Chapter 5 Process Costing
Copyright © 2015 Pearson Education, Inc.
5-1
Chapter 5
Process Costing
Quick Check
Answers:
QC-1. c
QC-3. c
QC-5. d
QC-7. d
QC-9. a
QC-2. c
QC-4. a
QC-6. d
QC-8. b
QC-10. b
(5-10 min.) S5-1
Job Costing System
• Direct materials, direct labor, and manufacturing overhead are assigned to each job.
• Direct materials, direct labor, and manufacturing overhead flow into a single Work in Process Inventory
Managerial Accounting 4e Solutions Manual
(5 min.) S5-2
Work in Process Inventory — Shells
Beginning Balance
$ 18,100
Direct materials used
42,500
Direct labor
12,500
Manufacturing overhead allocated
17,000
Transferred in from Centers
126,900
Transferred to Packaging
196,200
Ending Balance
$ 20,800
Chapter 5 Process Costing
(5 min.) S5–5
Equivalent Units
Physical Units
Direct Materials
Conversion Costs
Units accounted for:
Completed and transferred out
116,300
a116,300
a116,300
Ending work in process, July 31
9,300
b0
c3,348
Total physical units accounted for:
125,600
Total equivalent units
116,300
119,648
__________
a116,000 = 116,300 physical units × 100% complete
b 0 = 9,300 physical units × 0% complete (direct materials are
added at the end of the process)
c 3,348 = 9,300 physical units × 36% complete with respect to
conversion costs
(5 min.) S5–6
1. The “units completed and transferred out” are completely finished in the Frying Department, otherwise they
2. All of the direct materials have been added, so they are 100% complete with respect to direct materials:
3. The total equivalent units for the month are calculated as follows:
Equivalent Units
Direct Materials
Conversion Costs
Completed and transferred out during March
1,200,000
1,200,000
Ending work in process, March. 31
110,000
74,800
Total equivalent units
1,310,000
1,274,800
Managerial Accounting 4e Solutions Manual
(5 min.) S5-7
MacIntyre Company
Month Ended May 31
Direct
Materials
Conversion Costs
Total
Beginning Work in Process, May 1
$ 43,000
$ 25,000
$ 68,000
Costs added during May
103,000
a162,000
265,000
Total costs to account for
$146,000
$187,000
$333,000
__________
a Conversion costs ($162,000) = direct labor ($12,000) +
manufacturing overhead ($150,000)
(5 min.) S5–8
Mixing Department
Cost per Equivalent Unit
Direct Materials
Conversion Costs
Total costs to account for
$255,927
a$472,680
÷ Total equivalent units
÷ 52,230
÷ 45,450
Cost per equivalent unit
$ 4.90
$ 10.40
Beginning work in process, October 1
Costs added during October
Divide by total equivalent units
Managerial Accounting 4e Solutions Manual
(5-10 min.) S5–12
1a.
Donahue Corp.
Assignment of Costs
Assign costs
Transferred-
in Costs
Direct
Materials
Conversion
Costs
Total
Completed and transferred out:
Equivalent units completed and transferred out
69,000
69,000
69,000
Multiply by: Cost per equivalent unit
x $2.84
x $0.75
x $1.56
Cost assigned to units completed and transferred out
$ 195,960
$ 51,750
$107,640
$355,350
1b.
Donahue Corp.
Assignment of Costs
Assign costs
Transferred-in
Costs
Direct Materials
Conversion
Costs
Total
Ending work in process inventory:
Equivalent units in ending WIP
9,000
8,400
4,400
Multiply by: Cost per equivalent unit
x $2.84
x $0.75
x $1.56
Cost assigned to units in ending WIP
$ 25,560
$ 6,300
$ 6,864
$ 38,724
2. The “Total costs accounted for” is $394,074 ($355,350 + $38,724).
The “Total costs accounted for” figure must match the “Total costs to account for” figure.
1. The company’s cost per square foot of making one unit is $4.50 ($2.44 + $0.40 + $1.66)
3.
Sales price per square foot
$13.00
Less: Cost per square foot
(4.50)
Gross profit per square foot
$ 8.50
4.
Square feet sold
165,000
Gross profit per square foot
× $8.50
Total gross profit
$1,402,500
Chapter 5 Process Costing
(10 min.) S5–14
Req. 1
Direct labor
+
Manufacturing overhead
=
Conversion costs
$21,780 ($10,280 +
$11,500)
+
$25,500
=
$47,280
Req. 2
Total filtration costs
÷
Total number of liters
=
Average filtration cost per liter
$166,180 ($10,280 +
$11,500 + $25,500 +
$118,900)
÷
205,000
=
$0.81 (rounded)
Req. 3
If only 165,000 liters were completely filtered and ozonated, the remaining 40,000 were incomplete, the cost of a
completely filtered and ozonated liter would be more the average filtration cost per liter calculated in Requirement 2.
