Process Costing and Operation Costing: Answers To Questions

CHAPTER 5
PROCESS COSTING AND OPERATION

COSTING
ANSWERS TO QUESTIONS
5.1 Job costing and process costing can be regarded as representing the two extremes on a continuum of
traditional product costing. Operation costing would be placed partway along that continuum.
Whereas job costing identifies the cost of the resources consumed (e.g. material, labour and overheads) in
the individual job orders or batches of output that consumed those resources, process costing identifies the
cost of resources consumed in processes or departments that consume the resources. Hence, job costing
accumulates the costs of each job while process costing accumulates the cost of each process and then
averages these costs across the products that pass through the process. The sense of this can be seen by
comparing (a) the suitability of accumulating the costs incurred in the manufacture of an individual,
custom made, Lamborghini, with (b) the suitability of accumulating the process costs of a big production
run of Ford Falcons, and then dividing the costs by the number of cars processed. Similarly we would cost
a wedding dress in a different way to costing a school uniform.
Between these two extremes it is possible to use a mixture of job costing and process costing. Typically
this occurs when different materials are used for individual jobs that are processed in the same way, or
when different outputs pass through a different sequence of processes. Direct materials can be costed to
individual jobs. The rest of the costs for those jobs are incurred in converting the direct material to the
finished product. These conversion costs can be accumulated using process costing methods. Costing
systems that use elements of both job costing and process costing are called hybrid costing systems.
Operation costing is a hybrid costing system that applies to repetitive production environments.
5.2 The four steps for process costing:

1. Analyse the physical flow of units (the flow of the production units in the process from the
beginning to work in process and to the finished goods).
2. Calculate the equivalent units (for direct material and conversion).
3. Calculate the unit costs (that is, the cost per equivalent unit for direct material and conversion).
4. Analyse the total costs (to determine the cost to be removed from work in process and transferred
either to the next production department or to finished goods).
5.3 Process costing would be an appropriate product costing system in the following industries: petroleum,
food processing, timber processing, chemicals, textiles and electronics. Each of these industries is
involved in the production of very large numbers of highly similar products that undertake similar
processes. Products can be goods or services so students may include suitable service outcomes in this
answer. For example, process costing could be used in the following non-manufacturing businesses:
processing of tests in a medical diagnostic laboratory, processing of tax returns by the Taxation Office,
and processing of loan applications in a bank.
5.4 Timber mills are well suited to process costing because converting trees to timber involves a series of
repetitive processes such as milling, drying and processing. The outputs of the processes are alike and
there is a continuous production line. The costs can be accumulated through process departments as the
product passes from one to another.
5.5 An equivalent unit is a measure of the amount of production inputs that are applied to physical units in the
production process. In process costing, costs are assigned to equivalent units rather than physical units.
The concept of equivalent units can be ignored when there are no work-in-process inventories or when the
work-in-process inventory levels are stable over time. For example, there will be no need to record work-
Copyright © 2018 McGraw-Hill Education (Australia) Pty Ltd

IRM Langfield-Smith, Thorne, Smith, Andon, Hilton Management Accounting 8e
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in-process inventory in businesses where the completion of the production process coincides with the end
of the accounting period. These businesses are likely to include beverage producers where the production
line is shut down (and cleaned) at the end of each day and frozen foods manufacturers where goods must
be completed and frozen at the end of processing. The stability of work-in-process inventory levels over
time will be influenced by the stability in the supply of inputs and in the demand for the finished goods.
The processing of motor vehicle registrations may be an example of a production process associated with
stable levels of work in process inventory.
5.6 Exhibit 5.3 uses the weighted average method to calculate unit costs. In this method of process costing the
direct material costs incurred in this period are added to the cost of direct materials in the opening work in
process. This total direct material cost is then divided by the number of equivalent units to which those
costs relate. In this Exhibit the direct material costs in the opening inventory plus the direct material costs
that are added during the period total $560 000. The equivalent units of direct materials from the opening
inventory and those started during the period are 400 000. The direct material cost per equivalent unit is
therefore $(560 000/400 000) or $1.40. Using the same approach for the conversion costs: the conversion
costs in the opening inventory plus the conversion costs incurred in the current period total $146 150. The
equivalent units of conversion in the opening inventory plus the conversion effort for the current period
total 395 000 equivalent units. The conversion cost per equivalent unit is therefore $(146 150/395 000) or
$0.37. The total cost per equivalent unit is therefore $1.77, calculated as follows:
Total cost Direct material cost Conversion cost
per equivalent unit = per equivalent unit + per equivalent unit
= $1.40 + $0.37
5.7 The cost of goods transferred out is calculated as the number of physical units multiplied by the total
equivalent cost per unit. The total cost of work in process is calculated by taking into account the number
of equivalent units remaining for both direct material and conversion cost and multiplying these units by
the respective cost per equivalent units.
5.8 The difference between the two methods relates to the calculation of the relevant total equivalent units for
the period.
Under the weighted average method, the equivalent units of activity for the month relate to the closing
work in process inventory and the units completed and transferred out. Thus, in Exhibit 5.2, the total EUs
for direct material are 400 000 and for conversion cost are 395 000.
Under the FIFO method, the equivalent units of activity in the beginning work in process inventory are
subtracted from the total equivalent units for the period to arrive at the new equivalent units of activity for
the current period. In Exhibit 5.7, the total EUs that were calculated in Exhibit 5.2 using the weighted
average cost method are reduced by the EUs of inputs received by 20 000 physical units in the opening
WIP, to arrive at 380 000 EUs of direct material and 393 000 EUs of conversion cost.
The result is that under the weighted average method the total costs for opening work in process inventory
plus the cost of resources consumed this period are averaged over all work that they relate to, both that
performed in the previous period and that performed on the current period. Using FIFO we work out the
cost per unit only for the work performed in the current period by dividing the cost of resources consumed
in this period by the measure of work performed in this period. We then work out the equivalent units of
activity required to finish off the units in the opening inventory and add the cost of that activity to the
opening inventory costs. We separately cost the units both started and finished in this period and also the
closing inventory.
5.9 The name ‘first-in-first-out’, or FIFO, is used as it assumes that the units transferred to finished goods
inventory at any time are those that were started earliest and the units remaining in the work in process
inventory at any time are those that were started last. Hence, any resource cost changes are isolated to
current activity by leaving the opening inventory costs as part of the cost of the units that were started in
the previous period, then adding the share of this period’s costs that relate to completing (or finishing off)
those units. The costs incurred in this period are only associated with the work that is done in this period.

