Deck 18: Process Costing

Question 1

Assume that you are the production manager of the Assembly Department illustrated on pages 817-822 of this chapter (Metal Products, Inc.). One of your responsibilities is to determine whether costs are remaining relatively stable from month to month. Assume that the $29,500 associated with the 1,000 units is process on March 1 (see Exhibit 18-5, page 820) is comprised of the following:
The cost per equivalent unit of input resource used by the Assembly Department in March is as follows (see Exhibit 18-7, page 821):
Instructions
a. By how much did the cost per equivalent unit of cut material transferred in from the Cutting Department in February differ from the cost per equivalent unit of cut material transferred to the Assembly Department in March ?
b. By how much did the cost per equivalent unit of conversion for the Assembly Department in February differ front the cost per equivalent unit of conversion for the Assembly Department in March ?
c. Speculate as to why the cost per equivalent unit of input resource (cut materials and conversion) may have changed from February to March.

Answer 1

a. The cost per equivalent unit of cut materials transferred into the Assembly Department in February and reported as beginning inventory on March 1 was $25 per unit ($25,000 ÷ 1,000 units). The cost per equivalent unit of cut materials transferred into the Assembly Department in March was $20 per unit. Thus, the cost of cut materials decreased by $5 per unit.
b. The cost per equivalent unit of conversion for the Assembly Department in March was $25. The cost of conversion added by the Assembly Department in February and reported as beginning inventory on March 1 totals $4,500. However, this figure represents the conversion costs associated with 1,000 unfinished units that were only 30% complete with respect to conversion resources. Thus, the cost per equivalent unit of conversion included in the Assembly Department's beginning inventory is $15 per unit ($4,500 ÷ 1,000 units ÷ 30% complete = $15 per unit). Consequently, conversion costs incurred by the Assembly Department in March were $10 per unit less than the conversion costs per unit carried forward from February.
c. There are many reasons why the cost of cut materials transferred in from the Cutting Department and conversion costs incurred by the Assembly Department may have decreased. Possible reasons include:
• The Cutting Department began using a new supplier of direct materials in March (or negotiated a lower price for direct materials with its existing supplier).
• The Cutting Department began using lower quality direct materials in March to reduce costs.
• Workers in the Cutting Department may have worked excessive hours of overtime in February and therefore driven up the average hourly cost of direct labor.
• Overhead costs in both the Cutting Department and Assembly Department may have decreased because March is a warmer month than February (and heating costs are an element of manufacturing overhead).
• The company may have begun a more efficient manufacturing process in either or both departments that resulted in lower manufacturing overhead costs.

Question 2

Snack Happy makes chocolate brownies. The brownies pass through three production processes: mixing the batter, baking, and packaging. The company uses process costing.
The following are data concerning the costs incurred in each process during August, along with the number of units processed:
*A gross is 12 dozen.
To ensure freshness, brownies are baked and packaged on the same day that the batter is mixed.Thus the company has no inventory still in process at the end of a business day.
Instructions
a. Prepare a separate journal entry summarizing the costs incurred by the Mixing Department in preparing 20,000 pounds of batter in August. In the explanation of your entry, indicate the department's unit cost.
b. Prepare the month-end entry recording the transfer of batter to the Baking Department during August.
c. Prepare a journal entry summarizing the costs incurred by the Baking Department in August (excluding the costs transferred from the Mixing Department). In the explanation, indicate the cost per gross of the baking process.
d. Prepare the month-end entry recording the transfer of brownies from the Baking Department to the Packaging Department in August.
e. Prepare a journal entry summarizing the costs incurred by the Packaging Department in August. In the explanation, indicate the packaging cost per case.
f. Prepare the month-end entry to record the transfers in August of cases of brownies from the Packaging Department to the finished goods warehouse. In the explanation, indicate the total cost per case transferred.
g. Briefly explain how management will use the unit cost information appearing in entries a. c. e, and f.

Answer 2

g. Management will use the unit costs appearing in entries a, c, and e to evaluate the efficiency of each of the three departments in August. The $19.50 cost per box will be used to compute the cost of goods sold and to establish a selling price.

Question 3

Determining Departmental Manufacturing Costs
On September 1, the Blending Department of Jo's Bakery had costs carried forward from August totaling $50,000. Resources consumed to complete the beginning inventory totaled $39,000. The total cost of units started in the Blending Department during September was $500,000. On September 30, costs assigned to the department's ending inventory totaled $64,000. Compute the costs transferred out of the Blending Department during September.