This is because a decrease in the denominator of the formula will result in a greater cost per liter.
(10 min.) S5–15
Req. 1
Filtration Process
……………………… Conversion costs added evenly throughout process
Managerial Accounting 4e Solutions Manual
(continued) S5–15
Req. 2
Crystal Springs
Filtration Department
Flow of Physical Units and Computation of Equivalent Units
Equivalent Units
Flow of Production
Flow of Physical
Units
Direct Materials
Conversion Costs
Units to account for:
Beginning work in process, May 1
0
Started in production during May
205,000
Total physical units to account for
205,000
Units accounted for:
Completed and transferred out during May
165,000
165,000
165,000
Ending work in process, May 31
40,000
a40,000
b32,000
Total physical units accounted for
205,000
Equivalent Units
205,000
197,000
__________
a The ending inventory is 80% of the way through the filtration
process, so it has passed the point where water is added. The
ending inventory therefore has 40,000 equivalent units of
water (direct materials).
b40,000 units × 80% complete as to conversion work = 32,000
equivalent units.
(5 min.) S5–16
Crystal Springs
Filtration Department
Cost per Equivalent Unit
Flow of Production
Direct Materials
Conversion Costs
Beginning work in process, February 1
$ 0
$ 0
Costs added during February
118,900
47,280
Total Costs to account for
$ 118,900
$ 47,280a
Divide by total equivalent units (from Req. 2)
÷ 205,000
÷ 197,000
Cost per equivalent unit
$ 0.58
$ 0.24
__________
a $10,280 + $11,500 + 25,500 of wages and manufacturing
overhead
Chapter 5 Process Costing
(10 min.) S5–17
Reqs. 1 and 2
Crystal Springs
Filtration Department
Assign Costs
Direct
Materials
Conversion Costs
Total
Completed and transferred out:
Equivalent units completed and transferred out
165,000
165,000
Multiply by: Cost per equivalent unit
x $ 0.58
x $ 0.24
Cost assigned to units completed and transferred out
$ 95,700
$ 39,600
$135,300
Ending work in process inventory:
Equivalent units in ending WIP
40,000
32,000
Multiply by: Cost per equivalent unit
x $ 0.58
x $ 0.24
Cost assigned to units in ending WIP
$23,200
$ 7,680
$30,880
Total Costs to account for
$166,180
(5 min.) S5–18
(continues S5-17)
Req. 1
Journal
DATE
ACCOUNTS AND EXPLANATIONS
POST.
REF.
DEBIT
CREDIT
Work in Process Inventory—Bottling
135,300
Work in Process Inventory—Filtration
135,300
Req. 2
Work in Process Inventory−Filtration
Bal. May 1
Direct materials
0
118,900
Transferred to Bottling
135,300
Direct labor
21,780
Manufacturing overhead
25,500
Bal., May 31
30,880
Managerial Accounting 4e Solutions Manual
(15 min.) S5–19
Req. 1
Conversion costs added evenly throughout the process
Transferred Transferred
in from Direct out to
Chapter 5 Process Costing
Copyright © 2015 Pearson Education, Inc.
5-11
(continued) S5–19
The flow of physical units column and the footnoted explanations are not required. They are provided to help
instructors explain the computations.
(5-10 min.) S5–20
Crystal Springs
Bottling Department
Cost per Equivalent Unit
Transferred
In
Direct Materials
Conversion Costs
Total
Beginning work in process,
May 1
$ 2,780
$ 0
$ 2,552b
$ 5,332
Costs added during May
135,000
28,748
56,200a
219,948
Total costs to account for
$137,780
$28,748
$58,752
$225,280
Divide by total equivalent
units
÷ 172,000
÷ 152,000
÷ 168,000
Cost per equivalent unit (rounded)
$ 0.80
$ 0.19
$ 0.35
__________
a $33,800 of direct labor + $22,400 of manufacturing overhead =
$56,200
b $560 + $1,992 = $2,552
(10 min.) S5–21
Crystal Springs
Bottling Department
Assignment of Costs
Assign costs
Transferred-
in Costs
Direct
Materials
Conversion
Costs
Total
Completed and transferred out:
Equivalent units completed and transferred out
152,000
152,000
152,000
Multiply by: Cost per equivalent unit
x $0.80
x $0.19
x $0.35
Cost assigned to units completed and transferred out
121,600
$28,880
$53,200
$ 203,680
Equivalent units completed and transferred out
Ending work in process inventory:
Equivalent units in ending WIP
20,000
0
16,000
Multiply by: Cost per equivalent unit
x $0.80
x $0.19
x $0.35
Cost assigned to units in ending WIP
$ 16,000
$ 0
$ 5,600
$21,600
Total costs accounted for
$225,280
Chapter 5 Process Costing
(5 min.) S5–23
1.
