Chapter 06 – Process Costing
6-43 (continued -1)
4. The request is a violation of the controller’s responsibility to prepare
accurate production cost reports. The ethical principles of integrity and
objectivity require the controller to use the best available estimate of
percentage completion.
Since there is a high level of ending WIP, the change from 40% to 60%
The weighted-average conversion cost per equivalent unit decreases from
$12.75 (see part 1 above) to $12.1125
6-31
Education.
Chapter 06 – Process Costing
6-44 FIFO Method (25 min)
See the solution for 6-43 above for the calculation of cost per equivalent
unit under FIFO. Note regarding the part 4 of problem 6-43: the effect on
the cost per equivalent unit appears under both the weighted average and
the FIFO methods.
6-45 Weighted-Average Method; Transferred-In Costs (40-50 min)
1. (all currency figures are in Korean won)
6-32
Chapter 06 – Process Costing
6-45 (continued -1)
2. On August 15, 2014 the exchange rate was $1 US = 1,020 South
Korean Won (KRW). The dollar had fallen about 6% from a rate of $1 US
= 1,088 KRW three years earlier. These economic cycles that affect
currency exchange rates are important in product costing and business
6-33
Education.
Chapter 06 – Process Costing
6-46 FIFO Method; Two Departments (60-70 min)
Molding Department
6-34
Education.
Chapter 06 – Process Costing
Problem 6-46 (Continued -1)
Finishing Department
6-35
Education.
Chapter 06 – Process Costing
6-47 Weighted-Average Method; FIFO Method (70-80 min)
1. BDB Company — Department A
Production Cost Report
6-36
Chapter 06 – Process Costing
6-47 (continued -1)
2. BDB Company — Department B
Production Cost Report
6-37
Chapter 06 – Process Costing
6-48 Weighted Average Process Costing; Spoilage (50 min)
1.
6-48 (continued -1)
6-38
2. The new capacity will allow the company to grow which is positive
for future revenues and profits, but it also has apparently caused two
significant problems. One is the increase in work-in-process
inventory, which is costly and can lead to waste, especially since the
product is paint. The quality of paint can erode if not properly sealed
and stored. Another is the significant amount of waste, 1,000
spoiled gallons of paint, one half of which was abnormal spoilage. It
is possible that the new process created some changes in equipment
and/or operations which led to increased human or machine error,
and thus the spoilage. Together with the increased work-in-process
inventory, this is a significant concern. Also, the company’s strategy
and perhaps make some significant changes.
3. The spoiled paint could be an environmentally harmful chemical, and
if so, should be disposed of in an environmentally appropriate way.
This could be costly to the company, and the cost should be captured
6-39
Education.
Chapter 06 – Process Costing
6-49 Spoilage; Weighted-Average Method;
Transferred-in Costs (40 Min)
1.
a. Normal amount of defective or spoiled bikes
Bikes passing through assembly 48,000
Less:
Bikes not inspected during current year
Beginning work-in-process inventory
(inspected in prior year – 80% complete) 3,000
Ending work-in-process inventory
b. Abnormal amount of defective/spoiled bikes
Total bikes lost 4,000
Normal amount of defective/spoiled bikes 2,050
6-40
Education.