1. Process costing collects costs by process (department) for a given period of time. Unit
costs are computed by dividing these costs by the department’s output measured for the
same period of time. Job-order costing collects costs by job. Unit costs are computed by
dividing the job’s costs by the units produced in the job. Process costing is typically used
for industries where units are homogeneous and mass-produced. Job-order costing is used
for industries that produce heterogeneous products (often custom-made).
4. The work-in-process account of the receiving department is debited, and the work-in-process
account of the transferring department is credited. The finished goods account is debited,
and the work-in-process account of the final department is credited upon completion
of the product.
5. Service firms generally do not have work-in-process inventories, and so equivalent units of
production are not needed. An important factor in process costing for services is determining
just what constitutes a unit of output.
6. Firms adopting JIT reduce inventories to very low levels. As a result, work-in-process
inventories are close to zero, and equivalent units of production need not be calculated.
In essence, unit cost is total cost for the period divided by output.
7. Equivalent units are the number of whole units that could have been produced, given the amount
of materials, labor, and overhead used. Equivalent units are the measure of a period’s output,
a necessary input for the computation of unit costs in a process-costing system.
6PROCESS COSTING
DISCUSSION QUESTIONS
CHAPTER 6 Process Costing
for.
11.
A
production report summarizes the activities and costs associated with a process for a given
period. It shows the physical flow, the equivalent units, the unit cost, and the values of ending
work in process and goods transferred out. The report serves the same function as a job-order
cost sheet in a job-order costing system.
12. Separate equivalent units must be calculated for each category of materials and for conversion
costs.
13. Transferred-in units represent partially completed units and are clearly a material for the
receiving department. To complete the product (or further process it), additional materials
and conversion costs are added by the receiving department.
CHAPTER 6 Process Costing
6-1. d
6-5. d
6-6. b 0 + 2,300 units + (500 units × 0.4) = 2,500 units
6-7. b $46,000/[0 + 2,300 units + (500 units × 0.4)] = $18.40
6-8. a $18.40 × 2,300 units transferred = $42,320
(see M.C. 6-7 for calculation of $18.40)
6-9. c $18.40 × (500 units × 0.40) = $3,680
(see M.C. 6-7 for calculation of $18.40)
6-13. c ($100,000 + $550,000)/100,000 units = $6.50
6-14. e (25,000 × 0.20) + 80,000 + (25,000 × 0.60) = 100,000 units
6-15. b (25,000 × 0.80) + 80,000 + (25,000 × 0.80) = 120,000 units
6-16. d $720,000/120,000 units = $6.00
MULTIPLE-CHOICE QUESTIONS
CHAPTER 6 Process Costing
BE 6-21
Mixing Cooking Packaging
1. Direct materials……………………… $ 825,000 $ 379,500 $ 330,000
Direct labor…………………………… 120,000 75,000 180,000
2.
Debit
Work in Process—Cooking 1,170,000
Work in Process—Mixing 1,170,000
BE 6-22
Equivalent Units
Units completed………………………………………………
EWIP (0.40 × 16,800)…………………….……………………
Output………………………………………………………
…
BE 6-23
1. Equivalent Units
Units completed…………………………………………
…
EWIP (0.60 × 112,500)…………………….……………
…
Output…………………………………………………
…
Unit Cost = $2,295,000/382,500………………..……
…
…
BRIEF EXERCISES: SET A
112,000
Journal
Date Description Credit
6,720
118,720
315,000
67,500
382,500
$6.00
CHAPTER 6 Process Costing
BE 6-24
1. Equivalent
Units
2. Unit Cost = $1,215,000/810,000…………………..……………………
…
$1.50
3. Cost of goods tranferred out ($1.50 × 720,000)……………………
…
$1,080,000
EWIP ($1.50 × 90,000)……………………………………………………
…
135,000
BE 6-25
Physical flow schedule:
Units in BWIP (80% complete)……………………
…
160,000
Units started…………………………………………
…
720,000
Total units to account for………………………
…
880,000
…
…
BE 6-26
Physical flow:
Units to account for: Units accounted for:
Units in beginning WIP………
…
4,000 Units completed……………
…
27,200
Units started…………………
…
31,200 Units in ending WIP………
…
8,000
Total units to acct. for……
…
35,200 Total units acct’d. for…
…
35,200
Manzer Inc.
