Chapter 4 Process Costing
Chapter 4 Process Costing Solutions to Questions 4-1
A process costing system should should be used in situations situations where a homogeneous homogeneous product is is produced on a continuous continuous basis. basis.
Job-order and processing costing are similar in the following ways: 1. Job-order costing costing and process costing costing have the same same basic purposes—to purposes—to assign materials, materials, labor, and overhead overhead cost to products products and to provide a mechanism for computing unit product costs. 2. oth system systems s use the same same basic manufac manufacturi turing ng accounts. accounts. !. "osts flow flow through through the account accounts s in basically basically the same same way in both both systems. systems.
4-2
"ost accumulation is simpler under process costing because costs only need to be assigned to departments—not individual #obs. A company usually has a small number of processing departments, whereas a #ob-order costing system often must $eep trac$ of the costs of hundreds or even thousands of #obs.
4-3
4-4
%n a process costing system, a &or$ in 'rocess account is maintained for each processing department.
4-5
(he #ournal entry to record the transfer of wor$ in process from the )i*ing +epartment to the iring +epartment is: &or$ in 'rocess, iring........ &or$ in 'rocess, )i*ing
(he costs that might be added in the iring +epartment include: 1/ costs transferred in from the )i*ing +epartment0 2/ materials costs added in the iring +epartment0 !/ labor costs added in the iring +epartment0 and / overhead costs added in the iring +epartment.
4-6
nder the weighted-average method, e3uivalent units of production consist of units transferred to the ne*t department or to finished goods/ during the period plus the e3uivalent units in the department4s ending wor$ in process inventory.
4-7
(he company will want to distinguish between the costs of the metals used to ma$e the medallions, but the medals are otherwise identical 4-8 and go through the same production processes. (hus, operation costing is ideally suited for the company4s needs.
4-1
Chapter 4 Process Costing
Exercise 4-1 25 minutes/
a. (o record issuing raw materials for for use in production: production:
4-2
Chapter 4 Process Costing
Exercise 4-1 25 minutes/
a. (o record issuing raw materials for for use in production: production:
4-2
Chapter 4 Process Costing
&or$ in in 'r 'rocess—)olding +e +epartment &or$ in 'rocess—iring +e +epartment 8aw )aterials !!,555 b. (o record record direct direct labor labor costs incurred incurred:: &or$ in in 'r 'rocess—)olding +e +epartment &or$ in 'rocess—iring +e +epartment &ages 'ayable 2!,555 c. (o record record applying manufacturing manufacturing overhead: overhead: &or$ in in 'r 'rocess—)olding +e +epartment &or$ in 'rocess—iring +epartment )anufacturing verhead
26,555 7,555
16,555 7,555
2,555 !9,555 ;1,555
d. (o record transfer of unfired, unfired, molded bric$s from the the )olding +epartment +epartment to the iring +epartment: +epartment: &or$ in 'rocess—iring +epartment ;9,555 &or$ in 'rocess—)olding +epartment ;9,555 e. (o record transfer of finished finished bric$s from the iring +epartment +epartment to the finished goods goods warehouse: warehouse: inished
4-3
Chapter 4 Process Costing
Exercise 4-2 15 minutes/
&eighted-Average )ethod Equivalent Units Materials Conversion
nits transferred out ........................................ &or$ in process, ending: !5,555 units > 95?........................................ !5,555 units > 75?........................................ @3uivalent units of production..........................
15,555
15,555
21,555 !1,555
4-4
17,555 27,555
Chapter 4 Process Costing
Exercise 4-3 15 minutes/
&eighted-Average )ethod 1. Materials
"ost of beginning wor$ in process inventory...................................... "ost added during the period......... (otal cost a/................................... @3uivalent units of production b/. . . "ost per e3uivalent unit a/ C b/. .. .
Labor
1,775 2!,;25 66,!75 1,!!5 152,B55 !9,B75 1,255 67.97
1,155 !.75
2. "ost per e3uivalent unit for materials...... "ost per e3uivalent unit for labor............. "ost per e3uivalent unit for overhead...... (otal cost per e3uivalent unit...................
