Exam 17: Process Costing

The Laramie Factory produces expensive boots.It has two departments that process all the items.During January,the beginning work in process in the tanning department was 40% complete as to conversion and 100% complete as to direct materials.The beginning inventory included $6,000 for materials and $18,000 for conversion costs.Ending work-in-process inventory in the tanning department was 40% complete.Direct materials are added at the beginning of the process. Beginning work in process in the finishing department was 60% complete as to conversion.Beginning inventories included $7,000 for transferred-in costs and $10,000 for conversion costs.Ending inventory was 30% complete. Additional information about the two departments follows: Tanning Finishing Beginning work-in-process units 5,000 4,000 Units started this period 14,000 ? Units transferred this period 16,000 18,000 Ending work-in-process units ? 2,000 Material costs added \ 18,000 ?19,000 Conversion costs 32,000 ? Transferred-out cost 50,000 ? Required: Prepare a production cost worksheet using weighted-average costing for the finishing department.

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Question 1

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Production Cost Worksheet
Finishing Department
Weighted-Average Method
$\begin{array}{|l|r|l|l|}\hline {\text { Flow of proauction }} & \text { Physical Units } & \text { Conversion } & \text { Trans-In } \\\hline \text { Work in process, beginning } & 4,000 & & \\\hline \text { Transferred in during period } & 16,000 & & \\\hline \text { To account for } & 20,000 & & \\\hline\\\hline \text { Units transferred out } & 18,000 & 18,000 & 18,000 \\\hline \text { Work in process, ending } & \underline{2,000} & \underline{600} & \underline{2}, 000 \\\hline \text { Accounted for } & \underline{20,000} & \underline{18,600} & \underline{20,000} \\\hline\end{array}$
$\begin{array}{|l|r|r|r|}\hline {\text { Costs }} &{\text { Totals }} &{\text { Conversion }} & {\text { Trans-in }} \\\hline \text { Work in process, beginning } & \$ 17,000 & \$ 10,000 & \$ 7,000 \\\hline \text { Costs added during period } & \underline{69,000} & \underline{19,000} & \underline{50,000} \\\hline \text { Total costs to account for } & \$ 86,000 & \$ 29,000 & \$ 57,000 \\\hline \text { Divided by equivalent units } & & \underline{18,600} & \underline{20,000} \\\hline \text { Equivalent-urit costs } & \$ 4,41 & \$ 1.56 & \$ 2.85 \\\hline\end{array}$
$\begin{array}{|l|r|r|}\hline {\text { Assignment of costs }} & & \\\hline \text { Transferred out }(18,000 \times \$ 4.41) & & \$ 79,380 \\\hline \text { Work in process, ending } & & \\\hline \text { Transferred-in costs }(2,000 \times \$ 2.85) & \$ 5,700 & \\\hline \text { Conversion }(600 \times \$ 1.56) & \underline{936} & \underline{6.636} \\\hline \text { Costs accounted for } & & \$ 86,016 \\\hline\end{array}$

BIG Manufacturing Products has been using FIFO process costing for tracking the costs of its manufacturing activities.However,in recent months,the system has become somewhat bogged down with details.It seems that,when the company purchased Brown Electronics last year,its product lines increased six-fold.This has caused both the accountants and the suppliers of the information,the line managers,great difficulty in keeping the costs of each product line separate.Likewise,the estimation of the completion of ending work-in-process inventories and the associated costs has become very cumbersome.The chief financial officer of the company is looking for ways to improve the reporting system of product costs. Required: What can you recommend to improve the situation?

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A beginning point would be to change to a standard costing system.Standard costing eliminates many of the problems of FIFO costing in tracking actual costs to products.With standard costing,only the equivalent units have to be determined immediately,not the actual cost of the period.A standard cost for materials and conversion is then applied to the equivalent units for the reporting period.Actual costs and variances from standard costing can be determined later.This approach is very appropriate for a company that has many products.

Four Seasons Company makes snow blowers.Materials are added at the beginning of the process and conversion costs are uniformly incurred.At the beginning of September,work in process is 40% complete and at the end of the month it is 60% complete.Other data for the month include: Beginning work-in-process inventory 1,600 units Units started 2,000 units Units placed in finished goods 3,200 units Conversion costs \ 200,000 Cost of direct materials \ 260,000 Beginning work-in-process costs: Materials \ 154,000 Conversion \ 82,080 Required: a.Prepare a production cost worksheet with supporting schedules using the weighted-average method of process costing. b.Prepare journal entries to record transferring of materials to processing and from processing to finished goods.