Answer 3

Calculate the costs transferred out of the Blending Department during September:
Beginning work in process is 50,000, costs added to beginning inventory is 39,000, and costs added are $500,000.
Ending inventory total is $64,000
The question can be more easily understood, if represented in form of a T account.
Cost of goods transferred out is equal to beginning work in process plus costs added to beginning inventory plus costs added minus ending work in process.
Costs of goods transferred out is equal to
Therefore, after all incurred costs and inventory costs are assigned; the cost of goods transferred out is
.

Question 4

Why might the unit cost of those items started and completed during the period differ from the unit cost of all items completed and transferred during the period?

Question 5

What factor should be taken into account in deciding whether to use job order costing or process costing in any given production situation?

Question 6

Computing Equivalent Units of Resource Inputs
Kelsey Products has provided the following information pertaining to equivalent units of production in its Cutting Department for the month of September:

All of the direct materials used in the Cutting Department are added at the beginning of the process. On September 1, beginning inventory was 30 percent complete with respect to conversion. On September 30, ending inventory was 80 percent complete with respect to conversion. Compute equivalent units of direct materials and conversion used by the Cutting Department in September.

Question 7

Some companies that use process costing simply assign the entire cost of production to those units completed and transferred during the month, even if some units remain in process at the end of the period. Is this practice reasonable?

Question 8

Lavalear Corporation uses a process costing system and traces costs through several processing departments, starting with the Bonding Department. Shown below is information taken from the Bonding Department's September production cost report:
a. Compute the cost per equivalent unit of direct materials and conversion carried forward from August and assigned to the Bonding Department's beginning inventory on September I.
b. Compute the cost per equivalent unit of direct materials and conversion incurred by the Bonding Department in September.
c. Discuss how the cost figures computed in parts a and b would be useful to the company's management.

Question 9

Calculating Equivalent Units
Moon Gazers, Inc., produces telescopes for use by high school students. All direct materials used in the production of telescopes are added at the beginning of the manufacturing process. Labor and overhead are added evenly thereafter, as each unit is assembled, adjusted, and tested. Moon Gazers uses process costing and had the following unit production information available for the months of January and February:

The units remaining in work in process at the end of January were approximately 60 percent complete.
During the month of February, all of the beginning work in process units was completed and the units remaining in work in process at the end of the month were approximately 80 percent complete.
a. For the month of January, calculate the equivalent units produced for each of the two cost categories-direct materials and labor and overhead.
b. For the month of February, calculate the equivalent units produced for each of the two cost categories-direct materials and labor and overhead.

Question 10

What are the four significant parts of the production cost report for process costing?

Question 11

Process Costing with Beginning Inventories: Part I
Myer's Treats makes institutional cakes. Finished cakes must pass through two departments: Mixing and Baking. Vats of cake batter are processed in the Mixing Department and then transferred to the Baking Department, where individual cakes are baked, cooled, and frosted. There were 500 gallons of partially mixed batter in the Mixing Department's inventory on August 1. The batter was 100 percent complete with respect to direct materials, but only 30 percent complete with respect to conversion. Manufacturing costs assigned to the inventory carried forward from July totaled $1,800. During August, the Mixing Department started 11,500 new gallons of batter. August direct materials costs in the Mixing Department totaled $34,500, and conversion costs totaled $22,800. Ending inventory on August 31 consisted of 600 partially mixed gallons of batter. These units were 100 percent complete with respect to direct materials, but only 25 percent complete with respect to conversion.
a. Prepare a schedule showing: (1) gallons of mix transferred from the Mixing Department to the Baking Department in August, and (2) gallons of mix started and completed by the Mixing Department in August.
b. Compute the equivalent units of input resources for the Mixing Department in August.
c. Compute the cost per equivalent unit of input resource for the Mixing Department in August.
d. Prepare the summary journal entry required to transfer the cost of fully mixed batter from the Mixing Department to the Baking Department in August.
e. Compute the total cost assigned to the Mixing Department's ending inventory on August 31.

Question 12

In a process costing system that uses a FIFO cost flow assumption, how is the number of units started and completed during the period computed?

Question 13

One of Sun Appliance's products is a dishwasher. Two processing departments are involved in the dishwasher's manufacture. The tub is assembled in one department, and a second department assembles and installs the motor. There is no beginning or ending work in process in either department. During March, the company incurred the following costs in the manufacture of 4.000 dishwashers.
Instructions
a. Compute the following per-unit costs for the month of March:
1. A tub assembly transferred to the Motor Department.
2. Assembling a motor and installing it.
3. A completed dishwasher.
4. Materials used in assembling a tub.
5. Direct labor cost of assembling and installing a motor.
b. Which of these unit costs would be most useful to management in evaluating the overall monthly efficiency of the Motor Department? Explain your reasoning.

