Problem 4-14 (45 minutes)

Weighted-Average Method

1. 2., and 3.

Quantity Schedule and Equivalent Units

Quantity
Schedule
Units to be accounted for:
Work in process, May 1 (all
materials, 80% labor and
overhead added last
month)...............................................................
10,000
Started into production ........................................
100,000
Total units ........................................................
110,000

Equivalent Units (EU)

Materials Labor Overhead
Units accounted for
as follows:
Transferred out ....................................................
95,000 95,000 95,000 95,000
Work in process, May 31
(60% materials, 20%
labor and overhead
added this month) ..............................................
15,000 9,000 3,000 3,000
Total units and
equivalent units
of production ...................................................
110,000 104,000 98,000 98,000
Problem 4-14 (continued)
Cost Reconciliation
Total Equivalent Units (EU)
Cost Materials Labor Overhead
Cost accounted for
as follows:
Transferred out:
95,000 units x $2.50 .........................................
$237,500 95,000 95,000 95,000
Work in process, May 31:
Materials, at $1.50 per
EU ..................................................................
13,500 9,000
Labor, at $0.25 per EU .....................................
750 3,000
Overhead, at $0.75
per EU ............................................................
2,250 3,000
Total work in process .....................................
16,500
Total cost .............................................................
$254,000
Problem 4-17 (45 minutes)
Weighted-Average Method

Quantity Schedule and Equivalent Units

Quantity
Schedule
Units to be accounted for:
Work in process, June 1
(all materials, 75% conversion
cost added last month) ......................................
20,000
Started into production ........................................
180,000
Total units ........................................................
200,000

Equivalent Units (EU)

Materials Conversion
Units accounted for as follows:
Transferred to bottling: ........................................
160,000 160,000 160,000
Work in process, June 30
(all materials, 25% conversion
cost added this month) ......................................
40,000 40,000 10,000
Total units and equivalent units of
production .........................................................
200,000 5200,000 170,000
Problem 4-18 (45 minutes)

FIFO Method

Quantity Schedule and Equivalent Units

Quantity
Schedule
Units to be accounted for:
Work in process, June 1
(all materials, 75% conversion
cost added last month) ......................................
20,000
Started into production ........................................
180,000
Total units .......................................................
200,000

Equivalent Units (EU)

Materials Conversion
Units accounted for as follows:
Transferred to bottling:
From the beginning inventory ...........................
20,000 — 5,000*
Started and completed this
month .............................................................
140,000** 140,000 140,000
Work in process, June 30
(all materials, 25% conversion
cost added this month) ......................................
40,000 40,000 10,000
Total units and equivalent units
of production ................................................
200,000 180,000 155,000

* 20,000 x (100% - 75%) = 5,000

** 180,000 – 40,000 = 140,000
Problem 4-18 (continued)

Cost Reconciliation

Total Equivalent Units (EU)

Cost Materials Conversion
Cost accounted for as follows:
Transferred to bottling:
From the beginning inventory:
Cost in the beginning
inventory .....................................................
$ 50,000
Cost to complete these units:
Materials, at $1.86 per EU — —
Conversion, at $1.54 per
EU ............................................................
7,700 5,000
Total cost ................................................
57,700
Units started and completed
during June: 140,000 units 
$3.40 ..............................................................
476,000 140,000 140,000
Total cost transferred .................................
533,700
Work in process, June 30:
Materials, at $1.86 per EU...................................
74,400 40,000
Conversion, at $1.54 per EU ...............................15,400 10,000
Total work in process .......................................
89,800
Total cost ....................................................
$623,500
Problem 4-22 (90 minutes)
Weighted-Average Method

