beginning inventory when the period began, the cost of

completing that beginning inventory, and the cost of goods started and completed during the current period

13 The only difference between process costing in a

multidepartment environment and a single department

environment is that there will be a cost component labeled

"Transferred In." The costs of previous departments must follow the flow of goods into successor departments to

determine the full cost of production

14 The standard process costing and FIFO process costing

equivalent units of production are the same because standard

process costing requires a comparison of the actual cost of the period to the standard cost of the period to compute

variances Since it is only the costs of the current period that are of concern to the cost accountant, the costs of the prior period cannot be commingled with current costs The separation of prior and current period costs (and units) is the FIFO method of process costing

15 Under a standard costing system, the Material, In-Process, and

Finished Goods Inventory accounts are accounted for at

standard costs The actual costs of each process or each department are also captured in a standard costing system and variances can be computed as differences between the standard and actual amounts for each cost component The variances provide information to management about the efficiency of operations because the variances reflect differences between expected (standard) and actual costs

16 A hybrid costing system is one in which process costing is

used to account for certain product costs and job order

costing is used to account for other product costs Hybrid costing is common in environments that have, for example, material costs that vary substantially from one production run

to another (gold versus copper), but require all products to flow through the same physical conversion processes In this example, the material would be accounted for on a job order basis and the conversion would be accounted for using process costing

19 a.,b Beginning inventory 120,000 Completed & transferred 260,000

Units DM CC Beginning WIP completed 120,000 0 36,000Started & completed 140,000 140,000 140,000Ending inventory 30,000 30,000 7,500

b Units DM DL OH

Beginning inventory 75,000 0 30,000 18,750Started & completed 220,000 220,000 220,000 220,000Ending inventory 30,000 30,000 12,000 18,000Equivalent units 250,000 262,000 256,750

c Equivalent units (WA) 325,000 307,000 313,000

EUPs - Beginning WIP (75,000) (45,000) (56,250)Equivalent units (FIFO) 250,000 262,000 256,750

21 Material Direct Labor Overhead

Beginning inventory $14,920 $ 36,200 $ 9,900Current period 78,880 79,800* 42,600Total costs $93,800 $116,000 $52,500Divided by EUP 26,800 24,400 21,000Cost per EUP $3.50 $4.75 $2.50

*Direct Labor = Conversion Cost - Overhead

= $122,400 - $42,600 = $79,800

22 Material Direct Labor Overhead

EUPs - (WA) 26,800 24,400 21,000EUPs - Beginning WIP (3,600) (4,000) (3,960)EUPs - (FIFO) 23,200 20,400 17,040

Current period cost $78,880 $79,800 $42,600Divided by EUP 23,200 20,400 17,040Cost per EUP $3.40 $3.91 $2.50

23 a DM DL OH Total

Beginning WIP $ 4,900 $ 1,580 $ 2,505 $ 8,985Current period 13,500 8,680 21,120 43,300Total $18,400 $10,260 $23,625 $52,285

b Total costs $18,400 $10,260 $23,625 $52,285

EUPs - (WA) 40,000 38,000 37,500Cost per EUP $0.46 $0.27 $0.63 $1.36

c Current costs $13,500 $ 8,680 $21,120 $43,300

EUPs - (FIFO) 30,000 31,000 33,000Cost per EUP $0.45 $0.28 $0.64 $1.37

d EUPs - (WA) 40,000 38,000 37,500

EUPs - (FIFO) 30,000 31,000 33,000EUPs - Beginning WIP 10,000 7,000 4,500Percent complete 100% 70% 45%

S&C = 25,700 – 5,800 = 19,900

Other

Canisters Materials DL OH

Beginning WIP 5,800 5,800 5,800 5,800Started & completed 19,900 19,900 19,900 19,900

EI 2,600 780 650 260EUPs -(WA) 28,300 26,480 26,350 25,960

Costs to account for: Other

Canisters Materials DL OH TotalBeginning WIP $10,382 $ 5,008 $ 4,063 $ 1,038 $ 20,491Current 40,558 20,148 61,812 46,988 169,506Total costs $50,940 $25,156 $65,875 $48,026 $189,997