Question 14

Old Victrola. Inc., produces top-quality stereos and uses process costing. The manufacture of stereos is such that direct materials, labor, and overhead are all added evenly throughout the production process. Due to the smooth production process, only one cost category-manufacturing costs-is used for equivalent unit calculations. Old Victrola had the following cost and production information available for the months of March and-April:
Beginning work in process was 30 percent complete in March and 60 percent complete in April. Ending work in process was 60 percent complete in March and 35 percent complete in April.
a. For each of the two months, calculate the equivalent units of production.
b. Based on equivalent units produced, did total manufacturing costs per unit increase or decrease between March and April?
c. Did the direct materials cost per equivalent unit increase or decrease between March and April?

Question 15

Wilson Dynamics makes flanges in a continuous process through two departments: Forging and Assembly. All direct materials are added at the beginning of the process in the Forging Department, whereas all direct materials are added at the end of the process in the Assembly Department. Conversion costs are incurred uniformly over time in both departments. As units are completed in the Forging Department they are transferred to the Assembly Department. The costs associated with the transferred units are included in the computation of the Assembly Department's total costs. The information presented below was compiled at the end of July:
Instructions
a. Complete the following requirements for the Forging Department:
1. Prepare a schedule showing units started and completed in the Forging Department during July.
2. Compute the equivalent units of direct materials and conversion for the Forging Department in July.
3. Determine the cost per equivalent unit of input resource for the Forging Department during July.
4. Prepare the summary journal entry required to transfer units from the Forging Department to the Assembly Department during July.
5. Compute the costs assigned to ending inventory in the Forging Department on July 31.
b. Complete the following requirements for the Assembly Department:
1. Prepare, a schedule showing units started and completed in the Assembly Department during July.
2. Compute the equivalent units of direct materials and conversion for the Assembly Department in July, Direct materials include both those transferred in front the Forging Department and those added by the Assembly Department.
3. Determine the cost per equivalent unit of input resource for the Assembly Department during July.
4. Prepare the summary journal entry required to transfer units from the Assembly Department to Finished Goods Inventory during July.
5. Compute the costs assigned to ending inventory in the Assembly Department on July 31.

Question 16

Newton Corporation uses a process costing system to trace costs through several phases of production, starting with the Blending Department and ending with the Packaging Department. Recent computer problems have caused some of the company's accounting records to be destroyed. Shown below is a partial summary of information retrieved by accountants from the Blending Department's February production cost report:
a. Compute the number of units that were in the Blending Department's beginning inventory on February 1.
b. Compute the number of units that were started and completed by the Blending Department in February.
c. Compute the cost per equivalent unit of direct materials and conversion carried forward from January and assigned to the Blending Department's beginning inventory on February 1.
d. Compute the Blending Department's cost per equivalent unit of direct materials consumed in February.

Question 17

One of Mow-Town Manufacturing's products is a small lawnmower. Two processing departments are involved in the mower's production. The deck is assembled in one department, and a second department assembles and installs the engine. There is no beginning or ending work in process in either department. During May, the company incurred the following costs in the manufacture of 6.000 lawnmowers:
Instructions
a. Compute the following per-unit costs for the month of May.
1. A deck assembly transferred to the Engine Department.
2. Assembling an engine and installing it.
3. A completed lawnmower.
4. Materials used in assembling a deck.
5. Direct labor cost of assembling and installing an engine.
b. Which of these unit costs would be most useful to management in evaluating the overall monthly efficiency of the Engine Department? Explain your reasoning.

Question 18

Badgersize Company has the following information for its Forming Department for the month of August:
Assume materials are added at the start of processing.
Instructions
a. Calculate the equivalent units for the Forming Department for the month of August.
b. Find the cost per equivalent unit of the transferred units.

Question 19

Thompson Tools produces dampers in a continuous process through two departments: Assembly and Packaging. All direct materials are added at the beginning of the process in the Assembly Department, whereas all direct materials are added at the end of the process in the Packaging Department. Conversion costs are incurred uniformly over time in both departments. As units are completed in the Assembly Department, they are transferred to the Packaging Department. The costs associated with the transferred units are included in the computation of the Packaging Department s total costs. The information presented below was compiled at the end of March:
Instructions
a. Complete the following requirements for the Assembly-Department:
1. Prepare a schedule showing units started and completed in the Assembly Department during March.
2. Compute the equivalent units of direct materials and conversion for the Assembly Department in March.
3. Determine the cost per equivalent unit of input resource for the Assembly Department during March.
4. Prepare the summary journal entry required to transfer units from the Assembly Department to the Packaging Department during March.
5. Compute the costs assigned to ending inventory in the Assembly Department on March 31.
b. Complete the following requirements for the Packaging Department:
1. Prepare a schedule showing units started and completed in the Packaging Department during March.
2. Compute the equivalent units of direct materials and conversion for the Packaging Department in March. Direct materials include both those transferred in from the Assembly Department and those added by the Packaging Department.
3. Determine the cost per equivalent unit of input resource for the Packaging Department during March.
4. Prepare the summary journal entry required to transfer units from the Packaging department to Finished Goods Inventory during March.
5. Compute the costs assigned to ending inventory in the Packaging Department on March 31.

