Chap 008

Chapter 08 - Process Costing
8
Process Costing
Solutions to Review Questions

8-1.
Process costing is most likely to be used in industries that produce relatively
homogeneous products using continuous processes.
8-2.
Using the basic cost flow equation, rearrange the terms to solve for the unknown
beginning inventory. From BB + TI TO = EB, we have:
Beginning Inventory + Current Work Transferred Out = Ending Inventory.
Rearranging yields:
Beginning Inventory = Transferred Out + Ending Inventory Current Work
8-3.
With FIFO costing, the units in the beginning inventory are transferred out first. These
beginning inventory units carry with them the costs incurred in a previous period plus the
costs incurred this period to complete the beginning inventory. The costs transferred-out
will tend to be lower versus weighted-average costing during periods of rising costs. The
ending work-in-process inventory will be carried at a cost that is more current, hence
higher.
8-4.
Under FIFO costing, the equivalent units represent only the work done in the current
period. Under weighted average, the equivalent units represent the work associated with
all of the costs charged to work in process regardless of the period in which those costs
were incurred (i.e., including costs from prior periods that are in beginning inventory).
8-1
8-5.
Prior department costs behave the same as direct materials, which are typically added at
the start of production. They are treated separately because they represent the
accumulation of costs from previous departments rather than the receipt of materials from
the stores area. It is helpful to separate prior department costs from other costs because
the manager of the department receiving the transferred units has no control over the
costs incurred in prior departments. Thus, the prior department costs are not useful for
evaluating the performance of the manager of the department receiving the units.
8-6.
Disagree. The more important individual unit costs are for decisions, the more likely it is
that a company will want to use a costing system that separates costs by units. With job
costing, the company can treat every unit as a separate job.
8-7.
From the inventory equation:
BB + TI TO = EB; Therefore, TO = BB + TI EB.
8-2
Solutions to Critical Analysis and Discussion Questions

8-8.
To assign costs to specific barrels of liquid cleaning products or similarly massproduced
items requires a considerable amount of record keeping. Assuming products are all the
same, a process costing system provides sufficient information for control purposes.
Record keeping is simplified since all costs in a given month are accumulated in one
account and assigned at the end of the period.
8-9.
This is a fairly common problem. LIFO is usually beneficial for tax purposes when prices
are rising and inventory levels are steady or rising. However, maintaining internal records
on a LIFO basis is often quite burdensome. To avoid the problem, companies usually
maintain their internal accounting records on a FIFO or weighted-average basis and then
make an estimate of the LIFO cost of inventories. The LIFO estimate is usually done on a
highly aggregated basis and employs some form of dollar value LIFO estimation.
A company may use LIFO for tax purposes and some other method for internal accounting
purposes. This is an example of the idea of different costs for different purposes, which
was discussed in earlier chapters.
8-10.
The results will be the same using either costing system. The important point is that job
costing and process costing are both methods to assign costs incurred to services
completed. When there is only one service, the method of accumulation and assignment
does not affect the final cost.
8-11.
The correct answer is (b). The difference between the weighted-average and FIFO
methods of process costing is how they handle beginning WIP. When there is no
beginning WIP there is no difference between the two costing methods.
Answer (a) is incorrect because both methods assume units are homogeneous. Answer
(c) is incorrect because amounts in beginning inventory will differ between FIFO and
weighted-average. If there are no ending inventories, then the cost of goods manufactured
is the sum of the current costs, which will be the same under both methods, and the costs
in beginning work in process, which can differ. Answer (d) is incorrect because the cost
per equivalent unit can differ and so the costs assigned to the equivalent units in ending
inventory can differ.
8-3
8-12.
If the percentage completion is overstated, (a) the total equivalent units for the period will
be overstated, because the work-in-process ending inventory will be assumed to have
more equivalent units than it actually does. (b) The costs per equivalent unit will be
understated, as the cost is divided by equivalent units that are overstated. (c) Because the
equivalent units in ending work-in-process are overstated, the costs transferred-out will be
understated (and the ending work-in-process costs overstated).
8-13.
The correct answer is (b). The weighted-average method of process costing combines the
costs of work done in the previous period and the current period.
8-14.
(e). None of these answers are correct.
Answers (a) and (b) are incorrect because (a) ignores stages of completion and (b) double
counts units started that are still in ending inventory. Answer (c) is incorrect because the
ending inventory should be multiplied by the amount of work done this period, not work
necessary to complete the items. Answer (d) is incorrect because for the same reason as
answer (c): the ending inventory should be multiplied by the amount of work done this
period, not work necessary to complete the items.
8-4
Solutions to Exercises
8-15. (20 min.) Compute Equivalent UnitsWeighted-Average Method: Clean
Corporation.
Units transferred out............................................

Equivalent units in ending inventory:
Materials: 10% x 14,000a units........................
Conversion costs: 20% x 14,000 units............
Total equivalent units for all work done to date...
a14,000
a.
Materials
42,000
b.
Conversion Costs
42,000
1,400 EU
43,400 EU
2,800 EU
44,800 EU
units in ending inventory

= 8,000 units in beginning inventory + 48,000 units started this period
42,000 units transferred out.
8-5
8-16. (20 min.)Compute Equivalent UnitsFIFO method: Clean Corporation.

a.
b.
Compute Equivalent UnitsFIFO
Materials
Conversion Costs
To complete beginning inventory:
Materials: 50%a x 8,000 units..........................4,000 EU
Conversion costs: 70%b x 8,000 units.............
5,600
EU
Started and completed during the period............34,000 EU c
34,000
EU
Units still in ending inventory:
Materials: 10% x 14,000d units........................1,400 EU
2,800
EU
39,400 EU
42,400
EU
a50%
= 100% 50% already done at the beginning of the period.
b70%
c34,000
units started and completed = 42,000 units transferred out less 8,000 units from
beginning inventory.
d 14,000
units in ending inventory = 8,000 units in beginning inventory + 48,000 units

started this period 42,000 units transferred out.
Alternative Method:
Equivalent
Units
units of work = transferred +
done this
out
period
a. Materials:
39,400 EU = 42,000 units +
b. Conversion Costs: 42,400 EU = 42,000 units +
8-6
EU
ending
inventory
EU
beginning
inventory
1,400 EU
2,800 EU
4,000 EU
2,400 EU
8-17. (15 min.)Compute Equivalent UnitsWeighted Average Method: Missouri

Corporation.
Units transferred out................................................

Materials: 100% x 100,000 units..........................
Conversion costs: 15% x 100,000 units...............
Total equivalent units for all work done to date.......
b.
a.
Conversion
Materials
Costs
150,000
150,000
100,000
250,000
15,000
165,000
8-18. (20 min.)Compute Equivalent UnitsFIFO method: Missouri Corporation.

b.
Conversion
Costs
a.
Materials
Materials: 0%b x 70,000a units...............................
0
Conversion costs: 40%c x 70,000 units..................
Started and completed during the period................... 80,000
Materials: 100% x 100,000 units............................. 100,000
Conversion costs: 15% x 100,000 units..................
180,000
EU
28,000
80,000
EU
EU
15,000
123,000
EU
EU
EU d
EU
EU
a 70,000
units in beginning inventory

= 150,000 units transferred out + 100,000 units in ending inventory
180,000 units started this period.
b 0%
c 40%
d 80,000
units started and completed = 150,000 units transferred out less 70,000 units
from beginning inventory.
Alternative Method
a. Materials:
b. Conversion Costs:
Equivalent
Units
EU
EU
units of work = transferred +
ending
beginning
done this period
out
inventory
inventory
180,000 EU = 150,000 units + 100,000 EU 70,000 EU
123,000 EU = 150,000 units + 15,000 EU 42,000 EU
8-7
8-19. (30 min.)Compute Equivalent Units: Bears, Inc.

a. Weighted-average method:
Units transferred out.........................................................