Dawn works in Accounting at White Star Consulting.
She does not disclose that one of the companies
bidding on a contract to provide payroll services for
White Star employs her daughter.
Integrity – Mitigate actual conflicts of interest,
regularly communicate with business associates
to avoid apparent conflicts of interest. Advise all
parties of any potential conflicts.
2.
This quarter, the company switched from using the
FIFO method of process costing to the weighted–
average method of process costing. Clarke, the chief
accountant, did not disclose the change in methods in
the reports because he did not want to have to justify
the change.
Credibility – Disclose all relevant information
that could reasonably be expected to influence
an intended user’s understanding of the
reports, analyses, or recommendations.
3.
Darla Cortez is an accountant at Green Manufacturing,
Inc. This past month, she guessed at the percentage of
completion rather than asking the plant manager what
the actual percentage of completion was. She figured it
wouldn’t matter and would just be a hassle to talk to
the plant manager.
Competence – Provide decision support
information and recommendations that are
accurate, clear, concise, and timely.
4.
At a party, Kelvin gets carried away with bragging about
the production process that he has helped to develop
at his company. A party-goer who works for a
competitor overhears.
Confidentiality – Keep information confidential
except when disclosure is authorized or legally
required.
5.
Process costing has always confused Amber, an
accountant for Griffith Corporation. At the end of the
year she just accepts the bookkeeper’s numbers for
ending inventory and cost of goods sold even though
the bookkeeper does not have formal training in
process costing.
Competence – Maintain an appropriate level of
professional expertise by continually developing
knowledge and skills.
Managerial Accounting 4e Solutions Manual
Exercises (Group A)
(15-20 min) E5-24A
Reqs. 1 and 2
Raw Materials Inventory
Beginning Balance
23,000
Direct materials purchased
178,000
Direct materials used in mixing
150,000
Direct materials used in packaging
34,000
Ending Balance
17,000
Direct materials used
150,000
Direct labor
11,800
Manufacturing overhead allocated
65,000
Transferred to baking
229,000
Ending Balance
10,200
Beginning Balance
Direct labor
Transferred in from Mixing
Transferred to Packaging
Ending Balance
Work in Process Inventory — Packaging Department
Beginning Balance
Direct materials used
Direct labor
Manufacturing overhead allocated
42,000
Transferred in from Baking
306,000
Ending Balance
13,100
Beginning Balance
Transferred in from Packaging
Ending Balance
$ 385,000
÷ 3,375,000
$ 0.11
Chapter 5 Process Costing
(10-15 min.) E5-25A
Chelsea’s Chocolate Pies
Flow of Physical Units and Computation of Equivalent Units
Equivalent Units
Flow of Physical Units
Direct Materials
Conversion Costs
Units to account for:
Beginning work in process, November 1
204,000
Started in production during November
1,015,000
Total physical units to account for
1,219,000
Units accounted for:
Completed and transferred out during November
b1,065,000
1,065,000
1,065,000
Ending work in process, November 30
154,000
c115,500
d123,200
Total physical units accounted for
a1,219,000
Total Equivalent Units
1,180,500
1,188,200
__________
a “Total physical units accounted for” must equal the “Total physical units to account for” (1,219,000) in the top half
of the schedule
b Back into this figure by subtracting the 154,000 units in ending work in
process inventory from the “Total physical units to account for” (1,219,000)
c 115,500 = 154,000 × 75%
d 123,200 = 154,000 × 80%
(10-15 min.) E5-26A
Note: Students may have filled out the chart, or they may have just given an answer for each lettered item.
Equivalent Units
Physical Units
Transferred–in
Direct Materials
Conversion Costs
Units to account for:
Beginning work in process
24,000
Transferred-in during May
232,000
Total units to account for
(a) 256,000
Units accounted for:
Completed and transferred out
(b) 227,000
(d) 227,000
(g) 227,000
(j) 227,000
Ending work in process
29,000
(e) 29,000
(h) 26,100
(k) 17,400
Total units accounted for:
(c) 256,000
Total Equivalent Units
(f) 256,000
(i) 253,100
(l) 244,400
Notes:
(b) 256,000 – 29,000 = 227,000
(h) 29,000 x 90% = 26,100
(k) 29,000 x 60% = 17,400
Managerial Accounting 4e Solutions Manual
(20 min.) E5-27A
Req. 1
Conversion costs added evenly throughout the process
Direct materials
Req. 2
The Lucy Paint Company
Blending Department
Flow of Physical Units and Computation of Equivalent Units
Flow of
Equivalent Units
Flow of Production
Physical
Units
Direct
Materials
Conversion
Costs
Units to account for:
Beginning work in process, May 1
0
Started in production during May
8,400
Total physical units to account for
8,400
Units accounted for:
Completed and transferred out during May
6,200
6,200
6,200
Ending work in process, May 31
2,200
2,200a
880b
Total physical units accounted for
8,400
Total equivalent units
8,400
7,080
__________
a The time line shows that all direct materials are added at the
beginning of the blending process, so the ending work in
process inventory is complete as to materials.