67.97 !.75 192.75 2B2.97
4-5
Overhead
116,155 91,;75 16B,975 1,155 192.75
Chapter 4 Process Costing
Exercise 4-4 15 minutes/
&eighted-Average )ethod Material Conversio s n
Total
Ending work in process inventory:
@3uivalent units of production.................... "ost per e3uivalent unit............................. "ost of ending wor$ in process inventory. .
!55 !1.7;
155 B.!2
B,;6
B!2
1,!55 !1.7;
1,!55 B.!2
15,5 5
Units completed and transerred out:
nits transferred to the ne*t department. . . "ost per e3uivalent unit............................. "ost of units transferred out......................
1,526
4-6
12,11;
7!,1
Chapter 4 Process Costing
Exercise 4-5 15 minutes/
a$ing +epartment "ost 8econciliation "osts to be accounted for: "ost of beginning wor$ in process inventory. . ,6!5 "osts added to production during the period. . 27,;75 (otal cost to be accounted for......................... !5,65 "osts accounted for as follows: "ost of ending wor$ in process inventory....... 1,125 "ost of units completed and transferred out... 2B,!;5 D (otal cost accounted for.................................. !5,65 D(he cost of units completed and transferred out can be deduced as follows: "ost of beginning "ost s added "ost of ending "ost of unit s wor$ in process E to production F wor$ in processE completed and inventory during the period inventory transferred out "ost of units A,6!5 E A27,;75 F A1,125 E completed and transferred out "ost of units completed and F A,6!5 E A27,;75 - A1,125 transferred out "ost of units completed and F A2B,!;5 transferred out
4-7
Chapter 4 Process Costing
Exercise 4-6 17 minutes/
&eighted-Average )ethod 1. nits transferred to the ne*t department......................................... &or$ in process, ending: )aterials: 75,555 units > ;5? complete.......... Gabor and overhead: 75,555 units > 25? complete.......... @3uivalent units of production...............
Materials
625,555
15,555 15,555 655,555 655,555
2.
Materials
Labor
Labor
9B5,555
Overhead
9B5,555 9B5,555
!5,555
Overhead
"ost of beginning wor$ in process.... ;6,;55 !5,555 6,555 "ost added during the period............ B59,255 !95,555 7B2,555 (otal cost a/..................................... B97,655 55,555 ;5,555 @3uivalent units of production b/...... "ost per e3uivalent unit a/ C b/.......
625,555 1.1B
655,555 5.75
4-8
655,555 5.65
Chapter 4 Process Costing
Exercise 4-7 !5 minutes/
&eighted-Average )ethod 1. @3uivalent units of production !ulping
(ransferred to ne*t department.......................... @nding wor$ in process: 'ulping: ;,555 units * 155? complete............. "onversion: ;,555 units * 97? complete......... @3uivalent units of production............................
Conversio n
1;,555
1;,555
;,555 ,755 175,755
172,555
2. "ost per e3uivalent unit !ulping
"ost of beginning wor$ in process.................. "ost added during the period......................... (otal cost a/................................................... @3uivalent units of production b/................... "ost per e3uivalent unit, a/ C b/...................
Conversio n
1,755 7B,!55 ;5,655 172,555 5.5
55 22,155 22,755 175,755 5.1B7
!. "ost of ending wor$ in process inventory and units transferred out !ulping
@nding wor$ in process inventory: @3uivalent units of production... "ost per e3uivalent unit............ "ost of ending wor$ in process
Conversio n
;,555 5.5 2,55 4-9
,755 5.1B7 ;9!
Total
!,59!
Chapter 4 Process Costing
inventory................................. nits completed and transferred out: nits transferred to the ne*t department.............................. "ost per e3uivalent unit............ "ost of units completed and transferred out.........................
