Chapter 16
Process Costing and Analysis
QUESTIONS
1. The main deciding factor in choosing between a job order costing system or a
process costing system is the type of product or service. Examples where a
process costing system is likely appropriate include chemicals, cleaning fluids, mail
services, and consulting. (Hybrid systems are also common.)
2. The main focus in process costing is the production department (process).
3. Yes, services can be delivered by processes. For example, Federal Express delivers
4. The journal entries to match cost flows with product flows are primarily the same
for both process costing and job order costing. In process costing, the materials
5. A materials consumption report is an alternative control document.
6. The computation of equivalent units of production focuses on converting partially
completed units to a measure in terms of completed units. We need to use EUP
because some units of the production process are partially completed at the end of
completed.
7. The two main methods of process costing are the weighted-average and the first-in,
first-out (FIFO) methods. The weighted-average method considers “average flow”
8. A process cost accounting system treats labor that is used entirely within one
9. Direct labor costs flow first from the Factory Payroll account to the Work in Process
10. At the end of the accounting period the Factory Overhead account should have a
zero balance.
11. Yes, it is possible to have either underapplied or overapplied overhead in a process
12. Equivalent units for direct materials differ from that for direct labor (and overhead) if
direct materials and direct labor (and overhead) are added at different stages in the
13. The four steps in accounting for production activity (for process operations) are: 1)
14. The process cost summary serves at least three purposes: (a) to help department
managers control their departments; (b) to help factory managers evaluate
department managers’ performances; and (c) to provide cost information for the
15. Yes. Google might use process costing to determine the cost of manufacturing
16. Likely processing steps for digital televisions include making the frame and
preparing the televisions for shipping.
Financial and Managerial Accounting, 6th Edition
QUICK STUDIES
Quick Study 16-1 (5 minutes)
1. Job order operation 4. Job order operation
Quick Study 16-2 (5 minutes)
Quick Study 16-3 (10 minutes)
1. Process operation. 5. Job order operation.
Quick Study 16-4 (10 minutes)
Units
Units in beginning inventory 150,000
+ Units started 310,000
= Total units to account for 460,000
Quick Study 16-5 (10 minutes)
Equivalent units under the weighted-average method
Equivalent
EUP for conversion—Weighted average Units
Units completed and transferred out (340,000 x 100%)…..…..…..…... 340,000
Quick Study 16-6 (10 minutes)
Equivalent units under the FIFO method
Equivalent
EUP for conversion—FIFO Units
Equivalent units to complete beginning WIP (150,000 x 20%)......... 30,000
Equivalent units started and completed*…………..……..………..……….. 190,000
* Units completed – Units in beginning work in process = Units started and completed
340,000 – 150,000 = 190,000
Quick Study 16-7 (5 minutes)
Cost per equivalent unit of production–weighted-average method
Beginning inventory cost + Current production costs = $394,900 + $907,500
Equivalent units of production 740,000
Quick Study 16-8 (10 minutes)
Equivalent units under the weighted-average method
Equivalent
EUP for conversion—Weighted average Units
Units completed and transferred out (680,000 x 100%)…..…..…..…... 680,000
Units of ending work in process
Financial and Managerial Accounting, 6th Edition
Quick Study 16-9 (15 minutes)
Equivalent units under the FIFO method
Equivalent
EUP for conversion—FIFO Units
Equivalent units to complete beginning WIP (320,000 x 75%)......... 240,000
Equivalent units started and completed*…………..……..………..……….. 360,000
Quick Study 16-10 (15 minutes)
Equivalent units of production—Weighted average
Direct
Materials Conversion
Units completed & transferred out (9,000 x 100%).…..…......9,000 9,000
Units of ending work in process
Direct materials, 3,000 x 80%……………….………………..……..2,400
Quick Study 16-11 (25 minutes)
Cost per equivalent unit—Weighted average
Direct
Materials Conversion
Costs of beginning work in process…………..……………. $ 996 $ 585
Costs incurred this period…………..………………………..… 10,404 12,285
Total costs…………………………….……………………………..… $11,400 $12,870
Financial and Managerial Accounting, 6th Edition
Quick Study 16-12 (10 minutes)
Cost assignment—Weighted average
Direct
Materials Conversion
Costs of units transferred out
Direct materials (9,000 EUP* x $1.00 per EUP)..….... $9,000
Conversion (9,000 EUP* x $1.30 per EUP)….……..…. 11,700
Total costs transferred out……………………….…..……….. $20,700
Costs of ending work in process
Direct materials (2,400 EUP* x $1.00 per EUP)..….... 2,400
*EUP from QS 16-10
**Equals costs to account for of $24,270, computed as $1,581 + $10,404 + $12,285
Quick Study 16-13 (5 minutes)
Work in Process Inventory—Painting…..…..…………….20,700
Work in Process Inventory—Assembly……..……... 20,700
To transfer costs of goods across departments.
Quick Study 16-14 (15 minutes)
Equivalent units of production—FIFO
Direct
Materials Conversion
Units to complete beginning work in process
Direct materials (2,000 x 40%)……………………………………….
Conversion (2,000 x 60%)
800
7,000
1,200
7,000
Quick Study 16-15 (5 minutes)
Cost per equivalent unit – FIFO
Direct
Materials Conversion
Costs incurred this period…………..………………………..… $10,404 $12,285
Quick Study 16-16 (20 minutes)
Assignment of costs to output of department—FIFO
Costs of units transferred out
Cost of beginning work in process inventory…..……. $ 1,581
Costs to complete beginning work in process
Cost of units started and completed this period
Direct materials (7,000 EUP x $1.02 per EUP).......... 7,140
Conversion (7,000 EUP x $1.35 per EUP)…..…..….... 9,450
Total cost of units started and completed………….... 16,590
Total costs of units transferred out…………………….…. $20,607
Cost of ending work in process inventory
Financial and Managerial Accounting, 6th Edition
902
Quick Study 16-17 (5 minutes)
Work in Process Inventory—Painting…..…..…………….20,607
Quick Study 16-18 (10 minutes)
a)
Equivalent units of production—Weighted average
Direct
Materials
Units completed & transferred out (17,000 x 100%).............17,000
Units of ending work in process
b)
Cost per equivalent unit—Weighted average
Direct
Materials
Costs of beginning work in process…………..……………. $ 1,200
Costs incurred this period…………..………………………..… 27,900
Total costs…………………………….……………………………..… $29,100
Quick Study 16-19 (10 minutes)
Cost assignment—Weighted average
Direct
Materials
Costs of units transferred out
Direct materials (17,000 EUP x $1.50 per EUP)........ $25,500
Costs of ending work in process
Quick Study 16-20 (10 minutes)
The ending balance in Work in Process Inventory—Cutting is $7,100 and
the ending balance in Work in Process Inventory—Binding is $17,042, as
computed below.
Work in Process—Cutting
Beg. Inventory 3,445
Dir. materials 8,240
Conversion 11,100
Work in Process—Binding
Beg. Inventory 6,426
Transferred-in 15,685
Dir. materials 6,356
Conversion 18,575
Financial and Managerial Accounting, 6th Edition