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Solutions to Questions
4-1
A process costing system is
appropriate when a homogeneous product
is produced on a continuous basis.
4-2
Process costing and job-order
costing are similar in the following ways:
1. Both systems have the same basic
purposes, which are to assign
materials, labor, and overhead cost to
products and to provide a mechanism
for computing unit costs.
2. Both systems use the same basic
accounts.
3. Cost flows through the accounts in
basically the same way in both
systems.
4-3
Costs are accumulated by
department in a process costing system.
4-4
Cost accumulation is simpler under
process costing because costs only need
to be identified by departmentnot by
separate job. Usually a company has only
a few departments, whereas there can be
hundreds or even thousands of jobs in a
job-order costing system.
4-5
A Work in Process account is
maintained for each separate processing
department in a process costing system.
4-6
The journal entry to transfer the
costs of partially completed goods from
the Mixing Department to the Firing
Department would be:
XXXX
Work in Process, Mixing.........................
4-7
The costs that might be added to
the Firing Departments Work in Process
account would include: (1) cost transferred
in from the Mixing Department, (2)
materials cost, (3) labor cost, and (4)
overhead cost.
4-8
Under the weighted-average
method, the equivalent units of production
consist of units transferred to the next
department (or to finished goods) during
the period plus the equivalent units in the
departments ending Work in Process
inventory.
4-9
A quantity schedule shows the
physical flow of units through a
department during a period. It serves
several purposes. First, it provides the
manager with information about activity in
his or her department and also shows the
manager the stage of completion of any
in-process units. Second, it provides data
for computing the equivalent units and for
preparing the other parts of the production
report.
4-10 A unit of product accumulates cost
in each department that it passes through,
with the costs of one department added to
the costs of the preceding department in a
snowballing fashion.
XXXX
Work in Process, Firing................................
137
$18,000
$5,000
$23,000
$61,000
Equivalent Units
Conversio
Materials
n
410,000
21,000
431,000
410,000
15,000
425,000
139
80,000
300,000
380,000
330,000
50,000
380,000
Material
Overhea
s
Labor
d
$ 14,550 $23,620 $118,100
88,350 14,330
71,650
$102,900 $37,950 $189,750
1,200
1,100
1,100
$85.75
$34.50
$172.50
$ 85.75
34.50
172.50
$292.7
5
141
$24.00
7.00
14.00
$45.00
Materials
1,500
90%
1,350
Labor
1,500
40%
600
Overhea
d
1,500
40%
600
3. Cost Reconciliation
Total
Cost
$810,00
0
32,400
4,200
Material
s
Labor
Overhead
8,400
45,000
$855,00
0
600
600
330,000
Work in ProcessMixing..........................................
260,000
Work in ProcessBaking.........................................
120,000
Wages Payable...................................................
380,000
Work in ProcessMixing..........................................
190,000
Work in ProcessBaking.........................................
90,000
Manufacturing Overhead....................................
280,000
Work in ProcessBaking.........................................
760,000
Work in ProcessMixing.....................................
760,000
Finished Goods........................................................
980,000
Work in ProcessBaking....................................