Question 20

For each of the four accounts listed below, prepare an example of a journal entry that would cause the account to be (1) debited and (2) credited using a process costing system. Assume perpetual inventory records are maintained, include written explanations with your journal entries and use "XXX" in place of dollar amounts.
a. Materials inventory
b. Direct Labor
c. Manufacturing Overhead
d. Finished Goods Inventory

Question 21

Balfanz Company has the following information for its Finishing Department for the month of September:
Assume materials are added at the start of processing.
Instructions
a. Calculate the equivalent units for the Finishing Department for the month of September.
b. Find the cost per equivalent unit of the transferred units.

Question 22

Interpreting a Production Cost Report
The following equivalent unit figures were taken from the December production cost report of the Distillation Department of Oil City Lubricants:

Question 23

Processes and Product Costs at PepsiCo
Visit the PepsiCo Web site at:
?? http://www.pepsiusa.com/faqs.php/
Follow the link to "How Pepsi is Made" (under "Product Information") for parts a., b., and c. Follow the links under "Community Information" for part d.
Instructions
a. ?Identify and discuss briefly the processes involved in manufacturing Pepsi.
b. ?What are Pepsi's direct materials?
c. ?Of the company's conversion costs, does labor or manufacturing overhead comprise the larger component of manufacturing costs? Defend your answer.
d. ?View the PepsiCo 's charitable, educational, and environmental initiatives. Would it be improper for PepsiCo to report these initiatives as product costs? Do you believe that it is ethical for PepsiCo to report only the positive impacts of its community-oriented efforts throughout the world? Defend your answer.

Question 24

Determining the Cost per Equivalent Unit of Input Resource
On March 1, Nina Manufacturing had 5,000 units in its Molding Department. These units were 60 percent complete with respect to direct materials requirements and 40 percent complete with respect to their conversion requirements. During March, the Molding Department started and completed 30,000 units. Direct materials costs in March incurred in the Molding Department totaled $405,600, whereas March conversion costs totaled $504,000. On March 31, there remained 2,000 units in ending inventory that were 90 percent complete with respect to direct materials, and 30 percent complete with respect to conversion.
a. Compute the Molding Department's cost per equivalent unit of direct materials in March.
b. Compute the Molding Department's cost per equivalent unit of conversion in March.

Question 25

Discuss how managers use information they obtain from process costing.

Question 26

Rodeo Drive Jewelers makes custom jewelry for celebrities. Would you expect the company to use job order or process costing? Explain.

Question 27

Taylor Malone is a law firm. Would the concepts of job order or process costing be more appropriate for this type of service business? Explain.

Question 28

Process Costing with Beginning Inventories: Part II
Exercise 18.9 is an extension of Exercise 18.8.
Myer's Treats uses one gallon of mix for each cake produced by the Baking Department. On August 1, the Baking Department had 600 cakes in process. These units were 100 percent complete with respect to batter transferred in from the Mixing Department during July, but only 80 percent complete with respect to direct (frosting) materials, and 40 percent complete with respect to conversion. Costs applied to these units carried forward from July totaled $5,880. Costs incurred by the Baking Department during August included $34,185 of direct materials and $67,860 of conversion. The ending inventory in the Baking Department on August 31 consisted of 500 cakes in process. These units were 100 percent complete with respect to batter transferred in from the Mixing Department, but only 75 percent complete with respect to direct (frosting) materials, and 10 percent complete with respect to conversion.
a. Compute how many cakes were started in the Baking Department during August.
b. Prepare a schedule showing: (1) cakes transferred out of the Baking Department in August, and (2) cakes started and completed by the Baking Department in August.
c. Compute the equivalent units of input resources for the Baking Department in August.
d. Compute the cost per equivalent unit of input resource for the Baking Department in August.
e. Prepare the summary journal entry required to transfer the cost of baked cakes from the Baking Department's Work in Process Inventory to the company's Finished Goods Inventory in August.
f. Compute the total cost assigned to the Baking Department's ending inventory in process on August 31.
Exercise 18.8
Process Costing with Beginning Inventories: Part I
Myer's Treats makes institutional cakes. Finished cakes must pass through two departments: Mixing and Baking. Vats of cake batter are processed in the Mixing Department and then transferred to the Baking Department, where individual cakes are baked, cooled, and frosted. There were 500 gallons of partially mixed batter in the Mixing Department's inventory on August 1. The batter was 100 percent complete with respect to direct materials, but only 30 percent complete with respect to conversion. Manufacturing costs assigned to the inventory carried forward from July totaled $1,800. During August, the Mixing Department started 11,500 new gallons of batter. August direct materials costs in the Mixing Department totaled $34,500, and conversion costs totaled $22,800. Ending inventory on August 31 consisted of 600 partially mixed gallons of batter. These units were 100 percent complete with respect to direct materials, but only 25 percent complete with respect to conversion.
a. Prepare a schedule showing: (1) gallons of mix transferred from the Mixing Department to the Baking Department in August, and (2) gallons of mix started and completed by the Mixing Department in August.
b. Compute the equivalent units of input resources for the Mixing Department in August.
c. Compute the cost per equivalent unit of input resource for the Mixing Department in August.
d. Prepare the summary journal entry required to transfer the cost of fully mixed batter from the Mixing Department to the Baking Department in August.
e. Compute the total cost assigned to the Mixing Department's ending inventory on August 31.

