Solution manual cost accounting 12e by horngren ch 17

To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com CHAPTER 17 PROCESS COSTING 17-1 Industries using process costing in their manufacturing area include chemical processing, oil refining, pharmaceuticals, plastics, brick and tile manufacturing, semiconductor chips, beverages, and breakfast cereals 17-2 Process costing systems separate costs into cost categories according to the timing of when costs are introduced into the process Often, only two cost classifications, direct materials and conversion costs, are necessary Direct materials are frequently added at one point in time, often the start or the end of the process, and all conversion costs are added at about the same time, but in a pattern different from direct materials costs 17-3 Equivalent units is a derived amount of output units that takes the quantity of each input (factor of production) in units completed or in incomplete units in work in process, and converts the quantity of input into the amount of completed output units that could be made with that quantity of input Each equivalent unit is comprised of the physical quantities of direct materials or conversion costs inputs necessary to produce output of one fully completed unit Equivalent unit measures are necessary since all physical units are not completed to the same extent at the same time 17-4 The accuracy of the estimates of completion depends on the care and skill of the estimator and the nature of the process Semiconductor chips may differ substantially in the finishing necessary to obtain a final product The amount of work necessary to finish a product may not always be easy to ascertain in advance 17-5 The five key steps in process costing follow: Step 1: Summarize the flow of physical units of output Step 2: Compute output in terms of equivalent units Step 3: Compute cost per equivalent unit Step 4: Summarize total costs to account for Step 5: Assign total costs to units completed and to units in ending work in process 17-6 Three inventory methods associated with process costing are: Weighted average First-in, first-out Standard costing 17-7 The weighted-average process-costing method calculates the equivalent-unit cost of all the work done to date (regardless of the accounting period in which it was done), assigns this cost to equivalent units completed and transferred out of the process, and to equivalent units in ending work-in-process inventory 17-1 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 17-8 FIFO computations are distinctive because they assign the cost of the previous accounting period’s equivalent units in beginning work-in-process inventory to the first units completed and transferred out of the process and assigns the cost of equivalent units worked on during the current period first to complete beginning inventory, next to start and complete new units, and finally to units in ending work-in-process inventory In contrast, the weighted-average method costs units completed and transferred out and in ending work in process at the same average cost 17-9 FIFO should be called a modified or departmental FIFO method because the goods transferred in during a given period usually bear a single average unit cost (rather than a distinct FIFO cost for each unit transferred in) as a matter of convenience 17-10 A major advantage of FIFO is that managers can judge the performance in the current period independently from the performance in the preceding period 17-11 The journal entries in process costing are basically similar to those made in job-costing systems The main difference is that, in process costing, there is often more than one work-inprocess account––one for each process 17-12 Standard-cost procedures are particularly appropriate to process-costing systems where there are various combinations of materials and operations used to make a wide variety of similar products as in the textiles, paints, and ceramics industries Standard-cost procedures also avoid the intricacies involved in detailed tracking with weighted-average or FIFO methods when there are frequent price variations over time 17-13 There are two reasons why the accountant should distinguish between transferred-in costs and additional direct materials costs for a particular department: (a) All direct materials may not be added at the beginning of the department process (b) The control methods and responsibilities may be different for transferred-in items and materials added in the department 17-14 No Transferred-in costs or previous department costs are costs incurred in a previous department that have been charged to a subsequent department These costs may be costs incurred in that previous department during this accounting period or a preceding accounting period 17-15 Materials are only one cost item Other items (often included in a conversion costs pool) include labor, energy, and maintenance If the costs of these items vary over time, this variability can cause a difference in cost of goods sold and inventory amounts when the weighted-average or FIFO methods are used A second factor is the amount of inventory on hand at the beginning or end of an accounting period The smaller the amount of production held in beginning or ending inventory relative to the total number of units transferred out, the smaller the effect on operating income, cost of goods sold, or inventory amounts from the use of weighted-average or FIFO methods 17-2 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 17-16 (25 min.) Equivalent units, zero beginning inventory Direct materials cost per unit ($720,000 ÷ 10,000) Conversion cost per unit ($760,000 ÷ 10,000) Assembly Department cost per unit $ 72 76 $148 2a Solution Exhibit 17-16A calculates the equivalent units