Topic Focus 2 – Focus on Process Costing
T2-1
Focus on Process Costing
Learning Objectives
1. Identify the kinds of companies that use process costing systems.
system.
3. Calculate and explain equivalent units of production.
4. Assign costs to completed units and ending work-in-process inventory.
Summary of End of Chapter Material
Difficulty: E = Easy, M = Moderate, D = Difficult
Bloom: K = Knowledge, C = Comprehension, AP = Application, AN = Analysis, S = Synthesis, E = Evaluation
AACSB: A = Analytic, C = Communication, E = Ethics
AICPA FN: DM = Decision modeling, RA = Risk Analysis, M = Measurement, R = Reporting, RS = Research, T = Technology
AICPA PC: C = Communication, I = Interaction, L = Leadership, P = Professional demeanor, PM = Project Management,
PS = Problem Solving and Decision Making, T = Technology
IMA: BA = Business applications, BP = Budget Preparation, CM = Cost Management, DA = Decision Analysis,
PM = Performance Measurement, R = Reporting, SP = Strategic Planning
Item
L. O.
Difficulty
Level
Minutes to
Complete
Bloom’s
Taxonomy
AACSB
AICPA
PC
IMA
Ethics
Coverage
GUIDED UNIT PREPARATION
1
1
E
5-7
K
A
PS
CM
2
2
E
2
K
A
PS
CM
3
3
E
5
K
A
PS
CM
4
3
M
5
C
A
PS
CM
5
4
M
3
K
A
PS
CM
6
4
M
3
K
A
PS
CM
EXERCISES
T2-1
1
M
9
C
A
PS
CM
T2-2
2
M
14
AN
A
PS
CM
T2-3
2
M
14
AN
A
PS
CM
T2-4
3
E
4
AP
A
PS
CM
T2-5
3
M
12
AP
A
PS
CM
T2-6
4
M
15
AP
A
PS
CM
T2-7
4
D
15–18
AP
A
PS
CM
PROBLEMS
T2-8
2
D
18–20
AP
AN
PS
BP
T2-9
3, 4
D
20–25
AP
AN
PS
BP
T2–10
3, 4
M
12–15
AP
AN
PS
BP
CASES
T2–11
2, 3, 4
D
35–40
E, AP, AN
A
PS
CM
Topic Focus
2
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T2-2
SOLUTIONS TO GUIDED UNIT PREPARATION
1. Similarities: Both are costing systems with the objective of
accumulating and assigning product costs (materials, labor, and
similar manner.
Differences: Process costing is used for products that are mass–
2. Conversion costs are the costs of direct labor and overhead needed
to convert raw materials into products.
3. Equivalent units (EU) are “as if” the work–in-process was converted to
are still in process at the end of a period. Otherwise, there is no way
that costs could be assigned to both.
4. Sometimes work in process is further along with respect to the
because all materials were added at the beginning of the process.
the dough into cookies.
5. The total cost assigned to the units transferred out of work in process
costs added during the period.
Topic Focus 2 – Focus on Process Costing
T2-3
6. Costs assigned to ending work in process = Cost per EU EU in
SOLUTIONS TO EXERCISES
Exercise T2-1
Product/Service
Process
Costing
Job Order
Costing
A completed tax return
x
A box of Kellogg’s Frosted Flakes®
x
A gallon of gasoline
x
Legal representation
x
Knee surgery
x
A bottle of Coca-Cola®
x
A roll of newsprint paper
x
A custom-built home
x
A bottle of Robitussin® cough syrup
x
Solutions for Davis & Davis, Managerial Accounting, 2nd ed.
T2-4
Exercise T2-2
Raw Materials Inventory
Beginning balance
150,000
Materials purchased
805,000
Direct materials used
$800,000
Ending balance
(a) 155,000
WIP-Department 1
Beginning balance
60,000
Direct materials used
630,000
Conversion costs incurred
516,000
Transfers of completed units
1,100,000
Ending balance
(b) 106,000
WIP-Department 2
Beginning balance
51,000
Direct materials used
(c)* 170,000
Conversion costs incurred
180,000
Transfers of completed units
(d) 1,100,000
1,470,000 (e)
Ending balance
31,000
630,000)
Finished Goods
Inventory
Beginning balance
250,000
Transfers of completed units
(f) 1,470,000
1,570,000 (g)
Ending balance
150,000
Topic Focus 2 – Focus on Process Costing
T2-5
Exercise T2-3
Raw Materials Inventory
Beginning balance
(a) 46,000
Materials purchased
250,000
Direct materials used
$280,000 (b)
Ending balance
16,000
WIP-Department 1
Beginning balance
36,000
Direct materials used
200,000
Conversion costs incurred
85,000
Transfers of completed units
300,000 (d)
Ending balance
(c) 21,000
WIP-Department 2
Beginning balance
13,000
Direct materials used
80,000
Conversion costs incurred
(e) 105,000
Transfers of completed units
300,000
490,000 (f)
Ending balance
8,000
Finished Goods
Inventory
Beginning balance
63,000
Transfers of completed units
(g) 490,000
512,000
Ending balance
41,000
T2-6
Exercise T2-4
b. Completed and transferred out 12,000
Exercise T2-5
a.
Units
Beginning Inventory, April 1
8,000
Added to production
+ 45,000
Completed and transferred out
– x
= 48,000
Ending inventory, April 30
= 5,000
Topic Focus 2 – Focus on Process Costing
T2-7
Exercise T2-6
a.
Materials
Beginning inventory, April 1
$11,000
Added to production
66,380
Total materials cost
$77,380
Equivalent units
53,000
Materials cost per EU
$1.46
b.
Conversion
Beginning inventory, April 1
$ 17,160
Added to production
104,000
Total materials cost
$121,160
Equivalent units
52,000
Conversion cost per EU
$2.33
d. Materials (5,000 EU $1.46) $7,300