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(Download PDF) Managerial Accounting Canadian 11th Edition Garrison Solutions Manual Full Chapter
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Chapter 6
Systems Design: Process Costing
6-1 A process costing system should be 6-8 Disagree. In fact, flexible manufacturing
used in situations where a homogeneous prod- systems may actually increase the use of pro-
ucts or services are produced on a continuous cess costing over time. These systems can have
basis. a major impact on costing since they allow for
an easy switch from producing one type of
6-2 product to another. The systems’ flexibility
1. In job-order costing many different jobs are means product switching results in little time lost
worked on during each period each with its own and relatively low setup costs. Therefore, com-
production requirements. In process costing, a panies are able to move between products with
single product is produced on a continuous basis about the same speed as they would if they
and all units are identical. were working in a continuous processing envi-
2. The job cost sheet is the key document in ronment. As the use of flexible manufacturing
job-order costing while the department produc- systems grows, so should the application of pro-
tion report is the key document in process cost- cess costing techniques.
ing.
3. Unit costs are computed by job in job-order 6-9 Advantages of the weighted average meth-
costing while unit costs are computed by de- od include: computations are simpler; the man-
partment in process costing. agers does not need information at too fine a
level of detail so the average is informative
6-3 Cost accumulation is simpler under pro- enough; there is little change in cost from period
cess costing because costs only need to be as- to period; ending inventory are typically low
signed to departments—not separate jobs. A each period so the average ends up being quite
company usually has a small number of accurate.
processing departments, whereas a job-order
costing system often must keep track of the
costs of hundreds or even thousands of jobs.
4. and 5.
The equivalent units of production for materials and conversion are
computed as follows:
Equivalent Units
Materials Conversion
Units transferred out .................................... 34,500 34,500
Work in process, ending:
8,000 units × 100%.................................... 8,000
8,000 units × 40% ..................................... 3,200
Equivalent units of production ........................ 42,500 37,700
15. The total cost to be accounted for and the total cost accounted for is:
Costs to be accounted for:
Cost of beginning work in process inventory ....... $ 28,000
Costs added to production during the period ...... 296,500
Total cost to be accounted for ........................... $324,500
Costs accounted for:
Cost of ending work in process inventory ........... $ 41,600
Cost of units completed and transferred out ....... 282,900
Total cost accounted for .................................... $324,500
Quantity Schedule
Units to be accounted for:
Work in process, October 1 25,000
Units started into production 195,000
Total units 220,000
Equivalent Units
Materials Conversion
Units transferred to the next depart-
ment .........................................................
205,000 205,000 205,000
Ending work in process:
Materials: 15,000 units × 70%
complete .................................................
15,000 10,500
Conversion: 15,000 units × 50%
complete ................................................. 7,500
Equivalent units of production ....................... 220,000 215,500 212,500
1.
Materials Labor Overhead
Cost of beginning work in process
inventory................................... $ 18,000 $ 5,500 $ 27,500
Cost added during the period ........ 238,900 80,300 401,500
Total cost (a) ............................... $256,900 $85,800 $429,000
Equivalent units of production (b) . 35,000 33,000 33,000
Cost per equivalent unit (a) ÷ (b) . $7.34 $2.60 $13.00
2.
Cost per equivalent unit for materials ..... $ 7.34
Cost per equivalent unit for labor ........... 2.60
Cost per equivalent unit for overhead ..... 13.00
Total cost per equivalent unit ................. $22.94
*rounded
Cost Reconciliation
*rounded
*rounded
5. Multiplying the total unit cost figure of £3.15 per unit by 1,000 units
does not provide a valid estimate of the incremental cost of processing
an additional 1,000 units through the department. If there is sufficient
idle capacity to process an additional 1,000 units, the incremental cost
per unit is almost certainly less than £3.17 per unit because the conver-
sion costs are likely to include fixed costs.
2. The amount of cost that should be assigned to the ending inventories is:
Materials Conversion Total
Ending work in process inventory:
Equivalent units of production
(see above) ....................... 25,000 12,500
Cost per equivalent unit ....... $1.10 $2.96
Cost of ending work in process
inventory ........................... $27,500 $37,000 $64,500
Finished goods inventory:
Equivalent units ................... 30,000 30,000
Cost per equivalent unit ....... $1.10 $2.96
Cost of units completed and
transferred out................... $33,000 $88,800 $121,800
Part 4 740,000
Bal. 30,000 Bal. 46,000
Bal. 71,000
Work in Process—Bottling...............................................
740,000
Work in Process—Blending ........................................ 740,000
Weighted-Average Method
1. Equivalent units of production
Materials Conversion
Transferred to next department........................ 190,000 190,000
Ending work in process:
Materials: 40,000 units x 75% complete ......... 30,000
Conversion: 40,000 units x 60% complete ...... 24,000
Equivalent units of production .......................... 220,000 214,000
Note: This answer assumes that the units in the beginning inventory
are completed before any other units are completed.
4. No, the manager should not be rewarded for good cost control. The
Mixing Department’s low unit cost for April occurred because the costs
of the prior month have been averaged in with April’s costs. This is a
major criticism of the weighted-average method. Costs computed for
product costing purposes should not be used to evaluate cost control
or to measure performance for the current period.
2. The unit cost computed above is $2.22 (= $0.86 + $0.31 + $1.05) versus $2.284 on the original re-
port. The unit cost on the report prepared by the accountant is high because none of the cost in-
curred during the month was assigned to the units in the ending work in process inventory.
Questions
6A-1 Under the weighted-average method, each unit transferred out of the department is counted as
one equivalent unit—regardless of in what period the work was done to complete the units. Under the
FIFO method, only the work done in the current period is counted. Units transferred out are divided into
two parts. One part consists of the units transferred out from beginning inventory. Only the work needed
to complete these units is shown as part of the equivalent units for the current period. The other part of
the units transferred out consists of the units started and completed during the current period.
6A-2 The weighted-average method mixes costs from the current period with costs from the prior peri-
od. Thus, under the weighted-average method, the department’s apparent performance in the current
period is influenced to some extent by what happened in a prior period. In contrast, the FIFO method
cleanly separates the costs and work of the current period from those of the prior period. This makes the
FIFO method superior to the weighted-average method for cost control because current performance
should be measured in relation to costs of the current period only.
FIFO Method
Materials Conversion
To complete beginning work in process:
Materials: 400 units × (100% – 75%)................. 100
Conversion: 400 units × (100% – 25%) ............. 300
Units started and completed during the period
(42,600 units started – 500 units in ending
inventory) ......................................................... 42,100 42,100
Ending work in process
Materials: 500 units × 80% complete ................. 400
Conversion: 500 units × 30% complete .............. 150
Equivalent units of production ................................ 42,600 42,550
FIFO method
FIFO Method
Materials Conversion Total
Ending work in process inventory:
Equivalent units of production ............... 800 200
Cost per equivalent unit ........................ $4.40 $1.30
Cost of ending work in process inventory $3,520 $260 $3,780
FIFO method
1. Computation of the total cost per equivalent unit of production:
Cost per equivalent unit of production for material ............. $18.20
Cost per equivalent unit of production for conversion ......... 23.25
Total cost per equivalent unit of production ....................... $41.45
Labour &
Materials Overhead
To complete the beginning work in process:
Materials: 25,000 litres × (100% − 100%) ........... 0
Labour and overhead:
25,000 litres × (100% − 35%) .......................... 16,250
Litres started and completed during October
(25,000 litres started − 5,000 litres in ending in-
ventory) ............................................................. 20,000 20,000
Ending work in process:
Materials: 5,000 litres × 100% complete .............. 5,000
Labour and overhead: 5,000 litres × 70% com-
plete ................................................................ 3,500
Equivalent units of production ................................ 25,000 39,750
4. Cost Reconciliation
Costs to be accounted for:
Cost of beginning work in process inventory
($45,500 + $25,000).......................................... $ 70,500
Costs added to production during the period
($425,500 + $145,000) ...................................... 570,500
Total cost to be accounted for ................................ $641,000
Costs accounted for as follows:
Cost of ending work in process inventory ................ $ 77,740
Costs of units transferred out ................................. 563,193
Total cost accounted for ........................................ *$640,933
*Off $67 due to rounding.