Materials: 100% x 27,000 units....................................
Conversion costs: 60% x 27,000 units.........................
Total equivalent units for all work done to date...............
Materials
180,000
Conversion
Costs
180,000
27,000
207,000
16,200
196,200
b. First-in, First-out (FIFO) method:
Materials
Materials: 0%a x 27,000 units..........................
Conversion costs: 25%b x 27,000 units...........
Started and completed during the periodc..........
Materials: 100% x 27,000 units.......................
a 0%
EU
153,000
EU
27,000
EU
180,000
Conversion
Costs
EU
6,750 EU
153,000 EU
16,200 EU
175,950 EU
b 25%
c 153,000
units started and completed
= 180,000 units transferred out less 27,000 units from beginning inventory.
8-8
8-20. (30 min.)Compute Equivalent UnitsEthical Issues: Aaron Company.

a. Weighted-average method:
Units transferred out................................................

Materials: 0% x 120,000 units..............................
Conversion costs: 40% x 120,000 units...............
Total equivalent units for all work done to date.......
Materials
630,000
Conversion
Costs
630,000
0
630,000
48,000
678,000
b. First-in, First-out (FIFO) method:
a.
Materials
Materials: 0%a x 150,000 units........................
Conversion costs: 40%b x 150,000 units........
Started and completed during the periodc..........
Materials: 0% x 120,000 units.........................
Conversion costs: 40% x 120,000 units..........
0 EU
480,000 EU
60,000 EU
480,000 EU
0 EU
480,000 EU
a 0%
b.
Conversion
Costs
48,000 EU
588,000 EU
= 100% 100% already done at the beginning of the period (conversion was 60%
complete).
b 40%
c 480,000
units started and completed

= 630,000 units transferred out less 150,000 units from beginning inventory.
c.
1. The change will reduce the unit cost for the units transferred to finished goods.
2. It is not ethical; there is no reason to believe the change reflects anything other than a
desire for reporting better results.
3. It is unlikely to be successful for long. An accounting system keeps track of actual
costs. If a manager postpones reporting them this period, they will be reported next
period or shortly thereafter.
8-9
8-21. (20 min.)Compute Cost per Equivalent UnitWeighted Average Method:

Davenport Plant.
Physical
Units
Flow of units:
Units to be accounted for:
Beginning WIP inventory.................................
Units started this period...................................
Total units to account for..............................
Units accounted for:
Completed and transferred out
Materials (765,000 x 100%).........................
Units in ending inventory:
Materials (225,000 x 100%).........................
Total units accounted for..........................
Materials
Eq. Units
270,000
720,000
990,000
765,000
765,000
225,000
990,000
225,000
990,000
Direct Materials
Flow of costs:
Costs to be accounted for:
Costs in beginning WIP inventory..................................
Current period costs......................................................
Total costs to be accounted for..................................
Cost per equivalent unit
Materials ($415,800 990,000 units) ...........................
8-10
$99,000
316,800
$415,800
$0.42
8-22. (20 min.)Compute Cost per Equivalent UnitFIFO method: Davenport

Plant.
Physical
Units
Flow of units:
Beginning WIP inventory..........................................
Units started this period............................................
Total units to account for......................................
From beginning WIP inventory (270,000 x 0%)
Started and completed currently (495,000a x
100%)...........................................................................
Materials (225,000 x 100%)..................................
Total units accounted for...................................
Materials Eq.
Units
270,000
720,000
990,000
270,000
495,000
0
495,000
225,000
990,000
225,000
720,000
495,000 units started and completed = 765,000 units transferred-out 270,000

beginning WIP units.
a
Direct
Materials
Flow of costs:
Total costs to be accounted for (current period costs only)...........
Materials ($316,800 720,000 units) ...............................................
8-11
$316,800
$0.44
8-23. (20 min.)Compute Equivalent UnitsFIFO method: Santiago Company.

Physical
Units
Flow of units:
Beginning WIP inventory...............................................
Units started this period.................................................
Total units to account for............................................
From beginning WIP inventory [45,000 x (1 40%)]
Started and completed currently (435,000a x 100%).
Conversion (75,000 x 70%)........................................
Total units accounted for........................................
a
Conversion
Eq. Units
45,000
510,000
555,000
45,000
435,000
27,000
435,000
75,000
555,000
52,500
514,500
435,000 units started and completed = 480,000 units transferred-out 45,000 beginning
WIP units.
8-12
8-24. (20 min.)Compute Cost per Equivalent UnitWeighted-Average method:

Santiago Company.
a.
Physical
Units
Equivalent Units
Materials
Conversion
Eq. units
Costs Eq. units
Flow of units:
45,000
510,000
555,000
Completed and transferred out........................
480,000
Units in ending inventory.................................
75,000
Materials (75,000 x 100%)...........................
Conversion costs (75,000 x 70%)................
Total units accounted for..............................
555,000
480,000
75,000
555,000
b.
Total
Flow of costs:
Costs in beginning WIP inventory.........................
$ 63,000
Current period costs..............................................
1,360,500
Total costs to be accounted for.........................
$1,423,500
Materials ($305,250 555,000 units)...................
Conversion costs ($1,118,250 532,500
units)..................................................................
8-13
480,000
52,500
532,500
Direct
Materials
Conversion
Costs
$24,300
280,950
$305,250
$38,700
1,079,550
$1,118,250
$0.55
$2.10
8-25. (35 min.)Compute Costs per Equivalent UnitWeighted-Average Method:

Matsui Lubricants.
Physical
Units
Equivalent Units
Materials
Conversion
Eq. units
Costs Eq. units
Flow of units:
600
4,000
4,600
Completed and transferred outa......................
3,400
3,400
3,400
1,200
Materials (1,200 x 40%)...............................
480
Conversion costs (1,200 x 20%)..................
240
4,600
3,880
3,640
a 3,400 units transferred out = 4,600 units to account for 1,200 units in ending WIP
inventory.
Flow of costs:
Costs in beginning WIP inventory..........
Current period costs...............................
Total costs to be accounted for...........
Materials ($12,416 3,880 units)...........
Conversion costs ($6,916 3,640 units)
Total
Direct
Materials
Conversion
Costs
$1,248
18,084
$19,332
$ 976
11,440
$12,416
$ 272
6,644
$6,916
$3.20
$1.90
8-14
8-26. (20 min.) Assign Costs to Goods Transferred Out and Ending Inventory
Weighted-Average Method: Matsui Lubricants.
Total
Flow of costs:
Costs in beginning WIP inventory................... $1,248
Current period costs........................................ 18,084
Total costs to be accounted for....................$19,332
Materials ($12,416 3,880 units)....................
Conversion costs ($6,916 3,640).................
Costs accounted for:
Costs assigned to units transferred out
$17,340
Cost of ending WIP inventory.......................... 1,992
Total costs accounted for.............................$19,332
Direct
Materials
Conversion
Costs
$ 976
11,440
$12,416
$ 272
6,644
$6,916
$3.20
$1.90
$10,880 a
1,536 c
$12,416
$6,460 b
456 d
$6,916
Costs transferred out total $17,340, and costs in ending inventory total $1,992.
a $10,880 = 3,400 EU x $3.20 per EU.
b $6,460 = 3,400 EU x $1.90 per EU.
c $1,536 = 480 EU x $3.20 per EU.
d $456 = 240 EU x $1.90 per EU.
8-15
8-27. (35 min.) Compute Costs per Equivalent UnitFIFO Method: Matsui
Lubricants.
Physical
Units
Flow of units:
Beginning WIP inventory.......................................
Units started this period.........................................
Total units to account for....................................
Completed and transferred outa............................
From beginning WIP inventory
Materials (600 x (1 60%))
Conversion (600 x (1 53%))
Started and completed currently (2,800 x 100%)
Units in ending inventory.......................................
Materials (1,200 x 40%).....................................
Conversion costs (1,200 x 20%)........................
Total units accounted for....................................
a
Equivalent Units
Materials Conversion
Costs Eq. units
Eq. units
600
4,000
4,600
3,400
240
2,800
282
2,800
1,200
480
4,600
3,520
240
3,322
3,400 units transferred out

