Managerial accounting, 5th by jiambalvo test bank ch03

CHAPTER Process Costing Summary of Questions by Objectives and Bloom’s Taxonomy Item SO BT Item SO BT True-False Statements 1 K K K K C C C K K 10 C Multiple Choice Questions 26 K 48 K 27 C 49 AP 28 C 50 C 29 K 51 K 30 K 52 AP 31 K 53 2,3 K 32 K 54 2,3 AP 33 K 55 AP 34 K 56 AP 35 K 57 K 36 K 58 C 37 C 59 K 38 K 60 K 39 K 61 C 40 K 62 AP 41 K 63 AP 42 C 64 AP 43 K 65 AP 44 K 66 AP 45 AP 67 AP 46 AP 68 AP 47 K 69 AP Matching 133 1,2,3,5 K Exercises 134 AP 138 AP 135 AP 139 AP 136 1,2 AP 140 2,3 AP 137 AP 141 2,3 AP Challenge Exercises 153 2,4 AP 154 1-4 AP Short-Answer Essays 155 K 157 C 156 K 158 K Item SO BT 11 12 13 14 15 2 2 C K C K C 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 4 4 4 4 4 4 4 5 5 5 142 143 144 145 159 160 Item SO BT 16 17 18 19 20 3 K C C C C AP AP AP AP AP AP AP C C C AP AP K C C AP AP K K K C C 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 5 5 5 5 5 5 2 2 3 4 2-4 2-4 2-4 AP AP AP AP 146 147 148 149 K C 161 Item SO BT 21 22 23 24 25 5 5 C AP K K K K K AP AP K K AP AP AP AP AP AP AP AP AP AP AP AP AP AP AP AP 114 115 116 117 118 119 120 121 122 123 124 125 126 127 128 129 130 131 132 4 4 5 3 2-4 2-5 2-4 2-5 2-5 2-5 2-5 AP AP AP AP AP AP AP AP AP AP AP AP AP AP AP AP AP AP AP 3,4 3,4 3,4 AP AP AP AP 150 151 152 2-5 3,5 AP AP AP C 3-2 Test Bank to accompany Jiambalvo Managerial Accounting, 5th Edition TRUE-FALSE Process costing systems are commonly used by companies that produce homogeneous items using a continuous production process A company such as Proctor & Gamble that produces large quantities of identical items, such as shampoo and toothpaste, is likely to use a process costing system In a process costing system, costs are transferred from the Work in Process inventory account directly to the Cost of Goods Sold account In the manufacturing operations of a company using process costing, a product must typically pass through two or more departments Material is generally added evenly throughout the production process Materials and labor are often grouped together and called conversion costs Transferred-in costs are the costs of the direct materials that are transferred into the company when materials are purchased from a supplier In process costing, a transferred-in cost is handled in the same manner as a material cost added at the beginning of the process In a process costing system, each department has a separate Work in Process account 10 A significant disadvantage of a process costing system is that it requires the use of actual overhead costs rather than predetermined overhead rates 11 Recording transferred-in costs requires a debit to the Finished Goods inventory account and a credit to a Work in Process account 12 An essential calculation in a process costing system is to calculate the average unit cost, also known as the cost per equivalent unit 13 The number of equivalent units for materials is the same as the equivalent units for conversion costs in each department, but will often differ from equivalent units of other departments 14 The number of fully complete units of product that could have been produced with the materials used and processing costs in a particular accounting period is referred to as equivalent units 15 The number of equivalent units for conversion costs is always equal to or less than the number of equivalent units for materials 16 Materials are always added at the beginning of every process 17 In order to calculate the cost per equivalent unit, one must know the number of equivalent units in beginning inventory, ending inventory, units completed during the period, along with the total product costs incurred during the period Chapter Process Costing 3-3 18 The cost per equivalent unit is determined by dividing the cost incurred in the current period by the total equivalent units produced 19 The denominator in the formula for determining the cost per equivalent unit is determined by adding the number of units completed to the equivalent units in the ending Work in Process inventory 20 The cost transferred out is the cost of the inventory that was started and completed during the period 21 When computing the cost of the ending Work in Process Inventory, the number of equivalent units in Work in Process inventory is multiplied by the cost per equivalent unit separately for material, and separately for conversion costs 22 If beginning inventory consisted of 400 units, ending inventory was 600 units, and 7,700 units were started during the period, the number of units completed during the period was 8,700 23 Total cost accounted for is the sum of the cost of the units transferred out of the department plus the cost of the ending Work in Process inventory 24 The cost of the items completed and transferred out of a department is the total cost per equivalent unit times the number of units completed 25 The cost per equivalent unit used in process costing is the average of fixed and variable costs Answers T T F T F 10 F F T T F 11 12 13 14 15 F T F T F 16 17 18 19 20 F F F T F 21 22 23 24 25 T F T T F 3-4 Test Bank to accompany Jiambalvo Managerial Accounting, 5th Edition MULTIPLE CHOICE 26 Which one of the following is a costing system commonly used by companies that produce a large number of homogeneous units in a continuous production process? A Unit costing system B Job-order system C Incremental analysis cost system D Process costing system 27 Which of the following companies will most likely use a process costing system? A A law office B A custom home builder C A car repair business D A food manufacturer 28 In which of the following industries are companies least likely to use a process costing system? A Canned vegetables B Wooden pencils C Shampoo D Office cleaning services 29 Which of the following describes the differences between job-order and process costing? A Job-order costing is used in financial accounting, while