Chapter Process Costing Questions A company that produces homogeneous goods in mass quantities is likely to use a process costing system The company can either have a single department or multiple departments In any costing system, the assignment of costs to units of product is essentially an averaging process because total costs incurred must be applied to the units that have been produced This is done by dividing cost by production, which produces an "average" cost per unit Job order costing and process costing are similar in that they are both methods of assigning costs to products Also, the methods use similar product accounts (raw materials, work in process, finished goods, cost of goods sold) to capture the costs associated with production and use similar cost pools (DM, DL, OH) Job order costing and process costing differ in the way in which costs are gathered In a job order costing system, costs are accumulated by department and by job; in a process costing system, costs are accumulated by production departments for the products that flow through those departments In process costing, production must be determined on the basis of equivalent units to properly allocate the costs associated with each cost component to the work that was completed during the period and to the work that is still in process at the end of the period Equivalent units of production are unnecessary in job order costing Equivalent units of production is an approach to put partially completed and wholly completed units on a comparable basis Without use of equivalent units, partially completed and fully completed units would be combined as if they were homogeneous measures of output This would result in meaningless data since fully and partially completed units are different outputs 137 138 Chapter Process Costing The only difference between weighted average and FIFO equivalent units of production is in the treatment of the work that was completed on beginning inventory in the prior period Under weighted average, the work performed on beginning inventory in the prior period is combined with the work performed during the current period Under FIFO, the work performed on beginning inventory during the prior period is held out separately and not commingled with the work performed during the current period The FIFO method more accurately portrays the actual physical flow of units through the manufacturing process, because it is most likely that the units in beginning inventory will be the first units to be completed during the current period - thus a first-in, first-out flow It is necessary to prepare separate equivalent units of production schedules for each cost component because each component will most likely have a different degree of completion at the end of the period This is because all production components are not placed into production simultaneously If the cost components have the same degree of completion, then it is not necessary to prepare separate EUP schedules This is often the case with labor and overhead which may be combined into an EUP schedule labeled "Conversion." The units "started and completed" in a period are calculated as the total units completed during the period minus the units that were in the beginning inventory This figure can be used in both the weighted average and FIFO methods shown in the chapter (There are, however, other methods of computing EUP in which the units started and completed are not shown separately.) This calculation is not necessary for the weighted average method because work performed on the current period’s beginning inventory in the prior period need not be separated from work performed to complete the beginning inventory in the current period This calculation is necessary for the FIFO method because work in the prior period cannot be commingled with work performed in the current period Whole units are used in steps and - the units to account for and the units accounted for Equivalent units are used in steps 3, 5, and - the computation of EUP, the determination of cost per EUP, and the assignment of cost to inventories at the end of the period The only step in which neither is used is step In this step, total costs are computed and no physical measurement is required a b Chapter 139 Process Costing Under weighted average, costs are assigned to ending inventory by multiplying the cost per EUP for each cost component times the EUP calculated for that