980,000
143
Quantit
y
Schedul
e
30,000
480,000
510,000
Equivalent Units
Labor &
Material Overhea
s
d
490,000
490,000
490,000
20,000
510,000
20,000
510,000
18,000
508,000
Quantit
y
Schedul
e
300,000
300,000
300,000
40,000
340,000
20,000
320,000
10,000
310,000
Total
Cost
Material
s
$ 71,50
0
599,500
$671,00
0
Conversio
n
$ 56,60
0
$ 14,900
385,000
214,500
$441,60
0
$229,400
320,000
310,000
$1.38 +
$0.74 =
Whole
Unit
$2.12
145
Cost
Equivalent Units
(EU)
Material Conversio
s
n
$636,00
0 300,000
27,600
7,400
35,000
$671,00
0
300,000
20,000
10,000
147
Gallons to be accounted
for:
Work in process, May
1 (materials 80%
complete, labor and
overhead 75%
complete)
Started into
production
Total gallons accounted
for
Quantit
y
Schedul
e
80,000
760,000
840,000
Equivalent Units
Material
Overhea
s
Labor
d
790,000
10,000
800,000
Total
Costs
Cost to be accounted
for:
Work in process, May
$ 146,60
1
0
Cost added during the
1,869,20
month
0
Total cost to be
$2,015,80
accounted for (a)
0
Equivalent units (b)
Material
s
Labor
Overhea
d
$ 68,600
$
30,000
$ 48,000
907,200
$975,80
0
820,000
370,000
$400,00
0
800,000
$1.19 +
$0.50 +
Whole
Unit
592,000
$640,000
800,000
$0.80 =
$2.49
149
Quantit
y
Equivalent Units (EU)
Schedul Material
Overhea
e
s
Labor
d
35,600
7,400
43,000
5,920
4,440
4,440
Cost
$103,24
0
2,960
4,884
35,600 35,600
5,920
5,772
13,616
$116,85
6
35,600
4,440
4,440
151
Quantit
y
Schedul
e
Equivalent Units
(EU)
Material Conversio
s
n
92,000
92,000
92,000
14,000
10,500
7,000
106,000
102,500
99,000
Total
Cost
Work in process, May $ 16,40
1
0
Cost added during
the month
431,200
$447,60
Total cost (a)
0
Material
s
Conversio
n
$ 5,900
194,20
0
$200,10
0
$ 10,500
Equivalent units of
production (b)
Cost per EU (a) (b)
102,500
$1.95 +
Whol
e Unit
237,000
$247,500
99,000
$2.50 = $4.45
153
7,000
88,000
95,000
Equivalent Units
(EU)
Material Conversio
s
n
82,000
82,000
82,000
13,000
7,800
2,600
95,000
89,800
84,600
Total
Cost
Materials
Conversio
n
$14,800 $ 6,800
249,730 105,450
$264,530 $112,250
$ 8,000
144,280
$152,280
89,800
84,600
$1.25 +
Total
$1.80
Whole
Unit
= $3.05
Cost
$250,100
82,000
9,750
4,680
14,430
$264,530
7,800
82,000
2,600
155
Units to be accounted
for:
Work in process, July 1
(materials 100%
complete; labor and
overhead 90%
complete)
Started into production
Total units
Quantit
y
Schedul
e
15,000
160,000
175,000
Equivalent Units (EU)
Material
Overhea
s
Labor
d
Total
Cost
Material
s
Labor
Overhea
d
$
53,120
$ 14,100
$22,680
$16,340
142,380
237,940
178,340
$156,480
$260,620
$194,680
163,000
157,000
157,000
558,660
$611,78
0
$0.96 +
Cost Reconciliation
Total
Cost
$1.66 +
Whol
e
Unit
$1.24 = $3.86
$598,30
0
155,000
7,680
8,000
155,000
155,000
157
3,320
2,480
13,480
$611,78
0
2,000
2,000
Quantity
Schedul
e
4,500
56,800
61,300
Equivalent Units
(EU)
Labor &
Material Overhea
s
d
58,400
58,400
58,400
2,900
2,900
2,030
61,300
61,300
60,430
159
Total
Cost
Material
s
$12,365
188,794
$201,15
9
$ 9,125
113,475
$122,60
0
61,300
$2.00 +
Labor &
Overhea
d
Whole
Unit
$ 3,240
75,319
$78,559
60,430
$1.30 = $3.30
58,400
5,800
2,900
2,639
8,439
$201,15
58,400
2,030
161
Materials
635,000
Labor
Overhead
635,000
635,000
24,000
24,000
659,000
659,000
30,000
665,000
Work in
process,
January 1
Cost added
during the
year
Total costs (b)
Materials
Labor
$ 18,000
$ 9,555
979,500
$997,500
616,495
$626,050
Cost per EU
(b) (a)
$1.50 +
$0.95 +
Overhead
Whol
e
Unit
$ 7,644 *
493,196 **
$500,840
$0.76 = $3.21
163
Work in process:
Materials:
30,000 units $1.50 per
unit
Labor:
24,000 EU $0.95 per EU
Overhead:
24,000 EU $0.76 per EU
Finished goods:
12,000 units $3.21 per
unit
Total cost that should be
assigned to inventories
Work in
Process
Finished
Goods
Total
$45,000
$ 45,000
22,800
22,800
18,240
18,240
$86,040
$38,520
38,520
$38,520
$124,560
Work in
Process
Finished
Goods
Total
$86,040
$ 38,520
$ 124,560
85,000
60,000
145,000
$ 1,040 $(21,480) $(20,440)
Debit
Credit
1,040
20,440
21,480
$ 997,50
Materials (part 1)..................................................