of direct materials and conversion costs in the Assembly Department of International Electronics in February 2007 Solution Exhibit 17-16B computes equivalent unit costs 2b Direct materials cost per unit Conversion cost per unit Assembly Department cost per unit $ 72 80 $152 The difference in the Assembly Department cost per unit calculated in requirements and arises because the costs incurred in January and February are the same but fewer equivalent units of work are done in February relative to January In January, all 10,000 units introduced are fully completed resulting in 10,000 equivalent units of work done with respect to direct materials and conversion costs In February, of the 10,000 units introduced, 10,000 equivalent units of work is done with respect to direct materials but only 9,500 equivalent units of work is done with respect to conversion costs The Assembly Department cost per unit is, therefore, higher SOLUTION EXHIBIT 17-16A Steps and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units; Assembly Department of International Electronics for February 2007 Flow of Production Work in process, beginning (given) Started during current period (given) To account for Completed and transferred out during current period Work in process, ending* (given) 1,000 100%; 1,000 50% Accounted for Work done in current period only (Step 1) Physical Units 10,000 10,000 9,000 1,000 (Step 2) Equivalent Units Direct Conversion Materials Costs 9,000 1,000 9,000 500 10,000 10,000 *Degree of completion in this department: direct materials, 100%; conversion costs, 50% 17-3 9,500 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com SOLUTION EXHIBIT 17-16B Compute Equivalent Unit Costs, Assembly Department of International Electronics for February 2007 (Step 3) Costs added during February Divide by equivalent units of work done in current period (Solution Exhibit 17-l6A) Cost per equivalent unit Total Production Direct Conversion Costs Materials Costs $1,480,000 $720,000 $760,000 $ 10,000 72 $ 9,500 80 17-17 (20 min.) Journal entries (continuation of 17-16) Work in Process––Assembly Accounts Payable To record $720,000 of direct materials purchased and used in production during February 2007 Work in Process––Assembly Various accounts To record $760,000 of conversion costs for February 2007; examples include energy, manufacturing supplies, all manufacturing labor, and plant depreciation Work in Process––Testing Work in Process––Assembly To record 9,000 units completed and transferred from Assembly to Testing during February 2007 at $152 9,000 units = $1,368,000 720,000 720,000 760,000 760,000 1,368,000 1,368,000 Postings to the Work in Process––Assembly account follow Work in Process –– Assembly Department Beginning inventory, Feb Transferred out to Direct materials 720,000 Work in Process––Testing Conversion costs 760,000 Ending inventory, Feb 29 112,000 17-4 1,368,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 17-18 (25 min.) Zero beginning inventory, materials introduced in middle of process Solution Exhibit 17-18A shows equivalent units of work done in the current period of Chemical P, 50,000; Chemical Q, 35,000; Conversion costs, 45,000 Solution Exhibit 17-18B calculates cost per equivalent unit of work done in the current period for Chemical P, Chemical Q, and Conversion costs, summarizes the total Mixing Department costs for July 2007, and assigns these costs to units completed (and transferred out) and to units in ending work in process SOLUTION EXHIBIT 17-18A Steps and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units; Mixing Department of Vaasa Chemicals for July 2007 (Step 1) Flow of Production Work in process, beginning (given) Started during current period (given) To account for Completed and transferred out during current period Work in process, ending* (given) 15,000 100%; 15,000 0%; 15,000 66 2/3% Accounted for Work done in current period only (Step 2) Equivalent Units Physical Units Chemical P 50,000 50,000 35,000 15,000 35,000 15,000 Chemical Q Conversion Costs 35,000 35,000 10,000 50,000 50,000 35,000 *Degree of completion in this department: Chemical P, 100%; Chemical Q, 0%; conversion costs, 66 2/3% 17-5 45,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com SOLUTION EXHIBIT 17-18B Steps 3, 4, and 5: Compute Cost per Equivalent Unit, Summarize Total Costs to Account For, and Assign Total Costs to Units Completed and to Units in Ending Work in Process; Mixing Department of Vaasa Chemicals for July 2007 (Step 3) Costs added during July Divide by equivalent units of work done in current period (Solution Exhibit 17-l8A) Cost per equivalent unit (Step 4) Total costs to account for (Step 5) Assignment of costs: Completed and transferred out (35,000 units) Work in process, ending (15,000 units) Total costs accounted for Total Production Costs Chemical P Chemical Q $455,000 $250,000 $70,000 $ 50,000 $ 35,000 Conversion Costs $135,000 $ 45,000 $455,000 $350,000 (35,000* $5) + (35,000* 105,000 (15,000† $455,000 $5) + (0† $2) $2) + (35,000* + (10,000† $3) *Equivalent units completed and transferred out from Solution Exhibit 17-18A, Step † Equivalent units in work in process, ending from Solution Exhibit 17-18A, Step 17-19 (15 min.) Weighted-average method, equivalent units Under the weighted-average method, equivalent units are calculated as the equivalent units of work done to date Solution Exhibit 17-19 shows equivalent units of work done to date for the Satellite Assembly Division of Aerospatiale for direct materials and conversion costs SOLUTION EXHIBIT 17-19 Steps and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units; Weighted-Average Method of Process Costing, Satellite Assembly Division of Aerospatiale for May 2007 (Step 2) (Step 1) Equivalent Units Physical Direct