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5.10 Under the weighted average cost method the total equivalent cost per unit is the total of the average of the
cost per equivalent unit for the opening work in process and the units commenced during the month for
the two inputs to production. In Exhibit 5.3, the average cost per EU for direct material is $1.40 and for
conversion cost is $0.37.
For FIFO it is assumed that the old units are completed before new units are commenced. Thus, to
calculate the total cost per equivalent unit, the units in opening work in process are first subtracted from
the total of the units completed and the closing work in process units to give the equivalent units that
relate to new production. A cost per equivalent unit is then calculated for each input to production, based
on costs incurred in the current period. In Exhibit 5.8 the cost per EU for material is $1.33 and for
conversion cost is $0.36. These costs relate to the new production that commenced during the period.
Under both methods there is a matching of the costs of resources consumed with the activity performed in
the consumption of those resources. Using the weighted average method the resource costs and activity
relate to the current period plus those from the previous period that are in the opening inventory. Using
FIFO, the cost per equivalent unit relates only to the resource costs and activity in the current period.
5.11 The production report for the WAC method is much simpler than that for the FIFO method as the closing
work in process and goods completed are costed using a single equivalent cost per unit for each input to
production. Under the FIFO method the closing work in process is costed using the cost per equivalent
unit of the most recent production for each input to production. The cost of completed goods is a
combination of the costs of the opening work in process inventory and the costs per equivalent unit of new
production, for each input to production.
5.12 Under the weighted average method, the cost of the beginning work in process inventory is added to the
cost incurred during the current period in order to determine the weighted average cost per equivalent unit.
Under the FIFO method, the cost of the beginning work in process inventory is not added to the cost of the
current period to determine cost per EU. Rather, the cost of the beginning work in process inventory is
assumed to be completed first and then new production units are commenced. The costs of opening WIP
are kept separate from the costs of the current period. The cost per equivalent unit is then used to calculate
the cost of finishing off the opening WIP during the current period.
5.13 Estimating the cost of spoilage highlights the cost of wasted resources, which may focus the attention of
management.
Normal spoilage is considered to be a ‘normal’ aspect of the production process. It is relatively constant,
statistically predictable, and unavoidable without incurring excessive costs to improve the production
process. As a consequence, it is considered to be a normal cost in the production of the good units that
emerge from the process and can be included in the cost of good units completed and transferred out.
Abnormal spoilage is that level of spoiled units outside the normally acceptable range, caused by factors
not normally encountered. By isolating the cost of abnormal spoilage, management’s attention is drawn to
a matter that needs to be investigated. It should be treated as a period cost and expensed in the current
period.
5.14 Using the weighted average method it does not matter which units are spoiled. When using FIFO it is
necessary to identify how many spoiled units are from those in process at the beginning of the period, and
how many of the units started this period are spoiled. In practice it is very difficult to separately account
for spoilage between the two different categories of production.
5.15 Operation costing is a hybrid product costing system that is used when conversion activities are very
similar across product lines, but the direct materials differ. This is often the case in batch manufacturing
operations. Conversion costs are accumulated by department, and process costing methods are used to
assign these costs to products. Different products may go through some, or all, of the processes. Direct
material costs are accumulated by job order or batch, and job costing methods are used to assign direct
material costs to products.

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5.16 The wine producers should use process costing when they are producing single product line or different
wine products on different production lines. On the other hand, the wine producers should use operation
costing when the wines are produced in batches utilising some repetitive processes but basically different
processes and different grape varieties for different type of wines.
5.17 The essential element in any answer to this question is that the students demonstrate an understanding of
job costing, process costing and hybrid systems. An example could be canning, where the food that is
canned changes but the canning process remains the same. There may even be different preparation
processes for different foods.
5.18 If manufacturing overhead costs were assumed to be incurred at a different rate to direct labour costs, or
were related to a different cost driver, then direct labour costs and manufacturing overhead costs would be
accounted for separately instead of being combined into one account called ‘conversion costs’. Thus, in
the process costing schedules, instead of having two columns, one for direct material costs and one for
conversion costs, there would be three columns: direct material costs, direct labour costs and
manufacturing overhead costs.
5.19 The percentage of completion is important in calculating the equivalent units of production for the period.
Without this, the monthly reports would be distorted because of an inaccurate treatment of opening and
closing work in process inventory. In an operation costing system the concept of equivalent units still
exists, but only in relation to conversion costs (as direct material costs are traced directly to the product),
so the stage of completion will still be important.
5.20 There are many processes in service firms and service departments, and where these processes are
repetitive process costing is as suitable as when the products are goods. Examples include processing
cheques in banks, processing claims in an insurance company, cleaning rooms in a hotel and checking in
passengers at an airport.
5.21 Transferred-in costs are the costs assigned to the units transferred from one production department to
another. For example, in timber milling logs are harvested into rough sawn timber in a process known as
‘green milling’. These logs are then treated to ensure wood preservation and protection from insects. The
costs of the green milled timber are transferred into (and therefore become part of the costs of) the wood
preservation process, in the same way as any direct materials or conversion costs. Similarly, wine
production involves de-stemming and crushing of grapes following by the fermentation process and other
processes. In the fermentation process, the transferred-in costs from the de-stemming and crushing process
are treated as an input to the fermentation process.

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SOLUTIONS TO EXERCISES
EXERCISE 5.22 (10 minutes) Physical flow of units: manufacturer
The general formula for all three cases is the following:
Units started Work in process
Work in process, Units completed
+ during this  =
beginning during month ending
month
Using this formula, the missing amounts are:
1 18 000 kilograms
2 6250 metres
3 144 000 litres
EXERCISE 5.23 (15 minutes) Equivalent units; FIFO and weighted average:
manufacturer
1 7000 equivalent units (refer to (c) in the following table).
2 5880 equivalent units (refer to (d) in the following table).
3 11 000 equivalent units (refer to (a) in the following table).
4 8280 equivalent units (refer to (b) in the following table).
Percentage of Equivalent units

completion with
Physical respect to Direct
units conversion material Conversion
Work in process, 1 June 4 000 60%
Units started during June 7 000
Total units to account for 11 000
Units completed and transferred out
during June 7 600 100% 7 600 7 600
Work in process, 30 June 3 400 20% 3 400 680
Total units accounted for 11 000 _____ _____
a
Total equivalent units 11 000 8 280b
*Less: Equivalent units represented in 1
June work in process
4 000 2 400
*New equivalent units
accomplished in June only 7 000c 5 880d
* These two lines in the table are used only for the FIFO method (requirements 1 and 2 in the exercise).

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EXERCISE 5.24 (20 minutes) Physical flow and equivalent units; weighted average:
manufacturer
Calculation of equivalent units: Squeeze Ltd
Weighted average method
completion Percentage of
with respect to completion
Physical direct with respect Direct
units materials to conversion material Conversion
Work in process, 1 January................. 40 000 60% 40%
Units started during the year............... 200 000
Total units to account for.................... 240 000
Unit completed and transferred out
during the year.................................... 210 000 100% 100% 210 000 210 000
Work in process, 31 December 30 000 70% 20% 21 000 6 000
Total units accounted for..................... 240 000 ______ _______
Total equivalent units.......................... 231 000 216 000
EXERCISE 5.25(15 minutes) Cost per equivalent unit; weighted average

Calculation of cost per equivalent unit: Kimbos Glass Company
Direct
material Conversion Total
Work in process, 1 May........................................ $21 600 $20 150 $41 750
Costs incurred during May.................................... 67 500 95 000 162 500
Total costs to account for...................................... $89 100 $115 150 $204 250
Equivalent units..................................................... 8 250 23 500
Costs per equivalent unit....................................... $10.80 $4.90 $15.70

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EXERCISE 5.26 (20 minutes) Cost per equivalent unit; weighted average and FIFO:
timber mill
1 Weighted average method:

Direct material Conversion Total
Work in process, 1 June $130 000 $360 000 $490 000
Costs incurred during June 850 000 1 380 000 2 230 000
Total costs to account for $980 000 $1 740 000 $2 720 000
Equivalent units 14 000 3 480
Costs per equivalent unit $70 $500 $570
2 FIFO method:
Work in process, 1 June These costs are not included in the $490 000
unit cost calculation
Costs incurred during June $850 000 $1 380 000 2 230 000
Total costs to account for 2 720 000
Costs per equivalent unit $100 $690 $790
EXERCISE 5.27 (30 minutes) Weighted average cost and FIFO: manufacturer
1
Work in process, 1 July 16 350 43 425 59 775
Cost incurred during July 169 050 240 300 409 350
Total cost to account for 185 400 283 725 469 125
Cost per equivalent unit $1.20 1.95 $3.15
(a) 133 500  3.15 = $420 525*

(b) For material 154 500 – 133 500 = 21 000 equivalent units in work in process
For conversion cost 145 500 – 133 500 = 12 000 equivalent units
21 000  1.20 = 25 200
12 000  1.95 = 23 400
$48 600*
* 420 525 + 48 600 = $469 125

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2
Work in process 1 July 59 775
Cost incurred during July 169 050 240 300 409 350
Total cost to account for 469 125

Cost per equivalent unit 1.2118 1.7134 $2.9252
1. Cost of opening work in process 59 775

2. Cost incurred to complete opening
work in process inventory
Direct materials
0
Conversion 15 000  65%  1.7134 16 706
3. Cost incurred to produce units
started and completed 118 500  2.9252 346 636
Total cost of goods completed $423 117
Cost remaining in work in process
31 July
Direct materials 21 000  1.2118 25 448
Conversion cost 12 000  1.7134 20 561
Closing work in process $46 009
Check:
Cost of goods completed and 423 117
transferred out
Cost of closing work in process 46 009
Total costs accounted for $469 126*
* There is a rounding error as many items were rounded up

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EXERCISE 5.28 (35 minutes) Weighted average cost and FIFO: manufacturer
1 Weighted-average method:
Work in process, 1 December $188 000 $88 800 $ 276 800
Costs incurred during December $328 000 $545 600 873 600
Total cost to account for $516 000 $634 400 $1 150 400
Costs per equivalent unit $8.60 $12.20 $20.80
(a) Cost of goods completed and transferred out during September:
( number of units × total cost per

transferred out ) ( equivalent unit ) = 50 000  $20.80 = $1 040 000
(b) Cost remaining in 31 December work in process:

Direct material (10 000*  $8.60) $86 000
Conversion (2000*  $12.20) 24 400
Total 110 400
Total costs accounted for $1 150 400
* Equivalent units in 31 December work in process:
Direct material Conversion

Total equivalent units (weighted average) 60 000 52 000
Less: Units completed and transferred out (50 000) (50 000)
Equivalent units and ending work in process 10 000 2 000

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2 FIFO method:
Work in process, 1 December These costs are not included in the $276 800
unit cost calculation for September
Costs incurred during December $328 000 $545 600 873 600
Total costs to account for $1 150 400
Equivalent units for December only 40 000 44 000
Costs per equivalent unit $8.20 $12.40 $20.60
(a) Costs of goods completed and

transferred out of the Weaving
Department during December:
Cost of 1 December work in

process which is transferred out
first
$276 800
Cost incurred to finish the 1

December work in process
inventory: 20 000  0.60  $12.40 148 800
Cost incurred to produce units that

were both started and completed
during December: 30 000*  $20.60 618 000
Total cost of goods completed and

transferred out $1 043 600
(b) Cost remaining in 31 December
work in process inventory:
Direct material (10 000†  $8.20) $82 000

Conversion (2 000†  $12.80) 24 800
Total 106 800
* Units started and completed = 30 000 = 50 000 – 20 000

† See the calculation of the equivalent units in the ending work in process given in requirement (1).

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EXERCISE 5.29 (10 Minutes) Weighted average versus FIFO; journal entry:
manufacturer
The amount in the journal entry would be the same under weighted average and FIFO process costing, because
the Stamping Department had no work in process on 1 July. When there is no opening WIP, the equivalent units
and the cost per EU will be the same under both methods. The products transferred out and any closing WIP will
be both costed at the same cost of any new units started during that month.
EXERCISE 5.30 (15 minutes) Physical flow and equivalent units including spoilage:
manufacturer
1

completion
Physical
with respect to Direct
Work in process, 1 January 25 000 60%

Units started during the year 100 000
Units completed and

transferred out
95 000 95 000 95 000
Units spoiled 10 000 66.7% 10 000 6 667
Work in process, 31 20 000 40 % 20 000 8 000
December
Total units accounted for 125 000
Total equivalent units 125 000 109 667
2 When the weighted average method of process costing is used, the good units transferred out, spoiled
units and closing WIP are all costed at the same rate per EU, which is the weighted average of the cost of
opening WIP and current costs. If the FIFO method is used, it would be necessary to identify whether the
spoiled units were from the previous period or the current period. In most process cost industries this
would be extremely difficult, if not impossible.

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EXERCISE 5.31 (45 minutes) Operation costing: manufacturer
1 Diagram of production process:
Accumulated
by process
Accumulated
by batch
2 The product cost for each of the cricket balls is calculated as follows:
Professional Practice
Direct material
Batch PROF15 ($35 000  4000) $8.75 0
Batch PRAC25 ($45 000  6000) 0 $7.50
Conversion: Preparation Department 9.00 9.00
Conversion: Finishing Department 7.00 7.00
Conversion: Packaging Department 2.00 0
Total product cost $26.75 $23.50
Both production departments worked on a total of 10 000 balls each, but the Packaging Department
handled the 4000 professional balls only.

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3 Journal entries:
Work in process inventory: Preparation Department 32 500*
Raw material inventory 32 500
* 32 500 = $35 000 of direct material for batch PROF15 – $2500 of packaging material.
* Direct material cost for batchPRAC25.
Applied conversion costs 90 000
* $90 000 = 10 000 units  $9 per unit.
Work in process inventory: Finishing Department 167 500*
Work in process inventory: Preparation Department 167 500
* $167 500 = $32 500 + $45 000 + $90 000.
Work in process inventory: Finishing Department 70 000*
* $70 000 = 10 000 units  $7.00 per unit
Work in process inventory: Packaging Department 96 500*
Finished goods inventory 141 000†
Work in process inventory: Finishing Department 237 500
*$96 500 = $32 500 + (4000  $9) + (4000  $7). These are costs accumulated for batch PROF15 only.
†$141 000 = $45 000 + (6000  $9) + (6000  $7). These are costs accumulated for batch PRAC25 only.
Work in process inventory: Packaging Department 10 500
Raw material inventory 2 500*
Applied conversion costs 8 000†
* Cost of packaging material for batch PROF15
† $8 000 = 4000 units  $2 per unit
Finished goods inventory 107 000*
Work in process inventory: Packaging Department 107 000
 $107 000 = $96 500 + $10 500
[Check:
Costs incurred = $80 000 + 10 000 × $9 + 10000 × $7 + 4000 × $2 = $248 000
Costs transferred to Finished Goods = $141 000 + $107 000 = $248 000]

