ACCG200 SolutionCh 05 PDF

CHAPTER 5
PROCESS COSTING AND OPERATION

COSTING
ANSWERS TO QUESTIONS
5.1 In a job costing system, costs are assigned to batches or job orders of production. Job costing is used by
firms that produce relatively small numbers of dissimilar products. In a process costing system, costs are
averaged over a large number of product units. Process costing is used by firms that produce large
numbers of very similar or identical products. In an operation costing system, material costs are
assigned to individual batches (as in job costing) and conversion costs to departments (as in process
costing). Operation costing is suited to businesses that produce products with differing material inputs
but common processes.
5.2 Process costing would be an appropriate product costing system in the following industries: petroleum,
food processing, timber processing, chemicals, textiles and electronics. Each of these industries is
involved in the production of very large numbers of highly similar products that undertake similar
processes.
5.3 Process costing could be used in the following non-manufacturing businesses: processing of tests in a
medical diagnostic laboratory, processing of tax returns by the Taxation Office, and processing of loan
applications in a bank.
5.4 The departmental production report is the key document in a process costing system rather than the job
cost sheet used in job costing. The format of the departmental production report varies across
organisations but it often shows the analysis of the physical flow of units, the calculation of equivalent
units, the calculation of cost per equivalent unit, and the analysis of total costs incurred in the production
department. The report shows the ending work in process inventory as well as the cost of goods
completed and transferred out of the department into either the next production department or finished
goods.
5.5 An equivalent unit is a measure of the amount of production inputs that are applied to physical units in
the production process. In process costing, costs are assigned to equivalent units rather than physical
units. The concept of equivalent units can be ignored when there are no work-in-process inventories or
when the work-in-process inventory levels are stable over time. However, the concept of equivalent
units may not be applicable for the following process industries: extractive and exploration, housing
tiles production and plastic extrusion. All of the said process industries do not maintain work in process
inventories, because the raw materials are either directly extracted or processed into finished goods
using the state of art automated machinery.
5.6 Equivalent units were calculated by taking into account the percentage of completion of the units
completed and the work in process with respect to the direct material and conversion cost inputs. The
equivalent units for direct material is greater than that of conversion cost; direct material is input into
production at the start of the process, whereas conversion cost is assumed to be added evenly throughout
the process. The units completed are 100 per cent completes for all inputs, so the equivalent units for
direct material and conversion costs are the same. The work in process is 50 per cent complete, so these
units have 100 per cent of direct material but only 50 per cent of conversion cost.
5.7 The equivalent cost per equivalent unit for the inputs to production is the total cost for the period
divided by the total equivalent units for the period. The total cost per equivalent cost is the total of the
equivalent cost pr units of the two production inputs.
5.8 The cost of goods transferred out is calculated as the number of physical units multiplied by the total
equivalent cost per unit. The total cost of work in process is calculated by taking into account the
number of equivalent units remaining for both direct material and conversion cost and multiplying these
units by the respective cost per equivalent units.
5.9 The following four steps are used in process costing:
(a) Analysis of the physical flow of units: In this step, all of the units in the beginning and ending
inventories and those transferred out to finished goods, or the next department are accounted for.
Chapter 5 Solutions Manual t/a Management Accounting: Information for Managing and Creating Value 5e
by Langfield-Smith , Thorne and Hilton 1
(b) Calculation of equivalent units: In this step, the equivalent units of activity are calculated for all
inputs to production, that is, direct material, and for conversion.
(c) Calculation of unit costs: In this step, the costs per equivalent unit for direct material and
conversion are calculated.
(d) Analysis of total costs: In the final step, the cost of goods completed and transferred out, and the
cost of ending work in process inventory are determined.
5.10 (a) Journal entry to enter direct material costs into work in process inventory:
Work in Process Inventory, Department A xxx
Raw Material Inventory xxx
(b) Journal entry to record the transfer of goods from the first department to the second department in
the production sequence:
Work in process inventory, Department B xxx
Work in process inventory, Department A xxx
5.11 The difference between the two methods relates to the calculation of the relevant total equivalent units
for the period.
Under the weighted average method, the equivalent units of activity for the month relate to the closing
work in process inventory and the units completed and transferred out. Thus, in Exhibit 5.2, the total
EUs for direct material are 400 000 and for conversion cost are 395 000.
Under the FIFO method, the equivalent units of activity in the beginning work in process inventory are
subtracted from the total equivalent units for the period to arrive at the new equivalent units of activity
for the current period. In Exhibit 5.7, the total EUs that were calculated in Exhibit 5,2 using the
weighted average cost method are reduced by the 20 000 in the opening WIP, to arrive at 380 000 EUs
of direct material and 393 000 EUs of conversion cost.
5.12 Under the weighted average cost method the total equivalent cost per unit is the total of the average of
the cost per equivalent unit for the opening work in process and the units commenced during the month
for the two inputs to production. In Exhibit 5.3, The average cost per EU for direct material is $1.40 and
for conversion cost is $0.37.
For FIFO it is assumed that the old units are completed before new units are commenced. Thus, to
calculate the total cost per equivalent unit, the units in opening work in process are first subtracted from
the total of the units completed and the closing work in process units to give the equivalent units that
relate to new production. A cost per equivalent unit is then calculated for each input to production. In
Exhibit 5.8 the cost per EU for material is $1.33 and for conversion cost is $0.36. These costs relate to
the new production that commenced during the period.
5.13 The name weighted average method is used as the cost per equivalent unit calculated under this
method is not a simple average of the costs incurred during the current period and the costs incurred
during previous periods. The average cost reflects the different size of the WIP inventory and of the
current periods production.
5.14 Under the weighted average method, the cost of the beginning work in process inventory is added to the
cost incurred during the current period in order to determine the weighted average cost per equivalent
unit. Under the FIFO method, the cost of the beginning work in process inventory is not added to the
cost of the current period to determine cost per EU. Rather, the cost of the beginning work in process
inventory is assumed to be completed first and then new production units are commenced. The costs of
opening WIP are kept separate from the costs of the current period.
5.15 The key difference between the ledger accounts for work-in-process inventory under the weighted
average and FIFO methods is the treatment of beginning work in process inventory that resulting in
different cost of goods completed being recorded and different cost of closing WIP inventory in two
systems.
In the ledger accounts in Exhibits 5.5 and 5.7, the total costs to account for (the debit side) are the same,
but the values for cost of goods completed and closing WIP differ (the credit side). The cost per
equivalent unit is calculated using average beginning work-in-process inventory and the current periods
production under weighted average method, while the cost per equivalent unit is calculated using only
the current periods production costs divided by the equivalent units of work completed in current
month under FIFO method.
5.16 Estimating the cost of spoilage highlights the cost of wasted resources, which may focus the attention of
management.
5.17 Normal spoilage is considered to be a normal aspect of the production process. It is relatively
constant, is statistically predictable, and is unavoidable without incurring excessive costs to improve the
production process. As a consequence, it is considered to be a normal cost in the production of the good
units which emerge from the process. Abnormal spoilage is that level of spoiled units outside the
normally acceptable range, caused by factors not normally encountered. By isolating the cost of
abnormal spoilage, managements attention is drawn to a matter which needs to be investigated.
5.18 If manufacturing overhead were assume to incur at a different rate to manufacturing overhead, or was
related to a different cost driver, then direct labour costs and manufacturing overhead costs would be
accounted for separately instead of being combined into one account called conversion costs. Thus, in
the process costing schedules, instead of having two columns, one for direct material costs and one for
conversion costs, there would be three columns: direct material costs, direct labour costs and
manufacturing overhead costs.
5.19 For purposes of cost control and performance evaluation, FIFO process costing may be considered
superior to the weighted average method. To provide incentives for departmental managers to control
costs, it is important to evaluate their performance on the basis of current period costs only. When
current period and prior period costs are averaged, as in the case of the weighted average method, a
departmental managers current performance is less clear.
5.20 The key output is the departmental production report which summarises the flow of production
quantities and costs through the department, and shows the amount of production cost transferred out of
the department (into the next production department or finished goods) and the cost of work in process
remaining in the department. The report will show the average cost of production for the month. This
information enables managers to estimate the cost of goods manufactured during the period, the cost of
goods sold and the cost of inventories. Estimates of unit costs can provide key inputs to management
decisions about product price and product mix, as well as providing the basis for assessing product
profitability. The information may also be used for control, by comparing unit costs over time.
5.21 Operation costing is a hybrid product costing system that is used when conversion activities are very
similar across product lines, but the direct materials differ. This is often the case in batch manufacturing
operations. Conversion costs are accumulated by department, and process costing methods are used to
assign these costs to products. Different products may go through some, or all, of the processes. Direct
material costs are accumulated by job order or batch, and job costing methods are used to assign direct
material costs to products.
5.22 The wine producers should use process costing when they are producing single product line or different
wine products on different production lines. On the other hand, the wine producers should use operation
costing when the wines are produced in batches utilising some repetitive processes but basically
different processes for different type of wines.
5.23 The percentage of completion is important in calculating the equivalent units of production for the
period. Without this, the monthly reports would be distorted because of an inaccurate treatment of
opening and closing work in process inventory. In an operation costing system the concept of equivalent
units still exists, but only in relation to conversion costs, so the stage of completion will still be
important.
5.24 Under the JIT approach to inventory and production management, all inventories are kept to an absolute
minimum, including work in process. Since the difference between weighted average and FIFO process
costing is caused by the different treatment of the beginning work in process inventory, there will be
little or no difference between the results of the two methods when JIT is in use. Moreover, if
inventories are negligible, it may be possible to work in physical units rather than equivalent units.
5.25 Transferred-in costs are the costs assigned to the units transferred from one production department to
another. For example, the grape wine production involves de-stemming and crushing of grapes
following by fermentation process and other processes. In the fermentation process, the transferred-in
costs from the de-stemming and crushing process are treated as an input to the fermentation process, in
the same way that any direct materials or conversion costs.
5.26 The cost was incurred during December in the mixing department and transferred in to the cooking
department on 31 December. The product would be cooked on the 1 January and then transferred to
finished goods on completion.
SOLUTIONS TO EXERCISES
EXERCISE 5.27 (10 minutes) Physical flow of units: manufacturer
The general formula for all three cases is the following:

Units started
Work in process, Units completed Work in process
+ during this =
beginning during month ending
month
1 9000 + units started 19 000 = 2000

Units started = 12 000 kg
2 13 000 + 1500 9200 = closing inventory
Closing inventory = 5 300 metres
3 100 000 + 850 000 units completed = 200 000
Units completed = 750 000 litres
EXERCISE 5.28 (15 minutes) Equivalent units; FIFO and weighted average:
manufacturer
1 5 000 equivalent units (refer to (c) in the following table).

2 3 800 equivalent units (refer to (d) in the following table).
3 6 000 equivalent units (refer to (a) in the following table).
4 4 400 equivalent units (refer to (b) in the following table).
Percentage of
Equivalent units
completion with
Physical respect to Direct
units conversion material Conversion
Work in process, November 1 1 000 60%
Units started during November 5 000
Total units to account for 6 000
Units completed and transferred out during
November 4 000 100% 4 000 4 000
Work in process, November 30 2 000 20% 2 000 400
Total units accounted for 6 000 _____ _____
Total equivalent units 6 000a 4 400b
*Less: Equivalent units represented in
November 1 work in process 1 000 600
*New equivalent units
accomplished in November only 5 000c 3 800d
* These two lines in the table are used only for the FIFO method (requirements 1 and 2 in the exercise).
EXERCISE 5.29 (20 minutes) Physical flow and equivalent units; weighted average
and FIFO: manufacturer
1 The weighted average process costing schedule is shown below. The last two lines of data in the
schedule are not used under the weighted average method.
2 The FIFO method of process costing uses the entire schedule, concluding with the new equivalent units
row.
Calculation of equivalent units: Country Life Corporation

Percentage of Percentage of
Equivalent units
completion with completion
Physical respect to direct with respect to Direct
units materials conversion material Conversion
Work in process, January 1 20 000 80% 60%
Units started during year 120 000
Units completed and transferred
out during year 125 000 100% 100% 125 000 125 000
Work in process, December 31 15 000 70% 30% 10 500 4 500
Total units accounted for 140 000 ______ ______
Total equivalent units 135 500 129 500
Less: equivalent units
represented in January 1 work in
process 16 000 12 000
New equivalent units
accomplished in year only 119 500 117 500
EXERCISE 5.30 (20 minutes) Physical flow and equivalent units; weighted average:
manufacturer
Calculation of equivalent units: Healthy life styles

Weighted average method
Percentage of Percentage of Equivalent units
completion with completion
Physical respect to direct with respect to Direct
units materials conversion material Conversion
Work in process, January 1 ................ 30 000 70% 50%
Units started during the year............... 140 000
Total units to account for.................... 170 000
Unit completed and transferred out
during the year .................................... 145 000 100% 100% 145 000 145 000
Work in process, December 31 25 000 75% 20% 18 750 5 000
Total units accounted for .................... 170 000 ______ _______
Total equivalent units ......................... 163 750 150 000
EXERCISE 5.31 (15 minutes) Cost per equivalent unit; weighted average
Calculation of cost per equivalent unit: Kimbos Glass Company

Direct material Conversion Total
Work in process, February 1 ................................. $43 200 $40 300 $83 500
Costs incurred during February............................. 135 000 190 000 325 000
Total costs to account for....................................... $178 200 $230 300 $408 500
Equivalent units ..................................................... 16 500 47 000
Costs per equivalent unit ....................................... $10.80 $4.90 $15.70
EXERCISE 5.32 (20 minutes) Cost per equivalent unit; weighted average and FIFO:
timber mill
1 Weighted average method:

Work in process, November 1 $65 000 $180 000 $245 000
Costs incurred during November 425 000 690 000 1 115 000
Total costs to account for $490 000 $870 000 $1 360 000
Equivalent units 7 000 1 740
Costs per equivalent unit $70 $500 $570
2 FIFO method:
Work in process, November 1 These costs are not included in the $245 000
unit cost calculation
Costs incurred during November $425 000 $690 000 1 115 000
Total costs to account for 1 360 000
Costs per equivalent unit $100 $690 $790
EXERCISE 5.33 (30 minutes) Weighted average cost and FIFO: manufacturer
1
Work in process, Feb 1 5 500 17 000 22 500
Cost incurred during Feb 110 000 171 600 281 600
Total cost to account for 115 500 188 600 304 100
Cost per equivalent unit $1.05 $2.05 $3.10
(a) 89 000 3.10 = $275 900

(b) For material 110 000 89 000 = 21 000 equivalent units in work in process
For conversion cost 92 000 89 000 = 3 000 equivalent units
21 000 1.05 = 22 050
3 000 2.05 = 6 150
$28 200
2
Work in process February 1 22 500
Cost incurred during February 110 000 171 600 281 600
Total cost to account for 304 100

Cost per equivalent unit 1.10 1.95 $3.05
Cost of opening work in process $22 500

Cost incurred to complete opening
work in process inventory 0
Direct materials conversion 10 000 65% 1.95 12 675
Cost incurred to produce units started
and completed 79 000 3.05 240 950
(a) Total cost of goods completed $276 125
Cost remaining in work in process
February 28
Direct materials 21 000# 1.10 23 100
Conversion cost 2 500## 1.95 4 875
(b) Closing work in process $27 975
Check:
Cost of goods completed and 276 125
transferred out
Cost of closing work in process 27 975
Total costs accounted for $304 100
# 21 000 = 100 000 + 10 000 89 000
## 2 500 = 88 000 + (10 000 x 0.35) 89 000
EXERCISE 5.34 (35 minutes) Weighted average cost and FIFO: manufacturer
1 Weighted-average method:
Work in process, September 1 $94 000 $44 400 $138 400
Costs incurred during September $164 000 $272 800 436 800
Total cost to account for $258 000 $317 200 $575 200
Costs per equivalent unit $4.30 $6.10 $10.40
(a) Cost of goods completed and transferred out during September:
number of units total cost per
= 50 000 $10.40 = $520 000
transferred out equivalent unit
(b) Cost remaining in September 30 work in process:
Direct material (10 000* $4.30) $43 000
Conversion (2 000* $6.10) 12 200
Total 55 200
* Equivalent units in September 30 work in process:
Direct material Conversion
Total equivalent units (weighted average) 60 000 52 000
Less: Units completed and transferred out (50 000) (50 000)
Equivalent units and ending work in process 10 000 2 000
2 FIFO method:
Work in process, September 1 These costs are not included in the $138 400
unit cost calculation for September
Costs incurred during September $164 000 $272 800 436 800
Total costs to account for $575 200
Equivalent units for September only