component; these costs are then totaled Costs are assigned to the units completed/transferred out by multiplying the total cost per EUP times the number of units that have been completed/transferred out during the period The cost assigned to ending inventory is handled the same way for FIFO as for weighted average In determining the cost of the units completed/transferred out, however, the cost of completing the beginning inventory must first be determined by multiplying the equivalent units of production performed this period for each cost component times the cost per EUP for each cost component The cost of completing the beginning inventory is then added to the original beginning inventory cost to find the total cost of producing the beginning inventory units The cost of the units started and completed in the current period is found by multiplying the total cost per EUP times the number of units started and completed this period Adding the total cost of producing beginning inventory to the cost of the units started and completed will give the total cost transferred out of the department during the period 10 The cost of production report is prepared for each department or each process and accounts for the costs that have been incurred during the period It assigns these costs either to the ending WIP or to the goods that have been transferred out to either the next downstream department or to the finished goods inventory These reports assist accountants in making entries regarding inventory amounts, cost of goods manufactured, and cost of goods sold 11 The computation is correct, fast, and easy However, the risk of making such a computation is that a mistake in computing the cost of the ending work in process will result in an incorrect cost of goods transferred out 12 Multiple computations are required under FIFO because the beginning WIP inventory is valued at a different unit cost for each cost pool than the current period’s unit costs This difference requires separate lines for the cost of the beginning inventory when the period began, the cost of completing that beginning inventory, and the cost of goods started and completed during the current period 140 13 Chapter Process Costing The only difference between process costing in a multidepartment environment and a single department environment is that there will be a cost component labeled "Transferred In." The costs of previous departments must follow the flow of goods into successor departments to determine the full cost of production 14 The standard process costing and FIFO process costing equivalent units of production are the same because standard process costing requires a comparison of the actual cost of the period to the standard cost of the period to compute variances Since it is only the costs of the current period that are of concern to the cost accountant, the costs of the prior period cannot be commingled with current costs The separation of prior and current period costs (and units) is the FIFO method of process costing 15 Under a standard costing system, the Material, In-Process, and Finished Goods Inventory accounts are accounted for at standard costs The actual costs of each process or each department are also captured in a standard costing system and variances can be computed as differences between the standard and actual amounts for each cost component The variances provide information to management about the efficiency of operations because the variances reflect differences between expected (standard) and actual costs 16 A hybrid costing system is one in which process costing is used to account for certain product costs and job order costing is used to account for other product costs Hybrid costing is common in environments that have, for example, material costs that vary substantially from one production run to another (gold versus copper), but require all products to flow through the same physical conversion processes In this example, the material would be accounted for on a job order basis and the conversion would be accounted for using process costing 17 No solution provided Exercises 18 a.,b Beginning inventory 260,000 Started 30,000 To account for 290,000 Beginning inventory Started & completed Ending inventory Equivalent units 120,000 Completed and transferred 170,000 Ending inventory 290,000 Accounted for Units 120,000 140,000 30,000 DM 120,000 140,000 30,000 290,000 CC 120,000 140,000 7,500 267,500 