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CHAPTER 4

Process Costing and Hybrid Product-Costing


Systems
ANSWERS TO REVIEW QUESTIONS
4-1

In a job-order costing system, costs are assigned to batches or job orders of


production. Job-order 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 nearly identical products.

4-2

Process costing would be an appropriate product-costing system in the following


industries: petroleum, food processing, lumber, chemicals, textiles, and electronics.
Each of these industries is involved in the production of very large numbers of
highly similar products.

4-3

Process costing could be used in the following nonmanufacturing enterprises:


processing of tests in a medical diagnostic laboratory, processing of tax returns by
the Internal Revenue Service, and processing of loan applications in a bank.

4-4

Product-costing systems are used for the following purposes:


(a) In financial accounting: Product costs are needed to value inventory on the
balance sheet and to compute the cost-of-goods-sold expense on the income
statement.
(b) In managerial accounting: Product costs are needed for planning, for cost
control, and to provide managers with data for decision making.
(c) In reporting to interested organizations: Product cost information is used to
report on relationships between firms and various outside organizations. For
example, hospitals keep track of the costs of medical procedures that are
reimbursed by insurance companies or by the federal government under the
Medicare program.

4-5

An equivalent unit is a measure of the amount of productive effort applied in the


production process. In process costing, costs are assigned to equivalent units rather
than to physical units.

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4-1

4-6

The following four steps are used in process costing:


(a) Analysis of physical flow of units: All of the units in the beginning and ending
inventories, those started during the period, and those transferred out to finished
goods are accounted for.
(b) Calculation of equivalent units: The equivalent units of activity are computed for
direct material and for conversion.
(c) Computation of unit costs: The costs per equivalent unit for direct material and
conversion are computed.
(d) Analysis of total costs: The cost of the goods completed and transferred out and
the cost of the ending work-in-process inventory are determined.

4-7

(a) Journal entry to enter direct-material costs into Work-in-Process Inventory


account:
Work-in-Process Inventory: Department A ....................
Raw-Material Inventory..........................................

XXX
XXX

(b) Journal entry to record transfer of goods from the first to the second department
in the production sequence:
Work-in-Process Inventory: Department B ....................
Work-in-Process Inventory: Department A .........

XXX

XXX

4-8

Transferred-in costs are the costs assigned to partially completed products that
have been transferred from one production department into the next department.

4-9

The $182,000 of transferred-in costs were incurred prior to January 1 and in the
mixing department. The costs must have been incurred prior to January 1, because
they are included in the cost of the beginning work-in-process inventory on that
date. Moreover, these costs must have been incurred in the mixing department,
because they have been transferred into the cooking department.

4-10

The name ''weighted-average method'' comes from the fact that the cost per
equivalent unit computed under this method is a weighted average of costs incurred
during the current period and costs incurred during prior periods.

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Solutions Manual

4-11

The difference between normal and actual costing lies in the calculation of the
manufacturing-overhead cost of the current period. Under actual costing, the
manufacturing-overhead cost of the current period is the actual overhead cost
incurred during the period. Under normal costing, the current-period manufacturing
overhead is computed as the product of the predetermined overhead rate and the
actual level of the cost driver used to apply manufacturing overhead.

4-12

If manufacturing overhead were applied according to some activity base (or cost
driver) other than direct labor, then direct-labor costs and manufacturing-overhead
costs would be accounted for separately instead of being combined into one
account called "conversion costs." Thus, instead of two columns for direct-material
and conversion costs, there would be three columns: direct material, direct labor,
and manufacturing overhead.

4-13

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
significantly. 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. In contrast, direct-material costs are accumulated by
job order or by batch, and job-order costing is used to assign direct-material costs to
products.

4-14

The departmental production report is the key document in a process-costing


system rather than the job-cost sheet used in job-order costing. The departmental
production report shows the analysis of the physical flow of units, the calculation of
equivalent units, the computation of the cost per equivalent unit, and the analysis of
the total costs incurred in the production department. The report shows the cost of
the ending work-in-process inventory as well as the cost of the goods completed and
transferred out of the department.

4-15

There is no direct material in the March 1 work in process for the stitching
department because direct material (rawhide lacing) is added at the end of the
process in that department.

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4-3

SOLUTIONS TO EXERCISES
EXERCISE 4-16 (10 MINUTES)
The general formula for all three cases is the following:
Work-in-process,
beginning

Units started
during month

Units completed
during month

Work-in-process,
ending

Using this formula, the missing amounts are:


1.

9,000 pounds

2.

12,500 yards

3.

72,000 liters

EXERCISE 4-17 (20 MINUTES)


CALCULATION OF EQUIVALENT UNITS: HEALTHY LIFE STYLES, INC.
Weighted-Average Method
Percentage
of
Percentage
Completion
of
with
Completion
Respect to
with
Equivalent Units
Direct
Physical
Respect to
Direct
Material
Units
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 ............
Work in process, December 31
Total units accounted for........
Total equivalent units..............

McGraw-Hill/Irwin
4-4

145,000
25,000
170,000

100%
75%

100%
20%

145,000
18,750
______
163,750

145,000
5,000
_______
150,000

2005 The McGraw-Hill Companies, Inc.


Solutions Manual

EXERCISE 4-18 (15 MINUTES)


CALCULATION OF EQUIVALENT UNITS: PETROTECH COMPANY - AMARILLO PLANT
Weighted-Average Method
Percentage
of
Completion
Equivalent Units
with
Physical
Respect to
Direct
Units
Conversion Material Conversion
Work in process, July 1..........................
1,900,000
30%
Units started during July .......................
750,000
Total units to account for ......................
2,650,000
Units completed and transferred
out during July...................................
Work in process, July 30 .......................
Total units accounted for.......................
Total equivalent units.............................

2,400,000
250,000
2,650,000

100%
70%

2,400,000
250,000
________
2,650,000

2,400,000
175,000
________
2,575,000

EXERCISE 4-19 (15 MINUTES)


1.

5,500 equivalent units (refer to (a) in the following table)

2.

4,140 equivalent units (refer to (b) in the following table)

CALCULATION OF EQUIVALENT UNITS: ANDROMEDA GLASS COMPANY


Weighted-Average Method
Percentage
Equivalent Units
of
Completion with
Physical
Respect to
Direct
Units
Conversion
Material
Conversion
Work in process, August 1 .....
2,000
60%
Units started during August ...
3,500
Total units to account for .......
5,500
Units completed and transferred
out during August............
Work in process, August 31 ...
Total units accounted for........
Total equivalent units..............
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Managerial Accounting, 6/e

3,800
1,700
5,500

100%
20%

3,800
1,700
_____
(1) 5,500

3,800
340
____
(2) 4,140

2005 The McGraw-Hill Companies, Inc.


4-5

EXERCISE 4-20 (30 MINUTES)


All three of these companies manufacture large amounts of relatively homogeneous
products (i.e., lumber and paper). Therefore, process costing is an appropriate productcosting system.
EXERCISE 4-21 (15 MINUTES)
CALCULATION OF COST PER EQUIVALENT UNIT: DULUTH GLASS COMPANY
Weighted-Average Method
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
*$10.80 = $178,200 16,500
$4.90

= $230,300 47,000

EXERCISE 4-22 (15 MINUTES)


CALCULATION OF COST PER EQUIVALENT UNIT: MONTANA LUMBER COMPANY
Weighted-Average Method
Direct
Material
Conversion
Total
Work in process, June 1 ...........................
$ 74,900
$167,000
$ 241,900
Costs incurred during June......................
380,700
625,000
1,005,700
Total costs to account for.........................
$455,600
$792,000
$1,247,600
Equivalent units .........................................
6,700
1,600
Costs per equivalent unit..........................
$68*
$495
$563
*$68 = $455,600 6,700
$495 = $792,000 1,600

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Solutions Manual

EXERCISE 4-23 (25 MINUTES)


TUSCALOOSA PAPERBOARD COMPANY
Weighted-Average Method
Direct
Material
Conversion
Work in process, March 1 ........................
$ 10,900
$ 28,950
Costs incurred during March ..................
112,700
160,200
Total costs to account for........................
$123,600
$189,150
Equivalent units ........................................
103,000
97,000
Costs per equivalent unit.........................
$1.20
$1.95

Total
$ 39,850
272,900
$312,750
$3.15

1. Cost of goods completed and


transferred out during March:
number of units total cost per


.......................
transferred out equivalent unit

2.