Cost per EUP: Other

Canisters Materials DL OH TotalTotal costs $50,940 $25,156 $65,875 $48,026 $189,997EUPs 28,300 26,480 26,350 25,960

Cost per EUP $1.80 $0.95 $2.50 $1.85 $7.10

25 a Units

Units to account for 4,800

Beginning inventory completed 1,000 Units started & completed 3,000 Total units completed 4,000

Units accounted for 4,800

Material ConversionComplete units in BI 300 150Units started & completed 3,000 3,000Equivalent units in EI 320 480

Current costs $66,970 $29,040 $96,010EUP (FIFO) 3,620 3,630

Cost per EUP $18.50 $8.00 $26.50

26 a 260,000 × ($3.75 + $4.50 + $5.10) = 260,000 × $13.35

= $3,471,000

b DM: $3.75 × (37,000 × 100%) $138,750

DL: $4.50 × (37,000 × 80%) 133,200OH: $5.10 × (37,000 × 95%) 179,265 Total $451,215

c Cost of goods transferred $3,471,000

Ending WIP 451,215 Total $3,922,215

27 a Because RM are added at the start of processing, all

units in BI are fully complete as to RM Thus, the number of units is equal to the number of EUP

Materials: 27,000 ÷ 27,000 = 100%

Packaging: 0 ÷ 27,000 = 0%

Labor: 14,850 ÷ 27,000 = 55%

Overhead: 18,900 ÷ 27,000 = 70%

b Beginning WIP

Materials $344,520 Labor 95,931 Overhead 72,954 $513,405

Complete Beginning WIP Packaging $1.50 (27,000 × 100%) $ 40,500 Labor $6.42 (27,000 × 45%) 78,003 Overhead $3.87 (27,000 × 30%) 31,347 149,850 Total $663,255

28 a Beginning WIP 500

Started 1,400Units to account for 1,900

Beginning WIP 500Started & completed 1,250 Ending WIP 150Units accounted for 1,900

b Material Conversion

Beginning WIP 500 500Transferred out 1,250 1,250Ending inventory 30 105

c Transferred out:

Costs in BI ($2,071 + $404) $2,475 Cost to complete BI

200 × $7.20 1,440

350 × $2.20 770 $ 4,685 Started & completed (1,250 × $9.40) 12,690

S&C = 38,200 – 5,000 = 33,200

Units Material Conversion

Beginning WIP 5,000 5,000 5,000S&C 33,200 33,200 33,200Ending inventory 6,800 6,800 5,440Units accounted for 45,000 45,000 43,640

Assembly:

Beginning inventory 2,000 Completed & transferred 34,100

S&C = 34,100 – 2,000 = 32,100

Units Trans in Material Conversion

Beginning WIP 2,000 2,000 2,000 2,000S&C 32,100 32,100 32,100 32,100 Ending inventory 6,100 6,100 6,100 4,575 Units accounted for 40,200 40,200 40,200 38,675

b Fabrication

Units Material Conversion

Beginning inventory 5,000 0 2,750 Started & completed 33,200 33,200 33,200Ending inventory 6,800 6,800 5,440Units accounted for 45,000 40,000 41,390

Assembly:

Units Trans in Material Conversion

Beginning inventory 2,000 0 2,000 1,700 Started & completed 32,100 32,100 32,100 32,100 Ending inventory 6,100 6,100 6,100 4,575 Units accounted for 40,200 38,200 40,200 38,375

30 a 18,000 × 100% × $0.13 = $2,340

18,000 × 45% × $0.13 = 1,053Total cost in BI $3,393

b 14,400 × 100% × $0.13 = $1,872.00

14,400 × 65% × $0.13 = 1,216.80Total cost in EI $3,088.80

c Beginning inventory 18,000

Units to account for 148,000

Total units 148,000Units in EI (14,400)Units transferred out 133,600

Cost transferred out = 133,600 × $0.26 = $34,736

d S&C = 133,600 – 18,000 = 115,600

Materials Labor OH

To complete BI (units) 0 9,900 9,900Started & completed 115,600 115,600 115,600Ending inventory 14,400 9,360 9,360Equivalent units (FIFO) 130,000 134,860 134,860Multiply by unit cost × 0.13 × 0.02 × 0.11Standard cost of period $16,900 $2,697.20 $14,834.60Actual cost of period (18,400) (2,698.00) (15,200.00)Variance $(1,500)U $ (0.80)U $ (365.40)U

