[Solution] Managerial ACCT Week 4 - Chapter 4 PDF

Preview

Summary

Tutor/Lecturer: Syrus - These documents will come in handy for Semester 2 2018 and Semester 1 2019 students ...

Description

Week 4 Lecture 4 – Chapter 4: Process Costing

Questions

Question 1: Under what conditions would it be appropriate to use a process costing system? Process costing is used when a company produces a continuous flow of units that are indistinguishable from one another. For example, a glue manufacturing company would use a process costing system.

Question 2: In what ways are job-order and process costing similar?

1. Both systems have the same basic purpose- to assign materials, labor, and manufacturing cost to products and to provide a mechanism for computing unit product cost 2. Both system use the same basic manufacturing overhead account, including manufacturing overhead, raw materials, work in progress, and finished goods 3. The flow of cost through the manufacturing overhead account is basically the same in both systems.

Question 3: Why is cost accumulation simpler in a process costing system than it is in a joborder costing system? Accumulation is simple in process costing because there is no need to identify materials, labor and overhead cost with a particular customer order, because each order is just one of many that are filled from a continuous flow of virtually identical units from the production line.

Question 7: What is meant by the term equivalent units of production when the weightedaverage method is used? Equivalent units: 

Equivalent units are the units transferred to the next department during the period plus the equivalent units in ending work in process inventory.

Exercises

Question 1: Quality Brick Company produces bricks in two processing departments—Molding and Firing. Information relating to the company’s operations in March follows: A. Raw materials were issued for use in production: Molding Department, $23,000; and Firing Department, $8,000. B. Direct labor costs were incurred: Molding Department, $12,000; and Firing Department, $7,000. C. Manufacturing overhead was applied: Molding Department, $25,000; and Firing Department, $37,000. D. Unfired, molded bricks were transferred from the Molding Department to the Firing Department. According to the company’s process costing system, the cost of the unfired, molded bricks was $57,000.

E. Finished bricks were transferred from the Firing Department to the finished goods warehouse. According to the company’s process costing system, the cost of the finished bricks was $103,000. F. Finished bricks were sold to customers. According

Required: Prepare journal entries to record items (a) through (f) above

Process costing journal: Process costing system: 

Process costing is a phrase used in costing accounting to define a method for collection and transmission of manufacturing costs to the units produced.



Work in process inventory is an asset. There is an increase in asset value. Therefore, it is debited.

a)



Raw materials inventory is an asset. There is a decrease in assets value. Therefore, it is credited.



Work in process inventory is an asset. There is an increase in asset value. Therefore, it is debited.



Wages payable is a liability. There is a decrease in liability value. Therefore, it is credited.

b)

c)

d)



Work in process inventory is an asset. There is an increase in asset value. Therefore, it is debited.



Manufacturing overhead is a liability. There is a decrease in liability value. Therefore, it is credited.

e)



Work in process-firing department is an asset. There is an increase in asset value. Therefore, it is debited.



Work in process-molding department is a liability. There is a decrease in liability value. Therefore, it is credited.

f)



Finished goods are an asset. There is an increase in asset value. Therefore, it is debited.



Work in process inventory is an asset. There is a decrease in asset value. Therefore, it is credited.



Cost of goods sold is an expense. There is a decrease in liability value. Therefore, it is debited.



Finished goods are an asset. There is a decrease in asset value. Therefore, it is credited.

Question 2: Clonex Labs, Inc., uses a process costing system. The following data are available for one department for October:

The department started 175,000 units into production during the month and transferred 190,000 completed units to the next department.

Required: Compute the equivalent units of production for October assuming that the company uses the weighted-average method of accounting for units and costs.

Computation of equivalent units using weighted average method Equivalent units 

All units cannot be wholly completed at the end of a specific period. Some units may be partially complete. Expenses (Material cost and conversion costs) might have been incurred on such units to the extent of their completion. Hence, in order to determine the actual production in a process, the concept of equivalent units is used. The partially completed units are multiplied with their percentage of completion and the resultant figure is considered as whole units produced.

Weighted average method 

The weighted average method is based on the assumption that the goods which are sold should be charged on average cost price.

Compute the equivalent units of production for October as follows:

Working Notes (W. N.) Calculate the equivalent units of ending work in process for materials as follows:

Hence, the equivalent units of ending work in process for materials are 12,000.

