CHAPTER PROCESS COSTING SUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOM’S TAXONOMY Item SO BT Item SO BT Item SO BT Item SO BT 8 8 K K K K K K K K 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 a 117 6 6 6 6 6 6 6 6 7 AP AP AP C AP AP AP AP AP AP AP AP AP AP AP AP K K K AP 146 147 a 148 8 AP AP AP Item SO BT C K K K K 8 8 8 2 5 6 6 AP AP AP AP AP AP AP K K K K K K AP K C AP K K True-False Statements 1 2 2 K K C C K K K C 10 11 12 13 14 15 16 4 5 5 K K K C K K K AP 17 18 19 20 21 22 23 24 6 6 6 7 K C K K C K K K 25 26 a 27 a 28 a 29 a 30 sg 31 sg 32 a sg 33 34 sg 35 sg 36 sg,a 37 sg Multiple Choice Questions 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 1 1 2 2 2 4 4 4 5 C C K K K C K C K K C K C C C C K C AP AP 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 5 5 5 5 5 5 5 5 5 6 AP AP AP K AP AP AP C AP AP AP AP AP AP AP AP AP AP AP AP 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 6 6 6 6 6 6 6 6 6 6 AP AP AP AP AP AP AP AP AP AP AP AP C C AP K AP AP AP AP Brief Exercises 137 138 139 sg st a 5 AP AP AP 140 141 142 6 AP AP AP 143 144 145 6 AP AP AP a This question also appears in the Study Guide This question also appears in a self-test at the student companion website This topic is dealt with in an Appendix to the chapter a 118 119 a 120 a 121 a 122 a 123 a 124 st 125 sg 126 st 127 sg 128 sg 129 st 130 sg 131 st 132 sg 133 sg 134 st 135 sg 136 a 3-2 Test Bank for ISV Managerial Accounting, Fourth Edition SUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOM’S TAXONOMY Exercises 149 150 151 152 153 4 4 AP AP AP AP AP 154 155 156 157 158 5 5,6 5,6 5,6 AP AP AP AN AP 159 160 161 162 163 5,6 5,6 5,6 5,6 AP AP AP AP AP 164 165 166 167 168 6 7 AP AP AP AP AP 6 AP K 169 170 a 171 8 AP AP AP 180 K a Completion Statements 172 173 K K 174 175 K K 176 177 K K 178 179 SUMMARY OF STUDY OBJECTIVES BY QUESTION TYPE Item Type Item Type Item TF TF 31 TF TF 38 39 TF TF TF 32 43 TF TF MC 44 45 46 33 TF 10 TF TF TF 11 34 50 TF TF MC 51 52 53 12 13 14 15 16 35 TF TF TF TF TF TF 56 57 58 59 60 61 MC MC MC MC MC MC 62 63 64 65 66 67 17 18 19 20 21 22 36 76 77 78 TF TF TF TF TF TF TF MC MC MC 79 80 81 82 83 84 85 86 87 88 MC MC MC MC MC MC MC MC MC MC 89 90 91 92 93 94 95 96 97 98 Type Item Type Item Study Objective MC 40 MC 42 MC 41 MC 125 Study Objective MC 47 MC 126 MC 48 MC 127 MC 49 MC 173 Study Objective Study Objective MC 54 MC 149 MC 55 MC 150 MC 128 MC 151 Study Objective MC 68 MC 74 MC 69 MC 75 MC 70 MC 129 MC 71 MC 130 MC 72 MC 137 MC 73 MC 138 Study Objective MC 99 MC 109 MC 100 MC 110 MC 101 MC 111 MC 102 MC 112 MC 103 MC 113 MC 104 MC 131 MC 105 MC 132 MC 106 MC 133 MC 107 MC 134 MC 108 MC 135 Type Item Type Item Type MC MC 172 C MC MC C 174 C Ex Ex Ex 152 153 175 Ex Ex C MC MC MC MC BE BE 139 154 155 156 157 158 BE Ex Ex Ex Ex Ex 159 160 161 162 176 Ex Ex Ex Ex C MC MC MC MC MC MC MC MC MC MC 140 141 142 143 144 145 146 156 157 158 BE BE BE BE BE BE BE Ex Ex Ex 159 160 161 162 163 164 165 177 178 179 Ex Ex Ex Ex Ex Ex Ex C C C Process Costing 23 24 TF TF 25 114 TF MC 115 116 26 27 28 TF TF TF 29 30 37 TF TF TF 117 118 119 Note: TF = True-False MC = Multiple Choice Study Objective MC 136 MC 167 MC 166 Ex 168 a Study Objective MC 120 MC 123 MC 121 MC 124 MC 122 MC 147 Ex Ex 169 180 Ex C MC MC BE 148 170 171 BE Ex Ex BE = Brief Exercise Ex = Exercise 3-3 C = Completion The chapter also contains one set of eight Matching questions and four Short-Answer Essay questions CHAPTER STUDY OBJECTIVES Understand who uses process cost systems Companies that mass-produce similar products in a continuous fashion use process cost systems Once production begins, it continues until the finished product emerges Each unit of finished product is indistinguishable from every other unit Explain the similarities and differences between job order cost and process cost systems Job order cost systems are similar to process cost systems in three ways: (1) Both systems track the same cost elements—direct materials, direct labor, and manufacturing overhead (2) Both accumulate costs in the same accounts—Raw Materials Inventory, Factory Labor, and Manufacturing Overhead (3) Both assign accumulated costs to the same accounts—Work in Process, Finished Goods Inventory, and Cost of Goods Sold However, the method of assigning costs differs significantly There are four main differences between the two cost systems: (1) A process cost system uses separate accounts for each department or manufacturing process, rather than only one work in process account used in a job order cost system (2) A process cost system summarizes costs in a production cost report for each department A job cost system charges costs to individual jobs and summarizes them in a job cost sheet (3) Costs are totaled at the end of a time period in a process cost system, but at the completion of a job in a job cost system (4) A process cost system calculates unit cost as: Total manufacturing costs for the period ÷ Units produced during the period A job cost system calculates unit cost as: Total cost per job ÷ Units produced Explain the flow of costs in a process cost system A process cost system assigns manufacturing costs for raw materials, labor, and overhead to work in process accounts for various departments or manufacturing processes It transfers the costs of partially completed