1.
Whole Direct
UNITS Units Materials Conversion
Units charged to production:
Inventory in process, January 1 3,400
Units to be assigned cost:
Inventory in process, January 1
DOVER CHEMICAL COMPANY
Cost of Production Report—Filling Department
For the Month Ended January 31, 2012
Equivalent Units
1
CHAPTER 20 Process Cost Systems
Prob. 20–3B (Continued)
Direct
COSTS Materials Conversion Total
Costs per equivalent unit:
Total costs for January in Filling
Total costs accounted for by the
Filling Department $734,104
Cost allocated to completed and
partially completed units:
1$101,560 + $95,166
Costs
67
CHAPTER 20 Process Cost Systems
Prob. 20–3B (Concluded)
2. Work in Process—Filling Department 496,850
3. Direct materials: –$0.08 decrease ($9.50 – $9.58)
4. The cost of production report may be used as the basis for allocating product
costs between Work in Process and Finished Goods. The report can also be
CHAPTER 20 Process Cost Systems
Prob. 20–4B
1. and 2.
Item Dr. Cr. Dr. Cr.
Sept. 1 Bal., 2,600 units, 1/4 completed 45,825
30 Smelting Dept., 28,900 units at
$16.00/unit 462,400 508,225
30 Direct labor 158,920 667,145
$16.50/unit 511,500 577,852
31 Direct labor 162,850 740,702
Date
Balance
Work in Process—Rolling
CHAPTER 20 Process Cost Systems
Prob. 20–4B (Continued)
Whole Direct
UNITS Units Materials Conversion
(a) (a)
Units charged to production:
Units to be assigned cost:
Inventory in process, September 1
(1/4 completed) 2,600 01,950
PITTSBURGH ALUMINUM COMPANY
Cost of Production Report—Rolling Department
For the Month Ended September 30, 2014
Equivalent Units
1
CHAPTER 20 Process Cost Systems
Prob. 20–4B (Continued)
Direct
COSTS Materials Conversion Total
Costs per equivalent unit:
Total costs for September in Rolling
Total costs accounted for by the
Rolling Department $768,547
Cost allocated to completed and
in September (c) $702,195
Inventory in process, September 30 (d) 46,400 19,952 66,352
1$158,920 + $101,402
Costs
67
CHAPTER 20 Process Cost Systems
Prob. 20–4B (Continued)
2.
Whole Direct
UNITS Units Materials Conversion
(a) (a)
Units charged to production:
Inventory in process, October 1 2,900
Received from Smelting Department 31,000
Total units accounted for by the
PITTSBURGH ALUMINUM COMPANY
Cost of Production Report—Rolling Department
For the Month Ended October 31, 2014
Equivalent Units
CHAPTER 20 Process Cost Systems
Prob. 20–4B (Concluded)
Direct
COSTS Materials Conversion Total
Costs per equivalent unit:
Total costs for October in Rolling
Costs charged to production:
Inventory in process, October 1 $ 66,352
Costs incurred in October 778,844
Total costs accounted for by the
Rolling Department $845,196
Cost allocated to completed and
partially completed units:
3. The cost per equivalent unit for direct materials increased from $15.50 in
August to $16.00 in September to $16.50 in October. The cost per equivalent unit for
Costs
2
CHAPTER 20 Process Cost Systems
Appendix Prob. 20–5B
Whole Equivalent Units
UNITS Units of Production
Units charged to production:
Inventory in process, May 1 1,500
Received from Milling Department 18,300
COSTS Costs
Unit costs:
Total costs for May in Sifting Department1$58,050
Inventory in process, May 31
(1,800 units × 75% × $3.00) 4,050
Total costs assigned by the Sifting Department $58,050
BLUE RIBBON FLOUR COMPANY
Cost of Production Report—Sifting Department
For the Month Ended May 31, 2014
CP 20–1
This case comes from a real story. In the real story, the first reduction in chips had
no impact on the marketplace. The manager was promoted, and the next manager
attempted the same strategy—reduce chips by 10%. Again, it worked. The next
manager did the same thing. All of a sudden, the market demand dropped for the
cookie. A threshold was reached, and the cookie was in trouble in the marketplace.