1;,555 5.5
1;,555 5.1B7
76,55
21,629
4-10
65,229
Chapter 4 Process Costing
Exercise 4-7 continued/
. "ost reconciliation "osts to be accounted for: "ost of beginning wor$ in process inventory 1,755 E 55/............................................ "osts added to production during the period 7B,!55 E 22,155/..................................... (otal cost to be accounted for......................... "osts accounted for as follows: "ost of ending wor$ in process inventory....... "ost of units completed and transferred out... (otal cost accounted for..................................
4-11
1,B55 61,55 6!,!55 !,59! 65,229 6!,!55
Chapter 4 Process Costing
Exercise 4-8 15 minutes/
&or$ in 'rocess—)i*ing 8aw )aterials %nventory
!!5,555
&or$ in 'rocess—)i*ing &or$ in 'rocess—a$ing &ages 'ayable
2;5,555 125,555
&or$ in 'rocess—)i*ing &or$ in 'rocess—a$ing )anufacturing verhead
1B5,555 B5,555
&or$ in 'rocess—a$ing &or$ in 'rocess—)i*ing
9;5,555
inished
B65,555
!!5,555
!65,555
265,555 9;5,555 B65,555
4-12
Chapter 4 Process Costing
Exercise 4-9 25 minutes/
&eighted-Average )ethod 1. "omputation of e3uivalent units in ending inventory: Materials
nits in ending inventory........... 'ercent completed.................... @3uivalent units of production. . .
1,755 B5? 1,!75
Labor
1,755 5? ;55
Overhead
1,755 5? ;55
2. "ost of ending wor$ in process inventory and units transferred out: Materials
@nding wor$ in process inventory: @3uivalent units of production.................... 1,!75 "ost per e3uivalent unit. 2.55 "ost of ending wor$ in process inventory........ !2,55
Labor
Overhea d
;55 9.55
;55 1.55
,255
6,55
Total
7,555
nits completed and transferred out: nits transferred to the ne*t department.......... 16,555 16,555 16,555 "ost per e3uivalent unit. 2.55 9.55 1.55 "ost of units completed and transferred out...... !2,555 12;,555 272,555 615,555 !. "ost reconciliation:
4-13
Chapter 4 Process Costing
(otal cost to be accounted for............................. "osts accounted for as follows: "ost of ending wor$ in process inventory....... "ost of units completed and transferred out... (otal cost accounted for..................................
4-14
677,555 7,555 615,555 677,555
Chapter 4 Process Costing
Exercise 4-1 15 minutes/
&eighted-Average )ethod "ilograms o Cement
1. &or$ in process, )ay 1............................................... =tarted into production during the month.................... (otal $ilograms in process........................................... +educt wor$ in process, )ay !1................................. "ompleted and transferred out during the month........ 2.
65,555 !55,555 !65,555 75,555 !!5,555
Equivalent Units #EU$ Materials Conversion
nits transferred out.................................... &or$ in process, ending: )aterials: 75,555 $ilograms > 5?.......... "onversion: 75,555 $ilograms > 15?....... @3uivalent units of production.....................
!!5,555
!!5,555
25,555 !75,555
4-15
7,555 !!7,555
Chapter 4 Process Costing
Exercise 4-11 !5 minutes/
&eighted-Average )ethod Material Conversio s n
1. nits transferred to the ne*t process................ @nding wor$ in process: )aterials: 5,555 units > 75? complete........ "onversion: 5,555 units > 27? complete.. .. @3uivalent units of production.......................... 2.
!55,555
!55,555
25,555 !25,555
15,555 !15,555
Material Conversio s n
"ost of beginning wor$ in process................... 7;,;55 1,B55 "ost added during the period........................... !67,555 21,755 (otal cost a/.................................................... 1,;55 22B,55 @3uivalent units of production b/..................... !25,555 !15,555 "ost per e3uivalent unit a/ C b/...................... 1.!6 5.9 !.
Materials
Conversio n
Total
Ending work in process inventory:
@3uivalent units of production see above/.......................... "ost per e3uivalent unit see above/.................................. "ost of ending wor$ in process inventory...............................