40 000 44 000
(a) Costs of goods completed and

transferred out of the Weaving
Department during September:
Cost of September 1 work in

process which is transferred out
first $138 400
Cost incurred to finish the

September 1 work in process
inventory: 20 000 .60 $6.20 74 400
Cost incurred to produce units that
were both started and completed
during September: 30 000* $10.30 309 000
Total cost of goods completed and

transferred out $521 800
(b) Cost remaining in September 30
work in process inventory:
Direct material (10 000 $4.10) $41 000

Conversion (2 000 $6.20) 12 400
Total 53 400
* Units started and completed = 30 000 = 50 000 20 000
See the calculation of the equivalent units in the ending work in process given in requirement (1).
EXERCISE 5.35 (10 Minutes) Weighted average versus FIFO; journal entry:
manufacturer
The amount in the journal entry would be the same under weighted average and FIFO process costing, because
the stamping department had no work in process on January 1. When there is no opening WIP, the equivalent
units and the cost per EU will be the same under both methods. The products transferred out and any closing
WIP will be both costed at the same cost of any new units started during that month.
EXERCISE 5.36 (45 minutes) Operation costing: manufacturer

1 Diagram of production process:
2. The product cost for each of the basketballs is calculated as follows:

Professional Scholastic
Direct material
Batch P25 ($42 000 2000) $21.00 0
Batch S33 ($45 000 4000) 0 $11.25
Conversion: Preparation Department 7.50 7.50
Conversion: Finishing Department 6.00 6.00
Conversion: Packaging Department 0.50 0
Total product cost $35.00 $24.75
Both production departments worked on a total of 6000 balls each, but the Packaging Department
handled the 2000 professional balls only.
3 Journal entries:
Work in process inventory: Preparation Department 39 500*
Raw material inventory 39 500
* 39 500 = $42 000 of direct material for batch P25 $2 500 of packaging material.

* Direct material cost for batch S33.
Applied conversion costs 45 000
* $45 000 = 6 000 units $7.50 per unit.
Work in process inventory: Finishing Department 129 500*

Work in process inventory: Preparation Department 129 500
* $129 500 = $39 500 + $45 000 + $45 000.
Work in process inventory: Finishing Department 36 000*

* $36 000 = 6 000 units $6.00 per unit
Work in process inventory: Packaging Department 66 500*

Finished goods inventory 99 000
Work in process inventory: Finishing Department 165 500
*$66 500 = $39 500 + (2 000 $7.50) + (2 000 $6.00). These are costs accumulated for batch P25 only.
$99 000 = $45 000 + (4 000 $7.50) + (4 000 $6.00). These are costs accumulated for batch S33 only.
Work in process inventory: Packaging Department 3 500
Raw material inventory 2 500*
* Cost of packaging material for batch P25
$1 000 = 2 000 units $0.50 per unit
Finished goods inventory 70 000*

Work in process inventory: Packaging Department 70 000
* $70 000 = $66 500 + $3 500
EXERCISE 5.37 (15 minutes) Physical flow and equivalent units including spoilage:
manufacturer
Percentage of Equivalent units

completion with
Work in process, 1 January 20 000 60%
Units started in January 120 000
Units completed and

transferred out during 115 000 115 000 115 000
January
Units spoiled during January 10 000 66.7% 10 000 6 667
Work in process, 31 January 15 000 40 % 15 000 4 000
Total units accounted for 140 000
2 When the weighted average method of process costing is used, the good units transferred out, spoiled
units and closing WIP are all costed at the same rate per EU, which is the weighted average of the cost
of opening WIP and current costs. If the FIFO method is used, it would be necessary to identify whether
the spoiled units were from the previous period or the current period. In most process cost industries this
would be extremely difficult, if not impossible.
EXERCISE 5.38 (10 minutes) (appendix) Cost flows in process costing; journal
entries: manufacturer
1 Work in process inventory: Pouring Department 1 090 000

Wages payable 340 000
Manufacturing overhead 680 000
2 Work in process inventory: Finishing Department 900 000
Work in process inventory: Pouring Department 900 000
3 Work in process inventory: Finishing Department 725 000
Wages payable 280 000
Manufacturing overhead 420 000
4 Finished goods inventory 400 000
PROBLEM 5.39 (40 minutes) Partial production report; journal entries; FIFO method:
manufacturer
1
Percentage of
Equivalent units
completion
Physical with respect to Direct
Work in process, May 1 25 000 40%
Units started during May 30 000
Units completed and transferred out
during May 35 000 100% 35 000 35 000
Work in process, May 31 20 000 80% 20 000 16 000
Less: equivalent units represented
in May 1 work in process 25 000 10 000
New equivalent units accomplished
in May only 30 000 41 000
2
Costs incurred during May $165 000 $2,009 000
Costs per equivalent unit $5.50 $49.00 $54.50*
* $54.50 = $5.50 + $49.00
3 Cost of goods completed and transferred out during May:
Cost of May 1 work in process inventory, which is transferred out first $617 700
Cost incurred to finish the May 1 work in process inventory:
cost per
number percentage of
equivalent
of conversion 25 000 .60 $49 735 000
unit of
units remaining
conversion
Costs incurred to produce units that were both started and completed during May:
number total cost per

of equivalent 10 000* $54.50 545 000

units unit
Total cost of goods completed and transferred out $1 897 700
* Units started and completed during May: 35 000 units completed and transferred out
minus 25 000 units in the May 1 work in process inventory.
4 Cost remaining in May 31 work in process inventory:
Direct material:
number of direct material

equivalent cost per 20 000 $5.50 $110 000
units of equivalent

direct material unit
Conversion:
number of
conversion cost
equivalent per equivalent 20 000 0.80 x $49.00 784 000
units of

unit
conversion
Total cost of May 31 work in process inventory $894 000
Check: Cost of goods completed and transferred out $1 897 700
Cost of May 31 work in process inventory 894 000
Total costs accounted for $2 791 700
5 Journal entry:
Finished goods inventory 1 897 700
Work in process inventory 1 897 700
6 There key differences under the weighted average method are as follows.
The EU per unit for direct material and conversion cost is a weighted average of the cost of opening
WIP inventory and costs incurred that month. The closing inventory and units transferred to finished
goods are costed at the same cost per equivalent unit.
PROBLEM 5.40 (40 minutes) Weighted average process costing; journal entries:
manufacturer
1 (a)
Percentage of
Equivalent units
completion
Physical with respect to Direct
Work in process, May 1 25 000 40%
Units started during May 30 000
out during May 35 000 100% 35 000 35 000
Work in process, May 31 20 000 80% 20 000 16 000
(b)
Costs per equivalent unit
Cost of WIP May 1 $143 000 $474 700 $617 700
Costs incurred in May 165 000 2 009 000 2 174 000
308 000 2 483 700 2 791 700
(c) Cost of goods completed and transferred out during May:

of equivalent 35 000 $54.30 $1 900 500

units unit
Costs remaining in May 31 work in process inventory:
Direct material:
number of cost per

equivalent equivalent 20 000 $5.60 $112 000
units of unit of

direct material direct material
Conversion:
number of cost per

equivalent equivalent 20 000 0.80 x $48.70 779 200
units of unit of

conversion conversion
Total cost of May 31 work in process $891 200
Check:Cost of goods completed and transferred out $1 900 500
Cost of May 31 work in process inventory 891 200
2 Journal entry:
Work in process inventory 1 900 500
PROBLEM 5.41 (50 minutes) Weighted average process costing: manufacturer
(AuthyorS note. In the first printing of the 5E, in the two last dot points on page 234, the stage of completion
of the 1 October WIP was given as 15% instead of the correct figure of 20%, and the 31 October WIP was
70% instead of the correct figure of 60%.)
1 The missing amounts are shown below. A completed production report follows.
Work in process, October 1 (in units) ................................................................................................ 15 000