process costing is used in managerial accounting B Job-order costing can only be used by manufacturers; only service enterprises use process costing C Job-order costing is voluntary, while process costing is required by GAAP D Job-order costing traces costs to jobs, while process costing traces costs to departments and averages the costs among the units worked on during the period 30 In a process costing system with three departments, when items are sold, the cost of the items is moved from A Work in Process to Finished Goods B Work in Process to Cost of Goods Sold C Cost of Goods Sold to Finished Goods D Finished Goods to Cost of Goods Sold 31 In a process costing system, when raw materials are put into process, the cost of the materials is moved from A Work in Process to Finished Goods B Finished Goods to Cost of Goods Sold C Raw Materials to Work in Process D Finished Goods to Work in Process 32 Which of the following costs is not a cost added to the Work in Process account in a process costing system? A Manufacturing overhead B Direct materials C Direct labor D Cost of goods sold Chapter Process Costing 3-5 33 Which of the following sequences describes the typical flow of costs in a company that is using process costing? A Raw Materials Inventory, Work in Process, Finished Goods, Cost of Goods Sold B Work in Process, Finished Goods, Raw Materials Inventory, Cost of Goods Sold C Raw Materials Inventory, Cost of Goods Sold, Work in Process, Finished Goods D Finished Goods, Raw Materials Inventory, Work in Process, Cost of Goods Sold 34 Which one of the following is true of the manufacturing operations of a company using process costing? A A product typically must pass through two or more finished goods departments B Manufacturing overhead and direct labor costs are referred to as conversion costs C Transferred-in costs occur only in departments that have no direct labor costs D Costs transferred in must equal total costs transferred out of each work in process department 35 Conversion costs A are often assumed to be added at the beginning of the production process in each department B are the sum of the direct materials and direct labor costs C are rarely a part of the cost transferred out of a process department D are often assumed to be added evenly throughout the process within a department 36 Labor and overhead are often grouped together and referred to as A prime costs B conversion costs C total manufacturing costs D equivalent unit costs 37 Which of the following statements about process costing is true? A Total transferred-in cost is equal to the total transferred-out cost during a period B The costs of inventory completed in its final department in the manufacturing process will be transferred to Finished Goods inventory C If a department has transferred-in costs, it means that the inventory accounts were not closed correctly at the end of the last period D None of the answer choices are correct 38 A cost incurred by the Baking Department that is transferred to the Packaging Department is called a A conversion cost by the Baking Department B transferred-out cost by the Packaging Department C equivalent unit cost by the Baking Department D transferred-in cost by the Packaging Department 39 When direct labor costs are incurred in the Mixing Department, the journal entry to record the transaction includes a A debit to Wages Payable B credit to Manufacturing Overhead C credit to Work in Process, Mixing Department D debit to Work in Process, Mixing Department 3-6 Test Bank to accompany Jiambalvo Managerial Accounting, 5th Edition 40 In a process costing system, manufacturing overhead is added to Work in Process A using a predetermined overhead rate or based on actual overhead B only in the final production department C at the same rate as the direct materials are added D only when Work in Process is transferred to Finished Goods 41 Transferred-in costs are recorded with a journal entry that includes a credit to A Raw Materials B Manufacturing Overhead C Work in Process D Finished Goods 42 Which of the following will never be a component of the cost of Work in Process in a company’s initial production department? A Direct material B Direct labor C Transferred-in costs D Manufacturing overhead 43 How are equivalent units calculated in a process costing system? A By adding the units started to the equivalent units in beginning and ending inventory B By adding the units completed to the equivalent units in ending Work in Process C By subtracting the equivalent units in beginning inventory from the total units to account for D By adding the units started to the equivalent units in ending inventory 44 In the calculation of the cost per equivalent unit, the denominator A is the total work done during the period plus the equivalent units in ending inventory B includes both the number of units completed and the number of equivalent units in ending Work in Process C equals the work done during the period less the work remaining to finish ending inventory D is the work done for the current and preceding departments 45 The Baking Department began the period with 16,000 units which were 45% complete During the period, the department received another 78,000 units from the previous department, and at the end of the period, 9,000 units remained which were 40% complete Conversion costs are added evenly throughout the process and materials are added at the beginning of the process How much are equivalent units for conversion costs in the Baking Department’s Work in Process inventory at the end of the period? A 5,400 units B 3,600 units C 3,000 units D 9,000 units Chapter Process Costing 3-7 46 The Shaping Department began June with 5,000 units which were 50% complete During June, the department received another 60,000 units from the prior department and completed 62,000 units The remaining units were 75% complete as to conversion costs Materials are added at