Managerial Accounting Tools for Business Decision Making 6th Edition Weygandt Solutions Manual

3-1

CHAPTER 3

Process Costing

ASSIGNMENT CLASSIFICATION TABLE

Learning Objectives

Questions

Brief

Exercises

Do It!

Exercises

A

Problems

B

Problems

* 1. Understand who uses

process cost systems.

1, 2, 20 1 1

* 2. Explain the similarities

and differences between

job order cost and

process cost systems.

2, 3, 4, 5 1 1

* 3. Explain the flow of costs

in a process cost system.

6 3 1A 1B

* 4. Make the journal entries

to assign manufacturing

costs in a process

cost system.

6, 7 1, 2, 3 2 2, 4 1A 1B

* 5. Compute equivalent

units.

10, 11,

12, 13

4, 9 3 3, 5, 6, 7, 8,

9, 10, 11, 13,

14, 15

2A, 3A, 4A,

5A, 6A

2B, 3B, 4B,

5B, 6B

* 6. Explain the four steps

necessary to prepare

a production cost report.

8, 9, 14,

15, 18

5, 6, 7, 8 4

3, 5, 6, 7, 8, 9,

10, 11, 13, 14,

15, 16, 17,

18, 19

2A, 3A,

4A, 5A

2B, 3B,

4B, 5B

* 7. Prepare a production

cost report.

16, 17, 19 11 4 7, 12, 13 2A, 3A, 4A,

5A, 6A

2B, 3B, 4B,

5B, 6B

**8.

Compute equivalent units

using the FIFO method.

21, 22 10, 11, 12

16, 17, 18,

19, 20

7A 7B

*Note: All asterisked Questions, Exercises, and Problems relate to material contained in the appendix*to the

chapter.

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3-2

ASSIGNMENT CHARACTERISTICS TABLE

Problem

Number

Description

Difficulty

Level

Time

Allotted (min.)

1A Journalize transactions. Moderate 20–30

2A Complete four steps necessary to prepare a production

cost report.

Simple 30–40

3A Complete four steps necessary to prepare a production

cost report.

Simple 30–40

4A

Assign costs and prepare production cost report.

Moderate 20–30

5A Determine equivalent units and unit costs and

assign costs.

Moderate 20–30

6A Compute equivalent units and complete production

cost report.

Moderate 15–25

*7A* Determine equivalent units and unit costs and assign

costs for processes; prepare production cost report.

Moderate 30–40

1B Journalize transactions. Moderate 20–30

2B Complete four steps necessary to prepare a production

cost report.

Simple 30–40

3B Complete four steps necessary to prepare a production

cost report.

Simple 30–40

4B

Assign costs and prepare production cost report.

Moderate 20–30

5B Determine equivalent units and unit costs and

assign costs.

Moderate 20–30

6B Compute equivalent units and complete production

cost report.

Moderate 15–25

*7B Determine equivalent units and unit costs and assign

costs for processes; prepare production cost report.

Moderate 30–40

BLOOM’S TAXONOMY TABLE

3-3

Correlation Chart between Bloom’s Taxonomy, Learning Objectives and End

–

of

–

Chapter Exercises and Problems

Learning Objective Knowledge

Comprehension

Application Analysis Synthesis Evaluation

* 1. Understand who uses process cost

systems.

Q3-1

Q3-2

E3-1

Q3-20

DI3-1

* 2. Explain the similarities and differences

between job order cost and process

cost systems.

Q3-2

Q3-3

Q3-4

Q3-5

E3-1

DI3-1

* 3. Explain the flow of costs in a process

cost system.

Q3-6 E3-3

P3-1A

P3-1B P3-1A

P3-1B

* 4. Make the journal entries to assign

manufacturing costs in a process

cost system.

Q3-6 Q3-7

BE3-1

BE3-2

BE3-3

DI3-2

E3-2

E3-4

P3-1A

P3-1B

P3-1A

P3-1B

* 5. Compute equivalent units. Q3-10

Q3-11

Q3-12

Q3-13

BE3-4

BE3-9

DI3-3

E3-3

E3-5

E3-6

E3-7

E3-8

E3-9

E3-10

E3-11

E3-13

E3-14

E3-15

P3-2A

P3-3A

P3-4A

P3-5A

P3-6A

P3-2B

P3-3B

P3-4B

P3-5B

P3-6B

P3-2A

P3-3A

P3-2B

P3-3B

* 6. Explain the four steps necessary

to prepare a production cost report.

