The table depicts standard costs per unit for work done in the forming department in July 2020. The details of the table are as follows:
- Direct materials: 8.50 dollars
- Conversion costs: 10.50 dollars
- Total manufacturing cost: 19.00 dollars
The standard-costing method simplifies the computations for normal and abnormal spoilage. To illustrate, we return to the Anzio Company example in the chapter. Suppose Anzio develops the following standard costs per unit for work done in the forming department in July 2020:
The table depicts standard costs per unit for work done in the forming department in July 2020. The details of the table are as follows:
Assume the same standard costs per unit also apply to the beginning inventory: equivalent units of direct materials and equivalent units of conversion costs. Hence, the beginning inventory at standard costs is shown below:
The table depicts the beginning inventory at standard costs. The details of the table are as follows:
Exhibit 19-5, Panel A, presents Steps 1 and 2 for calculating physical and equivalent units. These steps are the same as for the FIFO method described in Exhibit 19-3. Exhibit 19-5, Panel B, presents Steps 3, 4, and 5.
Panel A shows the flow of physical units which is step 1, and the output in equivalent units, in terms of direct materials and conversion costs, which is step 2.
Work in process, beginning (given, page 755)
Physical units: 1,500
Started during current period (given, page 755)
Physical units: 8,500
To account for
Physical units: 10,000
Good units completed and transferred out during current period
From beginning work in process (refer to note a)
Physical units: 1,500
Direct material (product of 1,500 and the difference of 100% and 100%): 0
Conversion costs (product of 1,500 and the difference of 100% and 60%): 600
Started and completed
Physical units: 5,500 (refer to note b)
Direct material (product of 5,500 and 100%): 5,500
Conversion costs (product of 5,500 and 100%): 5,500
Normal Spoilage (refer to note c)
Physical units: 700
Direct material (700 times 100%): 700
Conversion costs (700 times 100%): 700
Abnormal spoilage (refer to note d)
Physical units: 300
Direct material (300 times 100%): 300
Conversion costs (300 times 100%): 300
Work in process, ending (given, page 755) (also refer to note e)
Physical units: 2,000
Direct material (2,000 times 100%): 2,000
Conversion costs (2,000 times 50%): 1,000
Accounted for
Physical units: 10,000
Equivalent units of work in current period
Direct material: 8,500
Conversion costs: 8,100
Note a: Degree of completion in this department: direct materials, 100%; conversion costs, 60%.
Note b: 7,000 physical units completed and transferred out minus 1,500 physical units completed and transferred out from beginning work-in-process inventory.
Note c: Normal spoilage is 10% of good units transferred out; 10% of 7,000 which equals 700 units. Degree of completion of normal spoilage in this department: direct materials, 100%; conversion costs, 100%.
Note d: Abnormal spoilage equals total spoilage minus normal spoilage which equals 1,000 minus 700 which equals 300 units. Degree of completion of abnormal spoilage in this department: direct materials, 100%; conversion costs, 100%.
Note e: Degree of completion in this department: direct materials, 100%; conversion costs, 50%.
Panel B shows the total costs to account for, computation of cost per equivalent unit, and assignment of costs to the units completed, spoiled units, and the units in ending work-in-process inventory. The processes are divided into three parts step-3, step-4, and step-5, details of the steps are as follows:
Step 3
Work in process, beginning (given, page 755)
Total cost of production (sum of direct and conversion costs): $22,200
Direct materials: product of 1,500 and $8.50
Conversion costs: product of 900 and $10.50
Costs added in current period at standard costs (given, page 755)
Total cost of production (sum of direct and conversion costs): 157,300
Direct materials: product of 8,500 and $8.50
Conversion costs: product of 8,100 and $10.50
Total costs to account for
Total cost of production (sum of direct and conversion costs): $179,500
Direct materials: $85,000
Conversion costs: $94,500
Step 4
Standard costs per equivalent unit (given on page 729)
Total cost of production (sum of direct and conversion costs): $19.00
Direct materials: $8.50
Conversion costs: $10.50
Step 5: Assignment of costs
Good units completed and transferred out (7,000 units)
Work in process, beginning (1,500 units)
Total cost of production (sum of direct and conversion costs): $22,200
Direct materials: product of 1,500 and $8.50
Conversion costs: product of 900 and $10.50
Costs added to beginning work in process in current period
Total cost of production (sum of direct and conversion costs): 6,300
Direct materials: (product of 0 and $8.50) (refer to note f)
Conversion costs: (product of 600 and $10.50) (refer to note f)
Total from beginning inventory before normal spoilage
Total cost of production (sum of direct and conversion costs): 28,500
Started and completed before normal spoilage (5,500 units)
Total cost of production (sum of direct and conversion costs): $104,500
Direct materials: (product of 5,500 and $8.50) (refer to note f)
Conversion costs: (product of 5,500 and $10.50) (refer to note f)
Normal spoilage (700 units)
Total cost of production (sum of direct and conversion costs): 13,300
Direct materials: (product of 700 and $8.50) (refer to note f)
Conversion costs: (product of 700 and $10.50) (refer to note f)
Total costs of good units completed and transferred out
Total cost of production: 146,300
Abnormal spoilage (300 units)
Total cost of production (sum of direct and conversion costs): 5,700
Direct materials: (product of 300 and $8.50) (refer to note f)
Conversion costs: (product of 300 and $10.50) (refer to note f)
Work in process, ending (2,000 units)
Total cost of production (sum of direct and conversion costs): 29,000
Direct materials: (product of 2,000 and $8.50) (refer to note f)
Conversion costs: (product of 1,000 and $10.50) (refer to note f)
Total costs accounted for (sum of the above A, B, and C)
Total cost of production (sum of direct and conversion costs): $179,500
Direct materials: $85,000
Conversion costs: $94,500
Note f: Equivalent units of direct materials and conversion costs calculated in Step 2 in Panel A.
The costs to account for in Step 3 are at standard costs and, hence differ from the costs to account for under the weighted-average and FIFO methods, which are at actual costs. In Step 4, cost per equivalent unit is simply the standard cost: $8.50 per unit for direct materials and $10.50 per unit for conversion costs. The standard-costing method simplifies process costing because there is no need to calculate equivalent-unit costs. In Step 5, managers assign standard costs to units completed (including normal spoilage), to abnormal spoilage, and to ending work-in-process inventory by multiplying the equivalent units calculated in Step 2 by the standard costs per equivalent unit in Step 4. Managers measure and analyze variances as described in the appendix to Chapter 18.*
Journal entries corresponding to the amounts calculated in Step 5 are:
The table depicts journal entries corresponding to the amounts calculated in Step 5. The details of the table are as follows: