1. a. An assembly-type industry using mass production methods, such as TV assembly, would
use the process cost system because the products are somewhat standard and lose their
identities as individual items. In such industries, it is neither practical nor necessary to
identify output by jobs.
b. A job order cost system would be used by a building contractor to accumulate the costs
for each individual building because the costs can be identified with each job without
great difficulty.
c. A job order cost system is best suited for an automobile repair shop because costs can
b
e reasonably identified with each job.
d. A process cost system would be best suited for a paper manufacturer because the
p
rocesses are continuous and the products are homogeneous.
e. A job order cost system is best suited for a custom jewelry manufacturer because most of
the production consists of job orders and costs can be reasonably identified with each
job.
2. Because all goods produced in a process cost system are identical units, it is not necessary to
classify production costs into job orders.
3. In a process cost system, the direct labor and factory overhead applied are debited to the
work in process accounts of the individual production departments in which they occur. The
reason is that all products produced by the department are similar. Thus, there is no need to
charge these costs to individual jobs. For the process manufacturer, the direct materials and
the conversion costs are charged to the department and divided by the completed production
of the department to determine a cost per unit.
4. The cost per equivalent unit is frequently determined separately for direct materials and
conversion costs because these two costs are frequently added at different rates in the
p
roduction process. For example, materials may be incurred entirely at the beginning of the
p
rocess, while conversion costs are typically incurred evenly throughout the process.
5. The cost per equivalent unit is used to allocate direct materials and conversion costs between
completed and partially completed units.
6. The transferred-in cost from Blending to Filling includes the materials costs, direct labor, and
applied factory overhead incurred to complete units in Blending.
7. The most important purpose of the cost of production report is to assist in the control of
costs. This is accomplished by holding each department head responsible for the costs
incurred in the department.
8. Cost of production reports can provide detailed data about the process. The reports can
p
rovide information on the department by individual cost elements. This can enable
management to investigate problems and opportunities.
CHAPTER 20
PROCESS COST SYSTEMS
DISCUSSION QUESTIONS
CHAPTER 20 Process Cost Systems
DISCUSSION QUESTIONS (Continued)
9. Yield is a measure of the materials usage efficiency of a process manufacturer. It is
determined by dividing the output volume of product by the input volume of product.
For example, if 950 tons of aluminum were rolled from 1,000 tons of ingot, then the yield
would be said to be 95%. Five percent of the ingot was scrapped during the rolling process.
10. Just-in-time processing emphasizes combining process functions into manufacturing cells,
involving employees in process improvement efforts, eliminating wasteful activities, and
reducing the amount of work in process inventory required to fulfill production targets.
CHAPTER 20 Process Cost Systems
PE 20–1A
Dentist Job order
Gasoline refining Process
PE 20–1B
Steel manufacturing Process
PE 20–2A
PE 20–2B
PRACTICE EXERCISES
CHAPTER 20 Process Cost Systems
PE 20–3A
Percent
Total Materials Equivalent
Whole Added In Units for
Units Period Materials
Inventory in process, beginning of period………
4,000 0% 0
PE 20–3B
Percent
Total Materials Equivalent
Whole Added In Units for
Units Period Materials
Inventory in process, beginning of period………
400 0% 0
*
…
PE 20–4A
Percent
Total Conversion Equivalent
Whole Completed Units for
Units in Period Conversion
Inventory in process, beginning of period…………
…
4,000 30% 1,200
Started and completed during the period…………
…
38,800 100% 38,800
…
…
PE 20–4B
Percent
Total Conversion Equivalent
Whole Completed Units for
Units in Period Conversion
Inventory in process, beginning of period…………
…
400 80% 320
…
…
…
…
7,500 100% 7,500
PE 20–5A
$20,250
45,000
PE 20–5B
$510,000
8,500
Equivalent units of direct materials: = $0.45 per ounce
Equivalent units of direct materials: = $60 per ton
**
**
**
CHAPTER 20 Process Cost Systems
PE 20–6A
Direct
Materials Conversion Total
Costs Costs Costs
Inventory in process, balance………………………
…
$ 2,200
Inventory in process, beginning of period………
…
0 + 1,200 × $0.15 180
Cost of completed beginning work in process…
…
$ 2,380
PE 20–6B
Direct
Materials Conversion Total
Costs Costs Costs
Inventory in process, balance………………………
…
$ 25,000
Inventory in process, beginning of period………
…
0 + 320 × $10 3,200
Cost of completed beginning work in process…
…
$ 28,200
…
…
…
…
PE 20–7A
a. Work in Process—Filling 20,250
Work in Process—Blending 6,000
Materials 14,250
PE 20–7B
a. Work in Process—Rolling 510,000
Work in Process—Casting 510,000
CHAPTER 20 Process Cost Systems
PE 20–8A
$14,875
42,500
PE 20–8B
$76,000
800
Energy cost per pound, June: = $0.35
Material cost per ton, September: = $95
CHAPTER 20 Process Cost Systems
Ex. 20–1
a. Work in Process—Blending Department XXX
Materials—Cocoa XXX
Materials—Sugar XXX
CHAPTER 20 Process Cost Systems
Ex. 20–2
Factory Overhead—
Smelting Dept. Smelting Dept.