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a.PRODUCTION COST WORKSHEET
$\begin{array} { | c | r | r | r | } \hline \text { Flow of production } & \text { Physical Units } & \text { Direct Materials } & \text { Conversion } \\\hline \text { Work in process, beginning } & 1,600 & & \\\hline \text { Started during period } & 2,000 & & \\\hline \text { To account for } & \underline { 3,600 } & & \\\hline & & & \\\hline \text { Units completed } & 3,200 & 3,200 & 3,200 \\\hline \text { Work in process, ending } & \underline { 400 } & \underline { 400 } & \underline { 240 } \\\hline \text { Accounted for } & \underline { 3,600 } & \underline { 3,600 } & \underline { 3,440 } \\\hline\end{array}$ $\begin{array} { | c | r | r | r | } \hline {\text { Costs }} &{\text { Totals }} & \text { Direct Materials } & \text { Conversion } \\\hline \text { Work in process, beginning } & \$ 236,080 & \$ 154,000 & \$ 82,080 \\\hline \text { Costs added during period } & \underline{460,000} & 260,000 & 200,000 \\\hline \text { Total costs to account for } & \$ 696,080 & \$ 414,000 & \$ 282,080 \\\hline\text { Divided by equivalent units } & & 3,600 & 3,440 \\\hline \text { Equivalent unit costs } & \$ 1197 & \$ 115 & \$ 82 \\\hline\\\hline \text { Assignment of costs } & & & \\\hline \text { Completed units }(3,200 \times \$ 197) & & & \$ 630,400 \\\hline \text { Work in process, ending } & & & \\\hline \text { Direct materials }(400 \times \$ 115) & & \$ 46,000 & \\\hline \text { Conversion }(400 \times \$ 82 \times 0,60) & & 19,680 & 65,680 \\\hline \text { Costs accounted for } & & & \$ 696,080 \\\hline\end{array}$

b.
$\begin{array} { | l | r | r | } \hline \text { Work in Process } & 260,000 & \\\hline \text { Materials Inventory } & & 260,000 \\\hline \text { Finished Goods } & 630,400 & \\\hline \text { Work in Process } & & 630,400 \\\hline\end{array}$

Which of the following statements is true of conversion costs?

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Question 4

Answer the following questions using the information below: Jane Industries manufactures plastic toys. During October, Jane's Fabrication Department started work on 10,000 models. During the month, the company completed 11,000 models, and transferred them to the Distribution Department. The company ended the month with 1,500 models in ending inventory. There were 2,500 models in beginning inventory. All direct materials costs are added at the beginning of the production cycle and conversion costs are added uniformly throughout the production process. The FIFO method of process costing is being followed. Beginning work in process was 25% complete as to conversion costs, while ending work in process was 50% complete as to conversion costs. Beginning inventory: Direct materials costs $\quad \$ 19,200$ Conversion costs $\quad \quad \$ 10,800$ Manufacturing costs added auring the œcounting period: Direct materials costs $\quad \$ 70,000$ Conversion costs $\quad \quad \$ 240,000$ -What is the amount of direct materials cost assigned to ending work-in-process inventory at the end of October?

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Question 5

Ford Motor Company is said to use a hybrid costing system.What is a hybrid costing system,and what would be the advantage to Ford of such a system?

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Question 6

Answer the following questions using the information below: Assembly department of Zahra Technologies had 100 units as work in process at the beginning of the month. These units were 50% complete. It has 200 units which are 25% complete at the end of the month. During the month, it completed and transferred 500 units. Direct materials are added at the beginning of production. Conversion costs are allocated evenly throughout production. Zahra uses weighted-average process-costing method. -The number of equivalent units of work done during the month for direct materials is ________.

(Multiple Choice)

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Question 7

The weighted-average method merges unit costs from different accounting periods,obscuring period-to-period comparisons.

(True/False)

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Question 8

A distinctive feature of the FIFO process costing method is that the work done on beginning inventory before the current period is kept separate from work done in the current period.

(True/False)

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Question 9

Answer the following questions using the information below: Comfort chair company manufacturers a standard recliner. During February, the firm's Assembly Department started production of 73,000 chairs. During the month, the firm completed 78,000 chairs, and transferred them to the Finishing Department. The firm ended the month with 10,000 chairs in ending inventory. There were 15,000 chairs in beginning inventory. All direct materials costs are added at the beginning of the production cycle and conversion costs are added uniformly throughout the production process. The FIFO method of process costing is used by Comfort. Beginning work in process was 30% complete as to conversion costs, while ending work in process was 80% complete as to conversion costs. Beginning inventory: Direct materials \ 24,000 Conversion costs \ 35,000 Manufacturing costs added auring the œcounting period: Direct materials $\quad \$ 168,000$ Conversion costs $\quad \$ 278,000$ -What is the cost of the goods transferred out during February?

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Question 10

The purpose of the equivalent-unit computation is to ________.

(Multiple Choice)

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Question 11

Underestimating the degree of completion of ending work in process leads to increase in operating income.

(True/False)

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Question 12

Which of the following companies is most likely to use an operation-costing system?

