Chapter 6—Process Costing

TRUE/FALSE

1. Process costing is most appropriate when manufacturing large batches of homogenous products.

ANS: T

2. Conversion costs include all manufacturing costs other than direct materials

ANS: T

3. Equivalent units are computed to assign costs to partially completed units

ANS: T

4. The weighted average method combines beginning inventory and current production to compute cost
per unit of production.

ANS: T

5. The FIFO method combines beginning inventory and current production to compute cost per unit of
production.

ANS: F

6. The weighted average method separates beginning inventory and current production to compute cost
per unit of production.

ANS: F

7. The FIFO method separates beginning inventory and current production to compute cost per unit of
production.

ANS: T

8. The numerator in the formula for equivalent units includes all beginning inventory costs when using
the weighted average costing assumption.

ANS: T ,6-3

9. The numerator in the formula for equivalent units includes all beginning inventory costs when using
the FIFO costing assumption.

ANS: F ,6-4

10. The weighted average costing method assumes that units in beginning inventory are the first units
transferred.

ANS: F

11. The FIFO costing method assumes that units in beginning inventory are the first units transferred.
 ANS: T

12. Standard costing is compatible with both FIFO and weighted average methods of costing

ANS: F

13. A hybrid costing system would be appropriate for a company that manufactures cake flour.

ANS: F OBJ: 6-6

14. A hybrid costing system would be appropriate for a company that manufactures several varieties of
jam.

ANS: F OBJ: 6-6

15. Using FIFO costing, equivalent units of production (EUP) can be determined by subtracting EUP’s in
Beginning work in process from weighted average EUP.

ANS: T OBJ: 6-7

16. Weighted average equivalent units of production (EUP) can be determined by adding EUP’s in ending
work in process to units transferred out.

ANS: T OBJ: 6-7

17. Continuous production losses are assumed to occur uniformly throughout the process.

ANS: T OBJ: 6-8

18. Discrete production losses are assumed to occur throughout the process.

ANS: F OBJ: 6-8

19. Discrete production losses are assumed to occur at the end of a process.

ANS: T OBJ: 6-8

20. Continuous production losses are assumed to occur at the end of a process

ANS: F OBJ: 6-8

21. Abnormal continuous losses are absorbed by all units in ending inventory and transferred out on a
EUP basis.

ANS: F OBJ: 6-8

22. Normal continuous losses are absorbed by all units in ending inventory and transferred out on a EUP
basis.

ANS: T OBJ: 6-8

23. Costs of normal shrinkage and normal continuous losses in a process costing environment are handled
by the method of neglect.

ANS: T OBJ: 6-8

24. Costs of normal shrinkage and normal continuous losses in a process costing environment are handled
by the method of accretion.

ANS: F OBJ: 6-8

25. A continuous loss is assumed to occur at a specific point in the production process.

ANS: F OBJ: 6-8

26. A discrete loss is assumed to occur at a specific point in the production process.

ANS: T OBJ: 6-8

27. Abnormal spoilage is always accounted for on an equivalent unit basis.

ANS: T OBJ: 6-8

Required: Prepare a detailed cost of production report. Use the FIFO method. Distinguish between
normal and abnormal spoilage.
ANS:
Normal Sp = 11% x 61,000 = 6,710 units FIFO
Abnormal Sp = 8,000 - 6,710 = 1,290 units
Mat CC Mat = $1,480,000 = $22.00
67,290
Complete 61,000 61,000
+ End 16,000 12,000
+ Ab Sp 1,290 1,290 CC = $942,000 = 13.17
- Ave 78,290 74,290 71,540 $35.17
- Beg (11,000) (2,750)
FIFO 67,290 71,540
WIP
Material 16,000 x $352,000
$22.00
CC 12,000 x 158,040
$13.17
$510,040
Loss = 1,290 x $35.17 45,369

COGM = $2,672,000 - 510,040 - 45,369 = $2,116,591

,6-8
11. Lumberton Industries has two departments. Department 1 uses FIFO costing and Department 2 uses
weighted average.

Units are introduced into the process in Department 1 (this is the only material added in Department
1). Spoilage occurs continuously through the department and normal spoilage should not exceed 10
percent of the units started.

Department 2 adds material (packaging) at the 75 percent completion point; this material does not
cause an increase in the number of units being processed. A quality control inspection takes place
when the goods are 80 percent complete. Spoilage should not exceed 5 percent of the units transferred
in from Department 1.

The following production cost data are applicable for operations for August 20X7:

Department 1 Production Data

Beginning inventory (65% complete) 1,000
Units started 25,000
Units completed 22,000
Units in ending inventory (40% complete) 2,800

Department 1 Cost Data

Beginning inventory:
Material $ 1,550
Conversion 2,300 $ 3,850
Current period:
Material $38,080
Conversion 78,645 116,725
Total costs to account for $120,575

Department 2 Production Data

Beginning inventory (90% complete) 8,000
Units transferred in 22,000
Units completed 24,000
Units in ending inventory (20% complete) 4,500
Department 2 Cost Data
Beginning inventory:
Transferred in $40,800
Material 24,000
Conversion 4,320 $ 69,120*
Current period:
Transferred in $113,700
Material` 53,775
Conversion 11,079 178,554
Total costs to account for $247,674

*This may not be the same amount determined for Department 1; ignore any difference and use this
figure.

Required:
a. Compute the equivalent units of production in each department.
b. Determine the cost per equivalent unit in each department and compute the cost transferred out,
the cost in ending inventory, and the cost of spoilage (if necessary).

ANS:
a.
1

Mat CC Mat = $38,080 = $ 1.60

23,800
Complete 22,000 22,000

+ End WIP 2,800 (2,800 CC = $78,645 = $ 3.50

1,120 x 4)
24,800 23,120 22,470

- Beg WIP (1,000) (650) (1,000 End 2,800 x = $ 4,480

x .65) WIP = $1.60
23,800 22,470 1,120 x 3.920
$3.50
$ 8,400
COGM = $120,575 - 8,400 $112,175

b.
2

TI Mat CC Mat = $ 77,775 = $ $3.05

25,500
Complete 24,000 24,000 24,000
+ End WIP 4,500 0 900 CC = $ 15,399 = $ $0.59
+ Normal 1,100 1,120 880 26,100

+ Abnormal 400 400 320

30,000 25,500 26,100 TI = $154,500 = $ 5.15

30,000

End WIP Abn Loss

4,500 x $5.15 $23,175 400 x $3.05 $1,220
900 x $0.59 531 320 x $0.59 189
$23,706 400 x $5.15 2,060
$3,469

COGM = $247,674 - 23,706 - 3,469 = $220,499

, 6-8
12. Orange Company manufactures a single product. All material is added at the beginning of the process.

Costs Material Conversion Total

Beginning inventory $ 30,000 $ 3,600 $ 33,600
Current period 885,120 335,088 1,220,208
Total costs $915,120 $338,688 $1,253,808

UNITS
Beginning inventory (30% complete- 6,000 units
conversion)
Started 180,000 units
Completed 152,000 units
Ending inventory (70% complete-conversion) 20,000 units
Normal spoilage 4,800 units

Required: Find ending WIP inventory, abnormal loss, and COGM. Assume that, for conversion costs,
abnormal shrinkage is 60 percent.

ANS:

Mat CC
Units Complete 152,000 152,000
+ Equivalents Ending WIP 20,000 14,000
+ Abnormal Loss 9,200 5,520 (9,200 x .6)
= Equivalent Production-WA 181,200 171,520
= Equivalent Begin WIP (6,000) (1,800)
= Equivalent Production-FIFO 175,200 169,720
Unit Costs:
WA FIFO
Mat $915,120 = $5.05 Mat $885,120 = $5.05
181,200 175,200

CC $338,688 = $1.97 CC $335,088 = $1.97

171,520 169,720

Ending WIP
Material 20,000 x $5.05 $101,000
CC 14,000 x $1.97 27,580
$128,580

Abnormal Spoilage
Material 9,200 x $5.05 $ 46,460
CC 5,520 x $1.97 10,874
$ 57,334

Cost of Good Transferred

1,253,808 - 128,580 - 57,334 = $1,067,894

,6-8
13. Delightful Yogurt Company produces yogurt in two departments-Mixing and Finishing. In Mixing, all
ingredients except fruit are added at the start of production. In Finishing, fruit is added and then the
mixture is placed into containers. Adding the fruit to the basic yogurt mixture increases the volume
transferred in by the number of gallons of fruit added. Any spoilage that occurs is in the Finishing
Department. Spoilage is detected just before the yogurt is placed into containers or at the 98 percent
completion point. All spoilage is abnormal.

Finishing Department

BWIP (100% fruit, 0% container, 30% CC) 5,000 gallons

Gallons transferred in 5,500
Gallons of fruit added 1,200
EWIP (100% fruit, 0% container, 60% CC) 1,700 gallons
Gallons transferred out 9,000
Abnormal spoilage 1,000

BWIP Costs:
Transferred In $ 9,700
Fruit 10,500
CC 15,000

Current Costs:
Transferred In 12,400
Fruit 54,000
Containers 11,000
CC 98,000
Total Costs $ 210,600

Prepare a cost of production report for October 20X5. The company uses weighted average.

ANS:

Delightful Yogurt Company

Cost Report
October 31, 20X5
BWIP 5,000
Trans. In 5,500
Fruit 1,200
Acctble. For 11,700
TI Fruit Container CC
Transferred Out 9,000 9,000 9,000 9,000
EWIP 1,700 1,700 0 1,020
Abnormal Spoilage 1,000 1,000 0 980
11,700 11,700 9,000 11,000

Costs:

TI Fruit Container CC
BWIP $ 9,700 $10,500 $ 0 $ 15,000
Current 12,400 54,000 11,000 98,000
$22,100 $64,500 $11,000 $113,000
EUP 11,700 11,700 9,000 11,000
Per unit $1.89 $5.51 $1.22 $10.27
Cost Assignment:

EWIP
1,700 x $1.89 = $ 3,213
1,700 x $5.51 = 9,367
1,020 x $10.27 = 10,475 $ 23,055
Spoilage
1,000 x $1.89 = $ 1,890
1,000 x $5.51 = 5,510
980 x $10.27 = 10,065 17,465
Transferred Out
$210,600 - 23,055 - 17,465 = 170,080

Total accounted for $210,600

,6-8
 Hocking Company

The following information is available for Hocking Company for March 20X8. All materials are added
at the start of production.

Beginning Work in Process: (80% complete) 8,000 units

Started 35,000 units
Normal spoilage (continuous) 6,000 units
Abnormal spoilage 2,500 units
Ending Work in Process: (55% complete) 15,000 units
Transferred out 19,500 units

Beginning Work in Process Costs:

Material $ 14,000
Conversion 45,000
Current Costs:
Material 50,000
Conversion 175,000
Total Costs $ 284,000

14. Refer to Hocking Company. Prepare a cost of production report for March using FIFO.

ANS:
BI 8,000 + Started 35,000 = Accountable for 43,000

Hocking Company
Cost Report
March 31, 20X8

Material CC
BWIP 8,000 0 1,600
S&C 11,500 11,500 11,500
EWIP 15,000 15,000 8,250
Norm 6,000 0 0
Abnorm. 2,500 2,500
Acctd. For 43,000 29,000 23,850

Material: $50,000/29,000 = $1.72

Conversion Costs: $175,000/23,850 = $7.34

Cost Assignment:

Ending Work in Process

15,000 x $1.72 = $ 25,800
8,250 x $7.34 = 60,555 $ 86,355
Abnormal Spoilage
2,500 x $9.06 = 22,650
Cost Transferred Out
$284,000 - 86,355 - 22,650 = 174,995

Total costs accounted for $ 284,000

,6-8
15. Refer to Hocking Company. Prepare the cost of production report assuming the weighted average
method.

ANS:
BI 8,000 + Started 35,000 = Accountable for 43,000

Hocking Company
Cost Report
March 31, 20X8
Material CC
Transferred Out 19,500 19,500 19,500
Ending Work In Process 15,000 15,000 8,250
Normal Spoilage 6,000 0 0
Abnormal Spoilage 2,500 2,500 2,500
Accounted For 43,000 37,000 30,250

Material: $64,000/37,000 = $1.73

Conversion Costs: $220,000/30,250 = $ 7.27

Cost Assignment:

Ending Work in Process

15,000 x $1.73 = $25,950
8,250 x $7.27 = 59,978 $ 85,928
Abnormal Spoilage
2,500 x $9.00 = 22,500
Transferred Out
$284,000 - 85,928 - 22,500 = 175,572
Total costs accounted for $ 284,000

,6-8