the beginning of the process How much are equivalent units for conversion costs in the Shaping Department’s Work in Process inventory at the end of June? A 3,000 units B 5,250 units C 2,250 units D 1,250 units 47 When partially completed units are converted to a comparable number of completed units, they are referred to as A conversion units B transferred-out units C equivalent units D units to be accounted for 48 Equivalent units A are used in calculating actual physical units completed in a process costing system B are partially completed units that have been converted to a comparable number of completed units C represent the cost of producing one unit of product D All of these answer choices are correct 49 The Molding Department’s Work in Process inventory on May consists of 1,400 units and its Work in Process inventory on May 31 consists of 1,100 units If 22,000 units were completed during the period, how many units were started in the Molding Department during the month of May? A 21,700 units B 23,100 units C 24,800 units D 21,400 units 50 Why may the number of equivalent units in Work in Process inventory differ for material and for conversion costs? A A mistake was made in counting or recording the inventory amounts B Material and conversion costs enter the production process at different times and at different rates C Conversion costs are calculated at the end of the accounting period D Some units may have been transferred in from previous departments 51 The number of equivalent units for an input cannot exceed the A units started B units completed C units to account for D total cost to account for 3-8 Test Bank to accompany Jiambalvo Managerial Accounting, 5th Edition 52 HTC Calculators uses process costing At the beginning June, there were 1,100 units in process, 70% complete with respect to material and 60% complete with respect to conversion costs During June, 24,000 units were started and 23,600 units were completed The units in ending Work in Process inventory were 90% complete with respect to material and 30% complete with respect to conversion costs How many equivalent units will be used in calculating the cost per unit for materials? A 24,950 units B 24,050 units C 25,720 units D 22,950 units 53 The cost per equivalent unit calculation is A the cost carried forward from beginning inventory plus the current production costs divided by equivalent units B based on the costs incurred in this period divided by the equivalent units C current period costs plus costs of beginning inventory multiplied by the equivalent units D the total of all transferred-in costs plus beginning inventory costs minus ending inventory costs, all divided by equivalent units 54 Hanover Glassware produces crystal serve ware and uses process costing At the start of May, 2,300 units were in process During May, 11,000 units were completed and 2,000 units were in process at the end of May The units in process at the end of May were 80% complete with respect to material and 30% complete with respect to conversion costs Other information is as follows: Work in process, May 1: Direct material Conversion costs Costs incurred during May: Direct material Conversion costs $28,800 48,000 $198,000 242,000 How much is the cost per equivalent unit for direct materials? A $18.00 B $25.00 C $15.71 D $39.75 55 Mash Company uses process costing During March, its Varnishing Department incurred costs of $63,250 for conversion The beginning inventory was 1,500 units and 9,700 units were transferred to the Varnishing Department from the Sanding Department during March The Varnishing Department’s conversion costs in beginning inventory totaled $5,554 The ending inventory consisted of 1,200 units that were 25% complete with respect to conversion costs Materials are added at the beginning of the process What is the cost per equivalent unit for conversion costs? A $6.14 B $6.88 C $5.42 D $6.38 Chapter Process Costing 56 3-9 Hanover Glassware produces crystal serve ware and uses process costing At the start of May, 2,300 units were in process During May, 11,000 units were completed and 2,000 units were in process at the end of May These units in process were 80% complete with respect to material and 30% complete with respect to conversion costs Other information is as follows: Work in process, May 1: Direct material Conversion costs Costs incurred during May: Direct material Conversion costs $28,800 48,000 $198,000 242,000 Calculate the cost per equivalent unit for conversion costs A $43.00 B $25.00 C $39.75 D $17.45 57 Which of the following is not needed in order to calculate the cost per equivalent unit in process costing? A Equivalent units in beginning Work in Process Inventory B Cost added during the period C Units completed and transferred out of the department D Equivalent units in ending inventory 58 Cost per equivalent unit in the Blending Department in July is used to determine the cost of the A July Work in Process inventory for the Blending Department B Materials added to production in the Blending Department in July C July 31 Work in Process inventory in the Blending Department D Total costs added in the Blending Department during July 59 Cost per equivalent unit amounts are usually calculated for A direct materials, direct labor, and administrative costs B current period costs incurred only C direct material, direct labor, manufacturing overhead, and transferred-in costs D units transferred in by the suppliers and units transferred out as sales returns 60 The amount used to determine the ‘cost’ in the cost per equivalent unit amount is the sum of the A cost of beginning Work in Process inventory and the cost of ending Work in Process inventory B cost of beginning Work in Process inventory and the costs incurred in the current period C costs incurred in the current period and the cost of ending Work in Process inventory D cost of beginning Work in Process inventory, the