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Chapter 5 Process Costing
(continued) P5-54B
Colorado Furniture Company
Sawing Department
Cost per Equivalent Unit
Month Ended September 30
Cost per Equivalent Unit:
Direct Materials
Conversion Costs
Total
Beginning work in process, Sept. 1
$ 0
$ 0
$ 0
Costs added during September
1,855,000
342,500 a
$2,197,500
Total costs to account for
$1,855,000
$342,500
$2,197,500
Divide by total equivalent units
÷ 17,500
÷ 17,125
Cost per equivalent unit
$ 106
$ 20
a$139,000 + $203,500 = $342,500
Req. 3
Colorado Furniture Company
Sawing Department
Assign Costs
Direct
Materials
Conversion Costs
Total
a) Completed and transferred out:
Equivalent units completed and transferred out
16,000
16,000
Multiply by: Cost per equivalent unit
x $ 106
x $ 20
Cost assigned to units completed and transferred out
$ 1,696,000
$ 320,000
$2,016,000
b) Ending work in process inventory:
Equivalent units in ending WIP
1,500
1,125
Multiply by: Cost per equivalent unit
x $ 106
x $ 20
Cost assigned to units in ending WIP
$159,000
$ 22,500
$181,500
Total costs to account for
$2,197,500
Total cost accumulated in the Sawing Department during September are the same as the Total Costs to account for
shown in Req. 2:
Direct materials…………………………...
$1,855,000
Direct labor………………………………...
139,000
Manufacturing overhead………………..
203,500
Total costs…………………………………
$2,197,500
Managerial Accounting 4e Solutions Manual
(continued) P5-54B
Req. 4
Journal
DATE
ACCOUNT TITLE AND EXPLANATION
POST.
REF.
DEBIT
CREDIT
Work in Process Inventory—Sawing
2,197,500
Raw Materials Inventory
1,855,000
Manufacturing Wages
139,000
Manufacturing Overhead
203,500
To journalize the direct materials, direct
labor, and manuf. overhead to the
Sawing Department.
Work in Process Inventory—Assembly
2,016,000
Work in Process Inventory—Sawing
2,016,000
To transfer costs of units completed to
Assembly Department.
Note: Students may prepare three separate journal entry or the one summary journal entry (as shown above) to
record the three manufacturing costs.
(30-40 min.) P5-55B
Req. 1
Chicken and Green
cream peppers and
Chapter 5 Process Costing
(continued) P5-55B
Req. 2
Value World
Mixing Department
Flow of Physical Units and Computation of Equivalent Units
Month Ended November 30
Flow of
Physical Units
Equivalent Units
Flow of Production
Chicken,
Cream
Green Peppers,
Mushrooms
Conversion
Costs
Units to account for:
Beginning work in process, Nov. 1
0
Started in production
13,900
Total physical units to account for
13,900
Units accounted for:
Completed and transferred out
13,300
13,300
13,300
13,300
Ending work in process, Nov. 30
600
600a
0a
330b
Total physical units accounted for
13,900
Total equivalent units
13,900
13,300
13,630
__________
Managerial Accounting 4e Solutions Manual
(continued) P5-55B
Req. 4
Value World
Mixing Department
Assignment of Costs
Assign costs
Chicken and
Cream
Green
Peppers &
Mushrooms
Conversion
Costs
Total
Completed and transferred out:
Equivalent units completed and transferred out
13,300
13,300
13,300
Multiply by: Cost per equivalent unit
x $1.10
x $0.30
x $1.50
Cost assigned to units completed and transferred out
14,630
$3,990
$19,950
$ 38,570
Ending work in process inventory:
Equivalent units in ending WIP
600
0
330
Multiply by: Cost per equivalent unit
x $1.10
x $0.30
x $1.50
Cost assigned to units in ending WIP
$ 660
$0
$495
$1,155
Total costs accounted for
$39,725
(45-60 min.) P5-56B
Req. 1
Transferred Direct
Chapter 5 Process Costing
(continued) P5-56B
Req. 2
Metal Accessories
Plating Department
Equivalent Unit Computations (Weighted-Average)
Flow of
Equivalent Units
Flow of Production
Physical Units
Transferred
In
Direct Materials
Conversion
Costs
Completed and transferred out during March
2,200
2,200
2,200
2,200
Ending work in process, March 31
1,400
1,400a
0b
700c
Total physical units accounted for
3,600
Total equivalent units
3,600
2,200
2,900
__________
a The time line shows that transferred-in costs are incurred at
the beginning of the plating process. Ending inventory was started this period, so it did pass the point where
transferred-in costs are added. The ending inventory is therefore complete with respect to transferred-in costs.
b The time line shows that direct materials are not added until the end of the plating process. The ending inventory is
only 50% of the way through the plating process, so it has not yet incurred any plating direct materials costs.