Units completed and transferred out during October......................................................................... 65 000
Total equivalent units: conversion ..................................................................................................... 71 000
Work in process, October 1: conversion ............................................................................................ $37 500

Costs incurred during October: direct material.................................................................................. 570 000
Cost per equivalent unit: conversion.................................................................................................. 12.25
Cost of goods completed and transferred out during October........................................................... 1 407 250
Cost remaining in ending work-in-process inventory: direct material.............................................. $94 000
Production report: Black Rubber Ltd

completion
Physical with respect
units to conversion Direct material Conversion
Work in process, October 1 ........................ 15 000 20%
Units started during October ...................... 60 000
Total units to account for............................ 75 000
out during October ......................... 65 000 100% 65 000 65 000
Work in process, October 31 ...................... 10 000 60% 10 000 6 000
Total units accounted for ............................ 75 000 _____ _____
Total equivalent units ................................. 75 000 71 000
Direct Conversion Total

material
Work in process, October 1 ........................ $135 000 $37 500 $172 500
Costs incurred during October ................... 570 000 832 250 1 402 250
Total costs to account for............................ $705 000 $869 750 $1 574 750
Equivalent units .......................................... 75 000 71 000
Costs per equivalent unit ............................ $9.40 $12.25 $21.65
Cost of goods completed and transferred out during October:

.................................................. 65 000 $21.65 $1 407 250
Cost remaining in October 31 work-in-process inventory:
Direct material:
number of cost per

equivalent equivalent
units of unit of ......................................................... 10 000 $9.40 $94 000


Conversion:
number of cost per

units of unit of ......................................................... 6 000 $12.25 73 500


Total cost of October 31 work-in-process...................................................................................... $167 500
Check: Cost of goods completed and transferred out .............................. $1 407 250
Cost of October 31 work-in-process inventory ........................ 167 500
Total costs accounted for .......................................................... $1 574 750
2 Production report for October: Black Rubber Ltd (in Excel spreadsheet), if the
degree of completion of conversion cost in ending WIP was 90 % instead of 60%.
Production report: Black Rubber Ltd

completion
Physical with respect
units to conversion Direct material Conversion
Work in process, October 1 ........................ 15 000 20%
Units started during October ...................... 60 000
Total units to account for............................ 75 000
out during October ......................... 65 000 100% 65 000 65 000
Work in process, October 31 ...................... 10 000 90% 10 000 9 000
Total units accounted for ............................ 75 000 _____ _____
Total equivalent units ................................. 75 000 74 000

Work in process, October 1 ........................ $135 000 $ 37 500 $ 172 500
Costs incurred during October ................... 570 000 832 250 1 402 250
Total costs to account for............................ $705 000 $869 750 $1 574 750
Equivalent units .......................................... 75 000 74 000

.................................................. 65 000 $21.1534 $1 374 971
Cost remaining in October 31 work-in-process inventory:
Direct material:
number of cost per

units of unit of ......................................................... 10 000 $9.40 $94 000


Conversion:
number of cost per

units of
unit of ......................................................... 9 000 $11.7534 105 781


Total cost of October 31 work-in-process...................................................................................... $199 781
Check: Cost of goods completed and transferred out .............................. $1 374 971
Cost of October 31 work-in-process inventory ........................ 199 781
Total costs accounted for .......................................................... $1 574 752*
* difference of $2 due to rounding errors
PROBLEM 5.42 (45 minutes) Weighted average process costing: manufacturer
1 Schedules of process costing using weighted average method for the month of June as follows,
(a) Physical flow of units: Physical units
Work in process, June 1 ...................................................................................................... 40 000
Units started during June..................................................................................................... 200 000
Total units to account for .................................................................................................... 240 000
Units completed and transferred out during June............................................................... 190 000
Work in process, June 30 .................................................................................................... 50 000
Total units accounted for..................................................................................................... 240 000
(b) Equivalent units:

completion
Physical with respect Direct
units to conversion material Conversion
Work in process, June 1 ....................... 40 000 38%
Units started during June...................... 200 000
Total units to account for ..................... 240 000
during June 190 000 100% 190 000 190 000
Work in process, June 30 ..................... 50 000 55% 50 000 27 500
Total units accounted for...................... 240 000
Total equivalent units ........................... 240 000 217 500
(c) Costs per equivalent unit:

Work in process, June 1.............................. $120 000 $34 400 $154 400
Costs incurred during June ......................... 492 500 349 800 842 300
Total costs to account for............................ $612 500 $384 200 $996 700
(d) Cost of goods completed and transferred out during June:

.......................................... 190 000 $4.3185 $820 515
Cost remaining in June 30 work-in-process inventory:
Direct material:
number of cost per

units of unit of ............................................. 50 000 $2.5521 $127 605


Conversion:
number of cost per


units of unit of ........................................................... 27 500 $1.7664 48 576


Total cost of June 30 work in process .................................................................................... $176 181
Check: Cost of goods completed and transferred out............................................................. $820 515

Cost of June 30 work-in-process inventory ............................................................... 176 181
Total costs accounted for............................................................................................ $996 696*
* difference of $4 due to rounding errors

2 The Excel spreadsheet will look the same as the Production Report in part 1.
PROBLEM 5.43 (35 minutes) Determination of production costs; analysis of

equivalent units: manufacturer
1 Direct material cost was $1 390 000:

JR1163 $225 000
JY1065 710 000
DC0766 455 000
Total $1 390 000
Dellkana Companys total direct-labour payroll amounted to $134 274 for 6 394 hours of work ($134
274 $21 per hour). Thus, conversion cost was $575 460:
Direct labour $134 274
Overhead applied (6 394 hours $69) 441 186
Total.. $575 460
2 Goods completed during April cost $2 002 000 (26 000 units $77), as the following calculations show:
Physical completion with Direct
units respect to conversion material Conversion
Work in process, April 1 3 000 80%

Units started during April 27 000
during April 26 000 100% 26 000 26 000
Work in process, April 30 4 000 45% 4 000 1 800
Direct Conversion Total

material
Work in process, April 1 $230 000 $63 940 $293 940

Costs incurred during April 1 390 000 575 460 1 965 460
Total costs to account for $1 620 000 $639 400 $2 259 400
Cost per equivalent unit. $54 $23 $77
3 The cost of the ending work-in-process inventory is $257 400:
Direct material (4 000 $54) $216 000
Conversion cost (1 800 $23) 41 400
Total $257 400
4 (a) No material would be added during May. All material is introduced at the start of the
manufacturing process, and these units were started in April.
(b) Since the work in process inventory is 45 per cent complete at the end of April, 55 per cent of the
conversion would be done in May.
5 Given that the ending work in process inventory is at the 45 per cent stage of completion, these units
would not have reached the 75 per cent stage, which is the stage where TH55 is added. Therefore, there
would be zero equivalent units with respect to part TH55 in the work in process inventory at the end of
April.
PROBLEM 5.44 (30 minutes) Analysis of work-in-process inventory account; T-

accounts: manufacturer
1 The ending work-in-process inventory consisted of 400 units (200 + 800 600).
2 The cost of goods completed during June totalled $57 000 (600 units $95):
Physical completion with Direct
units respect to conversion material Conversion
Work in process, June 1 200 25%
Units started during June 800
Units completed and transferred during June 600 100% 600 600
Work in process, June 30 400 75% 400 300
Total equivalent units 1 000 900
Direct
material Conversion Total
Work in process, June 1 $12 000 $6 000 $18 000
Costs incurred during June 43 000 30 000 73 000
Total costs to account for $55 000 $36 000 $91 000
Equivalent units 1 000 900
Cost per equivalent unit $55 $40 $95
Finished goods inventory 57 000