Chapter 5 Process Costing
(continued) E5-27A
Req. 3
The Lucy Paint Company
Blending Department
Cost per Equivalent Unit
Cost per Equivalent Unit:
Direct Materials
Conversion Costs
Total
Beginning work in process, May 1
$ 0
$ 0
$ 0
Costs added during May
5,460
2,832c
8,292
Total costs to account for
$5,460
$2,832
$8,292
Divide by total equivalent units (from Req. 2)
÷ 8,400
÷ 7,080
Cost per equivalent unit
$ 0.65
$ 0.40
__________
c$920 + $1,912 = $2,832
Req. 4
The Lucy Paint Company
Blending Department
Assign Costs
Direct
Materials
Conversion Costs
Total
a) Completed and transferred out:
Equivalent units completed and transferred out
6,200
6,200
Multiply by: Cost per equivalent unit
x $ 0.65
x $ 0.40
Cost assigned to units completed and transferred out
$ 4,030
$ 2,480
$6,510
b) Ending work in process inventory:
Equivalent units in ending WIP
2,200
880
Multiply by: Cost per equivalent unit
x $ 0.65
x $ 0.40
Cost assigned to units in ending WIP
$1,400
$ 352
$1,782
Total costs to account for
$8,292
Req. 5
The average cost per gallon transferred out of blending is:
$6,510
=
$1.05 per gallon
6,200 gallons
Managers will want to know this cost to compare it to their budgeted target costs. They may also use the cost
information when setting selling prices.
Managerial Accounting 4e Solutions Manual
(15 min.) E5-28A
(continues E5-27A)
Req. 1
Note: Students may prepare 3 separate journal entries or one summary entry (as shown below) to record the three
Chapter 5 Process Costing
(continued) E5-29A
e.
Work in Process Inventory—Assembly
6,900
Wages Payable
4,800
Manufacturing Overhead
2,100
f.
Work in Process Inventory—Finishing
10,900
Wages Payable
4,500
Manufacturing Overhead
6,400
g.
Work in Process Inventory—Finishing
10,550
Work in Process Inventory—Assembly
10,550
h.
Finished Goods Inventory
15,700
Work in Process Inventory—Finishing
15,700
(25-30 min.) E5-30A
Req. 1
Greaton Surge Protectors
Assembly Department
Flow of Physical Units and Computation of Equivalent Units
Flow of
Equivalent Units
Physical Units
Direct Materials
Conversion Costs
Completed and transferred out during September
20,000
20,000
20,000
Ending work in process, Sept. 30
7,000
a 2,520
5,600b
Total physical units accounted for
27,000
Total equivalent units
22,520
25,600
__________
a7,000 × 0.36
b7,000 × 0.80
Req. 2
Greaton Surge Protectors
Assembly Department
Cost Per Equivalent Unit
Direct Materials
Conversion Costs
Beginning work in process,
September 1
$ 0
$ 0
Costs added during September
12,386
38,400
Costs to account for
$ 12,386
$ 38,400
Divide by total equivalent units
(from Req. 1)
÷ 22,520
÷ 25,600
Cost per equivalent unit
$ 0.55
$ 1.50
Managerial Accounting 4e Solutions Manual
(continued) E5-30A
Req. 3
Great Surge Protectors
Assembly Department
Assign Costs
Direct
Materials
Conversion Costs
Total
a) Completed and transferred out:
Equivalent units completed and transferred out
20,000
20,000
Multiply by: Cost per equivalent unit
x $ 0.55
x $ 1.50
Cost assigned to units completed and transferred out
$ 11,000
$ 30,000
$41,000
b) Ending work in process inventory:
Equivalent units in ending WIP
2,520
5,600
Multiply by: Cost per equivalent unit
x $ 0.55
x $ 1.50
Cost assigned to units in ending WIP
$1,386
$ 8,400
$9,786
Total costs to account for
$50,876
Req. 4
Journal
DATE
ACCOUNTS AND EXPLANATIONS
POST.
REF.
DEBIT
CREDIT
Work in Process Inventory—Testing
41,000
Work in Process Inventory—Assembly
41,000
Req. 5
Work in Process Inventory—Assembly
Bal. September 1
0
Transferred to Testing
41,000
Direct materials
12,386
Conversion costs
38,400
Bal. September 30
9,786
(20 min.) E5-31A
Req. 1
Conversion costs added evenly throughout the process
Direct Transferred
materials out to
added Packaging
Start 80% 100%
Completion
6,420 gallons completed and transferred out