Calculate the equivalent units of ending work in process for conversion as follows:

Hence, the equivalent units of ending work in process conversion are 6,000. Question 3: Superior Micro Products uses the weighted-average method in its process costing system. Data for the Assembly Department for May appear below:

Required: 1. Compute the cost per equivalent unit for materials, for labor, and for overhead. 2. Compute the total cost per equivalent whole unit Cost per equivalent units-weighted average method:

Equivalent units: 

Equivalent unit is the concept used in the process costing system that expresses the amount of work done in terms of fully completed units. It is determined at the end of each accounting period.

Weighted average method: 

The margin of an average amount that determines paying of fixed costs of a business is known as weighted average contribution margin.

Part One Calculation of total cost:

Calculation of cost per equivalent units:

Part Two Calculation of total cost per equivalent unit: The calculated equivalent unit’s direct material is $7.34, labor is $2.60, and overhead is $13.00.

Now, calculate the total cost per equivalent unit:

Question 4: Data concerning a recent period’s activity in the Prep Department, the first processing department in a company that uses process costing, appear below:

A total of 20,100 units were completed and transferred to the next processing department during the period.

Required: Compute the cost of the units transferred to the next department during the period and the cost of ending work in process inventory.

Applying costs to units-weighted average method: Equivalent units: 

Equivalent unit is the concept used in the process costing system that expresses the amount of work done in terms of fully completed units. It is determined at the end of each accounting period.

Weighted average method: 

The margin of an average amount that determines paying of fixed costs of a business is known as weighted average contribution margin.

Calculation of cost of ending work in process: The cost of ending work in process is calculated by multiplying the number of equivalent units of production with the cost per equivalent unit.

Calculation of cost of unit transferred out:

Question 5: Maria Am Corporation uses a process costing system. The Baking Department is one of the processing departments in its strudel manufacturing facility. In June in the Baking Department, the cost of beginning work in process inventory was $3,570, the cost of ending work in process inventory was $2,860, and the cost added to production was $43,120.

Required: Prepare a cost reconciliation report for the Baking Department for June

Cost Reconciliation Report – Weighted Average Method: Reconciliation of work in process inventory accounts:

Reconciliation of work in process inventory accounts:

Question 6: Hielta Oy, a Finnish company, processes wood pulp for various manufacturers of paper products. Data relating to tons of pulp processed during June are provided below:

Required: 1. Compute the number of tons of pulp completed and transferred out during June. 2. Compute the equivalent units of production for materials and for labor and overhead for June.

Equivalent units - weighted average method: Equivalent units: 

Equivalent unit is the concept used in the process costing system that expresses the amount of work done in terms of fully completed units. It is determined at the end of each accounting period.

Weighted average method: 

The margin of an average amount that determines paying of fixed costs of a business is known as weighted average contribution margin.

Part One Calculation of completed and transferred out pulp during the month:

Hence, the calculated completed and transferred out pulp during the month is 180,000 tons of pulp.

Part Two Calculation of equivalent units:

Question 7: Chocolaterie de Geneve, SA, is located in a French-speaking canton in Switzerland. The company makes chocolate truffles that are sold in popular embossed tins. The company has two processing departments—Cooking and Molding. In the Cooking Department, the raw ingredients for the truffles are mixed and then cooked in special candy-making vats. In the Molding Department, the melted chocolate and other ingredients from the Cooking Department are carefully poured into molds and decorative flourishes are applied by hand. After cooling, the truffles are packed for sale. The company uses a

process costing system. The T-accounts below show the flow of costs through the two departments in April:

Required: Prepare journal entries showing the flow of costs through the two processing departments during April.

Process costing journal: Process costing system: 

a)

Process costing is a phrase used in costing accounting to define a method for collection and transmission of manufacturing costs to the units produced.

b)



Work in process – cooking is an asset. There is an increase in asset value. Therefore, it is debited.



Raw materials inventory is an asset. There is a decrease in asset value. Therefore, it is credited.

c)



Work in process inventory is an asset. There is an increase in asset value. Therefore, it is debited.



Wages payable is a liability. There is a decrease in liability value. Therefore, it is credited.

d)



Work in process inventory is an asset. There is an increase in asset value. Therefore, it is debited.



Manufacturing overhead is a liability. There is a decrease in liability value. Therefore, it is credited.

e)



Work in process-firing department is an asset. There is an increase in asset value. Therefore, it is debited.



Work in process-molding department is a liability. There is a decrease in liability value. Therefore, it is credited.



Finished goods are an asset. There is an increase in asset value. Therefore, it is debited.



Work in process inventory is an asset. There is a decrease in asset value. Therefore, it is credited.