= 4,600 units to account for 1,200 units in ending WIP inventory.
Total
Flow of costs:
Costs in beginning WIP inventory...................$1,248
Materials ($11,440 3,520 units)....................
Conversion costs ($6,644 3,322).................
8-16
Direct
Materials
$ 976
11,440
$12,416
Conversion
Costs
$ 272
6,644
$6,916
$3.25
$2.00
FIFO Method: Matsui Lubricants.
Physical
Units
Flow of units:
600
4,000
4,600
Completed and transferred outa......................
3,400
Materials (600 x (1 60%))
Conversion (600 x (1 53%))
Started and completed currently
(2,800
x 100%)........................................................
1,200
Materials (1,200 x 40%)...............................
Conversion costs (1,200 x 20%)..................
4,600
Equivalent Units
Materials
Conversion Costs
Eq. units
Eq. units
240
282
2,800
2,800
480
3,520
240
3,322
3,400 units transferred out = 4,600 units to account for 1,200 units in ending WIP
inventory.
a
8-17
8-28. (continued)
Total
Flow of costs:
Costs in beginning WIP inventory...................
$1,248
Current period costs........................................
18,084
Total costs to be accounted for....................
$19,332
Materials ($22,880 3,520 units)....................
Conversion costs ($13,288 3,322)...............
Costs assigned to units transferred
out:
Costs from beginning WIP inventory...........
$ 1,248
Current costs added to complete
beginning WIP inventory.....................................
1,344
Materials ($3.25 x 240) ........................
Conversion costs ($2.00 x 282) ...........
Current costs of units started and
14,700
completed:
Materials ($3.25 x 2,800) .........................
Conversion costs ($2.00 x 2,800) ...........
Total costs transferred out..................................
$17,292
Cost of ending WIP inventory..............................
2,040
Materials ($3.25 x 480) ............................
Conversion costs ($2.00 x 240) ..............
Total costs accounted for.............................
$19,332
Direct
Materials
$ 976
11,440
$12,416
Conversion
Costs
$ 544
6,644
$6,916
$3.25
$2.00
$976
$272
780
564
9,100
$10,856
5,600
$6,436
1,560
$12,416
480
$6,916
Ending inventory is slightly higher under the FIFO method because the unit costs are
higher under FIFO.
8-18
8-29. (35 min.) Compute Costs per Equivalent UnitWeighted-Average Method:

Pacific Ink.
Physical
Units
Flow of units:
Beginning WIP inventory.................................48,000
Units started this perioda
84,000
132,000
Completed and transferred out (given)............
102,000
Units in ending inventory.................................30,000
Materials (30,000 x 80%).............................
132,000
Equivalent Units
Materials
Conversion Costs
Eq. units
Eq. units
102,000
102,000
24,000
126,000
12,000
114,000
84,000 units started this period = 132,000 units to account for 48,000 units in
beginning work-in-process inventory.
a
Total
Flow of costs:
$372,480
2,685,720
$3,058,200
Materials ($1,324,260 126,000 units)...........
Conversion costs ($1,733,940 114,000)......
8-19
Direct
Materials
Conversion
Costs
$ 152,460
1,171,800
$1,324,260
$ 220,020
1,513,920
$1,733,940
$10.51
$15.21
Weighted-Average Method: Pacific Ink.
Total
Direct
Materials
Flow of costs:
$372,480 $ 152,460
2,685,720
1,171,800
$3,058,200 $1,324,260
Materials ($1,324,260 126,000 units)...........
$10.51
Conversion costs ($1,733,940 114,000)......
$2,623,440 $1,072,020 a
Cost of ending WIP inventory..........................434,760
252,240 c
Total costs accounted for.............................
$3,058,200 $1,324,260
Conversion
Costs
$ 220,020
1,513,920
$1,733,940
$15.21
$1,551,420 b
182,520 d
$1,733,940
Costs transferred out total $2,623,440 and costs in ending inventory total $434,760.
a
$1,072,020 = 102,000 EU x $10.51 per EU.
$1,551,420 = 102,000 EU x $15.21 per EU.
$252,240 = 24,000 EU x $10.51 per EU.
$182,520 = 12,000 EU x $15.21 per EU.
8-20
8-31. (35 min.) Compute Costs per Equivalent UnitFIFO Method: Pacific Ink.
Physical
Units
Flow of units:
Beginning WIP inventory............................
Total units to account for.........................
Materials (48,000 x (1 30%)).......
Conversion (48,000 x (1 30%))...
Started and completed ..........................
Units in ending inventory............................
Materials (30,000 x 80%)........................
Conversion costs (30,000 x 40%)...........
Total units accounted for.........................
a
Equivalent Units
Materials
Conversion
Eq. units
Costs Eq.
units
48,000
84,000
132,000
102,000
33,600
54,000
33,600
54,000
30,000
24,000
132,000
111,600
12,000
99,600
Total
Flow of costs:
$372,480
2,685,720
$3,058,200
Materials ($1,171,800 111,600 units)...........
Conversion costs ($1,513,920 99,600)........
8-21
Direct
Materials
Conversion
Costs
$ 152,460
1,171,800
$1,324,260
$ 220,020
1,513,920
$1,733,940
$10.50
$15.20
FIFO Method: Pacific Ink.
Physical
Units
Flow of units:
Beginning WIP inventory................................. 48,000
84,000
Total units to account for..............................132,000
102,000
To complete beginning WIP inventory
Materials (48,000 x (1 30%))............
Conversion (48,000 x (1 30%))........
Started and completed ...............................
Units in ending inventory................................. 30,000
Materials (30,000 x 80%).............................
Total units accounted for..............................132,000
Equivalent Units
Materials
Conversion
Eq. units
Costs Eq. units
33,600
54,000
24,000
111,600
a
8-22
33,600
54,000
12,000
99,600
8-32. (continued)
Total
Flow of costs:
$372,480
2,685,720
$3,058,200
Materials ($1,171,800 111,600 units)...........
Conversion costs ($1,513,920 99,600)........
Costs assigned to units transferred out:
$372,480
beginning WIP inventory........................863,520
Materials ($10.50 x 33,600) ........................
Current costs of units started and
completed:...............................................
1,387,800
Materials ($10.50 x 54,000) ........................
Total costs transferred out..................................
$2,623,800
Cost of ending WIP inventory..............................434,400
Materials ($10.50 x 24,000) ........................
Total costs accounted for................................
$3,058,200
Direct
Materials
Conversion
Costs
$ 152,460
1,171,800
$1,324,260
$ 220,020
1,513,920
$1,733,940
$10.50
$15.20
$ 152,460
$ 220,020
352,800
510,720
567,000
$1,072,260
820,800
$1,551,540
252,000
$1,324,260
182,400
$1,733,940
Ending inventory is slightly lower under the FIFO method because the unit costs are lower
under FIFO. This means that current costs are slightly lower than last periods costs.
Because ending WIP inventory is carried at current costs under FIFO, the ending WIP
costs are lower under FIFO.
8-23
8-33. (50 min.)Production Cost ReportFIFO method: El Paso Corporation.
Physical Units
Equivalent Units
Prior
Department
No. B
Department
Flow of units:
From beginning WIP inventory.....................
Prior department.......................................
Dept. B [7,500 units x (120%)]...............
Started and completed currently..................
Units in ending WIP inventory.............................
Prior department..........................................
Department B (2,500 units x 50%)...............
Total units accounted for..........................
7,500
17,500
25,000
7,500
0
15,000
2,500
15,000
2,500
25,000
17,500
a. 15,000 = 17,500 units started 2,500 units in ending WIP inventory.
8-24
6,000
15,000
1,250
22,250
8-33. (continued)
Total
Flow of costs:
Costs in beginning WIP inventory................... $36,675
Total costs to be accounted for.................... $255,750
Prior department ($70,000 17,500 units) ....
Department. B ($149,075 22,250 units) ......
Costs from beginning WIP inventory........... $36,675
Current costs added to complete beginning
WIP inventory......................................................
40,200
Prior department.......................................
Department B ($6.70 x 6,000 units) ........
Current costs of units started and completed: 160,500
Prior department ($4.00 x 15,000)...........
Department B ($6.70 x 15,000) ..............
Total costs transferred out.................................. $237,375
Cost of ending WIP inventory..............................
18,375
Prior department ($4.00 x 2,500) ............
Department B ($6.70 x 1,250) .................
Total costs accounted for............................. $255,750
8-25
Prior
Department
$29,000
70,000
$99,000
Department
No. B
$7,675
149,075
$156,750
$4.00
$6.70
$29,000
$7,675
0
40,200
60,000
$89,000
100,500
$148,375
10,000
$99,000
8,375
$156,750
8-34. (50 min.)Production Cost ReportWeighted-Average Method: El Paso