units from one department to another as those units move through the manufacturing process The system transfers the costs of completed work to Finished Goods Inventory Finally, when inventory is sold, the system transfers the costs to Cost of Goods Sold 3-4 Test Bank for ISV Managerial Accounting, Fourth Edition Make the journal entries to assign manufacturing costs in a process cost system Entries to assign the costs of raw materials, labor, and overhead consist of a credit to Raw Materials Inventory, Factory Labor, and Manufacturing Overhead, and a debit to Work in Process for each department Entries to record the cost of goods transferred to another department are a credit to Work in Process for the department whose work is finished and a debit to the department to which the goods are transferred The entry to record units completed and transferred to the warehouse is a credit for the department whose work is finished and a debit to Finished Goods Inventory The entry to record the sale of goods is a credit to Finished Goods Inventory and a debit to Cost of Goods Sold Compute equivalent units Equivalent units of production measure work done during a period, expressed in fully completed units Companies use this measure to determine the cost per unit of completed product Equivalent units are the sum of the units completed and transferred out plus equivalent units of ending work in process Explain the four steps necessary to prepare a production cost report The four steps to complete a production cost report are: (1) Compute the physical unit flow—that is, the total units to be accounted for (2) Compute the equivalent units of production (3) Compute the unit production costs, expressed in terms of equivalent units of production (4) Prepare a cost reconciliation schedule, which shows that the total costs accounted for equal the total costs to be accounted for Prepare a production cost report The production cost report contains both quantity and cost data for a production department There are four sections in the report: (1) number of physical units, (2) equivalent units determination, (3) unit costs, and (4) cost reconciliation schedule a Compute equivalent units using the FIFO method Equivalent units under the FIFO method are the sum of the work performed to: (1) Finish the units of beginning work in process inventory, if any (2) Complete the units started into production during the period (3) Start, but only partially complete, the units in ending work in process inventory Process Costing 3-5 TRUE-FALSE STATEMENTS Process cost accounting focuses on the process involved in mass-producing products that are very similar in nature Process cost systems are used to apply costs to a specific job, such as the manufacturing of a specialized machine A company that produces motion pictures would likely use a process cost system In a process cost system, costs are tracked through a series of connected manufacturing processes or departments, rather than by individual jobs In a process cost system, total costs are determined at the end of a month or year Separate work in process accounts are maintained for each production department or manufacturing process in a process cost system In a process cost system, materials, labor and overhead are only added in the first production department The assignment of the three manufacturing cost elements to Work in Process in a process cost system is the same as in a job order cost system Fewer materials requisitions are generally required in a process cost system than in a job order cost system 10 In a process cost system, all labor costs incurred within a producing department are a cost of processing the raw materials 11 A primary driver of overhead costs in continuous manufacturing operations is machine time used 12 Equivalent units of production are used to determine the cost per unit of completed products 13 Equivalent units of production measure the work done during a period, expressed in fully completed units 14 Equivalent units of production is the sum of units completed and transferred out plus equivalent units of beginning work in process 15 The weighted-average method of computing equivalent units is the most widely used method in practice 16 There are no units in process at the beginning of the period, 1,000 units in process at the end of the period that are 40% complete, and 10,000 units transferred out during the period Based on this information, there were 9,600 equivalent units of production during the period 17 The first step performed in preparing a production cost report is computing the equivalent units of production 3-6 Test Bank for ISV Managerial Accounting, Fourth Edition 18 Equivalent units of production must be calculated before the unit production costs can be computed 19 The physical units in a department are another name for the equivalent units of production 20 Unit material cost is computed by taking total material costs charged to the department for the period and dividing by the physical units in the process during the period 21 When equivalent units of production are different for materials and conversion costs, unit costs are computed for materials, conversion, and total manufacturing 22 The total manufacturing cost per unit is used in costing the units completed and transferred during the