cost of ending Work in Process inventory, and the costs incurred in the current period 3-10 Test Bank to accompany Jiambalvo Managerial Accounting, 5th Edition 61 If materials are entered into a production process at the beginning of the process, the number of units accounted for is A determined by dividing the total units transferred out into the total cost of the units B equal to units to account for C equal to the number of units completed and transferred out during the period D equal to the number of equivalent units in beginning Work in Process 62 Parnelli Tires uses a process costing system and has 1,600 tires remaining in its Belting Department’s Work in Process inventory at month end These tires are 90% and 40% complete with regard to materials and conversion costs, respectively There were 6,500 tires completed and transferred out during the period Conversion costs during the beginning of the month were $69,300 and added during the period were $116,340 How much is the conversion cost of the ending Work in Process? A $7,140 B $16,640 C $36,700 D $24,960 63 America Productions uses a process costing system Its Belting Department’s Work in Process inventory account at March 31 consists of 7,000 units that are 100% complete with respect to materials and 70% complete with respect to conversion costs If the total conversion cost in the Work in Process inventory account is $552,000 and the cost per equivalent unit for conversion costs is $6.00, how many units were completed and transferred out? A 92,000 units B 85,000 units C 87,100 units D 99,000 units 64 Department Alpha had no beginning inventory The department added direct materials costing $55,040 and conversion costs of $88,660 during the month of July Materials are added at the beginning of the process and conversion costs are added evenly throughout the process in this department During the month, 40,000 units were completed At the end of July, 3,000 units remained which were 10% complete with respect to conversion costs Which one of the following is a correct cost per equivalent unit for materials? A $1.28 B $3.48 C $6.98 D $2.20 65 The ending Work in Process inventory in the Mixing Department contains 500 units that are 25% complete with respect to conversion costs The beginning inventory of units totaled 350 units that were 40% complete with respect to conversion costs During the period, 7,000 units were started How many equivalent units for conversion costs are present in the ending inventory? A 6,850 units B 125 units C 6,975 units D 500 units 3-32 Test Bank to accompany Jiambalvo Managerial Accounting, 5th Edition 136 Rigid Food Corporation produces gourmet yogurt The following data pertain to the Mixing Department for the year ended December 31, 2014: Percentage of Completion Units Direct Material Conversion Costs Work in process, January 8,000 lb 25% 15% Work in process, December 31 6,200 lb 60% 70% During the year, the company started production of 120,000 pounds Prepare a unit reconciliation schedule and determine the equivalent units for the Mixing Department for 2014 Answer Units in beginning WIP Units started Units to account for Units completed Units in ending WIP Total units accounted for 137 Physical Flow 8,000 120,000 128,000 121,800 6,200 128,000 % 100 60 Materials 121,800 3,720 125,520 % 100 70 Conversion 121,800 4,340 126,140 XeroClean Chemicals refines a variety of chemicals for cleaning products and uses process costing The following data are from the company’s Extracting Department: Work in process, May 840,000 gallons Direct material 100% complete Conversion costs 40% complete Units started in process during May 3,110,000 gallons Work in process, May 31 230,000 gallons Direct material 100% complete Conversion costs 60% complete Compute the equivalent units for direct material and equivalent units for conversion costs for the Extracting Department for the month of May Answer Units in beginning WIP Units started Units to account for Units completed Units in ending WIP Total units accounted for Physical Flow 840,000 3,110,000 3,950,000 3,720,000 230,000 3,950,000 % Materials % 100 100 3,720,000 230,000 3,950,000 100 60 Conversion 3,720,000 138,000 3,858,000 Chapter Process Costing 138 3-33 DynaDrip’s Mixing Department opened on June 1, 2014 The company uses process costing During June, 28,000 units were completed and transferred out of the Mixing Department to the next department On June 30, 2014, the 3,100 units which remained in the Mixing Department were 60% complete with respect to conversion costs and 100% complete with respect to materials How many equivalent units of product were there in the Mixing Department during June for both materials and conversion costs? Answer Materials: 28,000 + (3,100 × 100%) = 31,100 units Conversion: 28,000 + (3,100 × 60%) = 29,860 units 139 Dairy Whip Products uses process costing Its Blending Department is the second department in the production of Cool Whipper The beginning inventory in the Blending Department consisted of 10,000 units that were 70% complete with respect to materials and 30% complete with respect to conversion costs During the month, 60,000 units were transferred in from the previous department The ending inventory consisted of 6,000 units that were 50% complete with respect to materials and 40% complete with respect to conversion costs Calculate the equivalent units for transferred-in costs, materials, and conversion costs Answer Beginning Work in Process Units started Units to account for Physical Flow 10,000 60,000 70,000 Units completed Ending Work in Process Total units accounted for 64,000 6,000 70,000 140 % Materials % 100 50 64,000 3,000 67,000 100 40 Transferred Conversion In 64,000 2,400 66,400 64,000 6,000 70,000 Prince Marinades uses process costing Its Mixing Department had a beginning inventory of 650 units that had accumulated conversion costs of $16,486 During the period, the Mixing Department incurred conversion costs of $43,400 and started 21,900 new units Ending inventory consisted of 700 units that were 40% complete with respect to conversion costs Materials are added at the beginning of the process Calculate the cost per equivalent unit for conversion costs in the Mixing Department Answer Costs Beginning Work in Process Cost incurred during period Total cost incurred Units Units completed Equivalent units in ending WIP (700 × 40%) Units accounted for Cost per equivalent unit Conversion $16,486 43,400 $59,886 21,850 280 22,130 $2.71 3-34 Test Bank to accompany Jiambalvo Managerial Accounting, 5th Edition 141 Erie Lake Fishing processes trout for various distributors and uses process costing The two departments involved are Cleaning and Packing The table below summarizes the data related to trout processed in the Cleaning Department during June: Pounds of Percent Trout Complete* Work in process, June 12,000 50% Started into processing during June 235,000 — Work in process, June 30 14,000 45% *Labor and overhead only All materials are added at the beginning of the process in the Cleaning Department Prepare a reconciliation of units and a computation of equivalent units for June for the Cleaning Department Answer 142 Physical Flow 12,000 235,000 247,000 % Materials % Conversion Units in beginning WIP Units started Units to account for Units completed Units in ending WIP Total units accounted for 233,000 14,000 247,000 100 100 233,000 14,000 247,000 100 45 233,000 6,300 239,300 Red Mountain Coffee uses process costing At the start of January, there were 14,000 pounds of coffee beans in its Roasting Department’s Work in Process account that were 90 percent complete with respect to material and 25 percent complete with respect to conversion costs The cost of the beans totaled $23,040 for material and $31,200 for conversion costs During the month, production on 120,000 pounds of coffee beans was started by the Roasting Department and it incurred material costs of $76,000 and labor and overhead costs of $118,080 The cost per equivalent unit totaled $0.80 for material and $1.20 for labor and overhead The cost of items completed was $97,600 for materials and $146,400 for labor and overhead The 12,000 pounds in ending Work in Process are 15 percent complete with respect to material and 20 percent complete with respect to conversion costs a b Answer a b Prepare a reconciliation of units How much is the cost of ending Work in Process inventory? Units in beginning Work in Process Units started in January Units to account for 14,000 120,000 134,000 Units completed Units in ending Work in Process Total units accounted for 122,000 12,000 134,000 Cost of ending Work in Process: Material ($0.80  12,000 units × 15%) Labor and overhead ($1.20  12,000 units  20%) Ending Work in Process Inventory $1,440 2,880 $4,320 Chapter Process Costing 143 3-35 Pest Be Gone uses process costing Its Mixing Department had 7,500 units in beginning inventory Associated with these units were $20,200 in direct materials and $25,000 in conversion costs During the period, the department incurred $79,800 in direct materials and $151,800 in conversion costs and started 50,000 units Ending inventory consisted of 2,000 units that were 100% complete with respect to materials and 60% complete with respect to conversion costs a b c d Calculate the equivalent units for materials and conversion costs Calculate the cost per equivalent unit for materials and conversion costs Calculate the cost of units transferred out Calculate the cost of the ending Work in Process Answer a Units in beginning WIP Units started Units to account for Units completed Units in ending WIP Total units accounted for Physical Flow 7,500 50,000 57,500 % Materials % Conversion 55,500 2,000 57,500 100 100 55,500 2,000 57,500 100 60 55,500 1,200 56,700 b Costs Beginning Work in Process Costs incurred during period Total Materials $ 20,200 79,800 $100,000 Conversion $ 25,000 151,800 $176,800 55,500 2,000 57,500 55,500 1,200 56,700 $1.7391 $3.1182 Units Units completed Equivalent units in ending Work in Process Total Cost per equivalent unit Total cost to account for c Cost of units transferred out: (55,500 × $4.8573) d Cost of ending Work in Process Materials (2,000 × $1.7391) Conversion (1,200 × $3.1182) Total cost accounted for Total $ 45,200 231,600 $276,800 $4.8573 $276,800 $269,580 $3,478 3,742 7,220 $276,800 3-36 Test Bank to accompany Jiambalvo Managerial Accounting, 5th Edition 144 Air Tracts produces solar-powered robots in a continuous production process The company uses process costing 85 percent of materials are added at the beginning of production and the other 15 percent are added immediately before transfer to the finished goods warehouse Conversion costs are added evenly throughout the process At the end of March, there were 10 robots in process, 70 percent complete as to labor and overhead 95 robots were completed during the month The direct materials cost per equivalent unit during March was $2,000, the labor cost per equivalent unit was $750, and the overhead per equivalent unit was $1,500 a b Answer a b 145 Determine the cost of the ending Work in Process inventory Determine the cost of items completed and transferred to Finished Goods Inventory Ending Work in Process Material (10 × 85 × $2,000) Labor (10 × 70 × $750) Overhead (10 × 70 × $1,500) Total Cost of items completed Material (95 × $2,000) Labor (95 × $750) Overhead (95 × $1,500) Total $17,000 5,250 10,500 $32,750 $190,000 71,250 142,500 $403,750 Ideal Cuisine uses process costing The balance in the beginning Work in Process inventory account for its Cooking Department for direct labor was $14,000 During the month of October, an additional $129,370 of direct labor was incurred, while 15,750 meals were completed and moved to the Packaging Department At the end of October, 450 meals were in process that were 40 percent complete At the start of October, the company had 200 meals that were 10 percent complete Calculate the cost per equivalent unit for labor assuming that labor is added uniformly throughout the production process Answer Direct Labor Beginning Work in Process Cost incurred in October Total cost Units Units completed Equivalent units, ending WIP (450  40%) Total Cost per equivalent unit: $143,370 ÷ 15,930 = $9.00 $ 14,000 129,370 $143,370 15,750 meals 180 15,930 meals Chapter Process Costing 146 3-37 During July, Store-All Containers completed 20,000 units There were 10,000 units in ending Work in Process in the Molding Department that were 30 percent complete with respect to labor and overhead and 100 percent complete with respect to material During the month of July, the company incurred $250,000 of material cost, $120,000 of labor cost, and $160,000 of manufacturing overhead Costs per equivalent unit for material, labor, and manufacturing overhead are equal to $10, $6, and $8, respectively The company uses process costing Calculate the amount of material cost, labor cost, and overhead cost in beginning Work in Process inventory in the Molding Department Answer Let X = the cost in beginning Work in Process Material: ($250,000 + X) ÷ (20,000 + 10,000) = $10  X = $50,000 Labor: ($120,000 + X) ÷ (20,000 + 3,000) = $6  X = $18,000 Overhead: ($160,000 + X) ÷ (20,000 + 3,000) = $8  X = $24,000 147 On November 1, Ranger Toys’ Packaging Department had Work in Process inventory of 6,000 units that were 75% complete with respect to materials and 30% complete with respect to conversion costs Ranger uses process costing The cost of the beginning units was $93,525, of which $60,000 was transferred-in from previous departments, $26,775 in materials, and $6,750 in labor and overhead During November, 125,000 units were transferred into the Packaging Department These units had accumulated costs in previous departments of $1,218,560 The Packaging Department incurred costs of $756,225 for materials and $488,010 for conversion costs in November and transferred 130,000 units out of the department The 1,000 units remaining in ending inventory are 50% complete with respect to materials and 20% complete with respect to conversion costs a b c Answer a Calculate the cost per equivalent unit for transferred-in costs, material, and conversion costs in the Packaging Department Calculate the cost of the units transferred out of the Packaging Department Calculate the cost of the ending Work in Process inventory in the Packaging Department Cost per equivalent unit: Transferred-in costs = ($60,000 + $1,218,560) ÷ 131,000 = $9.76 Material = ($26,775 + $756,225) ÷ (130,000 + 500) = $6.00 Conversion costs = ($6,750 + $488,010) ÷ (130,000 + 200) = $3.80 b Units transferred out = ($9.76 + $6.00 + $3.80) × 130,000 = $2,542,800 c Ending inventory = (1,000 × $9.76) + (1,000 × 50 × $6.00) + (1,000 × 20 × $3.80) = $13,520 3-38 Test Bank to accompany Jiambalvo Managerial Accounting, 5th Edition 148 Sunny Green Tea manufactures loose green tea that it packages into 8-ounce bags sold to retail stores It uses a process costing system At the start of September, there were 7,000 pounds of tea in the Drying Department that were 100 percent complete with respect to direct material and 30 percent complete with respect to conversion costs (labor and overhead) During the month, the company began production of 215,000 units Ending Work in Process Inventory consisted of 5,000 pounds of tea that were 100 percent complete with respect to material and 60 percent complete with respect to conversion costs Costs for the Drying Department follow for September: Beginning Work in Process Costs Added Direct material $ 2,800 $ 46,040 Direct labor 4,000 85,000 Manufacturing overhead 5,000 71,000 Total $11,800 $202,040 a b Calculate the cost per equivalent unit for materials and conversion costs Calculate the cost of items completed in September and the cost of ending Work in Process Answer a Costs Beginning Work in Process Cost incurred during period Total Units Units completed Equivalent units, ending WIP Total Cost per equivalent unit Materials $ 2,800 46,040 $48,840 Conversion $ 9,000 156,000 $165,000 217,000 5,000 222,000 217,000 3,000 220,000 $0.22 $0.75 Total $ 11,800 202,040 $213,840 $0.97 b Total cost to account for $213,840 Cost of units transferred out: ($0.97 × 217,000) Cost of ending Work in Process: Materials (5,000 × $0.22) Conversion (5,000 × 60% × $0.75) Total cost accounted for $210,490 $1,100 2,250 3,350 $213,840 Chapter Process Costing 149 3-39 Capstone Readers started its production operations on April During April, the Printing Department completed 8,000 books There were 4,400 books in process in the Printing Department on April 30 that were 85% complete with respect to materials and 10% complete with respect to conversion costs During April, the department accumulated materials costs of $55,765 and conversion costs of $80,180 a b Calculate the cost of the goods transferred out of the Printing Department What is the value of the ending Work in Process inventory in the Printing Department? Answer Physical Flow 12,400 12,400 % Materials % Units in beginning WIP Units started Units to account for Units completed Units in ending WIP Total units accounted for 8,000 4,400 12,400 100 85 8,000 3,740 11,740 100 10 Costs Beginning WIP Cost incurred during period Cost to account for Materials $ 55,765 $55,765 Conversion $ 80,180 $80,180 Cost per equivalent unit: Costs to account for Equivalent units Cost per equivalent unit $55,765 11,740 $ 4.75 $80,180 8,440 $ 9.50 Conversion 8,000 440 8,440 Total $ 135,945 $135,945 $14.25 Total cost to account for $135,945 a Cost of units transferred out ($14.25 × 8,000) $114,000 b Cost of ending Work in Process Materials ($4.75 × 3,740) Conversion ($9.50 × 440) Total cost accounted for $17,765 4,180 21,945 $135,945 3-40 Test Bank to accompany Jiambalvo Managerial Accounting, 