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EXERCISE 5.32 (10 minutes) (appendix) Cost flows in process costing; journal entries:
manufacturer
1 Work in process inventory: Pouring Department 3 270 000

Wages payable 1 020 000
Manufacturing overhead 2 040 000
2 Work in process inventory: Finishing Department 2 700 000
Work in process inventory: Pouring Department 2 700 000
3 Work in process inventory: Finishing Department 2 175 000
Wages payable 840 000
Manufacturing overhead 1 260 000
4 Finished goods inventory 1 200 000
Work in process inventory: Finishing Department 1 200 000

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SOLUTIONS TO PROBLEMS
PROBLEM 5.33 (50 minutes) Weighted average process costing: manufacturer

1 Any example offered by the student should highlight the impact of having opening and/or closing work in
process inventory. The explanation of the importance of equivalent units should also focus on the need to
identify the resources (direct materials and conversion effort) in opening and closing work in process inventory
in terms of equivalence to completed units. Costing units that are only half complete, for instance, cannot be
done on the basis of them equating to fully complete units. Hence, 2000 units that have only received half the
conversion inputs required to complete the units would be recognised as equating to 1000 completed units.

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2
Production report: Rigby Ltd
completion
Physical with respect to Direct
Work in process, 1 March.......................... 20 000 40%
Units started during March......................... 40 000
Total units to account for........................... 60 000
Units completed and transferred
out during March........................... 50 000 100% 50 000 50 000
Work in process, 31 March........................ 10 000 20% 10 000 2 000
Total units accounted for............................ 60 000 _____ _____
Total equivalent units................................. 60 000 52 000
Direct Conversion Total

material
Work in process, 1 March.......................... $78 000 $ 23 200 $101 200
Costs incurred during March...................... 252 000 132 800 384 800
Total costs to account for........................... $330 000 $156 000 $486 000
Equivalent units.......................................... 60 000 52 000
Costs per equivalent unit............................ $5.50 $3.00 $8.50
Cost of goods completed and transferred out during March:
( number of units ¿ ) ¿ ¿ ¿
¿ ................................................ 50 000  $8.50 $425 000
Cost remaining in 31 March work in process inventory:

Direct material:
(number of ¿ )(equivalent ¿ )( units of ¿) ¿ ¿¿

¿ ....................................................... 10 000  $5.50 $55 000
Conversion:

¿ ....................................................... 2 000  $3.00 6 000
Total cost of 31 March work in process........................................................................................ $61 000

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Check: Cost of goods completed and transferred out........................... $425 000
Cost of 31 March work in process inventory............................ 61 000
Total costs accounted for.......................................................... $486 000

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3 Production report for March: Rigby Ltd (in Excel spreadsheet), if the degree of
completion of conversion cost in ending WIP was 70 % instead of 20%
Production report: Rigby Ltd
completion
Physical
with respect to Direct
Work in process, 1 March.......................... 20 000 40%
Units started during March......................... 40 000
Total units to account for........................... 60 000
Units completed and transferred
out during March........................... 50 000 100% 50 000 50 000
Work in process, 31 March........................ 10 000 70% 10 000 7 000
Total units accounted for............................ 60 000 _____ _____
Total equivalent units................................. 60 000 57 000

Work in process, 1 March.......................... $78 000 $ 23 200 $101 200
Costs incurred during March...................... 252 000 132 800 384 800
Total costs to account for........................... $330 000 $156 000 $486 000
Equivalent units.......................................... 60 000 57 000

Cost of goods completed and transferred out during October:
¿ ................................................
50 000  $8.24...........................................................................$412 000
Cost remaining in 31 October work in process inventory:

Direct material:

¿ ....................................................... 10 000  $5.50 $55 000
Conversion:

¿ ....................................................... 7 000  $2.74 19 180

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Total cost of 31 October work in process..................................................................................... $ 74 180
Check: Cost of goods completed and transferred out.............................. $412 000

Cost of 31 October work in process inventory......................... 74 180
Total costs accounted for.......................................................... $486 180*
* difference of $180 due to rounding error with cost per EU of conversion cost which is more accurately 2.73684211

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PROBLEM 5.34 (45 minutes) Weighted average process costing: manufacturer
1
(a) Equivalent units:
completion
Physical with respect Direct
units to conversion material Conversion
Work in process, 1 May....................... 25 000 40%
Units started during May...................... 30 000
Total units to account for...................... 55 000
during May 35 000 100% 35 000 35 000
Work in process, 31 May..................... 20 000 80% 20 000 16 000
Total units accounted for...................... 55 000
Total equivalent units........................... 55 000 51 000
(b) Costs per equivalent unit:

Work in process, 1 May ............................. $143 000 $ 474 700 $ 617 700
Costs incurred during May......................... 165 000 2 009 000 2 174 000
Total costs to account for........................... $308 000 $2 483 700 $2 791 700

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(c) Cost of goods completed and transferred out during May:
( number of units ¿ ) ¿ ¿ ¿ 35 000  $54.30 $1 900 500

¿ .........................................
Cost remaining in 31 May work in process inventory:
Direct material:

20 000  $5.60 $112 000
¿ ............................................
Conversion:

16 000  $48.70 779 200
¿ ......................................................
Total cost of 31 May work in process................................................................................... $ 891 200
Check: Cost of goods completed and transferred out.......................................................... $1 900 500

Cost of 31 May work in process inventory............................................................. 891 200
Total costs accounted for........................................................................................ $2 791 700
2 Finished goods $1 900 500

Work in process $1 900 500

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PROBLEM 5.35 (35 minutes) Weighted average process costing; analysis of equivalent
units: manufacturer
1 Direct material cost was $780 000:
A453 $155 000
B344 375 000
C543 250 000
Total $780 000
TeleFone Ltd's total direct labour payroll amounted to $139 150 for 6325 hours of work ($139 150 ÷ $22
per hour). Thus, conversion cost was $297 275:
Direct labour……………………………………… $139 150
Overhead applied (6325 hours  $25) ………… 158 125
Total………………………………………….. $297 275
2 Goods completed during March cost $1 158 040 (34 000 units  $34.06), as the following calculations
show:
completion with
Work in process, 1 March 5 000 60%

Units started during March 35 000

during March
34 000 100% 34 000 34 000
Work in process, 31 March 6 000 40% 6 000 2 400
Direct Conversion Total

material
Work in process, 1 March $ 195 000 $ 55 000 $ 250 000

Costs incurred during March 780 000 297 275 1 077 275
Total costs to account for $975 000 $352 275 $1 327 275
Cost per equivalent unit. $24.375 $9.68 $34.06

