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Cost and Management Accounting

EXERCISE NO 3 (Process Costing)

Problem No 1: (Alan Inc.)

Alan Inc. uses the weighted-average method in its process costing system. The following
data concern the operations of the company’s first processing department for a recent
month:
WIP (beginning) 300
Units in process:
Stage of completion with respect to materials 60%
Stage of completion with respect to conversion 30%
Costs in beginning inventory:
Material cost $342
Conversion cost $2,394
Units started into production during the month 21,000
Units complete and transferred out 20,700
Costs added to production during the month:
Material cost $44,136
Conversion cost $546,750

WIP (Ending)
Stage of completion with respect to materials 80%
Stage of completion with respect to conversion 30%

Required

Prepare a production report for the department using the weighted average method.

Solution: Problem No 1: (Alan Inc.)

Materials Conversion
WIP (Beg) 300
Started 21,000
21,300
Completed and transferred 20,700 20,700 20,700
WIP (End) 80 % DM 30% CC 600 480 180
21,300 21,180 20,880
Costs:
WIP (beg) $2,736 $342 $2,394
Current(cost added) 590,886 44,136 546,750
Total costs to account for 593,622 44,478 549,144
÷21,180 ÷20,880
$2.10 $26.30
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Cost Reconciliation

Cost accounted for: Materials Conversion

Transferred out (20,700) $587,880 20,700*2.10 20,700*26.30
WIP (ending)
Materials $1,008 480*2.10
Conversion 4,734 180*26.30
$5,742
Total cost 593,622

Problem No 2: (Hercules Tile Company)

The following data pertains to the Hercules Tile Company for July.

WIP (Units) 20,000 Costs incurred during July: Conv $659,400

Units started during July A WIP, July 1: Total Costs $244,200
Total units to account for 65,000 Total costs incurred during July $1,031,250
Units C & T during July B Total cost to account for $1,275,450
WIP (31st July) in units 15,000 Cost per equivalent unit: DM $8.25
Total Eq Units - DM 65,000 Cost per equivalent unit: Conv F
Total Eq Units – Conv C Total cost per equivalent unit $21.45
WIP – July 1: DM $164,400 Cost of goods C & T out during July G
WIP – July 1: Conversion D Costs remaining in ending WIP: DM H
Costs incurred July: DM E Costs remain in ending WIP: Conv $79,200
Total cost of July 31 WIP $202,950

Additional Information:

a. Direct material is added at the beginning of the production process, and

conversion activity occurs uniformly throughout the process.
b. Hercules uses weighted-average process costing
c. The July 1 work in process was 30 percent complete as to conversion.
d. The July 31 work in process was 40 percent complete as to conversion.

Required:

Compute the missing amounts, and prepare the firm’s July production report
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Solution: Problem No 2: (Hercules Tile Company)

WIP (Units) 20,000 Costs incurred during July: $659,400

Conversion
Units started during July A (45,000) WIP, July 1: Total Costs $244,200
Total units to account for 65,000 Total costs incurred during July $1,031,250
Units C & T out during July B(50,000) Total cost to account for $1,275,450
WIP (31st July) in units 15,000 Cost per equivalent unit: DM $8.25
Total equivalent Units - 65,000 Cost per equivalent unit: F($13.20)
DM Conversion
Total equivalent Units - C(56,0000) Total cost per equivalent unit $21.45
Conversion
WIP – July 1: DM $164,400 Cost of goods C & T out during July G($1,072,500)
WIP – July 1: Conversion D(79,800) Costs remaining in ending WIP: H($123,750
DM
Costs incurred during July: E($371,850) Costs remaining in ending WIP: $79,200
DM conversion
Total cost of July 31 work- in - $202,950
process
Incomplete

Materials Conversion
WIP (Beg) 20,000
Started 45,000 (A)
65,000
Completed and transferred 50,000 (B) 50,000 50,000
WIP (End) 15,000 15,000
65,000 65,000 20,880
Costs:
WIP (beg) $2,736 $342 $2,394
Current(cost added) 590,886 44,136 546,750
Total costs to account for 593,622 44,478 549,144
÷21,180 ÷20,880
$2.10 $26.30
Cost Reconciliation

Cost accounted for: Materials Conversion

Transferred out (20,700) $587,880 20,700*2.10 20,700*26.30
WIP (ending)
Materials $1,008 480*2.10
Conversion 4,734 180*26.30
$5,742
Total cost 593,622
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Problem No 3: (Centura Corporation)

Centura Corporation manufactures timing devices. During 19X9, 900,000 units were
completed and transferred to finished-goods inventory. On December 31,19X9 there
were 300,000 units in work-in-process. These units were 50 percent complete as to
conversion and 100% complete as to direct material. Finished goods inventory consisted
of 200,000 units. Materials are added to production at the beginning of manufacturing
process, and overhead is applied to each product at the rate of 60 percent of direct-
labor costs. There were no finished- goods inventory at January1, 19X9. A review of
Centura’s inventory cost records disclosed the following information.

Units Materials ($) Labor($)

WIP, Jan 1,19x9 (80% complete as to CC) 200,000 $200,000 $315,000
Units started in production 1,000,000
DM costs $1,300,000
DL costs $1,995,000

Required:

Prepare schedules as of December31, 19X9 to compute the following:

1. Physical flow of units
2. Equivalent units of production
3. Costs per equivalent unit for material and conversion. (DM $1.25, CC $3.52)
4. Cost of the December31, 19x9 finished-goods inventory and WIP inventory.