Conversion Flow of Production Units Materials Costs Work in process beginning (given) Started during current period (given) 50 To account for 58 Completed and transferred out during current period 46 46.0 46.0 Work in process, ending* (12 60%; 12 30%) (given) 12 7.2 3.6 Accounted for 58 Work done to date 53.2 49.6 *Degree of completion in this department: direct materials, 60%; conversion costs, 30% 17-6 $3) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 17-20 (20 min.) Weighted-average method, assigning costs (continuation of 17-19) Solution Exhibit 17-20 calculates cost per equivalent unit of work done to date in the Satellite Assembly Division of Aerospatiale, summarizes total costs to account for, and assigns costs to units completed and to units in ending work-in-process inventory SOLUTION EXHIBIT 17-20 Steps 3, 4, and 5: Compute Cost per Equivalent Unit, Summarize Total Costs to Account For, and Assign Total Costs to Units Completed and to Units in Ending Work in Process; Weighted-Average Method of Process Costing, Satellite Assembly Division of Aerospatiale for May 2007 (Step 3) (Step 4) (Step 5) Work in process, beginning (given) Costs added in current period (given) Costs incurred to date Divide by equivalent units of work done to date (Solution Exhibit 17-19) Cost per equivalent unit of work done to date Total costs to account for Assignment of costs: Completed and transferred out (46 units) Work in process, ending (12 units) Total costs accounted for * † Total Production Costs $ 5,844,000 46,120,000 Direct Materials $ 4,933,600 32,200,000 $37,133,600 $ 53.2 698,000 $ 49.6 299,000 $51,964,000 45,862,000 (46* $698,000) + (46* $299,000) 6,102,000 (7.2† $698,000) + (3.6† $299,000) $51,964,000 Equivalent units completed and transferred out from Solution Exhibit 17-19, Step Equivalent units in work in process, ending from Solution Exhibit 17-19, Step 17-7 Conversion Costs $ 910,400 13,920,000 $14,830,400 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 17-21 (15 min.) FIFO method, equivalent units Under the FIFO method, equivalent units are calculated as the equivalent units of work done in the current period only Solution Exhibit 17-21 shows equivalent units of work done in May 2007 in the Satellite Assembly Division of Aerospatiale for direct materials and conversion costs SOLUTION EXHIBIT 17-21 Steps and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units; FIFO Method of Process Costing, Satellite Assembly Division of Aerospatiale for May 2007 Flow of Production Work in process, beginning (given) Started during current period (given) To account for Completed and transferred out during current period: From beginning work in process§ (100% 90%); (100% 40%) Started and completed 38 100%, 38 100% Work in process, ending* (given) 12 60%; 12 30% Accounted for Work done in current period only § (Step 1) Physical Units 50 58 (Step 2) Equivalent Units Direct Conversion Materials Costs (work done before current period) 38 † 0.8 4.8 38.0 38.0 7.2 3.6 46.0 46.4 12 58 Degree of completion in this department: direct materials, 90%; conversion costs, 40% 46 physical units completed and transferred out minus physical units completed and transferred out from beginning work-in-process inventory *Degree of completion in this department: direct materials, 60%; conversion costs, 30% † 17-8 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 17-22 (20 min.) FIFO method, assigning costs (continuation of 17-21) Solution Exhibit 17-22 calculates cost per equivalent unit of work done in May 2007 in the Satellite Assembly Division of Aerospatiale, summarizes total costs to account for, and assigns costs to units completed and to units in ending work-in-process inventory SOLUTION EXHIBIT 17-22 Steps 3, 4, and 5: Compute Cost per Equivalent Unit, Summarize Total Costs to Account For, and Assign Total Costs to Units Completed and to Units in Ending Work in Process; FIFO Method of Process Costing, Satellite Assembly Division of Aerospatiale for May 2007 Total Production Costs $ 5,844,000 Direct Conversion Materials Costs (costs of work done before current period) $32,200,000 $ 13,920,000 Work in process, beginning ($4,933,600 + $910,400) (Step 3) Costs added in current period (given) 46,120,000 Divide by equivalent units of work done in current period (Solution Exhibit 17-21) 46 46.4 Cost per equiv unit of work done in current period $ 700,000 $ 300,000 (Step 4) Total costs to account for $51,964,000 (Step 5) Assignment of costs: Completed and transferred out (46 units): Work in process, beginning (8 units) $ 5,844,000 Costs added to beginning work in process in current period 2,000,000 (0.8* $700,000) + (4.8* $300,000) Total from beginning inventory 7,844,000 Started and completed (38 units) 38,000,000 (38† $700,000) + (38† $300,000) Total costs of units completed and transferred out 45,844,000 Work in process, ending (12 units) 6,120,000 (7.2# $700,000) + (3.6# $300,000) Total costs accounted for $51,964,000 * Equivalent units used to complete beginning work in process from Solution Exhibit 17-21, Step Equivalent units started and completed from Solution Exhibit 17-21, Step # Equivalent units in work in process, ending from Solution Exhibit 17-21, Step † 17-9 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 17-23 (25-30 min.) Standard-costing method, assigning costs The calculations of equivalent units for direct materials and conversion costs are identical to the calculations of equivalent units under the FIFO method Solution Exhibit 17-21 shows the equivalent unit calculations under standard costing given by the equivalent units of work done in May 2007 in the Assembly Department Solution Exhibit 17-23 summarizes the total costs to account for, and assigns these costs to units completed and transferred