period 23 A production cost report is an internal document for management that shows production quantity and cost data for a particular job 24 Production cost reports provide a basis for evaluating the productivity of a department 25 Companies often use a combination of a process cost and a job order cost system, called operations costing a 26 The FIFO method is easier to understand and use than the weighted-average method a 27 The FIFO method is conceptually superior to the weighted-average method a 28 When comparing the FIFO with the weighted-average method, the FIFO method provides current cost information a 29 There are no units in ending work in process at the end of the period under the FIFO method a 30 Companies using the weighted-average method not complete units left over from the previous accounting periods They start new units Additional True-False Questions 31 In continuous process manufacturing, generally once the production begins, it continues until the finished product emerges 32 One similarity of process cost accounting with job order cost accounting is that both determine total manufacturing costs after each job 33 The flow of costs in a process costing system requires that materials be added in one department, labor added in another department and manufacturing overhead in a third department 34 When finished goods are sold, the entry to record the cost of goods sold is a debit to Finished Goods Inventory and a credit to Cost of Goods Sold Process Costing a 3-7 35 When there is no beginning work in process and materials are entered at the beginning of the process, equivalent units of materials are the same as the units started into production 36 In order to compute the physical unit flow, a company must first compute unit production costs 37 Under the FIFO method, it is assumed that the beginning work in process is completed before new work is started Answers to True-False Statements Item Ans T F F T T T Item 10 11 12 Ans F F T T T T Item 13 14 15 16 17 18 Ans T F T F F T Item 19 20 21 22 23 24 Ans F F T T F T Item 25 26 a 27 a 28 a 29 a 30 a Ans T F T T F F Item 31 32 33 34 35 36 Ans T F F F T F Item a 37 Ans T MULTIPLE CHOICE QUESTIONS 38 A process cost accounting system is most appropriate when a a variety of different products are produced, each one requiring different types of materials, labor, and overhead b the focus of attention is on a particular job or order c similar products are mass-produced d individual products are custom made to the specification of customers 39 A characteristic of products that are mass-produced in a continuous fashion is that a the products are identical or very similar in nature b they are grouped in batches c they are produced at the time an order is received d their costs are accumulated on job cost sheets 40 A process cost system would be used for all of the following products except a chemicals b computer chips c motion pictures d soft drinks 41 In a process cost system, a a Work in Process account is maintained for each product b a materials requisition must identify the job on which the materials will be used c a Work in Process account is maintained for each process d one Work in Process account is maintained for all the processes, similar to a job order cost system 3-8 Test Bank for ISV Managerial Accounting, Fourth Edition 42 Differences between a job order cost system and a process cost system include all of the following except the a documents used to track costs b point at which costs are totaled c unit cost computations d flow of costs 43 Which of these best reflects a distinguishing factor between a job order cost system and a process cost system? a The detail at which costs are calculated b The time period each covers c The number of work in process accounts d The manufacturing cost elements included 44 Which of the following is a true statement about process cost systems? a In process cost systems, costs are accumulated but not assigned b A process cost system has one work in process account for each process c In process cost systems, costs are summarized on job cost sheets d Unit costs are not computed in process cost systems 45 Which of the following is correct regarding cost systems? a b c d Work in process account Work in process account Work in process account Work in process account Job Order several one one several Process one for each process one one for each process one 46 In a process cost system, unit costs are determined using a a numerator of costs of each job b denominator of units produced during the period c denominator of units produced for the job d denominator of units produced for the day 47 In process cost accounting, manufacturing costs are summarized on a a job order cost sheet b process order cost sheet c production cost report d manufacturing cost sheet 48 Which of the following manufacturing cost elements occurs in a process cost system? a Direct materials b Direct labor c Manufacturing overhead d All of these 49 In a process cost system, product costs are summarized a on job cost sheets b on production cost reports c after each unit is produced d when the products are sold Process Costing 3-9 50 When manufacturing overhead costs are assigned to production in a process cost system, they are debited to a the Finished Goods Inventory account b Cost of