Chapter Process Costing 141 Chapter Process Costing 142 19 a.,b Beginning inventory Started To account for 120,000 170,000 290,000 Units 120,000 140,000 30,000 Beginning WIP completed Started & completed Ending inventory Equivalent units 20 a Completed & transferred Ending inventory Accounted for Beginning inventory Started To account for DM 140,000 30,000 170,000 260,000 30,000 290,000 CC 36,000 140,000 7,500 183,500 75,000 250,000 325,000 S&C = 325,000 – 75,000 – 30,000 = 220,000 Units 75,000 220,000 30,000 DM 75,000 220,000 30,000 325,000 DL 75,000 220,000 12,000 307,000 OH 75,000 220,000 18,000 313,000 Units 75,000 220,000 30,000 DM 220,000 30,000 250,000 DL 30,000 220,000 12,000 262,000 OH 18,750 220,000 18,000 256,750 Beginning inventory Started & completed Ending inventory Equivalent units b Beginning inventory Started & completed Ending inventory Equivalent units c 21 Equivalent units (WA) EUPs - Beginning WIP Equivalent units (FIFO) 325,000 (75,000) 250,000 307,000 313,000 (45,000) (56,250) 262,000 256,750 Material Direct Labor Beginning inventory $14,920 $ 36,200 Current period 78,880 79,800* Total costs $93,800 $116,000 Divided by EUP 26,800 24,400 Cost per EUP $3.50 $4.75 *Direct Labor = Conversion Cost - Overhead = $122,400 - $42,600 = $79,800 22 EUPs - (WA) EUPs - Beginning WIP EUPs - (FIFO) Material 26,800 (3,600) 23,200 Current period cost Divided by EUP Cost per EUP $78,880 23,200 $3.40 Direct Labor 24,400 (4,000) 20,400 $79,800 20,400 $3.91 Overhead $ 9,900 42,600 $52,500 21,000 $2.50 Overhead 21,000 (3,960) 17,040 $42,600 17,040 $2.50 23 a Beginning WIP Current period Total b c d Chapter Process Costing DM DL $ 4,900 $ 1,580 13,500 8,680 $18,400 $10,260 143 OH $ 2,505 21,120 $23,625 Total $ 8,985 43,300 $52,285 Total costs EUPs - (WA) Cost per EUP $18,400 40,000 $0.46 $10,260 38,000 $0.27 $23,625 37,500 $0.63 $52,285 Current costs EUPs - (FIFO) Cost per EUP $13,500 30,000 $0.45 $ 8,680 31,000 $0.28 $21,120 33,000 $0.64 $43,300 EUPs - (WA) EUPs - (FIFO) EUPs - Beginning WIP Percent complete 24 Beginning inventory Units started Units to account for 40,000 30,000 10,000 100% Units 5,800 22,500 28,300 38,000 31,000 7,000 70% $1.36 $1.37 37,500 33,000 4,500 45% Completed & transferred Ending inventory Accounted for 25,700 2,600 28,300 S&C = 25,700 – 5,800 = 19,900 Beginning WIP Started & completed EI EUPs -(WA) Canisters 5,800 19,900 2,600 28,300 Other Materials 5,800 19,900 780 26,480 DL 5,800 19,900 650 26,350 OH 5,800 19,900 260 25,960 Costs to account for: Canisters Beginning WIP $10,382 Current 40,558 Total costs $50,940 Other Materials DL $ 5,008 $ 4,063 20,148 61,812 $25,156 $65,875 OH Total $ 1,038 $ 20,491 46,988 169,506 $48,026 $189,997 Cost per EUP: Other Materials DL $25,156 $65,875 26,480 26,350 $0.95 $2.50 OH Total $48,026 $189,997 25,960 $1.85 $7.10 Total costs EUPs Cost per EUP Canisters $50,940 28,300 $1.80 Chapter Process Costing 144 25 a Beginning inventory Units started Units to account for Units 1,000 3,800 4,800 Beginning inventory completed Units started & completed Total units completed Ending inventory Units accounted for 1,000 3,000 4,000 800 4,800 Material 300 3,000 320 3,620 Complete units in BI Units started & completed Equivalent units in EI EUP (FIFO) b Current costs EUP (FIFO) Cost per EUP 26 27 Materials $66,970 3,620 $18.50 Conversion $29,040 3,630 $8.00 Conversion 150 3,000 480 3,630 Total $96,010 $26.50 a 260,000 × ($3.75 + $4.50 + $5.10) = 260,000 × $13.35 = $3,471,000 b DM: $3.75 × (37,000 × 100%) DL: $4.50 × (37,000 × 80%) OH: $5.10 × (37,000 × 95%) Total c Cost of goods transferred Ending WIP Total a Because RM are added at the start of processing, all units in BI are fully complete as to RM Thus, the number of units is equal to the number of EUP Materials: 27,000 ÷ 27,000 = 100% Packaging: ÷ 27,000 = 0% Labor: 14,850 ÷ 27,000 = 55% Overhead: 18,900 ÷ 27,000 = 70% $138,750 133,200 179,265 $451,215 $3,471,000 451,215 $3,922,215 Chapter Process Costing b Beginning WIP Materials Labor Overhead $344,520 95,931 72,954 Complete Beginning Packaging $1.50 Labor $6.42 Overhead $3.87 Total 28 145 WIP (27,000 × 100%) (27,000 × 45%) (27,000 × 30%) $513,405 $ 40,500 78,003 31,347 149,850 $663,255 c S&C = 185,000 – 27,000 = 158,000 Total EUP cost = $12.75 + $1.50 + $6.42 + $3.87 = $24.54 Cost of units S&C = 158,000 × $24.54 = $3,877,320 d Materials ($12.75 × 16,000 × 100%) Labor ($6.42 × 16,000 × 20%) Overhead ($3.87 × 16,000 × 35%) Total