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Chapter 04 - Process Costing and Hybrid Product-Costing Systems
4-1
CHAPTER 4
Process Costing and Hybrid Product-Costing
Systems
ANSWERS TO REVIEW QUESTIONS
4-1 In a job-order costing system, costs are assigned to batches or job orders of
production. Job-order costing is used by firms that produce relatively small numbers
4-2 Process costing would be an appropriate product-costing system in the following
4-3 Process costing could be used in the following nonmanufacturing enterprises:
4-4 Product-costing systems are used for the following purposes:
(a) In financial accounting: Product costs are needed to value inventory on the
4-5 An equivalent unit is a measure of the amount of productive effort applied in the
4-2
4-6 The following four steps are used in process costing:
4-7 (a) Journal entry to enter direct-material costs into Work-in-Process Inventory
account:
4-8 Transferred-in costs are the costs assigned to partially completed products that
4-9 The $182,000 of transferred-in costs were incurred prior to January 1 and in the
4-10 The name ''weighted-average method'' comes from the fact that the cost per
Chapter 04 - Process Costing and Hybrid Product-Costing Systems
4-3
4-11 The difference between normal and actual costing lies in the calculation of the
manufacturing-overhead cost of the current period. Under actual costing, the
4-12 If manufacturing overhead were applied according to some activity base (or cost
4-13 Operation costing is a hybrid product-costing system that is used when conversion
activities are very similar across product lines, but the direct materials differ
4-14 The departmental production report is the key document in a process-costing
system rather than the job-cost sheet used in job-order costing. The departmental
Chapter 04 - Process Costing and Hybrid Product-Costing Systems
4-4
SOLUTIONS TO EXERCISES
EXERCISE 4-15 (10 MINUTES)
The general formula for all three cases is the following:
Using this formula, the missing amounts are:
EXERCISE 4-16 (20 MINUTES)
CALCULATION OF EQUIVALENT UNITS: HEALTHY LIFE STYLES, INC.
Weighted-Average Method
Physical
Units
Percentage
of
Completion
with
Respect to
Direct
Material
Percentage
of
Completion
with
Respect to
Conversion
Equivalent Units
Direct
Material
Conversion
Work in process, January 1 ....
30,000
70%
50%
Units started during the year ..
140,000
Chapter 04 - Process Costing and Hybrid Product-Costing Systems
4-5
EXERCISE 4-17 (15 MINUTES)
CALCULATION OF EQUIVALENT UNITS: PETROTECH COMPANY - AMARILLO PLANT
Weighted-Average Method
Physical
Units
Percentage
of
Completion
with
Respect to
Conversion
Equivalent Units
Direct
Material
Conversion
Work in process, July 1 ..........................
1,900,000
30%
EXERCISE 4-18 (15 MINUTES)
CALCULATION OF EQUIVALENT UNITS: ANDROMEDA GLASS COMPANY
Weighted-Average Method
Physical
Units
Percentage
of
Completion with
Respect to
Conversion
Equivalent Units
Direct
Material
Conversion
Work in process, August 1 ......
2,000
60%
4-6
EXERCISE 4-19 (30 MINUTES)
EXERCISE 4-20 (15 MINUTES)
CALCULATION OF COST PER EQUIVALENT UNIT: DULUTH GLASS COMPANY
Weighted-Average Method
Direct
Material
Conversion
Total
Work in process, February 1 ..................
$ 43,200
$ 40,300
$ 83,500
EXERCISE 4-21 (15 MINUTES)
CALCULATION OF COST PER EQUIVALENT UNIT: MONTANA LUMBER COMPANY
Weighted-Average Method
Direct
Material
Conversion
Total
Work in process, June 1 ............................
$ 74,900
$167,000
$ 241,900
4-7
EXERCISE 4-22 (25 MINUTES)
TUSCALOOSA PAPERBOARD COMPANY
Weighted-Average Method
Direct
Material
Conversion
Total
Work in process, March 1 .......................
$ 10,900
$ 28,950
$ 39,850
1.
Cost of goods completed and
transferred out during March:
2.
Cost remaining in March 31 work
in process:
*Equivalent units in March 31 work in process:
Direct
Material
Conversion
Total equivalent units (weighted average) .......................
103,000
97,000
Chapter 04 - Process Costing and Hybrid Product-Costing Systems
4-8
EXERCISE 4-23 (25 MINUTES)
RALEIGH TEXTILES COMPANY
Weighted-Average Method
Direct
Material
Conversion
Total
Work in process, November 1 ...................