89,000 $3.15

$280,350

Cost remaining in March 31 work


in process:
Direct material (14,000* $1.20).
Conversion (8,000* $1.95) ........
Total ...............................................
Total costs accounted for.................

$ 16,800
15,600
32,400
$312,750

*Equivalent units in March 31 work in process:

Total equivalent units (weighted average).......................


Units completed and transferred out................................
Equivalent units in ending work in process ....................

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Direct
Material
103,000
(89,000)
14,000

Conversion
97,000
(89,000)
8,000

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4-7

EXERCISE 4-24 (25 MINUTES)


RALEIGH TEXTILES COMPANY
Weighted-Average Method
Direct
Material
Conversion
Work in process, November 1 ..................
$ 85,750
$ 16,900
Costs incurred during November ............
158,000
267,300
Total costs to account for.........................
$243,750
$284,200
Equivalent units .........................................
62,500
49,000
Costs per equivalent unit..........................
$3.90
$5.80
1.

$9.70

Cost of goods completed and


transferred out during November:
number of units total cost per


.....................
transferred out equivalent unit

2.

Total
$ 102,650
425,300
$527,950

47,000 $9.70

$455,900

Cost remaining in November 30


work in process:
Direct material (15,500* $3.90)
Conversion (2,000* $5.80)........
Total...............................................
Total costs accounted for................

$60,450
11,600
72,050
$527,950

*Equivalent units in November 30 work in process:

Total equivalent units (weighted average)........................


Units completed and transferred out.................................
Equivalent units in ending work in process .....................

McGraw-Hill/Irwin
4-8

Direct
Material
62,500
(47,000)
15,500

Conversion
49,000
(47,000)
2,000

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Solutions Manual

EXERCISE 4-25 (45 MINUTES)


1. Diagram of production process:
Work-in-Process Inventory:
Preparation Department
Batch P25 Batch S33

Accumulated
by
department

Conversion costs:
Direct-labor
Manufacturing
overhead
Work-in-Process Inventory:
Finishing Department
Batch P25

Accumulated
by
batch

Batch S33

Directmaterial
costs
Work-in-Process Inventory:
Packaging Department
Batch P25

Finished-Goods Inventory

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4-9

EXERCISE 4-25 (CONTINUED)


2. The product cost for each basketball is computed as follows:
Professional
Direct material:.....................................................................
Batch P25 ($42,000 2,000)...........................................
Batch S33 ($45,000 4,000)...........................................
Conversion: Preparation Department ..............................
Conversion: Finishing Department ..................................
*Conversion: Packaging Department ................................
Total product cost ..............................................................

$21.00
-07.50
6.00
.50
$35.00

Scholastic
-0$11.25
7.50
6.00
-0$24.75

*The two production departments each worked on a total of 6,000 balls, but the Packaging
Department handled only the 2,000 professional balls.
3.

Journal entries:
Work-in-Process Inventory: Preparation Department ..........
Raw-Material Inventory...................................................

39,500*

39,500

*$39,500 = $42,000 of direct material


for batch P25 $2,500 of packaging material
Work-in-Process Inventory: Preparation Department ..........
Raw-Material Inventory...................................................

45,000*

45,000

*Direct-material cost for batch S33.


Work-in-Process Inventory: Preparation Department ..........
Applied Conversion Costs.............................................

45,000*

45,000

*$45,000 = 6,000 units $7.50 per unit


Work-in-Process Inventory: Finishing Department ..............
Work-in-Process Inventory: Preparation Department

129,500*

129,500

*$129,500 = $39,500 + $45,000 + $45,000

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Solutions Manual

EXERCISE 4-25 (CONTINUED)


Work-in-Process Inventory: Finishing Department ..............
Applied Conversion Costs.............................................

36,000*

36,000

*$36,000 = 6,000 units $6.00 per unit


Work-in-Process Inventory: Packaging Department ............
Finished-Goods Inventory .......................................................
Work-in-Process Inventory: Finishing Department.....

66,500*
99,000
165,500

*$66,500 = $39,500 + (2,000 $7.50) + (2,000 $6.00).


These are the costs accumulated for batch P25 only.
= $45,000 + (4,000 $7.50) + (4,000 $6.00).
These are the costs accumulated for batch S33 only.
$99,000

Work-in-Process Inventory: Packaging Department ............


Raw-Material Inventory...................................................
Applied Conversion Costs.............................................

3,500
2,500*
1,000

*Cost of packaging material for batch P25.


$1,000

= 2,000 units $.50 per unit

Finished-Goods Inventory .......................................................


Work-in-Process Inventory: Packaging Department...

70,000*
70,000

*$70,000 = $66,500 + $3,500

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4-11

EXERCISE 4-26 (10 MINUTES)


1.

Work-in-Process Inventory: Preparation Department ........


Raw-Material Inventory .................................................
Wages Payable...............................................................
Manufacturing Overhead ..............................................

1,635,000

2.

Work-in-Process Inventory: Finishing Department ............


Work-in-Process Inventory: Preparation Department

1,350,000

3.

Work-in-Process Inventory: Finishing Department ............


Raw-Material Inventory................................................
Wages Payable .............................................................
Manufacturing Overhead.............................................

1,087,500

Finished-Goods Inventory .....................................................


Work-in-Process Inventory: Finishing Department ..

600,000

4.

McGraw-Hill/Irwin
4-12

105,000
510,000
1,020,000
1,350,000

37,500
420,000
630,000
600,000

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Solutions Manual

SOLUTIONS TO PROBLEMS
PROBLEM 4-27 (45 MINUTES)
1.

2.

Physical flow of units:


Work in process, June 1.............................................................................
Units started during June...........................................................................
Total units to account for ...........................................................................

Physical
Units
40,000
190,000
230,000

Units completed and transferred out during June ..................................


Work in process, June 30...........................................................................
Total units accounted for ...........................................................................

180,000
50,000
230,000

Equivalent units:

Work in process, June 1...........


Units started during June.........
Total units to account for .........
Units completed and transferred
out during June ....................
Work in process, June 30.........
Total units accounted for .........
Total equivalent units ...............
3.

Percentage
of
Completion
with
Physical Respect to
Units
Conversion
40,000
38%
190,000
230,000
180,000
50,000
230,000

100%
55%

Equivalent Units
Direct
Material Conversion

180,000
50,000

180,000
27,500

230,000

207,500

Costs per equivalent unit:


Work in process, June 1 ...............
Costs incurred during June..........
Total costs to account for.............
Equivalent units.............................
Costs per equivalent unit..............