Solution: Problem No 3: (Centura Corporation)

Materials Conversion
WIP (Beg) 200,000
Started 1,000,000
1,200,000
Completed and transferred 900,000 900,000 900,000
WIP (End) 25% 300,000 300,000 150,000
1,200,000 1,200,000 1,050,000
Costs:
WIP (beg) $704,000 $200,000 $504,000
Current 4,492,000 1,300,000 3,192,000
Total costs to account for 5,196,000 1,500,000 3,696,000
÷1,200,000 ÷1,050,000
$1.25 $3.52
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Cost Reconciliation

Cost accounted for: Materials Conversion

Transferred out $4,293,000 900,000×1.25 900,000×3.25
WIP (ending)
Materials $375,000 300,000×1.25
Conversion 528,000 150,000×3.52
$903,000
Total cost 5,196,000

Problem No 4 : (Pegasus Block Company)

Pegasus Block Company produces cement blocks used in the foundations for buildings. The
process takes place in two sequential departments. The following cost data pertain to the
month of October.

Pouring Finishing dept

dept

DM entered in production $70,000 $25,000

DL 340,000 280,000
Applied MOH 680,000 420,000
Cost of goods transferred to the Finishing 900,000
dept
Cost of goods transferred to finished 400,000
goods

Required

Prepare journal entries to record the following events

1. Incurrence of costs for direct materials and direct labor and application of
manufacturing overhead in the Pouring department.
2. Transfer of goods from Pouring to Finishing.
3. Incurrence of costs for direct materials and direct labor and application of
manufacturing overhead in the Finishing department
4. Transfer of goods from the Finishing department to finished goods inventory.

Solution: Problem No 4: (Pegasus Block Company)

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1. Incurrence of costs for direct materials and direct labor and application of
manufacturing overhead in the Pouring department.

Debit Credit
WIP 1,090,000
RM 70,000
Wages/P 340,000
FOH 680,000

2. Transfer of goods from Pouring to Finishing.

Debit Credit
WIP - Finishing 900,000
WIP - Pouring 900,000

3. Incurrence of costs for direct materials and direct labor and application of MOH
in the Finishing department.

Debit Credit
WIP - Finishing 725,000
RM 25,000
Wages/P 280,000
FOH 420,000

4. Transfer of goods from the Finishing department to finished goods inventory.

Debit Credit
FG 400,000
WIP - Finishing 400,000

Problem No 5: (Wright Company)

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Wright Company had, at the beginning of 20XI, a WIP of 10,000 units. During 20XI,
57,500 additional units were started into production .Ending WIP on Dec 31,20XI was
7,500 units. The beginning WIP was 100 % complete as to Direct Materials and 75 %
complete as to conversion cost. The ending WIP was 100% complete as to Direct
Materials and 50 % complete as to conversion cost. Total direct Material; put into
process cost $ 57,500.Total conversion cost put into process cost $ 84,375.Beginning
WIP cost $ 21,250 ($13,250 for materials and $8,000 for conversion). All materials are
added at the start of the production process, and conversion costs are incurred
uniformly throughout manufacturing.

Required

Compute Equivalent unit costs, Summarize total costs to account for, and assign costs to units
completed and to units in ending work in process using

(a) Weighted average method (DM $1.048, CC $1.449)

(b) FIFO method (DM $1.00, CC $1.50)

Solution: Problem No 5: (Wright Company)

A. Weighted Average Method

Flow of Production Physical Units Direct Material Conversion

costs
WIP(beg) 100% M, 75% CC 10,000
Started 57,500
Total 67,500
Completed & Transferred 60,000 60,000 60,000
WIP(end) 7,500 7,500 3,750
67,500 67,500 63,750
Total Costs
WIP(beg) $21,250 $13,250 $8,000
Cost added 141,875 57,500 84,375
70,750 92,375
÷67,500 ÷63,750
TC to account for $163,125 $1.048 $1.449

Cost assignment
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C &T (60,000 units) $149,820 60,000×$1.048+60,000×$1.449

WIP (end) 7,500 units
Direct material 7,860 7,500×$1.048
Conversion cost 5,434 3,750×$1.449
10,280
$163,125

FIFO Method

Flow of Production Physical Units Direct Material Conversion

costs
WIP(beg) 100% M, 75% CC 10,000
Started 57,500
Total 67,500
Completed & Transferred 10,000 0 2,500
Completed & Transferred 50,000 50,000 50,000
WIP(end) 7,500 7,500 3,750
67,500 57,500 56,250
Total Costs
WIP(beg) $21,250 $0 $0
Cost added 141,875 57,500 84,375
57,500 84,375
÷57,500 ÷56,250
TC to account for $163,125 $1.00 $1.50

Cost assignment

WIP (beg) 10,000 units $21,250

DM 0 0×$1
CC 3,750 2500×$1.50
25,000
Started & Completed (50,000 units) 125,000 50,000×$1+50,000×$1.50
TC of units C & T 150,000
WIP(end)
Direct material 7,500 7,500×$1
Conversion cost 5,625 3,750×$1.5
13,125
$163,125

End of Exercise No 3
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