5th Edition 150 Bamboo Tiles is a producer of bamboo tiles used in flooring The company uses process costing The bamboo is softened, cut, sanded, and treated prior to sale Material is added in the beginning of the Softening Department and conversion costs are added evenly throughout processing Bamboo Tiles began the month of August with 14,000 linear feet of bamboo in process that were 100 percent complete as to materials and 60 percent complete as to labor and overhead The production workers started 120,000 linear feet into production during the month of August, and 8,000 remained in Work in Process inventory at August 31 that were 50 percent complete as to conversion costs The cost data are as follows: Beginning Work in Process: Direct materials Direct labor Manufacturing overhead Costs added during August: Direct materials Direct labor Manufacturing overhead $ 74,000 31,000 41,000 $ 86,800 215,000 233,000 Prepare a production cost report for the month of August Answer Bamboo Tiles—August Direct materials Units in beginning Work in Process 14,000 Units started 120,000 Units to account for 134,000 Units completed 126,000 Units in ending Work in Process Units accounted for 8,000 134,000 100 % 100 % Conversion Costs 126,000 8,000 134,000 126,000 50% 4,000 130,000 Cost per Equivalent Unit Costs to be accounted for: Beginning inventory Costs added Costs to be accounted for: Cost per equivalent unit: Costs to be accounted for Equivalent units Per unit cost Direct Materials $ 74,000 86,800 $160,800 $160,800 134,000 $ 1.20 Cost Reconciliation Total cost to account for Cost of completed units (126,000 units  $5.20) Cost of ending Work in Process Material (8,000  $1.20) Conversion costs (4,000  $4.00) Conversion Costs Total $ 72,000 $146,000 448,000 534,800 $520,000 $680,800 $520,000 130,000 $ 4.00 $680,800 $655,200 $9,600 16,000 25,600 $5.20 Chapter Process Costing Total cost accounted for 3-41 $680,800 3-42 Test Bank to accompany Jiambalvo Managerial Accounting, 5th Edition 151 On August 1, Candle World’s Packaging Department had Work in Process inventory of 8,620 units, which had been transferred in from the Finishing Department Candle World uses process costing These units had accumulated costs of $211,621 in previous departments The conversion costs added in the Packaging Department totaled $15,947 during August During August, 27,000 units were transferred into the Packaging Department These units had accumulated costs of $677,098 in the previous departments The Packaging Department incurred $51,389 in conversion costs during the month 900 units remained in ending inventory on August 31 These units were 80% complete with respect to conversion costs Calculate the cost per equivalent unit for transferred-in costs and for conversion costs for the Packaging Department Answer Units transferred out = 8,620 + 27,000 – 900 = 34,720 Transferred in costs = ($211,621 + $677,098) ÷ (34,720 + 900) = $24.95 per equivalent unit Conversion costs = ($15,947 + $51,389) ÷ (34,720 + 720) = $1.90 per equivalent unit 152 Harry’s Sandwich Shop uses a process costing system for its foot-long sub sandwiches and carries no beginning or ending Work in Process inventories During 2014, the company produced and sold 5,000 subs and incurred the following costs: Direct material Direct labor Manufacturing overhead Total Total $ 5,600 8,800 7,200 $21,600 Per equivalent unit $1.12 1.76 1.44 $4.32 The current selling price is $6.25 per sub and the gross profit for 2014 was ($6.25 × 5,000) ‒ ($4.32 × 5,000) = $9,650 Sales projections for 2015 at the current price look flat, but the manager believes that if the sales price is reduced to $5.80, sales volume would increase by 600 units Assume that direct material and direct labor are variable costs and that manufacturing overhead costs are primarily fixed Should Harry’s Sandwich Shop lower the price? Answer The sales price should not be lowered because gross profit will decrease by $498 over the current level Incremental revenue (5,600 × $5.80) ‒ (5,000 × $6.25) $1,230 Incremental direct material ($1.12 × 600) (672) Incremental direct labor ($1.76 × 600) (1,056) Incremental profit $ (498) Chapter Process Costing 3-43 CHALLENGE EXERCISES 153 Tiny Trains produces wooden toy trains and uses process costing Each train passes through three processes—cutting, assembly, and finishing In the Assembly Department, materials are added when the trains are 60% complete, and conversion costs are added evenly throughout the process Production information for the Assembly Department for July follows: Ending Work in Process, conversion costs Beginning Work in Process, conversion costs Units started during July Units in Work in Process, July Units in Work in Process, July 31 Conversion costs in beginning Work in Process Transferred-in costs in beginning Work in Process Cost of direct materials in beginning Work in Process Conversion costs added during July Direct material cost added during July Transferred-in costs added during July a b 40% complete 70% complete 41,000 5,200 7,000 $31,000 $16,820 $11,280 $21,500 $24,000 $34,000 Calculate the equivalent units for the Assembly Department for July Identify the nature of ‘transferred-in’ costs and how these costs differ from costs in the beginning Work in Process inventory as it relates to the Assembly Department Answer a Transferred-In Units in beginning Work in Process Units started Units to account for 5,200 41,000 46,200 Units completed Units in ending Work in Process Units accounted for 39,200 7,000 46,200 100% 100% 39,200 7,000 46,200 Direct Materials 100% 100% 39,20 7,000 46,200 Conversion 100% 40% 39,20 2,800 42,000 b Transferred-in costs are costs that the Cutting Department added to the units before sending them on to the Assembly Department Beginning Work in Process inventory amounts for materials and conversion costs represent the costs incurred on units that the Assembly Department worked on