Goods Sold c a Manufacturing Overhead account d the Work in Process account 51 A product requires processing in two departments, Department A and then Department B, before it is completed Costs transferred out of Department A will be transferred to a Finished Goods Inventory b Cost of Goods Sold c Work in Process—Department B d Manufacturing Overhead 52 Which of the following would not appear as a debit in the Work in Process account of a second department in a two stage production process? a Materials used b Overhead applied c Labor assigned d Cost of products transferred out 53 Materials requisitions are a not used in process costing b generally used more frequently in process costing than job order costing c generally used less frequently in process costing than job order costing d used more frequently by latter stage production departments 54 A primary driver of overhead costs in continuous manufacturing operations is a direct labor dollars b direct labor hours c machine hours d machine maintenance dollars 55 Price Manufacturing assigns overhead based on machine hours Department A logs 1,200 machine hours and Department B shows 2,000 machine hours for the period If the overhead rate is $5 per machine hour, the entry to assign overhead will show a a debit to Manufacturing Overhead for $16,000 b credit to Work in Process—Department B for $10,000 c debit to Work in Process for $10,000 d credit to Manufacturing Overhead for $16,000 56 Barnes and Miller Manufacturing is trying to determine the equivalent units for conversion costs with 3,000 units of ending work in process at 80% completion and 14,000 physical units There are no beginning units in the department Conversion costs occur evenly throughout the entire production period What are the equivalent units for conversion costs for the current period? a 17,000 b 16,800 c 2,400 d 13,400 - 10 Test Bank for ISV Managerial Accounting, Fourth Edition 57 7,000 units in a process that are 70% complete are referred to as a 7,000 equivalent units of production b 2,100 equivalent units of production c 4,900 equivalent units of production d 2,100 unequivalent units of production 58 A process with no beginning work in process, completed and transferred out 45,000 units during a period and had 30,000 units in the ending work in process inventory that were 30% complete The equivalent units of production for the period were a 45,000 equivalent units b 75,000 equivalent units c 54,000 equivalent units d 22,500 equivalent units Use the following information for questions 59–60 A department adds raw materials to a process at the beginning of the process and incurs conversion costs uniformly throughout the process For the month of January, there were no units in the beginning work in process inventory; 80,000 units were started into production in January; and there were 20,000 units that were 40% complete in the ending work in process inventory at the end of January 59 What were the equivalent units of production for materials for the month of January? a 88,000 equivalent units b 72,000 equivalent units c 60,000 equivalent units d 80,000 equivalent units 60 What were the equivalent units of production for conversion costs for the month of January? a 60,000 equivalent units b 72,000 equivalent units c 68,000 equivalent units d 80,000 equivalent units 61 Equivalent units are calculated by a multiplying the percentage of work done by the equivalent units of output b dividing physical units by the percentage of work done c multiplying the percentage of work done by the physical units d dividing equivalent units by the percentage of work done 62 Minor Company had the following department data: Physical Units Work in process, July 16,000 Completed and transferred out 72,000 Work in process, July 31 24,000 Materials are added at the beginning of the process What is the total number of equivalent units for materials in July? a 72,000 b 80,000 c 112,000 d 96,000 - 40 Ex 161 Test Bank for ISV Managerial Accounting, Fourth Edition (cont.) Instructions Answer the following questions and show the computations that support your answers What are the equivalent units of production for materials and conversion costs in the Fabricating Department for the month of March? What are the costs assigned to the ending work in process inventory on March 31? What are the costs assigned to units completed and transferred out during March? Solution 161 (15–20 min.) Equivalent units of production: Transferred out Work in process, March 31 Total Physical Units 50,000 15,000 65,000 Equivalent Units Materials Conversion Costs 50,000 50,000 15,000 3,000* 65,000 53,000 *(15,000 × 20) Materials unit cost Conversion unit cost Total unit cost *($95,000 + $230,000) $5 $8 ($325,000* ÷ 65,000 units) ($159,000** ÷ 53,000 units) **[($125,000 – $95,000) + $129,000] Costs assigned to work in process, March 31 Materials costs $75,000 (15,000 units × $5) Conversion costs 9,000 (3,000 units × $3) Total $84,000 Costs assigned to units completed and transferred out: 50,000 × $8 = $400,000 Ex 162 Given below are the production data for Department No for the first month of operation: Costs charged to Department 1: Materials $12,000 Labor 2,800 Overhead 12,400 During this first month of operations, 4,000 units were started into production; 3,500 units were transferred