Corporation.
a.
Physical
Units
Flow of units:
Units started this period................................... 17,500
Total units to account for.............................. 25,000
Completed and transferred out........................ 22,500
Units in ending inventory................................. 2,500
Prior department (2,500 units x 100%)........
Department No. B (2,500 units x 50%)........
Total units accounted for.......................... 25,000
Total
Flow of costs:
Costs in beginning WIP inventory...................$36,675
Prior department ($99,000 25,000 units).....
Department No. B ($156,750 23,750)..........
Costs assigned to units transferred out...........$237,600
Costs of ending WIP inventory........................ 18,150
Total costs accounted for.............................$255,750
Equivalent Units
Prior
Department
Department
No. B
22,500
22,500
2,500
25,000
1,250
23,750
Direct
Materials
Conversion
Costs
$29,000
70,000
$99,000
$7,675
149,075
156,750
$3.96
$6.60
$89,100
9,900
$99,000
$148,500
8,250
$156,750
b. The ending inventory is lower under the weighted-average method than under the
FIFO method. Under weighted-average, the ending inventory is $18,150. This is $225
less than FIFO, which is $18,375. The difference is due to the differences in costs per
equivalent unit between FIFO and weighted-average.
8-26
8-34. (continued)
c. The decision depends on the decisions that will be made using the data. If the most
current cost information is desired, FIFO might be the better method. If there are
random fluctuations that the company wants to smooth, weighted average might be
best.
8-27
8-35. (50 min.) Operations Costing: Brokia Electronics.

a.
Materials.......................
Basic
Photo
(40,000
(30,000
units)
units)
$480,000 $1,200,000
Total
$2,240,000
UrLife
(10,000
units)
$560,000
Conversion
Assemblya............... $ 1,400,000
700,000
525,000
175,000
Special Packaging...
400,000
0
0
400,000
Total conversion... $ 1,800,000 $700,000
$525,000 $ 575,000
Total Product Cost
$4,040,000 $1,180,000 $1,725,000 $1,135,000
Number of Units
40,000
30,000
10,000
Cost per unit
$29.50
$57.50
$113.50
a
Unit cost is $17.50 (= $1,400,000 80,000 units)
b.
(1)
Materials
Total
$2,240,000
Basic
Photo
(40,000
(30,000
units)
units)
$480,000 $1,200,000
UrLife
(10,000
units)
$560,000
Conversion
Assemblya
$ 1,400,000
300,000
750,000
350,000
Special Packaging
400,000
0
0
400,000
Total conversion cost $ 1,800,000 $300,000
$750,000 $ 750,000
Total Product Cost
$4,040,000 $780,000 $1,950,000 $1,310,000
Number of Units
40,000
30,000
10,000
Cost per unit
$19.50
$65.00
$131.00
a Unit cost is 62.5% of material dollars (= $1,400,000 $2,240,000 material
dollars)
8-28
(2) If there is a reason that conversion costs are related to material dollars (for example,
because of the difficulty of working with different materials), this change might be
justified. If it is done simply to shift cost to the cost-plus customer, this is not ethical.
8-36. Operation Costing: Ferdon Watches.

a.
8-29
8-36. (continued)
b.
Materials.....................
Conversion
Assemblya...............
Polishingb................
Special Finishingc....
Packagingd..............
Total conversion. . .
Total Product Cost......
Number of Units..........
Cost per unit................
Gag-Gift Commuter
Sport Retirement
(5,000
(10,000
(13,000
(2,000
Total
units)
units)
units)
units)
$ 321,000 $15,000
$90,000 $156,000
$60,000
$120,000
69,000
20,000
90,000
$299,000
$620,000
$20,000
0
0
15,000
$35,000
$50,000
5,000
$10.00
Unit cost is $4.00 (= $120,000 30,000 units)
8-30
$40,000 $52,000
30,000
39,000
0
0
30,000
39,000
$100,000 $130,000
$190,000 $286,000
10,000
13,000
$19.00
$22.00
$ 8,000
0
20,000
6,000
$ 34,000
$94,000
2,000
$47.00
Solutions to Problems
8-37. (45 min.)Compute Equivalent Units: Multiple Choice.
a. The answer is (2).
Conversion
Materials
Costs
790,000 a
790,000 a
EU in ending inventory:
Materials 100% x 80,000 units........................
80,000 EU
Conversion costs 30% x 80,000
24,000 EU
units.....................................................................
EU produced this period......................................
870,000 EU
814,000 EU
aUnits
transferred out = units started + beg. inventory ending inventory

= 720,000 + 150,000 80,000
= 790,000
b. The answer is (2).
Prior
Department
Materials
Costs
330,000 a
330,000 a
EU in ending inventory:
Prior department costs....................................
40,000
EU
Materialsb.........................................................
0 EU
Conversion costs 65% x 40,000
units.....................................................................
EU produced this period......................................
370,000
EU 330,000 EU
a320,000
330,000 a
26,000 EU
356,000 EU
started + 50,000 in beg. inv. 40,000 in ending inv. = 330,000 transferred out.
bMaterials
are added at the end of the process.
c. The answer is (1).

EU to complete beginning inventory 70%a x 20,000
units.....................................................................
Started and completedb......................................
EU in ending inventory 70% x 40,000 units........
EU done this period.............................................
a70%
Conversion
Costs
14,000 EU
300,000 EU
28,000 EU
342,000 EU
b 300,000
units = 320,000 transferred out 20,000 from beginning inventory.
8-31
8-37. (continued)
d. The answer is (4).
Materials
Materials: 0%a x 40,000 units..........................
0
Conversion costs: 30%b x 40,000 units...........
Started and completed during the period............140,000 c EU
Materials: 100% x 32,000 units....................... 32,000 EU
Work done in current period................................172,000 EU
a 0%
Conversion
Costs
12,000 EU
140,000 EU
16,000 EU
168,000 EU
30% = 100% 70% already done at the beginning of the period.
140,000 = 180,000 transferred out 40,000 from beginning inventory.
8-32
8-38. (30 min)FIFO Method: McKenzie Corporation.