0
Labor (part 1)........................................................
626,050
Overhead (part 1).................................................
500,840
Total manufacturing cost.........................................
2,124,390
Less cost assigned to inventories (part 2)...............
124,560
$1,999,83
Cost of goods sold...................................................
0
165
2,700,00
Sales..................................................................
0
1,600,00
Cost of Goods Sold..................................................
0
1,600,00
Finished Goods...................................................
0
Accounts Receivable
2,700,00
0
Bal.
Bal.
Bal
.
(a)
(b)
(d)
Bal
.
Work in Process
Bending Department
45,369 1,536,99
0
394,210
638,144
493,584
34,317
(e)
Bal
.
(a)
(b)
(d)
(e)
Bal
.
Bal
.
(f)
Bal
.
Finished Goods
110,000 1,600,00
0
1,650,00
0
160,000
Accounts Payable
685,000
Sales
2,700,00
0
(g)
(c)
(g)
Raw Materials
500,00 495,010
0
4,990
Work in Process
Drilling Department
10,000 1,650,00
0
100,800
250,600
189,000
1,536,9
90
437,390
(a)
(f)
Manufacturing Overhead
(c)
685,00 682,584 (d)
0
Bal.
2,416
(g)
167
Total Cost
Material
s
Labor
$ 45,369
$13,385
$18,880
1,525,938
394,210
638,144
$1,571,307
$407,595
$657,024
Overhea
d
Whol
e
Unit
$
13,104
493,58
4
$506,68
8
281,100
278,400 278,400
$1.45 +
$2.36 +
$1.82 = $5.63
Cost Reconciliation
Total
Cost accounted for as follows:
Transferred to Drilling:
273,000; $5.63 per unit
Work in process, May 31:
Materials, at $1.45 per EU
Labor, at $2.36 per EU
Overhead, at $1.82 per EU
Cost
$1,536,990
273,000
11,745
12,744
9,828
8,100
273,000
5,400
273,000
5,400
169
34,317
$1,571,307
2,500,00
Sales..................................................................
0
1,930,00
Cost of Goods Sold..................................................
0
1,930,00
Finished Goods...................................................
0
The McGraw-Hill Companies, Inc., 2005. All rights reserved.
171
Accounts Receivable
2,500,00
0
Bal.
Bal.
Bal
.
(a)
(b)
(d)
Bal
.
Work in Process
Drying Department
97,400 1,200,00
0
540,460
397,970
208,170
44,000
(e)
Bal
.
(a)
(b)
(d)
(e)
Bal
.
Bal
.
(f)
Bal
.
Finished Goods
57,000 1,930,00
0
1,980,00
0
107,000
Accounts Payable
542,000
Sales
2,500,00
0
(g)
(c)
(g)
Raw Materials
850,00 835,460
0
14,540
Work in Process
Salting Department
33,000 1,980,00
0
295,000
201,000
340,000
1,200,0
00
89,000
(a)
(f)
Manufacturing Overhead
(c)
542,00 548,170 (d)
0
6,170 Bal
.
(g)
200,000
200,000
10,000
5,000
5,000
210,000
205,000
205,000
173
Labor
Overhea
d
$ 32,530
$17,330
397,970
$430,50
0
208,170
Whol
e
Unit
$225,500
210,000
205,000
205,000
$2.80 +
$2.10 +
$1.10 = $6.00
Equivalent Units (EU)
Material
Overhea
Total Cost
s
Labor
d
$1,200,00
0 200,000
28,000
10,500
10,000
200,000
200,000
5,000
5,500
44,000
$1,244,00
0
5,000
175
Units to be accounted
for:
Work in process,
October 1 (material
100% complete,
conversion 7/8
complete)
Received from the
preceding
department*
Total units to be
accounted for
Quantity
Schedul
e
8,000
97,000
105,000
Equivalent Units (EU)
Transferre Material Converd In
s
sion
100,00
0
5,000
105,00
0
100,000
5,000
105,000
100,000 100,000
2,000
100,000 102,000
Total
Cost
Transferre
d In
Material
s
Conversio
n
$8,820
$3,400
$10,200
81,480
27,600
$
31,000
100,000
96,900
$
22,420
205,980
$228,40
0
$90,300
105,000
$0.86 +
Total
Cost
Whole
Unit
$107,100
102,000
$0.31 +
$1.05 = $2.22
$222,00
100,000 units $2.22 per unit...........................