out and to units in ending work in process Solution Exhibit 17-23 shows the direct materials and conversion cost variances for Direct materials Conversion costs $230,000 U $232,000 U SOLUTION EXHIBIT 17-23 Steps 3, 4, and 5: Compute Cost per Equivalent Unit, Summarize Total Costs to Account For, and Assign Total Costs to Units Completed and to Units in Ending Work in Process; Use of Standard Costs in Process Costing, Satellite Assembly Division of Aerospatiale for May 2007 Total Production Costs (Step 3) Standard cost per equivalent unit (given) Work in process, beginning (given) Costs added in current period at standard costs (Step 4) Total costs to account for (Step 5) Assignment of costs at standard costs: Completed and transferred out (46 units): Work in process, beginning (8 units) Costs added to beginning work in process in current period Total from beginning inventory Started and completed (38 units) Total costs of units transferred out Work in process, ending (12 units) Total costs accounted for Summary of variances for current performance: Costs added in current period at standard costs (see Step above; 6.0 $695,000; 46.4 $295,000) Actual costs incurred (given) Variance Direct Conversion Materials Costs $ 695,000 $ 295,000 $ 5,948,000 (7.2 $695,000) + (3.2 $295,000) 45,658,000 (46.0 $695,000) + (46.4 $295,000) $51,606,000 $ 5,948,000 1,972,000 (0.8* $695,000) + (4.8* $295,000) 7,920,000 37,620,000 (38† $695,000) + (38† $295,000) 45,540,000 6,066,000 (7.2# $695,000) + (3.6# $295,000) $51,606,000 $31,970,000 32,200,000 $ 230,000 U *Equivalent units to complete beginning work in process from Solution Exhibit 17-21, Step † Equivalent units started and completed from Solution Exhibit 17-21, Step # Equivalent units in work in process, ending from Solution Exhibit 17-21, Step 17-10 $ $13,688,000 13,920,000 232,000 U To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 17-39 (30 min.) Transferred-in costs, FIFO method (continuation of 17-38) Solution Exhibit 17-39A calculates the equivalent units of work done in April 2007 in the Spinning Department for transferred-in costs, direct materials, and conversion costs Solution Exhibit 17-37B calculates the cost per equivalent unit of work done in April 2007 in the Spinning Department for transferred-in costs, direct materials, and conversion costs, summarizes total Spinning Department costs for April 2007, and assigns these costs to units completed and transferred out and to units in ending work in process using the FIFO method Journal entries: a Work in Process––Spinning Department Work in Process––Drawing Department Cost of goods completed and transferred out during April from the Drawing Department to the Spinning Department b Finished Goods Work in Process––Spinning Department Cost of goods completed and transferred out during April from the Spinning Department to Finished Goods inventory 94,500 94,500 160,100 160,100 The equivalent units of work done in beginning inventory is: Transferred-in costs, 600 100% = 600; direct materials, 600 0% = 0; and conversion costs, 600 40% = 240 The cost per equivalent unit of beginning inventory and of work done in the current period are: Transferred-in costs (weighted average) Transferred-in costs (FIFO) Direct materials Conversion costs Beginning Inventory $36.42 ($21,850 600) $30.53 ($18,320 600) — $41.67 ($10,000 240) Work Done in Current Period $53.33 ($96,000 1,800) $52.50 ($94,500 1,800) $8.90 $25 The following table summarizes the costs assigned to units completed and those still in process under the weighted-average and FIFO process-costing methods for the Spinning Department Cost of units completed and transferred out Work in process, ending Total costs accounted for Weighted Average FIFO (Solution (Solution Exhibit 17-38B) Exhibit 17-39B) $166,008 $160,100 25,642 26,520 $191,650 $186,620 17-39 Difference –$5,908 +$ 878 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com The FIFO ending inventory is higher than the weighted-average ending inventory by $878 This is because FIFO assumes that all the lower-cost prior-period units in work in process (resulting from the lower transferred-in costs in beginning inventory) are the first to be completed and transferred out while ending work in process consists of only the higher-cost current-period units The weighted-average method, however, smoothes out cost per equivalent unit by assuming that more of the higher-cost units are completed and transferred out, while some of the lower-cost units in beginning work in process are placed in ending work in process Hence, in this case, the weighted-average method results in a higher cost of units completed and transferred out and a lower ending work-in-process inventory relative to FIFO Note that the difference in cost of units completed and transferred out (–$5,908) does not fully offset the difference in ending work-in-process inventory (+$878) This is because the FIFO and weightedaverage methods result in different values for transferred-in costs with respect to both beginning inventory and costs transferred in during the period SOLUTION EXHIBIT 17-39A Steps and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units; FIFO Method of Process Costing, Spinning Department of Jhirmack Woolen Mills for April 2007 (Step 1) Physical Transferred-in Direct Conversion Units Costs Materials Costs 600 (work done before current period) 1,800 2,400 Flow of Production Work in process, beginning (given) Transferred-in during current period (given) To account for Completed and transferred out during current period: From beginning work in processa [600 (100% – 100%); 600 (100% – 0%); 600 Started and completed (1,400 100%; 1,400 100%; 1,400 100%) Work in process, endingc (given) (400 100%; 400 x 0%; 400 60%) Accounted for (Step 