Equivalent Units
a.
Physical
Conversion
Units
Costs
Flow of units
300,000
1,620,000
Total units to account for..........................
1,920,000
From beginning WIP inventory.....................
300,000
(300,000 x 20%).......................................
60,000
900,000
900,000
Units in ending WIP inventory.........................
720,000
(720,000 x 50%).......................................
360,000
Total units accounted for......................
1,920,000
1,320,000
Conversion Costs
Flow of costs:
Costs in beginning WIP inventory..............................
Current period costs..................................................
Total costs to be accounted for..............................
$387,000
2,178,000
$2,565,000
Cost per equivalent unit ($2,178,000 1,320,000) ......
$1.65

Costs from beginning WIP inventory......................
beginning WIP inventory:
Conversion costs ($1.65 x 60,000) ...................
Current costs of units started and completed:
Conversion costs ($1.65 x 900,000) .....................
Total costs transferred out.........................................
Cost of ending WIP inventory:
Conversion costs ($1.65 x 360,000) .................
Total costs accounted for.......................................
8-33
$387,000
99,000
1,485,000
$1,971,000
594,000 (Answer)
$2,565,000
8-38. (continued)
b.
Cost per unit for the previous period is $1.6125 [= $387,000 (300,000 equiv. units x
80%)]
Cost per unit for the current period is $1.65 as calculated in (a) above.
8-34
8-39.
(50 min.)Prepare A Production Cost ReportWeighted Average Method: Douglas Toys.

a.
Douglas Toys
Assembling Department
Production Cost ReportWeighted Average
FLOW OF PRODUCTION UNITS
(Section 1)
Physical
units

100,000
500,000
Total units to be accounted for............................
600,000
(Section 2)
COMPUTE EQUIVALENT UNITS
Prior
department Materials
Labor
costs
Units completed and transferred out:
From beginning inventory............................
100,000
300,000
Total transferred out.....................................
400,000
200,000
Total units accounted for.....................................
600,000
400,000
200,000
600,000
8-35
400,000
180,000
580,000
400,000
(90%) 140,000 (70%)
540,000
Manufacturing
overhead
400,000
70,000 (35%)
470,000
8-39. (continued)
Total costs
Costs to be accounted for: (Section 3)
Total costs to be accounted for...........................
Cost per equivalent unit: (Section 4)
Prior department costs ($768,000 600,000).
Materials ($464,000 580,000).......................
Labor ($172,800 540,000)............................
Manufacturing overhead ($94,000 470,000)
Costs accounted for: (Section 5)
Prior department costs ($1.28 x 400,000). . .
Materials ($0.80 x 400,000).........................
Labor ($0.32 x 400,000)...............................
Manufacturing overhead ($0.20 x 400,000).
Total costs of units transferred out..................
Costs assigned to ending WIP inventory:
Materials ($0.80 x 180,000).........................
Labor ($0.32 x 140,000)...............................
Manufacturing overhead ($0.20 x 70,000)...
Total ending WIP inventory.............................
Total costs accounted for....................................
8-39. (continued)
$255,200
1,243,600
$1,498,800
DETAILS
Prior
department
costs
$128,000
640,000
$768,000
Materials
Labor
$80,000
384,000
$464,000
$28,800
144,000
$172,800
Manufacturing
overhead
$18,400
75,600
$94,000
$1.28
$0.80
$0.32
$0.20
$512,000
320,000
128,000
80,000
$1,040,000
$512,000
$256,000
144,000
44,800
14,000
$458,800
$1,498,800
256,000
8-36
$ 320,000
$128,000
$80,000
144,000
44,800
14,000
$768,000
$464,000
$172,800
$94,000
b. The report to management should include the following items:

Materials: The $0.80 per unit goal set by management is currently being achieved by the Assembling Dept.
Labor: Equivalent unit labor costs per unit ($.32) is below managements goal of $0.40.
Manufacturing overhead: overhead costs per unit ($0.20) is slightly higher than managements goal of $0.18.
8-37
8-40.
(50 min.)Prepare a Production Cost ReportFIFO Method: Douglas Toys.
a.
Douglas Toys
Production Cost ReportFIFO
(Section 2)
(Section 1)
Physical
units
100,000
500,000
600,000
100,000
300,000
200,000
600,000
Prior
department
costs
0
300,000
200,000
500,000
a40%
b50%
8-38
Materials
0
300,000
180,000
480,000
Labor
40,000
300,000
(90%) 140,000
480,000
(40%) a
(70%)
Manufacturing
overhead
50,000 (50%) b
300,000
70,000 (35%)
420,000
8-40. (continued)
COSTS
DETAILS
Total Costs

Prior department costs ($640,000 500,000)
Materials ($384,000 480,000).....................
Labor ($144,000 480,000)............................
Manufacturing overhead ($75,600 420,000)
$255,200
1,243,600
$1,498,800
Prior
department
costs
$128,000
640,000
$768,000
Materials
$80,000
384,000
$464,000
Labor
$28,800
144,000
$172,800
Manufacturing
overhead
$18,400
75,600
$94,000
$1.28
$0.80
$0.30
$0.18
8-39
8-40. (continued)
Details
Total Costs
$255,200
Current costs added to complete beginning WIP inventory:
Prior department costs.............................
0
Materials...................................................
0
Labor ($0.30 x 40,000).............................
12,000
Manufacturing overhead ($0.18 x 50,000)
9,000
Total costs from beginning inventory...........
$276,200
384,000
Materials ($0.80 x 300,000).........................
240,000
Labor ($0.30 x 300,000)...............................
90,000
Manufacturing overhead ($0.18 x 300,000).
54,000
Total costs of units started and completed......
$768,000
Total costs of units transferred out......................
$1,044,200
Prior department costs ($1.28 x 200,000).......
$256,000
Materials ($0.80 x 180,000).............................
144,000
Labor ($0.30 x 140,000)..................................
42,000
Manufacturing overhead ($0.18 x 70,000)......
12,600
Total ending WIP inventory.................................
$454,600
$1,498,800
8-40
Prior
department
costs
$128,000
Materials
Labor
$80,000 $28,800
Manufacturing
overhead
$18,400
0
0
12,000
9,000
384,000
240,000
90,000
54,000
256,000
144,000
42,000
12,600
$768,000
$464,000 $172,800
$94,000
8-40. (continued)
b.
The report to management should include the following items:

Materials: The equivalent unit materials cost per unit ($0.80) is the same as managements goal of $0.80.
Labor: Equivalent unit labor costs per unit ($0.30) is below managements goal of $0.40.
Manufacturing overhead: Overhead costs per unit ($0.18) is equal to managements goal of $0.18.
8-41
8-41. (60 min.)Prepare a Production Cost Report and Adjust Inventory BalancesWeighted Average Method:
Elmhurst Parts.
a.
Elmhurst Parts
Production Cost ReportWeighted Average
Flow Of Production Units
(Section 1)
Physical units
Units started this period................................... 400,000
Total units to be accounted for............................ 480,000
(Section 2)
Materials
Labor
Overhead
Total transferred out.....................................
80,000
280,000
360,000
120,000
480,000
360,000
120,000
480,000
8-42
360,000
48,000
408,000
(40%)
360,000
48,000 (40%)
408,000
8-41. (continued)
Costs
Total costs
Materials ($1,800,000 480,000)..................
Labor ($2,754,000 408,000).......................
Overhead ($2,203,200 408,000)................
Materials ($3.75 x 360,000).........................
Labor ($6.75 x 360,000)...............................
Overhead ($5.40 x 360,000)........................
Total costs of units transferred out..................
Materials ($3.75 x 120,000).........................
Labor ($6.75 x 48,000).................................
Overhead ($5.40 x 48,000)..........................
Total ending WIP inventory.............................
$ 1,222,800
5,534,400
$6,757,200
Materials
Details
Labor
$ 240,000 $ 546,000
1,560,000
2,208,000
$1,800,000 $2,754,000
Overhead
$ 436,800
1,766,400
$2,203,200
$3.75
$6.75
$5.40
$1,350,000
2,430,000
1,944,000
5,724,000
$1,350,000
450,000
324,000
259,200
1,033,200
$6,757,200
450,000
8-43
$2,430,000
$1,944,000
324,000
259,200
$1,800,000 $2,754,000
$2,203,200
8-41. (continued)
b. Adjustment required:
Work in
Process
Per problem statement........................................
$793,152
Correct.................................................................
1,033,200
Difference............................................................
($240,048)
Journal entry:
Finished
Goods
$337,560
318,000 a
$19,560
Work in Process...............................................
240,048
Finished Goods............................................19,560
Cost of Goods Sold......................................
220,488
Additional computations:
a20,000
units of finished-goods inventory ($3.75 + 6.75 + 5.40) = $318,000
c. Income would have been understated.