1. a. Work in Process—Cooking Department ................. 570,000

Work in Process—Bottling Department .................. 130,000
Raw Materials ..................................................... 700,000
b. Work in Process—Cooking Department ................. 100,000
Work in Process—Bottling Department ..................80,000
Salaries and Wages Payable .............................. 180,000
c. Manufacturing Overhead ........................................ 400,000
Accounts Payable ............................................... 400,000
d. Work in Process—Cooking Department ................. 235,000
Mfg. Overhead—Cooking Department ................ 235,000
Work in Process—Bottling Department .................. 158,000
Mfg. Overhead—Bottling Department.................. 158,000
e. Work in Process—Bottling Department .................. 900,000
Work in Process—Cooking Department .............. 900,000
f. Finished Goods ......................................................1,300,000
Work in Process—Bottling Department ............... 1,300,000
g. Accounts Receivable .............................................. 2,000,000
Sales ................................................................... 2,000,000
Cost of Goods Sold ................................................ 1,250,000
Finished Goods ................................................... 1,250,000

2. See the T-accounts on the following page.

Problem 4-22 (continued)
2.

Accounts Receivable Raw Materials

(g) 2,000,000 Bal. 710,000 710,000 (a)

Bal. 10,000

Work in Process— Work in Process—

Cooking Department Bottling Department
Bal. 61,000 900,000 (e) Bal. 85,000 1,300,000 (f)
(a) 570,000 (a) 130,000
(b) 100,000 (b) 80,000
(d) 235,000 (d) 158,000
(e) 900,000
Bal. 66,000 Bal. 53,000

Finished Goods Manufacturing Overhead

Bal. 45,000 1,250,000 (g) (c) 400,000 393,000 (d)
(f) 1,300,000
Bal. 95,000 Bal. 7,000

Accounts Payable Salaries and Wages Payable

400,000 (c) 180,000 (b)

Sales Cost of Goods Sold

2,000,000 (g) (g) 1,250,000
Problem 4-22 (continued)
3. The production report for the cooking department follows:

Quantity Schedule and Equivalent Units

Quantity
Schedule
Quarts to be accounted for:
Work in process, May 1
(60% materials, 30%
labor and overhead
added last month) ............................................
70,000
Started into production .......................................
380,000*
Total quarts .....................................................
450,000
Equivalent Units (EU)
Materials Labor Overhead
Quarts accounted for
as follows:
Transferred to bottling: .......................................
400,000 400,000 400,000 400,000
Work in process, May 31
(70% materials,
40% labor and
overhead added this
month) ..............................................................
50,000 35,000 20,000 20,000
Total quarts and
equivalent units of
production......................................................
450,000 435,000 420,000 420,000

* (400,000 quarts + 50,000 quarts) – 70,000 quarts = 380,000 quarts

started
Problem 4-22 (continued)
Cost Reconciliation
Total Equivalent Units (EU)
Cost Materials Labor Overhead
Cost accounted for
as follows:
Transferred to bottling:
400,000 quarts at $2.25 ... $900,000 400,000 400,000 400,000
Work in process, May 31:
Materials, at
$1.40 per EU .................. 49,000 35,000
Labor, at $0.25 per EU ..... 5,000 20,000
Overhead, at $0.60
per EU ............................ 12,000 20,000
Total work in process .... 66,000
Total cost .................... $966,000
Case 4-25 (90 minutes)

Notes to the instructor:

• This case is difficult—particularly part 3 which requires analytical
skills.
• Since there are no beginning inventories, it makes no difference
whether the weighted-average or FIFO method is used by the
company. Your students may worry about this omission in the
statement of the problem, so you may want to specify which method
you want them to use.
Case 4-25 (continued)
1. The computation of the cost of goods sold follows:

Transferred In Conversion
Estimated completion ......................................100% 30%

Computation of equivalent units:

Completed and transferred out .....................
200,000 200,000
Work in process, ending:
Transferred in, 10,000 units  100%.......... 10,000
Conversion, 10,000 units  30%................ 3,000
Total equivalent units of production .........
210,000 203,000

Whole
Transferred In Conversion Unit
Cost to be accounted for:
Work in process .................................. -0- -0-
Cost added during the month .............. $39,375,000 $20,807,500
Total cost (a) ....................................
$39,375,000 $20,807,500

Equivalent units of production

(above) (b) ........................................... 210,000 203,000
Cost per EU, (a) ÷ (b) ............................. $187.50  $102.50 = $290.00

Cost of goods sold = 200,000  $290 = $58,000,000

Case 4-25 (continued)
2. The estimate of the percentage completion of ending work in
process inventories affects the unit costs of finished goods and
therefore of the cost of goods sold. Gary Stevens would like the
estimated percentage completion figures to be increased. The
higher the percentage of completion of ending work in process, the
higher the equivalent units for the period and the lower the unit
costs.

3. Increasing the percentage of completion can increase net income by

reducing the cost of goods sold. To increase net income by
$200,000, the cost of goods sold would have to be decreased by
$200,000 from $58,000,000 down to $57,800,000.
The percentage of completion, X, affects the cost of goods sold
by its effect on the unit cost, which can be determined as follows:

$20,807,500
Unit cost = $187.50 +
200,000  10,000X

And the cost of goods sold can be computed as follows:

Cost of goods sold = 200,000  Unit cost

Since cost of goods sold must be reduced down to $57,800,000, the

unit cost must be $289.00 ($57,800,000 ÷ 200,000 units). Thus, the
required percentage completion, X, to obtain the $200,000 reduction
in cost of goods sold can be found by solving the following equation:

$20,807,500
$187.50+  $289.00
200,000  10,000X
Case 4-25 (continued)

$20,807,500
 $289.00- $187.50
200,000  10,000X

$20,807,500
= $101.50
200,000  10,000X

200,000  10,000X 1
=
$20,807,500 $101.50

$20,807,500
200,000  10,000X 
$101.50

200,000  10,000X  205,000

10,000X  205,000 - 200,000

10,000X  5,000

5,000
X  50%
10,000

Thus, changing the percentage completion to 50% will decrease

cost of goods sold and increase net income by $200,000 as verified
on the next page.
Case 4-25 (continued)
4. Mary is in a very difficult position. Collaborating with Gary Stevens in
subverting the integrity of the accounting system is unethical by
almost any standard. To put the situation in its starkest light,
Stevens is suggesting that the production managers lie in order to
get more money. Having said that, the peer pressure to go along in
this situation may be intense. It is difficult on a personal level to
ignore such peer pressure. Moreover, Mary probably prefers not to
risk alienating people she might need to rely on in the future. On the
other hand, Mary should be careful not to accept at face value Gary
Stevens’ assertion that all of the other managers are ―doing as much
as they can to pull this bonus out of the hat.‖ Those who engage in
unethical or illegal acts often rationalize their own behavior by
exaggerating the extent to which others engage in the same kind of
behavior. Other managers may actually be very uncomfortable
―pulling strings‖ to make the target profit for the year.

From a broader perspective, if the net profit figures reported by the

managers in a division cannot be trusted, then the company would
be foolish to base bonuses on the net profit figures. A bonus system
based on divisional net profits presupposes the integrity of the
accounting system. However, the company should perhaps
reconsider how it determines the bonus. It is quite common for
companies to pay an ―all or nothing‖ bonus contingent on making a
particular target. This inevitably creates powerful incentives to bend
the rules when the target has not quite been attained. It might be
better to have a bonus without this ―all or nothing‖ feature. For
example, managers could be paid a bonus of x% of profits above
target profits rather than a bonus that is a preset percentage of their
base salary. Under such a policy, the effect of adding that last dollar
of profits that just pushes the divisional net profits over the target
profit will add a few pennies to the manager’s compensation rather
than thousands of dollars. Therefore, the incentives to misstate the
net income are reduced. Why tempt people unnecessarily?
Case 4-26 (45 minutes)
Weighted-Average Method

1. The production report follows:

Quantity Schedule and Equivalent Units

Quantity
Schedule
Units to be accounted
for:
Work in process,
April 1 (all
materials, 60%
conversion costs
added last month) .............................................
450
Received from the
preceding
department .......................................................
1,950
Total units .....................................................
2,400

Equivalent Units (EU)

Transferred
In Materials Conversion
Units accounted for
as follows:
Transferred to
finished goods ..................................................
1,800 1,800 1,800 1,800
Work in process,
April 30 (no
materials, 35%,
conversion costs
added this month) .............................................
600 600 —
month 210
Total units and
equivalent units
of production .....................................................
2,400 2,400 1,800 2,010