2) Equivalent Units 600 (100% – 40%)] 600 360 1,400 1,400 1,400 400 240 1,800 2,000 2,000 1,400b 400 2,400 Work done in current period only a Degree of completion in this department: Transferred-in costs, 100%; direct materials, 0%; conversion costs, 40% 2,000 physical units completed and transferred out minus 600 physical units completed and transferred out from beginning work-in-process inventory c Degree of completion in this department: transferred-in costs, 100%; direct materials, 0%; conversion costs, 60% b 17-40 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com SOLUTION EXHIBIT 17-39B Steps 3, 4, and 5: Compute Cost per Equivalent Unit, Summarize Total Costs to Account For, and Assign Total Costs to Units Completed and to Units in Ending Work in Process; FIFO Method of Process Costing, Spinning Department of Jhirmack Woolen Mills for April 2007 Work in process, beginning (given: $18,320 + $10,000) (Step 3) Costs added in current period (given) Divide by equivalent units of work done in current period (Sol Exhibit 17-39A) Cost per equivalent unit of work done in current period (Step 4) Total costs to account for (Step 5) Assignment of costs: Completed and transferred out (2,000 units) Work in process, beginning (600 units) Costs added to beginning work in process in current period Total from beginning inventory Started and completed (1,400 units) Total costs of units completed and transferred out Work in process, ending (400 units): Total costs accounted for a Total Production Costs $ 28,320 158,300 Transferred-in Direct Conversion Costs Materials Costs (costs of work done before current period) $94,500 $17,800 $46,000 1,800 $ 52.50 17-41 2,000 $23.00 $186,620 $ 28,320 13,620 41,940 118,160 160,100 26,520 $186,620 (0a (1,400b (400c Equivalent units used to complete beginning work in process from Solution Exhibit 17-39A, step Equivalent units started and completed from Solution Exhibit 17-39A, step c Equivalent units in ending work in process from Solution Exhibit 17-39A, step b 2,000 $ 8.90 $52.50) + (600a $8.90) + (360a $23) $52.50) + (1,400b $8.90) + (1,400b $23) $8.90) + (240c $23) $52.50) + (0c To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 17-40 (45 min.) Transferred-in costs, weighted-average and FIFO methods Solution Exhibit 17-40A computes the equivalent units of work done to date in the Drying and Packaging Department for transferred-in costs, direct materials, and conversion costs Solution Exhibit 17-40B calculates the cost per equivalent unit of work done to date in the Drying and Packaging Department for transferred-in costs, direct materials, and conversion costs, summarizes total Drying and Packaging Department costs for week 37, and assigns these costs to units completed and transferred out and to units in ending work in process using the weighted-average method Solution Exhibit 17-40C computes the equivalent units of work done in week 37 in the Drying and Packaging Department for transferred-in costs, direct materials, and conversion costs Solution Exhibit 17-40D calculates the cost per equivalent unit of work done in week 37 in the Drying and Packaging Department for transferred-in costs, direct materials, and conversion costs, summarizes total Drying and Packaging Department costs for week 37, and assigns these costs to units completed and transferred out and to units in ending work in process using the FIFO method SOLUTION EXHIBIT 17-40A Steps and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units; Weighted-Average Method of Process Costing, Drying and Packaging Department of Frito-Lay Inc for Week 37 (Step 1) (Step 2) Equivalent Units Physical TransferredDirect Conversion Flow of Production Units in Costs Materials Costs Work in process, beginning (given) 1,250 Transferred in during current period (given) 5,000 To account for 6,250 Completed and transferred out during current period 5,250 5,250 5,250 5,250 Work in process, ending* (given) 1,000 1,000 100%; 1,000 0%; 1,000 40% 1,000 400 Accounted for 6,250 Work done to date 6,250 5,250 5,650 *Degree of completion in this department: transferred-in costs, 100%; direct materials, 0%; conversion costs, 40% 17-42 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com SOLUTION EXHIBIT 17-40B Steps 3, 4, and 5: Compute Cost per Equivalent Unit, Summarize Total Costs to Account For, and Assign Total Costs to Units Completed and to Units in Ending Work in Process; Weighted-Average Method of Process Costing, Drying and Packaging Department of Frito-Lay Inc for Week 37 (Step 3) Work in process, beginning (given) Costs added in current period (given) Costs incurred to date Divide by equivalent units of work done to date (Solution Exhibit 17-40A) Equivalent unit costs of work done to date (Step 4) Total costs to account for (Step 5) Assignment of costs: Completed and transferred out (5,250 units) Work in process, ending (1,000 units) Total costs accounted for * Total Production Costs $ 38,060 159,600 $ 6,250 20 Direct Materials $ 25,200 $25,200 5,250 $ 4.80 $ Conversion Costs $ 9,060 38,400 $47,460 5,650 8.40 $197,660 $174,300 23,360 $197,660 Equivalent units completed and transferred out from Solution Exhibit 17-40A, Step †Equivalent units in work in process, ending from Solution Exhibit 17-40A, Step 17-43 Transferred -in Costs $ 29,000 96,000 $125,000 (5,250* $20) + (5,250* $4.80) + (5,250* $8.40) (1,000† $20) + (0† $4.80 ) + (400† $8.40) To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com SOLUTION EXHIBIT 17-40C Steps and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units; FIFO Method of Process Costing, Drying and Packaging Department of Frito-Lay Inc for Week 37 Flow of Production Work in process, beginning (given) Transferred-in during current period (given) To account for Completed and transferred