Work in process would have been understated.
Finished goods would have been overstated.
8-44
8-42. (40 min.)Prepare a Production Cost Report and Show Cost Flows Through
AccountsFIFO method: Recyclers, Inc.
Recyclers, Inc.
a.
(Section 2)
Compute Equivalent
Units
(Section 1)
Conversion
Physical units
costs
300
2,700
3,000
300
120 (40%)a
2,550
2,550
150
30 (20%)
3,000
2,700
a40%
8-45
8-42. (continued)
COSTS
Total costs

Costs in beginning WIP inventory.......................
Current period costs............................................
Total costs to be accounted for..............................
Conversion costs ($10,800 2,700)...................
Costs from beginning inventory.......................
Current costs added to complete beginning
WIP inventory:
Conversion costs ($4.00 x 120)...................
Total costs from beginning inventory..................
Conversion costs ($4.00 x 2,550)...................
Total costs of units started and completed.........
Total costs of units transferred out.....................
Conversion costs ($4.00 x 30)........................
Total ending WIP inventory.................................
Total costs accounted for.......................................
b.
$ 168
10,800
$10,968
$4.00
$ 168
$ 168
480
$648
480
10,200
$10,200
$10,848
10,200
120
$ 120
$10,968
120
$10,968
Work in Process
Beginning inventory:
Conversion costs
168
This period's costs:
Conversion costs
10,800
Ending inventory
120
All costs have been accounted for.
Various Payables
10,800
a$10,848
$ 168
10,800
$10,968
Conversion
costs
10,848a
To Finished Goods Inventory
Finished Goods Inventory

10,848
= $648 + $10,200
c. The companys target has been achieved. Production costs total $4.00 per unit, less
than managements target of $4.25.
8-46
8-43. (60 min.) FIFO Process Costing: Pantanal, Inc.

Pantanal, Inc.
(Section 2)
(Section 1)
Prior
Physical units department
costs
Units started this period...................................102,000
Total units to be accounted for............................112,000
From beginning inventory............................ 10,000
Started and completed currently.................. 86,000
Units in ending WIP inventory......................... 16,000
Total units accounted for.....................................112,000
0
86,000
16,000
102,000
a40%
b60%
8-47
Materials
4,000
86,000
14,400
104,400
(40)% a
(90%)
Conversion
6,000
86,000
8,000
100,000
(60%) b
(50%)
8-43. (continued)
COSTS
DETAILS
Total Costs
Prior department costs ($2,142,000 102,000)
Materials ($939,600 104,400).......................
Conversion ($225,000 100,000)...................
$323,400
3,306,600
$3,630,000
Prior
department
costs
$98,000
2,142,000
$2,240,000
Materials
$164,400
939,600
$1,104,000
Conversion
$61,000
225,000
$286,000
$21.00
$9.00
$2.25
8-48
8-43. (continued)
Details

Costs from beginning WIP inventory...................................
Current costs added to complete beginning WIP inventory:
Prior department costs.....................................................
Materials ($9.00 x 4,000)................................................
Conversion ($2.25 x 6,000).............................................
Total costs from beginning inventory...................................
Prior department costs ($21.00 x 86,000)...........................
Materials ($9.00 x 86,000)...................................................
Conversion ($2.25 x 86,000)...............................................
Total costs of units started and completed.............................
Total costs of units transferred out.............................................
Prior department costs ($21.00 x 16,000)...............................
Materials ($9.00 x 14,400).......................................................
Conversion ($2.25 x 8,000).....................................................
Total ending WIP inventory.........................................................
Total costs accounted for............................................................
8-49
Total Costs
Prior
department
costs
Materials
Conversion
$ 323,400
$98,000
$164,400
$61,000
0
36,000
13,500
$ 372,900
$1,806,000
774,000
193,500
$2,773,500
$3,146,400
1,806,000
$ 336,000
129,600
18,000
$ 483,600
$3,630,000
336,000
36,000
13,500
774,000
193,500
129,600
18,000
$2,240,000
$1,104,000
$286,000
8-44. (40 min.)Solving For UnknownsFIFO Method.

a. The cost per equivalent unit is obtained by dividing the ending inventory costs by the
equivalent units in ending inventory;
= $8.70 per EU
$87,000 10,000
Equivalent units worked this period are the sum of the equivalent units to:
(a)
complete the beginning inventory
(b)
start and complete some units, and
(c)
to start the ending inventory

which, for the problem are: 42,000 + 60,000 + 10,000 = 112,000
The total costs incurred are the cost per equivalent unit times the equivalent units
worked this period, that is 112,000 $8.70 = $974,400.
b.
Units started and completed equals the units transferred out (units completed this
period) less the units started in a previous period (beginning inventory):
40,000
5,000
35,000
units transferred out

units in beginning inventory
units started and completed.
c.
Current units started equals units transferred out minus beginning inventory plus
ending inventory or, in equation form:
Current units started
= TO BB + EB
= 9,500 4,000 + 3,000
= 8,500 units
8-50
8-44. (continued)
d.
Equivalent units = Beginning inventory
x (1 percentage of completion of beginning inventory)
+ 100% of units started and completed
+ ending inventory times its percentage of completion
= 5,600 equivalent units
Let X be the unknown percentage of completion. Then,
5,600 = 1,000 (1 X) + 4,500 + (3,000 x 30%)
5,600 = 1,000 1,000X + 5,400
collecting terms:
5,600 5,400 1,000 = 1,000X
800 = 1,000X
X = 80%
Also, using BB
=
=
=
800 =
X =
TO + EB TI
(4,500 + 1,000) + 900 5,600
800 units
1,000X
80%
8-51
8-45. (50 min.)Solving For UnknownsWeighted-Average Method.

a. First, we compute the cost of ending inventory:
BB + TI (current work) =
$11,400 + $108,600 =
EB =
=
TO + EB
$115,200 + EB
$120,000 $115,200
$4,800
Equivalent units in ending inventory equals $4,800 divided by the cost per
equivalent unit.
Costs per equivalent unit is the $115,200 transferred out costs divided by the units
transferred out:
$115,200 28,800 units
= $4 per E.U
Cost assigned to ending inventory is based on the relationship:

$4,800 = Equivalent units in EB times $4.00 and solving for EU in EB
EU in EB
= $4,800 $4
= 1,200 EU
b. The materials cost per equivalent unit is:

$26,880 12,800 units transferred out
= $2.10 per EU
Since ending inventory contains direct materials cost of $5,040, it must contain
2,400 ( = $5,040 $2.10) equivalent units.
If the inventory is 25% complete with respect to direct materials costs, then these
2,400 equivalent units represent 25% of the physical count of units in the ending
inventory. Therefore, since 2,400 EU = .25 (units in EB)
Then
units in EB = 2,400 .25
= 9,600
8-52
8-45. (continued)
c. The inventory equation yields:

BB + TI = TO + EB
Given the information in the problem, we can compute the right hand side. There are
4,800 (24,000 x 20%) equivalent units in ending inventory at a cost of $18,000. The
cost per equivalent unit is $3.75 (or $18,000 4,800 EU).
The right hand side of the equation is the total equivalent units represented by all costs
in the account (72,000 EU) times the cost per equivalent unit ($3.75). The resulting
$270,000 and the beginning inventory cost of $56,800 are entered in the equation:
$56,800 + TI = $270,000
and solving for TI:
TI = $270,000 $56,800
= $213,200
d. Units transferred out equals beginning inventory plus current work minus ending
inventory. In equation form:
TO = BB + TI (current work) EB
= 12,300 + 10,500 10,000
= 12,800
Of the 12,800 units transferred out, 12,300 were from the beginning inventory.
Therefore, 500 units were started and completed. That is, 12,800 completed this
period less 12,300 started in a prior period equals the 500 started and completed this
period.
8-53
8-46. (50 min.)Operation CostingWork-in-Process Inventory: Washington, Inc.

