Exam 17: Process Costing

When there are multiple support departments within an organization, it is common to use journal entries to transfer-in costs from one department to another. What are some of the points to remember about these costs?

Scarborough Chemical placed 440,000 litres of direct materials into the mixing process. At the end of the month, 20,000 litres were still in process, 30 percent converted as to labour and factory overhead. All direct materials are placed in mixing at the beginning of the process and conversion costs occur evenly during the process. Scarborough 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 a beginning inventory of 24,000 litres of chemicals were 40 percent complete as to conversion costs prior to the addition of the 440,000 litres.

Use the information below to answer the following question(s). Father Time Clock Shop manufactures clocks on an automated assembly line. It utilizes two cost categories: direct materials and conversion costs. Each product must pass through the Assembly Department and the Testing Department. Direct materials are added at the beginning of production, while conversion costs are allocated evenly throughout production, and the company uses weighted-average costing. Data for the Assembly Department are: -What is the equivalent units for conversion costs for May using the weighted average method?

Answer the following questions using the information below: The Townsend 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. Townsend Tractor uses weighted-average costing. -What is the direct materials cost per equivalent unit during April?

Use the information below to answer the following question(s). Canadian Oil Company manufactures cooking oils. All direct materials are added at the beginning of the production process. The company currently uses the FIFO method. Data for the month of July is listed below. -What is the amount of goods transferred-out during the month assuming no labour or conversion costs?

Marvin Ltd. uses an automated process in its manufacturing operations. On November 1, the company had 25,000 units in beginning work in process which were 80% complete with respect to conversion. During the month of November, it started 120,000 into production. On November 30, there were 20,000 units in process, which were 40% complete with respect to conversion. Direct materials are added at the beginning of the process, and no units are spoiled in production. Marvin Ltd. uses standard costing and has determined that its standard costs are $4.15 for direct materials and $1.75 for conversion. Required: Prepare a production cost worksheet using the FIFO method.

The president of Sampson Ltd. has approached the controller for the company with concerns over the projected year end results. The company needs to present its financial statements to the bank to renew its loan and the president is concerned that the loan may either be denied, or the renewal terms will impose a much higher interest rate. The following summarizes the conversation between the president and the controller: President: I am very concerned about the upcoming loan renewal. Our cash position is low and our operating results for the year were not as strong as expected. Our unit cost of production has come in at $1,800 based on equivalent units of production of 2,590. I know that currently we have 600 units in ending work in process that are only 15% complete. If we were to reclassify these as 80% complete, we would increase our equivalent units of production by 390. Since all of our 2,500 completed units were sold, this reclassification would lower our unit costs, reduce cost of goods sold and increase our ending work in process inventory which could be used as collateral. This would improve our financial position and allow us to renew our loan and keep our current rate of interest. Controller: I think this is risky. It would be easy to determine that the units are not 80% complete. President: I don't see how. By the time we are audited, the units will have long since been completed and shipped to customers. Required: Assume you are the controller for Sampson Ltd. and that you hold a professional accounting designation. a. Determine the impact of the president's proposal on the financial results for Sampson Ltd. b. Referring back to the standards of ethical conduct, what should you do as controller?

The first-in, first-out process-costing method computes unit costs by confining equivalent units to work only done during the current period.