Assignment Material

Questions

1. 18-1. Give three examples of industries that use process-costing systems.
2. 18-2. In process costing, why are costs often divided into two main classifications?
3. 18-3. Explain equivalent units. Why are equivalent-unit calculations necessary in process costing?
4. 18-4. What problems might arise in estimating the degree of completion of semiconductor chips in a semiconductor plant?
5. 18-5. Name the five steps in process costing when equivalent units are computed.
6. 18-6. Name the three inventory methods commonly associated with process costing.
7. 18-7. Describe the distinctive characteristic of weighted-average computations in assigning costs to units completed and to units in ending work in process.
8. 18-8. Describe the distinctive characteristic of FIFO computations in assigning costs to units completed and to units in ending work in process.
9. 18-9. Why should the FIFO method be called a modified or department FIFO method?
10. 18-10. Identify a major advantage of the FIFO method for purposes of planning and control.
11. 18-11. Identify the main difference between journal entries in process costing and job costing.
12. 18-12. “The standard-costing method is particularly applicable to process-costing situations.” Do you agree? Why?
13. 18-13. Why should the accountant distinguish between transferred-in costs and additional direct materials costs for each subsequent department in a process-costing system?
14. 18-14. “Transferred-in costs are those costs incurred in the preceding accounting period.” Do you agree? Explain.
15. 18-15. “There’s no reason for me to get excited about the choice between the weighted-average and FIFO methods in my process-costing system. I have long-term contracts with my materials suppliers at fixed prices.” Do you agree with this statement made by a plant controller? Explain.

Multiple-Choice Questions

1. 18-16. Assuming beginning work in process is zero, the equivalent units of production computed using FIFO versus weighted average will have the following relationship:
   1. 1. FIFO equivalent units will be greater than weighted-average equivalent units.
   2. 2. FIFO equivalent units will be less than weighted-average equivalent units.
   3. 3. Weighted-average equivalent units are always greater than FIFO equivalent units.
   4. 4. Weighted-average equivalent units will be equal to FIFO equivalent units.

1. 18-17. The following information concerns Westheimer Corporation’s equivalent units in May 20X1: 

1. Using the weighted-average method, what were Westheimer’s May 20X1 equivalent units?
   1. 1. 14,000
   2. 2. 18,800
   3. 3. 20,000
   4. 4. 39,000
2. 18-18. Sepulveda Corporation uses a process costing system to manufacture laptop PCs. The following information summarizes operations for its VeryLite model during the quarter ending March 31, Year 1:

1. Beginning work-in-process inventory was 50% complete for direct materials. Ending work-in-process inventory was 75% complete for direct materials. What were the equivalent units for direct materials for the quarter using the FIFO method?
   1. 1. 450
   2. 2. 500
   3. 3. 550
   4. 4. 600
2. 18-19. Penn Manufacturing Corporation uses a process-costing system to manufacture printers for PCs. The following information summarizes operations for its NoToner model during the quarter ending September 30, Year 1:

1. Beginning work-in-process inventory was 50% complete for direct manufacturing labor. Ending work-in-process inventory was 75% complete for direct manufacturing labor. What is the total value of the direct manufacturing labor in the ending work-in-process inventory using the weighted-average method?
   1. 1. $183,000
   2. 2. $194,000
   3. 3. $225,000
   4. 4. $210,000
2. 18-20. Kimberly Manufacturing uses a process-costing system to manufacture Dust Density Sensors for the mining industry. The following information pertains to operations for the month of May, Year 5.