out during current period: From beginning work in process§ 1,250 (100% 100%); 1,250 (100% 0%); 1,250 (100% 80%) Started and completed 4,000 100%; 4,000 100%; 4,000 100% Work in process, ending* (given) 1,000 100%; 1,000 0%; 1,000 40% Accounted for Work done in current period only § (Step 2) (Step 1) Equivalent Units Physical TransferredDirect Conversion Units in Costs Materials Costs 1,250 (work done before current period) 5,000 6,250 1,250 4,000† 1,250 4,000 4,000 1,000 5,000 5,250 250 4,000 1,000 400 6,250 4,650 Degree of completion in this department: Transferred-in costs, 100%; direct materials, 0%; conversion costs, 80% 5,250 physical units completed and transferred out minus 1,250 physical units completed and transferred out from beginning work-in-process inventory *Degree of completion in this department: transferred-in costs, 100%; direct materials, 0%; conversion costs, 40% † 17-44 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com SOLUTION EXHIBIT 17-40D Steps 3, 4, and 5: Compute Cost per Equivalent Unit, Summarize Total Costs to Account For, and Assign Total Costs to Units Completed and to Units in Ending Work in Process; FIFO Method of Process Costing, Drying and Packaging Department of Frito-Lay Inc for Week 37 Total Production Costs Work in process, beginning ($9,060 + $0 + $28,920) (Step 3) Costs added in current period (given) Divide by equivalent units of work done in current period (Solution Exhibit 17-40C) Cost per equiv unit of work done in current period (Step 4) Total costs to account for (Step 5) Assignment of costs: Completed and transferred out (5,250 units): Work in process, beginning (1,250 units) Costs added to beg work in process in current period Total from beginning inventory Started and completed (4,000 units) Total costs of units completed & transferred out Work in process, ending (1,000 units) Transferred -in Costs 5,000 $ 18.80 17-45 $ 5,250 4.80 4,650 $ 8.258 $195,580 $ 37,980 8,065 (0* $18.80) + (1,250* $4.80) + (250* $8.258) 46,045 127,432 (4,000† $18.80) + (4,000† $4.80) + (4,000† $8.258) 173,477 22,103 (1,000# $18.80) + (0# $4.80) + (400# $8.258) $195,580 Equivalent units used to complete beginning work in process from Solution Exhibit 17-40C, Step Equivalent units started and completed from Solution Exhibit 17-40C, Step # Equivalent units in work in process, ending from Solution Exhibit 17-40C, Step † Conversion Costs $ 37,980 (Costs of work done before current period) 157,600 $94,000 $25,200 $38,400 Total costs accounted for * Direct Materials To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 17-41 (25 min.) Standard costing with beginning and ending work in process Solution Exhibit 17-41A shows equivalent units of work done in the current period: Direct materials Conversion costs 20,000 equivalent units 18,700 equivalent units Solution Exhibit 17-41B uses the standard costs of work done in the current period: direct materials, $6; conversion costs, $3; to summarize the total Cooking Department costs for May 2007, and assign these costs to units completed (and transferred out) and to units in ending work in process using the standard costing method May variances for direct materials and conversion costs are as follows: Output in equivalent units for May Standard costs of May month's output Direct materials, $6; Conversion costs, $3 Actual costs incurred during May (given) Variances Direct Materials 20,000 Conversion Costs 18,700 $120,000 125,000 $ 5,000 U $ $56,100 57,000 900 U SOLUTION EXHIBIT 17-41A Steps and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units; Use of Standard Costs in Process Costing, Cooking Department of Victoria Corporation for May 2007 Flow of Production Work in process, beginning (given) Started during current period (given) To account for Completed and transferred out during current period: From beginning work in process§ 3,000 (100% 100%); 3,000 (100% 60%) Started and completed 15,000 100%; 15,000 100% Work in process, ending* (given) 5,000 100%; 5,000 50% Accounted for Work done in current period only § (Step 1) Physical Units 3,000 20,000 23,000 (Step 2) Equivalent Units Direct Conversion Materials Costs 3,000 1,200 15,000|| 15,000 15,000 5,000 2,500 20,000 18,700 5,000 23,000 Degree of completion in this department: direct materials, 100%; conversions, 60% 18,000 physical units completed and transferred out minus 3,000 physical units completed and transferred out from beginning work-in-process inventory *Degree of completion in this department: direct materials, 100%; conversion costs, 50% || 17-46 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com SOLUTION EXHIBIT 17-41B Steps 3, 4, and 5: Compute Cost per Equivalent Unit, Summarize Total Costs to Account For, and Assign Total Costs to Units Completed and to Units in Ending Work in Process; Use of Standard Costs in Process Costing, Cooking Department of Victoria Corporation for May 2007 Total Production Costs (Step 3) Standard cost per equivalent unit (given) Work in process, beginning (given) Costs added in current period at standard costs (Step 4) Total costs to account for (Step 5) Assignment of costs at standard costs: Completed and transferred out (18,000 units): Work in process, beginning (3,000 units) Costs added to beg work in process in current period Total from beginning inventory Started and completed (15,000 units) Total costs of units completed and transferred out Work in process, ending (5,000 units) Total costs accounted for Summary of variances for current performance Costs added in current period at standard costs (see Step above) Actual costs incurred (given) Variance Direct Conversion Materials Costs $ $ $ 23,400 (3,000 $6) + (1,800 $3) 176,100 (20,000 $6) + (18,700 $3) $199,500 $ 23,400 3,600 (0* $6) + (1,200* $3) 27,000 