Chapter 20
Process Cost Accounting
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
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
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”
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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 Goods in
10. After all labor costs have been allocated to Goods in Process Inventory accounts
and/or Factory Overhead, the Factory Payroll 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
15. Yes. Polaris might use process costing to determine the cost of manufacturing a
16. Likely processing steps for the snowmobiles include making the frame, assembly,
QUICK STUDIES
Quick Study 20-1 (5 minutes)
1. Job order operation
2. Process operation
3. Process operation
4. Job order operation
Quick Study 20-2 (10 minutes)
1.
Raw Materials Inventory ………………………………………..
62,000
Cash ………………………………………………………………..
62,000
Purchase of raw materials inventory.
2.
Goods in Process Inventory …………………………………..
50,000
Raw Materials Inventory …………………………………..
50,000
Direct materials used in production.
Quick Study 20-3 (10 minutes)
1.
Factory Payroll ………………………………………………….…..
135,000
Cash ………………………………………………………………..
135,000
To record factory payroll costs.
2.
Goods in Process Inventory …………………………………..
125,000
Factory payroll …………………………………………….…..
125,000
Direct labor used in production.
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Quick Study 20-4 (15 minutes)
1.
Factory Overhead ……………………………………………..…..
9,000
Raw Materials Inventory …………………………………..
9,000
To record indirect materials used in production.
2.
Factory Overhead ……………………………………………..…..
10,000
Factory Payroll …………………………………………….…..
10,000
To record indirect labor used in production.
3.
Factory Overhead ……………………………………………..…..
156,000
Other accounts …………………………………………..…..
156,000
To record other overhead costs.
4.
Goods in Process Inventory …………………………………..
175,000
Factory Overhead ……………………………………….…..
175,000
To record overhead applied ($125,000 x 140%).
Quick Study 20-5 (10 minutes)
Finished Goods Inventory ……………………………………..
275,000
Goods in Process Inventory …………………………..
275,000
Transfer of goods from production.
Quick Study 20-6 (10 minutes)
Equivalent units under the weighted-average method
Equivalent
EUP for Labor
Units
Units completed and transferred out (340,000 x 100%) …………………
340,000
Units of ending goods in process
Labor (120,000 x 25%) ………………………………………………………………
30,000
Equivalent units of production …………………………………………………….
370,000
Quick Study 20-7 (5 minutes)
The cost of beginning inventory plus the costs added during the period
Quick Study 20-8 (10 minutes)
The auto garage can use a process cost system for routine, repetitive
Quick Study 20-9 (15 minutes)
Equivalent units under the FIFO method
Equivalent
EUP for Labor
Units
Equivalent units to complete beginning work in process
(150,000 x 20%) ……………………………………………………….……………………..
30,000
Equivalent units started and completed* …………………………………………..
190,000
Equivalent units in ending goods in process (120,000 x 25%) ….………..
30,000
Total equivalent units of production ………………………………………..………..
250,000
* Units completed – Units in beginning work in process = Units started and completed
340,000 – 150,000 = 190,000
Quick Study 20-10 (5 minutes)
Quick Study 20-11 (5 minutes)
The process cost summary sections are Costs Charged to Production,
Equivalent Units of Production, and Cost Assignment and Reconciliation.
Quick Study 20-12 (5 minutes)
If the company is successful in reducing water usage, its raw materials
cost (water) should decline. Likewise, assuming water used in its cleaning
Quick Study 20-13 (5 minutes)
Quick Study 20-14 (10 minutes)
Equivalent units under the weighted-average method
Equivalent
EUP for Labor
Units
Units completed and transferred out (680,000 x 100%) …………………
680,000
Units of ending goods in process
Direct labor (240,000 x 75%) ……………………………………………………..
180,000
Equivalent units of production …………………………………………………….
860,000
Quick Study 20-15 (15 minutes)
Equivalent units under the FIFO method
Equivalent
EUP for Labor
Units
Equivalent units to complete beginning work in process
(320,000 x 75%) ……………………………………………………….……………………..
240,000
Equivalent units started and completed* …………………………………………..
360,000
Equivalent units in ending goods in process (240,000 x 75%) ….………..
180,000
Total equivalent units of production ………………………………………..………..
780,000
* Units completed – Units in beginning work in process = Units started and completed
680,000 – 320,000 = 360,000
EXERCISES
Exercise 20-1 (10 minutes)
Exercise 20-2 (25 minutes)
1.
Raw Materials Inventory …………………………………..……
80,000
Accounts Payable ……………………………………………
80,000
Purchased materials on credit.
2.
Goods in Process Inventory ……………………………..……
42,000
Raw Materials Inventory ……………………………..……
42,000
Used direct materials in production.
3.
Factory Overhead …………………………………………….……
22,500
Raw Materials Inventory ……………………………..……
22,500
Used indirect materials.
Exercise 20-3 (10 minutes)
1.
