CHAPTER 17 (FIN MAN); CHAPTER 3 (MAN)
PROCESS COST SYSTEMS
DISCUSSION QUESTIONS
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.
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
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 production
process. For example, materials may be incurred entirely at the beginning of the process, 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.
CHAPTER 17 (FIN MAN); CHAPTER 3 (MAN) Process Cost Systems
BASIC EXERCISES
BE 17–1 (FIN MAN); BE 3–1 (MAN)
Steel manufacturing
Process
Business consulting
Job order
Web designer
Job order
Computer chip manufacturing
BE 17–2 (FIN MAN); BE 3–2 (MAN)
BE 17–3 (FIN MAN); BE 3–3 (MAN)
Whole
Units
Percent
Materials
Added in
October
Equivalent
Units for
Materials
Inventory in process, October 1 ………………………..
200
0%
0
Started and completed during October ………………
3,700*
100%
3,700
Inventory in process, October 31 ………………………
BE 17–4 (FIN MAN); BE 3–4 (MAN)
Whole
Units
Equivalent
Units for
Conversion
Inventory in process, October 1 ………………………..
200
80
Inventory in process, October 31 ………………………
25%
BE 17–5 (FIN MAN); BE 3–5 (MAN)
Equivalent units of direct materials:
$3,000,000
4,000
= $750 per ton
CHAPTER 17 (FIN MAN); CHAPTER 3 (MAN) Process Cost Systems
BE 17–6 (FIN MAN); BE 3–6 (MAN)
Direct
Materials
Costs
Conversion
Costs
Total
Costs
Inventory in process, balance ……………………………………
$ 163,800
To completed inventory in process, October 1 …………..
$ 0
$ 9,6001
9,600
Cost of completed beginning work in process ……………
$ 173,400
1 80 × $120
2 3,700 × $750
3 3,700 × $120
4 300 × $750
5 75 × $120
BE 17–7 (FIN MAN); BE 3–7 (MAN)
a.
1.
Work in Process—Rolling
3,000,000
Work in Process—Casting
3,000,000
Factory Overhead—Rolling
Wages Payable
3.
Finished Goods
3,392,400
b. $234,000 ($163,800 + $3,000,000 + $462,600 – $3,392,400)
BE 17–8 (FIN MAN); BE 3–8 (MAN)
Material cost per ton, September:
$76,000
800
= $95
CHAPTER 17 (FIN MAN); CHAPTER 3 (MAN) Process Cost Systems
EXERCISES
Ex. 17–1 (FIN MAN); Ex. 3–1 (MAN)
a.
Work in Process—Blending Department
XXX
Materials—Cocoa
XXX
Materials—Sugar
XXX
Materials—Dehydrated Milk
XXX
Work in Process—Blending Department
XXX
Work in Process—Packing Department
XXX
d.
Finished Goods
XXX
Work in Process—Packing Department
XXX
Cost of Goods Sold
XXX
CHAPTER 17 (FIN MAN); CHAPTER 3 (MAN) Process Cost Systems
Ex. 17–2 (FIN MAN); Ex. 3–2 (MAN)
CHAPTER 17 (FIN MAN); CHAPTER 3 (MAN) Process Cost Systems
Ex. 17–3 (FIN MAN); Ex. 3–3 (MAN)
a.
1.
Work in Process—Refining Department
1,250,000
Materials
1,250,000
b.
Work in Process—Sifting Department*
2,918,000
Work in Process—Refining Department
2,918,000
* $328,000 + $1,250,000 + $660,000 + $975,000 – $295,000
Ex. 17–4 (FIN MAN); Ex. 3–4 (MAN)
a. Factory overhead rate:
$3,150,000 ÷ $1,800,000 = 175%
Ex. 17–5 (FIN MAN); Ex. 3–5 (MAN)
Whole
Units
Equivalent Units
Direct
Materials
Conversion
Inventory in process, beginning
(35% completed)
2,400
0
1,5601
CHAPTER 17 (FIN MAN); CHAPTER 3 (MAN) Process Cost Systems
Ex. 17–6 (FIN MAN); Ex. 3–6 (MAN)
a. Drawing Department
Whole
Units
Equivalent Units
Direct
Materials
Conversion
Inventory in process, June 1
(38% completed)
10,000
0
6,2001
50,0002
60,000
Inventory in process, June 30
(70% completed)
11,500
8,0503
71,500
1 10,000 units × (100% – 38%)
2 60,000 units – 10,000 units
3 11,500 units × 70%
b. Winding Department
Whole
Units
Equivalent Units
Direct
Materials
Conversion
Inventory in process, June 1
(35% completed)
4,000
0
2,6001
Inventory in process, June 30
(60% completed)
CHAPTER 17 (FIN MAN); CHAPTER 3 (MAN) Process Cost Systems
Ex. 17–7 (FIN MAN); Ex. 3–7 (MAN)
a.
