Exam 17: Process Costing

Answer the following questions using the information below: The Daltry Tractor Company manufactures small garden tractors on a highly automated assembly line. Its costing system uses two cost categories, direct materials and conversion costs. Each tractor must pass through the Assembly Department and the Testing Department. Direct materials are added at the beginning of the production process. Conversion costs are allocated evenly throughout production. Daltry Tractor uses weighted-average costing. Data for the Assembly Department for April 2012 are: Costs for April 2012: -What is the conversion cost per equivalent unit in April?

There are basically two distinct methods of calculating product costs. Required: Compare and contrast the two methods.

In calculating cost per equivalent unit, the FIFO method of process costing merges the work and the costs of the beginning inventory with the work and the costs done during the current period.

Answer the following questions using the information below: Hudson Dock Company manufactures boat docks on an assembly line. Its standard costing system uses two cost categories, direct materials and conversion costs. Each product must pass through the Assembly Department and the Finishing Department. Direct materials are added at the beginning of the production process. Conversion costs are allocated evenly throughout production. Data for the Assembly Department for May 20X5 are: Costs for May: -Which of the following journal entries properly records the assignment of conversion costs to work-in-process inventory and the conversion-cost variances of the Assembly Department, assuming that conversion costs are 20% higher than expected?

Equivalent units are calculated separately for each input.

What is the difference between a weighted-average method of process costing and a first-in, first-out method of process costing?

BIG Manufacturing Products has been using FIFO process costing for tracking the costs of its manufacturing activities. However, in recent months, the system has become somewhat bogged down with details. It seems that, when the company purchased Brown Electronics last year, its product lines increased six-fold. This has caused both the accountants and the suppliers of the information, the line managers, great difficulty in keeping the costs of each product line separate. Likewise, the estimation of the completion of ending work-in-process inventories and the associated costs has become very cumbersome. The chief financial officer of the company is looking for ways to improve the reporting system of product costs. Required: What can you recommend to improve the situation?

Answer the following questions using the information below: The Rest-a-Lot chair company manufacturers a standard recliner. During February, the firm's Assembly Department started production of 75,000 chairs. During the month, the firm completed 80,000 chairs, and transferred them to the Finishing Department. The firm ended the month with 10,000 chairs in ending inventory. There were 15,000 chairs in beginning inventory. All direct materials costs are added at the beginning of the production cycle and conversion costs are added uniformly throughout the production process. The FIFO method of process costing is used by Rest-a-Lot. Beginning work in process was 30% complete as to conversion costs, while ending work in process was 80% complete as to conversion costs. Beginning inventory: Manufacturing costs added during the accounting period: -What were the equivalent units for conversion costs during February?

On occasion, the FIFO and the weighted-average methods of process costing will result in the same dollar amount of costs being transferred to the next department. Which of the following scenarios would have that result?

Each department is regarded as a distinct accounting entity when interdepartmental transfers are present in an organization.

Under standard costing the cost per equivalent-unit calculation is more difficult than in either weighted average or FIFO.

Lexington Company produces baseball bats and cricket paddles. It has two departments that process all products. During July, the beginning work in process in the cutting department was half completed as to conversion, and complete as to direct materials. The beginning inventory included $40,000 for materials and $60,000 for conversion costs. Ending work-in-process inventory in the cutting department was 40% complete. Direct materials are added at the beginning of the process. Beginning work in process in the finishing department was 80% complete as to conversion. Direct materials for finishing the units are added near the end of the process. Beginning inventories included $24,000 for transferred-in costs and $28,000 for conversion costs. Ending inventory was 30% complete. Additional information about the two departments follows: Required: Prepare a production cost worksheet, using FIFO for the finishing department.

Weighty Steel processes a single type of steel. For the current period the following information is given: All materials are added at the beginning of the production process. The beginning inventory was 40% complete as to conversion, while the ending inventory was 30% completed for conversion purposes. Weighty uses the weighted-average costing method. What is the total cost assigned to the units completed and transferred this period?

Answer the following questions using the information below: Hudson Dock Company manufactures boat docks on an assembly line. Its standard costing system uses two cost categories, direct materials and conversion costs. Each product must pass through the Assembly Department and the Finishing Department. Direct materials are added at the beginning of the production process. Conversion costs are allocated evenly throughout production. Data for the Assembly Department for May 20X5 are: Costs for May: -Which of the following journal entries records the Assembly Department's conversion costs for the month, assuming conversion costs are 20% higher than expected?

Answer the following questions using the information below: The Daltry Tractor Company manufactures small garden tractors on a highly automated assembly line. Its costing system uses two cost categories, direct materials and conversion costs. Each tractor must pass through the Assembly Department and the Testing Department. Direct materials are added at the beginning of the production process. Conversion costs are allocated evenly throughout production. Daltry Tractor uses weighted-average costing. Data for the Assembly Department for April 2012 are: Costs for April 2012: -What is the total amount debited to the Work-in-Process account during the month of April?

Creative Colors Paint Company placed 315,000 gallons of direct materials into the mixing process. All direct materials are placed in mixing at the beginning of the process and conversion costs occur evenly during the process. Creative Colors uses weighted-average costing. The initial forecast for the end of the month was to have 75,000 gallons still in process, 15% converted as to labor and factory overhead. Required: a. Determine the total equivalent units (in process and transferred out)for direct materials and for conversion costs, assuming there was no beginning inventory. b. With the installation of a new paint processing filtration device, the forecast for the end of the month was to have 50,000 gallons still in process, 70% converted as to labor and factory overhead. In this event, determine the equivalent units (in process and transferred out)for direct materials and for conversion costs, assuming there was no beginning inventory.

The cost of units completed can differ materially between the weighted average and the FIFO methods of process costing.

Managers find operation costing useful in cost management because it:

Ampco Disk Company operates a computer disk manufacturing plant. Direct materials are added at the end of the process. The following data were for June 20X5: How many units must be accounted for during the period?

Cedar Rapids Chemical placed 220,000 liters of direct materials into the mixing process. At the end of the month, 10,000 liters were still in process, 30% converted as to labor and factory overhead. All direct materials are placed in mixing at the beginning of the process and conversion costs occur evenly during the process. Cedar Rapids Chemical uses weighted-average costing. Required: a. Determine the equivalent units in process for direct materials and conversion costs, assuming there was no beginning inventory. b. Determine the equivalent units in process for direct materials and conversion costs, assuming that 12,000 liters of chemicals were 40% complete prior to the addition of the 220,000 liters.