1. The beginning inventory was 60% complete for direct materials and 20% complete for conversion costs. The ending inventory was 90% complete for direct materials and 40% complete for conversion costs.
2. Costs pertaining to the month of May are as follows:
   1. • Beginning inventory costs are direct materials, $54,560; direct manufacturing labor $20,320; and manufacturing overhead, $15,240.
   2. • Costs incurred during May are direct materials used, $468,000; direct manufacturing labor, $182,880; and manufacturing overhead, $391,160.
3. Using the weighted-average method, the equivalent-unit conversion cost for May is
   1. 1. $5.65
   2. 2. $5.83
   3. 3. $6.00
   4. 4. $6.41

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Exercises

1. 18-21. EQUIVALENT UNITS, ZERO BEGINNING INVENTORY. Panagra, Inc. manufactures digital cameras. It has two departments: assembly and testing. In January 2020, the company incurred $775,000 on direct materials and $816,000 on conversion costs, for a total manufacturing cost of $1,591,000.
2. Required
   1. 1. Assume there was no beginning inventory of any kind on January 1, 2020. During January, 10,000 cameras were placed into production and all 10,000 were fully completed at the end of the month. What is the unit cost of an assembled camera in January?
   2. 2. Assume that during February 10,000 cameras are placed into production. Further assume the same total assembly costs for January are also incurred in February, but only 9,000 cameras are fully completed at the end of the month. All direct materials have been added to the remaining 1,000 cameras. However, on average, these remaining 1,000 cameras are only 60% complete as to conversion costs. (a) What are the equivalent units for direct materials and conversion costs and their respective costs per equivalent unit for February? (b) What is the unit cost of an assembled camera in February 2020?
   3. 3. Explain the difference in your answers to requirements 1 and 2.
3. 18-22. JOURNAL ENTRIES (CONTINUATION OF 18-21). Refer to requirement 2 of Exercise 18-21.
4. Required
5. Prepare summary journal entries for the use of direct materials and incurrence of conversion costs. Also prepare a journal entry to transfer out the cost of goods completed. Show the postings to the work-in-process account.
6. 18-23. ZERO BEGINNING INVENTORY, MATERIALS INTRODUCED IN MIDDLE OF PROCESS. Castle Cakes uses a mixing department and a baking department in producing its cake. Its process-costing system in the mixing department has two direct materials cost categories (cake mix and flavorings) and one conversion cost pool. The following data pertain to the mixing department for April 2020:

1. The cake mix is introduced at the start of operations in the mixing department, and the flavorings are added when the product is 50% completed in the mixing department. Conversion costs are added evenly during the process. The ending work in process in the mixing department is 25% complete.
2. Required
   1. 1. Compute the equivalent units in the mixing department for April 2020 for each cost category.
   2. 2. Compute (a) the cost of goods completed and transferred to the baking department during April and (b) the cost of work in process as of April 30, 2020.
3. 18-24. WEIGHTED-AVERAGE METHOD, EQUIVALENT UNITS. The assembly division of Quality Time Pieces, Inc. uses the weighted-average method of process costing. Consider the following data for May 2020:

1. Required
2. Compute equivalent units for direct materials and conversion costs. Show physical units in the first column of your schedule.
3. 18-25. WEIGHTED-AVERAGE METHOD, ASSIGNING COSTS (CONTINUATION OF 18-24).
4. Required
5. For the data in Exercise 18-24, summarize total costs to account for, calculate cost per equivalent unit for direct materials and conversion costs, and assign costs to units completed (and transferred out) and to units in ending work-in-process inventory.
6. 18-26. FIFO METHOD, EQUIVALENT UNITS. Refer to the information in Exercise 18-24. Suppose the assembly division at Quality Time Pieces, Inc. uses the FIFO method of process costing instead of the weighted-average method.
7. Required
8. Compute equivalent units for direct materials and conversion costs. Show physical units in the first column of your schedule.
9. 18-27. FIFO METHOD, ASSIGNING COSTS (CONTINUATION OF 18-26).
10. Required
11. For the data in Exercise 18-24, use the FIFO method to summarize total costs to account for, calculate cost per equivalent unit for direct materials and conversion costs, and assign costs to units completed (and transferred out) and to units in ending work-in-process inventory.
12. 18-28. OPERATION COSTING. The Carter Furniture Company needs to determine the cost of two work orders for December 2020. Work Order 1200A is for 250 painted, unassembled chests and Work Order 1250A is for 400 stained, assembled chests. The following information pertains to these two work orders: 