The solution to this problem is to apply process costing methods for the conversion
costs and then add the cost of materials for each product. Because there is no
beginning work-in-process inventory, FIFO and weighted-average process costing
gives the same results.
a.
The material costs per unit are:
Product
Material
Cost
X-10...........
X-20...........
X-40...........
$75,000
135,000
240,000
Number of
Units
500
300
200
Unit Material
Cost
=
=
=
$ 150
450
1,200
The conversion costs per equivalent unit are:

Department A:
Physical
Units
Conversion Costs
Equivalent Units
Flow of units:
Beginning WIP inventory.................................0
1,000
1,000
Completed and transferred outb
840
Units in ending inventoryc
160
Conversion costs (160 x 25%).....................
1,000
1,000 units = 500 X-10 + 300 X-20 + 200 X-40
840 units = 400 X-10 + 260 X-20 + 180 X-40
160 units = 1,000 units started 840 units transferred out.
8-54
840
40
880
8-46. (continued)
Total
Flow of costs:
$
0
264,000
$ 264,000
Conversion costs ($264,000 880)................
Conversion
Costs
$ 0
264,000
$ 264,000
$300
Department B:
Physical
Units
Conversion Costs
Equivalent Units
Flow of units:
0
440
440
390
50
Conversion costs (50 x 60%).......................
440
390
30
420
440 units = 260 X-20 + 180 X-40
390 units = 225 X-20 + 165 X-40
50 units = 440 units started 390 units transferred out.
Total
Flow of costs:
$
0
42,000
$ 42,000
Conversion costs ($42,000 420)..................
8-55
Conversion
Costs
0
42,000
$ 42,000
$
$100
8-46. (continued)
Cost of units transferred to finished goods:
Product
X-10...........
X-20...........
X-40...........
Unit
Material
Cost
Unit
Department
A Cost
$150 +
450 +
1,200 +
Unit
Department
B Cost
$ 300
300
300
+
+
+
$ 0
100
100
b.
Work-in-Process Ending Inventory Balances are:
Department A:
Material cost
X-10.........................
X-20.........................
X-30.........................
Total material cost......
Conversion costs........
Total............................
Number
of Units
100
40
20
Unit
Cost
$150
450
1,200
300
Number
of Units
35
15
Unit
Cost
$450
1,200
300
100
40
Total Cost
$ 15,000
18,000
24,000
$ 57,000
12,000
$ 69,000
Department B:
Material cost
X-20.........................
X-30.........................
From Dept. A...........
From Dept. B...........
Total............................
50
30
8-56
Total Cost
15,750
18,000
$ 33,750
15,000
3,000
$ 51,750
Unit Cost
=
=
=
$ 450
850
1,600
8-47. (50 min.)Operation CostingWork-in-Process Inventory: Miller Outdoor

Equipment.
The solution to this problem is to apply process costing methods for the conversion
costs and then add the cost of materials for each product. Because there is no
beginning work-in-process inventory, FIFO and weighted-average process costing
gives the same results.
a.
The material costs per unit are:
Product
Material
Cost
Rookie.......
Novice.......
Hiker..........
Expert........
$12,000
11,520
8,700
7,500
Number of
Units
600
480
290
150
Unit Material
Cost
=
=
=
=
$ 20
24
30
50
The conversion costs per equivalent unit are:

Stitching Department:
Physical
Units
Flow of units:
Beginning WIP inventory.................................0
1,520
1,520
1,380
140
Conversion costs (140 x 40%).....................
1,520
Conversion Costs
Equivalent Units
1,380
56
1,436
1,520 units = 600 Rookie + 480 Novice + 290 Hiker + 150 Expert
1,380 units = 540 Rookie + 450 Novice + 270 Hiker + 120 Expert
140 units = 1,520 units started 1,380 units transferred out.
8-57
8-47. (continued)
Total
Conversion
Costs
Flow of costs:
$
0
50,260
$ 50,260
Conversion costs ($50,260 1,436)...............
$ 0
50,260
$ 50,260
$35
Customizing Department:
Physical
Units
Conversion Costs
Equivalent Units
Flow of units:
0
840
840
790
50
Conversion costs (50 x 20%).......................
840
790
10
800
840 units = 450 Novice + 270 Hiker + 120 Expert
790 units = 440 Novice + 250 Hiker + 100 Expert
50 units = 840 units started 790 units transferred out.
Total
Flow of costs:
$
0
24,000
$ 24,000
Conversion costs ($24,000 800)..................
8-58
Conversion
Costs
0
24,000
$ 24,000
$
$30
8-47. (continued)
Cost of units transferred to finished goods:
Product
Unit
Material
Cost
Rookie.......
Novice.......
Hiker..........
Expert........
$20
24
30
50
Stitching
Department
Unit Cost
+
+
+
+
Customizing
Department
Unit Cost
$ 35
35
35
35
+
+
+
+
$ 0
30
30
30
b.
Work-in-Process Ending Inventory Balances are:
Stitching Department:
Material cost
Rookie.....................
Novice......................
Hiker........................
Expert......................
Total............................
Number
of Units
60
30
20
30
Unit
Cost
$20
24
30
50
56*
35
* 140 units, 40% complete.
8-59
Total Cost
$ 1,200
720
600
1,500
$ 4,020
1,960
$ 5,980
Unit Cost
=
=
=
=
$ 55
89
95
115
8-47. (continued)
Customizing Department:
Material cost
Novice
...........................................
Hiker
...........................................
Expert
...........................................
Total material cost..................
Conversion costs....................
From Stitching.....................
From Customizing...............
Total conversion costs.....
Total.......................................
Number
of Units
10
Unit
Cost
$24
20
30
600
20
50
1,000
Total Cost
240
$ 1,840
50
10*
* 50 units, 20% complete.
8-60
35
30
1,750
300
$2,050
$ 3,890
8-48. (50 min.)Process Costing and Ethics Increasing Production to Boost

Profits: Pacific Siding, Inc.
a. The CEO and CFO expect to produce profits by reducing the unit cost of each sold.
This will occur because of the fixed overhead costs. (Recall most of the overhead
costs are fixed.) Because each unit transferred out in March will have a lower unit
costs, reported costs of goods sold will be lower. Therefore, profit will be higher.
8-61
8-48. (continued)
b. See the revised data entry section and production cost report below:
Data Entry Section
Unit Information
Percent Complete
Units
(board
feet)
250,000
140,000
225,000
Units in beginning WIP inventory (all completed this period)

Units started and completed during the period
Units started and partially completed during the period
Cost Information
Costs in beginning WIP inventory
Costs incurred during the period
8-62
Direct
materials
n/a
100%
80%
Direct
labor
n/a
100%
85%
Overhead
n/a
100%
90%
Direct
materials
$76,000
$95,000
Direct
labor
$90,000
$102,000
Overhead
$150,000
$150,000
8-48. (continued)
Revised Production Cost Report
Month Ending March 31
Step 1: Summary of Physical Units and Equivalent Unit Calculations
Physical
Units to be accounted for
Units
Units in beginning WIP inventory
250,000
Units started during the period
365,000
Total units to be accounted for
615,000
Equivalent Units
Units accounted for
Direct
Direct
materials
labor
Overhead
Units completed and transferred out
390,000
390,000
390,000
390,000
Units in ending WIP inventory
225,000
180,000
191,250
202,500
615,000
570,000
581,250
592,500
Total units accounted for
Step 2: Summary of Costs to be Accounted for

Costs to be accounted for
Costs in beginning WIP inventory
Costs incurred during the period
Total costs to be accounted for
Direct
Direct
materials
labor
$76,000
95,000
Overhead
Total
$90,000 $150,000 $316,000

102,000
150,000
347,000
$171,000 $192,000 $300,000 $663,000
Step 3: Calculation of Cost per Equivalent Unit