Factory Payroll ………………………………………………..……
95,000
Cash ………………………………………………………….……
95,000
Incurred direct labor costs.
2.
Goods in Process Inventory ……………………………..……
75,000
Factory Payroll …………………………………………..……
75,000
Used direct labor in production.
3.
Factory Overhead …………………………………………….……
20,000
Factory Payroll …………………………………………..……
20,000
Used indirect labor in production.
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Exercise 20-4 (5 minutes)
1.
Factory Overhead …………………………………………….……
38,750
Cash ………………………………………………………….……
38,750
Incurred overhead costs.
2.
Goods in Process Inventory ……………………………..……
82,500
Factory Overhead ……………………………………….……
82,500
Applied overhead: $75,000 x 110%
Exercise 20-5 (5 minutes)
1.
Finished Goods Inventory ………………………………………
135,600
Goods in Process Inventory ………………………..…
135,600
Transfer goods from production to finished goods.
2.
Accounts Receivable ………………………………………..……
315,000
Sales …………………………..……………………………………
315,000
Sale of goods on credit.
Cost of Goods Sold …………………………………………..……
175,000
Finished Goods Inventory …………………………………
175,000
Record cost of goods sold.
Exercise 20-6 (25 minutes)
1.
Oct. 31
Goods in Process Inventory …………………………..
522,000
Raw Materials Inventory …………………………..
522,000
Direct materials used in production.
2.
Oct. 31
Goods in Process Inventory …………………………..
130,000
Factory Payroll ……………………………………….……….
130,000
Direct labor used in production.
3.
Oct. 31
Goods in Process Inventory …………………………..
227,500
Factory Overhead …………………………………………….
227,500
Overhead applied: $130,000 x 175%
Exercise 20-6 (continued)
4.
Oct. 31
Finished Goods Inventory …………………………….……….
595,000
Goods in Process Inventory …………………….…….
595,000
Transfer goods from production to finished
goods.
5.
Oct. 31
Accounts Receivable …………………………………….……….
950,000
Sales ……………………………………………………….
950,000
Sales on credit.
Oct. 31
Cost of Goods Sold …………………………..………….……….
540,000
Finished Goods Inventory ……………………….….
540,000
Record cost of sales.
Exercise 20-7 (25 minutes)
a. Purchased raw materials on credit at a cost of $52,000.
b. Used direct materials costing $42,000 in production.
j. Sold products on credit for $250,000. Their accumulated cost is
$100,000.
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Exercise 20-8 (20 minutes)
1.
Units in beginning inventory …………………………………..
60,000
Units started and completed …………………………………..
240,000
Total units transferred to finished goods ………………..
300,000
2.
Equivalent units of production – weighted average
Equivalent Units of Production
Direct
Direct
Materials
Labor
Units completed & transferred out (300,000 x 100%) ………..
300,000
300,000
Units of ending goods in process
Direct materials, 82,000 x 80% ……………………………….……..
65,600
Direct labor, 82,000 x 30% ……………………………………..……..
_______
24,600
Equivalent units of production ………………………………………..
365,600
324,600
Exercise 20-9 (25 minutes)
1.
Cost per equivalent unit – Weighted average
Direct
Materials
Direct
Labor
Costs of beginning goods in process ………………………
$118,840
$ 47,890
Costs incurred this period ……………………………………….
850,000
650,000
Total costs ……………………………………………………………..
$968,840
$697,890
÷ Equivalent units of production (from Ex. 20–8) ………
365,600
324,600
Cost per equivalent unit of production …………………….
$2.65 per
EUP
$2.15 per
EUP
2. Cost Assignment and Reconciliation – weighted average
Costs of units transferred out
Direct materials (300,000 EUP x $2.65 per EUP) ……
$795,000
Direct labor (300,000 EUP x $2.15 per EUP) ………….
645,000
Total costs transferred out ……………………………………..
$1,440,000
Costs of ending goods in process
Direct materials (65,600 EUP x $2.65 per EUP) ……..
173,840
Direct labor (24,600 EUP x $2.15 per EUP) ……………
52,890
Total costs of ending goods in process ………………….
226,730
Total costs accounted for* ……………………………………..
$1,666,730
*Equals costs to account for of $1,666,730 ($968,840 + $697,890)
Exercise 20-10 (20 minutes)
Equivalent units of production—FIFO
Direct
Direct
Equivalent units of production
Materials
Labor
Units to complete beginning goods in process
Direct materials (60,000 x 40%) …………………………...
24,000
Direct labor (60,000 x 60%) ………………………………….
36,000
Units started and completed …………………………………
240,000
240,000
Units in ending work in process
Direct materials (82,000 x 80%) …………………………...
65,600
Direct labor (82,000 x 30%) ………………………………….
_______
24,600
Equivalent units of production ……………………………..
329,600
300,600
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Exercise 20-11 (25 minutes)
1. Cost per equivalent unit of direct materials and direct labor—FIFO
Direct
Direct
Materials
Labor
Costs incurred this period …………………………………….