Question 8: Helix Corporation produces prefabricated flooring in a series of steps carried out in production departments. All of the material that is used in the first production department is added at the beginning of processing in that department. Data for May for the first production department follow:

Required: 1. Assume that the company uses the weighted-average method of accounting for units and costs. Determine the equivalent units for May for the first process. 2. Compute the costs per equivalent unit for May for the first process. 3. Determine the total cost of ending work in process inventory and the total cost of units transferred to the next process in May

Equivalent Units: 

The units introduced are not completely manufactured in a period. A portion of the units will be under work-in-process. As per equivalent unit, the work made on the work-in-process is expressed in terms of completed units. The total of the units produced in such terms of completion are known as Equivalent units.

Weighted-average method: 

Under weighted average method of assumption, ending inventory is valued by taking average cost per unit. Average cost per unit is calculated by dividing total cost of goods with number of units.

Part One Calculate the equivalent units for the month of May for the first process as shown below:

Part Two Calculate the cost per equivalent unit as shown below:

Part Three Ending work in process inventory: Calculate the total cost of ending work in process inventory as shown below:

Units completed and transferred to next process: Calculate the total cost of units transferred to the next process as shown below:

Question 9: Pureform, Inc., manufactures a product that passes through two departments. Data for a recent month for the first department follow:

The beginning work in process inventory was 80% complete with respect to materials and 60% complete with respect to labor and overhead. The ending work in process inventory was 75% complete with respect to materials and 50% complete with respect to labor and overhead.

Required: Assume that the company uses the weighted-average method of accounting for units and costs. 1. Compute the equivalent units for the month for the first department. 2. Determine the costs per equivalent unit for the month. Equivalent units 

Equivalent unit is the concept used in the process costing system that expresses the amount of work done in terms of fully completed units. It is determined at the end of each accounting period.

Weighted average method: 

The margin of an average amount that determines paying of fixed costs of a business is known as weighted average contribution margin.

Equivalent units and cost per equivalent unit-weighted average method:

Part One Compute the equivalent units for the first department:

Part Two Determine the cost per equivalent units:

Question 10: Alaskan Fisheries, Inc., processes salmon for various distributors. Two departments are involved— Cleaning and Packing. Data relating to pounds of salmon processed in the Cleaning Department during July are presented below:

A total of 380,000 pounds of salmon were started into processing during July. All materials are added at the beginning of processing in the Cleaning Department

Required: Compute the equivalent units for July for both materials and labor and overhead assuming that the company uses the weighted-average method of accounting for units.

Equivalent units - weighted average method: Equivalent units:



Equivalent unit is the concept used in the process costing system that expresses the amount of work done in terms of fully completed units. It is determined at the end of each accounting period.

Weighted average method: 

The margin of an average amount that determines paying of fixed costs of a business is known as weighted average contribution margin.

Part One Calculation of equivalent units:

Hence, the calculated equivalent units of direct materials are 400,000 units and conversion is 390,000 units.

Question 11: Scribners Corporation produces fine papers in three production departments— Pulping, Drying, and Finishing. In the Pulping Department, raw materials such as wood fiber and rag cotton are mechanically and chemically treated to separate their fibers. The result is a thick slurry of fibers. In the Drying Department, the wet fibers transferred from the Pulping Department are laid down on porous webs, pressed to remove excess liquid, and dried in ovens. In the Finishing Department, the dried paper is coated, cut, and spooled onto reels. The company uses the weighted-average method in its process costing system. Data for March for the Drying Department follow:

No materials are added in the Drying Department. Pulping cost represents the costs of the wet fibers transferred in from the Pulping Department. Wet fiber is processed in the Drying Department in batches; each unit in the above table is a batch and one batch of wet fibers produces a set amount of dried paper that is passed on to the Finishing Department.

Required 1. Determine the equivalent units for March for pulping and conversion 2. Compute the costs per equivalent unit for March for pulping and conversion 3. Determine the total cost of ending work in process inventory and the total cost of units transferred to the Finishing Department in March 4. Prepare a cost reconciliation report for the Drying Department for March Equivalent units



Equivalent unit is the concept used in the process costing system that expresses the amount of work done in terms of fully completed units. It is determined at the end of each accounting period.

Weighted average method: 

The margin of an average amount that determines paying of fixed costs of a business is known as weighted average contribution margin.

Part One Calculation of equivalent units:

Part Two Calculation of equivalent units:

Part Three Calculation of cost of ending work in process:

Calculation of cost of unit transferred out:

Part Four Reconciliation of work in process inventory accounts:...