a Beginning WIP Started Units to account for 500 1,400 1,900 Beginning WIP Started & completed Ending WIP Units accounted for 500 1,250 150 1,900 Beginning WIP Started & completed Ending inventory EUP Material 200 1,250 30 1,480 Material = $10,656 ÷ 1,480 = Conversion = $3,751 ÷ 1,705 = Total cost per FIFO EUP b Beginning WIP Transferred out Ending inventory EUP Material = $204,000 20,544 21,672 $246,216 Conversion 350 1,250 105 1,705 $7.20 2.20 $9.40 Material 500 1,250 30 1,780 Conversion 500 1,250 105 1,855 $2,071 + $10,656 = $12,727; $12,727 ÷ 1,780 = $7.15 Conversion = $404 + $2,510 + $1,241 = $4,155; $4,155 ÷ 1,855 = 2.24 Total cost per WA EUP $9.39 Chapter Process Costing 146 c 29 a Transferred out: Costs in BI ($2,071 + $404) $2,475 Cost to complete BI 200 × $7.20 1,440 350 × $2.20 770 Started & completed (1,250 × $9.40) Total cost transferred Fabrication: Beginning inventory Started Units to account for 5,000 40,000 45,000 $ 4,685 12,690 $17,375 Completed & transferred Ending inventory Units accounted for 38,200 6,800 45,000 S&C = 38,200 – 5,000 = 33,200 Units Beginning WIP 5,000 S&C 33,200 Ending inventory 6,800 Units accounted for 45,000 Assembly: Beginning inventory Started Units to account for 2,000 38,200 40,200 Material 5,000 33,200 6,800 45,000 Conversion 5,000 33,200 5,440 43,640 Completed & transferred Ending inventory Units accounted for 34,100 6,100 40,200 S&C = 34,100 – 2,000 = 32,100 Units Trans in Material Conversion Beginning WIP 2,000 2,000 2,000 2,000 S&C 32,100 32,100 32,100 32,100 Ending inventory 6,100 6,100 6,100 4,575 Units accounted for 40,200 40,200 40,200 38,675 b Fabrication Beginning inventory Started & completed Ending inventory Units accounted for Units 5,000 33,200 6,800 45,000 Material 33,200 6,800 40,000 Conversion 2,750 33,200 5,440 41,390 Assembly: Beginning inventory Started & completed Ending inventory Units accounted for 30 a Units Trans in Material 2,000 2,000 32,100 32,100 32,100 6,100 6,100 6,100 40,200 38,200 40,200 18,000 × 100% × $0.13 = 18,000 × 45% × $0.13 = Total cost in BI $2,340 1,053 $3,393 Conversion 1,700 32,100 4,575 38,375 Chapter Process Costing 36 151 a Units 400,000 2,000,000 2,400,000 Beginning inventory Units started Units to account for Beginning inventory in units 400,000 Units started & completed 1,400,000 Units completed 1,800,000 Ending inventory 600,000 Units accounted for (& EUP) 2,400,000 Material Conversion 400,000 1,400,000 400,000 1,400,000 600,000 2,400,000 300,000 2,100,000 b Cost in beginning inventory Current costs Total cost to account for Divided by EUP Cost per EUP Material 400,000 2,600,000 $3,000,000 2,400,000 $1.25 $ Labor 576,000 3,204,000 $3,780,000 2,100,000 $1.80 $ Overhead 345,600 1,922,400 $2,268,000 2,100,000 $1.08 $ OH = 60% of DL cost Total cost to account for = $3,000,000 + $3,780,000 + $2,268,000 = $9,048,000 Total cost per EUP = $1.25 + $1.80 + $1.08 = $4.13 c Transferred out (1,800,000 × $4.13) Ending inventory: Material (600,000 × $1.25) $750,000 Conversion (300,000 × $2.88) 864,000 Total cost accounted for 37 a (1) BI units Units S&C Units completed during month EI units EUP (2) Total BI costs $ 1,115,500 Current 10,400,500 Total $11,516,000 Divided by EUP Cost per EUP $9.10 OH = 70% of DL cost 1,614,000 $9,048,000 Materials Labor 100,000 100,000 900,000 900,000 1,000,000 1,000,000 400,000 160,000 1,400,000 1,160,000 Materials 750,000 4,850,000 $5,600,000 1,400,000 $4.00 $ $7,434,000 Labor 215,000 3,265,000 $3,480,000 1,160,000 $3.00 $ Overhead 100,000 900,000 1,000,000 160,000 1,160,000 Overhead $ 150,500 2,285,500 $2,436,000 1,160,000 $2.10 Chapter Process Costing 152 (3) Beginning FG CGM (1,000,000 × $9.10) Goods available for sale Ending inventory CGS b $ 9,100,000 $9,100,000 124,033 $8,975,967 Finished Goods Inventory 9,100,000 Work in Process Inventory 9,100,000 Cost of Goods Sold 8,975,967 Finished Goods Inventory 8,975,967 (CPA adapted) 38 a Beginning inventory Units started Units to account for Units Materials 5,000 90,400 95,400 Beginning inventory in units Units started & completed Units completed Ending inventory Units accounted for (& EUP) b Current cost EUPs (FIFO) Cost per EUP c 39 Total $549,170 $6.05 5,000 86,400 91,400 4,000 95,400 Materials $433,920 90,400 $4.80 86,400 3,000 86,400 4,000 90,400 2,800 92,200 Conversion $115,250 92,200 $1.25 Beginning inventory costs $24,875 Complete WIP DM $ CC (3,000 × $1.25) 3,750 3,750 Started & completed (86,400 × $6.05) Costs transferred d DM (4,000 × $4.80) CC (2,800 × $1.25) Total cost of EI a Gallons transferred out Gallons in ending WIP Total gallons to account for Less gallons in beginning WIP Gallons started Conversion $19,200 3,500 $22,700 242,000 23,500 265,500 (36,000) 229,500 $ 28,625 522,720 $551,345 b Chapter Process Costing Material Beginning WIP Started & completed 206,000 Ending WIP 23,500 EUP - FIFO 229,500 Material $1,131,435 229,500 $4.93 Current costs EUP - FIFO Cost per EUP 153 Labor 23,400 206,000 5,875 235,275 Overhead 14,400 206,000 7,050 227,450 Labor $451,728 235,275 $1.92 Overhead $773,330 227,450 $3.40 Beginning WIP ($180,000 + $26,100 + $70,300) $276,400 Completion of Beginning WIP DM (0 × $4.93) $ DL (23,400 × $1.92) 44,928 CC (14,400 × $3.40) 48,960 93,888 Total $370,288 c Total cost per EUP = $4.93 + $1.92 + $3.40 = $10.25 Beginning WIP Started & completed (206,000 × $10.25) Total cost of goods completed 40 d $2,481,788 ÷ 242,000 = $10.26 e DM DL OH (23,500 × $4.93) (5,875 × $1.92) (7,050 × $3.40) Total ending WIP a $ 370,288 2,111,500 $2,481,788 $115,855 11,280 23,970 $151,105 Cleopatra Corporation Cost of Production Report For the Month of October 2003 Production Data Units 6,000 45,000 51,000 Material Beginning inventory Units started Units to account for Beginning inventory in units Units started & completed Units completed Ending inventory Units accounted for (& EUP) 6,000 35,000 41,000 10,000 51,000 6,000 35,000 41,000 10,000 51,000 Labor Overhead 6,000 35,000 41,000 4,000 45,000 6,000 35,000 41,000 7,000 48,000 Chapter Process Costing 154 Cost Data Cost in beginning inventory Current costs Total cost to account for Divided by EUP Cost per EUP Material $ 4,980 45,000 $49,980 51,000 $0.98 Labor 450 21,600 $22,050 45,000 $0.49 $ Overhead $ 3,180 33,300 $36,480 48,000 $0.76 Total cost to account for = $49,980 + $22,050 + $36,480 = $108,510 Total cost per EUP = $0.98 + $0.49 + $0.76 = $2.23 Cost Assignment Transferred out: 41,000 × $2.23 Ending inventory: Material (10,000 × $.98) Direct labor (4,000 × $0.49) Overhead (7,000 × $0.76) Total cost accounted for b $ 91,430 $ 9,800 1,960 5,320 17,080 $108,510 Cleopatra Corporation Cost of Production Report For the Month of October 2003 Production Data Beginning inventory Units started Units to account for Beginning inventory in units Units started & completed Units completed Ending inventory Units accounted for (& EUP) Units 6,000 45,000 51,000 6,000 35,000 41,000 10,000 51,000 Material 35,000 35,000 10,000 45,000 Labor 4,200 35,000 39,200 4,000 43,200 Overhead 2,400 35,000 37,400 7,000 44,400 Cost Data Material Labor Overhead Current costs $45,000 $21,600 $33,300 Divided by EUP 45,000 43,200 44,400 Cost per EUP $1.00 $0.50 $0.75 Total cost to account for = $49,980 + $22,050 + $36,480 = $108,510 Total cost per EUP = $1.00 + $0.50 + $0.75 = $2.25 Chapter Process Costing 155 Cost Assignment Transferred out: Beginning WIP $ 8,610 Complete Beginning WIP DL (4,200 × $0.50) 2,100 OH (2,400 × $0.75) 1,800 Started & completed(35,000 × $2.25) Transferred out Ending inventory: Materials (10,000 × $1.00) $10,000 Direct labor (4,000 × $0.50) 2,000 Overhead (7,000 × $0.75) 5,250 Total cost accounted for 41 $ 12,510 78,750 $ 91,260 17,250 $108,510 Bixby Company Curing Dept Cost of Production Report For the Month Ended May 31, 2003 Production Data Beginning inventory Units started Units to account for Units 8,000 40,000 48,000 To complete BI Started & completed Ending inventory Units accounted for 8,000 36,000 4,000 48,000 TI DM DL 36,000 4,000 40,000 1,600 36,000 2,800 40,400 OH 4,800 36,000 2,000 42,800 5,600 36,000 1,600 43,200 Cost Data Cost in BI Current costs Total to acct for TI $ 66,000 320,000 $386,000 DM $ 24,960 161,600 $186,560 DL $ 6,720 85,600 $92,320 OH $ 3,580 43,200 $46,780 Current costs Divided by EUP $320,000 40,000 $161,600 40,400 $85,600 42,800 $43,200 43,200 $8 $4 $2 $1 Cost per EUP Total $101,260 610,400 $711,660 $15 Chapter Process Costing 156 Cost Assignment Transferred out: Beginning inventory To complete Beginning WIP TI $ DM (1,600 × $4) 6,400 DL (4,800 × $2) 9,600 OH (5,600 × $1) 5,600 S&C (36,000 × $15) Ending inventory: TI (4,000 × $8) DM (2,800 × $4) DL (2,000 × $2) OH (1,600 × $1) Total cost accounted for $ 101,260 21,600 540,000 $662,860 $32,000 11,200 4,000 1,600 48,800 $711,660 (CPA adapted) 42 a Best of the Season Corp Cutting Dept Cost of Production Report For the Month Ended October 31, 2003 