1. Selected budget information for December follows:

1. Budgeted conversion costs for each operation for December follow:

1. Required
   1. 1. Using budgeted number of chests as the denominator, calculate the budgeted conversion-cost rates for each operation.
   2. 2. Using information in requirement 1, calculate the budgeted cost of goods manufactured for the two December work orders.
   3. 3. Calculate the cost per unassembled chest and assembled chest for Work Order 1200A and Work Order 1250A, respectively.
2. 18-29. WEIGHTED-AVERAGE METHOD, ASSIGNING COSTS. ZanyBrainy Corporation makes interlocking children’s blocks in a single processing department. Direct materials are added at the start of production. Conversion costs are added evenly throughout production. ZanyBrainy uses the weighted-average method of process costing. The following information for October 2020 is available.

1. Required
   1. 1. Calculate cost per equivalent unit for direct materials and conversion costs.
   2. 2. Summarize total costs to account for and assign them to units completed (and transferred out) and to units in ending work-in-process inventory.
2. 18-30. FIFO METHOD, ASSIGNING COSTS (CONTINUATION OF 18-29).
3. Required
   1. 1. Do Exercise 18-29 using the FIFO method.
   2. 2. ZanyBrainy’s management seeks to have a more consistent cost per equivalent unit. Which method of process costing should the company choose and why?
4. 18-31. TRANSFERRED-IN COSTS, WEIGHTED-AVERAGE METHOD. Trendy Clothing, Inc. is a manufacturer of winter clothes. It has a knitting department and a finishing department. This exercise focuses on the finishing department. Direct materials are added at the end of the process. Conversion costs are added evenly during the process. Trendy uses the weighted-average method of process costing. Information for June 2020 follows:

1. Required
   
   1. 1. Calculate equivalent units of transferred-in costs, direct materials, and conversion costs.
   2. 2. Summarize total costs to account for and calculate cost per equivalent unit for transferred-in costs, direct materials, and conversion costs.
   3. 3. Assign costs to units completed (and transferred out) and to units in ending work in process.
2. 18-32. TRANSFERRED-IN COSTS, FIFO METHOD (CONTINUATION OF 18-31). Refer to the information in Exercise 18-31. Suppose Trendy uses the FIFO method instead of the weighted-average method in all its departments. The only changes to Exercise 18-31 under the FIFO method are that total transferred-in costs of beginning work in process on June 1 are $45,000 (instead of $60,000) and total transferred-in costs added during June are $114,000 (instead of $117,000).
3. Required
4. Do Exercise 18-31 using the FIFO method. Note that you first need to calculate equivalent units of work done in the current period (for transferred-in costs, direct materials, and conversion costs) to complete beginning work in process, to start and complete new units, and to produce ending work-in-process inventory.
5. 18-33. OPERATION COSTING. Egyptian Spa produces two different spa products: Relax and Refresh. The company uses three operations to manufacture the products: mixing, blending, and packaging. Relax is produced in powder form in the mixing department, then transferred to the blending department, and finally to packaging. Refresh undergoes no mixing; It is produced in liquid form in the blending department and then transferred to packaging.
6. In the mixing department, Egyptian Spa applies conversion costs based on labor-hours. It takes 3 minutes to mix the ingredients for a container of Relax. In the blending department, conversion costs are applied based on the number of containers and in the packaging department, on the basis of machine-hours. It takes 0.5 minutes of machine time to fill a container, regardless of the product.

