Solution Manual Cost Aaccounting 14e by Carter Ch06 PDF

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CHAPTER 6DISCUSSION QUESTIONS6-Q6-1. The basic objective of process costing is to determine the costs of the products manufac- tured by the company. Determining the cost of the products manufactured is necessary in order to properly cost ending inventories for external reporting purposes (i., report...

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CHAPTER 6 DISCUSSION QUESTIONS

Q6-1. The basic objective of process costing is to determine the costs of the products manufactured by the company. Determining the cost of the products manufactured is necessary in order to properly cost ending inventories for external reporting purposes (i.e., reporting to creditors and owners of the company, the SEC, and the IRS) and to evaluate the profitability of the manufacturing activity. In order to cost products, the costs must be determined for materials, labor, and factory overhead used to process each unit of product through each department. Q6-2. The products manufactured within a department (or cost center) during the period can be heterogeneous if job order costing is used, but must be homogeneous if process costing is used. In job order costing, products are accounted for in batches. The cost of each unit of product manufactured on a job is determined by dividing the total cost charged to the job by the number of units produced on the job. Since the manufacturing cost of each job is accounted for separately, accurate and useful product cost can be determined even when the products manufactured on different jobs are substantially different. By contrast, in process costing, all manufacturing costs are charged to the department, and the unit cost is determined by dividing the cost charged to the department by the number of units produced. As a consequence, the units of product manufactured within a department must be essentially alike in order for the cost allocated to each unit to be meaningful (i.e., to reasonably reflect the actual cost of the resources used to manufacture the product). Q6-3. (a) Process (b) Process, unless significantly different models are manufactured (c) Process (d) Job order (e) Process (f) Process (g) Job order

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(h) Process, unless different fabrics are used for different models, in which case the conversion costs may be accounted for using process, but the materials using job order Q6-4. Three product flow formats are: sequential, parallel, and selective. Sequential means that the product flows or is manufactured in an unchanging fixed set of operations, going from one department to the next. Parallel means that certain operational phases take place simultaneously in other departments and the partially completed units or parts are brought together in subsequent departments. Selective refers to the fact that a product does not necessarily move through every department. Depending upon the character or shape of the final product, different departments are engaged in completing the desired product. Q6-5. Materials Costs—In job order costing, materials requisitions are used and charges are made to jobs; in process costing, charges for materials issued to production are made to departments, with infrequent use of materials requisitions. Labor Costs—Time tickets are used in job order costing to accumulate labor costs for each job; in process costing, labor costs are charged to departments, and, therefore, detailed time records are not necessary. Factor y Overhead—Job order costing requires the use of predetermined rates for charging overhead to jobs; in process costing, actual overhead may be used. (However, predetermined rates are often used in order to smooth overhead that is not incurred at the same rate as production activity.) Summarizing Costs—A job order cost sheet is used to accumulate the costs of an order in job order costing; a cost of production report is used in process costing. In job order costing, costs are summarized on completion of the job; in process costing, costs charged to the

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department and costs accounted for are summarized in the cost of production report each month (or sometimes each week). Q6-6. Predetermined overhead rates can and should be used if the pattern of overhead cost incurrence does not follow the pattern of production activity. Some items of overhead are fixed and not responsive to changes in production activity. If production volume varies each month, then predetermined overhead rates should be used. Some items of overhead are incurred only at certain times during the year, but benefit production throughout the year (e.g., payroll taxes, insurance, property taxes, vacation pay, etc.). These items can be recorded as prepaid expenses and amortized uniformly to each month if actual overhead is charged to production. Alternatively, estimates of such costs can be included in the predetermined overhead rate, and the actual cost charged to overhead when incurred. The use of predetermined rates is often simpler than the allocation of actual costs because a single predetermined rate requires only one overhead charge to each department each month. In contrast, the capitalization and amortization of each item of actual overhead would require numerous charges each month. Q6-7. A cost of production report is an effective monthly (or weekly) summary of the cost of materials, labor, and overhead consumed by each department or cost center, along with a record of the quantity of products manufactured. It provides information necessary to cost

Chapter 6

products, prepare journal entries to record the transfer of costs between departments, and control costs. Q6-8. The sections commonly found in a cost of production report are: (a) a quantity schedule indicating the source and disposition of the units of product, (b) a cost charged to the department section, indicating the cost in total and per unit for the cost transferred in from the preceding department, as well as materials, labor and overhead charged to the department, and (c) a cost accounted for section indicating the amount of cost assigned to the units transferred out of the department, as well as the cost of ending inventory. Q6-9. Separate departmental cost of production reports are used to accumulate costs more accurately and to provide more detailed data for cost control purposes than a plant-wide cost of production report could provide. In some cases (e.g., a manufacturing plant that has a selective production flow for its products), a plant-wide cost of production report cannot be used. Q6-10. An equivalent unit of production is the amount of a resource (e.g., materials, labor, or overhead) that would be required to complete one unit of the product with respect to the cost element being considered. The total number of equivalent units, with respect to a particular element of cost, represents the number of units of the product that could have been completed with the resources used during the period.