Question 29

Shamrock Industries uses process costing. All of the company's manufacturing activities take place in a single processing department. The following information was available tor the month of June:
The amounts of work in process at the beginning and end of the month were immaterial and assigned no dollar value. During June, 13,250 units were completed, of which 10,000 were sold on account at $25 per unit.
a. Prepare a journal entry to summarize the total manufacturing costs applied to production in June.
b. Prepare the journal entry to transfer completed units from work in process to the finished goods warehouse in June.
c. Prepare the journal entries 16 record the sale of 10,000 units manufactured during the period and the related cost of goods sold.

Question 30

Process Costing with No Beginning Inventories: Part I
Executive Designs began making high-quality office furniture in January. The company's executive desks are produced in two departments: Cutting and Finishing. Component kits are produced in the Cutting Department and then transferred to the Finishing Department for trimming and assembly. During its first month of operations, the Cutting Department started 15,000 executive desk kits. January direct materials costs in the Cutting Department totaled $600,000, and conversion costs totaled $590,000. Ending inventory on January 31 consisted of 4,000 partially processed component kits. These units were 100 percent complete with respect to direct materials, but only 20 percent complete with respect to conversion.
a. Compute the number of component kits transferred from the Cutting Department to the Finishing Department in January.
b. Compute the equivalent units of input resources for the Cutting Department in January.
c. Compute the cost per equivalent unit of input resource for the Cutting Department in January.
d. Prepare the summary journal entry required to transfer finished component kits from the Cutting Department to the Finishing Department in January.
e. Compute the total cost assigned to the Cutting Department's ending inventory on January 31.

Question 31

Interpreting a Production Cost Report
Temple Industrial's production cost report for its Packaging Department reveals that the cost per equivalent unit started and completed in November was $165. The same report reveals that the cost per equivalent unit transferred out of the Packaging Department in November was $162.
Were November manufacturing costs per equivalent unit higher than, lower than, or the same as October costs per equivalent unit? Explain your answer.

Question 32

Determine whether each of the following companies is best suited for a job order cost system, a process costing system, or both.
a. C.Erickson Sons,Inc. (a construction company with multiple job sites).
b. Apple Computer (a manufacturer of computers for individual and institutional clients).
c. Play World Systems, Inc. (a provider of custom-designed playground equipment for city parks and schools districts).
d. Strong Industries (a manufacturer of injection-molded plastic doghouses).
e. Nature Made Nutritional Products (a maker of vitamins and nutritional supplements).

Question 33

Refer to the information from Problem 18.2A.
Instructions
Complete a production cost report for the Motor Department of Sun Appliance for March.

Question 34

Refer to the information in Problem 18.5A.
Instructions
a. Complete a production cost report for the Badgersize Company Forming Department for the month of August.
b. Discuss how management might use the production cost report to help manage costs.

Question 35

Explain the term equivalent units. In a fast-moving, assembly-line operation, are the equivalent units likely to differ significantly from the number of units completed during a month? Explain.

Question 36

Viking Beer is a microbrewery that produces one type of beer. The production level is 18,000 gallons per month, which is bottled in 192,000 twelve-ounce bottles. The beer is brewed in batches of 3,600 gallons, which is the capacity of the fermenting tanks. Each batch requires six days of processing, during which it passes through six separate production processes.
Viking uses process costing. All manufacturing costs incurred during the month are assigned to the 192,000 bottles produced: no valuation is assigned to the 3,600 gallons currently silting in the fermenting tanks.
Viking has hired Matt Brown, a recent college graduate, as a cost analyst. After learning about the company's cost accounting system. Brown sent the following memo to Viking's controller:
I have two suggestions as to how we might improve our cost accounting system. First, our beer is processed in identifiable batches: so we could use job order, rather than process, costing. This would enable us to determine separately the cost of each batch.
Second, we always have 3,600 gallons of beer in the fermenting tanks. But our cost accounting system assigns all manufacturing costs during the period to the finished goods produced. Some of these costs should be assigned to the beer in the fermenting tanks and identified as "work in process inventory." This can be done by computing the equivalent units that these 3,600 gallons represent.
Instructions
As Viking's controller, draft a memo responding to Brown's suggestions.