Direct
8-63
Direct

materials
Total costs to be accounted for (a)
Total equivalent units accounted for
Cost per equivalent unit (a) / (b)
labor
Overhead
Total
$171,000 $192,000 $300,000

570,000
$0.3000
581,250
$0.3303
592,500
$0.5063
$1.1367
Step 4: Assign Costs to Units Transferred Out and Units in Ending WIP Inventory

Costs assigned to ending WIP inventory
Total costs accounted for
Direct
Direct
materials
labor
Overhead
Total
$117,000 $128,826 $197,468 $443,294

54,000
63,174
102,532
219,706
$171,000 $192,000 $300,000 $663,000
8-64
8-48. (continued)
c. The costs assigned to units transferred out has decreased from $541,621 to $443,294,
or $98,327. Because all the units transferred out will be sold before the end of March,
profits will be $98,327 higher than originally planned.
d. This is not ethical. The reason for the production increase was solely to manipulate
income and distort results for the year. There is no indication that the increase in
production was to meet much larger demand.
8-65
Solutions to Integrative Cases

8-49. (70 min.)Show Cost FlowsFIFO Method: Vermont Co.
Beginning Balance
Current work:
materials (given)
conversion (given)
Ending Balance
Work in Process
716,000
Transferred out:
716,000a From beginning inventory
300,400
From current work
1,287,000
240,320a materials
833,976b conversion costs
513,104
Additional computations:
a $240,320
= 40,000 EU transferred x ($300,400 50,000 EU for materials)

(40,000 EU = 50,000 10,000 in ending inventory)
b $833,976
= 40,500 EU transferred out x ($1,287,000 62,500 EU for conversion costs;

40,500 EU = 62,500 22,000 in ending inventory)
Transferred in
Balance
aFrom
Finished Goods
1,790,296 a 1,432,237 To Cost of Goods Sold
358,059
(80%)
total credits in Work in Process.
From Finished Goods
Cost of Goods Sold

1,432,237 Overapplied overhead
55,000
(See explanation below)
Overhead applied in beginning WIP inventory is 125% of direct labor costs (i.e.,
$325,000 $260,000). Since the application rate has not changed, the ratio of applied
overhead to total conversion costs found in the beginning inventory should also hold
for conversion costs this period.
For this period, 1.25 D.L. + D.L. = $1,287,000
2.25 D.L. = $1,287,000
D.L. = $572,000
So, total conversion costs direct labor = overhead applied
$1,287,000 $572,000 = $715,000
Based on the balance in the manufacturing overhead account, actual overhead is
$660,000. Therefore, overhead is overapplied by $55,000 (i.e., $715,000 $660,000).
8-66
8-49. (continued)
The journal entry to assign the overapplied overhead to cost of goods sold is:
Overapplied overhead.........................................
55,000
Cost of goods sold...................................

55,000
8-67
8-50. (45 min.)Job Costing, Process Costing, Choosing a Costing Method:

Bouwens Corporation.
This problem is computationally straight-forward, but requires the student to think
about the use of the costs from the costing system and how to best reflect the
production costs for a single product for two customer types.
a. The job costs for each product are the unit costs in each building:
M-Solv
C-Solv
(B-155)
(B-159)
Materials costs.....................
$14,000
$ 40,000
Conversion costs.................
30,000
120,000
Total costs........................
$44,000
$160,000
Units produced.....................
2,000
10,000
Unit cost...............................
$22
$16
b. The process costs for each product are the unit costs for both buildings divided by
total production:
M-Solv
C-Solv
(B-155)
(B-159)
Total
Materials costs.....................
$14,000
$ 40,000
$ 54,000
30,000
120,000
150,000
Total costs........................
$44,000
$160,000
$204,000
Units produced.....................
2,000
10,000
12,000
Unit cost...............................
$17
c. Neither method best reflects the costs for the individual products. Jill is correct the
military requires the use of a special chemical and the costs assigned to M-Solv
should reflect this. This suggests that the job system in requirement (a) is correct. On
the other hand, Jack is correct that the assignment of labor is not caused by product
requirements. This suggests that the process system in requirement (b) is correct. The
best system would be similar to an operations system where we accounted for the
material cost by product and the conversion costs on a factory-wide basis.
8-68
8-50. (continued)
d. Compute the unit costs for materials and conversion costs separately.
M-Solv
C-Solv
(B-155)
(B-159)
Materials costs.....................
$14,000
$ 40,000
Units produced.....................
2,000
10,000
Unit cost (materials).............
$7
$4
Then compute conversion costs for the factory:

M-Solv
C-Solv
(B-155)
(B-159)
Total
30,000
120,000
$150,000
Units produced.....................
2,000
10,000
12,000
Unit cost (conversion)..........
$12.50
Now, compute the unit product cost:

M-Solv
C-Solv
(B-155)
(B-159)
Unit materials costs..............
$7.00
$4.00
12.50
12.50
Total costs........................
$19.50
$16.50
8-69

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Chap 008

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Chapter 08 - Process Costing

Solutions to Review Questions

Chapter 08 - Process Costing

Chapter 08 - Process Costing

Solutions to Critical Analysis and Discussion Questions

Chapter 08 - Process Costing

Chapter 08 - Process Costing

Units transferred out............................................

units in ending inventory

Chapter 08 - Process Costing

8-16. (20 min.)Compute Equivalent UnitsFIFO method: Clean Corporation.

= 100% 50% already done at the beginning of the period.

= 100% 30% already done at the beginning of the period.

units in ending inventory = 8,000 units in beginning inventory + 48,000 units

Chapter 08 - Process Costing

8-17. (15 min.)Compute Equivalent UnitsWeighted Average Method: Missouri

Units transferred out................................................

8-18. (20 min.)Compute Equivalent UnitsFIFO method: Missouri Corporation.

units in beginning inventory

= 100% 100% already done at the beginning of the period.

= 100% 60% already done at the beginning of the period.

Chapter 08 - Process Costing

8-19. (30 min.)Compute Equivalent Units: Bears, Inc.

Units transferred out.........................................................

b. First-in, First-out (FIFO) method:

= 100% 100% already done at the beginning of the period.

= 100% 75% already done at the beginning of the period.

units started and completed

Chapter 08 - Process Costing

8-20. (30 min.)Compute Equivalent UnitsEthical Issues: Aaron Company.

Units transferred out................................................

b. First-in, First-out (FIFO) method:

= 100% 60% already done at the beginning of the period.

units started and completed

Chapter 08 - Process Costing

8-21. (20 min.)Compute Cost per Equivalent UnitWeighted Average Method:

Chapter 08 - Process Costing

8-22. (20 min.)Compute Cost per Equivalent UnitFIFO method: Davenport

495,000 units started and completed = 765,000 units transferred-out 270,000

Chapter 08 - Process Costing

8-23. (20 min.)Compute Equivalent UnitsFIFO method: Santiago Company.

Chapter 08 - Process Costing

8-24. (20 min.)Compute Cost per Equivalent UnitWeighted-Average method:

Chapter 08 - Process Costing

8-25. (35 min.)Compute Costs per Equivalent UnitWeighted-Average Method:

Chapter 08 - Process Costing

Chapter 08 - Process Costing

3,400 units transferred out

Chapter 08 - Process Costing

Chapter 08 - Process Costing

Chapter 08 - Process Costing

8-29. (35 min.) Compute Costs per Equivalent UnitWeighted-Average Method:

Chapter 08 - Process Costing

$1,072,020 = 102,000 EU x $10.51 per EU.

$1,551,420 = 102,000 EU x $15.21 per EU.

$252,240 = 24,000 EU x $10.51 per EU.

$182,520 = 12,000 EU x $15.21 per EU.

Chapter 08 - Process Costing

Chapter 08 - Process Costing

Chapter 08 - Process Costing

Chapter 08 - Process Costing

8-33. (50 min.)Production Cost ReportFIFO method: El Paso Corporation.

a. 15,000 = 17,500 units started 2,500 units in ending WIP inventory.