(Multiple Choice)

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Question 13

Answer the following questions using the information below: Comfort chair company manufacturers a standard recliner. During February, the firm's Assembly Department started production of 73,000 chairs. During the month, the firm completed 78,000 chairs, and transferred them to the Finishing Department. The firm ended the month with 10,000 chairs in ending inventory. There were 15,000 chairs in beginning inventory. All direct materials costs are added at the beginning of the production cycle and conversion costs are added uniformly throughout the production process. The FIFO method of process costing is used by Comfort. Beginning work in process was 30% complete as to conversion costs, while ending work in process was 80% complete as to conversion costs. Beginning inventory: Direct materials \ 24,000 Conversion costs \ 35,000 Manufacturing costs added auring the œcounting period: Direct materials $\quad \$ 168,000$ Conversion costs $\quad \$ 278,000$ -What were the equivalent units for conversion costs during February?

(Multiple Choice)

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Question 14

Both,the standard-costing method and FIFO,assumes that the earliest equivalent units in beginning work in process are completed first.

(True/False)

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Question 15

In a period of falling prices,the lower cost of goods sold under the FIFO method leads to higher operating income and higher tax payments.

(True/False)

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Question 16

In the weighted-average costing method,the costs of direct materials in beginning inventory are NOT included in the cost per unit calculation since direct materials are almost always added at the start of the production process.

(True/False)

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Question 17

Answer the following questions using the information below: Assembly department of Zahra Technologies had 100 units as work in process at the beginning of the month. These units were 50% complete. It has 200 units which are 25% complete at the end of the month. During the month, it completed and transferred 500 units. Direct materials are added at the beginning of production. Conversion costs are allocated evenly throughout production. Zahra uses weighted-average process-costing method. -What is the total equivalent units in ending inventory for assignment of direct materials cost?

(Multiple Choice)

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Question 18

Serile Pharma places 900 units in production during the month of January.All 900 units are completed during the month.It had no opening inventory.Direct material costs added during January was $81,000 and conversion costs added during January was $9,000.What is the total cost per unit of the product produced during January?

(Multiple Choice)

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Question 19

Answer the following questions using the information below: Emerging Dock Company manufactures boat docks on an assembly line. Its standard costing system uses two cost categories, direct materials and conversion costs. Each product must pass through the Assembly Department and the Finishing Department. Direct materials are added at the beginning of the production process. Conversion costs are allocated evenly throughout production. Data for the Assembly Depatment for May $20 X 5$ are: Work in process, beginuning inventory: $\quad\quad\quad70 \text { units }$ Direct materials (100\% complete) Conversion costs ( $25 \%$ complete) $\text { Units started during May }$ $\quad\quad\quad40 \text { units }$ Work in process, ending inventory: $\quad\quad\quad40 \text { units }$ Direct materials ( $100 \%$ complete) Conversion costs ( $50 \%$ complete) Costs for May: Standard costs for Assembly: Direct materials $\quad\quad\quad\quad\quad\quad\quad\$ 8,000 \text { per unit }$ Conversion costs $\quad\quad\quad\quad\quad\quad\quad\$ 32,000 \text { per unit }$ Work in process, beginning inventory: $\quad\quad\quad \$280,000$ Direct materials Conversion costs $\quad\quad\quad\quad \$520,000$ -Which of the following journal entries records the standard costs of direct materials assigned to units worked on and total direct materials variances assuming that the Assembly Department used 10% less materials than expected?

(Multiple Choice)

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Question 20

Which of the following statements is true of conversion costs?

Ford Motor Company is said to use a hybrid costing system.What is a hybrid costing system,and what would be the advantage to Ford of such a system?

The weighted-average method merges unit costs from different accounting periods,obscuring period-to-period comparisons.

A distinctive feature of the FIFO process costing method is that the work done on beginning inventory before the current period is kept separate from work done in the current period.

The purpose of the equivalent-unit computation is to ________.

Underestimating the degree of completion of ending work in process leads to increase in operating income.

Which of the following companies is most likely to use an operation-costing system?

Both,the standard-costing method and FIFO,assumes that the earliest equivalent units in beginning work in process are completed first.

In a period of falling prices,the lower cost of goods sold under the FIFO method leads to higher operating income and higher tax payments.

In the weighted-average costing method,the costs of direct materials in beginning inventory are NOT included in the cost per unit calculation since direct materials are almost always added at the start of the production process.

The Manager and Management Accounting

An Introduction to Cost Terms and Purposes

Cost-Volume-Profit Analysis

Job Costing

Activity-Based Costing and Activity-Based Management

Master Budget and Responsibility Accounting

Flexible Budgets, direct-Cost Variances, and Management Control

Flexible Budgets, overhead Cost Variances, and Management Control

Inventory Costing and Capacity Analysis

Determining How Costs Behave

Decision Making and Relevant Information

Strategy, balanced Scorecard, and Strategic Profitability Analysis

Pricing Decisions and Cost Management

Cost Allocation, customer-Profitability Analysis, and Sales-Variance Analysis

Allocation of Support-Department Costs, common Costs, and Revenues

Cost Allocation: Joint Products and Byproducts

Spoilage, rework, and Scrap

Balanced Scorecard: Quality and Time

Inventory Management, just-In-Time, and Simplified Costing Methods

Capital Budgeting and Cost Analysis

Management Control Systems, transfer Pricing, and Multinational Considerations

Performance Measurement, compensation, and Multinational Considerations

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