Question 37

Refer to the information from Problem 18.2B.
Instructions
Complete a production cost report for the Engine Department of MowTown Manufacturing for May.

Question 38

Refer to the information in Problem 18.5B.
Instructions
a. Complete a production cost report for the Balfanz Company Finishing Department for the month of September.
b. Discuss how management might use the production cost report to help manage costs.

Question 39

Accessory World makes floor mats for the automobile industry. Finished sets of mats must pass through two departments: Cutting and Coating. Large sheets of synthetic material are cut to size in the Cutting Department and then transferred to the Coating Department, where each set is sprayed with a chemical coating for improved durability. The following information pertains to May activity in the Cutting Department:
a. Prepare a schedule showing: (1) the number of mat sets transferred from the Cutting Department to the Coating Department in May, and (2) the number of mat sets started and completed by the Cutting Department in May.
b. Compute the equivalent units of input resources for the Cutting Department in May.
c. Compute the cost per equivalent unit of input resource for the Cutting Department in May.
d. Prepare the summary journal entry required to transfer the cost of completed mat sets from the Cutting Department to the Coaling Department in May.
e. Compute the total cost assigned to the Cutting Department's ending inventory on May 31.

Question 40

Why would a company use multiple cost accounting systems?

Question 41

Journal Entries in Process Costing Systems
McGoun Corporation uses a process costing system for its two production departments: Mixing and Packaging. The company provided the following manufacturing cost information for the month of May:

a. Record the transfer of costs from the Mixing Department to the Packaging Department in May.
b. Record the transfer of costs from the Packaging Department to Finished Goods Inventory in May.

All of the direct materials used in the Cutting Department are added at the beginning of the process. On September 1, beginning inventory was 30 percent complete with respect to conversion. On September 30, ending inventory was 80 percent complete with respect to conversion. Compute equivalent units of direct materials and conversion used by the Cutting Department in September.

Question 42

Solving for Missing Information
Lewisburg Corporation had 12,000 units of beginning inventory in its Forming Department on July 1. The units were 100 percent complete with respect to direct materials requirements but only 40 percent complete with respect to conversion requirements. On July 31, the company had 9,000 units of inventory remaining in its Forming Department. These units were 100 percent complete with respect to their direct materials requirements but only 70 percent complete with respect to conversion. The Forming Department's direct materials cost for July totaled $400,000, or $25 per equivalent unit consumed. Its conversion costs for July totaled $328,000, or $16 per equivalent unit. Determine how many units were started and completed in the Forming Department during July.

Question 43

Identify various product characteristics that distinguish job costing systems from process costing systems.

Question 44

Listed below are six technical accounting terms introduced or emphasized in this chapter.
Each of the following statements may (or may not) describe these technical terms. For each statement, indicate the term described, or answer "None" if the statement does not correctly describe any of the terms.
a. The type of cost accounting method likely to be used in a Coca-Cola bottling plant.
b. Direct labor and overhead consumed in a production process.
c. A measure of the quantity of production work done during a time period, including work on partially completed units.
d. Process cost information for the period, including physical flow and total cost to account for.
e. The type of cost accounting method likely to be used by a construction company.

Question 45

Wrigley Company manufactures chewing gum. Visit its home page at the following address:
From the home page, click on the choices labeled "About Us," then "The Story of Wrigley" and "All About Chewing Gum."
Instructions
a. Prepare a simple flowchart that illustrates the major steps in the manufacture of chewing gum.
b. If Wrigley uses process costing, how many separate processing departments might be used and what would you label them?
c. What do you think are the major types of manufacturing overhead at Wrigley ? What activity bases could be used to assign each type of overhead to the processing departments you listed in part b ?
Internet sites are time and date sensitive. It is the purpose of these exercises to have you explore the Internet. You may need to use the Yahoo! search engine http://www.yahoo.com (or another favorite search engine) to look for a company's current Web address.

Question 46

Briefly explain the operation of process costing, including the manner in which the unit costs of finished goods are determined.