McGraw-Hill/Irwin
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Direct
Material
$110,500
430,000
$540,500
230,000
$2.35

Conversion
$ 22,375
320,000
$342,375
207,500
$1.65

Total
$132,875
750,000
$882,875
$4.00

2005 The McGraw-Hill Companies, Inc.


4-13

PROBLEM 4-27 (CONTINUED)


4.

Cost of goods completed and transferred out during June:

number of units total cost per


........................

transferred out equivalent unit

180,000 $4.00

$720,000

50,000 $2.35

$117,500

27,500 $1.65

45,375

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


Direct material:

cost per
number of

equivalent equivalent ..........................

unit of
units of

direct material direct material

Conversion:
number of cost per

equivalent equivalent ......................................


units of unit of

conversion conversion

Total cost of June 30 work in process ........................................................

$162,875

Check: Cost of goods completed and transferred out ..............................


Cost of June 30 work-in-process inventory...................................
Total costs accounted for ................................................................

$720,000
162,875
$882,875

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Solutions Manual

PROBLEM 4-28 (45 MINUTES)


1.

Physical flow of units:


Work in process, April 1.............................................................................
Units started during April...........................................................................
Total units to account for...........................................................................
Units completed and transferred out during April ..................................
Work in process, April 30...........................................................................
Total units accounted for..................................................................................

2.

80,000
30,000
110,000

Equivalent units:

Physical
Units
Work in process, April 1 .............
10,000
Units started during April ........... 100,000
Total units to account for ........... 110,000
Units completed and
transferred out during April ...
Work in process, April 30
Total units accounted for............
Total equivalent units..................
3.

Physical
Units
10,000
100,000
110,000

80,000
30,000
110,000

Percentage
of
Completion
with
Respect to
Conversion
20%

100%
33 1/3%

Equivalent Units
Direct
Material Conversion

80,000
30,000
______
110,000

80,000
10,000
_____
90,000

Cost per equivalent unit:


Work in process, April 1 ............................
Costs incurred during April.......................
Total costs to account for..........................
Equivalent units..........................................
Costs per equivalent unit...........................

Direct
Material
$ 22,000
198,000
$220,000
110,000
$2.00*

Conversion
$ 4,500
158,400
$162,900
90,000
$1.81

Total
$ 26,500
356,400
$382,900
$3.81

*$2.00 = $220,000 110,000


$1.81 = $162,900 90,000

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4-15

PROBLEM 4-28 (CONTINUED)


4.

Cost of goods completed and transferred out during April:


number of units total cost per


........................... 80,000 $3.81
transferred out equivalent unit

$304,800

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


Direct material:
number of
cost per

equivalent
equivalent

units of
unit of
.......................... 30,000 $2.00

direct
material
direct
material

$60,000

Conversion:
number of cost per

equivalent equivalent
units of
unit of
.................................... 10,000 $1.81

conversion conversion

18,100

Total cost of April 30 work-in-process....................................................

$78,100

Check: Cost of goods completed and transferred out ........................


Cost of April 30 work-in-process inventory ............................
Total costs accounted for .........................................................

$304,800
78,100
$382,900

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Solutions Manual

PROBLEM 4-29 (50 MINUTES)


1.

2.

Physical flow of units:

Work in process, 1/1/x4 ............................................................................


Units started during 20x4 .........................................................................
Total units to account for .........................................................................

Physical
Units
210,000
1,100,000
1,310,000

Units completed and transferred out during 20x4.................................


Work in process, 12/31/x4 ........................................................................
Total units accounted for .........................................................................

1,000,000
310,000
1,310,000

Equivalent units:

Work in process, 1/1/x4...............


Units started during 20x4 ...........
Total units to account for ...........
Units completed and transferred
out during 20x4 .......................
Work in process, 12/31/x4...........
Total units accounted for............
Total equivalent units..................

McGraw-Hill/Irwin
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Percentage
of
Completion
with
Physical Respect to
Conversion
Units
210,000
83%
1,100,000
1,310,000
1,000,000
310,000
1,310,000

100%
48%

Equivalent Units
Direct
Material Conversion

1,000,000
310,000
________
1,310,000

1,000,000
148,800
________
1,148,800

2005 The McGraw-Hill Companies, Inc.


4-17

PROBLEM 4-29 (CONTINUED)


3.

Costs per equivalent unit:

Work in process, 1/1/x4 ..................................


Costs incurred during 20x4 ...........................
Total costs to account for ..............................
Equivalent units ..............................................
Costs per equivalent unit ...............................

Direct
Material Conversion
Total
a
$ 300,000 $ 620,800 $ 920,800
1,403,000 3,400,000b 4,803,000
$1,703,000 $4,020,800 $5,723,800
1,310,000
1,148,800
c
$1.30
$3.50d
$4.80e

aConversion

cost

=
=
=
=
=

direct labor + overhead


direct labor + (100% direct labor)
200% direct labor
200% $310,400
$620,800

bConversion

cost

=
=
=

200% direct labor


200% $1,700,000
$3,400,000

c$1.30

= $1,703,000 1,310,000

d$3.50

= $4,020,800 1,148,800

e$4.80

= $1.30 + $3.50

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Solutions Manual

PROBLEM 4-29 (CONTINUED)


4.

Cost of ending inventories:


Cost of goods completed and transferred out:
number of units total cost per


.................... 1,000,000 $4.80
transferred out equivalent unit

$4,800,000

Cost remaining in 12/31/x4 work-in-process inventory:


Direct material:
number of cost per

equivalent
equivalent

units of
........................
unit of

direct material direct material

310,000 $1.30

$403,000

148,800 $3.50

520,800

Conversion:
number of cost per

equivalent equivalent
units of unit of ..................................

conversion
conversion

Total cost of 12/31/x4 work in process ......................................................

$923,800

Check: Cost of goods completed and transferred out............................


Cost of 12/31/x4 work-in-process inventory...............................
Total costs accounted for.............................................................

$4,800,000
923,800
$5,723,800

The cost of the ending work-in-process inventory is $923,800.


Ending finished-goods inventory: Of the 1,000,000 units completed during 20x4,
250,000 units remain in finished-goods inventory on December 31, 20x4. Therefore:
$4,800,000 (250,000 1,000,000) = $1,200,000*
The cost of the ending finished-goods inventory is $1,200,000.
*Also, $1,200,000 = 250,000 $4.80 per unit
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4-19

PROBLEM 4-30 (40 MINUTES)


1.

Equivalent units:

Physical
Units
Work in process, August 1............
40,000
Units started during August..........
80,000
Total units to account for .............. 120,000
Units completed and transferred
out during August......................
Work in process, August 31..........
Total units accounted for ..............
Total equivalent units ....................
2.

100,000
20,000
120,000

Percentage
of
Completion
with
Respect to
Conversion
80%

100%
30%

Equivalent Units
Direct
Material Conversion

100,000
20,000
______
120,000

100,000
6,000
______
106,000

Costs per equivalent unit:


Total costs to account for
Equivalent units

Costs per equivalent unit

Direct
Material
$138,000
120,000

Conversion
$1,089,680
106,000

$1.15

$10.28

Total

$11.43*

*$11.43 = $1.15 + $10.28


3.

Cost of goods completed and transferred out during August:


number of units total cost per


..................... 100,000 $11.43
transferre
d
out
equivalent
unit

McGraw-Hill/Irwin
4-20

$1,143,000

2005 The McGraw-Hill Companies, Inc.


Solutions Manual

PROBLEM 4-30 (CONTINUED)


4.