during the previous period (June), but did not complete them 3-44 Test Bank to accompany Jiambalvo Managerial Accounting, 5th Edition 154 Wiseman Toys produces paint guns and uses process costing The paint guns pass through three processes—molding, assembly, and testing In the Assembly Department, materials are added when the guns are 10% complete, and conversion costs are added evenly throughout the process Production information for July in the Assembly Department follows: Ending Work in Process, conversion costs Beginning Work in Process, conversion costs Units started during July Units in Work in Process, July Units in Work in Process, July 31 Conversion costs in beginning Work in Process Transferred-in costs in beginning Work in Process Cost of direct materials in beginning Work in Process Conversion costs added during July Direct material cost added during July Transferred-in costs added during July 30% complete 60% complete 6,200 1,100 1,800 $31,048 $11,820 $11,280 $21,500 $23,760 $34,170 a Calculate the following for Weisman Toys for the Assembly Department for July: Equivalent units Total cost to account for Cost per unit assigned to units transferred out to the Testing Department b Identify which of Wiseman Toys’ three departments would not have any transferred-in costs Explain why Answer a Direct Materials Units in beginning Work in Process Units started Units to account for 1,100 6,200 7,300 Units completed 5,500 Units in ending Work in Process Units accounted for 1,800 7,300 100 % 100 % Conversion Costs 5,50 1,800 7,300 Transferred-In Costs 100% 5,500 100% 30% 540 6,040 100% 5,50 1,800 7,300 Beginning inventory Cost added Cost to account for Direct Materials Conversion Costs TransferredIn Costs Total Costs $11,280 23,760 $35,040 $31,048 21,500 $52,548 $11,820 34,170 $45,990 $ 54,148 79,430 $133,578 $35,040 7,300 $ 4.80 + $52,548 6,040 $ 8.70 + Costs to be accounted for Equivalent units Cost per unit cost $45,990 7,300 $ 6.30 = $19.80 Chapter Process Costing 3-45 b The Molding Department is the first step in the process of production of guns, so there will be no transferred-in cost The Molding Department begins with materials and then converts the materials as it starts the production of guns SHORT-ANSWER ESSAYS 155 What is meant by the statement, “Process costing is essentially a system of averaging?” Answer Process costing systems assume that the cost of each item produced is identical because the units produced are somewhat identical The total production costs are divided by the total number of homogeneous items produced resulting in an average cost per item 156 What are transferred-in costs? Which departments will never have transferred-in costs? Answer Transferred-in costs are costs incurred in one processing department that are transferred to the next processing department The department where the processing begins will never have transferred-in costs because no costs will be transferred into it 157 Why is it necessary to use equivalent units in a process costing system? Answer In a company that uses process costing, there are typically incomplete units in ending Work in Process inventory These units are converted to a comparable number of completed units in order to calculate the cost per equivalent unit Assigning the cost of a full unit to a partial unit would mislead decision makers into thinking that units cost more than they actually cost Hence, equivalent units are calculated in a process costing system to average cost of production among completed units and ending Work in Process inventory 158 List the four basic steps in preparing the production cost report Answer 159 Account for the number of physical units Calculate the cost per equivalent unit for material, labor, and overhead Assign cost to items completed and items in ending Work in Process inventory Account for the amount of product cost What are conversion costs? What are the characteristics of the costs that make up conversion costs? Answer The sum of direct labor and overhead costs are called conversion costs Direct labor is the cost of labor that can be directly traced to particular products Manufacturing overhead includes indirect manufacturing costs that are used in order to get products ready to sell, but cannot be directly tied to particular products 3-46 Test Bank to accompany Jiambalvo Managerial Accounting, 5th Edition 160 The production cost report may contain as many as four cost per equivalent unit calculations What are the components of total cost for which the cost per equivalent unit may be calculated? Answer The production cost report may contain calculations for the cost per equivalent unit for material, labor, overhead, and transferred-in costs The components of total cost for which the cost per equivalent unit may be calculated are materials, labor, overheads and transferred-in costs 161 What caution must be considered when using process costing information in incremental analysis, and why? Answer The cost per unit in process costing is typically an average of fixed and variable costs Thus, it does not measure the change in cost associated from producing an additional unit The cost per unit need to be analyzed to determine how much fixed cost is included before incremental analysis can be done Fixed costs may not be avoidable, and as such, they may not be incremental to a particular decision ...3-2 Test Bank to accompany Jiambalvo Managerial Accounting, 5th Edition TRUE-FALSE Process costing systems are commonly used by companies that produce homogeneous... 23 24 25 T F T T F 3-4 Test Bank to accompany Jiambalvo Managerial Accounting, 5th Edition MULTIPLE CHOICE 26 Which one of the following is a costing system commonly used by companies that produce... Mixing Department D debit to Work in Process, Mixing Department 3-6 Test Bank to accompany Jiambalvo Managerial Accounting, 5th Edition 40 In a process costing system, manufacturing overhead is