22
3 The cost of the ending work in process inventory is $169 482:
Direct material (6000  $24.375) $146 250
Conversion cost (2400  $9.68) 23 232
Total $169 482
4 (a) No material would be added during April. All material is introduced at the start of the
manufacturing process and these units were started in March.
(b) Since the work in process inventory is 40 per cent complete at the end of March, 60 per cent of the
conversion would be done in April.
5 Given that the ending work in process inventory is at the 40 per cent stage of completion, these units
would not have reached the 70 per cent stage, which is the stage where D775 is added. Therefore, there
would be zero equivalent units with respect to part D775 in the work in process inventory at the end of
March.
PROBLEM 5.36(30 minutes) Analysis of work in process inventory account; T-

accounts: manufacturer
1 The ending work-in-process inventory consisted of 400 units (200 + 800 – 600).
2 The cost of goods completed during April totalled $57 000 (600 units  $95):

completion with
Work in process, 1 April 1 200 25%
Units started during April 800
Total units to account for 1000
Units completed and transferred during April 600 100% 600 600
Work in process, 30 April 400 75% 400 300
Total units accounted for 1000
Total equivalent units 1000 900
Direct
Work in process, 1 April $18 000 $9 000 $27 000
Costs incurred during April 64 500 45 000 109 500
Total costs to account for $82 500 $54 000 $136 500
Equivalent units 1 000 900
Cost per equivalent unit $82.50 $60.00 $142.50
Finished goods inventory 85 500

Work in process inventory 85 500

23
3 The cost of the 30 April work in process inventory is $51 000:
Direct material (400  $82.50) $33 000
Conversion cost (300  $60) 18 000
Total $51 000
4 Equivalent units measure the amount of manufacturing activity (i.e. for direct material or conversion) that
has been applied to a batch of physical units. If, for example, a company has 1000 physical units in
process that are 30 per cent complete as to conversion, the firm has done the equivalent amount of
conversion activity as would be required to do all of the conversion work for 300 units (1000  30%).
Equivalent units are needed to state manufacturing activity on a common measurement scale. One cannot
add completed units to units in process. Such a combination is like adding apples and oranges, as some
units are complete and some are incomplete. Instead, these units are first converted to equivalent units,
and the latter are then used in unit-cost calculations.
PROBLEM 5.37 (50 minutes) Missing data; FIFO; production report: manufacturer
To complete this problem, students should place the information given into a departmental production report
format and work from there to calculate the missing amounts.
The missing amounts are shown below. A completed production report follows.
b
Work in process, 1 July (in units) 40 000
c
Units started during July 80 000
a
d
Total equivalent units: direct material 120 000
e
Total equivalent units: conversion 90 000
f
New equivalent units accomplished in July: conversion 78 000
i
Work in process, 1 July: conversion $272 000
g
Costs incurred during July: conversion 1 762 800
h
Work in process, 1 July: total costs 880 000
j
Cost per equivalent unit: direct material 15.30
k
Cost per equivalent unit: conversion 22.60
l
Total cost per equivalent unit 37.90
m
Cost of goods completed and transferred out during July 2 649 800
n
Cost remaining in ending work in process inventory: direct material: 765 000
o
Cost remaining in ending work in process: conversion 452 000
p
Total cost of 31 July work in process 1 217 000

24
a
Total units to account for = units completed and transferred out + work in process 31
July
= 70 000 + 50 000
= 120 000 units
b
Work in process, 1 July, units = total equivalent units, direct material – new equivalent units
accomplished in July; direct material
= 120 000 – 80 000
= 40 000 units
c
Units started during July = units completed and transferred out – work in process,
August 1 + work in process, 31 July
= 70 000 – 40 000 + 50 000
= 80 000 units
d
Total equivalent units direct = units completed and transferred out + work in process
material* units, 31 July
* direct material is added at the beginning of the This must be the same as a above
process
= 70 000 + 50 000
= 120 000 units
e
Total equivalent units, conversion = units completed and transferred out + (work in process
units 31 July  degree of completion)
= 70 000 + (50 000  40%)
= 90 000 units
f
New equivalent units: conversion = total equivalent units: conversion – (work in process units,
1 July  degree of completion)
= 90 000 – (40 000  30%)
= 78 000 units
g
Cost incurred during July, = total costs incurred during July – cost incurred during July,
conversion direct material
= $2 986 800 – $1 224 000
= $1 762 800

25
h
Work in process, 1 July, total cost = total cost to account for – total costs incurred during July
= $3 866 800 – $2 986 800
= $880 000
i
Work in process, 1 July, conversion = work in process, 1 July, total cost – work in process 1 July,
direct material
= $880 000 – $608 000
= $272 000
j
Cost per equivalent unit, direct = cost incurred during July: direct material  new equivalent
material units in July: direct material
= $1 224 000  80 000
= $15.30
k
Cost per equivalent unit: conversion = conversion costs during July  new equivalent units:
conversion
= $1 762 800  78 000
= $22.60
l
Total cost per equivalent unit = cost per equivalent unit: direct material and cost per
equivalent unit conversion
= $15.30 + $22.60
= $37.90
m, n, o, p: refer to the following

production report.

26
Production report: Fantastic Plastics Ltd
Coating Department

completion with
Physical
respect to Direct
Work in process, 1 July 40 000 30%
Units started during July 80 000
during August 70 000 100% 70 000 70 000
Work in process, 31 July 50 000 40% 50 000 20 000
Total units accounted for 120 000 ______ ______
Less: Equivalent units represented
in 1 July work in process 40 000 12 000
New equivalent units accomplished
in July only 80 000 78 000

Work in process, 1 July These costs were incurred during July. $880 000
They are not included in the unit cost
calculation for August.
Costs incurred during July $1 224 000 $1 762 800 2 986 800
Total costs to account for $3 866 800
Equivalent units for July only 80 000 78 000
Cost of goods completed and transferred out of the Coating Department during July:
Cost of 1 July work process inventory, which is transferred out first $880 000
Cost incurred to finish the 1 July work in process inventory:
cost per
)( )
number percentage of
( )(
of
units
× conversion × equivalent
remaining
unit of
conversion 40 000  0.70  $22.60 632 800
Costs incurred to produce units that were both started and completed during July:
number total cost per

( )(
of
units
× equivalent
unit ) 30 000††  $37.90 1 137 000
Total cost of goods completed and transferred out $2 649 800 (m)

27
Cost remaining in 31 July work in process inventory in the Coating Department:
Direct material:
number of
( equivalent
units of
direct material
)( direct material
× cost per
equivalent unit
) 50 000  $15.30 $765 000
Conversion:
number of
( )(equivalent
units of
conversion
×
conversion cost
per equivalent unit )
20 000  $22.60 452 000
Total cost of 31 July work in process $1 217 000
††Units started and completed during July: 70 000 units completed and transferred out minus 40 000 units in the 1 July work
in process inventory.
Check: Cost of goods completed and transferred out $2
649 800
Cost of 31 July work in process inventory 1 217 000
PROBLEM 5.38 (40 minutes) Process costing with spoilage; journal entries:
manufacturer
1 Schedule of equivalent units
completion
Work in process, 1 April 100 000 60%
Units started in April 200 000
Units completed and

transferred out during April 220 000 220 000 220 000
Units spoiled during April 60 000 25% 60 000 15 000
Work in process, 30 April 20 000 80% 20 000 16 000

28
2 Unit cost and cost of goods completed and transferred out during April

Work in process, 1 April $ 58 500 $ 24 000 $ 82 500
Costs incurred during April 114 000 76 400 190 400
3 Cost of goods completed and transferred out during April

Direct
Cost of goods transferred (spoilage not included):
Material (220 000 units @ $0.575) $126 500
Conversion (220 000 units @ $0.40) $88 000 $214 500
4 Cost of spoiled units in April
Material 60 000 units @ 0.575 $34 500
Conversion 15 000 units @ $0.40 6 000
$40 500
5 Costs remaining in WIP at 30 April
Material 20 000 units @ $0.575 $11 500
Conversion 16 000 units @ $0.40 6 400
$17 900
6 Journal entries
(a) Normal spoilage:
Finished goods inventory $255 000
WIP $255 000
(b) Abnormal spoilage:

Loss on abnormal spoilage 40 500
WIP $255 000
7 If the FIFO method had been used, in the production report the new equivalent units accomplished for the
current month would need to be calculated by reducing the total equivalent units by the number of
equivalent units in the opening WIP inventory. Also we would usually need to make an assumption as to
whether the spoiled units were started in the previous period or in the current period. In this example, as
the opening WIP is at the 60% completion stage we know that these are all good units. Spoiled units are
detected at the 25% stage, so that means that the spoiled units all came from units started in the current
month.