Work in process inventory 57 000
3 The cost of the June 30 work in process inventory is $34 000:
Direct material (400 $55 $22 000
Conversion cost (300 $40) 12 000
Total $34 000
4 Equivalent units measure the amount of manufacturing activity (i.e. for direct material or conversion)
that has been applied to a batch of physical units. If, for example, a company has 1000 physical units in
process that are 30 per cent complete as to conversion, the firm has done the equivalent amount of
conversion activity as would be required to do all of the conversion work for 300 units (1000 30%).
Equivalent units are needed to state manufacturing activity on a common measurement scale. One
cannot add completed units to units in process. Such a combination is like adding apples and oranges,
as some units are complete and some are incomplete. Instead, these units are first converted to
equivalent units, and the latter are then used in unit-cost calculations.
PROBLEM 5.45 (50 minutes) Missing data; FIFO; production report: manufacturer
To complete this problem, students should place the information given into a departmental production report
format and work from there to calculate the missing amounts.
The missing amounts are shown below. A completed production report follows.
Work in process, August 1 (in units) 40 000 b
Units started during August 80 000 c
Total units to account for 120 000 a
Total equivalent units: direct material 120 000 d
Total equivalent units: conversion 90 000 e
New equivalent units accomplished in August: conversion 78 000 f
Work in process, August 1: conversion $136 000 i
Costs incurred during August: conversion 881 400 g
Work in process, August 1: total costs 440 000 h
Cost per equivalent unit: direct material 7.65 j
Cost per equivalent unit: conversion 11.30 k
Total cost per equivalent unit 18.95 l
Cost of goods completed and transferred out during August 1 324 900 m
Cost remaining in ending work in process inventory: direct material: 382 500 n
Cost remaining in ending work in process: conversion 226 000 o
Total cost of August 31 work in process 608 500 p
=
a
Total units to account for = units completed and transferred out + work in process
August 31
= 70 000 + 50 000
= 120 000 units
b
Work in process, August 1, units = total equivalent units, direct material new equivalent units
accomplished in August; direct material
= 120 000 80 000
= 40 000 units
c
Units started during August = units completed and transferred out work in process,
August 1 + work in process, 31 August
= 70 000 40 000 + 50 000
= 80 000 units
d
Total equivalent units direct = units completed and transferred out + work in process units,
material* August 31
* direct material is added at the beginning of the
process
= 70 000 + 50 000
= 120 000 units
e
Total equivalent units, conversion = units completed and transferred out + (work in process units
August 31 degree of completion)
= 70 000 + (50 000 40%)
= 90 000 units
f
New equivalent units: conversion = total equivalent units: conversion (work in process units,
August 1 degree of completion)
= 90 000 (40 000 30%)
= 78 000 units
g
Cost incurred during August, = total costs incurred during August cost incurred during
conversion August, direct material
= $1 493 400 $612 000
= $881 400
h
Work in process, August 1, total = total cost to account for total costs incurred during August
cost
= $1 933 400 $1 493 400
= $440 000
I
Work in process, August 1, = work in process, August 1, total cost work in process
conversion August 1, direct material
= $440 000 $304 000
= $136 000
j
Cost per equivalent unit, direct = cost incurred during August: direct material new
material equivalent units in August: direct material
= $612 000 80 000
= $7.65
k
Cost per equivalent unit: conversion = conversion costs during August new equivalent units:
conversion
= $881 400 78 000
= $11.30
l
Total cost per equivalent unit = cost per equivalent unit: direct material and cost per
equivalent unit conversion
= $7.65 + $11.30
= $18.95
m, n, o, p: refer to the following

production report.
Production report: Coating Department
Percentage of
Equivalent units
completion with
Physical respect to
units conversion Direct material Conversion
Work in process, August 1 40 000 30%
Units started during August 80 000
during August 70 000 100% 70 000 70 000
Work in process, August 31 50 000 40% 50 000 20 000
Less: Equivalent units represented
in August 1 work in process 40 000 12 000
New equivalent units accomplished
in August only 80 000 78 000

Work in process, August 1 These costs were incurred during July. $440 000
They are not included in the unit cost
calculation for August.
Costs incurred during August $612 000 $881 400 1 493 400
Total costs to account for $1 933 400
Equivalent units for August only 80 000 78 000
Cost of goods completed and transferred out of the Coating Department during August:
Cost of August 1 work process inventory, which is transferred out first $440 000
Cost incurred to finish the August 1 work in process inventory:

cost per
equivalent
of conversion 40 000 0.70 $11.30 316 400
unit of
units remaining
conversion
Costs incurred to produce units that were both started and completed during August:

of equivalent 30 000 $18.95 568 500

units unit
Total cost of goods completed and transferred out $1 324 900 (m)
Cost remaining in August 31 work in process inventory in the Coating Department:

Direct material:
number of
direct material
equivalent cost per

50 000 $7.65 $382 500
units of

equivalent unit
direct material
Conversion:
number of

equivalent conversion cost 20 000 $11.30
units of 226 000
per equivalent unit

conversion
Total cost of August 31 work in process $608 500
Units started and completed during August: 70 000 units completed and transferred out minus 40 000 units in the August 1 work in
process inventory.
Check:Cost of goods completed and transferred out $1 324 900

Cost of August 31 work in process inventory 608 500
PROBLEM 5.46 (40 minutes) Process costing with spoilage; journal entries:
manufacturer
1 Schedule of equivalent units

Percentage of
completion with Equivalent units
Work in process, 1 September 50 000 60%
Units started in September 100 000

out during September 110 000 110 000 110 000
Units spoiled during September 30 000 25% 30 000 7 500
Work in process, 30 September 10 000 80% 10 000 8 000
2 Unit cost and cost of goods completed and transferred out during September

Work in process, 1 September $58 500 $24 000 $82 500
Costs incurred during September 114 000 76 400 190 400

3 Cost of goods completed and transferred out during September
Direct
material Conversion Total
Cost of goods transferred (spoilage not included):
Material (110 000 units @ $1.15) $126 500
Conversion (110 000 units @ $0.80) $88 000 $214 500
4 Cost of spoiled units in September
Material 30 000 units @ $1.15 $34 500
Conversion 7 500 units @ $0.80 6 000
$40 500
5 Costs remaining in WIP at 30 September
Material 10 000 units @ $1.15 $11 500
Conversion 8 000 units @ $0.80 6 400
$17 900
6 Journal entries
(a) Normal spoilage:
Finished goods inventory $255 000
WIP $255 000
(b) Abnormal spoilage:

Finished goods inventory $214 500
WIP $214 500
7 If the FIFO method had been used, in the production report the new equivalent units accomplished for
the current month would need to be calculated by reducing the total equivalent units by the number of
equivalent units in the opening WIP inventory. Also we would usually need to make an assumption as to
whether the spoiled units were started in the previous period or in the current period. In this example as
the opening WIP is at the 60% completion stage, then we know that these are all good units. Spoiled
units are detected at the 25% stage, so that means that the spoiled units all came from units started in the
current month.
PROBLEM 5.47 (45 minutes) Operation costing; unit costs; journal entries:
manufacturer
Note: In the first printing of 5E, the total manufacturing cost was stated as $1 437 000 instead of the correct
figure of $898 000.
1 The unit costs and total costs for each of the products manufactured by Fishwyk Industries during the
month of March are calculated as follows:
Extrusion Form Trim Finish
Units produced ................................ 16 000 11 000 5 000 2 000
Material costs .................................. $192 000 $44 000 $15 000 $12 000
Unit material cost.................... 12.0 4.0 3.0 6.0
Conversion costs* ........................... 392 000 132 000 69 000 42 000
Unit conversion cost ............... 24.5 12.0 13.8 21.0
* Direct labour and manufacturing overhead.
Executive
Unit costs Plastic sheets Standard model Deluxe model model
Material costs:
Extrusion................................. $12.0 $12.0 $12.0 $12.0
Form........................................ 4.0 4.0 4.0
Trim......................................... 3.0 3.0
Finish....................................... 6.0
Conversion costs:
Extrusion................................. 24.5 24.5 24.5 24.5
Form........................................ 12.0 12.0 12.0
Trim......................................... 13.8 13.8
Finish....................................... _ _ _ 21.0
Total unit cost.................................. $36.5 $52.5 $69.3 $96.3
Units produced ................................ 5 000 6 000 3 000 2 000
Total product cost*.......................... $182 500 $315 000 $207 900 $192 600
* Total costs accounted for:
Product Total product costs
Plastic sheets $182 500
Standard model 315 000
Deluxe model 207 900
Executive model 192 600
Total $898 000
2 Journal entries:
Work in process inventory: Extrusion.................................................... 584 000
Raw material inventory .............................................................. 192 000
Applied conversion costs ........................................................... 392 000
Finished goods inventory........................................................................ 182 500
Work in process inventory: Extrusion ....................................... 182 500
Work in process inventory: Forming...................................................... 577 500
Work in process inventory: Extrusion ....................................... 401 500
Work in process inventory: Forming ......................................... 315 000
Work in process inventory: Trimming ................................................... 346 500
Work in process inventory: Forming ......................................... 262 500
Work in process inventory: Trimming....................................... 207 900
Work in process inventory: Finishing .................................................... 192 600
Work in process inventory: Trimming....................................... 138 600
Work in process inventory: Finishing........................................ 192 600
3 (a) Requirement 1 can be formulated in Excel spreadsheet with the same answers.
(b) The value of the 1000 units of the Deluxe model in work in process inventory at the end of May
is $64 500, calculated as follows:
Equivalent units
Material Conversion
% Qty % Qty
Entering trim operation:
2000 Deluxe units (finished) 100 2 000 100 2 000
1000 Deluxe units (remaining in
ending work in process) 100 1 000 60 600
2000 Executive units (finished) 100 2 000 100 2 000
Unit cost Total costs
Deluxe model work in process costs:
Extrusion material $12.0 $12 000
Form material 4.0 4 000
Trim material (100%) 3.0 3 000
Extrusion conversion 24.5 24 500
Form conversion 12.0 12 000
Trim conversion (60%) 9.0* 9 000*
Work in process costs $64.5 $64,500
*Conversion cost per equivalent unit in trim operation:
($30 000 + $39 000) 4 600 units = $15.0 per unit. Since the units are 60 per cent complete as to conversion, their
trim conversion cost as of May 31 is $9.0 per unit ($15.0 60%).
PROBLEM 5.48 (35 minutes) Operation costing: manufacturer
Dept A Dept B Dept C