0
100,000
Work in process, October 31:
Transferred in cost, at $0.86 per
EU....................................................................
4,300
5,000
Conversion, at $1.05 per EU...............................
2,100
Total work in process.............................................
6,400
$228,40
Total cost accounted for..........................................
0
100,000
100,000
2,000
177
2. The unit cost figure on the report prepared by the accountant is high because none of
the cost incurred during the month was assigned to the units in the ending work in
process inventory.
Estimated completion
Computation of equivalent
units:
Completed and transferred
out
Work in process, ending:
Transferred in,
20,000 units 100%
Conversion,
20,000 units 25%
Total equivalent units
250,000
20,000
5,000
255,000
270,000
Transferred
In
Conversion
0
$49,221,00
Cost added during the month
0
Total cost to be accounted for $49,221,00
(a)
0
Equivalent units (above) (b)
Cost per equivalent unit (a)
(b)
250,000
Whole
Unit
0
$16,320,00
0
$16,320,00
0
270,000
$182.30 +
255,000
$64.00
=
$246.30
179
$61,575,000
$16,320,000
250,000+20,000X
$16,320,000
=$246.05
250,000+20,000X
$16,320,000
=$246.05-$182.30
250,000+20,000X
$16,320,000
=$63.75
250,000+20,000X
181
250,000+20,000X
1
=
$16,320,000
$63.75
$16,320,000
$63.75
250,000+20,000X=256,000
20,000X=256,000-250,000
20,000X=6,000
X=
6,000
=30%
20,000
183
Transferred In Conversion
100%
30%
250,000
250,000
20,000
6,000
256,000
270,000
Transferred In Conversion
0
$49,221,000
$49,221,000
270,000
$182.30
Whole
Unit
0
$16,320,00
0
$16,320,00
0
256,000
+
=$246.0
$63.75
5
185
Current Date
Minesh Patel
Students Name
Production Report
715,200
3. After this entry is posted to the ledger, the Shaping and Milling
Department account should have an ending account balance of
$19,475, which is the total Work in Process, May 31 amount
reflected in the Cost Reconciliation section of the Production
Report.
If you have any questions, please do not hesitate to contact me.
Teamwork In Action
Reports similar to the following should be prepared by the Expert
Teams and shared with the Learning Teams:
a. Quantity Schedule and Equivalent Units
The Quantity Schedule and Equivalent Units section of the
production report: (1) accounts for all of the units that were in
production during the period, and (2) computes the equivalent
units of production. Imagine that you are the manager of a
department in a factory. You are responsible for the units that
pass through your department during the month. This section of
the report summarizes that activity. In addition, it converts the
information to equivalent units.
The work in process, beginning of the period represents the
number of units that are sitting in your department when you
arrive at work on the first day of the month. These units were
started last month. During the month, the department just before
yours in the production process will transfer units into your
department (or, if you are the first department in the process, raw
materials will be transferred into your department during the
month). These units are started into production. Also, during the
month, your department will work on (or process) units. The units
that have been completely processed are transferred to the next
department. It is important to note that the units on hand at the
beginning of the month plus the units that were transferred in
must equal the units that were transferred out plus the units that
were still on hand at the end of the period.
To determine the departments output for the period, the
equivalent units of production are computed for both materials
and conversion (labor and overhead). The equivalent units of
production are determined by adding the number of completed
units that were transferred to the next department and the
equivalent units that are in the ending work in process inventory.
The number of equivalent units in the ending work in process
inventory is computed by multiplying the number of units on hand
times the percent complete.
187
189