Chapter 6

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EXERCISES E6-1 (1)

Equivalent units transferred out ................. Equivalent units in ending inventory: Cost from preceding department (100% × 5,000) ................................ Materials (100% × 5,000) .................... Labor (80% × 5,000) .............................. Factory overhead (60% × 5,000) ......... Total equivalent units................................... (2)

Cost in beginning inventory........................ Cost added during current period .............. Total cost to be accounted for .................... Divided by total equivalent units ................ Cost per equivalent unit ..............................

Cost from Preceding Department

Materials

Labor

Factory Overhead

20,000

20,000

20,000

20,000

5,000 5,000 4,000 25,000 Cost from Preceding Department

0 $40,000 $40,000 25,000 $ 1.60

25,000

Materials

0 $15,000 $15,000 25,000 $ .60

E6-2 Work in Process—Department X ............................................. Work in Process—Department Y ............................................. Materials ........................................................................

24,000

3,000 23,000

Labor

Factory Overhead

0 $ 9,600 $ 9,600 24,000 $ .40

0 $16,330 $16,330 23,000 $ .71

50,000 40,000 90,000

Work in Process—Department X ............................................. Work in Process—Department Y ............................................. Payroll ............................................................................

80,000 70,000

Work in Process—Department X ............................................. Work in Process—Department Y ............................................. Factory Overhead ........................................................

180,000 70,000

Work in Process—Department Y ............................................. Work in Process—Department X ................................

300,000

Finished Goods Inventory........................................................ Work in Process—Department Y.................................

448,000

150,000

250,000 300,000 448,000

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Chapter 6

Tyndol Fabricators Inc. Cutting and Forming Department Cost of Production Report For November

Quantity Schedule Beginning inventory................................ Started in process this period ............... Transferred to Assembling Department Ending Inventory .....................................

Materials

Labor

Overhead

75%

40%

25%

Quantity 800 3,200 4,000 3,400 600 4,000

Cost Charged to Department Beginning inventory: Materials ..................................................................................... Labor .......................................................................................... Factory overhead....................................................................... Total cost in beginning inventory....................................

Total Cost $ 17,923 2,352 3,800 $ 24,075

Equivalent Units*

Cost added during current period: Materials ..................................................................................... Labor........................................................................................... Factory overhead....................................................................... Total cost added during current period............................ Total cost charged to department ..................................................

$ 68,625 14,756 29,996 $113,377 $137,452

3,850 3,640 3,550

Cost Accounted for as Follows Transferred to Assembling Department Work in Process, ending inventory: Materials ............................................ Labor .................................................. Factory overhead .............................. Total cost accounted for ........................

Units 3,400 600 600 600

$22.48 4.70 9.52

$22.48 4.70 9.52 $36.70

% Complete Unit Cost 100% $36.70 75% 40% 25%

Unit Cost**

Total Cost $124,780 $10,116 1,128 1,428

12,672 $137,452

*Total number of equivalent units required in the cost accounted for section determined as follows:

Equivalent units transferred out ............ Equivalent units in ending inventory .... Total equivalent units..............................

Materials 3,400 450 3,850

Labor 3,400 240 3,640

Overhead 3,400 150 3,550

** Total cost (i.e., the cost in beginning inventory plus the cost added during the current period) divided by the total number of equivalent units required in the cost accounted for section

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Tokyo Manufacturing Company Molding Department Cost of Production Report For August

Quantity Schedule Beginning inventory................................ Started in process this period ............... Transferred to Finishing Department .... Ending inventory .....................................

Materials

75%

Labor

25%

Overhead

25%

Quantity 1,000 9,000 10,000 9,200 800 10,000

Cost Charged to Department Beginning inventory: Materials ..................................................................................... Labor........................................................................................... Factory overhead....................................................................... Total cost in beginning inventory....................................

Total Cost $ 4,120 522 961 $ 5,603

Equivalent Units*

Unit Cost**

Cost added during current period: Materials ..................................................................................... Labor........................................................................................... Factory overhead.......................................................................

