Bus 227 Management Accounting

May Trimester 2016

Workshop Solutions Session 5
RQ:

4-3; 4-7; 4-10

E:

4-16; 4-20

P:

4-27; 4-28; 4-31

Review Questions (RQ):

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.

4-7

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

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

XXX

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

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

XXX

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

4-10

XXX

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.

EXERCISE 4-16 (20 MINUTES)

CALCULATION OF EQUIVALENT UNITS: HEALTHY LIFE STYLES, INC.
Weighted-Average Method

Physical
Units
Work in process, January 1....

30,000

Units started during the year. .

140,000

Total units to account for........

170,000

Unit completed and transferred

Percentage
of
Completion
with
Respect to
Direct
Material
70%

Percentage
of
Completion
with
Respect to
Conversion
50%

Equivalent Units
Direct
Material Conversion

Bus 227 Management Accounting

May Trimester 2016
Workshop Solutions Session 5
out during the year............

145,000

100%

100%

145,000

145,000

Work in process, December 31

25,000

75%

20%

18,750

5,000

Total units accounted for........

170,000

______

_______

163,750

150,000

Total equivalent units..............

EXERCISE 4-20 (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

PROBLEM 4-27 (50 MINUTES)

1.

Physical flow of units:

Physical Units

2.

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

210,000

Units started during 20x4........................................................................

1,100,000

Total units to account for........................................................................

1,310,000

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

1,000,000

Work in process, 12/31/x4.......................................................................

310,000

Total units accounted for........................................................................

1,310,000

Equivalent units:

Bus 227 Management Accounting

May Trimester 2016
Workshop Solutions Session 5

Percentage
of
Completion
with
Respect to
Conversion

Physical
Units

Direct
Material Conversion

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

210,000

83%

Units started during 20x4............

1,100,000

Total units to account for............

1,310,000

Units completed and transferred

out during 20x4.......................

1,000,000

100%

1,000,000

1,000,000

Work in process, 12/31/x4...........

310,000

48%

310,000

148,800

Total units accounted for.............

1,310,000

________

________

1,310,000

1,148,800

Total equivalent units..................

PROBLEM 4-27 (CONTINUED)
3.

Equivalent Units

Costs per equivalent unit:

Direct
Material

Conversio
n

Total

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

$ 300,000

$620,800a

$
920,800

Costs incurred during 20x4...........................

1,403,000

3,400,000b

4,803,000

Total costs to account for..............................

$1,703,000

$4,020,800

$5,723,80
0

Equivalent units..............................................

1,310,000

1,148,800

Costs per equivalent unit...............................

$1.30c

$3.50d

Conversion cost

direct labor + overhead

direct labor + (100% direct labor)

$4.80e

Bus 227 Management Accounting

May Trimester 2016
Workshop Solutions Session 5

Conversion cost

200% direct labor

200% $310,400

$620,800

200% direct labor

200% $1,700,000

$3,400,000

$1.30 = $1,703,000 1,310,000

$3.50 = $4,020,800 1,148,800

$4.80 = $1.30 + $3.50

Bus 227 Management Accounting

May Trimester 2016
Workshop Solutions Session 5
PROBLEM 4-27 (CONTINUED)
4.

Cost of ending inventories:

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

transferred out
equivalent unit

1,000,000 $4.8
0

$4,800,000

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

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

Direct material:

number of
equivalent
units of

cost per
equivalent
unit of

310,000 $1.30

$403,000

148,800 $3.50

520,800

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

$923,800

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

$4,800,000

Cost of 12/31/x4 work-in-process inventory...............................

923,800

Total costs accounted for............................................................

$5,723,800

direct material

direct material

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

Conversion:
number of
cost per

equivalent
equivalent
units of unit of

conversion
conversion

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

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

Bus 227 Management Accounting

May Trimester 2016
Workshop Solutions Session 5

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
PROBLEM 4-28 (40 MINUTES)
1.

Equivalent units:

Physical
Units
Work in process, August 1............... 40,000

Percentage
of
Completion
with
Respect to
Conversion

Equivalent Units
Direct
Material

Conversion

80%

Units started during August............. 80,000

Total units to account for................. 120,000

2.

Units completed and

transferred
100,000
out during August.........................

100%

100,000

100,000

Work in process, August 31............. 20,000

30%

20,000

6,000

Total units accounted for................. 120,000

______

______

Total equivalent units.......................

120,000

106,000

Costs per equivalent unit:

Direct
Material

Conversion

Total

Bus 227 Management Accounting

May Trimester 2016
Workshop Solutions Session 5
Total costs to account for
Equivalent units

Costs per equivalent unit

$138,000
120,000

$1,089,680
106,000

$1.15

$10.28

$11.43*

*$11.43 = $1.15 + $10.28

3.

Cost of goods completed and transferred out during August:

number of units
total cost per

transferred out
equivalent unit

100,000 $11.43
..............................

$1,143,000

Bus 227 Management Accounting

May Trimester 2016
Workshop Solutions Session 5
PROBLEM 4-28 (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

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

Conversion:
number of
cost per

equivalent
equivalent
units of
unit of

conversion
conversion

5.

6,000 $10.28

61,680

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

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

$84,680

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

$1,143,000

Cost of August 31 work-in-process inventory..............................

84,680

Total costs accounted for...............................................................

$1,227,680

Journal entry:
Finished-Goods Inventory................................................

1,143,000

Work-in-Process Inventory.....................................
PROBLEM 4-31 (50 MINUTES)
The missing amounts are shown below. A completed production report follows.

1,143,000

Bus 227 Management Accounting

May Trimester 2016
Workshop Solutions Session 5

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

10,000

Units completed and transferred out during October.........................................

75,000

Total equivalent units: conversion.......................................................................

78,500

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

$30,225

Costs incurred during October: direct material..................................................

600,000

Cost per equivalent unit: conversion...................................................................

11.85

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

1,556,250

Cost remaining in ending work-in-process inventory: direct material..............

44,500

PRODUCTION REPORT: FANTASIA FLOUR MILLING COMPANY

Weighted-Average Method
Percentage
of
Completion
with

Equivalent Units

Physical

Respect to

Direct

Units

Conversion

Material

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

10,000

Units started during October........

70,000

Total units to account for..............

80,000

Conversion

15%

Units completed and transferred

out during October..............

75,000

100%

75,000

75,000

Work in process, October 31........

5,000

70%

5,000

3,500

Total units accounted for..............

80,000

_____

_____

80,000

78,500

Total equivalent units....................

PROBLEM 4-31 (CONTINUED)
Direct
Material

Conversion

Total

Bus 227 Management Accounting

May Trimester 2016
Workshop Solutions Session 5
Work in process, October 1..........

$112,000

$30,225

$142,225

Costs incurred during October.....

600,000

900,000

1,500,000

Total costs to account for.............

$712,000

$930,225

$1,642,225

Equivalent units.............................

80,000

78,500

Costs per equivalent unit..............

$8.90*

$11.85

$20.75**

*$8.90 = $712,000 80,000

$11.85 = $930,225 78,500

**$20.75 = $8.90 + $11.85
PROBLEM 4-31 (CONTINUED)
Cost of goods completed and transferred out during October:
number of units

total cost per

equivalent unit
transferred out

............................... 75,000 $20.75

$1,556,250

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:

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

5,000 $8.90

$44,500

Bus 227 Management Accounting

May Trimester 2016
Workshop Solutions Session 5
number of
cost per

equivalent
equivalent
units of
unit of

conversion
conversion

3,500 $11.85

41,475

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

$85,975

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

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

$1,556,250

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

85,975

Total costs accounted for.......................................

$1,642,225