Glass sheets Coloured glass Etched glass
Direct costs
Material $450 000 $72 000 $0
Direct labour 38 000 22 000 38 000
Overhead 230 000 68 000 73 500
718 000 162 000 111 500
Transferred in costs 0 323 100 269 500
Total costs $718 000 $485 100 $381 000
Units produced 20 000 9 000 5 000
Unit cost $35.90 $53.90 $76.20
1 Conversion costs per unit, Department A, $268 000/20 000 units = $13.40
2 Conversion costs per unit, Department B, = $90 000/9 000 = $10 per unit
3 $35.90
4 $53.90
5 $76.20
PROBLEM 5.49 (45 minutes) Operation costing; unit costs; cost flow; journal entries
1 Conversion costs:
Rolling Moulding Punching Dipping
Direct labour $600 000 $224 000 $256 000 $90 000
Manufacturing overhead 900 000 336 000 384 000 135 000
Total conversion cost $1 500 000 $560 000 $640 000 $225 000
Total units produced:

Rolling only 10 000
Rolling, moulding, punching 4 000 4 000
Rolling, moulding, punching, and dipping 1 500
Conversion cost per unit $150 $140 $160 $150
2 Product costs:
Non-
reflective Reflective
Ceralam sheets Ceralam Ceralam
sold after rolling housings housings Total costs
Direct material:
Ceralam sheets $960 000 $400 000 $240 000 $1 600 000
Chemical dip 60 000 60 000
Conversion costs:
Rolling 900 000a 375 000a 225 000a 1 500 000
Moulding 350 000b 210 000b 560 000
Punching 400 000c 240 000c 640 000
Dipping _______ ________ 225 000d 225 000
Total cost $1 860 000 $1 525 000 $1 200 000 $4 585 000
Units manufactured 6 000 2 500 1 500
Unit cost $310 $610 $800
a
Number of units rolling cost per unit ($150)
b
Number of units moulding cost per unit ($140)
c
Number of units punching cost per unit ($160)
d
Number of units dipping cost per unit ($150)
3 Journal entries:
Work in process inventory: Rolling $3 100 000
Raw material inventory $1 600 000*
Applied conversion costs 1 500 000
* $1 600 000 = direct-material cost for Ceralam sheets

$1 500 000 = conversion cost in rolling operation
Finished goods inventory 1 860 000*

Work in process inventory: Rolling 1 860 000
* $1 860 000 = 6 000 Ceralam sheets sold after rolling $310 per unit
Cost of goods sold 1 860 000*

*$1 860 000 = cost of Ceralam sheets sold after rolling
Work in process inventory: Moulding 1 240 000*

Work in process inventory: Rolling 1 240 000
*$1 240 000 = cost remaining in Work in process inventory: Rolling
= $3 100 000 $1 860 000
Work in process inventory: Moulding 560 000*

*$560 000 = conversion cost in moulding operation
Work in process inventory: Punching 1 800 000*

Work in process inventory: Moulding 1 800 000
*$1 800 000 = cost remaining in Work in process inventory: Moulding
= $1 240 000 + $560 000
Work in process inventory: Punching $640 000*

Applied conversion costs $640 000
*$640 000 = conversion cost in punching operation
Finished goods inventory................................................................................ $1 525 000*
Work in process inventory: Punching $1 525 000
*$1 525 000 = 2 500 non-reflective Ceralam housings sold after punching
$610 per unit
Cost of goods sold 1 525 000*

*$1 525 000 = cost of non-reflective Ceralam housings sold after punching
Work in process inventory: Dipping 915 000*

Work in process inventory: Punching 915 000
*$915 000 = cost remaining in Work-in-Process Inventory: Punching
= $1 800 000 + $640 000 $1 525 000
Work in process inventory: Dipping 285 000

Raw material inventory 60 000*
* $60 000 = direct material cost for chemical dip

$225 000 = conversion cost in dipping operation
Finished goods inventory 1 200 000*

Work in process inventory: Dipping 1 200 000
* $1 200 000 = 1 500 reflective Ceralam housings sold after dipping
$800 per unit
Cost of goods sold $1 200 000

Finished goods inventory $1 200 000
PROBLEM 5.50 (30 minutes) Process costing; operation costing: manufacturer
1 Mixing $390 000 / 100 000 = $3.90 per litre

Packaging $330 000 / 100 000 = $3.30 per litres
Total costs = $18 (material) + 3.90 + 3.30 = $25.20 per litre for each of the three products: Sheen,
Glamour and Glow
2 Mixing $390 000 / 10 000 = $39 per process hour
Packaging $330 000 / 11 000 = $30 per process hour
Sheen Glamour Glow

Material 70000 18 = 1 260 000 20000 18 = 360 000 10000 18 = 180 000
Mixing 6000 39 = 234 000 2000 39 = 78 000 2000 39 = 78 000
Packaging 4000 30 = 120 000 3800 30 = 114 000 3200 30 = 96 000
Total 1 614 000 552 000 354 000
Cost per unit 1 614 000 / 70 000 = $23.057 552 000 / 20000 = $27.60 354 000 / 10000 = $35.40
3 The original cost averaged out the conversion cost assuming that all three products used the same
amount of overhead resources. The second costing is more accurate as it recognises that Glamour and
Glow are very resource intensive. Sheen uses more processing hours in both departments than the other
two products and Glow use the least processing hours. Having the wrong product cost may matter if
those product costs are going to be used to guide pricing or to evaluate product profitability. The wrong
cost information can lead to the wrong decisions.
PROBLEM 5.51 (20 minutes) (appendix) Transferred-in costs; no work in process:
manufacturer
1 Cutting
Direct material $60 000
Direct labour 25 000
Overhead 2 700 ($30 000 / 10 000 hours 900 hours)
$87 700
Sewing
Overhead 19 200 ($16 000 / 2 000 hours 2 400 hours)
$84 200
Total product costs = $87 700 + 84 200 = $171 900
Production units = 5 000
Product cost per unit = $34.38
2 Work in process: Cutting $87 700
Overhead 2 700
Work in process: Sewing $84 200

Direct material 5 000
Overhead 19 200
Work in process: Sewing 87 700

Work in process: Cutting 87 700
Finished goods $171 900

Work in process: Sewing $171 900
3 The work in process accounts are useful control devices to monitor the total cost in each department.
Also, despite its policy there may occasionally be months where work in process is unavoidable.
PROBLEM 5.52 (20 minutes) (appendix) Transferred-in costs; weighted average

method: manufacturer
1 (a) Cost of units completed and transferred to finished goods inventory during May:
Units completed and transferred out 11 900
Total cost per equivalent unit $9.00
Cost of units completed and transferred out $107 100
(b) To calculate the cost of the Finishing Department work in process inventory on May 31, first
determine the number of units in ending work in process inventory, as follows:
Work in process inventory, May 1 1 400 units
Add: Units transferred in 14 000 units
Units to account for 15 400 units
Subtract: Units transferred to finish goods 11 900 units
Total 3 500 units
Then calculate the transferred-in costs, direct material cost, and conversion cost in the May 31 work in
process inventory:
Cost per
Input Equivalent units equivalent unit Cost
Transferred in 3 500 $5.00 = $17 500
Direct material 3 500 $1.00 = 3 500
Conversion 3 500 40% $3.00 = 4 200
Total cost of May 31
work in process inventory $25 200
2 Equivalent units of transferred-in costs 15 400

Transferred-in cost per equivalent unit $5.00
Total transferred-in cost $77 000
Transferred-in cost in May 1 work in process inventory 6 750
Total cost transferred in from the Assembly Department $70 250
Journal entry to record transfer:

Work in process inventory: Assembly Department 70 250
PROBLEM 5.53 (25 minutes) (appendix) FIFO process costing; sequential

departments; two types of direct material; ethics: manufacturer
1 Schedule of equivalent units for the Packaging Department:
Percentage of
completion Direct material
Physical with respect Transferred
units to conversion in Wrap Boxes Conversion
Work in process,
October 1 10 000 40%
Units transferred in during
October 40 000
Units completed and
transferred out during
October 40 000 40 000 40 000 40 000 40 000
Work in process,
October 31 10 000 80% 10 000 10 000 10 000 8 000
Total equivalent units. 50 000 50 000 50 000 48 000
Less: Equivalent units
represented in October 1
work in process 10 000 10 000 0 4 000
New equivalent units
accomplished in
October only 40 000 40 000 50 000 44 000
2 Cost per equivalent unit:
Direct material
Transferred in Wrap Boxes Conversion Total
Costs incurred during
October $120 000* $80 000 $50 000 $88 000 $338 000
Equivalent units for
October only 40 000 40 000 50 000 44 000
Cost per equivalent unit $3.00 $2.00** $1.00** $2.00** $8.00
The total cost per equivalent unit, including transferred-in costs, is $8.00.
* The cost associated with the units transferred into Packaging can be found by multiplying the unit cost (given) of
$3.00 times the number of units transferred in during October, 40 000.
Given in the problem.
** Cost incurred during October equivalent units for October only.
3 The only part of the kits cost structure affected by Drakes suggestion is the conversion cost. If the
units were 95 per cent complete as at October 31, there would be 45 500 new equivalent units with
respect to conversion. (To see this, just change the 8000 in the right-hand column of the table in the
solution to requirement (1) to 9 500. This changes the last number in the right-hand column from 44 000
to 45 500.)
Now the unit cost of conversion drops from $2.00, as currently calculated to $1.93 rounded ($88 000 45
500). Thus, the unit cost of a kit drops from $8.00 to $7.93 (rounded).
As Wood Glows accountant, Mark Brandon has an ethical obligation to refuse his friends request to
alter the estimate of the percentage of completion. What Brandon can do is to help Drake think of some
legitimate ways to bring about real cost reductions in the Packaging Department.
If we consider the Code of ` for Professional Accountants issued by the Accounting Professional and
Ethical Standards Board (APESB), presented in Chapter 1, the principles that are relevant include the
following: integrity, objectivity, independence, and professional behaviour.
SOLUTIONS TO CASES
CASE 5.54 (60 minutes) Equivalent units; unit costs; evaluation of weighted average
and FIFO: manufacturer
1 (a) The equivalent units for each cost element using the weighted average method are calculated as
follows:
Direct materials
Chemicals Cans Conversion
Units completed and transferred to shipping 20 000 20 000 20 000
Work in process, May 31
Chemicals (100%) 5 000
Cans (0%) 0
Conversion (80%) 4 000
Total equivalent units 25 000 20 000 24 000
(b) The equivalent units for each cost element using the FIFO method are calculated as follows:
Direct materials
Work in process, May 31:
Cans (0%) 0
Conversion (80%) ______ ______ 4 000
Less equivalent units represented in May 1
work in process:
Cans (0%) 0
Conversion (25%) ______ ______ 1 000
New equivalent units accomplished in May
only 21 000 20 000 23 000
2 (a) The cost per equivalent unit for each cost element using the weighted average method is
calculated as follows:
Direct materials
Work in process, May 1 $45 600 $0 $8 125
May costs incurred 228 400 7 000 45 500
Total costs $274 000 $7 000 $53 625
Weighted average equivalent units 25 000 20 000 24 000
(b) The cost per equivalent unit for each cost element using the first in, first out method is calculated
as follows:
Direct materials
Chemicals Cans Conversion*
May costs incurred $228 400 $7 000 $45 500
First in, first out equivalent units 21 000 20 000 23 000
3 The weighted average method of process costing is more widely used than the FIFO method, probably
because it is somewhat simpler. Now, however, most product costing systems are computerised;
operating a process costing system is equally as simple when using either the weighted average method
or FIFO method. For purposes of cost control and performance evaluation, FIFO process costing is
superior to the weighted average method. It is important to evaluate the performance of departmental
managers on the basis of current period costs only. When current period and prior period costs are
averaged, a departmental managers current performance is less clear. Moreover, performance
evaluation based partially on costs incurred in prior periods is less timely. Behavioural scientists
generally agree that for performance evaluation to be more effective, it should be done on a timely basis.
4 Mays production report prepared in Excel Spreadsheet, assuming that the stage of completion for
opening WIP is 50%:
The equivalent units for each cost element using the FIFO method are calculated as follows:
Direct materials
Work in process, May 31 (80%):
Cans (0%) 0
Conversion (80%) ______ ______ 4 000
Less equivalent units represented in May 1
work in process (50%):
Cans (0%) 0
Conversion (50%) ______ ______ 2 000
New equivalent units accomplished in May
only 21 000 20 000 22 000

Chemicals Cans
Work in process, May 1 These costs are not included in the $53 725
unit cost calculation for May
Costs incurred during May $228 400 $7 000 $45 500 280 900
Equivalent units for May 21 000 20 000 22 000
Costs per equivalent unit $10.8762 $0.35 $2.0682 $13.2944
(a) Costs of goods completed and

transferred to Shipping in May:
Cost of 1 May WIP 53 725
Cost of completing May 1 work in 4000x 0.35 1 400
process which is transferred out first
4 000 .50
$2.0682 4 136
$59 261
Cost incurred to produce units that
were both started and completed
during May 16 000 x $13.2944 212 710
Total cost of goods completed and
transferred out $271 971
(b) Cost remaining in May 31 work
in process inventory (80%):
Direct material - chemicals (5000 $54 381

$10.8762
Conversion (4 000 $2.0682) 8 273
Total 62 653
Total costs accounted for $334 624*
* rounding error of $1
CASE 5.55 (45 minutes) Weighted average process costing: manufacturer
1 8 000
(a) Equivalent units of material
Equivalent units of conversion 7 500
(b) Cost per equivalent unit of material $3.225

Cost per equivalent unit of conversion $2.8
(c) October 31 work-in-process inventory $4 625

Cost of goods completed and transferred out $42 175
(d) Weighted-average unit cost of completed leather belts $6.025

These answers are supported by the following process-costing schedules. The firm's cost per belt used
for planning and control, $5.35, is substantially lower than the actual cost per belt incurred in October,
$6.025. Management should investigate this situation to determine whether production costs can be
reduced. If not, then the cost used for planning and control purposes should be changed to reflect the
firm's actual experience.
Calculation of equivalent units: Leather Products Ltd Elizabeth Plant

completion
Physical with respect to Direct Conversio
units conversion material n
Work in process, October 1 400 25%
Units started during October 7 600

during October 7 000 100% 7 000 7 000
Work in process, October 31 1 000 50% 1 000 500
Calculation of costs per equivalent unit: Elizabeth Plant

Work in process, October 1 $1 250 $300 $1 550
Costs incurred during October .................................. 24 550 20 700 45 250
Analysis of total costs: Elizabeth Plant

7 000 $6.025 $42 175
Cost remaining in October 31 work in process inventory:
Direct material:
number of cost per

units of unit of 1 000 $3.225 $3 225


Conversion:
number of cost per

units of unit of 500 $2.8 1 400


Total cost of October 31 work in process .......................................................................... $4 625
Check: Cost of goods completed and transferred out ......................... $42 175
Cost of October 31 work-in-process inventory....................... 4 625
Total costs accounted for......................................................... $46 800
2 The cost of manufacturing the belt is $6.025 per unit which is different to the $5.35 used for planning
purposes. The profit margin using the incorrect cost would be overstated. If management was to sue the
incorrect cost then it could result in wrong decisions.
CASE 5.56 (60 minutes) (appendix) Sequential production departments; FIFO

method; JIT: manufacturer
Production report: Grading Department

(FIFO method)
Percentage of
Equivalent units
completion with
Work in process, November 1 0 --
Units started during November 36 000
Units completed and transferred out during
November 36 000 100% 36 000 36 000
Work in process, November 30 0 -- -- 0
Less: Equivalent units represented in
November 1 work in process 0 0
New equivalent units accomplished in
November only 36 000 36 000

Work in process, November 1 0 0 0
Costs incurred during November $265 680 $86 400 $352,080
Total costs to account for $265 680 $86 400 $352,080
Equivalent units for November only 36 000 36 000
Cost of goods completed and transferred out of the Grading Department during November:
Cost of November 1 work in process inventory 0
Cost incurred to produce units that were both started and completed during November
total cost per
( number of units) 36 000 $9.78 $352,080
equivalent unit
Total cost of goods completed and transferred out $352,080
Cost remaining in November 30 work in process inventory in the Grading Department 0
Check:Cost of goods completed and transferred out $352,080

Cost of November 30 work in process inventory 0
Total costs accounted for $352,080
Production report: Saturating Department

(FIFO method)
Percentage of
Equivalent units
completion with
Physical respect to
units conversion Transf in Conversion
Units transferred in during November 36 000
during November 35 600 100% 35 600 35 600
Work in process, November 30 2 000 50% 2 000 1 000
Less: equivalent units represented in
November 1 work in process 1 600 800
New equivalent units accomplished in
November only 36 000 35 800
Transferred in Conversion Total

Work in process, November 1 These costs were incurred during a previous $17 600
month. They are not included in the unit
cost calculation for November.
Costs incurred during November $352 080* $85 920 438 000
Equivalent units for November only 36 000 35 800
* Cost of goods completed and transferred out of Grading Department during November, under the FIFO method.
Cost of goods completed and transferred out of the Saturating Department during November:
Cost of November 1 work in process inventory which is transferred out first $17 600
Cost incurred to finish the November 1 work in process inventory:
cost per
equivalent
of conversion 1 600 .50 $2.40 1 920
unit of
units remaining
conversion
Cost incurred to produce units that were both started and completed during November:
number
total cost per
of equivalent unit 34 000* $12.18 414 120

units
Total cost of goods completed and transferred out $433 640

* Units started and completed during November: 35 600 units completed and transferred out minus 1 600 units in the
November 1 work in process inventory.
Cost remaining in November 30 work in process inventory in the Saturating Department:
Transferred-in costs:
number of equivalent transferred - in

units of transferred cost per 2 000 $9.78 $19 560

in cost equivalent unit
Conversion:
number of equivalent conversion cost
1 000 $2.40 2 400
units of conversion per equivalent unit
Total cost of November 30 work in process inventory $21 960

Check:Cost of goods completed and transferred out 433 640
Cost of November 30 work in process inventory 21 960
CASE 5.57 (60 minutes) Sequential production departments; weighted average

method; JIT (appendix): manufacturer
Due to Home and Garden Products Ltds movement toward JIT inventory and production methods, there is no
work in process inventory in the Grading Department on November 1. Therefore, the process costing
calculations are identical for this department under the FIFO and weighted average methods. Thus, the solution
given for the preceding problem, for the Grading Department, is also valid for this problem. The cost of goods
completed and transferred out of the Grading Department in November is $352 080.
Production report: Saturating Department
(Weighted average method)
Percentage of
Equivalent units
completion
Physical with respect to
units conversion Transfer in Conversion
Units transferred in during November 36 000
during November 35 600 100% 35 600 35 600
Work in process, November 30 2 000 50% 2 000 1 000
Transferred in Conversion Total

Work in process, November 1 $13 850 $3 750 $17 600
Costs incurred during November 352,080* 85 920 438 000
* Cost of goods completed and transferred out of the Grading Department during November under the weighted average
method.
Cost of goods completed and transferred out of the Saturating Department during November:
total cost per
number of units
equivalent 35 600 $12.1822 $433 686
transferred out
unit
Cost remaining in November 30 work in process inventory in the Saturating Department:

Transferred-in costs:
number of cost per

equivalent equivalent 2 000 $9.7322 $19 464
units of unit of

transferred - in cost transferred - in cost
Direct material: None

Conversion:
number of cost per

equivalent equivalent 1 000 $2.45 2 450
units of unit of

Total $21 194
Check:Cost of goods completed and transferred out $433 686

Cost of November 30 work in process inventory 21 914

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CHAPTER 5

PROCESS COSTING AND OPERATION

The general formula for all three cases is the following:

1 9000 + units started 19 000 = 2000

1 5 000 equivalent units (refer to (c) in the following table).

Calculation of equivalent units: Country Life Corporation

Calculation of equivalent units: Healthy life styles

Calculation of cost per equivalent unit: Kimbos Glass Company

1 Weighted average method:

(a) 89 000 3.10 = $275 900

Equivalent units 100 000 88 000

Cost of opening work in process $22 500

Equivalent units for September only

Costs per equivalent unit $4.10 $6.20 $10.30

(a) Costs of goods completed and

Cost of September 1 work in

Cost incurred to finish the

Total cost of goods completed and

Direct material (10 000 $4.10) $41 000

EXERCISE 5.36 (45 minutes) Operation costing: manufacturer

2. The product cost for each of the basketballs is calculated as follows:

Work in process inventory: Preparation Department 45 000*

Work in process inventory: Finishing Department 129 500*

Work in process inventory: Finishing Department 36 000*

Work in process inventory: Packaging Department 66 500*

Finished goods inventory 70 000*

Percentage of Equivalent units

Work in process, 1 January 20 000 60%

Units completed and

1 Work in process inventory: Pouring Department 1 090 000

Work in process, October 1 (in units) ................................................................................................ 15 000

Work in process, October 1: conversion ............................................................................................ $37 500

Production report: Black Rubber Ltd

Direct Conversion Total

Cost of goods completed and transferred out during October:

number of units total cost per

Cost remaining in October 31 work-in-process inventory:

number of cost per

Total cost of October 31 work-in-process...................................................................................... $167 500

Production report: Black Rubber Ltd

Direct material Conversion Total

Costs per equivalent unit ............................ $9.40 $11.7534 $21.1534

Cost of goods completed and transferred out during October:

number of units total cost per

Cost remaining in October 31 work-in-process inventory:

number of cost per

number of cost per

Total cost of October 31 work-in-process...................................................................................... $199 781

PROBLEM 5.42 (45 minutes) Weighted average process costing: manufacturer

(b) Equivalent units:

(c) Costs per equivalent unit:

Direct material Conversion Total

(d) Cost of goods completed and transferred out during June:

number of units total cost per

Cost remaining in June 30 work-in-process inventory:

number of cost per

number of cost per

Total cost of June 30 work in process .................................................................................... $176 181

Check: Cost of goods completed and transferred out............................................................. $820 515

* difference of $4 due to rounding errors

PROBLEM 5.43 (35 minutes) Determination of production costs; analysis of

1 Direct material cost was $1 390 000:

Work in process, April 1 3 000 80%