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


Direct material:
number of
cost per

equivalent
equivalent

units of
unit of
.........................

direct
material
direct
material

20,000 $1.15

$23,000

6,000 $10.28

61,680

Conversion:
number of cost per

equivalent equivalent
units of
unit of
...................................

conversion conversion

5.

Total cost of August 31 work in process.....................................................

$ 84,680

Check: Cost of goods completed and transferred out ..............................


Cost of August 31 work-in-process inventory...............................
Total costs accounted for................................................................

$1,143,000
84,680
$1,227,680

Journal entry:
Finished-Goods Inventory.................................................
Work-in-Process Inventory.....................................

McGraw-Hill/Irwin
Managerial Accounting, 6/e

1,143,000
1,143,000

2005 The McGraw-Hill Companies, Inc.


4-21

PROBLEM 4-31 (40 MINUTES)


1.

a. Equivalents units:

Physical
Units
Work in process, June 1 .............
30,000
Units started during June ...........
34,000
Total units to account for ...........
64,000
Units completed and
transferred out during June ...
Work in process, June 30 ...........
Total units accounted for............
Total equivalent units..................

40,000
24,000
64,000

Percentage
of
Completion
with
Respect to
Conversion
35%

100%
75%

Equivalent Units
Direct
Material Conversion

40,000
24,000
_____
64,000

40,000
18,000
_____
58,000

b. Unit costs:
Total costs to account for
Equivalent units

Costs per equivalent unit

Direct
Material
$348,800
64,000

Conversion
$2,844,900
58,000

Total

$5.45

$49.05

$54.50*

*$54.50 = $5.45 + $49.05

McGraw-Hill/Irwin
4-22

2005 The McGraw-Hill Companies, Inc.


Solutions Manual

PROBLEM 4-31 (CONTINUED)


c.

Cost of goods completed and transferred out during June:


number of units total cost per

transferred out equivalent unit

40,000 $54.50

$2,180,000

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


Direct material:
number of
cost per

equivalent
equivalent

units of
unit of

direct material direct material

24,000 $5.45

$130,800

.............................. 18,000 $49.05

882,900

Conversion:
number of cost per

equivalent equivalent
units of
unit of

conversion conversion

Total cost of June 30 work in process ...................................................


Check: Cost of goods completed and transferred out ............................
Cost of June 30 work-in-process inventory ...............................
Total costs accounted for..............................................................
2.

$1,013,700
$2,180,000
1,013,700
$3,193,700

Journal entry:
Finished-Goods Inventory.............................................
Work-in-Process Inventory ..................................

McGraw-Hill/Irwin
Managerial Accounting, 6/e

2,180,000
2,180,000

2005 The McGraw-Hill Companies, Inc.


4-23

PROBLEM 4-32 (35 MINUTES)


1.

Direct material cost was $1,390,000:


JR1163 ................................
JY1065 ................................
DC0766 ...............................
Total ..............................

$ 225,000
710,000
455,000
$1,390,000

Texarkana Corporations total direct-labor payroll amounted to $134,274 for 6,394


hours of work ($134,274 $21 per hour). Thus, conversion cost was $575,460:
Direct labor... $134,274
Overhead applied (6,394 hours x $69)..
441,186
Total.. $575,460
2.

Goods completed during April cost $2,002,000 (26,000 units x $77) as the following
calculations show:

Physical
Units

Percentage
Of
Completion
Equivalent Units
With
Respect to Direct
Conversion Material Conversion

Work in process, April 1.


Units started during April..
Total units to account for..

3,000
27,000
30,000

80%

Units completed and transferred


out during April..
Work in process, April 30..
Total units accounted for...
Total equivalent units..

26,000
4,000
30,000

100%
45%

McGraw-Hill/Irwin
4-24

26,000
4,000

26,000
1,800

30,000

27,800

2005 The McGraw-Hill Companies, Inc.


Solutions Manual

PROBLEM 4-32 (CONTINUED)

Work in process, April 1


Costs incurred during April.
Total costs to account for.
Equivalent units...
Cost per equivalent unit

Direct
Material

Conversion

Total

$ 230,000
1,390,000
$1,620,000
30,000
$54a

$ 63,940
575,460
$639,400
27,800
$23b

$ 293,940
1,965,460
$2,259,400
$77c

a$1,620,000

30,000 = $54
27,800 = $23
c$54 + $23 = $77
b$639,400

3.

The cost of the ending work-in-process inventory is $257,400:


Direct material (4,000 x $54).. $216,000
Conversion cost (1,800 x $23)..
41,400
Total. $257,400

4.

5.

(a)

No material would be added during May. All material is introduced at the start
of the manufacturing process, and these units were begun in April.

(b)

Since the work-in-process inventory is 45% complete at the end of April, 55%
of the conversion would be done in May.

Given that the ending work-in-process inventory is at the 45% stage of completion,
these units would not have reached the 75% point in April where TH55 is added.
Therefore, there would be zero equivalent units with respect to part TH55 in the
ending work-in-process inventory.

McGraw-Hill/Irwin
Managerial Accounting, 6/e

2005 The McGraw-Hill Companies, Inc.


4-25

PROBLEM 4-33 (50 MINUTES)


The missing amounts are shown below. A completed production report follows.
Work in process, October 1 (in units)....................................................................
Units completed and transferred out during October .........................................
Total equivalent units: conversion ........................................................................

10,000
75,000
78,500

Work in process, October 1: conversion ..............................................................


Costs incurred during October: direct material ...................................................
Cost per equivalent unit: conversion ....................................................................
Cost of goods completed and transferred out during October ..........................
Cost remaining in ending work-in-process inventory: direct material ..............

$ 30,225
600,000
11.85
1,556,250
44,500

PRODUCTION REPORT: FANTASIA FLOUR MILLING COMPANY


Weighted-Average Method
Percentage
of
Completion
with
Equivalent Units
Physical
Respect to
Direct
Units
Conversion
Material
Conversion
Work in process, October 1..........
10,000
15%
Units started during October........
70,000
Total units to account for .............
80,000
Units completed and transferred
out during October .............
Work in process, October 31........
Total units accounted for..............
Total equivalent units....................

McGraw-Hill/Irwin
4-26

75,000
5,000
80,000

100%
70%

75,000
5,000
_____
80,000

75,000
3,500
_____
78,500

2005 The McGraw-Hill Companies, Inc.


Solutions Manual

PROBLEM 4-33 (CONTINUED)

Work in process, October 1..........


Costs incurred during October ....
Total costs to account for.............
Equivalent units .............................
Costs per equivalent unit..............

Direct
Material
$112,000
600,000
$712,000
80,000
$8.90*

Conversion
$ 30,225
900,000
$930,225
78,500
$11.85

Total
$ 142,225
1,500,000
$1,642,225
$20.75**

*$8.90 = $712,000 80,000


$11.85 = $930,225 78,500
**$20.75 = $8.90 + $11.85

McGraw-Hill/Irwin
Managerial Accounting, 6/e

2005 The McGraw-Hill Companies, Inc.


4-27

PROBLEM 4-33 (CONTINUED)


Cost of goods completed and transferred out during October:
number of units total cost per


...............................
transferred out equivalent unit

75,000 $20.75

$1,556,250

5,000 $8.90

$44,500

3,500 $11.85

41,475

Total cost of October 31 work-in-process .........................................................