Question 47

Exercise 18.11 is an extension of Exercise 18.10.
The following information pertains to May activity in Accessory World's Coating Department:
a. Compute how many cut mat sets were started in the Coating Department during May.
b. Prepare a schedule showing: (1) the number of mat sets transferred out of the Coating Department in May, and (2) the number of mat sets started and completed by the Coating Department in May.
c. Compute the equivalent units of input resources for the Coating Department in May.
d. Compute the cost per equivalent unit of input resource for the Coating Department in May.
e. Prepare the summary journal entry required to transfer the cost of finished mat sets from the Coating Department's Work in Process Inventory to the company's Finished Goods Inventory in May.
f. Compute the total cost assigned lo the Coating Department's ending inventory in process on May 31.

Question 48

Calculating Equivalent Units
Brite Ideas, Inc., mass-produces reading lamps. Materials used in constructing the body of the lamp are added at the start of the process, while the materials used in wiring the lamps are added at the halfway point. All labor and overhead are added evenly throughout the manufacturing process. Brite Ideas uses process costing and had the following unit production information available for the months of June and July:

In June, the lamps in beginning work in process were approximately 70 percent complete, while those in ending work in process were only 40 percent complete. In July, the units remaining in ending work in process were 90 percent complete. All lamps in ending work in process are finished during the next month.
Instructions
a. For the month of June, calculate the equivalent units of production for the three major cost categories-body materials, wiring materials, and labor and overhead.
b. For the month of July, calculate the equivalent units of production for the three major cost categories-body materials, wiring materials, and labor and overhead.

Question 49

Describe at least two products or production processes that might use both process and job order costing methods to determine the cost of a finished unit.

Question 50

Process Costing with No Beginning Inventories: Part II
Exercise 18.7 is an extension of Exercise 18.6.
Assume that on January 31 the Finishing Department of Executive Designs had 3,000 partially trimmed and assembled executive desks in ending inventory. These units were, of course, 100 percent complete with respect to components transferred in from the Cutting Department, but only 30 percent complete with respect to direct trim materials, and 60 percent complete with respect to conversion. During January, the Finishing Department incurred direct materials costs (for trim) of $142,400, and conversion costs of $235,200.
a. Compute how many units were started in the Finishing Department during January.
b. Compute the number of executive desks transferred out of the Finishing Department in January.
c. Compute the equivalent units of input resources for the Finishing Department in January.
d. Compute the cost per equivalent unit of input resource for the Finishing Department in January.
e. Prepare the summary journal entry required to transfer the cost of executive desks from the Finishing Department's Work in Process Inventory to the company's Finished Goods Inventory in January.
f. Compute the total cost assigned to the Finishing Department's ending inventory in process on January 31.
Exercise 18.6
Process Costing with No Beginning Inventories: Part I
Executive Designs began making high-quality office furniture in January. The company's executive desks are produced in two departments: Cutting and Finishing. Component kits are produced in the Cutting Department and then transferred to the Finishing Department for trimming and assembly. During its first month of operations, the Cutting Department started 15,000 executive desk kits. January direct materials costs in the Cutting Department totaled $600,000, and conversion costs totaled $590,000. Ending inventory on January 31 consisted of 4,000 partially processed component kits. These units were 100 percent complete with respect to direct materials, but only 20 percent complete with respect to conversion.
a. Compute the number of component kits transferred from the Cutting Department to the Finishing Department in January.
b. Compute the equivalent units of input resources for the Cutting Department in January.
c. Compute the cost per equivalent unit of input resource for the Cutting Department in January.
d. Prepare the summary journal entry required to transfer finished component kits from the Cutting Department to the Finishing Department in January.
e. Compute the total cost assigned to the Cutting Department's ending inventory on January 31.

Question 51

In a process costing system, what condition must be present in order for accountants to combine direct labor and manufacturing overhead costs and treat them simply as conversion costs?

Question 52

Calculating Equivalent Units
Street Smarts, Inc., mass-produces street lights. Materials used in constructing the body of the lights are added at the start of the process, while the materials used in wiring the lights are added at the halfway point. All labor and overhead are added evenly throughout the manufacturing process.
Street Smarts uses process costing and had the following unit production information available for the months of March and April:

In March, the lights in beginning work in process were approximately 90 percent complete, while those in ending work in process were only 40 percent complete. In April, the units remaining in ending work in process were 75 percent complete. All lights in ending work in process are finished during the next month.
Instructions
a. For the month of March, calculate the equivalent units of production for the three major cost categories-body materials, wiring materials, and labor and overhead.
b. For the month of April, calculate the equivalent units of production for the three major cost categories-body materials, wiring materials, and labor and overhead.

Question 53

Use the information from Exercise 18.3 to complete a production cost report for Shamrock Industries for the month of June.