Units in process, December 1 ……………………………………………………………..
24,000
b.
Whole
Units
Equivalent Units
Direct
Materials
Conversion
Inventory in process, December 1
(3/4 completed)
24,000
0
6,0001
1 24,000 units × (100% – 75%)
2 128,000 units – 24,000 units or 134,000 units – 30,000 units
CHAPTER 17 (FIN MAN); CHAPTER 3 (MAN) Process Cost Systems
Ex. 17–8 (FIN MAN); Ex. 3–8 (MAN)
a. 1. $1.75 ($234,500 ÷ 134,000 units)
Work in Process—Baking Department balance, December 1 ……………
$116,700
Conversion costs incurred during December
(6,000 equivalent units × $4.20) ……………………………………………………
25,200
Cost of beginning work in process completed during December ……..
$141,900
5. $115,500, determined as follows:
Direct materials ($1.75 × 30,000 units) ……………………………………………
$ 52,500
Conversion costs ($4.20 × 15,000 equivalent units) …………………………
63,000
Cost of ending work in process ……………………………………………………..
$115,500
Note: The cost of the ending work in process is also the balance of Work in
Process—Baking Department as of December 31.
b. The conversion costs in December increased by $0.05 per equivalent unit, determined
as follows:
Work in Process—Baking Department balance, December 1 ……………
$116,700
CHAPTER 17 (FIN MAN); CHAPTER 3 (MAN) Process Cost Systems
Ex. 17–9 (FIN MAN); Ex. 3–9 (MAN)
Equivalent units of production:
Cereal
(in pounds)
Boxes
(in boxes)
Conversion
Cost
(in boxes)
Inventory in process, March 1 ………………………
0
0
800
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
boxes of the March 1 inventory in process will have conversion costs incurred in
March.
CHAPTER 17 (FIN MAN); CHAPTER 3 (MAN) Process Cost Systems
Ex. 17–10 (FIN MAN); Ex. 3–10 (MAN)
a.
Direct labor ……………………………………………………….……………………………….
$28,100
Factory overhead applied……………………………………………………………………
12,598
Total conversion cost …………………………………………………………………………
$40,698
b.
Equivalent units of production for conversion costs:
Conversion cost per equivalent unit:
$40,698
90,440
= $0.45 conversion cost per equivalent unit
c.
Equivalent units of production for direct materials costs:
CHAPTER 17 (FIN MAN); CHAPTER 3 (MAN) Process Cost Systems
Ex. 17–11 (FIN MAN); Ex. 3–11 (MAN)
a.
Units in process at beginning of period ……………………………………………….
9,000
b.
Whole
Units
Equivalent Units
Direct
Materials
Conversion
Inventory in process, beginning
(40% completed)
9,000
0
5,4001
Started and completed
Transferred to finished goods
Inventory in process, ending
1 9,000 units × (100% – 40%)
2 40,000 units – 7,500 units
3 7,500 units × 30%
c.
Costs
Direct
Materials
Conversion
CHAPTER 17 (FIN MAN); CHAPTER 3 (MAN) Process Cost Systems
Ex. 17–12 (FIN MAN); Ex. 3–12 (MAN)
a.
1.
$88,560; determined as follows:
Beginning work in process balance ……………………………………………….
$72,360
Conversion costs incurred during period
(5,400 equivalent units × $3.00) ……………………………………………………
16,200
2.
Cost of beginning work in process …………………………………………………
*
($6.80 + $3.00) × 32,500 units
3.
$57,750; determined as follows:
Direct materials ($6.80 × 7,500 units) ………………………………………………
$51,000
4.
$9.84 ($88,560 ÷ 9,000 units)
b. Yes. The production costs per unit decreased during the current period. The
cost per unit of the units started and completed during the period is $9.80
($6.80 + $3.00). Because the cost per unit of the beginning work in process is
$9.84 [see a. 4 above], the production costs during the current period must
have decreased.
Beginning work in process ……………………………………………………………
Deduct direct materials cost incurred in prior period
($6.80 × 9,000 units, cost per unit unchanged) ………………………………
(61,200)
Conversion costs incurred in prior period ………………………………………
$ 11,160
Less prior-period conversion cost per equivalent unit
Decrease in conversion cost per equivalent unit during
CHAPTER 17 (FIN MAN); CHAPTER 3 (MAN) Process Cost Systems
Ex. 17–13 (FIN MAN); Ex. 3–13 (MAN)
The errors are listed below.
1. In computing the equivalent units for conversion costs applicable to the June 1
inventory, the 6,400 units are multiplied by 3/5 rather than 2/5, which is the
portion of the work completed in June. Therefore, the equivalent units should be
2,560 (6,400 × 2/5) instead of 3,840.
2. In computing the equivalent units for conversion costs for units started and
3. The correct equivalent units for conversion costs should be 53,400, instead of 53,480,
as computed below.