out; and the remaining 500 units are 100% completed with respect to materials and 60% complete with respect to conversion costs Instructions Compute the following: (a) Unit materials cost (b) Equivalent units of conversion costs (c) Unit conversion cost (d) Total cost of 500 units in process at end of month (e) Total cost of 3,500 units transferred out Process Costing Solution 162 - 41 (14–18 min.) (a) Unit materials cost: $12,000 ÷ 4,000 equivalent units for materials = $3.00 (b) Equivalent units of conversion costs: 3,500 completed + (60% × 500) = 3,800 equivalent units of conversion costs (c) Unit conversion cost: ($2,800 + $12,400) ÷ 3,800 equivalent units = $4.00 (d) Total cost of 500 units in work in process Materials, 500 × $3.00 = Conversion costs, 300 × $4.00 = Total (e) $1,500 1,200 $2,700 Total cost of 3,500 transferred out units: 3,500 × ($3.00 + $4.00) = $24,500 Ex 163 Grey Building Supplies' total materials costs are $40,000 and total conversion costs are $39,000 Equivalent units of production for materials are 10,000, and 6,500 for conversion costs Instructions Compute the unit costs for materials, conversion costs, and total manufacturing costs for the month Solution 163 (6–8 min.) COSTS Unit Costs Costs incurred Equivalent units Unit costs Materials $40,000 10,000 $4.00 Conversion Costs $39,000 6,500 $6.00 Total $79,000 $10.00 Ex 164 Glazer, Inc has the following production data for June: Transferred out Ending work in process 50,000 units 6,000 units The units in work in process are 100% complete for materials and 60% complete for conversion costs Materials costs are $8 per unit and conversion costs are $11 per unit Instructions Determine the costs to be assigned to the units transferred out and the units in ending work in process - 42 Test Bank for ISV Managerial Accounting, Fourth Edition Solution 164 (8 min.) Cost Reconciliation Schedule Costs accounted for Transferred out (50,000 × $19) Work in process, June 30 Materials (6,000 × $8) Conversion costs (3,600* × $11) Total costs *(6,000 × 60%) $ 950,000 $48,000 39,600 87,600 $1,037,600 Ex 165 Production costs chargeable to the Sanding Department in July in Magnum Company are $20,000 for materials, $17,000 for labor, and $10,000 for manufacturing overhead Equivalent units of production are 25,000 for materials and 18,000 for conversion costs Instructions Compute the unit costs for materials and conversion costs Solution 165 (6-8 min.) COSTS Unit Costs Costs in July Equivalent units Unit costs Materials $20,000 25,000 $0.80 Conversion Costs $27,000 18,000 $1.50 Total $47,000 $2.30 Ex 166 Poole Manufacturing Company uses a process cost system The Molding Department adds materials at the beginning of the process and conversion costs are incurred uniformly throughout the process Work in process on May was 75% complete and work in process on May 31 was 40% complete Instructions Complete the Production Cost Report for the Molding Department for the month of May using the above information and the information below Process Costing Ex 166 - 43 (cont.) POOLE MANUFACTURING COMPANY Molding Department Production Cost Report For the Month Ended May 31, 2008 QUANTITIES Units to be accounted for Work in process, May Started into production Total units Units accounted for Transferred out Work in process, May 31 Total units COSTS Unit costs Costs in May Equivalent units Unit costs Physical Units Materials 16,000 50,000 66,000 46,000 20,000 66,000 Materials $198,000 $ Conversion Costs $135,000 $ Costs to be accounted for Work in process, May Started into production Total costs Cost Reconciliation Schedule Costs accounted for Transferred out Work in process, May 31 Materials Conversion costs Total costs Equivalent Units Conversion Costs Total $333,000 $ $ 83,000 250,000 $333,000 $ $ $333,000 - 44 Test Bank for ISV Managerial Accounting, Fourth Edition Solution 166 (12–16 min.) POOLE MANUFACTURING COMPANY Molding Department Production Cost Report For the Month Ended May 31, 2008 QUANTITIES Units to be accounted for Work in process, May Started into production Total units Units accounted for Transferred out Work in process, May 31 Total units Physical Units Materials Equivalent Units Conversion Costs 16,000 50,000 66,000 46,000 20,000 66,000 COSTS Unit costs Costs in May Equivalent units Unit costs 46,000 20,000 66,000 Materials $198,000 66,000 $ 3.00 46,000 8,000 (20,000 × 40%) 54,000 Conversion Costs $135,000 54,000 $ 2.50 Costs to be accounted for Work in process, May Started into production Total costs Cost Reconciliation Schedule Costs accounted for Transferred out (46,000 × $5.50) Work in process, May 31 Materials (20,000 × $3.00) Conversion costs (8,000 × $2.50) Total costs Total $333,000 $ 5.50 $ 83,000 250,000 $333,000 $253,000 $ 60,000 20,000 80,000 $333,000 Ex 167 Baker Winery manufactures fine wine in two departments, Fermenting and Bottling In the Fermenting Department, grapes are aged in casks for a period of 30 days In the Bottling Department, the wine is bottled and then sent to the finished goods warehouse Labor and overhead are incurred uniformly through both processes Materials are entered at the beginning of both processes Cost and production data for the Fermenting Department for December 2008 are presented below: Cost data Beginning work in process inventory Materials