135,000(15,000† $6) + (15,000† $3) 162,000 37,500 (5,000# $6) + (2,500# $3) $199,500 *Equivalent units to complete beginning work Solution Exhibit 17-41A, Step † Equivalent units started and completed from Solution Exhibit 17-41A, Step # Equivalent units in work in process, ending from Solution Exhibit 17-41A, Step 17-47 $120,000 125,000 $ 5,000 U $ $56,100 57,000 900 U To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 17-42 (25-30 min.) Operation costing, equivalent units Materials and conversion costs of each operation, the total units produced, and the material and conversion cost per unit for the month of May are as follows: Extrusion 11,000 $132,000 12.00 269,500 24.50 Units produced Materials costs Materials cost per unit (2 ÷1) Conversion costs Conversion cost per unit (4 ÷ 1) Form 11,000 $ 44,000 4.00 132,000 12.00 Trim 5,000 $15,000 3.00 69,000 13.80 Finish 2,000 $12,000 6.00 42,000 21.00 The unit cost and total costs in May for each product are as follows: Cost Elements Extrusion materials Form materials Trim materials Finish materials Extrusion conversion Form conversion Trim conversion Finish conversion Total unit cost Multiply by units produced Total product costs Standard Model Deluxe Model $ 12.00 4.00 – – 24.50 12.00 – – $ 52.50 × 6,000 $315,000 $ 12.00 4.00 3.00 – 24.50 12.00 13.80 – $ 69.30 × 3,000 $207,900 $ 12.00 4.00 3.00 6.00 24.50 12.00 13.80 21.00 $ 96.30 × 2,000 $192,600 Equivalent Units Total Costs $12.00 1,000 $12,000 24.50 1,000 24,500 4.00 1,000 4,000 12.00 3.00 13.80 1,000 1,000 600* Unit Cost Deluxe model work-in process costs at the trim operation Extrusion material (100% complete when transferred in) Extrusion conversion (100% complete when transferred in) Form material (100% complete when transferred in) Form conversion (100% complete when transferred in) Trim material (100% complete) Trim conversion (60% complete) Work-in-process costs Executive Model *1,000 units × 60% complete 17-48 12,000 3,000 8,280 $63,780 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 17-43 (20 min.) Equivalent-unit computations, benchmarking, ethics The reported monthly cost per equivalent unit of either direct materials or conversion costs is lower when the plant manager overestimates the percentage of completion of ending work in process; the overestimate increases the denominator and, thus, decreases the cost per equivalent unit The plant manager has two motivations to report lower cost per equivalent unit numbers: (1) to get a bonus and (2) to be recognized in the company newsletter While the plant controller has responsibility for preparing the accounting reports for the plant, in most cases, the plant controller reports directly to the plant manager If this reporting relationship exists, Major may create a conflict of interest situation for the plant controller Only if the plant controller reports directly to the corporate controller, and indirectly to the plant manager, should Major show the letters to the plant controller without simultaneously showing them to the plant manager The plant controller’s ethical responsibilities to Major and to Leisure Suits are the same These include: Competence: The plant controller is expected to have the competence to make equivalent unit computations This competence does not always extend to making estimates of the percentage of completion of a product In Leisure Suits’s case, however, the products are probably easy to understand and observe Hence, a plant controller could obtain reasonably reliable evidence on percentage of completion at a plant Objectivity: The plant controller should not allow the possibility of the plant being written about favorably in the company newsletter to influence the way equivalent unit costs are computed The plant controller has a responsibility to communicate information fairly and objectively Major could seek evidence on possible manipulations as follows: a Have plant controllers report detailed breakdowns on the stages of production and then conduct end-of-month audits to verify the actual stages completed for ending work in process b Examine trends in ending work in process Divisions that report low amounts of ending work in process relative to total production are not likely to be able to greatly affect equivalent unit cost amounts by manipulating percentage of completion estimates Divisions that show sizable quantities of total production in ending work in process are more likely to be able to manipulate equivalent cost computations by manipulating percentage of completion estimates 17-49 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 17-44 (45 min.) Transferred-in costs, equivalent unit costs, working backward The equivalent units of work done in the current period for each cost category are computed in Solution Exhibit 17-44B using data on costs added in current period and cost per equivalent unit of work done in current period TransferredDirect Conversion In Costs Materials Costs $58,500 $57,000 $57,200 Costs added in current period Divided by cost per equivalent unit of work done in current period Equivalent units of work done in current period Physical units completed and transferred out $6.50 $3 9,000 19,000 $5.20 11,000 Physical units in beginning Physical Physical units in ending work in process units added work in process = 15,000 + 9,000 5,000 = 19,000 Solution Exhibit 17-44A shows the equivalent units of work done in June to complete beginning work in process and the equivalent units of work done in June to start and complete 4,000 units Note that direct materials in beginning work in process is 0% complete because it is added only when the process is 80% complete and the beginning WIP is only 60% complete We had calculated the total equivalent units of work done in the current period in requirement 