8

Process Costing

Solutions to Review Questions

8-1.
Process costing is most likely to be used in industries that produce relatively
homogeneous products using continuous processes.

8-2.
Using the basic cost flow equation, rearrange the terms to solve for the unknown
beginning inventory. From BB + TI – TO = EB, we have:
Beginning Inventory + Current Work – Transferred Out = Ending Inventory.
Rearranging yields:
Beginning Inventory = Transferred Out + Ending Inventory – Current Work.

8-3.
With FIFO costing, the units in the beginning inventory are transferred out first. These
beginning inventory units carry with them the costs incurred in a previous period plus the
costs incurred this period to complete the beginning inventory. The costs transferred-out
will tend to be lower versus weighted-average costing during periods of rising costs. The
ending work-in-process inventory will be carried at a cost that is more current, hence
higher.

8-4.
The five steps are:
1) Measure the physical flow of resources.
2) Compute the equivalent units of production.
3) Identify product costs for which to account.
4) Compute the costs per equivalent unit.
5) Assign product costs to batches of work.

©The McGraw-Hill Companies, Inc., 2017

Solutions Manual, Chapter 8 331
8-5.
Under FIFO costing, the equivalent units represent only the work done in the current
period. Under weighted average, the equivalent units represent the work associated with
all of the costs charged to work in process regardless of the period in which those costs
were incurred (i.e., including costs from prior periods that are in beginning inventory).

8-6.
FIFO process costing better represents the current cost of production, because equivalent
unit costs are based solely on current costs.

8-7.
Prior department costs behave the same as direct materials, which are typically added at
the start of production. They are treated separately because they represent the
accumulation of costs from previous departments rather than the receipt of materials from
the stores area. It is helpful to separate prior department costs from other costs because
the manager of the department receiving the transferred units has no control over the
costs incurred in prior departments. Thus, the prior department costs are not useful for
evaluating the performance of the manager of the department receiving the units.

8-8.
Disagree. The more important individual unit costs are for decisions, the more likely it is
that a company will want to use a costing system that separates costs by units. With job
costing, the company can treat every unit as a separate job.

8-9.
From the inventory equation:
BB + TI – TO = EB; Therefore, TO = BB + TI – EB.

©The McGraw-Hill Companies, Inc., 2017

332 Fundamentals of Cost Accounting
Solutions to Critical Analysis and Discussion Questions

8-10.
To assign costs to specific barrels of liquid cleaning products or similarly mass–produced
items requires a considerable amount of record keeping. Assuming products are all the
same, a process costing system provides sufficient information for control purposes.
Record keeping is simplified since all costs in a given month are accumulated in one
account and assigned at the end of the period.

8-11.
This is a fairly common problem. LIFO is usually beneficial for tax purposes when prices
are rising and inventory levels are steady or rising. However, maintaining internal records
on a LIFO basis is often quite burdensome. To avoid the problem, companies usually
maintain their internal accounting records on a FIFO or weighted-average basis and then
make an estimate of the LIFO cost of inventories. The LIFO estimate is usually done on a
highly aggregated basis and employs some form of “dollar value” LIFO estimation.
A company may use LIFO for tax purposes and some other method for internal accounting
purposes. This is an example of the idea of “different costs for different purposes,” which
was discussed in earlier chapters.

8-12.
The results will be the same using either costing system. The important point is that job
costing and process costing are both methods to assign costs incurred to services
completed. When there is only one service, the method of accumulation and assignment
does not affect the final cost.

8-13.
Answers will differ. Factors to consider include: (a) the relative size of beginning work-in-
process inventory; (b) the variations in input prices; and, (c) the importance of reported
costs on decisions about pricing or processes.

©The McGraw-Hill Companies, Inc., 2017

Solutions Manual, Chapter 8 333
8-14.
We could treat direct labor costs and manufacturing overhead as a single resource
(conversion cost), because we assumed that in the production process they are both
added in the same way (continuously). If they were added in different ways (for example,
direct labor was all incurred in one part of the process), we would have to treat them
separately to obtain better costs for the products. (Of course, it is also true that if there are
no work-in-process inventories, the resulting costs would be the same.)

8-15.
It is not necessary that both departments use the same cost-flow assumption. Department
B will essentially treat the product from Department A as any other material it purchased
from another firm.