Conversion costs Total costs $ 37,000 ($30,000 of materials cost) 390,000 153,000 $580,000 Process Costing Ex 167 - 45 (cont.) Production data Beginning work in process (gallons) Gallons started into production Ending work in process (gallons) 10,000 (40%) 130,000 16,000 (25%) Instructions (a) Compute the equivalent units of production (b) Determine the unit production costs (c) Determine the costs to be assigned to units transferred out and ending work in process Solution 167 (17–25 min.) (a) Physical Units Transferred out 124,000* Ending work in process 16,000 Total 140,000 Equivalent Units Materials Conversion Costs 124,000 124,000 16,000 4,000 (16,000 × 25) 140,000 128,000 *(10,000 + 130,000) – 16,000 (b) Unit Production Costs: Materials Conversion costs Total unit cost *($30,000 + $390,000) $3.00 ($420,000* ÷ 140,000) 1.25 ($160,000** ÷ 128,000) $4.25 **[($37,000 – $30,000) + $153,000] (c) Costs assigned to units transferred out and ending work in process: Transferred out (124,000 × $4.25) Ending work in process Materials (16,000 × $3.00) Conversion costs (4,000 × $1.25) Total Costs Assigned $527,000 $48,000 5,000 53,000 $580,000 Ex 168 The Assembly Department of Lynn Company has the following production and cost data at the end of May, 2008 Production: 35,000 units started into production; 25,000 units transferred out and 10,000 units 100% completed as to materials and 40% completed as to conversion costs Manufacturing Costs: Materials added at beginning of process, $70,000; labor, $100,000; overhead $74,000 Instructions Prepare a production cost report for the month of May - 46 Test Bank for ISV Managerial Accounting, Fourth Edition Solution 168 (22–30 min.) LYNN COMPANY Assembly Department—Production Cost Report For the Month Ended May 31, 2008 Physical Units QUANTITIES Units to be accounted for Work in process, May Started into production Total units 35,000 35,000 Units accounted for Transferred out Work in process, May 31 Total units accounted for 25,000 10,000 35,000 COSTS Unit costs Costs in May Equivalent units Unit costs Materials $70,000 35,000 $2.00 Equivalent Units Materials Conversion Costs 25,000 10,000 35,000 Conversion Costs $174,000 29,000 $6.00 Costs to be accounted for Work in process, May Started into production Total costs Cost Reconciliation Schedule Costs accounted for Transferred out (25,000 × $8) Work in process, May 31 Materials (10,000 × $2) Conversion Costs (4,000 × $6) Total costs 25,000 4,000 29,000 Total $244,000 $8.00 $ 244,000 $244,000 $200,000 20,000 24,000 44,000 $244,000 Ex 169 Bunker Company—Perth Division is a new state of the art production facility that manufactures landing gear for airplanes The ending September 30th work in process is comprised of labor and overhead and is approximately 60% complete All materials are assumed to be 100% complete Total materials costs during the period totaled $910,000 Instructions As the new plant accountant, you are asked to complete the production cost report which appears as follows: Process Costing Ex 169 (cont.) BUNKER COMPANY—Perth Division Assimilation Department Production Cost Report For the Month Ended September 30, 2008 QUANTITIES Physical Units Units to be accounted for Work in process, September 300 Started into production 1,000 Total units 1,300 Units accounted for Transferred out Work in process, September 30 Total units COSTS Unit Costs Costs in September Equivalent units Unit costs 900 400 1,300 Materials $910,000 $ Equivalent Units Materials Conversion Costs 900 400 1,300 Conversion Costs $ $ 250 Costs to be accounted for Work in process, Sept Started into production Total costs Cost Reconciliation Schedule Costs accounted for Transferred out Work in process, September Materials Conversion costs Total costs 900 Total $1,195,000 $ $ 263,400 $ $ $ 60,000 $1,195,000 - 47 - 48 Test Bank for ISV Managerial Accounting, Fourth Edition Solution 169 (10-15 min.) BUNKER COMPANY—Perth Division Assimilation Department Production Cost Report For the Month Ended September 30, 2008 QUANTITIES Physical Units Units to be accounted for Work in process, September 300 Started into production 1,000 Total units 1,300 Units accounted for Transferred out Work in process, September 30 Total units 900 400 1,300 COSTS Unit Costs Costs in September Equivalent units Unit costs Materials $910,000 1,300 $ 700 Equivalent Units Materials Conversion Costs 900 400 1,300 Conversion Costs $285,000 1,140 $ 250 Costs to be accounted for Work in process, Sept Started into production Total costs Cost Reconciliation Schedule Costs accounted for Transferred out (900 × $950) Work in process, September Materials (400 × $700) Conversion costs (240 × $250) Total costs a 900 240 1,140 Total $1,195,000 $950 $ 263,400 931,600 $1,195,000 $ 855,000 $280,000 60,000 340,000 $1,195,000 Ex 170 At Oxley Company, materials are entered at the beginning of each process The company uses the FIFO method for process costing Work in process inventories, with the percentage of work done on conversion, and production data for its Finishing Department for March are as follows: Month March Beginning Work in Process Percentage Units Completed 1,400 60% Units Completed and Transferred Out 11,000 Ending Work in Process Percentage Units Completed 500 90% Instructions (a) Compute the physical units for March (b) Compute the