25,555
15,555
1.!6
5.9
29,;55
9,55 4-16
!7,555
Chapter 4 Process Costing
Units completed and transerred out:
nits transferred to the ne*t process................................. !55,555 "ost per e3uivalent unit see previous e*ercise/........ 1.!6 "ost of units completed and transferred out...................... 1,555
!55,555 5.9 222,555
4-17
;!;,555
Chapter 4 Process Costing
Exercise 4-12 15 minutes/
&eighted-Average )ethod Material Labor % s Overhead
'ounds transferred to the 'ac$ing +epartment during )ayD........................................................... B5,555 &or$ in process, )ay !1: )aterials: 25,555 pounds > 155? complete......... 25,555 Gabor and overhead: 25,555 pounds > B5? complete............................................................ @3uivalent units of production................................. 715,555
B5,555
16,555 756,555
D !5,555 E 65,555 H 25,555 F B5,555 Pro!le" 4-13 7 minutes/
&eighted-Average )ethod 1. @3uivalent nits of 'roduction Material Conversio s n
(ransferred to ne*t departmentD........................ @nding wor$ in process: )aterials: 5,555 units * 97? complete.......... "onversion: 5,555 units * 27? complete....... @3uivalent units of production............................
!65,555
!65,555
!5,555 15,555
15,555 !B5,555
Dnits transferred to the ne*t department F nits in beginning wor$ in process E nits started into
4-18
Chapter 4 Process Costing
production I nits in ending wor$ in process F 95,555 E !75,555 I 5,555 F !65,555 2. "ost per @3uivalent nit Materials
"ost of beginning wor$ in process.................. 6;,555 "ost added during the period......................... 9,555 (otal cost a/................................................... 7!!,555 @3uivalent units of production b/................... 15,555 "ost per e3uivalent unit, a/ C b/................... 1.!5
Conversio n
!;,555 1B6,555 2!,555 !B5,555 5.;5
!. "ost of @nding &or$ in 'rocess %nventory and nits (ransferred ut
4-19
Chapter 4 Process Costing
Materials
Conversio n
@nding wor$ in process inventory: @3uivalent units of production materials: 5,555 units * 97? complete0 conversion: 5,555 units * 27? complete/......... !5,555 "ost per e3uivalent unit......... 1.!5 "ost of ending wor$ in process inventory.............................. !B,555 nits completed and transferred out: nits transferred to the ne*t department.......................... !65,555 "ost per e3uivalent unit......... 1.!5 "ost of units completed and transferred out..................... B,555
4-20
Total
15,555 5.;5 ;,555
7,555
!65,555 5.;5 226,555
922,555
Chapter 4 Process Costing
Pro!le" 4-13 continued/
. "ost 8econciliation "osts to be accounted for: "ost of beginning wor$ in process inventory 6;,555 E !;,555/..................................... "osts added to production during the period 9,555 E 1B6,555/................................. (otal cost to be accounted for......................... "osts accounted for as follows: "ost of ending wor$ in process inventory....... "ost of units completed and transferred out... (otal cost accounted for..................................
4-21
122,555 ;7,555 9;9,555 7,555 922,555 9;9,555
Chapter 4 Process Costing
Pro!le" 4-14 7 minutes/
&eighted-Average )ethod 1. @3uivalent nits of 'roduction Material Conversio s n
(ransferred to ne*t department.......................... @nding wor$ in process: )aterials: 65,555 units * 97? complete.......... "onversion: 65,555 units * 27? complete....... @3uivalent units of production............................