The current cookie was nothing like the original recipe. The cookie’s integrity was
slowly eroded until it wasn’t “Full of Chips.” Senior management had no idea this was
happening, since it occurred slowly over a period of many years. Now, with respect
to the controller, there are a number of options.
a. Do nothing. This is a safe strategy. It would be highly unlikely that failing to
reveal this information to anybody would ever be discovered or “pinned” on
b. Talk to Bishop. You can have a conversation with Bishop. This is also a
reasonably safe strategy and probably the best start. For example, you may
c. Talk to the vice president. You could also go right over Bishop’s head to the
vice president. This strategy might label you as “not a team player,” so some
care is in order here. You might get Bishop in trouble, or you may get yourself
in some trouble. This is probably not the best first move. It is within Bishop’s
CP 20–2
a. This accounting procedure has the effect of rewarding the production of
broke. In essence, the procedure communicates to operating personnel that
broke is a normal part of doing business. In fact, not only is broke a normal
b. The accounting for broke that is typical in the industry fails to account for the
total impact of broke. It is true that the use of recycled materials may reduce the
direct materials cost to the operation. However, such a view is very limited. For
example, the production of broke has a cost. Machine capacity was used to
produce the broke in the first place. Therefore, broke has an original materials
CHAPTER 20 Process Cost Systems
CP 20–3
This case is abstracted from a real situation, where higher raw materials costs due
to tin content were more than offset by lower energy costs. The cost system used
in the real situation was a sophisticated “real-time” expense tracking system. The
subtlety of this trade-off analysis is impressive.
The first step is to translate the monthly materials and energy costs into their
respective costs per unit of monthly production. In this way, the costs can be
compared across the months.
April May June July Aug. Sept.
Energy cost per unit…………………
…
$0.28 $0.29 $0.30 $0.31 $0.32 $0.33
$0.00
$0.10
$0.40
$0.50
April May June July Aug. Sept.
Month
…
…
CP 20–4
To: Jamarcus Bradshaw
From: Leann Brunswick
Re: Analysis of August Increase in Unit Costs for Papermaking Department
July August
Materials cost per ton……………………………………
…
$246.33 $269.12
…
An analysis was done to isolate the cause of the increased cost per ton. My
interviews indicated that there were two possible causes. First, we changed the
specification of the green paper in early August. This may have altered the way
Fortunately, we run both colors on paper machine No. 1. Thus, we can separate
the analysis between these two possible explanations. I have provided the
following cost per ton data for the two paper machines and the two product
colors:
Paper machine analysis:
Materials Conversion
Cost per Ton Cost per Ton Total
Paper Machine No. 1…………………
…
$290.54 $143.04 $433.58
…
CHAPTER 20 Process Cost Systems
CP 20–4 (Concluded)
The results are clear. Paper machine 1 has a much higher materials and conversion
cost per ton in August. Apparently, the paper machine is overapplying pulp. This is
resulting in an increase in both the materials and conversion cost per ton. Paper
machine No. 2 is running at a cost near our historical cost per ton. There is no
Average materials cost per ton for paper machine No. 1:
($40,300 + $41,700 + $44,600 + $36,100) ÷ (150 + 140 + 150 + 120) = $290.54
Average conversion cost per ton for paper machine No. 1:
($18,300 + $21,200 + $22,500 + $18,100) ÷ (150 + 140 + 150 + 120) = $143.04
Average materials cost per ton for paper machine No. 2:
CP 20–5
This activity can be accomplished with multiple groups assigned to one or more
of the industry categories. Assign at least one group to each industry category
(some are easier than others, so some groups may be assigned multiple
CHAPTER 20 Process Cost Systems
CP 20–5 (Concluded)
Industry Category Example Company Products Materials Processes
Beverages PepsiCo, Inc. Pepsi, Diet Pepsi Sugar, carbonated water,
concentrate
Mixing, bottling