29
PROBLEM 5.39 (45 minutes) Operation costing; unit costs; journal entries:
manufacturer
1 The unit costs and total costs for each of the products manufactured by Gateway Industries during the
month of May are calculated as follows:
Extrusion Form Trim Finish
Units produced................................ 38 400 26 400 12 000 4 800
Material costs.................................. $345 600 $ 79 200 $27 000 $21 600
Unit material cost................... 9.00 3.00 2.25 4.50
Conversion costs*........................... 470 400 158 400 82 800 50 400
Unit conversion cost............... 12.25 6.00 6.90 10.50
* Direct labour and manufacturing overhead.
Standard Executive
Unit costs Plastic sheets model Deluxe model model
Material costs:
Extrusion................................. $9.00 $9.00 $9.00 $9.00
Form....................................... 3.00 3.00 3.00
Trim........................................ 2.25 2.25
Finish...................................... 4.50
Conversion costs:
Extrusion................................. 12.25 12.25 12.25 12.25
Form....................................... 6.00 6.00 6.00
Trim........................................ 6.90 6.90
Finish...................................... _ _ _ 10.50
Total unit cost................................. $21.25 $30.25 $39.40 $54.40
Units produced................................  12 000  14 400  7 200  4 800
Total product cost*......................... $255 000 $435 600 $283 680 $261 120
* Total costs accounted for:
Product Total product costs

Plastic sheets $ 255 000
Standard model 435 600
Deluxe model 283 680
Executive model 261 120
Total $1 235 400

30
2 Journal entries:
Work in process inventory: Extrusion.................................................... 816 000

Raw material inventory.............................................................. 345 600
Applied conversion costs........................................................... 470 400
Finished goods inventory........................................................................ 255 000

Work in process inventory: Extrusion........................................ 255 000
Work in process inventory: Forming...................................................... 798 600

Work in process inventory: Extrusion........................................ 561 000

Work in process inventory: Forming......................................... 435 600
Work in process inventory: Trimming................................................... 472 800

Work in process inventory: Forming......................................... 363 000

Work in process inventory: Trimming....................................... 283 680
Work in process inventory: Finishing.................................................... 261 120

Work in process inventory: Trimming....................................... 189 120

Work in process inventory: Finishing........................................ 261 120

31
3 The value of the 1000 units of the Deluxe model in work in process inventory at the end of May is
$39 640, calculated as follows:
Equivalent units
Material Conversion
% Qty % Qty
Entering trim operation:
6200 Deluxe units (finished) 100 6 200 100 6 200
1000 Deluxe units (remaining in
ending work in process) 100 1 000 60 600
4800 Executive units (finished) 100 4 800 100 4 800
Unit cost Total costs

Deluxe model work in process costs:
Extrusion material $9.00 $9 000
Form material 3.00 3 000
Trim material (100%) 2.25 2 250
Extrusion conversion 12.25 12 250
Form conversion 6.00 6 000
Trim conversion (60%) 7.14* 7 140*
Work in process costs $39.64 $39 640
*Conversion cost per equivalent unit in trim operation:
($36 000 + $46 800)  11 600 units = $7.14 per equivalent unit. Since the 1000 units in closing inventory are 60 per
cent complete as to conversion, their cost is $7140 (600 EU × $11.90) or $7.14 per unit.
PROBLEM 5.40 (35 minutes) Operation costing: manufacturer

Dept A Dept B Dept C
Glass sheets Coloured glass Etched glass
Direct costs
Material $450 000 $72 000 $0
Direct labour 38 000 22 000 38 000
Overhead 230 000 68 000 73 500
718 000 162 000 111 500
Transferred in costs 0 323 100 269 500
Total costs $718 000 $485 100 $381 000
Units produced 20 000 9 000 5 000
Unit cost $35.90 $53.90 $76.20
1 Conversion costs per unit, Department A, $268 000/20 000 units = $13.40
2 Conversion costs per unit, Department B, = $90 000/9 000 = $10 per unit

32
3 $35.90
4 $53.90
5 $76.20
PROBLEM 5.41 (45 minutes) Operation costing; unit costs; cost flow; journal entries
1 Conversion costs:
Rolling Moulding Punching Dipping
Direct labour $300 000 $112 000 $128 000 $45 000
Manufacturing overhead 450 000 168 000 192 000 67 500
Total conversion cost $750 000 $280 000 $320 000 $112 500
Total units produced:

Rolling only 20 000
Rolling, moulding, punching 8 000 8 000
Rolling, moulding, punching, and dipping 3 000
Conversion cost per unit $37.50 $35 $40 $37.50
2 Product cost
Non-
reflective Reflective
Ceralam sheets Ceralam Ceralam
sold after rolling housings housings Total costs
Direct material:
Ceralam sheets $480 000 $200 000 $120 000 $800 000
Chemical dip 30 000 30 000
Conversion costs:
Rolling 450 000a 187 500a 112 500a 750 000
b b
Moulding 175 000 105 000 280 000
Punching 200 000c 120 000c 320 000
Dipping _______ ________ 112 500d 112 500
Total cost $930 000 $762 500 $600 000 $2 292 500
Units manufactured 12 000 5 000 3 000
Unit cost $77 50 $152.50 $200.00
a
Number of units  rolling cost per unit ($37.50)
b
Number of units  moulding cost per unit ($35.00)
c
Number of units  punching cost per unit ($40.00)
d
Number of units  dipping cost per unit ($37.50)

33
3 Journal entries:
Work in process inventory: Rolling $1 550 000
Raw material inventory $800 000*
* $800 000 = direct-material cost for Ceralam sheets

†
$750 000 = conversion cost in rolling operation

Work in process inventory: Rolling 930 000
* $930 000 = 12 000 Ceralam sheets sold after rolling  $77.50 per unit
Cost of goods sold 930 000*

*$930 000 = cost of Ceralam sheets sold after rolling
Work in process inventory: Moulding 620 000*

Work in process inventory: Rolling 620 000
*$620 000 = cost remaining in Work in process inventory: Rolling

= $1 550 000 – $930 000
Work in process inventory: Moulding 280 000*

*$280 000 = conversion cost in moulding operation
Work in process inventory: Punching 900 000*