Production Report
For the Month of October
Weighted Average Method
UNIT INFORMATION
Cutting Department
…
…
CHAPTER 6 Process Costing
BE 6-26
Costs to account for:
Beginning work in process…………………………………………………… $ 32,000
Cost per equivalent unit…………………………………………………………
…
$20.00
Costs accounted for:
Transferred
Out Total
BE 6-27
1. Materials Conversion
Units completed………………………………………………
…
65,200 65,200
Add: Units in ending WIP ×
Fraction complete (12,000 × 1; 12,000 × 0.60)…
…
12,000 7,200
Equivalent units of output……………………………..…… 77,200 72,400
3.
Cost transferred out (65,200 × $5.45)…………………………………………… $355,340
Cost of ending WIP:
Materials (12,000 × $2.15)……………………………………………………… $ 25,800
Conversion (7,200 × $3.30)……………………………………………………
…
23,760
Total ending WIP cost……………………………………………………… $ 49,560
COST INFORMATION
Ending
Work in Process
CHAPTER 6 Process Costing
BE 6-28
1. Physical flow schedule:
Units in beginning work in process………………………… 70,000
Units started during the period……………………………… 240,000
Total units to account for…………………………………
…
310,000
2. Units completed…………………………………..………………
…
262,500
Units in EWIP………………………………………………………
…
47,500
Equivalent units (transferred-in materials)………………
…
310,000
3. Unit Transferred-In Cost = ($283,000 + $957,000)/310,000…
…
$4.00
BE 6-29
Equivalent
Units
1. Units started and completed…………………………………………………… 570,000
Units in BWIP (0.20 × 120,000)…………………………………………………
…
24,000
Units in EWIP (0.75 × 80,000)…………………………………………………
…
60,000
Total……………………………………………………………………………
…
654,000
2. Unit Cost = $1,471,500/654,000………………………………………………… $2.25
CHAPTER 6 Process Costing
BE 6-30
Physical flow:
Equivalent units:
Started and completed………………………………………………..……………
…
570,000
To complete beginning WIP (120,000 × 0.20)…………………………………
…
24,000
Units in ending WIP (80,000 × 0.75)………………………………………………
…
60,000
Total equivalent units……………………………………………………………
…
654,000
Costs to account for:
Costs in beginning WIP……………………………………………………………
…
$ 120,000
Costs added by department………………………………………………………
…
1,471,500
Total costs to account for………………………………………………………
…
$1,591,500
Cost per Equivalent Unit = $1,471,500/654,000……………………………………
…
$2.25
UNIT INFORMATION
COST INFORMATION
A
ztec Inc.
Mixing Department
Production Report
For the Month of July
(FIFO Method)
CHAPTER 6 Process Costing
BE 6-31
Mixing Cooking Packaging
1. Direct materials………………………………
…
$600,500 $ 285,500 $ 250,000
Direct labor……………………………………
…
90,000 50,000 120,000
2.
Debit
Work in Process—Cooking 807,500
Work in Process—Mixing 807,500
BE 6-32
Equivalent Units
Units completed………………………………………………………
…
EWIP (0.30 × 15,750)…………………….…………………………….
Output………………………………………………………………
…
BE 6-33
1. Equivalent Units
Units completed…………………………………………………
…
EWIP (0.70 × 42,700)…………………….………………………
…
Output…………………………………………………………
…
Unit Cost = $1,759,120/219,890………………..………………
…
…
BRIEF EXERCISES: SET B
190,000
29,890
219,890
$8.00
105,000
4,725
109,725
Journal
CreditDate Description
CHAPTER 6 Process Costing
BE 6-34
1. Equivalent
Units
Units completed………………………………………………………………………… 360,000
EWIP (0.40 × 112,500)…………………………………………………………………
…
45,000
Output for July……………………………………………….…………………………
…
405,000
BE 6-35
Physical flow schedule:
Units in BWIP (60% complete)…………………………………
…
60,000
Units started………………………………………………………
…
230,000
Total units to account for……………………………………
…
290,000
…
BE 6-36
Physical flow:
Units to account for: Units accounted for:
Units in beginning WIP……
…
15,000 Units completed……………
…
102,000
Units started…………………
…
117,000 Units in ending WIP………… 30,000
Total units to acct. for…
…
132,000 Total units acct’d for……
…
132,000
UNIT INFORMATION
Washburn Inc.
Production Report
For the Month of June
Weighted Average Method
Molding Department
…
BE 6-36 (Concluded)
Costs to account for:
Beginning work in process…………………………………………………
…
$ 180,000
Incurred during June………………………………………………………… 3,420,000
Total costs to account for………………………………………………
…
$3,600,000
Cost per equivalent unit………………………………………………………… $30.00
Costs accounted for:
Transferred Ending
Out Work in Process Total
BE 6-37
1. Materials Conversion
Units completed……………………………………………
…
13,040 13,040
Units in ending WIP ×
Fraction complete (2,400 × 1; 2,400 × 0.60)…
…
2,400 1,440
Equivalent units of output……………………………..… 15,440 14,480
3. Cost transferred out (13,040 × $10.90)…………………
…
$142,136
Cost of ending WIP:
Add:
COST INFORMATION
CHAPTER 6 Process Costing
BE 6-38
1. Physical flow schedule:
Units in beginning work in process……………………………
…
30,000
Units started during the period…………………………………
…
120,000
Total units to account for……………………………………
…
150,000
2. Units completed…………………………………..…………………… 140,000
Units in EWIP…………………………………………………………… 10,000
Equivalent units (transferred-in materials)…………………… 150,000
BE 6-39
1. Units started and completed………………………………………………………
…
28,500
Units in BWIP (0.30 × 6,000)………………………………………………………
…
1,800
Units in EWIP (0.60 × 4,000)………………………………………………………
…
2,400
Total…………………………………………………………………………………
…
32,700
2. Unit Cost = $130,800/32,700………………………………………………………
…
$4.00
…
Equivalent
Units
CHAPTER 6 Process Costing
BE 6-40
Physical flow:
Units to account for: Units accounted for:
Units in beginning WIP………
…
6,000 Units started and completed
…
28,500
Units started……………………
…
32,500 From beginning WIP…………
…
6,000
Units in ending WIP…………
…
4,000
Total units to acct. for……
…
38,500 Total units acct’d for……… 38,500
Costs to account for:
Costs in beginning WIP………………………………………………………………
…
$ 16,380
Costs added by department…………………………………………………………
…
130,800
Total costs to account for………………………………………………………… $147,180
Cost per Equivalent Unit = $130,800/32,700…………………………………………..
.
$4.00
Saludable Inc.
Drying Departmen
t
Production Report
For the Month of November
(FIFO Method)
COST INFORMATION
UNIT INFORMATION
CHAPTER 6 Process Costing
E 6-41
1.
Direct materials………
…
$ 29,400
Direct labor……………
…
68,400
Applied overhead……
…
57,000
2. Unit Cost = $873,400/18,000……….….………………………………………………
…
$48.52
E 6-42
1.
a. Work in Process—Grinding
Work in Process—Molding
2. The journal entries for the job-order and process-costing systems are generally
the same. There is one key difference. For process costing, each department has
its own WIP account. As goods are completed in one department, they are
transferred with their costs to the next department.
E 6-43
1. Equivalent
Units
21,600 units completed……………………………………………………………… 21,600
(2,250 units × 0.60)………………………………………………………………
…
1,350
December output……………………………………………………………………
…
22,950
2. Unit Cost per Unit = $82,620/22,950………………………………………………
…
$3.60
$286,400
27,600
35,000
$ 30,400
67,200
272,000
128,000
128,000
Finishing
Department
EXERCISES
Description
Journal
Date
Department
Molding
Department
Grinding
Credit
Debit
CHAPTER 6 Process Costing
E 6-44
Units completed……………………………………………………………………
…
504,000
Units in ending work in process × Fraction complete:
E 6-45
1. Unit Cost = $174,000/75,000 = $2.32 per unit
2. Cost of ending work in process ($2.32 × 21,600)………………………………
…
$50,112
Cost of goods tranferred out ($2.32 × 53,400)…………………………………
…
$123,888
2. Cost of units transferred out (196,000 × $5.00)……………………………… $ 980,000
Cost of ending WIP (24,000 × $5.00)…………………………………………
…
120,000
Total costs accounted for…………………..………………………………
…
$1,100,000
3. The weighted average method is simpler to use than FIFO, but it does not reflect
the unit cost as well if costs are changing significantly from one period to the next.