75,555
75,555
;5,555 25,555 95,555
715,555
2. "ost per @3uivalent nit Materials
Conversio n
"ost of beginning wor$ in process.................. !;,775 "ost added during the period......................... !B1,675 (otal cost a/................................................... 26,55 @3uivalent units of production b/................... 715,555 "ost per e3uivalent unit, a/ C b/................... 5.6
1!,755 269,!55 !55,655 95,555 5.;
!. Applying "osts to nits @nding wor$ in process inventory: @3uivalent units of production "ost per e3uivalent unit......... "ost of ending wor$ in process
Materials
Conversio n
;5,555 5.6 75,55
25,555 5.; 12,655
4-22
Total
;!,255
Chapter 4 Process Costing
inventory.............................. nits completed and transferred out: nits transferred to the ne*t department.......................... 75,555 "ost per e3uivalent unit......... 5.6 "ost of units completed and transferred out..................... !96,555
4-23
75,555 5.; 266,555
;;;,555
Chapter 4 Process Costing
Pro!le" 4-14 continued/
. "ost 8econciliation "osts to be accounted for: "ost of beginning wor$ in process inventory !;,775 E 1!,755/..................................... "osts added to production during the period !B1,675 E 269,!55/................................. (otal cost to be accounted for......................... "osts accounted for as follows: "ost of ending wor$ in process inventory....... "ost of units completed and transferred out... (otal cost accounted for..................................
75,575 ;9B,175 92B,255 ;!,255 ;;;,555 92B,255
Pro!le" 4-15 7 minutes/
&eighted-Average )ethod 1. @3uivalent units of production Material Conversio s n
(ransferred to ne*t departmentD........................ @nding wor$ in process: )aterials: 7,555 units * 155? complete........ "onversion: 7,555 units * ;5? complete....... @3uivalent units of production............................
295,555
295,555
7,555 !17,555
29,555 2B9,555
Dnits transferred to the ne*t department F nits in beginning wor$ in process E nits started into production I nits in ending wor$ in process F !7,555 E 265,555 I 7,555 F 295,555
4-24
Chapter 4 Process Costing
2. "ost per e3uivalent unit Materials
Conversio n
"ost of beginning wor$ in process.................. !,55 25,!55 "ost added during the period......................... !B9,;55 169,;55 (otal cost a/................................................... 1,555 259,B55 @3uivalent units of production b/................... !17,555 2B9,555 "ost per e3uivalent unit, a/ C b/................... 1.5 5.95 !. "ost of ending wor$ in process inventory and units transferred out Materials
Conversio n
4-25
Total
Chapter 4 Process Costing
@nding wor$ in process inventory: @3uivalent units of production. .. 7,555 "ost per e3uivalent unit............ 1.5 "ost of ending wor$ in process inventory................................. ;!,555 nits completed and transferred out: nits transferred to the ne*t department.............................. 295,555 "ost per e3uivalent unit............ 1.5 "ost of units completed and transferred out......................... !96,555
4-26
29,555 5.95 16,B55
61,B55
295,555 5.95 16B,555
7;9,555
Chapter 4 Process Costing
Pro!le" 4-16 7 minutes/
&eighted-Average )ethod 1. a.
b.
c. d.
e.
g.
&or$ in 'rocess—lending &or$ in 'rocess—ottling 8aw )aterials &or$ in 'rocess—lending &or$ in 'rocess—ottling =alaries and &ages 'ayable
19,;55 7,555 1B2,;55 9!,255 19,555 B5,255
)anufacturing verhead Accounts 'ayable
7B;,555
&or$ in 'rocess—lending )anufacturing verhead &or$ in 'rocess—ottling )anufacturing verhead
61,555
&or$ in 'rocess—ottling &or$ in 'rocess—lending
922,555
inished
B25,555
Accounts 8eceivable =ales "ost of
7B;,555 61,555 156,555 156,555 922,555 B25,555 1,55,555 1,55,555 6B5,555 6B5,555
4-27
Chapter 4 Process Costing
Pro!le" 4-16 continued/
2. g/
Accounts 8eceivable 1,55,555
al. a/ b/ d/ al.
&or$ in 'rocess lending +epartment !2,655 e/ 922,555 19,;55 9!,255 61,555 12,;55
al. f/ al.
inished
)anufacturing verhead c/ 7B;,555 d/ 76B,555 al. 9,555
Accounts 'ayable c/ 7B;,555
=alaries and &ages 'ayable b/ B5,255
=ales g/
1,55,555
al. al.