31 a Units to account for:

Beginning inventory 6,500Started 154,000 Total 160,500

Beginning WIP 6,500Started & completed 141,500Ending WIP 12,500Units accounted for 160,500

Materials Packaging Conversion

Beginning WIP 0 6,500 1,950 Started and completed 141,500 141,500 141,500Ending inventory 12,500 0 7,500 EUP (FIFO) 154,000 148,000 150,950

b Cost of goods completed: 148,000 × $0.60 = $88,800

c Cost of ending work in process:

Material (12,500 × $0.35) $4,375Labor (7,500 × $0.07) 525Overhead (7,500 × $0.13) 975 Total $5,875

32 a Units to account for:

Material Labor Overhead

Started and completed 1,200 1,200 1,200Ending inventory 300 75 105EUP (FIFO) 1,500 1,275 1,305

Cost of goods transferred to finished goods:

Direct material:

Dacron 250 × $10 $2,500Denim 400 × $8 3,200Cotton 550 × $12 6,600 $12,300Direct labor 1,200 × $12 14,400Overhead (1,200 × $9) 10,800 Total $37,500

b Cost of ending work in process:

Direct materials:

Dacron 50 × $10 $ 500Denim 100 × $8 800Cotton 150 × $12 1,800 $3,100Direct labor (300 × 25) × $12 900Overhead (300 × 35) × $9 945 Total $4,945

Problems

33 a Beginning inventory 3,600

Units started 187,000Units to account for 190,600

b Units completed 184,200

Beginning inventory (3,600)Started & completed 180,600

c EI = 190,600 – 184,200 = 6,400

Material Labor OverheadBeginning inventory 3,600 3,600 3,600Started & completed 180,600 180,600 180,600Ending inventory 2,560 1,600 640EUP (WA) 186,760 185,800 184,840

d Material Labor Overhead

Beginning inventory 1,080 2,160 2,520Started & completed 180,600 180,600 180,600Ending inventory 2,560 1,600 640EUP (WA) 184,240 184,360 183,760

e Material Labor Overhead

EUP weighted average 186,760 185,800 184,840Equivalent units in BI (2,520) (1,440) (1,080)EUP (FIFO) 184,240 184,360 183,760

34 a Total units to account for: tons

Beginning inventory 60,000Units started 300,000 Total 360,000

b Total units to account for: 360,000

Units in ending inventory 35,000Units transferred out 325,000Less units in beginning inventory 60,000Units started & completed (tons) 265,000

c Weighted average: Material Conversion

Beginning inventory 60,000 60,000Started & completed 265,000 265,000Ending inventory 24,500 21,000 EUP 349,500 346,000

d FIFO Method: Material Conversion

Complete beginning inventory 0 42,000Started and completed 265,000 265,000Ending inventory 24,500 21,000 EUP 289,500 328,000

35 a Frankfurt Products

Cost of Production Report

For the Month of February 2003Production Data

Units Material Labor OverheadBeginning inventory 800

Units started 3,800

Units to account for 4,600

Beginning inventory units 800 800 800 800 Units started & completed 3,400 3,400 3,400 3,400 Units completed 4,200

Ending inventory 400 280 360 320Units accounted for (& EUP) 4,600 4,480 4,560 4,520

Cost Data

Material Labor Overhead Total

Cost in beginning inventory $ 8,900 $ 4,000 $ 6,600 $ 19,500Current costs 89,660 18,800 65,720 174,180Total cost to account for $98,560 $22,800 $72,320 $193,680Divided by EUP 4,480 4,560 4,520

Cost per EUP $22 $5 $16 $43

Total cost accounted for $193,680

b Raw Material Inventory XXX

Cost of Goods Sold XXX

Finished Goods Inventory XXX

c Raw Material Inventory Work in Process Inventory Beg bal XXX To WIP 89,660 Beg bal.19,500 CGM 180,600Purchases XXX -> DM 89,660