Question 54

Hound Havens produces plastic doghouses as part of a continuous process through two departments: Molding and Finishing. Direct materials and conversion are added throughout the month in both departments, but at different rates. The information presented below was compiled at the end of April:
Instructions
a. Complete the following requirements for the Molding Department:
1. Prepare a schedule showing units started and completed in the Molding Department during April.
2. Compute the equivalent units of direct materials and conversion for the Molding Department in April.
3. Determine the cost per equivalent unit of input resource for the Molding Department during April.
4. Prepare the summary journal entry required to transfer units from the Molding Department to the Finishing Department during April.
5. Compute the costs assigned to ending inventory in the Molding Department on April 30.
b. Complete the following requirements for the Finishing Department:
1. Prepare a schedule showing units started and completed in the Finishing Department during April.
2. Compute the equivalent units of direct materials and conversion for the Finishing Department in April. Direct materials include both those transferred in from the Molding Department and those added by the Finishing Department.
3. Determine the cost per equivalent unit of input resource for the Finishing Department during April.
4. Prepare the summary journal entry required to transfer units from the Finishing Department to Finished Goods Inventory during April.
5. Compute the costs assigned to ending inventory in the Finishing Department on April 30.

Question 55

Why is the combination of direct labor and manufacturing overhead referred to as a conversion cost?

Question 56

Match the business with the appropriate cost system(s) for that business using the number of the cost system where l = job order costing, 2 = process costing, and 3 = activity-based costing.
a. Ketcher. fryer, and Friar, attorneys-al-law
b. Wal-Mart, Inc.
c. Johnson Johnson Company
d. Handyman Special, Inc
e. Carpet Makers Corporation

Question 57

Toll House makes chocolate chip cookies. The cookies pass through three production processes: mixing the cookie dough, baking, and packaging. Toll House uses process costing.
The following are data concerning the costs incurred in each process during May, along with the number of units processed:
*A gross is 12 dozen.
To ensure freshness, cookies are baked and packaged on the same day that the dough is mixed.Thus the company has no inventory still in process at the end of a business day.
Instructions
a. Prepare a separate journal entry summarizing the costs incurred by the Mixing Department in preparing 14,000 pounds of cookie dough in May. In the explanation of your entry, indicate the department's unit cost.
b. Prepare the month-end entry recording the transfer of cookie dough to the Baking Department during May.
c. Prepare a journal entry summarizing the costs incurred by the Baking Department in May (excluding the costs transferred from the Mixing Department). In the explanation, indicate the cost per gross of the baking process.
d. Prepare the month-end entry recording the transfer of cookies from the Baking Department to the Packaging Department in May.
e. Prepare a journal entry summarizing the costs incurred by the Packaging Department in May. In the explanation, indicate the packaging cost per box.
f. Prepare the month-end entry to record the transfers in May of boxes of cookies from the Packaging Department to the finished goods warehouse. In the explanation, indicate the total cost per box transferred.
g. Briefly explain how management will use the unit cost information appearing in entries a, c, e, and f.

Question 58

Delray Industries manufactures plastic wading pools as part of a continuous process through two departments: Molding and Finishing. Direct materials and conversion are added throughout the month in both departments, but at different rates. The information presented below was compiled at the end of June:
Instructions
a. Complete the following requirements for the Molding Department:
1. Prepare a schedule showing units started and completed in the Molding Department during June.
2. Compute the equivalent units of direct materials and conversion for the Molding Department in June.
3. Determine the cost per equivalent unit of input resource for the Molding Department during June.
4. Prepare the summary journal entry required to transfer units from the Molding Department lo the Finishing Department during June.
5. Compute the costs assigned to ending inventory in the Molding Department on June 30.
b. Complete the following requirements for the Finishing Department:
1. Prepare a schedule showing units started and completed in the Finishing Department during June.
2. Compute the equivalent units of direct materials and conversion for the Finishing Department in June. Direct materials include both those transferred in from the Molding Department and those added by the Finishing Department.
3. Determine the cost per equivalent unit of input resource for the Finishing Department during June.
4. Prepare the summary journal entry required to transfer units from the Finishing Department to Finished Goods Inventory during June.
5. Compute the costs assigned to ending inventory in the Finishing Department on June 30.

Question 59

Assessing the Need for Process Costing
Potter Corporation mass-produces pencils through several processing departments 10 hours per day, 300 days per year. The company currently uses a process costing system and traces manufacturing costs from one process department to the next. The company produces over 30 million pencils per year. The number of pencils in production at any single point in time never exceeds 50,000.
Jim Dank has just been hired as the company's cost accountant. Given the company's annual output relative to production activity at any single point in time, Dank suspects that the cost of maintaining a process costing system outweighs the benefit. Therefore, Dank recommends that the company's current work in process inventory accounts be eliminated, and that all manufacturing costs be charged directly to the Finished Goods Inventory account.
Defend Dank's recommendation.