$85,975

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


Direct material:
number of
cost per

equivalent
equivalent

units of
unit of
.................................

direct material direct material

Conversion:
number of cost per

equivalent equivalent
units of
unit of
............................................

conversion
conversion

Check: Cost of goods completed and transferred out ......


Cost of October 31 work-in-process inventory ....
Total costs accounted for .......................................

McGraw-Hill/Irwin
4-28

$1,556,250
85,975
$1,642,225

2005 The McGraw-Hill Companies, Inc.


Solutions Manual

PROBLEM 4-34 (30 MINUTES)


1.

The ending work-in-process inventory consisted of 400 units (200 + 800 600).

2.

The cost of goods completed during June totaled $57,000 (600 units x $95):
Percentage
Of
Equivalent Units
Completion
__________________
With
Direct
Physical Respect to
Conversion Material Conversion
Units
________ __________ ______ __________
Work in process, June 1.
200
25%
Units started during June..
800
Total units to account for...
1,000
Units completed and transferred
during June..
Work in process, June 30...
Total units accounted for
Total equivalent units..

600
400
1,000

100%
75%

Direct
Material Conversion
_______ __________
Work in process, June 1 $12,000
$ 6,000
Costs incurred during June.
43,000
30,000
Total costs to account for. $55,000
$36,000
Equivalent units...
1,000
900
a
Cost per equivalent unit.
$55
$40b

600
400

600
300

1,000

900

Total
______
$18,000
73,000
$91,000
$95c

a$55,000

1,000 = $55
900 = $40
c$55 + $40 = $95
b$36,000

Finished-Goods Inventory
Work-in-Process Inventory.
3.

57,000
57,000

The cost of the June 30 work-in-process inventory is $34,000:


Direct material (400 x $55)... $22,000
Conversion cost (300 x $40).. 12,000
Total $34,000

McGraw-Hill/Irwin
Managerial Accounting, 6/e

2005 The McGraw-Hill Companies, Inc.


4-29

PROBLEM 4-34 (CONTINUED)


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 1,000 physical units in process that are 30% 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 (1,000 x 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.

McGraw-Hill/Irwin
4-30

2005 The McGraw-Hill Companies, Inc.


Solutions Manual

PROBLEM 4-35 (30 MINUTES)


1.

a. Equivalent units:

Tax
Returns
(physical
units)
Returns in process, February 1 ....
300
Returns started in February ..........
900
Total returns to account for .......... 1,200
Returns completed
during February........................
800
Returns in process, February 28 ..
400
Total returns accounted for .......... 1,200
Total equivalent units of activity ..

Percentage
of
Completion
with Respect
to
Conversion
(labor and
overhead)
20%

100%
75%

Equivalent Units
Labor
Overhead

800
300
____
1,100

800
300
____
1,100

Overhead
4,000
51,000
55,000
1,100
50.00

Total
7,500
141,000
148,500

b. Costs per equivalent unit:


Returns in process, February 1 ...................
Costs incurred during February ..................
Total costs to account for ............................
Equivalent units.............................................
Costs per equivalent unit .............................
2.

Labor
3,500
90,000
93,500
1,100
85.00

135.00

Cost of returns in process on February 28:


equivalent units cost per equivalent unit
300 85.00........................................................
Overhead: equivalent units cost per equivalent unit
300 50.00........................................................
Total cost of returns in process on February 28..........................................
Labor:

McGraw-Hill/Irwin
Managerial Accounting, 6/e

25,500
15,000
40,500

2005 The McGraw-Hill Companies, Inc.


4-31

PROBLEM 4-36 (50 MINUTES)


The missing amounts are shown below. A completed production report follows.
Units started during January..................................................................................
Units completed and transferred out during January .........................................
Total equivalent units: conversion ........................................................................

55,000
60,000
66,000

Work in process, January 1: conversion ..............................................................


Costs incurred during January: direct material ...................................................
Cost per equivalent unit: conversion ....................................................................
Cost of goods completed and transferred out during January ..........................
Cost remaining in ending work-in-process inventory: direct material ..............

$ 110,600
400,000
14.10
1,320,000
158,000

PRODUCTION REPORT: CANANDAIGUA CARPET COMPANY


Weighted-Average Method
Percentage
of
Completion
with
Equivalent Units
Respect to
Physical
Direct
Conversion
Units
Material Conversion
Work in process, January 1.............
25,000
25%
Units started during January...........
55,000
Total units to account for ................
80,000
Units completed and transferred
out during January ......................
Work in process, January 31...........
Total units accounted for.................
Total equivalent units.......................

McGraw-Hill/Irwin
4-32

60,000
20,000
80,000

100%
30%

60,000
20,000
_____
80,000

60,000
6,000
_____
66,000

2005 The McGraw-Hill Companies, Inc.


Solutions Manual

PROBLEM 4-36 (CONTINUED)

Work in process, January 1...............................


Costs incurred during January .........................
Total costs to account for..................................
Equivalent units ..................................................
Costs per equivalent unit...................................

Direct
Material
$232,000
400,000
$632,000
80,000
$7.90

Conversion
$110,600
820,000
$930,600
66,000
$14.10

Total
$ 342,600
1,220,000
$1,562,600
$22.00

*$7.90 = $632,000 80,000


$14.10 = $930,600 66,000
**$22.00 = $7.90 + $14.10
Cost of goods completed and transferred out during January:
number of units total cost per


...........................
transferre
d
out
equivalent
unit

60,000 $22.00

$1,320,000

20,000 $7.90

$ 158,000

6,000 $14.10

84,600

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


Direct material:
number of
cost per

equivalent
equivalent

units of
unit of
..............................

direct
material
direct
material

Conversion:
number of cost per

equivalent equivalent
units of
unit of
.........................................

conversion conversion

Total cost of January 31 work in process................................................


Check: Cost of goods completed and transferred out...
Cost of January 31 work-in-process inventory..
Total costs accounted for ....................................
McGraw-Hill/Irwin
Managerial Accounting, 6/e

$242,600

$1,320,000
242,600
$1,562,600
2005 The McGraw-Hill Companies, Inc.
4-33

PROBLEM 4-37 (45 MINUTES)


1.

PRODUCTION REPORT: MIXING DEPARTMENT


(Weighted-Average Method)
November 20x5
Percentage
of
Completion
with
Equivalent Units
Physical
Respect to
Direct
Units
Conversion
Material
Conversion
Work in process, November 1 ......
5,000
70%
Units started during November....
17,000
Total units to account for .............
22,000
Units completed and transferred
out during November..........
Work in process, November 30
Total units accounted for..............
Total equivalent units....................

Work in process, November 1 ......


Costs incurred during November
Total costs to account for.............
Equivalent units .............................
Costs per equivalent unit..............

16,000
6,000
22,000

100%
30%

Direct
Material
$ 31,600
85,000*
$116,600
22,000
$5.30

16,000
6,000
____ _
22,000

Conversion
$ 55,220
210,000
$265,220
17,800
$14.90

16,000
1,800
_ ____
17,800

Total
$ 86,820
295,000
$381,820
$20.20

*$85,000 = $16,000 + $44,000 + (5,000 12,000)($60,000)


$210,000 = $70,000 + (1.50)($70,000) + $35,000

McGraw-Hill/Irwin
4-34

2005 The McGraw-Hill Companies, Inc.


Solutions Manual

PROBLEM 4-37 (CONTINUED)


Cost of goods completed and transferred out during November:
number of units total cost per


.............................. 16,000 $20.20
transferred out equivalent unit

$323,200

Cost remaining in November 30 work-in-process inventory


Direct material:
number of
cost per

equivalent
equivalent

units of
unit of
.................................. 6,000 $5.30

direct
material
direct
material

$31,800

Conversion

2.

number of cost per

equivalent equivalent
units of
unit of
............................................ 1,800 $14.90

conversion
conversion

26,820

Total cost of November 30 work in process .....................................................