Work in process inventory: Moulding 900 000
*$900 000 = cost remaining in Work in process inventory: Moulding

= $620 000 + $280 000
Work in process inventory: Punching $320 000*

Applied conversion costs $320 000
*$320 000 = conversion cost in punching operation

34
Finished goods inventory........................................................................................
$762 500*
Work in process inventory: Punching $762 500
*$762 500 = 5 000 non-reflective Ceralam housings sold after punching 
$152.50 per unit
Cost of goods sold 762 500*

*$762 500 = cost of non-reflective Ceralam housings sold after punching
Work in process inventory: Dipping 457 500*

Work in process inventory: Punching 457 500
*$457 500 = cost remaining in Work in process inventory: Punching

= $900 000 + $320 000 – $762 500
Work in process inventory: Dipping 142 500

Raw material inventory 30 000*
* $30 000 = direct material cost for chemical dip

†
$112 500 = conversion cost in dipping operation

Work in process inventory: Dipping 600 000
* $600 000 = 3 000 reflective Ceralam housings sold after dipping
 $200 per unit
Cost of goods sold $600 000


35
4 The spreadsheet will look like the statements in requirement 1 above but the cells should have formulae
where calculations are required.
Conversion costs assuming manufacturing overhead was applied at 200% of direct labour:
Rolling Moulding Punching Dipping
Direct labour $300 000 $112 000 $128 000 $45 000
Manufacturing overhead 600 000 224 000 256 000 90 000
Total conversion cost $900 000 $336 000 $384 000 $135 000
Total units produced:

Rolling only 20 000
Rolling, moulding, punching 8 000 8 000
Rolling, moulding, punching, and dipping 3 000
Conversion cost per unit $45 $42 $48 $45
Product cost assuming direct material used in dipping was $45 000:
Non-
reflective Reflective
Ceralam sheets Ceralam Ceralam
sold after rolling housings housings Total costs
Direct material:
Ceralam sheets $480 000 $200 000 $120 000 $800 000
Chemical dip 45 000 45 000
Conversion costs:
Rolling 540 000a 225 000a 135 000a 900 000
b b
Moulding 210 000 126 000 336 000
Punching 240 000c 144 000c 384 000
Dipping _______ ________ 135 000d 135 000
Total cost $1 020 000 $875 000 $705 000 $2 600 00

Units manufactured 12 000 5 000 3 000
Unit cost $85 $175 $235
a
Number of units  rolling cost per unit ($45)
b
Number of units  moulding cost per unit ($42)
c
Number of units  punching cost per unit ($48)
d
Number of units  dipping cost per unit ($45)

36
PROBLEM 5.42 (20 minutes) (appendix) Transferred-in costs; no work in process:
manufacturer
1 Cutting
Direct material $90 000
Direct labour 37 500
Overhead 4 050 ($45 000/15 000 hours  1350 hours)
$131 550
Sewing
Overhead 28 800 ($24 000/3 000 hours  3600 hours)
$126 300
Total product costs = $131 550 + 126 300 = $257 850
Production units = 7500
Product cost per unit = $34.38
2 Work in process: Cutting $131 550

Overhead 4 050
Work in process: Sewing $126 300

Direct material 7 500
Overhead 28 800
Work in process: Sewing 131 550

Work in process: Cutting 131 550
Finished goods $257 850

Work in process: Sewing $257 850
3 The work in process accounts are useful control devices to monitor the total cost in each department. Also,
despite the company’s policy there may occasionally be months where work in process is unavoidable.

37
PROBLEM 5.43 (20 minutes) (appendix) Transferred-in costs; weighted average
method: manufacturer
1 (a) Cost of units completed and transferred to finished goods inventory during May:
Units completed and transferred out 11 900
Total cost per equivalent unit  $9.00
Cost of units completed and transferred out $107 100
(b) To calculate the cost of the Finishing Department work in process inventory on 31 May, first
determine the number of units in ending work in process inventory, as follows:
Work in process inventory, 1 May 1 400 units
Add: Units transferred in 14 000 units
Units to account for 15 400 units
Subtract: Units transferred to finish goods 11 900 units
Total 3 500 units
Then calculate the transferred-in costs, direct material cost, and conversion cost in the 31 May work in
process inventory:
Equivalent Cost per

Input units equivalent unit Cost
Transferred in 3 500  $5.00 = $17 500
Direct material 3 500  $1.00 = 3 500
Conversion 3 500  40%  $3.00 = 4 200
Total cost of 31 May
work in process inventory $25 200
2 Equivalent units of transferred-in costs 15 400

Transferred-in cost per equivalent unit  $5.00
Total transferred-in cost $77 000
Transferred-in cost in 1 May work in process inventory 6 750
Total cost transferred in from the Assembly Department $70 250
Journal entry to record transfer:

Work in process inventory: Finishing Department 70 250
Work in process inventory: Assembly Department 70 250

38
SOLUTIONS TO CASES
CASE 5.44 (45 minutes) Weighted average process costing: manufacturer
1a Equivalent units of material................................................................................................................8 500

Equivalent units of conversion............................................................................................................8 260
b Cost per equivalent unit of material....................................................................................................$6.00

Cost per equivalent unit of conversion................................................................................................$7.00
c 31 October work in process inventory................................................................................................

$3 520
Cost of goods completed and transferred out......................................................................................
$105 300
d Weighted-average unit cost of completed leather belts......................................................................

$13.00
These answers are supported by the following process costing schedules. The firm's cost per belt used for
planning and control, $11.50, is substantially lower than the actual cost per belt incurred in October,
$13.00. Management should investigate this situation to determine whether production costs can be
reduced. If not, then the cost used for planning and control purposes should be changed to reflect the
firm's actual experience.
Calculation of equivalent units: Leather Products Ltd – Elizabeth Plant


completion
Physical with respect Direct
units to conversion material Conversion
Work in process, 1 October............................... 500 30%
Units started during October.............................8000
Total units to account for..................................8500

8100 8100 8100
during October............................................... 100%
Work in process, 31 October............................. 400 40% 400 160
Total units accounted for...................................8500
Total equivalent units........................................ 8500 8260

39
Calculation of costs per equivalent unit: Elizabeth Plant
Work in process, 1 October ...............................................
$ 2 000 $ 2 500 $ 4 500
Costs incurred during October...........................................
49 000 55 320 104 320
Total costs to account for...................................................
$51 000 $57 820 $108 820
Equivalent units..................................................................
8 500 8 260
Costs per equivalent unit....................................................
$6.00 $7.00 $13.00
Analysis of total costs: Elizabeth Plant

Cost of goods completed and transferred out during October:
8100  $13.00 = $105 300
¿ ...........................................
Cost remaining in 31 October work in process inventory:

Direct material:
(number of¿)(equivalent¿) ( units of¿ )¿ ¿¿

400  $6.00 = $2 400
¿ ..................................................
Conversion:
(number of¿)(equivalent¿) ( units of¿ )¿¿¿

160  $7.00 = 1 120
¿ ............................................................
Total cost of 31 October work in process.......................................................................... $3 520
Check: Cost of goods completed and transferred out............................. $105 300

Cost of 31 October work in process inventory.......................... 3 520
Total costs accounted for........................................................... $108 820
2 The cost of manufacturing the belt is $13 per unit, which is different to the $11.50 used for planning
purposes. Using the incorrect cost the profit margin would be overstated. If management were to use the
incorrect cost then it could result in wrong decisions.

