Chapter 06 – Process Costing
CHAPTER 6: PROCESS COSTING
QUESTIONS
6-1 A company that should use a process costing system typically has homogenous
6-2 Process costing is likely used in industries such as chemicals, oil refining,
textiles, paints, flour, canneries, rubber, steel, glass, food processing, mining,
6-3 Differences between job and process costing: (1) accumulating costs by job
versus department, (2) collecting cost data using the job cost sheet vs. the
6-4 Equivalent units are the number of completed units that could have been
6-5 If direct materials are added at the beginning of the process rather than uniformly
materials to finish the work-in-process beginning inventory.
6-6 A production cost report is a report, which summarizes the physical units and
equivalent units of a department, the costs incurred during the period, and costs
assigned to both finished goods and work-in-process inventories. The five key
computation of unit costs, and assignment of total costs.
6-7 The weighted-average method equivalent units include both the units placed into
production in the current period and the units from the prior period that are still in
production at the beginning of this period. FIFO method does not include the
6-8 The weighted-average method would be inappropriate when a firm’s beginning
6-1
Chapter 06 – Process Costing
6-9 The advantage of the weighted-average method is its simplicity.
6-10 From the standpoint of cost control, the FIFO method is superior to weighted-
average because the cost per equivalent unit under FIFO represents the cost for
6-11 Transferred-in costs are costs of work done in the prior department that are
transferred into the current department.
6-12 Work-in-Process Inventory — Second Department $50,000
6-13 Under the FIFO method of handling units transferred out, beginning inventory
6-14 Under the weighted-average method, it makes no difference when a product is
started; all units completed in the same period or in the ending inventory of that
period are treated the same. In computing the equivalent units, this method looks
6-15 Process costing uses the same manufacturing accounts as job costing. Journal
entries are essentially the same as in job costing. However, instead of tracing
departments.
6-16 Backflush costing is a simple costing system that assigns materials and
conversion costs directly to finished goods inventory, by assuming there is little or
6-17 Activity-based process costing is an extension of the basic process costing
model in which certain products require significantly more processing costs in
certain activities. Activity-based costing is used together with process costing to
approach.
6-2
Education.
Chapter 06 – Process Costing
BRIEF EXERCISES
6-18
Work-in-process inventory, February 28 65,000
Learning Objective: 06-04
Topic: Illustration of Process Costing
Category:
Blooms: Apply
AACSB: Analytic
AICPA FN: Measurement
AICPA BB:
Difficulty: Easy
Feedback
6-19
Work-in-process Inventory, June 1 63,000
Learning Objective: 06-04
Topic: Illustration of Process Costing
Category:
Blooms: Apply
AACSB: Analytic
AICPA FN: Measurement
AICPA BB:
Difficulty: Easy
Feedback
6-20
Units started 5,200
Learning Objective: 06-04
Topic: Illustration of Process Costing
Category:
6-3
Education.
Chapter 06 – Process Costing
Blooms: Apply
AACSB: Analytic
AICPA FN: Measurement
AICPA BB:
Difficulty: Easy
Feedback
Units completed 7,300
6-21
Units completed 79,000
Learning Objective: 06-04
Topic: Illustration of Process Costing
Category:
Blooms: Apply
AACSB: Analytic
AICPA FN: Measurement
AICPA BB:
Difficulty: Easy
Feedback
6-22
a) Weighted Average
Materials: 47,000
Conversion: 45,500
b) FIFO
Materials: 45,000
Conversion: 44,500
Learning Objective: 06-04
Topic: Illustration of Process Costing
Category:
Blooms: Apply
AACSB: Analytic
6-4
Chapter 06 – Process Costing
AICPA FN: Measurement
AICPA BB:
Difficulty: Easy
Feedback:
a) Weighted Average
Materials: 47,000 = 44,000 + 1.0 x 3,000
6-23
Cost of Goods Completed: $50,000
Learning Objective: 06-04
Topic: Illustration of Process Costing
Category:
Blooms: Apply
AACSB: Analytic
AICPA FN: Measurement
6-24 Ending WIP: 2,500 units
Learning Objective: 06-04
Topic: Illustration of Process Costing
Category:
Blooms: Apply
AACSB: Analytic
6-5
Education.