$58,620

Check: Cost of goods completed and transferred out ........


Cost of November 30 work-in-process inventory ...
Total costs accounted for..........................................

$323,200
58,620
$381,820

a. Work-in-Process Inventory: Mixing Department.............


Raw-Material Inventory ............................................

85,000

b. Work-in-Process Inventory: Mixing Department.............


Wages Payable .........................................................

70,000

c. Work-in-Process Inventory: Mixing Department.............


Manufacturing Overhead .........................................

140,000*

85,000
70,000
140,000

*$140,000 = (1.50)($70,000) + ($35,000)


d. Work-in-Process Inventory: Finishing Department ........
Work-in-Process Inventory: Mixing Department...

McGraw-Hill/Irwin
Managerial Accounting, 6/e

323,200
323,200

2005 The McGraw-Hill Companies, Inc.


4-35

PROBLEM 4-38 (35 MINUTES)


1.

Conversion cost per unit in department I:


=

direct labor + manufacturing overhead


units produced*

$76,000 + $460,000
5,500 + 2,000 + 2,500

= $53.60 per uni t

*Note that all of the products sold after processing in departments I, II, or III were
produced orginally in department I.
2.

Conversion cost per unit in department II:


=

direct labor + manufacturing overhead


units produced*

$44,000 + $136,000
2,000 + 2,500

= $40.00 per unit

*Note that all of the products sold after processing in departments II and III were
colored in department II.
3.

Cost of a clear glass sheet:


direct material per
= unit in department I
=

conversion cost per


+ unit in department I

$900,000
+ $53.60
10,000

= $143.60 per sheet

McGraw-Hill/Irwin
4-36

2005 The McGraw-Hill Companies, Inc.


Solutions Manual

PROBLEM 4-38 (CONTINUED)


4.

Cost of an unetched, colored glass sheet:


=

cost per clear


glass sheet

= $143.60 +

direct material
conversion cost per
+ per unit in department II + unit in department II

$144,000
+ $40.00
4,500

= $215.60 per sheet

5.

Cost of an etched, colored glass sheet:


cost per unetched
= colored glass sheet
= $215.60 +

conversion cost per


+ unit in department III

$76,000 + $147,500
2,500

= $305.00 per sheet

PROBLEM 4-39 (40 MINUTES)


1.

The unit costs and total costs for each of the products manufactured by Plattsburg
Plastics Corporation during the month of March are calculated as follows:
Units produced.....................
Material costs .......................
Unit material cost..........
Conversion costs* ...............
Unit conversion cost ....

Extrusion
32,000
$288,000
9.00
588,000
18.375

Form
22,000
$ 66,000
3.00
198,000
9.00

Trim
10,000
$22,500
2.25
103,500
10.35

Finish
4,000
$18,000
4.50
63,000
15.75

*Direct labor and manufacturing overhead.

McGraw-Hill/Irwin
Managerial Accounting, 6/e

2005 The McGraw-Hill Companies, Inc.


4-37

PROBLEM 4-39 (CONTINUED)


Unit Costs
Material costs:
Extrusion .......................
Form ...............................
Trim ................................
Finish..............................
Conversion costs:
Extrusion .......................
Form ...............................
Trim ................................
Finish..............................
Total unit cost ......................
Units produced.....................
Total product cost* ..............

Plastic
Sheets

Standard
Model

Deluxe
Model

Executive
Model

$9.00

$9.00
3.00

$9.00
3.00
2.25

$9.00
3.00
2.25
4.50

18.375

18.375
9.00

_
$27.375
10,000
$273,750

_
$39.375
12,000
$472,500

18.375
9.00
10.35
_
$51.975
6,000
$311,850

18.375
9.00
10.35
15.75
$72.225
4,000
$288,900

*Total costs accounted for:


Product
Plastic sheets
Standard model
Deluxe model
Executive model
Total
2.

Total
Product Costs
$ 273,750
472,500
311,850
288,900
$1,347,000

Journal entries:
Work-in-Process Inventory: Extrusion ..............................
Raw-Material Inventory .............................................
Applied Conversion Costs .......................................

876,000

Finished-Goods Inventory ..................................................


Work-in-Process Inventory: Extrusion....................

273,750

Work-in-Process Inventory: Forming ................................


Work-in-Process Inventory: Extrusion....................
Raw-Material Inventory .............................................
Applied Conversion Costs .......................................

866,250

McGraw-Hill/Irwin
4-38

288,000
588,000
273,750
602,250
66,000
198,000

2005 The McGraw-Hill Companies, Inc.


Solutions Manual

PROBLEM 4-39 (CONTINUED)


Finished-Goods Inventory ..................................................
Work-in-Process Inventory: Forming......................

472,500

Work-in-Process Inventory: Trimming ..............................


Work-in-Process Inventory: Forming......................
Raw-Material Inventory .............................................
Applied Conversion Costs .......................................

519,750

Finished-Goods Inventory ..................................................


Work-in-Process Inventory: Trimming....................

311,850

Work-in-Process Inventory: Finishing...............................


Work-in-Process Inventory: Trimming....................
Raw-Material Inventory .............................................
Applied Conversion Costs .......................................

288,900

Finished-Goods Inventory ..................................................


Work-in-Process Inventory: Finishing ....................

288,900

McGraw-Hill/Irwin
Managerial Accounting, 6/e

472,500
393,750
22,500
103,500
311,850
207,900
18,000
63,000
288,900

2005 The McGraw-Hill Companies, Inc.


4-39

PROBLEM 4-40 (45 MINUTES)


1.

Conversion costs:
Rolling
Direct labor ................................... $ 600,000
Manufacturing overhead ..............
900,000
Total conversion cost ................... $1,500,000
Total units produced:
Rolling only ............................
Rolling, molding, punching
Rolling, molding, punching,
and dipping
Conversion cost per unit..............

McGraw-Hill/Irwin
4-40

Molding
$224,000
336,000
$560,000

Punching
$256,000
384,000
$640,000

4,000

4,000

Dipping
$ 90,000
135,000
$225,000

10,000
1,500
$150

$140

$160

$150

2005 The McGraw-Hill Companies, Inc.


Solutions Manual

PROBLEM 4-40 (CONTINUED)


2.

Product costs:
Ceralam
Sheets
Sold
after
Rolling
Direct material:
Ceralam sheets .................
Chemical dip......................
Conversion costs:
Rolling................................
Molding ..............................
Punching ...........................
Dipping ..............................
Total cost ..................................
Units manufactured .................
Unit cost....................................

Non
reflective
Ceralam
Housings

Relective
Ceralam
Housings

Total
Costs

$ 960,000

$ 400,000

$ 240,000
60,000

$1,600,000
60,000

900,000a

375,000a
350,000b
400,000c
________
$1,525,000
2,500
$610

225,000a
210,000b
240,000c
225,000d
$1,200,000
1,500
$800

1,500,000
560,000
640,000
225,000
$4,585,000

_______
$1,860,000
6,000
$310

of units rolling cost per unit ($150)


of units molding cost per unit ($140)
cNumber of units punching cost per unit ($160)
dNumber of units dipping cost per unit ($150)
aNumber

bNumber

3.

