Chapter 6 – Process Costing
PROCESS COSTING SYSTEM – FULL SOLUTION
Question 1: What journal entries should be made to record this period’s activities?
The case information is used to generate the following journal entries.
Account Titles Debits1Credits
,
Cash 48,600.00
Sales – Froth 48,600.00
Direct Materials Inventory: Barley Extract 4,200.00
Direct Materials Inventory: Wheat Extract 2,750.00
Direct Materials Inventory: Hops 2,400.00
Direct Materials Inventory: Brewer’s Yeast 140.00
Cash 9,490.00
Direct Materials Inventory: Water 29.13
Factory Overhead (Indirect Materials: Water) 75.87
Cash 105.00
Work in Process Inventory: Boiling (Direct Labor)
(30%)
3,720.00
Work in Process Inventory: Fermenting (Direct Labor)
(60%)
7,440.00
Work in Process Inventory: Shipping (Direct Labor)
1,240.00
Equipment: Half-Kegs 3,000.001
Equipment: Keg Washing Machine 12,000.001
Excise Tax 9,720.00
General & Administrative Expenses 2,285.00
Interest Expense 3,600.00
Cash 30,605.00
Factory Overhead (Depreciation Expense) 3,925.002
Factory Overhead (Insurance Expense) 3,000.00
Accumulated Depreciation, Equipment 3,550.003
Accumulated Depreciation, Kegs 375.00
Prepaid Insurance 3,000.00
Work in Process Inventory: Boiling 7,815.63
Direct Materials: Water (.0009 x 1,044/12 x 372) 29.13
Direct Materials: Barley (2.10 x 1,044/12 x 20) 3,654.00
Direct Materials: Wheat (275 x 1044/12 x 10) 2,392.50
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Chapter 6 – Process Costing
Factory Overhead (3,290 + 6,925 + 105 – 29.13) 10,290.87
Work in Process Inventory: Fermenting 13,565.164
Work in Process Inventory: Boiling 13,565.16
Work in Process Inventory: Shipping 25,212.365
Work in Process Inventory: Fermenting 25,212.36
Notes:
Given.
2 130,000 equipment + 12,000 kegs + 12,000 washing machine + 3000 kegs
3 Includes keg washing machine.
4 7815.63 material + 5907.26 conversion cost, 1044 barrels; 1032 barrels transferred out.
Question 2: What is Downstream’s income statement for the period?
The process costing income statement is as follows.
Downstream Brewery: Process Cosing Income Statement
Total Per Barrel
Gross Sales $ 48,600.00 $ 50.000
Less: Excise Tax 9,720.00 10.000
Net Sales 38,880.00 40.000
Cost of Goods Sold 28,731.36 29.559
Gross Profits on Sales 10,148.64 10.441
Selling, General, and Administrative Expenses:
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Chapter 6 – Process Costing
Question 4: What is the value of the inventory?
Inventory values are as follows.
Beg. Balance Trans. In Trans. Out End. Balance End. Unit Balance
Direct Materials
Barley Extract 1,050.00 4,200.00 3,654.00 1,596.00 760 pounds
Wheat Extract 275.00 2,750.00 2,392.50 632.50 230 pounds
Hops 40.00 2,400.00 1,740.00 700.00 70 bushels
Yeast 14.00 140.00 60.20 93.80 33.5 bricks
Total Direct Materials 3,022.30
Work in Process
Boiling – Materials 0 7,815.6327,725.80 89.83 12 barrels
Fermenting – Conversion Costs 0 13,614.52 13,534.90 79.62 12 barrels @ 50%
Fermenting – Total (1,032 barrels) 0 28,129.54 27,881.10 248.44
Shipping – Prior 0 27,881.10 27,881.10 0
Shipping – Conversion Costs 0 2,269.09 2,269.09 0
Shipping – Total (972 barrels) 0 30,150.19 30,150.19 0
Total Work in Process 416.51
(This case teaching note was prepared by Lawrence Grasso and Cindy Moeckel of Arizona State University,
Tempe, Arizona, U.S.A., as the basis for class discussion rather than to illustrate either effective or ineffective handling
of a managerial situation. All proper names, places and financial information are fictitious. Distributed by the
Accounting Education Resource Centre, The University of Lethbridge, The Journal of Accounting Case Research,
Volume 1, No. 1, 1992.)
Teaching Strategies For Readings
2 3,654 +2,392.5 + 1,740 +29.13; transfer out 1,032/1,044
3 3,720 + 3,087.26
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Chapter 6 – Process Costing
“How Boeing Tracks Costs, A to Z”
This articles explains the change in Boeing’s costing approach, from one based on job -costing to a
process approach.
Source: Financial Executive (November-December 1994), pp. 20-23.
Discussion Questions:
1. Explain what Boeing means by process accounting.
The new Boeing process accounting system focuses on processes rather than products. The intent is to
develop better tools to identify where cost problems are arising, and to better motivate managers to reduce
overhead cost pools.
2. What are the advantages of the process accounting approach at Boeing?
3. How does the new process accounting approach affect each business unit’s incentives and tools to
control costs?
See above. The manager of a production process (business unit) has the direct responsibility to
manage costs assigned to the unit, in contrast to the prior system where the costs were collected in overhead
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