equivalent units of production for materials and conversion costs for March Process Costing a Solution 170 - 49 (5–7 min.) (a) COMPUTATION OF PHYSICAL UNITS Beginning work in process 1,400 Started into production 10,100 Total units to be accounted for 11,500 Transferred out Ending work in process Total units accounted for 11,000 500 11,500 (b) COMPUTATION OF EQUIVALENT UNITS Units accounted for Physical Units Work in process, March 1,400 Transferred out 9,600 Work in process, March 30 500 Total equivalent units 11,500 a Equivalent Units Materials Conversion Costs 560 (1,400 × 40) 9,600 9,600 500 450 (500 × 90) 10,100 10,610 Ex 171 Taco Ranch uses a process cost system and the FIFO cost flow assumption Production begins in the Crafting Department where materials are added at the beginning of the process and conversion costs are incurred uniformly throughout the process On November 1, the beginning work in process inventory consisted of 10,000 units, which were 60% complete and had a cost of $190,000, $100,000 of which were materials costs During November, the following occurred: Materials added Conversion costs incurred Units completed and transferred out in November Units in ending work in process November 30 (20% complete) $225,000 $45,000 40,000 25,000 Instructions Answer the following questions and show the computations that support your answers: (a) What are the equivalent units of production for materials and conversion costs in the Crafting Department for the month of November? (b) What are the costs assigned to the ending work in process inventory on November 30? (c) What are the costs assigned to units completed and transferred out during November? a Solution 171 (10–12 min.) (a) Equivalent units of production: Physical Units Work in process, November 10,000 Transferred out 30,000 Work in process, November 30 25,000 Total 65,000 Equivalent Units Materials Conversion Costs 4,000 (10,000 × 40) 30,000 30,000 25,000 5,000 (25,000 × 20) 55,000 39,000 - 50 a Test Bank for ISV Managerial Accounting, Fourth Edition Solution 171 (cont.) (b) Materials unit cost Conversion unit cost Total unit cost $4,09 1.15 $5,24 Costs to be accounted for Work in process, November Started in production Total costs ($225,000 ÷ 55,000 units) ($45,000 ÷ 39,000 units) $190,000 270,000 $460,000 Costs assigned to work in process, November 30 Materials costs $102,250 (25,000 units × $4.09) Conversion costs 5,750 (5,000 units × $1.15) Total $108,000 (c) Costs assigned to units completed and transferred out: Transferred out Work in Process, November $190,000 Cost to complete beginning work in process 4,600 Total costs $194,600 Units started and completed 157,200 Total costs transferred out $351,800 (4,000 × $1.15) (30,000 × $5.24) Process Costing - 51 COMPLETION STATEMENTS 172 Process cost systems are used to apply costs to similar products that are in a fashion 173 Separate _ accounts are maintained for each production department or manufacturing process in a process cost system 174 In a process cost system, manufacturing costs are summarized in a report for each department 175 A primary driver of overhead costs in continuous manufacturing operations is _ 176 Equivalent units of production measure the work done during the period, expressed in fully units 177 Unit production costs are expressed in terms of _ units of production 178 If a processing department has 27,000 units in process at the beginning of the period, completes and transfers out 80,000 and has 18,000 units in process at the end of the period, then the number of units started into production during the period was units 179 A cost reconciliation schedule is prepared to assign total costs to units , and to the units in the _ work in process 180 The production cost report is an internal document that shows production quantity and for a production department Answers to Completion Statements 172 173 174 175 176 177 178 179 180 mass-produced, continuous work in process production cost machine hours completed equivalent 71,000 transferred out, ending cost data Test Bank for ISV Managerial Accounting, Fourth Edition - 52 MATCHING 181 Match the items in the two columns below by entering the appropriate code letter in the space provided A B C D Total manufacturing cost per unit Equivalent units of production Total units accounted for Production cost report E F G H Cost reconciliation schedule Units transferred out Unit production costs Physical units A summary of both production quantity and cost data for a production department Shows that the total costs accounted for equal the total costs to be accounted for Work done during a period expressed in fully completed units Costs expressed in terms of equivalent units of production Actual units to be accounted for during a period, irrespective of any work performed Units transferred out during the period plus units in ending work in process Unit materials costs plus unit conversion costs Total units accounted for minus units in ending work in process Answers to Matching D E B G H C A F Process Costing - 53 SHORT-ANSWER ESSAY QUESTIONS S-A E 182 Why some companies need a cost accounting system while others not? What are the determining characteristics or factors that influence the type of cost accounting system that is appropriate for a company? Solution 182 Companies need