Journal entries:
Work-in-Process Inventory: Rolling ....................................
Raw-Material Inventory...............................................
Applied Conversion Costs .........................................

3,100,000

1,600,000*
1,500,000

*$1,600,000 = direct-material cost for ceralam sheets


= conversion cost in rolling operation

$1,500,000

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4-41

PROBLEM 4-40 (CONTINUED)

Finished-Goods Inventory ....................................................


Work-in-Process Inventory: Rolling..........................

1,860,000*

1,860,000

*$1,860,000 = 6,000 ceralam sheets sold after


rolling $310 per unit
Cost of Goods Sold ...............................................................
Finished-Goods Inventory..........................................

1,860,000*
1,860,000

*$1,860,000 = cost of ceralam sheets sold after


rolling
Work-in-Process Inventory: Molding...................................
Work-in-Process Inventory: Rolling..........................

1,240,000*
1,240,000

*$1,240,000 = cost remaining in Work-inProcess Inventory: Rolling


= $3,100,000 $1,860,000
Work-in-Process Inventory: Molding...................................
Applied Conversion Costs .........................................

560,000*
560,000

*$560,000 = conversion cost in molding operation


Work-in-Process Inventory: Punching ................................
Work-in-Process Inventory: Molding ........................

1,800,000*
1,800,000

*$1,800,000 = cost remaining in Work-inProcess Inventory: Molding


= $1,240,000 + $560,000
Work-in-Process Inventory: Punching ................................
Applied Conversion Costs .........................................

640,000*

640,000

*$640,000 = conversion cost in punching operation

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Solutions Manual

PROBLEM 4-40 (CONTINUED)


Finished-Goods Inventory ....................................................
Work-in-Process Inventory: Punching......................

1,525,000*

1,525,000

*$1,525,000 = 2,500 nonreflective ceralam


housings sold after punching $610
per unit
Cost of Goods Sold ...............................................................
Finished-Goods Inventory..........................................

1,525,000*

1,525,000

*$1,525,000 = cost of nonreflective ceralam


housings sold after punching
Work-in-Process Inventory: Dipping ...................................
Work-in-Process Inventory: Punching......................

915,000*
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 ...................................
Raw-Material Inventory...............................................
Applied Conversion Costs .........................................

285,000

60,000*
225,000

*$60,000 = direct-material cost for chemical dip


$225,000 = conversion cost in dipping operation
Finished-Goods Inventory ....................................................
Work-in-Process Inventory: Dipping.........................

1,200,000*
1,200,000

*$1,200,000 = 1,500 reflective ceralam housings


sold after dipping $800 per unit
Cost of Goods Sold ...............................................................
Finished-Goods Inventory..........................................

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Managerial Accounting, 6/e

1,200,000

1,200,000

2005 The McGraw-Hill Companies, Inc.


4-43

PROBLEM 4-41 (30 MINUTES)


1.

a.

Cost of units completed and transferred to finished-goods inventory during


February:
Units completed and transferred out ..............................................
Total cost per equivalent unit ..........................................................
Cost of units completed and transferred out .................................

b.

5,950
$16.00
$95,200

To compute the cost of the Finishing Department's work-in-process inventory


on February 28, first determine the number of units in ending work-inprocess inventory, as follows:
Work-in-process inventory, February 1 (in units)..........................
Add: Units transferred in ..................................................................
Units to account for...........................................................................
Less: Units transferred to finished goods......................................
Work-in-process inventory, February 28 (in units)........................

700
7,000
7,700
5,950
1,750

Then compute the transferred-in, direct-material, and conversion costs in the


February 28 work-in-process inventory:
Cost per
Equivalent
Equivalent
Unit
Units
Input
Transferred-in ........................ 1,750
$6.00
=

Direct material........................ 1,750


$3.00
=

Conversion............................. 1,750 30%


$7.00
=

Total cost of February 28 work-in-process inventory ..................


2.

Equivalent units of transferred-in costs ...................................................


Transferred-in cost per equivalent unit.....................................................
Total transferred-in cost .............................................................................
Deduct: Transferred-in cost in February 1 work-in-process inventory .
Total cost transferred in from the Assembly Department.......................

Cost
$10,500
5,250
3,675
$19,425
7,700
$6.00
$46,200
14,500
$31,700

Journal entry to record transfer:


Work-in-Process Inventory: Finishing Department .............
Work-in-Process Inventory: Assembly Department.....

McGraw-Hill/Irwin
4-44

31,700

31,700

2005 The McGraw-Hill Companies, Inc.


Solutions Manual

SOLUTIONS TO CASES
CASE 4-42 (60 MINUTES)
PRODUCTION REPORT: AGRITECH, INC. - MIXING DEPARTMENT
Weighted-Average Method
Percentage
of
Completion
Equivalent Units
with
Physical
Respect to
Direct
Units
Conversion
Material Conversion
Work in process, September 1 ........
-0
Units started during September......
38,000
Total units to account for ................
38,000
Units completed and transferred
out during September .................
Work in process, September 30 ......
Total units accounted for.................
Total equivalent units.......................

38,000
-038,000

Work in process, September 1 ...........................


Costs incurred during September .....................
Total costs to account for...................................
Equivalent units ...................................................
Costs per equivalent unit....................................

100%

Direct
Material
-0$304,000
$304,000
38,000
$8.00

38,000
-0_____
38,000

Conversion
-0$95,000
$95,000
38,000
$2.50

38,000
-0_____
38,000

Total
-0$399,000
$399,000
$10.50

Cost of goods completed and transferred out of the Mixing Department


during September:
number of units total cost per


...........................
transferred out equivalent unit

38,000 $10.50

Cost remaining in September 30 work-in-process inventory in the


Mixing Department .........................................................................................
Check: Cost of goods completed and transferred out .............
Cost of September 30 work-in-process inventory........
Total costs accounted for ...............................................
McGraw-Hill/Irwin
Managerial Accounting, 6/e

$399,000

-0-

$399,000
-0$399,000

2005 The McGraw-Hill Companies, Inc.


4-45

CASE 4-42 (CONTINUED)


PRODUCTION REPORT: AGRITECH, INC. - SATURATING DEPARTMENT
Weighted-Average Method
Percentage
of
Completion
with
Equivalent Units
Physical Respect to Transferred
Conversion
Units
in
Conversion
Work in process, September 1 .................
2,000
40%
Units transferred in during September.... 38,000
Total units to account for ......................... 40,000
Units completed and transferred
out during September ..........................
Work in process, September 30 ...............
Total units accounted for..........................
Total equivalent units................................

37,000*
3,000
40,000

100%
40%

37,000
3,000
_____
40,000

37,000
1,200
_____
38,200

*37,000 = 40,000 3,000

Work in process, September 1 ...........................


Costs incurred during September .....................
Total costs to account for...................................
Equivalent units ...................................................
Costs per equivalent unit....................................

Transferred
In
$ 41,000
399,000*
$440,000
40,000
$11.00

Conversion
$ 24,600
90,000
$114,600
38,200
$3.00

Total
$ 65,600
489,000
$554,600
$14.00

*Cost of goods completed and transferred out of Mixing Department during September,
under the weighted-average method.