40
CASE 5.45 (60 minutes) (appendix) Sequential production departments; FIFO method;
JIT: manufacturer
Production report: Grading Department
(FIFO method)
completion
Work in process, 1 November 0 --
Units started during November 36 000
Units completed and transferred out during
November
36 000 100% 36 000 36 000
Work in process, 31 November 0 -- -- 0
Total units accounted for 36 000 ______ ______
Less: Equivalent units represented in 1
November work in process
0 0
New equivalent units accomplished in
November only 36 000 36 000

Work in process, 1 November –0 –0 –0
Costs incurred during November $265 680 $86 400 $352 080
Equivalent units for November only 36 000 36 000
Cost of goods completed and transferred out of the Grading Department during November:
Cost of 1 November work in process inventory 0
Cost incurred to produce units that were both started and completed during November
( number of units )× total cost per

( )
equivalent unit 36 000  $9.78 $352 080
Total cost of goods completed and transferred out $352 080
Cost remaining in 30 November work in process inventory in the Grading Department 0
Check: Cost of goods completed and transferred out $352 080

Cost of 30 November work in process inventory 0
Total costs accounted for $352 080

41
Production report: Saturating Department
(FIFO method)

completion with
Physical respect to
units conversion Transfer in Conversion
Work in process, 1 November 1 600 50%
Units transferred in during November 36 000
during November
35 600 100% 35 600 35 600
Work in process, 30 November 2 000 50% 2 000 1 000
Less: equivalent units represented in 1
November work in process
1 600 800
New equivalent units accomplished in
November only
36 000 35 800
Transferred in Conversion Total

Work in process, 1 November These costs were incurred during a previous $17 600
month. They are not included in the unit
cost calculation for November.
Costs incurred during November $352 080* $85 920 438 000
Total costs to account for $455 600
Equivalent units for November only 36 000 35 800
* Cost of goods completed and transferred out of Grading Department during November, under the FIFO method.
Cost of goods completed and transferred out of the Saturating Department during November:
Cost of 1 November work in process inventory which is transferred out first $17 600
Cost incurred to finish the 1 November work in process inventory:
cost per
)( )
number percentage of
( )(
of
units
× conversion ×
remaining
equivalent
unit of
conversion 1600  .50  $2.40 1 920

42
Cost incurred to produce units that were both started and completed during November:
number
( )(of
units
×
total cost per
equivalent unit )
34 000*  $12.18 414 120
Total cost of goods completed and transferred out $433 640
* Units started and completed during November: 35 600 units completed and transferred out minus 1 600 units in the
1 November work in process inventory.
Cost remaining in 30 November work in process inventory in the Saturating Department:

Transferred-in costs:
number of equivalent transferred-in

( in cost )(
units of transferred × cost per
equivalent unit ) 2000  $9.78 $19 560
Conversion:
( number of equivalent × conversion cost

units of conversion ) ( per equivalent unit) 1000  $2.40 2 400
Total cost of 30 November work in process inventory $21 960
Check: Cost of goods completed and transferred out 433

640
Cost of 30 November work in process inventory 21 960

43
CASE 5.46 (60 minutes) (appendix) Sequential production departments; weighted
average method; JIT: manufacturer
Due to Home and Garden Products Ltd’s movement toward JIT inventory and production methods, there is no
work in process inventory in the Grading Department on November 1. Therefore, the process costing
calculations are identical for this department under the FIFO and weighted average methods. Thus, the solution
given for the preceding problem, for the Grading Department, is also valid for this problem. The cost of goods
completed and transferred out of the Grading Department in November is $352 080.
Production report: Saturating Department

(Weighted average method)
Completion with
Physical respect to Transferred
units conversion in Conversion
Work in process, 1 November 1 600 50%
Units transferred in during November 36 000
during November
35 600 100% 35 600 35 600
Work in process, 30 November 2 000 50% 2 000 1 000
Transferred in Conversion Total

Work in process, 1 November $13 850 $3 750 $17 600
Costs incurred during November 352 080* 85 920 438 000
* Cost of goods completed and transferred out of the Grading Department during November under the weighted average
method.
Cost of goods completed and transferred out of the Saturating Department during November:
total cost per

( number of units
transferred out) (
× equivalent
unit ) 35 600  $12.1822 $433 686
Cost remaining in 30 November work in process inventory in the Saturating Department:
Transferred-in costs:
number of cost per
( equivalent
units of
transferred-in cost
)(
× equivalent
unit of
transferred-in cost
) 2000  $9.7322 $19 464
Direct material: None

44
Conversion:
number of cost per
( )( )
equivalent × equivalent
units of unit of
conversion conversion 1000  $2.45 2 450
Total $21 194
Check: Cost of goods completed and transferred out $433
686
Cost of 30 November work in process inventory 21 914

45

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Process Costing and Operation Costing: Answers To Questions

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CHAPTER 5

PROCESS COSTING AND OPERATION

5.2 The four steps for process costing:

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Percentage of Equivalent units

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EXERCISE 5.25(15 minutes) Cost per equivalent unit; weighted average

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1 Weighted average method:

(a) 133 500  3.15 = $420 525*

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Equivalent units 139 500 140 250

1. Cost of opening work in process 59 775

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( number of units × total cost per

(b) Cost remaining in 31 December work in process:

* Equivalent units in 31 December work in process:

Direct material Conversion

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Equivalent units for December only 40 000 44 000

Costs per equivalent unit $8.20 $12.40 $20.60

(a) Costs of goods completed and

Cost of 1 December work in

Cost incurred to finish the 1

Cost incurred to produce units that

Total cost of goods completed and

Direct material (10 000†  $8.20) $82 000

* Units started and completed = 30 000 = 50 000 – 20 000

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Percentage of Equivalent units

Work in process, 1 January 25 000 60%

Units completed and

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1 Work in process inventory: Pouring Department 3 270 000

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PROBLEM 5.33 (50 minutes) Weighted average process costing: manufacturer

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Direct Conversion Total

Cost remaining in 31 March work in process inventory:

(number of ¿ )(equivalent ¿ )( units of ¿) ¿ ¿¿

(number of ¿ )(equivalent ¿ )( units of ¿) ¿ ¿¿

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Direct material Conversion Total

Costs per equivalent unit............................ $5.50 $2.74 $8.24

Cost remaining in 31 October work in process inventory:

(number of ¿ )(equivalent ¿ )( units of ¿) ¿ ¿¿

(number of ¿ )(equivalent ¿ )( units of ¿) ¿ ¿¿

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Check: Cost of goods completed and transferred out.............................. $412 000

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(b) Costs per equivalent unit:

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( number of units ¿ ) ¿ ¿ ¿ 35 000  $54.30 $1 900 500

Cost remaining in 31 May work in process inventory:

(number of ¿ )(equivalent ¿ )( units of ¿) ¿ ¿¿

(number of ¿ )(equivalent ¿ )( units of ¿) ¿ ¿¿

Total cost of 31 May work in process................................................................................... $ 891 200

Dipping _ __ 112 500d 112 500