a cost accounting system only if they need to measure, record, and report the costs of manufacturing products The two basic types of cost accounting systems are job order costing and process costing A job order cost system is appropriate when production consists of batches of unique products (jobs) A process cost system is used to apply costs to similar products that are mass-produced in a continuous fashion S-A E 183 The production cost report summarizes the activities that have taken place in a department or process over a period of time Identify the major types of information found on a production cost report, and indicate who in the business organization uses this type of information and for what purpose the information is used Solution 183 The types of information found in a production cost report are units to be accounted for and units accounted for, unit costs, and costs to be accounted for and costs accounted for Production cost reports provide a basis for evaluating the productivity of a department and so are used by production managers In addition, the cost data can be used by middle management to assess whether unit costs and total costs are reasonable When the quantity and cost data are compared with predetermined goals, top management can also ascertain whether current performance is meeting planned objectives Of course, the information in the report is also used for recordkeeping and income determination by the accounting department S-A E 184 (Ethics) Dolly's Dream Homes, Inc manufactures doll houses in a continuous process Various customizing features and furnishings are added at the end of the process to create the various models that are sold The basic design and floor plans of all the houses are identical, however During the most recent month, the lumber used in trimming the houses was inadvertently recorded as direct materials At month end, when the error was discovered, Betty Gray, the accountant, was told by the accounting manager, Donna Foxx, not to bother with correcting the error, because the dollar amount of the error was not "worth it." Betty believes that the dollar amount is not as important as the quality of the reports She wonders whether she would be committing an unethical act if she were to make the changes anyway, despite her superior's telling her not to Required: Who are the stakeholders in this situation? Was it unethical for the company to ask that the error not be corrected? Explain briefly Would it be unethical for Betty to correct the error? Explain briefly - 54 Test Bank for ISV Managerial Accounting, Fourth Edition Solution 184 The stakeholders include:  Betty Gray and Donna Foxx  Dolly's Dream Homes  possibly the present customer, or future customers The company was not unethical in asking that the error not be corrected because it was too small in dollar amount to be considered material In fact, ignoring small errors improves efficiency Betty would be failing in the obedience due to her superior if she went ahead and corrected the error Whether it would be a serious fault depends upon how easily the error could be corrected The superior probably would not care, either way, if the dollar amount is small and the correction procedure is minor However, just letting the matter drop would be better S-A E 185 (Communication) Lawrence Leather Goods recently instituted just-in-time management of its inventories The accounting department carefully modified all its reports to reflect these changes Required: Prepare a short memo to production department managers, briefly explaining the primary changes they will see on the production cost report Solution 185 TO: Managers in all Production Departments FROM: Accounting RE: JIT and reporting Congratulations on a job well done, in instituting JIT! You are already realizing many of the benefits of efficient handling of inventory Another of the benefits you will enjoy is simplified reporting In the production cost reports you have been provided, there have been separate categories for materials and conversion costs In some cases, there were several kinds of materials JIT has allowed us to simplify this, and now there is only one column, for Raw and In Process You may remember that each category was also adjusted for beginning and ending inventories Since we no longer will have routine levels of inventory, we will be able to simplify this part of the reporting as well We will now report only this month's use of materials, for example, and only the costs added to work in process costs this month, and only finished goods completed this period If adjustments are needed for ending inventories, we will make them at the end of the year as a single adjustment Please contact the accounting department if you have further questions (signed) ...3-2 Test Bank for ISV Managerial Accounting, Fourth Edition SUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOM’S TAXONOMY Exercises 149 150... when inventory is sold, the system transfers the costs to Cost of Goods Sold 3-4 Test Bank for ISV Managerial Accounting, Fourth Edition Make the journal entries to assign manufacturing costs... preparing a production cost report is computing the equivalent units of production 3-6 Test Bank for ISV Managerial Accounting, Fourth Edition 18 Equivalent units of production must be calculated before