FIFO Method
1. Equivalent Units of Production
Materials Conversion
To complete beginning work in process:
Materials: 50,000 units × (100% − 60%) ...... 20,000
Conversion: 50,000 units × (100% − 30%) ... 35,000
Units started and completed during the period
(500,000 units started − 60,000 units in end-
ing inventory) ............................................... 440,000 440,000
Ending work in process:
Materials: 60,000 units × 80% complete ....... 48,000
Conversion: 60,000 units × 40% complete .... 24,000
Equivalent units of production ........................... 508,000 499,000
4. Cost Reconciliation
Costs to be accounted for:
Cost of beginning work in process inventory
($17,000 + $3,000) ............................................ $ 20,000
Costs added to production during the period
($457,200+ $349,300) ....................................... 806,500
FIFO method
1. Equivalent Units of Production
Materials Conversion
To complete beginning work in process:
Materials: 20,000 units x (100% − 100%) ..... 0
Conversion: 20,000 units x (100% − 75%) .... 5,000
Units started and completed during the period
(180,000 units started − 40,000 units in end-
ing inventory) ............................................... 140,000 140,000
Ending work in process:
Materials: 40,000 units x 100% complete ...... 40,000
Conversion: 40,000 units x 25% complete ..... 10,000
Equivalent units of production ........................... 180,000 155,000
4. Cost Reconciliation
Costs to be accounted for:
Cost of beginning work in process inventory
($25,200 + $24,800) .......................................... $ 50,000
Costs added to production during the period
($334,800 + $238,700) ...................................... 573,500
Total cost to be accounted for ................................ $623,500
Costs accounted for as follows:
Cost of ending work in process inventory ................ $ 89,800
Costs of units transferred out ................................. 533,700
Total cost accounted for ........................................ $623,500
1.
Transferred In Materials Conversion
To complete beginning work in process:
Transferred in: 8,000 units × 0% .................................. 0
Materials: 8,000 units × 0% ......................................... 0
Conversion: 8,000 units × (1 − 7/8).............................. 1,000
Units completed during the period (100,000 units started −
8,000 units in beginning inventory) ................................ 92,000 92,000 92,000
Ending work in process:
Transferred in: 5,000 units x 100% complete 5,000
Materials: 5,000 units × 0% complete ........................... 0
Conversion: 5,000 units × 2/5 complete ........................ 2,000
Equivalent units of production ........................................... 97,000 92,000 95,000
2. The effects of the cost-cutting will tend to show up more under the FIFO method. The reason is that
the FIFO method keeps the costs of the current period separate from the costs of the prior period.
Thus, under the FIFO method, the company will be able to compare unit costs of the current period
to those of the prior period to see how effective the cost-cutting program has been. Under the
weighted-average method, however, costs carried over from the prior period are averaged in with
costs of the current period, which will tend to mask somewhat the effects of the cost-cutting effort.
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50 Managerial Accounting, 11th Canadian Edition
Case 6A-11 (60 minutes)
MEMORANDUM
Equivalent Units
Cost reconciliation: Total Cost Materials Conversion
Cost accounted for as follows:
Costs in Beginning inventory $1080
Costs to complete these units
Materials at $1.347 per EU $186 138
Conversion at $1.316 per EU $290 220
Total costs from beg. inventory $1,556
Started and completed this period
1,850 units x $2.663 $4,957
Work in process, August 30:
Materials at $1.347 per EU $1,162 863
Conversion at $1.316 per EU 757 575
Total Work in process, Aug 30 1,919
Total cost accounted for: $8,432*
* $32 difference due to rounding