$ 85,750
$ 16,900
$ 102,650
1.
Cost of goods completed and
transferred out during November:
2.
Cost remaining in November 30
work in process:
*Equivalent units in November 30 work in process:
Direct
Material
Conversion
Chapter 04 - Process Costing and Hybrid Product-Costing Systems
4-9
EXERCISE 4-24 (45 MINUTES)
1. Diagram of production process:
Work-in-Process Inventory:
Preparation Department
Batch P25 Batch S33
Chapter 04 - Process Costing and Hybrid Product-Costing Systems
4-10
EXERCISE 4-24 (CONTINUED)
2. The product cost for each basketball is computed as follows:
Professional
Scholastic
3.
Journal entries:
Work-in-Process Inventory: Preparation Department ..........
39,500*
Raw-Material Inventory .................................................
39,500
4-11
EXERCISE 4-24 (CONTINUED)
Work-in-Process Inventory: Finishing Department ..............
36,000*
Applied Conversion Costs ............................................
36,000
Chapter 04 - Process Costing and Hybrid Product-Costing Systems
4-12
SOLUTIONS TO PROBLEMS
PROBLEM 4-25 (45 MINUTES)
1.
Physical flow of units:
Physical
Units
Work in process, June 1 ...........................................................................
40,000
2.
Equivalent units:
Physical
Units
Percentage
of
Completion
with
Respect to
Conversion
Equivalent Units
Direct
Material
Conversion
Work in process, June 1 ..........
40,000
38%
3.
Costs per equivalent unit:
Direct
Material
Conversion
Total
Work in process, June 1 ...............
$110,500
$ 22,375
$132,875
4-13
PROBLEM 4-25 (CONTINUED)
4.
Cost of goods completed and transferred out during June:
Cost remaining in June 30 work-in-process inventory:
Direct material:
number of
cost per
Conversion:
number of
cost per
Total cost of June 30 work in process .......................................................
$162,875
4-14
PROBLEM 4-26 (45 MINUTES)
1. Physical flow of units:
Physical
Units
Work in process, April 1 ...........................................................................
10,000
2.
Equivalent units:
Physical
Units
Percentage
of
Completion
with
Respect to
Conversion
Equivalent Units
Direct
Material
Conversion
Work in process, April 1 ..................
10,000
20%
3.
Cost per equivalent unit:
Direct
Material
Conversion
Total
Work in process, April 1 ................................
$ 22,000
$ 4,500
$ 26,500
Chapter 04 - Process Costing and Hybrid Product-Costing Systems
4-15
PROBLEM 4-26 (CONTINUED)
4.
Cost of goods completed and transferred out during April:
Cost remaining in April 30 work-in-process inventory:
Direct material:
Conversion:
Total cost of April 30 work-in-process ...................................................
$78,100
4-16
PROBLEM 4-27 (50 MINUTES)
1.
Physical flow of units:
Physical
Units
Work in process, 1/1/x4 ...........................................................................
210,000
2.
Equivalent units:
Physical
Units
Percentage
of
Completion
with
Respect to
Conversion
Equivalent Units
Direct
Material
Conversion
4-17
PROBLEM 4-27 (CONTINUED)
3.
Costs per equivalent unit:
Direct
Material
Conversion
Total
Work in process, 1/1/x4..................................
$ 300,000
$ 620,800a
$
aConversion cost
=
direct labor + overhead
=
direct labor + (100% direct labor)
bConversion cost
=
200% direct labor
4-18
PROBLEM 4-27 (CONTINUED)
4.
Cost of ending inventories:
Cost of goods completed and transferred out:
Cost remaining in 12/31/x4 work-in-process inventory:
Direct material:
Conversion:
Ending finished-goods inventory: Of the 1,000,000 units completed during 20x4,
250,000 units remain in finished-goods inventory on December 31, 20x4. Therefore:
4-19
PROBLEM 4-28 (40 MINUTES)
1.
Equivalent units:
Physical
Units
Percentage
of
Completion
with
Respect to
Conversion
Equivalent Units
Direct
Material
Conversion
Work in process, August 1 ..............
40,000
80%
2.
Costs per equivalent unit:
Direct
Material
Conversion
Total
Total costs to account for
$138,000
$1,089,680
3.
Cost of goods completed and transferred out during August:
4-20
PROBLEM 4-28 (CONTINUED)
4.
Cost remaining in August 31 work-in-process inventory:
Direct material:
percost
of number
Conversion:
percost
of number
5.
Journal entry:
