Chapter 3
Process Costing
QUESTIONS
1. Job-order costing is used when a company produces individual products or
batches of products that are unique. Generally, each unique product or batch is a
2. Student answers will vary but here is one possible answer. Three types of
manufacturing companies which might use process costing include pharmaceutical
3. Equivalent units is the quantity of partially completed units expressed in terms of
5. The costs associated with units received from a preceding department within the
company for further processing are called transferred-in costs.
6. Material may enter at the start of a production process while labor and overhead
are incurred throughout the process.
8. Reconciliation helps to ensure that mistakes are not made in calculations and units
are not “lost.”
9. Transferred-in costs are the costs associated with units received from a preceding
10. The four steps involved in preparing a production cost report are as follows:
a. Account for the number of physical units
3-2 Jiambalvo Managerial Accounting
EXERCISES
E1. [LO 2] In the production of chips, much of manufacturing overhead is a fixed cost.
This cost is assigned to completed items and work in process. By starting a large
number of items at year end, and given the simplifying assumption that items in
E2. [LO 2] Cost per equivalent unit is calculated for material, labor and overhead. For
each of these items, we sum the cost in beginning work in process and the cost
incurred during the period. This becomes the numerator of the calculation. Then,
E3. [LO 1]
E4. [LO 3]
Case 1
Units in ending work in process
2,500
Plus: Units completed during October
15,000
Less: Units in beginning work in process
Units started during October
12,500
Case 2
Units in beginning work in process
16,000
Plus: Units started during March
Units to account for
20,000
Case 3
Units in beginning work in process
300,000
Plus: Units started during December
Units to account for
Less: Units in ending work in process
Units completed during December
E5. [LO 3]
Units in beginning work in process 850
Units started in August 95,000
E6. [LO 3]
Units in beginning work in process 4,500
Units started in August ?
E7. [LO 2]
Direct Labor
Beginning WIP $140,000
3-4 Jiambalvo Managerial Accounting
E8. [LO 3]
Let X = the cost in beginning work in process
Material:
E9. [LO 2] The denominator is equal to units completed plus equivalent units in
ending work in process.
Material
E10. [LO 2, 3]
a. Cost per equivalent unit for material is $6.00. Material cost in items completed
is $222,000. Therefore, the number of completed units is 37,000 (i.e., $222,000
÷ $6.00).
Units in beginning work in process 2,500
Units started in July 40,000
b. Cost of ending work in process is $9,625 as follows:
E11. [LO 2]
Ending Work in Process
Material (950 1.0 $0.80) $760
E12. [LO 2]
Ending Work in Process
3-6 Jiambalvo Managerial Accounting
Cost of Items Completed
E13. [LO 2]
a. Material:
Cost in beginning work in process $ 30,000
Cost incurred during the period 421,990
b. Cost of items completed in November:
c. Cost of ending work in process:
Material cost
E14. [LO 2,3]
Units in beginning WIP
40,000
Units started during June
Units to account for
Less: Units in ending WIP
Chapter 3 Process Costing 3-7
Equivalent Unit Calculation
Units Material Labor Overhead
Units completed 510,000 510,000 510,000
E15. [LO 2, 3]
Units in beg. WIP
2,300,000
Units started during May
Units to account for
3,070,000
Less: Units in Ending WIP
Units Completed
2,835,000
Equivalent Unit Calculation
Units Material Conversion
E16. [LO 1, 2]
Units in beg. WIP
45,000
Units started during the year
Units to account for
Less: Units in Ending WIP
Units Completed
Equivalent Unit Calculation
Units Material Conversion
Units completed 185,000 185,000
3-8 Jiambalvo Managerial Accounting
E17. [LO 2]
Cost per Equivalent Unit Calculation
Material Conversion Total
Cost
Beginning WIP $ 50,000 $ 45,000 $ 95,000
E18. [LO Incremental Analysis. The sales price should be lowered because the total
net income increases by $5,000 over the current level.
Units sold 112,000
Direct material ($.25 × 112,000) $ 28,000
Chapter 3 Process Costing 3-9
PROBLEMS
P1. [LO 2]
a. The company started the month with 11,000 units and 105,000 units were
entered into production. Thus, the company must account for 116,000 units. At
the end of the month, the company had 5,100 units in ending work in process.
This implies that 110,900 units were completed (116,000 – 5,100).
The denominators for the calculations of cost per equivalent are:
Units Equivalent Units
Completed in Ending WIP Total
Material 110,900 5,100 116,000
Beginning WIP Cost Added Total Denominator Cost per EU
Material $4,000.00 $76,040.00 $80,040.00 116,000 $0.69
b. Cost of items completed in May is $95,374.00:
c. Beginning work in process $ 4,500.00
3-10 Jiambalvo Managerial Accounting
P2. [LO 2]
a. The company started the month with 600 units and 2,700 units were entered
into production. Thus, the company must account for 3,300 units. At the end of
the month, the company had 700 units in ending work in process. This implies
that 2,600 units were completed (3,300 – 700).
The denominators for the calculations of cost per equivalent are:
Units Equivalent Units
Completed in Ending WIP Total
Beginning Cost per
WIP Cost Added Total Denominator EU
Material $ 45,000 $267,090 $312,090 3,090 $101.00
b. Cost of items completed in August is $834,600:
c. Beginning work in process $136,000.00
P3. [LO 2, 3]
a. Kao Tiles, Inc—October
Unit Reconciliation
Units in beg. WIP (65% material, 35% conversion costs) 5,000
Cost per Equivalent Unit Calculation
Material Labor Overhead Total
Cost
Beginning WIP $170,000 $160,000 $ 50,000 $ 380,000
Units
Units completed 4,000 4,000 4,000
Equivalent units
Ending WIP
Cost Reconciliation
b. Finished Goods Inventory 988,000
P4. [LO 2, 3]
Aussie Yarn Company—August
Unit Reconciliation
Units in beg. WIP ((100% material, 70% conversion costs) 7,000
Cost per Equivalent Unit Calculation
Material Labor Overhead Total
Cost
Beginning WIP $ 6,000 $ 2,000 $ 2,500 $10,500
Units
Units completed 33,000 33,000 33,000
Cost Reconciliation
P5. [LO 1]
a. Work in process, dept. 1 80,000
Material inventory 80,000
b. Work in process, dept. 1 40,000
Wages payable 40,000
c. Work in process, dept. 1 220,000
d. Work in process, dept. 2 364,000
3-14 Jiambalvo Managerial Accounting
P6. [LO 1]
a. Work in process (125,000 × $0.90 ×.40) 45,000
c. Work in process (125,000×$0.90×.45) 50,625
P7. [LO 2, 3]
a. 1,100 = (3,400 – 2,300)
P8. [LO 2, 3]
Step 1.
Cost per equivalent unit = 1.80 + 1.40 + 2.64 = 5.84
Step 2.
Step 3.
Step 4.
Equivalent units, ending WIP:
Step 5.
Units completed (calculated above) 515,000
Step 6.
Total cost in cost per equivalent unit calculation:
Step 7.
Cost incurred in December:
3-16 Jiambalvo Managerial Accounting
Step 8.
Cost Reconciliation:
Total cost to account for ($936,000 + $722,400 + $1,362,240) $3,020,640
P9. [LO 2, 3]
Mixing Department, Simply Shine Shampoo—March
Unit Reconciliation
Units in beg. WIP (100% material, 90% conversion costs) 15,000
Cost per Equivalent Unit Calculation
Material Labor Overhead Total
Cost
Beginning WIP $ 8,500 $ 1,200 $ 2,500 $ 12,200
Units
Units completed 635,000 635,000 635,000