Q3-8 Q3-9 Q3-14

Q3-15

Q3-18

BE3-5

BE3-6

BE3-7

BE3-8

DI3-4

E3-3

E3-5

E3-6

E3-7

E3-8

E3-9

E3-10

E3-11

E3-13

E3-14

E3-15

E3-16

E3-17

E3-18

E3-19

P3-2A

P3-3A

P3-4A

P3-5A

P3-2B

P3-3B

P3-4B

P3-5B

P3-2A

P3-3A

P3-2B

P3-3B

* 7. Prepare a production cost report. Q3-16

Q3-17

Q3-19

BE3-11

DI3-4

E3-7

E3-11

E3-13

P3-2A

P3-3A

P3-4A

P3-5A

P3-6A

P3-2B

P3-3B

P3-4B

P3-5B

P3-6B

*8. Compute equivalent units using the

FIFO method.

Q3-21

Q3-22

BE3-10

BE3-11

BE3-12

E3-16

E3-17

E3-18

E3-19

E3-20

P3-7A

P3-7B

Broadening Your Perspective BYP3-4 BYP3-1 BYP3-2

BYP3-3

BYP3-7

BYP3-5 BYP3-6

3-4

ANSWERS TO QUESTIONS

1. (a) Process cost.

(b) Process cost.

(c) Job order.

(d) Job order.

2. The primary focus of job order cost accounting is on the individual job. In process cost accounting, the

primary focus is on the processes involved in producing homogeneous products.

3. The similarities are: (1) all three manufacturing cost elements—direct materials, direct labor, and

overhead—are the same; (2) the accumulation of the costs of materials, labor, and overhead is

the same; and (3) the flow of costs is the same.

4. The features of process cost accounting are: (1) separate work in process accounts for each

process, (2) production cost reports, (3) product costs computed for each accounting period, and

(4) unit costs computed based on total manufacturing costs.

5. Sam is correct. The flow of costs is the same in process cost accounting as in job order cost

accounting. The method of assigning costs, however, is significantly different.

6. (a) (1) Materials are charged to production on the basis of materials requisition slips.

(2) Labor is usually charged to production on the basis of the payroll register or departmental

payroll summaries.

(b) The criterion used in assigning overhead to processes is to identify the activity that “drives” or

causes the cost. In many companies this activity is machine time, not direct labor.

7. The entry to assign overhead to production is:

July 31 Work in Process—Machining ……………………………………………. 15,000

Work in Process—Assembly …………………………………………….. 12,000

Manufacturing Overhead …………………………………………… 27,000

8. To prepare a production cost report, four steps are followed: (a) compute the physical unit flow,

(b) compute equivalent units of production, (c) compute unit production costs, and (d) prepare a cost

reconciliation schedule.

9. Physical units to be accounted for consist of units in process at the beginning of the period plus

units started (or transferred) into production during the period. Units accounted for consist of units

completed and transferred out during the period plus units in process at the end of the period.

10. Equivalent units of production measure the work done during the period, expressed in fully com-

pleted units.

11. Equivalent units of production are the sum of: (1) units completed and transferred out and

(2) equivalent units of ending work in process.

12. Units started into production were 9,600, or (9,000 + 600).

3-5

Questions Chapter 3 (Continued)

13. Equivalent Units

Materials

Conversion Costs

Units transferred out

Work in process

500 X 100%

500 X 20%

Total equivalent units

12,000

500

12,500

12,000

100

12,100

14. Units transferred out were 3,200*

Units to be accounted for

Work in process (beginning)

Started into production

Total units

500

3,000

3,500

Units accounted for

Completed and transferred out

Work in process (ending)

Total units

3,200*

300

3,500

*3,500 – 300

15. (a) The cost of the units transferred out is $112,000, or (14,000 X $8).

(b) The cost of the units in ending inventory is $8,500, or [(2,000 X $3) + (500 X $5)].

16. (a) Ann is incorrect. The report is an internal report for management.

(b) There are four sections in a production cost report: (1) number of physical units, (2) equivalent

units determination, (3) unit costs, and (4) cost reconciliation schedule.

17. The production cost report provides the basis for evaluating: (1) the productivity of a department,

(2) whether unit and total costs are reasonable, and (3) whether current performance is meeting

planned objectives.

18. The per unit conversion cost is $11.25. [Conversion costs = $6,000 – $2,400 = $3,600. Equivalent units

for conversion costs are 320 (800 X 40%); $3,600 ÷ 320 = $11.25.]

19. Operations costing is similar to process costing in that standardized methods are used to manufacture

the product. At the same time, the product may have some customized individual features that

require the use of a job order cost system.

20. In deciding which system to use, a cost-benefit tradeoff occurs. In a job order system, detailed

information related to the cost of the product is involved. The cost of implementing this system is

often expensive. In a process cost system, an average cost of the product will suffice and therefore

the cost to implement is less. In summary, the cost of implementing the system must be balanced

against the benefits provided from the additional information.

*21. Units transferred out were 2,800 (2,000 + 800).

*22. (a) The cost of the units transferred out is $120,000 (12,000 X $10).

(b) The cost of the units in ending inventory is $9,500 [(2,000 X $3) + (500 X $7)].

3-6

SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 3-1

Mar. 31 Raw Materials Inventory ….….….….…..….….…. 45,000

Accounts Payable ….….…..….….….….….… 45,000

31 Factory Labor …..….….….….….….….….….…..…. 60,000

Wages Payable ……..….….….….….….….…. 60,000

BRIEF EXERCISE 3-2

Mar. 31 Work in Process—Assembly Department ….. 24,000

Work in Process—Finishing Department …... 21,000

Raw Materials Inventory ….….…..….….….. 45,000

31 Work in Process—Assembly Department ….. 35,000

Work in Process—Finishing Department .….. 25,000

Factory Labor ….….…..….….….….….….…... 60,000

BRIEF EXERCISE 3-3

Mar. 31 Work in Process—Assembly Department

($35,000 X 200%) ……..….….….….….….….….. 70,000

Work in Process—Finishing Department

($25,000 X 200%) ……..….….….….….….….….. 50,000

Manufacturing Overhead ….….…..….….…. 120,000

BRIEF EXERCISE 3-4

Materials

Conversion Costs

Jan

u

ary

March

July

45,000 (35,000 + 10,000)

48,000 (40,000 + 8,000)

61,000 (45,000 + 16,000)

39,000 (35,000 + 4,000

a

)

46,000 (40,000 + 6,000

b

)

49,000 (45,000 + 4,000

c

)

a. 10,000 X 40%

b. 8,000 X 75%

c. 16,000 X 25%

3-7

BRIEF EXERCISE 3-5

Total mater

i

als

costs

$36,000

÷

Equivalent units

of materials

10,000

=

Unit materials

cost

$3.60

Total conve

r

sion

costs

$54,000

÷

Equivalent units

of conversion costs

12,000

=

Unit conve

r

sion

cost

$4.50

Unit materials

cost

$3.60

+

Unit conversion

cost

$4.50

=

Total manufactu

r

ing

cost per unit

$8.10

BRIEF EXERCISE 3-6

Assignment of Costs

Equivalent Units

Unit Cost

Transferred out

Transferred out 40,000 $11 $440,000

Work in process, 4/30

Materials

Conversion costs

Total costs

5,000

2,000

$ 4

$ 7

$20,000

14,000

34,000

$474,000

BRIEF EXERCISE 3-7

Total mater

i

als

costs

$16,000

÷

Equivalent units

of materials

20,000

=

Unit materials

cost

$.80

Total conve

r

sion

*costs*

$47,500

÷

Equivalent units

of conversion costs

19,000

=

Unit conve

r

sion

cost

$2.50

*$29,500 + $18,000

3-8

BRIEF EXERCISE 3-8

Costs a

c

counted for

Transferred out

Work in process

Materials

Conversion costs

Total costs

(18,000 X $3.30)

(2,000 X $.80)

(1,000* X $2.50)

$1,600

2,500

$59,400

4,100

$63,500

*2,000 X 50%

BRIEF EXERCISE 3-9

(a)

Materials

(b)

Conversion Costs

Units tran

s

ferred out

Work in process, November 30

Materials (7,000 X 100%)

Conversion costs (7,000 X 40%)

Total equivalent units

8,000

7,000

15,000

8,000

2,800

10,800

*BRIEF EXERCISE 3-10

Costs to Be

Assigned

Assignment of Costs

Equivalent

Units

Unit

Cost

Total Costs

Assigned

Transferred out

Work in process, 3/1

Started and completed

0

30,000

$ 0

$18

$

0

540,000

$594,000

Work in process, 3/31

Materials

Conversion costs

5,000

2,000

$ 6

$12

$ 30,000

24,000

54,000

$594,000

3-9

*BRIEF EXERCISE 3-11

Equivalent Units

Materials

Conversion

Costs

Units accounted for

Completed and transferred out

Work in process, March 1

Started and completed

Work in process, March 31

Total units

-0-

30,000

5,000

35,000

-0-

30,000

2,000

32,000

SANDERSON COMPANY

(Partial) Production Cost Report

For the Month Ended March 31

COSTS

Materials

Conve

r

sion

Costs

Total

Unit costs

Total costs (a)

Equivalent units (b)

Unit costs (a) ÷ (b)

Costs to be accounted for

In process, March 1

Costs in March

Total costs

Costs accounted for

Transferred out

In process, March 1

Started and completed

(30,000 units X $18)

In process, March 31

Materials (5,000 X $6)

Conversion costs

(2,000 X $12)

Total costs

$210,000

35,000

$ 6

*

$384,000

32,000

$ 12

$ 30,000

24,000

**

$594,000

$ 18

$ 0

594,000

$594,000

$ 0

540,000

54,000

$594,000

*35,000 equivalent units X $6 per unit

**32,000 equivalent units X $12 per unit

3-10

*BRIEF EXERCISE 3-12

Total mater

i

als

costs

1

$75,000

1

÷

Equivalent units

of materials

20,000

=

Unit materials

cost

$3.75

1

$8,000 + $67,000 = $75,000

Total conve

r

sion

costs

2

$38,000

2

÷

Equivalent units

of conversion costs

19,000

=

Unit co

nve

r

sion

cost

$2.00

2

$20,000 + $18,000

SOLUTIONS FOR DO IT! REVIEW EXERCISES

DO IT! 3-1

1. False

2. False

3. True

4. False

DO IT! 3-2

Work in Process—Mixing ……….….…..….….….….….….….…. 10,000

Work in Process—Packaging ….….…..….….….….….….….… 28,000

Raw Materials Inventory ….….…..….….….….….….….…. 38,000

(To record materials used)

Work in Process—Mixing ……….….…..….….….….….….….…. 8,000

Work in Process—Packaging ….….…..….….….….….….….… 36,000

Factory Labor .….….….….….….….….….….….…..….….…. 44,000

(To assign factory labor to production)

Work in Process—Mixing ……….….…..….….….….….….….…. 12,000

Work in Process—Packaging ….….…..….….….….….….….… 54,000

Manufacturing Overhead ..….….….….….….…..….….….. 66,000

(To assign overhead to production)

3-11

DO IT! 3-2 (Continued)

Work in Process—Packaging …………………………………….. 21,000

Work in Process—Mixing ……………………………………. 21,000

(To record transfer of units to the Packaging

Department)

Finished Goods Inventory …………………………………………. 106,000

Work in Process—Packaging ..….….….….….….….…... 106,000

(To record transfer of units to finished goods)

DO IT! 3-3

(a) Since materials are entered at the beginning of the process, the equiva–

lent units of ending work in process are 12,000.

20,000 units + 12,000 units = 32,000 equivalent units of production for

materials.

(b) Since ending work in process is only 70% complete as to conversion

costs, the equivalent units of ending work in process for conversion

costs are 8,400 (70% X 12,000 units).

20,000 units + 8,400 units = 28,400 equivalent units of production for

conversion costs.

DO IT! 3-4

(a) 0 (Work in process, March 1) + 26,000* (Started into production) = 26,000

*22,000 + 4,000

(b) Equivalent units of production:

Materials Conversion

Units transferred out ……..….….. 22,000 22,000

Work in process, March 31 ..….. 4,000 1,600 (4,000 X 40%)

Total ….…..….….….….….….….….… 26,000 23,600

DO IT! 3-4 (Continued)

(c) Cost reconciliation schedule

Costs accounted for

Transferred out (22,000 X $18) ..….…... $396,000