8aw )aterials 1B6,;55 a/ 1B2,;55 ;,555
al. a/ b/ d/ e/ al.
&or$ in 'rocess ottling +epartment B,555 f/ B25,555 7,555 19,555 156,555 922,555 21,555
g/
"ost of
Pro!le" 4-17 ;5 minutes/ 4-28
Chapter 4 Process Costing
&eighted-Average )ethod 1. "omputation of e3uivalent units in ending inventory: Mi&ing
nits transferred to the ne*t department.......... @nding wor$ in process: )i*ing: 1 unit > 155? complete.................. )aterials: 1 unit > 25? complete................ "onversion: 1 unit > 15? complete............. @3uivalent units of production..........................
;5.5
Materials
;5.5
Conversio n
;5.5
1.5 5.2 ;1.5
;5.2
5.1 ;5.1
2. "osts per e3uivalent unit: Mi&ing
"ost of beginning wor$ in process inventory.... "ost added during the period........................... (otal cost.......................................................... @3uivalent units of production.......................... "ost per e3uivalent unit....................................
1,;5 B,95 B;,!65 ;1.5 1,765
4-29
Materials
2; 6,52 6,26 ;5.2 15
Conversio n
157 ;1,1B9 ;1,!52 ;5.1 1,525
Chapter 4 Process Costing
Pro!le" 4-17 continued/
!. "osts of ending wor$ in process inventory and units transferred out: Mi&ing
@nding wor$ in process inventory: @3uivalent units of production..................... "ost per e3uivalent unit............................... "ost of ending wor$ in process inventory.... nits completed and transferred out: nits transferred to the ne*t department..... "ost per e3uivalent unit............................... "ost of units transferred out........................
Materials
1.5 1,765 1,765
5.2 15 26
;5.5 1,765 B,655
;5.5 15 6,55
. "ost reconciliation: "ost to be accounted for: "ost of beginning wor$ in process inventory 1,;5 E 2; E 157/.................................. "ost added to production during the period B,95 E 6,52 E ;1,1B9/...................... (otal cost to be accounted for......................... "osts accounted for as follows: "ost of ending wor$ in process inventory....... "ost of units transferred out........................... (otal cost accounted for..................................
4-30
1,991 1;,!!B 1;;,115 1,915 1;,55 1;;,115
Conversio n
5.1 1,525 152
Total
1,915
;5.5 1,525 ;1,255 1;,55
Chapter 4 Process Costing
Pro!le" 4-18 !5 minutes/
&eighted-Average )ethod 1. (otal units transferred to the ne*t department... . Gess units in the )ay 1 inventory........................ nits started and completed in )ay....................
!5,555 7,555 27,555
2. (he e3uivalent units were: Material Conversio s n
(ransferred to ne*t department.................... @nding wor$ in process: )aterials: ,555 units * 97? complete...... "onversion: ,555 units * 75? complete... @3uivalent units of production......................
!5,555
!5,555
!,555 !!,555
2,555 !2,555
!. (he costs per e3uivalent unit were: "ost of beginning wor$ in process.................. "ost added during the period......................... (otal cost a/................................................... @3uivalent units of production b/...................
Materials
Conversio n
B,555 79,555 ;;,555 !!,555
,55 !5,655 !7,255 !2,555
Chapter 4 Process Costing
unit is almost certainly less than !.15 per unit because the conversion costs are li$ely to include fi*ed costs.
Chapter 4 Process Costing
Case 4-19 B5 minutes/ • •
(his case is difficult—particularly part !, which re3uires analytical s$ills. ecause there are no beginning inventories, it ma$es no difference whether the weighted-average or % method is used by the company. Kou may choose to specify that the % method be used rather than the weighted-average method.
1. "omputation of the "ost of
nits completed and sold........................ @nding wor$ in process: (ransferred in: 25,555 units * 155? complete............ "onversion: 25,555 units * 27? complete.............. @3uivalent units of production..................