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Solutions Manual

CASE 4-42 (CONTINUED)


Cost of goods completed and transferred out of the Saturating
Department during September:
number of units total cost per


........................
transferred out equivalent unit

37,000 $14.00

$518,000

Cost remaining in September 30 work-in-process inventory in the


Saturating Department:
Transferred-in costs:
transferred-in
number of

cost per
equivalent
equivalent ......................
units of

transferre
d
in
cost
unit

3,000 $11.00

$33,000

1,200 $3.00

3,600

Direct material:
None
Conversion:
number of conversion

equivalent
cost
per

equivalent .......................................
units of

conversion
unit

Total cost of September 30 work in process ..........................................


Check: Cost of goods completed and transferred out .............
Cost of September 30 work-in-process inventory........
Total costs accounted for ...............................................

McGraw-Hill/Irwin
Managerial Accounting, 6/e

$36,600

$518,000
36,600
$554,600

2005 The McGraw-Hill Companies, Inc.


4-47

CASE 4-43 (45 MINUTES)


1.

Equivalent units of material...........................................................................


Equivalent units of conversion .....................................................................

8,500
8,260

2.

Cost per equivalent unit of material .............................................................


Cost per equivalent unit of conversion........................................................

$6.00
$7.00

3.

October 31 work-in-process inventory.........................................................


Cost of goods completed and transferred out ............................................

$3,520
$105,300

4.

Weighted-average unit cost of completed leather belts.............................

$13.00

These answers are supported by the following process-costing schedules. The firm's cost
per belt used for planning and control, $11.50, is substantially lower than the actual cost per
belt incurred in October, $13.00. 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: LYCOMING LEATHER CO. - HARRISBURG PLANT
Weighted-Average Method
Percentage
of
Completion
Equivalent Units
with
Respect to
Physical
Direct
Conversion
Units
Material Conversion
Work in process, October 1.............
500
30%
Units started during October...........
8,000
Total units to account for ................
8,500
Units completed and transferred
out during October .........................
Work in process, October 31...........
Total units accounted for.................
Total equivalent units.......................

McGraw-Hill/Irwin
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8,100
400
8,500

100%
40%

8,100
400

8,100
160

8,500

8,260

2005 The McGraw-Hill Companies, Inc.


Solutions Manual

CASE 4-43 (CONTINUED)


CALCULATION OF COSTS PER EQUIVALENT UNIT: HARRISBURG PLANT
Weighted-Average Method
Direct
Material
Conversion
Total
Work in process, October 1................................ $ 2,000
$ 2,500
$ 4,500
Costs incurred during October ..........................
49,000
55,320
104,320
Total costs to account for................................... $51,000
$57,820
$108,820
Equivalent units ...................................................
8,500
8,260
Costs per equivalent unit....................................
$6.00
$7.00
$13.00
ANALYSIS OF TOTAL COSTS: HARRISBURG PLANT
Weighted-Average Method
Cost of goods completed and transferred out during October:
number of units total cost per


...........................
transferred out equivalent unit

8,100 $13.00

$105,300

400 $6.00

$2,400

160 $7.00

1,120

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


Direct material:

cost per
number of

equivalent
equivalent
..............................
unit of
units of

direct material direct material

Conversion:
number of cost per

equivalent equivalent
.........................................
unit of
units of

conversion
conversion

Total cost of October 31 work in process................................................

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$3,520

2005 The McGraw-Hill Companies, Inc.


4-49

CASE 4-43 (CONTINUED)


$105,300
3,520
$108,820

Check: Cost of goods completed and transferred out ...


Cost of October 31 work-in-process inventory ..
Total costs accounted for .....................................
5.

If the units were 50 percent complete as of October 31, there would be 8,300
equivalent units with respect to conversion. (To see this, just change the 160 in the
right-hand column of the equivalent-units part of the table in the solution to
requirement (4) to 200. This changes the last number in the right-hand column
from 8,260 to 8,300.)
Now the unit cost of conversion drops from $7.00, as currently computed,
to $6.97 (rounded, $57,820 8,300). Thus, the unit cost drops from $13.00 to $12.97
(rounded).
As controller, Jeff Daley has an ethical obligation to refuse his friend's
request to alter the estimate of the percentage of completion. What Daley can do is
to help Murray think of some legitimate ways to bring about real cost reductions.
Several ethical standards for management accountants (listed in Chapter 1) apply
in this situation. Among the relevant standards are the following:
Competence:

Prepare complete and clear reports and recommendations after appropriate


analyses of relevant and reliable information.

Objectivity:

Communicate information fairly and objectively.


Disclose fully all relevant information that could reasonably be expected to
influence an intended user's understanding of the reports, comments, and
recommendations presented.

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2005 The McGraw-Hill Companies, Inc.


Solutions Manual

CURRENT ISSUES IN MANAGERIAL ACCOUNTING


ISSUE 4-44
DUPONT TRIES TO UNCLOG A PIPELINE: CAN IT MOVE NEW PRODUCTS OUT OF THE
LAB FASTER? BUSINESS WEEK, JANUARY 27, 2003, P. 103, 104, AMY BARRETT.
DuPont is likely to employ a process costing system, calculating costs by department.
Such systems are widely used in repetitive production environments (as found in the
chemicals industry) where large volumes of identical or very similar products are
manufactured in a continuous flow.
R&D is a long-term investment; it is aimed at developing new products to maintain the
companys competitive advantages. For external reporting purposes, under financial
accounting standards, R & D costs are expensed as period costs. For internal reporting
purposes (managerial accounting), R&D costs should be allocated to the various
processes that are being supported by the R & D effort. One way of doing this would be
to incorporate R&D costs into the process costing system as a form of applied
overhead.
ISSUE 4-45
INTERNATINAL PAPER SHUTTING PLANTS TO CUT SUPPLY, THE WALL STREET
JOURNAL, OCTOBER 19, 2000, ALLANNA SULLIVAN.
Process costing would be appropriate for International Paper. Process costing is used
in repetitive production environments (such as the paper industry), where large
numbers of identical or very similar products are manufactured in a continuous flow.
Shutting down inefficient or underused factories should help International Paper reduce
its product costs.
ISSUE 4-46
BOTTLED UP: PROFIT ARENT FLOWING LIKE THEY USED TO AT PACKAGED-GOODS
COMPANIES, GREEN KETCHUP AND TUNA IN A POUCH SAVE HEINZ? FORTUNE,
SEPETMBER 18,2000, JULIE CRESWELL.
Heinz is a food processor and manufactures large quantities of relatively homogeneous
products. Thus, process costing would be an appropriate product costing system for
Heintz.
Heinz has recently begun to compete for more noticeable and attractive shelve space,
and, after years of neglect, the company has begun to market and package to reflect the
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4-51

growing demographic changes in America. By bringing on the StarKist Tuna in a Pouch


it has recognized that eating habits have changed in America. The green ketchup in an
EZ Squirt bottle is an attempt to gain a young audience because eating habits begin
early. Fruit and Vegetable Wash is a new product offering.
ISSUE 4-47
THERES A NEW ECONOMY OUT THERE, AND IT LOOKS NOTHING LIKE THE OLD ONE,
THE WALL STREET JOURNAL, JANURARY 1, 2000, THOMAS PETZINGER, JR.
Managerial accounting information would serve the same five objectives described in
Chapter 1 in the new business world discussed in the article. There would, however, be
less integration across those functions if companies are broken up into smaller, more
independent businesses.
Managerial accounting information would be just as valuable to companies under the
suggested future for the structure of business.
Product costing systems would serve the same role in the new economy, but probably
would concentrate more on the outsourcing and supply chain management functions.

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