$39,980 12,638 18,779

9,800 9,400 9,400

$4.50 1.40 2.10

Total cost added during current period............................ Total cost charged to department ..................................................

$71,397 $77,000

$8.00

% Complete Unit Cost 100% $8.00

Total Cost $73,600

Cost Accounted for as Follows Transferred to Finishing Department .... Work in Process, ending inventory: Materials .............................................. Labor .................................................... Factory overhead................................ Total cost accounted for ........................

Units 9,200 800 800 800

75% 25% 25%

$4.50 1.40 2.10

$2,700 280 420

3,400 $77,000

*Total number of equivalent units required in the cost accounted for section determined as follows:

Equivalent units transferred out ....... Equivalent units in ending inventory Total equivalent units ........................

Materials 9,200 600 9,800

Labor 9,200 200 9,400

Overhead 9,200 200 9,400

** Total cost (i.e., the cost in beginning inventory plus the cost added during the current period) divided by the total number of equivalent units required in the cost accounted for section

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Chapter 6

Stanislov Corporation Forming Department Cost of Production Report For September

Quantity Schedule Beginning inventory................................ Received from Cutting Department....... Transferred to Painting Department ...... Ending inventory .....................................

Materials

Labor

Overhead

60%

30%

30%

Quantity 1,400 4,600 6,000 5,000 1,000 6,000

Cost Charged to Department Beginning inventory: Cost from preceding department............................................. Materials .................................................................................... Labor........................................................................................... Factory overhead....................................................................... Total cost in beginning inventory......................................

Total Cost $ 21,120 5,880 2,614 5,228 $ 34,842

Equivalent Units*

Cost added during current period: Cost from preceding department............................................. Materials ..................................................................................... Labor........................................................................................... Factory overhead ...................................................................... Total cost added during current period............................ Total cost charged to department .................................................

$ 68,280 20,440 17,526 35,052 $141,298 $176,140

6,000 5,600 5,300 5,300

Cost Accounted for as Follows Transferred to Painting Department ...... Work in Process, ending inventory: Cost from preceding department .... Materials ............................................ Labor .................................................. Factory overhead .............................. Total cost accounted for.........................

Units 5,000

% Complete 100%

1,000 1,000 1,000 1,000

100% 60% 30% 30%

$14.90 4.70 3.80 7.60 $31.00

Unit Cost $31.00 $14.90 4.70 3.80 7.60

Unit Cost**

Total Cost $155,000 $14,900 2,820 1,140 2,280

21,140 $176,140

*Total number of equivalent units required in the cost accounted for section determined as follows:

Equivalent units transferred out ............ Equivalent units in ending inventory .... Total equivalent units..............................

Prior Dept. Cost Materials 5,000 5,000 1,000 600 6,000 5,600

Labor 5,000 300 5,300

Overhead 5,000 300 5,300

** Total cost (i.e., the cost in beginning inventory plus the cost added during the current period) divided by the total number of equivalent units required in the cost accounted for section

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Sonneli Corporation Assembly Department Cost of Production Report For February

Quantity Schedule Beginning inventory................................ Received from Cutting Department....... Transferred to Finished Goods.............. Ending inventory ....................................

Materials

Labor

Overhead

80%

60%

60%

Cost Charged to Department Beginning inventory:

Total Cost

Cost from preceding department............................................. Materials ..................................................................................... Labor .......................................................................................... Factory overhead....................................................................... Total cost in beginning inventory......................................

$11,800 4,000 1,200 2,400 $19,400

Cost added during current period: Cost from preceding department............................................. Materials ..................................................................................... Labor .......................................................................................... Factory overhead ...................................................................... Total cost added during current period .......................... Total cost charged to department ..................................................

$63,200 21,200 17,660 35,320 $137,380 $156,780

Cost Accounted for as Follows Transferred to Finished Goods.............. Work in Process, ending inventory: Cost from preceding department .... Materials ............................................ Labor .................................................. Factory overhead .............................. Total cost accounted for.........................

Units 2,000 500 500 500 500

Quantity 400 2,100 2,500 2,000 500 2,500 Equivalent Units*

2,500 2,400 2,300 2,300

$30.00 10.50 8.20 16.40

$30.00 10.50 8.20 16.40 $65.10

% Complete Unit Cost 100% $65.10 100% 80% 60% 60%

Unit Cost**

Total Cost $130,200 $15,000 4,200 2,460 4,920

26,580 $156,780

*Total number of equivalent units required in the cost accounted for section determined as fo...