1: transferred-in costs, 9,000; direct materials, 19,000; and conversion costs, 11,000 The missing number is the equivalent units of each cost category in ending work in process (see Solution Exhibit 17-44A) Transferred-in costs Direct materials Conversion costs 5,000 1,000 Percentage of completion for each cost category in ending work in process can be calculated by dividing equivalent units in ending work in process for each cost category by physical units of work in process (5,000 units) Transferred-in costs Direct materials Conversion costs 5,000 1,000 5,000 5,000 5,000 = 100% = 0% = 20% Solution Exhibit 17-44B summarizes the total costs to account for, and assigns these costs to units completed and transferred out and to units in ending work in process 17-50 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com SOLUTION EXHIBIT 17-44A Steps and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units; FIFO Method of Process Costing, Thermo-assembly Department of Lennox Plastics for June 2007 Flow of Production Work in process, beginning (given) Transferred-in during current period (given) To account for Completed and transferred out during current period: From beginning work in process§ 15,000 (100% 100%); 15,000 (100% (Step 1) Physical Units 15,000 9,000 24,000 (Step 2) Equivalent Units TransferredDirect Conversion in Costs Materials Costs (work done before current period) 15,000 0%); 15,000 (100% 60%) Started and completed 4,000 100%; 4,000 100%; 4,000 100% Work in process, ending* (given) 5,000 100%; 5,000 0%; 5,000 20% Accounted for Work done in current period only (from Solution Exhibit 17-44B) § 4,000† 15,000 6,000 4,000 4,000 4,000 5,000 1,000 9,000 19,000 11,000 5,000 24,000 Degree of completion in this department: transferred-in costs, 100%; direct materials, 0%; conversion costs, 60% † 19,000 physical units completed and transferred out minus 15,000 physical units completed and transferred out from beginning work-in-process inventory *Degree of completion in this department: transferred-in costs, 100%; direct materials, 0%; conversion costs, 20% 17-51 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com SOLUTION EXHIBIT 17-44B Steps 3, 4, and 5: Compute Cost per Equivalent Unit, Summarize Total Costs to Account For, and Assign Total Costs to Units Completed and to Units in Ending Work in Process; FIFO Method of Process Costing, Thermo-assembly Department of Lennox Plastics for June 2007 Total Production Costs Work in process, beginning ($90,000 + $0 + $45,000) (Step 3) Costs added in current period (given) Divide by equivalent units of work done in current period Cost per equiv unit of work done in current period (Step 4) Total costs to account for (Step 5) Assignment of costs: Completed and transferred out (19,000 units): Work in process, beginning (15,000 units) Costs added to beg work in process in current period Total from beginning inventory Started and completed (4,000 units) Total costs of units completed & transferred out Work in process, ending (5,000 units) Total costs accounted for $135,000 172,700 Transferred -in Costs Conversion Costs (Costs of work done before current period) $58,500 $57,000 $57,200 9,000 $ 6.50 $ 19,000 11,000 $ 5.20 $307,700 $135,000 76,200 (0* $6.50) + (15,000* $3) + (6,000* $5.20) 211,200 58,800 (4,000† $6.50) + (4,000† $3) + (4,000† $5.20) 270,000 37,700 (5,000# $6.50) + (0# $3) + (1,000# $5.20) $307,700 *Equivalent units used to complete beginning work in process from Solution Exhibit 17-44A, Step † Equivalent units started and completed from Solution Exhibit 17-44A, Step # Equivalent units in work in process, ending from Solution Exhibit 17-44A, Step 17-52 Direct Materials To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 17 Video Case The video case can be discussed using only the case writeup in the chapter Alternatively, instructors can have students view the videotape of the company that is the subject of the case The videotape can be obtained by contacting your Prentice Hall representative The case questions challenge students to apply the concepts learned in the chapter to a specific business situation NANTUCKET NECTARS: PROCESS COSTING In a process-costing system, the unit cost of a product or service is obtained by assigning total costs to many identical or similar units, in this case, single-serve juice beverage bottles Direct Material Item Raw ingredients for juices (water, cane sugar, fruit juice concentrates, etc.) Bottles and caps Labels, cardboard trays, shrink-wrap Stage in Production Process Beginning Middle End Conversion costs include labor associated with the production line, depreciation on production equipment, plant utilities, plant maintenance costs, and plant property taxes In the process described for the manufacture of Nantucket Nectars juices, there is no partially completed inventory, as the product is mixed and bottled within a few hours each production day Accordingly, the calculation of equivalent units in this case makes little sense As there is no partially completed ending inventory, there will be no difference between the cost of the units transferred out under the weighted average or FIFO methods 17-53 ... process Solution Exhibit 17- 18A shows equivalent units of work done in the current period of Chemical P, 50,000; Chemical Q, 35,000; Conversion costs, 45,000 Solution Exhibit 17- 18B calculates cost. .. current period (Solution Exhibit 17- l6A) Cost per equivalent unit Total Production Direct Conversion Costs Materials Costs $1,480,000 $720,000 $760,000 $ 10,000 72 $ 9,500 80 17- 17 (20 min.) Journal... department 17- 14 No Transferred-in costs or previous department costs are costs incurred in a previous department that have been charged to a subsequent department These costs may be costs incurred