Managerial Accounting 4e Solutions Manual
(continued) P5-56B
Metal Accessories
Plating Department
Production Cost Report
Assign costs
Transferred-
in Costs
Direct
Materials
Conversion
Costs
Total
Completed and transferred out:
Equivalent units completed and transferred out
2,200
2,200
2,200
Multiply by: Cost per equivalent unit
x $15
x $14
x $27
Cost assigned to units completed and transferred out
$33,000
$30,800
$59,400
$ 123,200
Ending work in process inventory:
Equivalent units in ending WIP
1,400
0
700
Multiply by: Cost per equivalent unit
x $15
x $14
x $27
Cost assigned to units in ending WIP
$ 21,000
$0
$ 18,900
$39,900
Total costs accounted for
$163,100
Req. 3
Journal Entry
DATE
ACCOUNT TITLE AND EXPLANATION
POST.
REF.
DEBIT
CREDIT
Work in Process Inventory—Plating
36,000
Work in Process Inventory—Shaping
36,000
To transfer in costs from Shaping
Department.
Work in Process Inventory—Plating
95,620
Raw Materials Inventory
30,800
Wages Payable
23,470
Manufacturing Overhead
41,350
To requisition materials and assign
conversion costs to the Plating
Department.
Finished Goods Inventory
123,200
Work in Process Inventory—Plating
123,200
To transfer cost of units completed to
finished goods.
Note: Students may have prepared three separate journal entries, rather than the one summary entry shown above, to
Managerial Accounting 4e Solutions Manual
(continued) P5-57B
Req. 5
The monthly operating income that would provide a 2% rate of return is:
Monthly return on investment
=
Monthly operating income
Investment
2%
=
Monthly operating income
$400,000
Monthly operating income
=
$400,000
×
2%
=
$8,000
To achieve a 2% rate of return, Jimmy’s Cricket Farm must charge a price that provides enough gross profit to cover
operating expenses of $2,000 and then provide $8,000 in operating income. This requires a gross profit of $10,000.
Gross profit
=
(Selling price per box - Cost per box)
×
Boxes sold
$10,000
=
(Selling price per box - $12.40)
×
19,000
$10,000
=
Selling price per box - $12.40
19,000
$0.5263*
=
Selling price per box - $12.40
$0.5263* + $12.40
=
Selling price per box
$12.93*
=
Selling price per box
*Rounded
Copyright © 2015 Pearson Education, Inc.
5-63
A5-58
1. What characteristics of the product or manufacturing process would lead a company to use a process costing
system?
A company that uses a series of steps or processes to make large quantities of identical units would use a process
costing system.
2. How are process costing and job costing similar? How are they different?
Process Costing and job costing are similar in these respects:
3. What are conversion costs? In a job costing system, at least some conversion costs are assigned directly to
4. Why not assign all costs of production during a period to only the completed units?
Some costs of production are included in the goods that were started but not completed.
What happens if a company does this?
Managerial Accounting 4e Solutions Manual
Copyright © 2015 Pearson Education, Inc.
5-64
If a company uses a just-in-time inventory system, they would not have any ending inventory. In that case, all the
costs of production would be assigned to the completed goods.
5. What information generated by a process costing system can be used by management? How can management
use this process costing information?
6. Why are the equivalent units for direct materials often different from the equivalent units for conversion costs
costs.
7. Describe the flow of costs in a process costing system. List each type of journal entry that would be made and
describe the purpose of that journal entry.
The flow of costs in a process costing system is similar to the flow of costs in a job order costing system. The main
difference is that direct materials, direct labor, and manufacturing overhead are assigned to processing
departments rather than jobs. In addition, a journal entry must be made at the end of the month to transfer costs
8. If a company has very little or no inventory, what effect does that lack of inventory have on its process costing
system?
The process costing system is easier to use because there is no need for determining equivalent units and
Managerial Accounting 4e Solutions Manual
Application & Analysis
A5-59
2. Summarize the production process.
Truckloads of russet potatoes arrive at the manufacturing plant where they are first scrubbed, then crinkle sliced
3. Justify why you think this production process would dictate the use of a process costing system.
4. List at least two separate processes that are performed in creating this product.
One process is scrubbing the potatoes and another is slicing the unpeeled potatoes.
5. Describe at least one department that would have ending work in process. What do the units look like as they
are “in process”?
Chapter 5 Process Costing
1. The ethical issues in this situation are:
a. Competence: “Perform professional duties in accordance with relevant laws, regulations, and technical
standards.” By changing the inventory records to show more inventory than actually exists, Quito is violating
2. Recording more units than are actually in inventory would impact the 2014 balance sheet and income statement
by having the starting inventory overreported.
3. He should bring up his concerns about the bonuses and losing employees to the supervisory staff members above
1. Which product(s) manufactured by Polly Products would use elements of a process costing system? Give a
detailed description of why you think that product (or those products) would require a process costing system.
2. Within the process costing portion of the hybrid system at Polly Products, what costs would be considered to be
direct materials? What costs are likely to be in conversion costs in the process costing system? (Use your
3. Which products manufactured by Polly Products would be likely to use elements of a job costing system? Again,
4. Within the job costing portion of the hybrid system at Polly Products, which are the direct materials? What
would be direct labor? What costs are likely to be in manufacturing overhead?