$850,000
$650,000
÷ Equivalent units of production (from Ex. 20–10) ….
329,600
300,600
Cost per equivalent unit of production (rounded) ……
$2.58 per
EUP
$2.16 per
EUP
2. Assignment of costs to output of department—FIFO
Costs of goods transferred out
Cost of beginning goods in process inventory
Direct materials ………………………………………………….
$118,840
Direct labor ………………………………………………………..
47,890
$ 166,730
Costs to complete beginning goods in process
Direct materials (24,000 EUP x $2.58 per EUP) …….
61,920
Direct labor (36,000 EUP x $2.16 per EUP) …………..
77,760
Total costs to complete ………………………………………
139,680
Cost of units started and completed this period
Direct materials (240,000 EUP x $2.58 per EUP) …..
619,200
Direct labor (240,000 EUP x $2.16 per EUP) …………
518,400
Total cost of units started and completed ……………
1,137,600
Total costs of goods transferred out……………………..
1,444,010
Cost of ending goods in process inventory
Direct materials (65,600 EUP x $2.58 per EUP) …….
169,248
Direct labor (24,600 EUP x $2.16 per EUP) …………..
53,136
Total costs of ending goods in process ………………
222,384
Total costs accounted for ……………………………………..
$1,666,394
*Equals costs to account for of $1,666,730 after a rounding difference of $336.
Exercise 20-12 (30 minutes)
1. Beginning inventory is 100% complete with respect to materials.
Ending inventory is 100% complete with respect to materials.
EUP for Materials
Goods completed (80,000 EUP x 100%) ………………………………
80,000
Ending goods in process (16,000 EUP x 100%) ……………………
16,000
Total EUP …………………………………………………………………………..
96,000
2. Beginning inventory is 50% complete with respect to materials.
Ending inventory is 75% complete with respect to materials.
Units of
EUP for Materials
Product
Goods completed (80,000 EUP x 100%) ………………………………
80,000
Ending goods in process (16,000 EUP x 75%) ……………………..
12,000
Total EUP …………………………………………………………………………..
92,000
3. Beginning inventory is 50% complete with respect to materials.
Ending inventory is 50% complete with respect to materials.
Units of
EUP for Materials
Product
Goods completed (80,000 EUP x 100%) ………………………………
80,000
Ending goods in process (16,000 EUP x 50%) ……………………..
8,000
Total EUP …………………………………………………………………………..
88,000
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Exercise 20-13 (30 minutes)
1. Beginning inventory is 100% complete with respect to materials.
Ending inventory is 100% complete with respect to materials.
EUP for Materials
To complete beginning work in process (24,000 EUP x 0%) …..….
0
Units started and completed (56,000 EUP x 100%) ………………..….
56,000
Ending goods in process (16,000 EUP x 100%) ……………………..….
16,000
Total EUP …………………………………………………………………………….….
72,000
2. Beginning inventory is 50% complete with respect to materials.
Ending inventory is 75% complete with respect to materials.
Units of
EUP for Materials
Product
To complete beginning work in process (24,000 EUP x 50%) …….
12,000
Units started and completed (56,000 EUP x 100%) ………………..….
56,000
Ending goods in process (16,000 EUP x 75%) ……………………….….
12,000
Total EUP …………………………………………………………………………….….
80,000
3. Beginning inventory is 50% complete with respect to materials.
Ending inventory is 50% complete with respect to materials.
Units of
EUP for Materials
Product
To complete beginning work in process (24,000 EUP x 50%) …….
12,000
Units started and completed (56,000 EUP x 100%) ………………..….
56,000
Ending goods in process (16,000 EUP x 50%) ……………………….….
8,000
Total EUP …………………………………………………………………………….….
76,000
Exercise 20-14 (20 minutes)
Production
Warehouse
Key to solution of flowchart
To solve this problem, the missing items must be solved in reverse order: 4,3,2,1
(4)
Cost of goods available for sale
$ ?
Ending finished goods inventory
– 22,500
Cost of goods sold
$231,900
[Cost of goods available for sale] – $22,500 = $231,900
Therefore, cost of goods available for sale = $254,400
(3)
Beginning finished goods inventory
$ 18,000
Plus cost of goods transferred to finished goods
+ ?
Cost of goods available for sale
$254,400
$18,000 + [Goods transferred to finished goods] = $254,400
Therefore, Goods transferred to finished goods = $236,400
(2)
Total costs in process in production
$ ?
Less ending goods in process
– 6,000
Costs transferred to finished goods
$236,400
[Total costs in process] – $6,000 = $236,400
Therefore, Total costs in process = $242,400
Beginning Goods
in Process
Direct
Materials
Direct
Labor
Factory
Overhead
(2) $242,400
Costs transferred
to Finished Goods
(3) $236,400
Beginning Finished
Cost of Goods Available
Ending Finished
Goods Inventory
$22,500
$231,900