Production Data Beginning inventory Units started Units to account for Beginning inventory in units Units started & completed Units completed Ending inventory Units accounted for (& EUP) Units 8,000 36,000 44,000 Material 8,000 32,400 40,400 3,600 44,000 Conversion 8,000 32,400 8,000 32,400 3,600 44,000 2,520 42,920 Cost Data Cost in beginning inventory Current costs Total cost to account for Divided by EUP Cost per EUP Cost Assignment Transferred out: 40,400 × $17.50 Ending inventory: Material (3,600 × $9.50) Conversion (2,520 × $8.00) Total cost accounted for Materials $ 73,250 344,750 $418,000 44,000 $9.50 Conversion $ 20,000 323,360 $343,360 42,920 $8.00 $707,000 $34,200 20,160 54,360 $761,360 Total $ 93,250 668,110 $761,360 $17.50 Chapter Process Costing Best of the Season Corp Boxing Dept Cost of Production Report For the Month Ended October 31, 2003 b 157 Production Data Trans In Material Beginning inventory Units started Units to account for Units 2,500 40,400 42,900 Conversion BI Units S & C Units completed Ending inventory Units accounted for 2,500 39,200 41,700 1,200 42,900 2,500 39,200 2,500 39,200 2,500 39,200 1,200 42,900 41,700 720 42,420 Cost Data Cost in BI Current costs Total to acct for Divided by EUP Cost per EUP Trans In $ 41,605 707,000 $748,605 42,900 $17.45 Material $ 95,910 $95,910 41,700 $2.30 Conversion Total $ 2,100 $ 43,705 61,530 864,440 $63,630 $908,145 42,420 $1.50 $21.25 Cost Assignment Transferred out (41,700 × $21.25) Ending inventory: Transferred in (1,200 × $17.45) $20,940 Conversion (720 × $1.50) 1,080 Total cost accounted for 43 a Striping Dept.: Beginning inventory Current costs: DM DL OH ($80,000 × 0.6) Total Less the ending inventory Costs transferred to Adhesion $886,125 22,020 $908,145 $ 20,000 90,000 80,000 48,000 $238,000 (17,000) $221,000 Chapter Process Costing 158 b Adhesion Dept.: Beginning inventory Transferred-in costs Current costs Total Less ending inventory Costs transferred out * ** $ 70,000 221,000 209,000** $500,000* 20,000 $480,000 Total = $480,000 + $20,000 = $500,000 Current costs = $500,000 - $70,000 - $221,000 = $209,000 Current costs = DM + DL + OH $209,000 = $60,000 + DL + OH $149,000 = DL + OH $149,000 = DL + 0.6DL $ 93,125 = DL $ 55,875 = OH c The cost of goods manufactured is equal to the cost of goods transferred out of the Packaging Department Analyze the costs in the Packaging Dept.: Beginning inv Costs transferred in (from part b) Current costs: DM DL ($90,000 ÷ 0.6) OH Total Less the ending inventory Cost of goods manufactured d $150,000 480,000 50,000** 150,000 (90,000) $920,000* 90,000 $830,000 * Total = $830,000 + $90,0000 = $920,000 * DM = $920,000 - $150,000 - $480,000 - $150,000 - $90,000 = $50,000 WIP - Adhesion WIP - Striping 221,000 WIP - Packaging WIP - Adhesion 480,000 Finished Goods Inventory WIP - Packaging 830,000 221,400 480,000 Cost of Goods Sold 720,000 Finished Goods Inventory 830,000 720,000 Chapter Process Costing 44 a 159 Cutting Process Beginning inventory Units started Units to account for Units 1,300 4,800 6,100 Beginning inventory completed Units started & completed Total units completed Ending inventory Units accounted for (FIFO) 1,300 3,700 5,000 1,100 6,100 Material Conversion 260 3,700 325 3,700 440 4,400 220 4,245 Pressure Process Beginning inventory Units started Units to account for Units 900 5,000 5,900 BI completed Units S & C Total units completed Ending inventory Units acct'd for (FIFO) 900 3,600 4,500 1,400 5,900 Trans In Material Conversion 3,600 900 3,600 360 3,600 1,400 5,000 4,500 560 4,520 b Cutting Process Cost in beginning inventory Current costs Total cost to account for Material $ 4,900 17,600 $22,500 Conversion $ 3,175 12,735 $15,910 Total $ 8,075 30,335 $38,410 Current cost Divided by EUP Cost per EUP $17,600 4,400 $4 $12,735 4,245 $3 $30,335 c Cost transferred out of Cutting (FIFO): Cost of BI $ 8,075 Cost to complete BI Material ($4 × 260) 1,040 Conversion ($3 × 325) 975 S&C ($7 × 3,700) 25,900 Total $35,990 Ending WIP: DM ($4 × 440) $1,760 CC ($3 × 220) 660 2,420 Total $38,410 $7 Chapter Process Costing 160 d Cost per EUP: Trans In Cost in BI $ 6,415 Current costs 35,990 Total $42,405 Current costs Divided by EUP Cost per EUP $35,990 5,000 $7.20 Material $ 4,950 $4,950 Conversion $ 1,674 11,300 $12,974 Total $ 8,089 52,240 $60,329 $11,300 4,520 $2.50 $52,240 $4,950 4,500 $1.10 e Transferred out Beginning inventory cost $ 8,089 Cost to complete: Material (900 × $1.10) 990 Conversion (360 × $2.50) 900 Total cost of beginning inv Units started and completed: 3,600 × $10.80 Total Ending inventory: Transferred in (1,400 × $7.20) $10,080 Conversion (560 × $2.50) 1,400 Costs accounted for (off due to rounding) f 45 $10.80 $ 9,979 38,880 $48,859 11,480 $60,339 CGS = CGM = $48,859 a Beginning inventory Units started Units to account for Units 10,000 180,000 190,000 Beginning inventory completed 10,000 Units started & completed 150,000 Units completed 160,000 Ending inventory 30,000 Units accounted for (& EUP) 190,000 Material Conversion 150,000 3,000 150,000 30,000 180,000 18,000 171,000 Chapter Process Costing HealthySight Guard Cost of Production Report For the Month of May 2003 b 161 Production Data Material Beginning inventory Units started Units to account for Units 10,000 180,000 190,000 Conversion Beginning inventory completed Units started & completed Units completed Ending inventory Units accounted for (& EUP) 10,000 150,000 160,000 30,000 190,000 150,000 3,000 150,000 30,000 180,000 18,000 171,000 Cost Data (all at standard) BI (10,000 × $4.50) (7,000 × $12.50) Current (180,000 × $4.50) (171,000 × $12.50) Total cost to account for Material $ 45,000 $ 87,500 810,000 2,137,500 $2,225,000 $855,000 Cost Assignment Transferred out (160,000 × $17) Ending inventory: Material (30,000 × $4.50) Conversion (18,000 × $12.50) Total costs assigned c Conversion Total $ 45,000 87,500 810,000 2,137,500 $3,080,000 $2,720,000 $135,000 225,000 360,000 $3,080,000 Total variance = Total actual costs - Total current costs = $2,826,000 - $2,947,500 = $121,500 favorable Material: Current cost Standard cost (180,000 × $4.50) Direct material variance 781,000 (810,000) $ (29,000)favorable Conversion: Current cost Standard cost (171,000 × $12.50) Conversion cost variance $ Direct material variance Conversion cost variance Cost of Goods Sold $2,045,000 (2,137,500) $ (92,500)favorable 29,000 92,500 121,500 162 46 Chapter Process Costing a Extrusion Form Units produced 16,000 11,000 Materials costs $192,000 $ 44,000 Unit cost 12.00 4.00 Conversion costs* 392,000 132,000 Unit cost 24.50 12.00 *Direct labor and factory overhead Plastic Unit costs Sheets Extrusion material $12.00 Form material Trim material Finish material Extrusion conversion 24.50 Form conversion Trim conversion Finish conversion Total unit cost $36.50 Times units produced 5,000 Total product cost $182,500 b Standard Model $12.00 4.00 24.50 12.00 $52.50 6,000 $315,000 Trim 5,000 $15,000 3.00 69,000 13.80 Deluxe Model $12.00 4.00 3.00 24.50 12.00 13.80 $69.30 3,000 $207,900 Finish 2,000 $12,000 6.00 42,000 21.00 Executive Model $12.00 4.00 3.00 6.00 24.50 12.00 13.80 21.00 $96.30 2,000 $192,600 Entering trim operation: 2,000 Deluxe units 1,000 Deluxe units 2,000 Executive units Total equivalent units Equivalent Units Material Conversion % Qty % Qty 100 2,000 100 2,000 100 1,000 60 600 100 2,000 100 2,000 5,000 4,600 Deluxe model WIP costs: Extrusion material Form material Trim material (100%) Extrusion conversion Form conversion Trim conversion (60%) Work-in-process costs Unit Cost $12.00 4.00 3.00 24.50 12.00 9.00* $64.50 Total Costs $12,000 4,000 3,000 24,500 12,000 9,000* $64,500 Conversion cost = ($30,000 + $39,000) ÷ 4,600 = $15 per equivalent unit * (CMA adapted) Chapter Process Costing 163 Case 47 a Starbing Paints Cost of Production Report for May Production data: Direct Materials Chemicals Cans Units completed and transferred to Shipping Work-in-Process at 5/31 Chemicals (100%) Cans (0%) Conversion costs (80%) Equivalent units 20,000 Conversion 20,000 20,000 5,000 25,000 20,000 4,000 24,000 Cost data: Direct Materials Chemicals Cans Conversion* Work-in-Process at 5/31 $ 45,600 $ $ 8,125 May costs added 228,400 7,000 45,500 Total costs $274,000 $ 7,000 $53,625 ÷ WA EUP 25,000 20,000 24,000 Cost per equivalent unit $ 10.96 $ 0.35 $ 2.23 *Conversion cost = Direct labor + Factory overhead Cost assignment: Completed goods ($13.54 × 20,000) $270,800 Ending WIP Chemicals (5,000 × $10.96) $54,800 Conversion (4,000 × $2.23) 8,920 63,720 Total costs $334,520 Note: Rounding error explains the difference between the assigned costs and the $334,625 of costs incurred Chapter Process Costing 164 b Production data: Direct Materials Chemicals Cans Transferred to Shipping from 5/1 work-in-process Chemicals (0%) Cans (100%) Conversion costs (75%) Current production transferred to Shipping (100%) Chemicals (100%) Cans (0%) Conversion costs (80%) Equivalent units Conversion 4,000 3,000 16,000 5,000 16,000 16,000 21,000 20,000 4,000 23,000 Cost data: Direct Materials Chemicals Cans May costs incurred $228,400 $ 7,000 ÷ FIFO EUP 21,000 20,000 Costs per equivalent unit $ 10.88 $ 0.35 Conversion $45,500 23,000 $ 1.98 Cost assignment: Completed goods: Beg WIP $53,725 Complete Beg WIP Cans (4,000 × $.35) 1,400 CC (3,000 × $1.98) 5,940 $ 61,065 Started & completed (16,000 × $13.21) 211,360 $272,425 Ending WIP Chemicals (5,000 × $10.88) $54,400 Conversion (4,000 × $1.98) 7,920 62,320 Total costs $334,745 Note: Rounding error explains the difference between the assigned costs and the $334,625 of costs incurred c The weighted average method is generally easier to use because the calculations are simpler However, this method tends to obscure current period costs because the cost per equivalent unit includes both current costs and prior costs that were in the beginning inventory This method is most appropriate when conversion costs, inventory levels, and raw material prices are stable The FIFO method is based on the work done in the current period only This method is most appropriate when conversion costs, inventory levels, or raw material prices fluctuate This method should also be used when accuracy in current equivalent unit costs is important or when a standard cost system is used (CMA addapted) Chapter Process Costing 165 Reality Check 48 In Chapter 3, total cost to account for is included as part of the Schedule of the Cost of Goods Manufactured In both that chapter and this one, the total cost to account for is the result of adding current costs added to production to the balance in beginning work in process 49 A significant change from one period to the next in any of the components of product costs (direct material, direct labor, or production overhead) can cause the two methods to result in a significantly different unit product cost Material shortages, changes in technology, or a labor strike are examples of potential sources of these significant differences FIFO is concerned with determining accurate unit costs for the current period in a manner that reflects physical flow and permits analysis and control of current costs Weighted average reflects the homogeneous and inseparable nature of products being produced in two different periods 50 The student’s memo should include the following issues For any given period in nearly any production environment, there will be a beginning inventory of units that is only partly complete At the end of the period, there will also be units that are only partly complete Furthermore, during the period there will be units that have been completed and transferred to the next downstream department or to finished goods inventory A fair allocation of costs within each department requires that some cost be allocated to those units that have passed through the department and some cost be allocated to those units that remain in the department in various stages of completion at the end of the period The concept of an "equivalent unit of production" was developed to provide a fair allocation of the costs incurred in a department for the period Although it would be unfair to charge a partly complete unit with the full average cost per unit of each cost pool for the period, it would also be unfair to charge no cost to a partly completed unit The equivalent unit puts incomplete units on a basis that is comparable to the fully completed units The result is that a partly completed unit will be assigned the fraction of the full unit cost that corresponds to its percentage of completion This achieves a fair allocation of departmental costs among fully completed units and partly completed units 51 – 53 No solution provided Each student or student group will have a different answer ... process costing and FIFO process costing equivalent units of production are the same because standard process costing requires a comparison of the actual cost of the period to the standard cost. .. (standard) and actual costs 16 A hybrid costing system is one in which process costing is used to account for certain product costs and job order costing is used to account for other product costs... costs (and units) is the FIFO method of process costing 15 Under a standard costing system, the Material, In -Process, and Finished Goods Inventory accounts are accounted for at standard costs