To process units in inventory on June 1:
CHAPTER 17 (FIN MAN); CHAPTER 3 (MAN) Process Cost Systems
Ex. 17–14 (FIN MAN); Ex. 3–14 (MAN)
a. 12,400 units (900 + 12,900 – 1,400)
b.
Whole
Units
Equivalent Units
Direct
Materials
Conversion
Inventory in process, November 1
(60% completed)
900
0
3601
Started and completed in November
11,5002
11,500
11,500
Transferred to finished goods in
12,400
11,500
11,860
Inventory in process, November 30
1,400
13,800
12,840
1 900 units × (100% – 60%)
2 12,900 units – 1,400 units
3 1,400 units × 70%
Costs
Direct
Materials
Conversion
CHAPTER 17 (FIN MAN); CHAPTER 3 (MAN) Process Cost Systems
Ex. 17–15 (FIN MAN); Ex. 3–15 (MAN)
a.
$11,646; determined as follows:
Beginning work in process balance …………………………………………………
$10,566
Conversion costs incurred during November
(360 equivalent units × $3.00) ………………………………………………………..
1,080
Cost of beginning work in process completed during November ……….
$11,646
c.
$16,380; determined as follows:
Direct materials ($9.60 × 1,400 units) ………………………………………………..
$13,440
Conversion costs ($3.00 × 980 equivalent units) ……………………………….
2,940
Cost of ending work in process inventory ………………………………………..
$16,380
Note: The cost of the ending work in process is also the ending balance of the Work in
Process—Forging Department as of November 30.
Conversion cost per equivalent unit: $2.90 ($1,566* ÷ 540 units**)
CHAPTER 17 (FIN MAN); CHAPTER 3 (MAN) Process Cost Systems
Ex. 17–16 (FIN MAN); Ex. 3–16 (MAN)
a.
Morning Brew Coffee Company
Cost of Production Report—Roasting Department
For the Month Ended August 31
UNITS
Whole
Units
Equivalent Units
Direct
Materials
(1)
Conversion
(1)
Units charged to production:
Inventory in process, August 1
700
Received from materials storeroom
14,300
Total units accounted for by the
Roasting Department
15,000
Units to be assigned costs:
CHAPTER 17 (FIN MAN); CHAPTER 3 (MAN) Process Cost Systems
Ex. 17–16 (FIN MAN); Ex. 3–16 (MAN) (Concluded)
COSTS
Costs
Direct
Materials
Conversion
Total
Costs per equivalent unit:
Total costs for August in Roasting
Total equivalent units
Cost per equivalent unit (2)
Costs assigned to production:
Inventory in process, August 1
Costs incurred in August
Total costs accounted for by the
Roasting Department
Costs allocated to completed and
partially completed units:
Inventory in process, August 1 balance
$ 3,479
To complete inventory in process,
Cost of completed August 1 work in
b.
Materials:
From current period ……………………………………………………………………..
$ 4.60
From beginning inventory ……………………………………………………….
(4.70)
Decrease ……………………………………………………………………………………
Conversion: From current period ……………………………………………………….
$ 1.50
From beginning inventory ……………………………………………………….
(1.35)
Increase ……………………………………………………………………………………
CHAPTER 17 (FIN MAN); CHAPTER 3 (MAN) Process Cost Systems
Ex. 17–17 (FIN MAN); Ex. 3–17 (MAN)
a.
Karachi Carpet Company
Cost of Production Report—Cutting Department
For the Month Ended January 31
UNITS
Whole
Units
Equivalent Units
Direct
Materials
Conversion
Units charged to production:
Inventory in process, January 1
1,400
Received from Weaving Department
58,000
Total units accounted for by the
Cutting Department
59,400
Units to be assigned costs:
Inventory in process, January 1
Started and completed in January
Transferred to finished goods in
Inventory in process, January 31
(30% completed)
CHAPTER 17 (FIN MAN); CHAPTER 3 (MAN) Process Cost Systems
Ex. 17–17 (FIN MAN); Ex. 3–17 (MAN) (Concluded)
COSTS
Costs
Direct
Materials
Conversion
Total
Costs per equivalent unit:
Total costs for January in Cutting
Department
$742,400
$286,1611
Total equivalent units
Cost per equivalent unit
Inventory in process, January 1
$ 22,960
Costs incurred in January
Total costs accounted for by the
Cutting Department
Cost allocated to completed and
partially completed units:
Inventory in process, January 1 balance
$ 22,960
To complete inventory in process,
January 1
Cost of completed January 1 work in
$ 24,745
Transferred to finished goods in
Total costs assigned by the Cutting
$ 1,7853
1,785
1 $134,550 + $151,611
2 $742,400 + $134,550 + $151,611
3 350 units × $5.10
4 54,800 units × $12.80
5 54,800 units × $5.10
6 3,200 units × $12.80
7 960 units × $5.10
b.
Materials:
From current period ……………………………………………………….
$ 12.80