275,555
275,555
25,555 295,555 Transerred 'n
"ost of beginning wor$ in process........... "ost added during the period.................. (otal cost a/............................................ @3uivalent units of production b/............ "ost per e3uivalent unit, a/ C b/............
Conversion
7,555 277,555 Conversion
5 5 B,221,555 1;,!25,555 B,221,555 1;,!25,555 295,555 277,555 162.!5 ;.55
Chapter 4 Process Costing
by ;2,755 from ;1,797,555 down to ;1,712,755. =ee the ne*t page for the necessary calculations.
Chapter 4 Process Costing
Case 4-19 continued/
(he percentage of completion, , affects the cost of goods sold by its effect on the unit cost, which can be determined as follows: A1;,!25,555 nit cost F 162.!5 E 275,555 E 25,555 And the cost of goods sold can be computed as follows: "ost of goods sold F 275,555 > nit cost ecause the cost of goods sold must be reduced down to ;1,712,755, the unit cost must be 2;.57 ;1,712,755 C 275,555 units/. (hus, the re3uired percentage completion, , to obtain the ;2,755 reduction in cost of goods sold can be found by solving the following e3uation: A162.!5 E
A1;,!25,555 F A2;.57 275,555 E 25,555
A1;,!25,555 F A2;.57 - A162.!5 275,555 E 25,555 A1;,!25,555 F A;!.97 275,555 E 25,555 275,555 E 25,555
F
1
Chapter 4 Process Costing
Case 4-19 continued/
!. continued/ "omputation of the "ost of
nits completed and sold........................ @nding wor$ in process: (ransferred in: 25,555 units * 155? complete............ "onversion: 25,555 units * !5? complete.............. @3uivalent units of production..................
275,555
275,555
25,555 295,555 Transerred 'n
"ost of beginning wor$ in process........... "ost added during the period.................. (otal cost a/............................................ @3uivalent units of production b/............ "ost per e3uivalent unit, a/ C b/............
Conversion
;,555 27;,555 Conversion
5 5 B,221,555 1;,!25,555 B,221,555 1;,!25,555 295,555 27;,555 162.!5 ;!.97
"ost of goods sold F 275,555 units > 162.!5 per unit E ;!.97 per unit/ F ;1,712,755.
Chapter 4 Process Costing
Case 4-19 continued/
rom 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. (he company should perhaps reconsider how it determines the bonus. %t is 3uite common for companies to pay an Nall or nothingO bonus contingent on ma$ing a particular target. (his inevitably creates powerful incentives to bend the rules when the target has not 3uite been attained. %t might be better to have a bonus without this Nall or nothingO feature. or e*ample, managers could be paid a bonus of *? of profits above target profits rather than a bonus that is a preset percentage of their base salary. nder such a policy, the effect of adding that last dollar of profits that #ust pushes the divisional net profits over the target profit will add a few pennies to the manager4s compensation rather than thousands of dollars. (herefore, the incentives to misstate the net operating income are reduced. &hy tempt people unnecessarilyQ
Chapter 4 Process Costing
Case 4-2 7 minutes/
&eighted-Average )ethod 1. (he revised computations follow: @3uivalent nits of 'roduction: Transerred 'n
(ransferred to ne*t department.......................... @nding wor$ in process: (ransferred in: 7,555 units * 155? complete... )aterials: 7,555 units * 5? complete.............. "onversion: 7,555 units * 5? complete......... @3uivalent units of production............................
155,555
Materials
155,555
Conversio n
155,555
7,555 5 157,555
155,555
2,555 152,555
"ost per @3uivalent nit: Transerred 'n Costs
"ost of beginning wor$ in process.................... "ost added during the period............................ (otal cost a/..................................................... @3uivalent units of production b/...................... "ost per e3uivalent unit, a/ C b/......................
4-38
6,625 61,65 B5,!55 157,555 5.6;
Materials
!,55 29,;55 !1,555 155,555 5.!1
Conversio n
15,255 B;,B55 159,155 152,555 1.57