Work in Process—
Materials
CHAPTER 20 Process Cost Systems
Ex. 20–3
a. 1. Work in Process—Refining Department 372,000
Materials 372,000
2. Work in Process—Refining Department 143,000
Ex. 20–4
a. Factory overhead rate:
Ex. 20–5
Whole Direct
Units Materials Conversion
Inventory in process, beginning
(60% completed) 790 0 316
Equivalent Units
1
CHAPTER 20 Process Cost Systems
Ex. 20–6
a. Drawing Department
Whole Direct
Units Materials Conversion
Inventory in process, November 1
(40% completed) 5,000 0 3,000
Started and completed in November 90,000 90,000 90,000
b. Winding Department
Whole Direct
Units Materials Conversion
Inventory in process, November 1
(80% completed) 3,200 0 640
Equivalent Units
Equivalent Units
1
2
1
CHAPTER 20 Process Cost Systems
Ex. 20–7
a. Units in process, August 1……………………………………………………
…
5,000
Units placed into production for August……………………………………
…
204,000
b.
Whole Direct
Units Materials Conversion
Inventory in process, August 1
(2/5 completed) 5,000 0 3,000
Started and completed in August 191,000 191,000 191,000
Equivalent Units
1
2
CHAPTER 20 Process Cost Systems
Ex. 20–8
a. 1. $1.50 ($306,000 ÷ 204,000 units)
3. $8,960, determined as follows:
…
…
5. $21,996, determined as follows:
Direct materials ($1.50 × 13,000 units)……………………………………
…
$19,500
…
b. The conversion costs in August increased by $0.07 per equivalent unit,
determined as follows:
Work in Process—Baking Department balance, August 1…………………
…
$8,000
Deduct direct materials cost incurred in July
CHAPTER 20 Process Cost Systems
Ex. 20–9
Equivalent units of production:
Conversion
Cereal Boxes Cost
(in pounds) (in boxes) (in boxes)
Inventory in process, March 1……………
…
0 0 800
Started and completed in March…………
…
96,900 64,600 64,600
Supporting explanation:
The whole unit inventory in process on March 1 includes both the cereal in the
hopper and the boxes in the carousel, and thus includes no equivalent units for
the material during the current period. The reason is because the costs for the
cereal and boxes were introduced to the Packing Department in February. Because
conversion costs are incurred only when the cereal is filled into boxes, all 800
Note to Instructors: An actual cereal-filling line begins with the empty box
carousel. The box carousel holds flattened boxes that are fed into a high-speed
line that opens the box up and places it on a conveyor. The conveyor brings the
opened box under a filler head. The cereal pours from the hopper through the filler
CHAPTER 20 Process Cost Systems
Ex. 20–10
a. Direct labor…………………………………………………………………………
…
$28,100
Factory overhead applied…………………………………………………………
…
12,598
Total conversion cost……………………………………………………………… $40,698
b. Equivalent units of production for conversion costs:
c. Equivalent units of production for direct materials costs:
Beginning inventory……………………………………………………………
…
0
Started and completed…………………………………………………………
…
89,000
…
…
CHAPTER 20 Process Cost Systems
Ex. 20–11
a. Units in process at beginning of period……………………………………
…
1,600
Units placed in production during period…………………………………
…
29,000
b.
Whole Direct
Units Materials Conversion
Inventory in process, beginning
(35% completed) 1,600 0 1,040
c.
Direct
Materials Conversion
Total costs for period in Assembly Department $275,500 $123,858
Equivalent Units
Costs
1
*
…
CHAPTER 20 Process Cost Systems
Ex. 20–12
a. 1. $21,808; determined as follows:
2. Cost of beginning work in process………………………………………
…
$ 21,808
3. $11,390; determined as follows:
4. $13.63 rounded ($21,808 ÷ 1,600 units)
b. Yes. The production costs per unit increased during the current period. The
cost per unit of the units started and completed during the period is $13.70
c. The conversion cost in the current period increased by $0.20 per equivalent
unit, determined as follows:
Beginning work in process……………………………………………………
…
$17,440
…
…
…
CHAPTER 20 Process Cost Systems
Ex. 20–13
1. In computing the equivalent units for conversion costs applicable to the June 1
2. In computing the equivalent units for conversion costs for units started and
completed in June, the June 1 inventory of 6,400 units, rather than the June 30
3. The correct equivalent units for conversion costs should be 53,400, determined
as follows:
To process units in inventory on June 1:
CHAPTER 20 Process Cost Systems
Ex. 20–14
a. 12,400 units (900 + 12,900 – 1,400)
b.
Whole Direct
Units Materials Conversion
Inventory in process, November 1
(60% completed) 900 0 360
Started and completed in November 11,500 11,500 11,500
Direct
Materials Conversion
Total costs for November in Forging Department $123,840 $38,520
Equivalent Units
Costs
1
2
*