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.
8. In calculating this period’s unit cost, the weighted average combines beginning inventory costs
and work done with current-period costs and work to calculate this period’s unit cost. The FIFO
method excludes any costs and output carried over from this period’s unit cost computation,
hence, only current work and costs are used to calculate this period’s unit cost.
6PROCESS COSTING
DISCUSSION QUESTIONS
6-1
CHAPTER 6 Process Costing
10. The first step is the preparation of a physical flow schedule. This schedule identifies the
physical units that must be accounted for and provides an accounting for these units. The second
step is the equivalent unit schedule. This schedule computes the equivalent whole output for the
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.
14. The weighted average method uses the same unit cost for all goods transferred out. The FIFO
method divides goods transferred out into two categories: units started and completed and
6-2
CHAPTER 6 Process Costing
6-1. d
6-2. c
6-10. d 100,000 + (0.4 × 25,000)
6-11. e 100,000 + (0.8 × 25,000)
6-18. a
6-19. c
MULTIPLE-CHOICE QUESTIONS
6-3
CHAPTER 6 Process Costing
CE 6-21
Mixing Cooking Packaging
1. Direct materials………………………………
…
$412,500 $187,500 $ 165,000
2.
Debit
Work in Process—Cooking 547,500
Work in Process—Mixing 547,500
CE 6-22
Equivalent Units
CE 6-23
1. Equivalent Units
Units completed…………………………………………………
…
CORNERSTONE EXERCISES
Journal
CreditDate Description
105,000
CE 6-24
1. Equivalent
Units
Units completed………………………………………………………………………
…
240,000
…
CE 6-25
Physical flow schedule:
Units in BWIP (80% complete)…………………………………
…
100,000
CE 6-26
Physical flow:
Units to account for: Units to account for:
UNIT INFORMATION
Cutting Department
Production Report
For the Month of October
Weighted Average Method
CE 6-26 (Continued)
Costs to account for:
Beginning work in process…………………………………………………
…
$ 80,000
Transferred Ending
Out Work in Process Total
Goods transferred out
CE 6-27
1. Materials Conversion
Units completed……………………………………………
…
32,600 32,600
Units in ending WIP ×
…
3. Cost transferred out (32,600 × $5.45)…………………
…
$177,670
Cost of ending WIP:
Add:
COST INFORMATION
CHAPTER 6 Process Costing
CE 6-28
1. Physical flow schedule:
Units in beginning work in process………………………………
…
60,000
Units started during the period……………………………………
…
240,000
2. Units completed…………………………………..……………………… 262,500
Units in EWIP……………………………………………………………… 37,500
Equivalent units (transferred-in materials)………………………
…
300,000
3. Unit-Transferred-In Cost = ($213,000 + $687,000)/300,000………
…
$3.00
CE 6-29
…
2. Unit Cost = $301,000/130,800…………………………………………………………
…
$2.30
3. Cost of units transferred out:
BWIP costs……………………………………………………………………………
…
24,000
Equivalent
Units
6-7
CHAPTER 6 Process Costing
CE 6-30
Physical flow:
Units to account for: Units to account for:
Units in beginning WIP……
…
24,000 Units started and completed
…
114,000
Units started………………… 130,000 From beginning WIP…………
…
24,000
Units in ending WIP…………
…
16,000
Costs to account for:
Costs in beginning WIP…………………………………………………………… $ 24,000
Costs added by department………………………………………………………
…
301,000
Total costs to account for……………………………………………………
…
$325,000
Inca Inc.
Mixing Department
Production Report
For the Month of July
(FIFO Method)
COST INFORMATION
UNIT INFORMATION
6-8
CHAPTER 6 Process Costing
E 6-31
1.