Chapter 06 – Process Costing
6-25
Cost of Spoilage $1,500
Learning Objective: 06-04
Topic: Illustration of Process Costing
Category:
Blooms: Apply
AACSB: Analytic
AICPA FN: Measurement
6-26 The number of units transferred-in is 33,000 units
Learning Objective: 06-04
Topic: Illustration of Process Costing
Category:
Blooms: Apply
AACSB: Analytic
AICPA FN: Measurement
6-6
Education.
Units
Beginning WIP 6,000
Units started or Trans-in 33,000
Total to account for 39,000
Units Finished or Trans-out 35,000
Normal spoilage 0
Abnormal spoilage 0
Ending WIP 4,000
Total accounted for 39,000
Chapter 06 – Process Costing
EXERCISES
6-27 Process Costing in Process Industries (10 min)
There are a number of possible answers here. Some examples are given
in the chapter, as well as exercises 4-29 and 4-30 from chapter 4. The
exercise is intended for class discussion. The goals is to have the
students able to identify process-oriented companies in industries such as
chemicals, food processing, beverages, etc. The instructor may choose
to follow up this short question with a more substantive one such as 6-29
which gets into the details of one type of process industry, sugar
manufacturing.
6-7
Education.
Chapter 06 – Process Costing
6-28 Equivalent Units; Weighted-Average Method (15 min)
1. Calculate the number of tons completed and transferred out during the
2. Calculate the number of equivalent units for both materials and
conversion for the month of May, assuming that the company uses the
weighted-average method.
3. How would your answer in part 2 change if the percentage of completion
in ending inventory were as follows: materials 30%, conversion 40%?
4. Process costing is a good fit for the fish processing industry because
there is single or a small number of products that are processed through a
series of well-defined processing steps: moving, cleaning, preparation for
shipment, etc.
Learning Objective: 06-04
Topic: Illustration of Process Costing
Category:
Blooms: Apply
AACSB: Analytic
AICPA FN: Measurement
AICPA BB:
Difficulty: Easy
Feedback for parts 1, 2, and 3:
1. Work-in-process inventory, 5/1 1,000
Units started 7,000
Total units to account for 8,000
6-8
Education.
Chapter 06 – Process Costing
6-28 (continued -1)
2. Equivalent units — Weighted-Average Method
Materials:
Units completed 6,000
Work-in-process inventory, 5/31 2,000 x 50% = 1,000
Total equivalent units 7,000
Conversion:
Units completed 6,000
3. Equivalent units — Weighted-Average Method
Materials:
Units completed 6,000
Work-in-process inventory, 5/31 2,000 x 30% = 600
Total equivalent units 6,600
Conversion:
Units completed 6,000
6-9
Education.
Chapter 06 – Process Costing
6-29 Process Costing in Sugar Manufacturing (20 min)
1. There are very likely to be transferred in costs in sugar
manufacturing, as there are a number of processes, each of which
could be a separate manufacturing department with its own process
cost report. There are seven steps in the manufacturing process so
there are possibly as many as seven departments, each with its own
cost report. The reason for multiple cost reports is to monitor the flow
of costs throughout the manufacturing process start to finish, and to
be able to control costs in each department. The individual cost
reports provide a means for tracking cost management performance
of each department over time. For example, it would be possible to
next chapter, Chapter 7.
2. As noted in the problem, the raw material for sugar production (sugar
cane) goes through periods of very volatile changes in price. This
means the cost of sugar can fluctuate greatly, and the production
costs may be given greater attention, especially in periods when
prices are low and sugar manufacturers compete on cost leadership
since sugar is a commodity. One could argue that FIFO provides a
better means to analyze costs since it separates costs from period to
period. Alternatively, one could argue that an advantage of the
weighted average method is that it would tend to smooth the changes
6-10
Education.