1. The budgeted number of containers and budgeted direct materials cost for each product in May are:

1. The budgeted conversion costs for each department for May are as follows:

1. Required
   1. 1. Calculate the conversion cost rates for each department.
   2. 2. Calculate the budgeted cost of goods manufactured for Relax and Refresh for the month of May.
   3. 3. Calculate the cost per container for each product for the month of May.
2. 18-34. STANDARD-COSTING WITH BEGINNING AND ENDING WORK IN PROCESS. Tiger Company is a manufacturer of paint for consumer use. Tiger uses process costing to account for production. Costs and output figures for October are as follows:

1. Required
   1. 1. Compute equivalent units for direct materials and conversion costs. Show physical units (gallons) in the first column of your schedule.
   2. 2. Compute the total standard costs of paint transferred out in October and the total standard costs of the October 31 inventory of work in process.
   3. 3. Compute the total October variances for direct materials and conversion costs.
   4. 4. Prepare summarized journal entries to record both the actual costs and standard costs for direct materials and conversion costs, including the variances for both production costs.

Problems

1. 18-35. EQUIVALENT UNITS, COMPREHENSIVE. Imperial Bakery supplies cupcakes to a national grocery chain for their private label. The cupcakes must meet specific requirements of the grocery chain. Imperial uses a specific process to produce the cupcakes to the grocery chain’s specifications.
2. The cupcakes are baked, filled and frosted, in that sequence. Materials are added as follows:
   1. 1. The basic ingredients for the cupcakes are added at the start of the baking process.
   2. 2. The filling is inserted into the cupcakes when cupcakes are 90% complete.
   3. 3. The frosting is added at the end of the process.
3. Of the total conversion costs, 70% are incurred during the baking process when cupcakes are 80% complete, an additional 10% are incurred at the start of the filling process when the cupcakes are 90% complete, and the remaining 20% are incurred when the frosting is done at the end of the process.
4. On May 1, 2020, Imperial had 500 dozen cupcakes in inventory. These cupcakes were 90% complete and ready for filling and frosting. During May, 1,500 dozen cupcakes were put into production. At the end of May, Imperial had 200 dozen cupcakes that had been baked and filled and ready for frosting.
5. Required
   1. 1. Using the weighted-average method of process costing, compute equivalent units of work done for (a) baking materials, (b) filling materials, (c) frosting materials, and (d) conversion costs for the month of May.
   2. 2. Using the FIFO method of process costing, compute equivalent units of work done for (a) baking materials, (b) filling materials, (c) frosting materials, and (d) conversion costs for the month of May.

1. 18-36. WEIGHTED-AVERAGE METHOD. Hoffman Company manufactures car seats in its Boise plant. Each car seat passes through the assembly department and the testing department. This problem focuses on the assembly department. The process-costing system at Hoffman Company has a single direct-cost category (direct materials) and a single indirect-cost category (conversion costs). Direct materials are added at the beginning of the process. Conversion costs are added evenly during the process. When the assembly department finishes work on each car seat, it is immediately transferred to testing.
   1. Hoffman Company uses the weighted-average method of process costing. Data for the assembly department for October 2020 are as follows:

1. Required
   1. 1. For each cost category, compute equivalent units in the assembly department. Show physical units in the first column of your schedule.
   2. 2. What issues should the manager focus on when reviewing the equivalent-unit calculations?
   3. 3. For each cost category, summarize total assembly department costs for October 2020 and calculate cost per equivalent unit.
   4. 4. Assign costs to units completed and transferred out and to units in ending work in process. 
2. 18-37. JOURNAL ENTRIES (CONTINUATION OF 18-36).
3. Required
4. Prepare a set of summarized journal entries for all October 2020 transactions affecting Work in Process—Assembly. Set up a T-account for Work in Process—Assembly and post your entries to it.
5. 18-38. FIFO METHOD (CONTINUATION OF 18-36).
6. Required
   1. 1. Do Problem 18-36 using the FIFO method of process costing. Explain any difference between cost per equivalent unit in the assembly department under the weighted-average method and the FIFO method.
   2. 2. Should Hoffman’s managers choose the weighted-average method or the FIFO method? Explain briefly.
7. 18-39. TRANSFERRED-IN COSTS, WEIGHTED-AVERAGE METHOD (RELATED TO 18-36 TO 18-38). Hoffman Company, as you know, is a manufacturer of car seats. Each car seat passes through the assembly and testing departments. This problem focuses on the testing department. Direct materials are added when the testing department process is 90% complete. Conversion costs are added evenly during the testing department’s process. As work in assembly is completed, each unit is immediately transferred to testing. As each unit is completed in testing, it is immediately transferred to Finished Goods.
8. Hoffman Company uses the weighted-average method of process costing. Data for the testing department for October 2020 are as follows:

1. Required
   
   1. 1. What is the percentage of completion for transferred-in costs and direct materials in (a) beginning work-in-process inventory and (b) ending work-in-process inventory?
   2. 2. For each cost category, compute equivalent units in the testing department. Show physical units in the first column of your schedule.
   3. 3. For each cost category, summarize total testing department costs for October 2020, calculate cost per equivalent unit, and assign costs to units completed (and transferred out) and to units in ending work-in-process inventory.
   4. 4. Prepare journal entries for October transfers from the assembly department to the testing department and from the testing department to Finished Goods.

1. 18-40. TRANSFERRED-IN COSTS, FIFO METHOD (CONTINUATION OF 18-39). Refer to the information in Problem 18-39. Suppose that Hoffman Company uses the FIFO method instead of the weighted-average method in all its departments. The only changes to Problem 18-39 under the FIFO method are that total transferred-in costs of beginning work in process on October 1 are $2,879,000 (instead of $2,931,000) and that total transferred-in costs added during October are $9,048,000 (instead of $8,094,000).
2. Required
3. Do Problem 18-39 using the FIFO process-costing method.
4. 18-41. WEIGHTED-AVERAGE METHOD. McKnight Handcraft is a manufacturer of picture frames for large retailers. Every picture frame passes through two departments: the assembly department and the finishing department. This problem focuses on the assembly department. The process-costing system at McKnight has a single direct-cost category (direct materials) and a single indirect-cost category (conversion costs). Direct materials are added when the assembly department process is 10% complete. Conversion costs are added evenly during the assembly department’s process.
   1. McKnight uses the weighted-average method of process costing. Consider the following data for the assembly department in April 2020:

1. Required
   1. 1. Summarize total assembly department costs for April 2020, and assign them to units completed (and transferred out) and to units in ending work-in-process inventory.
   2. 2. What issues should a manager focus on when reviewing the equivalent units calculation?
2. 18-42. FIFO METHOD (CONTINUATION OF 18-41).
3. Required
   1. 1. Complete Problem 18-41 using the FIFO method of process costing.
   2. 2. If you did Problem 18-41, explain any difference between the cost of work completed and transferred out and the cost of ending work-in-process inventory in the assembly department under the weighted-average method and the FIFO method. Should McKnight’s managers choose the weighted-average method or the FIFO method? Explain briefly.
4. 18-43. TRANSFERRED-IN COSTS, WEIGHTED-AVERAGE METHOD. Spelling Sports produces basketballs in two departments: cutting and stitching. Each department has one direct-cost category (direct materials) and one indirect-cost category (conversion costs). This problem focuses on the stitching department.
5. After cutting, basketballs are immediately transferred to the stitching department. Direct material is added when the stitching process is 70% complete. Conversion costs are added evenly during stitching operations. After stitching is completed, basketballs are immediately transferred to Finished Goods.
6. Spelling Sports uses the weighted-average method of process costing. The following is a summary of the March 2020 operations of the stitching department:

1. Required
   1. 1. Summarize total stitching department costs for March 2020 and assign these costs to units completed (and transferred out) and to units in ending work-in-process inventory.
   2. 2. Prepare journal entries for March transfers from the cutting department to the stitching department and from the stitching department to Finished Goods.
2. 18-44. TRANSFERRED-IN COSTS, FIFO METHOD (CONTINUATION OF 18-43). Refer to the information in Problem 18-43. Suppose Spelling Sports uses the FIFO method instead of the weighted-average method. Assume that all other information, including the cost of beginning work in process, is unchanged.
3. Required
   1. 1. Do Problem 18-43 using the FIFO process-costing method.
   2. 2. If you did Problem 18-43, explain any difference between the cost of work completed and transferred out and the cost of ending work in process in the stitching department under the weighted-average method and the FIFO method.
4. 18-45. STANDARD COSTING, JOURNAL ENTRIES. The Tiffenex Company manufactures reproductions of expensive earrings. Tiffenex uses the standard-costing method of process costing to account for production of earrings. All materials are added at the beginning of production. The costs and output of earrings (pairs) for May 2020 are:

1. Required
   1. 1. Compute equivalent units for direct materials and conversion costs. Show physical units of earrings (pairs) in the first column of your schedule.
   2. 2. Compute the total standard costs of earrings (pairs) transferred out in May and the total standard costs of the May 31 inventory of work in process.
   3. 3. Compute the total May variances for direct materials and conversion costs.
   4. 4. Prepare summarized journal entries to record both actual costs and standard costs for direct materials and conversion costs, including variances for both direct materials and conversion costs.
2. 18-46. MULTIPLE PROCESSES OR OPERATIONS, COSTING. The Sedona Company is dedicated to making products that meet the needs of customers in a sustainable manner. Sedona is best known for its KLN water bottle, which is a BPA-free, dishwasher-safe, bubbly glass bottle in a soft silicone sleeve.
3. The production process consists of three basic operations. In the first operation, the glass is formed by remelting cullets (broken or refuse glass). In the second operation, the glass is assembled with the silicone gasket and sleeve. The resulting product is finished in the final operation with the addition of the polypropylene cap.
4. Consulting studies have indicated that of the total conversion costs required to complete a finished unit, the forming operation requires 60%, the assembly 30%, and the finishing 10%.
5. The following data are available for March 2020 (there is no beginning inventory of any kind):

1. Required
   1. 1. What is the cost per equivalent unit for conversion costs for KLN bottles in March 2020?
   2. 2. Compute the cost per equivalent unit with respect to each of the three materials: cullets, silicone, and polypropylene.
   3. 3. What is the cost of goods completed and transferred out?
   4. 4. What is the cost of goods formed but not assembled?
   5. 5. What is the cost of goods assembled but not finished?
2. 18-47. BENCHMARKING, ETHICS. Brown Industries operates several laminate flooring plants. Given the competitive pricing for flooring, Brown’s managers pay close attention to costs. Each plant uses a process-costing system, and at the end of every quarter, each plant manager submits a production report and a production-cost report. The production report includes the plant manager’s estimate of the percentage of completion of the ending work in process as to direct materials and conversion costs, as well as the quantity (sheets) of laminate flooring completed. The corporate controller uses these estimates to compute the cost per equivalent unit of work done for each input for the quarter. Plants are ranked, and the two plants with the lowest cost per equivalent unit for direct materials and conversion costs are each given a bonus and recognized in the company newsletter.
3. The corporate controller has been pleased with the success of the company’s benchmarking program. However, the corporate controller has recently received anonymous e-mails that a plant manager has been manipulating his quarterly estimates of percentage of completion in an attempt to obtain the bonus.
4. The plant in question provided the following data:

1. Required
   1. 1. Recalculate the cost per equivalent unit, assuming the actual percentage of completion of ending work in process was 80% for direct materials and 50% for conversion costs.
   2. 2. Based on the correct percentage of completion computed in requirement 1, recalculate cost of goods completed and transferred out and the cost of ending work in process inventory.
   3. 3. Why might managers manipulate their quarterly estimates of percentage of completion? Explain.
   4. 4. What is the ethical responsibility of each plant controller?
   5. 5. What should the corporate controller do?
   6. 6. How might the corporate controller learn whether the data provided by particular plants are being manipulated?