Direct materials…………
…
$ 9,800
Direct labor………………
…
22,800
E 6-32
1.
a. Work in Process—Grinding
Work in Process—Molding
2. The journal entries for the job-order and process-costing systems are generally
E 6-33
1. Equivalent
Units
7,200 units completed………………………………………………………………
…
7,200
Finishing
Department
EXERCISES
Description
Journal
Date
Department
Molding
Department
Grinding
Credit
Debit
128,000
128,000
$143,200
13,800
$ 15,200
33,600
6-9
CHAPTER 6 Process Costing
E 6-34
E 6-35
1. Unit Cost = $174,000/75,000 = $2.32 per unit
E 6-36
1. Unit Cost = $1,100,000/220,000…………………………………………………
…
$5.00
2. Cost of units transferred out (196,000 × $5.00)………………………………
…
$ 980,000
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
E 6-37
Units to account for:
Units in beginning work in process……………………………
…
91,500
…
6-10
CHAPTER 6 Process Costing
E 6-38
Units to account for:
Units in beginning WIP……………………………………………………………
…
25,000
E 6-39
Physical flow:
Units to account for: Units to account for:
Units in beginning WIP……
…
20,000 Units completed……………
…
50,000
Costs to account for:
Costs in beginning WIP…………………………………………………………… $ 93,600
UNIT INFORMATION
COST INFORMATION
Cooking Department
Production Report
For the Month of April
(Weighted Average Method)
CHAPTER 6 Process Costing
E 6-39 (Continued)
Costs accounted for:
Transferred
Out Total
Goods transferred out
E 6-40
Materials Conversion
Units completed……………………..……………
…
60,000 60,000
E 6-41
1. Unit materials cost [($147,000 + $1,053,000)/240,000]………………………
…
$5.00
…
2. Cost transferred out (180,000 × $6.13)…………………………………….….
…
$1,103,400
Cost of ending WIP:
E 6-42
1. Units to account for: Units accounted for:
Ending
Work in Process
CHAPTER 6 Process Costing
E 6-42 (Continued)
*Calculation:
2. Transferred-In Materials Conversion
Units transferred out……………
…
120,000 120,000 120,000
E 6-43
1. Unit transferred-in cost [($2,100 + $30,900)/75,000]……..…………
…
$0.44
…
…
E 6-44
Units started and completed……..……………………………………
…
27,000
…
…
E 6-45
1. Unit Cost = $14,000/7,840……………………………………….………
…
$1.79
2. Cost of ending work in process ($1.79 × 2,400)……………..………
…
$ 4,296
6-13
CHAPTER 6 Process Costing
P 6-46
1. Mixing department:
a. Units Transferred to Tableting = Total Units* – Ending WIP
2. Tableting department:
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 6-47
1. Units to account for:
Units in beginning work in process………..…………………
…
60,000
Units started during the period……………..…………………
…
120,000
PROBLEMS
CHAPTER 6 Process Costing
P 6-47 (Continued)
2. Cabinets Components Conversion
Units completed……………………………… 150,000 150,000 150,000
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
5. Costs to account for:
Beginning work in process………..…………………………………………
…
$19,200,000
…
6-15
CHAPTER 6 Process Costing
P 6-48
1.
Physical flow:
Units to account for: Units accounted for:
Units in beginning WIP…
…
60,000 Units completed…………
…
150,000
Costs to account for: Cabinets Components Conversion Total
Beginning WIP……………… $1,200,000 $12,600,000 5,400,000$ $19,200,000
Transferred Ending Work
Costs accounted for: Out in Process Total
Goods transferred out
($320 × 150,000)……………………………
…
$48,000,000 — $48,000,000
Unit Information
Assembly Department
Production Report
For the Month of April
(Weighted Average Method)
CHAPTER 6 Process Costing
P 6-48 (Continued)
2. Although the answers may vary, some essential elements should be mentioned in
the report. The job cost sheet summarizes the manufacturing activity for a job,
whereas the production report summarizes the manufacturing activity in a process
P 6-49
1. Units to account for:
Units in beginning work in process (60% complete)………….
.
40,000
Units started during the period………………..…………………
…
120,000
2. Units completed…………………………………………..……………
…
120,000
Add: Units in Ending WIP × Fraction Complete
6-17
CHAPTER 6 Process Costing
P 6-49 (Continued)
4. First, calculate the cost per unit for the equivalent units in beginning
inventory (0.60 × 40,000 = 24,000 equivalent units in BWIP) = 24,000
Prior Period Unit Cost = $144,000/24,000…………………………………………… $6.00
Next, calculate the current-period (FIFO) cost per unit:
P 6-50
Physical flow:
Units to account for: Units accounted for:
Units in beginning WIP……
…
40,000 Units completed……………
…
120,000
…
Throw-Rug Department
Production Report
For the Month of August
(Weighted Average Method)
UNIT INFORMATION
6-18