FIFO calculates the unit cost using only costs of the current period and output of the
current period. Weighted average rolls back and picks up the costs and output in
E 6-47
Units to account for:
Units in beginning work in process……………………………
…
91,500
Units started during the period…………………………………
…
99,000
Total units to account for……………………………………
…
190,500
…
CHAPTER 6 Process Costing
E 6-48
Units to account for:
Units in beginning WIP………………………………………………………………… 25,000
Units started……………………………………………………………………………
…
142,500
Total units……………………………………………………………………………
…
167,500
142,500 – 35,000
E 6-49
Physical flow:
Units to account for: Units accounted for:
Units in beginning WIP………
…
20,000 Units completed……………
…
50,000
Units started……………………
…
40,000 Units in ending WIP…………
…
10,000
Total units to acct. for……
…
60,000 Total units acct’d for……
…
60,000
Costs to account for:
Costs in beginning WIP………………………………………………………………
…
$ 93,600
Costs added by department…………………………………………………………
…
314,600
Total costs to account for…………………………………………………………
…
$408,200
UNIT INFORMATION
COST INFORMATION
Mino Inc.
Production Report
For the Month of April
(Weighted Average Method)
Cooking Department
…
…
CHAPTER 6 Process Costing
E 6-49 (Concluded)
Costs accounted for:
Transferred
Out Total
Goods transferred out
($7.85 × 50,000)…..………… $392,500 —$392,500
E 6-50
Materials Conversion
Units completed……………………..……………… 60,000 60,000
Units in ending WIP ×
E 6-51
1. Unit materials cost [($147,000 + $1,053,000)/240,000]………………………
…
$5.00
Unit conversion cost [($7,875 + $236,205)/216,000]…………………………
…
1.13
Total unit cost……………………………………………………………………
…
$6.13
2. Cost transferred out (180,000 × $6.13)…………………………………….….…
$1,103,400
Cost of ending WIP:
E 6-52
1. Units to account for: Units accounted for:
Units in beginning WIP…
…
40,000 Units transferred out……
…
120,000
Units started*……………
…
110,000 Units in ending WIP………
…
30,000
Total units to acct. for… 150,000 Total units acct’d for…… 150,000
Add:
Ending
Work in Process
…
CHAPTER 6 Process Costing
E 6-52 (Concluded)
*
Calculation:
Units transferred out……………..………………………………………………………
…
120,000
Units in ending WIP……………..………………………………………………………… 30,000
Less: Units in beginning WIP…..………………………………………………………
…
(40,000)
Units transferred in………………..…………………………………………………
…
110,000
2. Transferred-In Materials Conversion
E 6-53
1. Unit transferred-in cost [($2,100 + $30,900)/75,000]……..…………
…
$0.44
Unit materials cost [($1,500 + $22,500)/75,000]……..………………
…
0.32
Unit conversion cost [($3,000 + $45,300)/69,000]……..……………
…
0.70
2. Total unit cost…..……………..…………………………………………
…
$1.46
E 6-54
Units started and completed……..……………………………………
…
27,000
…
…
E 6-55
1. Unit Cost = $14,000/7,840……………………………………….………
…
$1.79
2. Cost of ending work in process ($1.79 × 2,400)……………..………
…
$ 4,296
Cost of goods transferred out:
*
CHAPTER 6 Process Costing
P 6-56
1. Mixing department:
a. Units Transferred to Tableting = Total Units* – Ending WIP
2. Tableting department:
Units Transferred Out = Total Units* – Ending WIP = 408,000 – 12,000 = 396,000
*Total Units = Beginning WIP + Units Transferred In = 24,000 + 384,000 = 408,000
3. The solution is to convert the transferred-in units to the same unit of measure as
the output for the tableting department. Each bottle has eight ounces of transferred-
P 6-57
1. Units to account for:
Units in beginning work in process………..…………………
…
60,000
Units started during the period……………..…………………
…
120,000
Total units to account for…………………..………………
…
180,000
Units accounted for:
Units completed and transferred out:
Started and completed……………………..………………
…
90,000
PROBLEMS
CHAPTER 6 Process Costing
P 6-57 (Concluded)
2. Cabinets Components Conversion
Units completed……………………………
…
150,000 150,000 150,000
Units in EWIP………………………………
…
30,000 30,000 6,000
Equivalent units…………………………
…
180,000 180,000 156,000
*0.20 × 30,000
3. Costs to account for: Cabinets Components Conversion Total
Beginning WIP……………
…
$1,200,000 $12,600,000 $ 5,400,000 $19,200,000
4. Costs Transferred Out = 150,000 × $320
=
Cost of Ending WIP = (30,000 × $20) + (30,000 × $210) + (6,000 × $90)
= $7,440,000
5. Costs to account for:
Beginning work in process………..…………………………………………
…
$19,200,000
…
$48,000,000
*