Wild and Shaw, Financial and Managerial Accounting 9e Solutions Manual: Chapter 16
1057
Problem 16-7BA (30 minutes)
1. Equivalent units of production: FIFO method
Direct Materials
Conversion
Units
Percent
Added
EUP
Percent
Added
EUP
Beginning work in process ……….
10,000
25%
2,500
40%
4,000
50%
2. Cost per equivalent unit of production: FIFO method
Direct Materials
Conversion
Costs added this period …………………………..
$ 223,200
$1,233,960
3.
Cost assignment—FIFO
EUP
Cost per EUP
_ Total Cost __
Beginning work in process ………………..
$ 114,520
To complete beginning work in process
Direct materials ……………………………….
2,500
$0.96
$ 2,400
Conversion ……………………………………..
4,000
$5.46
21,840
Direct materials ……………………………….
$0.96
Conversion ……………………………………..
$5.46
Completed and transferred out ………..
Direct materials ……………………………….
$0.96
Conversion ……………………………………..
$5.46
65,520
Wild and Shaw, Financial and Managerial Accounting 9e Solutions Manual: Chapter 16
1058
SERIAL PROBLEM — SP 16
1.
Direct Materials
Conversion
Units
Percent
Complete
EUP
Percent
Complete
EUP
40
40
20
2.
Cost per equivalent unit—Weighted-average
Direct
Materials
Conversion
Costs of beginning work in process ………………………..
$ 0
$ 0
Costs added this period ………………………………………….
÷ Equivalent units of production (from part 1) ………….
per EUP
per EUP
3.
Cost assignment—Weighted-average
EUP
Cost per EUP
Total Cost
Completed and transferred out
Direct materials
40
$400
$16,000
Conversion
40
$75
3,000
Ending work in process
Direct materials
20
$400
Conversion
16
$75
1,200
Wild and Shaw, Financial and Managerial Accounting 9e Solutions Manual: Chapter 16
COMPREHENSIVE PROBLEM
Comprehensive Problem, Major League Bat Company (110 minutes)
[Instructor note: General Ledger accounts are shown in Part 4.]
Part 1 (Using either weighted-average or FIFO)
July Journal Entries
Raw Materials Inventory ………………………………
125,000
Cash ………………………………………………………
Purchased raw materials for cash.
Work in Process Inventory …………………………...
52,440
Raw Materials Inventory ………………………….
52,440
Record use of direct materials.
Factory Overhead ………………………………………..
10,000
Raw Materials Inventory ………………………….
10,000
c.
Work in Process Inventory …………………………...
202,250
Factory Wages Payable ………………………….
202,250
Record direct labor.
Factory Overhead ………………………………………..
25,000
Factory Wages Payable ………………………….
25,000
Record indirect labor.
d.
Factory Overhead …………………………………………
66,125
Cash ……………………………………………………..
66,125
Paid other overhead with cash.
e.
Work in Process Inventory …………………………...
101,125
Factory Overhead …………………………………..
Allocated overhead at 50% of direct labor.
Wild and Shaw, Financial and Managerial Accounting 9e Solutions Manual: Chapter 16
1060
Comprehensive Problem (Continued)
Part 2 (Using weighted-average)
MAJOR LEAGUE BAT CO.
Production Cost Report (Weighted-Average)
For Month Ended July 31
Units to account for
Units accounted for
Beginning work in process …
5,000
Complete & transferred out …
11,000
Units started this period ……..
Equivalent Units of Production (EUP)
Direct Materials
Conversion
Units
% Complete
EUP
% Complete
EUP
Completed and transferred out
11,000
100%
11,000
100%
11,000
Ending work in process
8,000
100%
8,000
40%
3,200
Direct Materials
Cost of beginning work in process ……
Costs added this period ……………………
Total costs ……………………………………….
Cost per EUP ……………………………………
$21.75 per EUP
Cost Assignment
EUP
Cost per EUP
Total Cost
Completed and transferred out
Direct materials
11,000
$2.90
$ 31,900
Conversion
11,000
$21.75
239,250
$271,150
Ending work in process
Direct materials
$2.90
Conversion
Wild and Shaw, Financial and Managerial Accounting 9e Solutions Manual: Chapter 16
1061
Part 3 — Journal entries (Using weighted-average)
f.
Finished Goods Inventory …………………………
271,150
Work in Process Inventory …………………..
271,150
Transferred goods to Finished Goods.
g.
625,000
Sold finished goods for cash.
265,700
to cost of goods sold.
Wild and Shaw, Financial and Managerial Accounting 9e Solutions Manual: Chapter 16
1062
Comprehensive Problem (Continued)
Part 4 (Using weighted-average)
General ledger accounts
Raw Materials Inventory
Acct. No. 132
Date
Explanation
Debit
Credit
Balance
June
30
Balance
25,000
Purchases
150,000
87,560
Work in Process Inventory
Acct. No. 133
Date
Explanation
Debit
Credit
Balance
June
30
Balance
8,135
Direct materials
60,575
262,825
Overhead applied
363,950
(f)
Transfer to Fin. Goods
92,800
Finished Goods Inventory
Acct. No. 135
Date
Explanation
Debit
Credit
Balance
June
30
Balance
110,000
(f)
381,150
115,450
Wild and Shaw, Financial and Managerial Accounting 9e Solutions Manual: Chapter 16
1063
Comprehensive Problem (Concluded)
Part 4 (Using weighted-average)
Factory Wages Payable
Acct. No. 212
Date
Explanation
Debit
Credit
Balance
(c)
Direct labor
202,500
202,500
(c)
227,250
Acct. No. 413
Date
Explanation
Debit
Credit
Balance
(g)
July sales
625,000
625,000
Cost of Goods Sold
Acct. No. 502
Date
Explanation
Debit
Credit
Balance
(g)
July cost of goods sold
265,700
265,700
Factory Overhead
Acct. No. 540
Date
Explanation
Debit
Credit
Balance
(d)
(e)
Overhead applied
101,125
Part 5 (Using weighted-average)
Computation of gross profit for July
Sales ………………………..
$ 625,000
Wild and Shaw, Financial and Managerial Accounting 9e Solutions Manual: Chapter 16
Company Analysis — AA 16-1
1. Cost per unit = Assembly process costs + Cost of custom case
Production cost
Aluminum
case
Titanium
case
Direct materials, excluding case………………
$85
$85
Conversion ……………………………………………..
165
165
2.
Selling price
Aluminum
case
Titanium
case
Total cost per unit …………………………………..
Markup on total costs (30%) ……………………
Wild and Shaw, Financial and Managerial Accounting 9e Solutions Manual: Chapter 16
Comparative Analysis — AA 16-2
1.
Production cost
Standard
Custom
Direct materials …………………….
$80
$80
Conversion …………………………...
Company logo ………………………
2.
Selling price
Standard
Custom
Production cost …………………….
$140
$170
Markup (40%) ……………………….
3. Yes, Google’s selling price per unit of $196 is lower than that assumed for
the competing Apple watch ($200).
Extended Analysis — AA 16-3
Apple
Samsung
(1)
Current week
(1)
Current week
(2)
Prior week
Number of non-defective
watches made [a] ……………..
396,000
29,400
27,160
Number of watches that
400,000
30,000
28,000
97%
1. Apple’s manufacturing process is more efficient for the current week. Its
yield (99%) is higher than Samsung’s (98%).
Wild and Shaw, Financial and Managerial Accounting 9e Solutions Manual: Chapter 16
DISCUSSION QUESTIONS
1. The main factor in choosing between a job order costing system or a process costing
system is the type of product or service being provided. Examples where a process
2. The main focus in process costing is the production process (or department).
3. Yes, services can be provided through processes. For example, Federal Express
4. Process costing typically uses more Work in Process Inventory accounts (and
transfers costs across these accounts) than does job order costing.
requisition slip is not used.
6. Equivalent units of production is the number of units that could have been started
and completed given the costs incurred during the period. 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 combines production
8. Managers can use process cost information to help control costs, to evaluate
performance, to evaluate the impact of process improvements, and in preparing
financial statements.
9. Direct and indirect labor costs flow to Work in Process Inventory accounts. These
costs then flow to Finished Goods Inventory and then on to Cost of Goods Sold.
11. Yes, it is possible to have either underapplied or overapplied overhead in a process
cost accounting system. Since the predetermined overhead rate is based on
Wild and Shaw, Financial and Managerial Accounting 9e Solutions Manual: Chapter 16
12. Equivalent units for direct materials differ from that for conversion if direct materials
13. The four steps in accounting for production activity (for process operations) are: 1)
determine the flow of units, 2) compute equivalent units of production, 3) compute
cost per equivalent unit, and 4) assign and reconcile costs.
14. A process manufacturer can compute the cost of a completed unit by dividing the
15. Yes. Google might use process costing to determine the cost of manufacturing its
16. Likely processing steps for digital televisions include making the frame and assembly
17. General Mills, like most food processors, faces risks due to water scarcity and climate
change that could disrupt its supply and lower profits. The company faces the risk
18. If the company is successful in reducing water usage, its direct materials cost (water)
should decline. Likewise, assuming water used in its cleaning and cooling processes
19. A hybrid costing system contains features of both process costing and job order
costing. A hybrid system of processes requires a hybrid costing system to properly
cost products or services. Products or services that might well fit a hybrid costing
system would be those that resemble process operations but that also include
varying degrees of customization. Product examples: cars with custom add-ons;
Wild and Shaw, Financial and Managerial Accounting 9e Solutions Manual: Chapter 16
1068
Ethics Challenge — BTN 16-1
MEMORANDUM
TO:
FROM:
DATE:
SUBJECT:
Instructor note: The student’s solution will vary depending on the industry, product, and process
chosen. It will also depend on the sources obtained.
The memorandum should initially identify an industry (say, steel), a product
(say, cans), and a process (say, forming).
Generally, there are at least three approaches to maintaining and expanding
one’s knowledge about a particular industry, product, and process—
students are likely to have additional insights.
(1) First, the professional should read a quality trade journal in the selected
industry. Another useful part of this first step is to access company and
Wild and Shaw, Financial and Managerial Accounting 9e Solutions Manual: Chapter 16
1069
Communicating in Practice — BTN 16-2
Robotic process automation (RPA) tools are most useful for processes
with repeatable and predictable interactions with information technology
(IT) applications. RPA tools work by mimicking how people interact with IT
applications and they follow simple rules to make decisions. In addition to
cost savings, the proposed benefits of RPA tools include:
• Decreased cycle times and increased throughput
Teamwork in Action — BTN 16–3
Each member of the team should participate in the activity to improve and
reinforce his/her understanding of the entries that correspond to the text.
(Note: The entries below are pro forma entries since information for amounts
are not provided in this activity.)
1.
Raw Materials Inventory ………………………..
#
2.
Work in Process Inventory—Roasting ……
Work in Process Inventory—Blending ……
#
#
3.
#
Wild and Shaw, Financial and Managerial Accounting 9e Solutions Manual: Chapter 16
Teamwork in Action (concluded)
4.
Factory Wages Payable ……………………
#
Record direct labor used.
Work in Process Inventory—Roasting ……
#
5.
Factory Overhead ………………………………….
#
Factory Wages Payable ……………………
#
Record indirect labor used.
6.
Factory Overhead …………………………………
#
Prepaid Insurance …………………………..
#
Utilities Payable ……………………………….
#
Cash ………………………………………………..
#
Accum. Depreciation—Factory Equip .
#
7.
Work in Process Inventory—Blending …….
#
Factory Overhead ……………………………..
#
Apply factory overhead costs.
Work in Process Inventory—Roasting …….
#
8.
Work in Process Inventory—Blending …….
#
Work in Process Inventory—Roasting .
#
9.
Finished Goods Inventory ………………………
#
Work in Process Inventory—Blending .
#
10.
Accounts Receivable ……………………………..
#
Sales ………………………………………………..
#
Record sale.
Finished Goods Inventory …………………
Wild and Shaw, Financial and Managerial Accounting 9e Solutions Manual: Chapter 16
Entrepreneurial Decision — BTN 16-4
1. If a business unnecessarily holds raw materials, it will be less profitable
than a company that maintains appropriate raw materials inventory
levels. First, the inventory requires costs for storage space. Second,
higher inventory levels increase the risk of inventory theft by customers
2. Suzy can use “yield”, which is a measure of the ratio of raw materials’
3. A hybrid system combines features of both process and job order
operations. Azucar Ice Cream Company resembles a process operation
in that each flavor of ice cream goes through the same processing
Wild and Shaw, Financial and Managerial Accounting 9e Solutions Manual: Chapter 16
1072