8-16.
With prior period costs, a department manager often does not control the decision to
“purchase” inputs from the prior department. However, the department often has a
purchasing manager responsible for acquiring materials from other firms. In the case of
prior department costs, the manager has little control over those costs. For purchasing
from outside firms, he or she has more control. (As noted in the chapter, we will be
discussing this in more detail when we consider performance evaluation systems.)

8-17.
It is unlikely, but not impossible, for process costing to work well in a service firm. Process
costing is designed for production of large quantities of homogeneous units. Service firms
tend to provide slightly different services to each customer.

©The McGraw-Hill Companies, Inc., 2017

334 Fundamentals of Cost Accounting
Solutions to Exercises

8-18. (20 min.)  Compute Equivalent Units—Weighted-Average Method: Conlon

Chemicals.

a. b.
Materials Conversion Costs
Units transferred out............................................ 157,500 157,500
Equivalent units in ending inventory:
 Materials: 10% x 52,500a units........................ 5,250 EU
 Conversion costs: 20% x 52,500 units............ 10,500 EU
Total equivalent units for all work done to date. . 162,750 EU 168,000 EU
a52,500 units in ending inventory
= 30,000 units in beginning inventory + 180,000 units started this period
– 157,500 units transferred out.

©The McGraw-Hill Companies, Inc., 2017

Solutions Manual, Chapter 8 335
8-19. (20 min.) Compute Equivalent Units—FIFO method: Conlon Chemicals.
a. b.
Compute Equivalent Units—FIFO Materials Conversion Costs
To complete beginning inventory:
 Materials: 50%a x 30,000 units........................
15,000 EU
 Conversion costs: 70%b x 30,000 units........... 21,000 EU
Started and completed during the period............127,500 EU c 127,500 EU
Units still in ending inventory:
 Materials: 10% x 52,500d units........................5,250 EU
 Conversion costs: 20% x 52,500 units............ 10,500 EU
147,750 EU 159,000 EU

a50% = 100% – 50% already done at the beginning of the period.

b70% = 100% – 30% already done at the beginning of the period.
C127,500 units started and completed = 157,500 units transferred out less 30,000 units
from beginning inventory.
d 52,500 units in ending inventory = 30,000 units in beginning inventory + 180,000 units
started this period – 157,500 units transferred out.
Alternative Method:
Equivalent Units EU EU
units of work = transferred + ending – beginning
done this out inventory inventory
period
a. Materials: 147,750 EU = 157,500 units + 5,250 EU – 15,000 EU
b. Conversion Costs: 159,000 EU = 157,500 units + 10,500 EU – 9,000 EU

©The McGraw-Hill Companies, Inc., 2017

336 Fundamentals of Cost Accounting
8-20. (15 min.) Compute Equivalent Units—Weighted-Average Method: Pierce &
Company.

b.
a. Conversion
Materials Costs
Units transferred out................................................ 210,000 210,000
Equivalent units in ending inventory:
 Materials: 100% x 140,000 units.......................... 140,000
 Conversion costs: 45% x 140,000 units............... 63,000
Total equivalent units for all work done to date....... 350,000 273,000

8-21. (20 min.) Compute Equivalent Units—FIFO method: Pierce & Company.

b.
a. Conversion
Materials Costs
To complete beginning inventory:
 Materials: 0%b x 98,000a units............................... 0 EU
 Conversion costs: 60%c x 98,000 units.................. 58,800 EU
Started and completed during the period................... 112,000 EU d 112,000 EU
Units still in ending inventory:
 Materials: 100% x 140,000 units............................. 140,000 EU
 Conversion costs: 45% x 140,000 units.................. 63,000 EU
252,000 EU 233,800 EU

a 98,000 units in beginning inventory

= 210,000 units transferred out + 140,000 units in ending inventory
– 252,000 units started this period.
b 0% = 100% – 100% already done at the beginning of the period.
c 60% = 100% – 40% already done at the beginning of the period.
d 112,000 units started and completed = 210,000 units transferred out less 98,000 units
from beginning inventory.
Alternative Method
Equivalent Units EU EU
units of work = transferred + ending – beginning
done this period out inventory inventory
a. Materials: 252,000 EU = 210,000 units + 140,000 EU – 98,000 EU
b. Conversion Costs: 233,800 EU = 210,000 units + 63,000 EU – 39,200 EU

©The McGraw-Hill Companies, Inc., 2017

Solutions Manual, Chapter 8 337
8-22. (30 min.) Compute Equivalent Units: Magic Company.
a. Weighted-average method:

Conversion
Materials Costs
Units transferred out......................................................... 480,000 480,000
Equivalent units in ending inventory:
 Materials: 100% x 72,000 units.................................... 72,000
 Conversion costs: 30% x 72,000 units......................... 21,600
Total equivalent units for all work done to date............... 552,000 501,600
b. First-in, First-out (FIFO) method:

Conversion
Materials Costs
To complete beginning inventory:
 Materials: 0%a x 72,000 units.......................... 0 EU
 Conversion costs: 40%b x 72,000 units........... 28,800 EU
Started and completed during the period c.......... 408,000 EU 408,000 EU
Units still in ending inventory:
 Materials: 100% x 72,000 units....................... 72,000 EU
 Conversion costs: 30% x 72,000 units............ 21,600 EU
480,000 EU 458,400 EU

a 0% = 100% – 100% already done at the beginning of the period.

b 40% = 100% – 60% already done at the beginning of the period.
c 408,000 units started and completed
= 480,000 units transferred out less 72,000 units from beginning inventory.

8-23. (10 min.) Equivalent Units: Weighted-Average Process Costing.

(e). None of these answers are correct.
Answers (a) and (b) are incorrect because (a) ignores stages of completion and (b) double
counts units started that are still in ending inventory. Answer (c) is incorrect because the
ending inventory should be multiplied by the amount of work done this period, not work
necessary to complete the items. Answer (d) is incorrect because for the same reason as
answer (c): the ending inventory should be multiplied by the amount of work done this
period, not work necessary to complete the items.

©The McGraw-Hill Companies, Inc., 2017

338 Fundamentals of Cost Accounting
8-24. (30 min.) Compute Equivalent Units—Ethical Issues: Aaron Company.
a. Weighted-average method:

Conversion
Materials Costs
Units transferred out................................................ 630,000 630,000
Equivalent units in ending inventory:
 Materials: 0% x 120,000 units.............................. 0
 Conversion costs: 40% x 120,000 units............... 48,000
Total equivalent units for all work done to date....... 630,000 678,000
b. First-in, First-out (FIFO) method:

b.
a. Conversion
Materials Costs
To complete beginning inventory:
 Materials: 0%a x 150,000 units........................ 0 EU
 Conversion costs: 40%b x 150,000 units........ 60,000 EU
Started and completed during the period c.......... 480,000 EU 480,000 EU
Units still in ending inventory:
 Materials: 0% x 120,000 units......................... 0 EU
 Conversion costs: 40% x 120,000 units.......... 48,000 EU
480,000 EU 588,000 EU

a 0% = 100% – 100% already done at the beginning of the period (conversion was 60%
complete).
b 40% = 100% – 60% already done at the beginning of the period.
c 480,000 units started and completed
= 630,000 units transferred out less 150,000 units from beginning inventory.
c.
1. The change will reduce the unit cost for the units transferred to finished goods.
2. It is not ethical; there is no reason to believe the change reflects anything other than a
desire for reporting better results.
3. It is unlikely to be successful for long. An accounting system keeps track of actual
costs. If a manager postpones reporting them this period, they will be reported next
period or shortly thereafter.

©The McGraw-Hill Companies, Inc., 2017

Solutions Manual, Chapter 8 339
8-25. (10 min.) Equivalent Units and Cost of Production.
If the percentage completion is overstated, (a) the total equivalent units for the period will
be overstated, because the work-in-process ending inventory will be assumed to have
more equivalent units than it actually does. (b) The costs per equivalent unit will be
understated, as the cost is divided by equivalent units that are overstated. (c) Because the
equivalent units in ending work-in-process are overstated, the costs transferred-out will be
understated (and the ending work-in-process costs overstated).

8-26. (20 min.) Compute Cost per Equivalent Unit—Weighted-Average Method:

Moline Facility.

Physical Materials
Units Eq. Units
Flow of units:
 Units to be accounted for:
 Beginning WIP inventory................................. 54,000
 Units started this period................................... 144,000
  Total units to account for.............................. 198,000
 Units accounted for:
 Completed and transferred out
  Materials (153,000 x 100%)......................... 153,000 153,000
 Units in ending inventory:
  Materials (45,000 x 100%)........................... 45,000 45,000
   Total units accounted for.......................... 198,000 198,000

Direct Materials
Flow of costs:
Costs to be accounted for:
 Costs in beginning WIP inventory.................................. $148,500
 Current period costs...................................................... 475,200
  Total costs to be accounted for.................................. $623,700
Cost per equivalent unit
 Materials ($623,700 ÷ 198,000 units) ........................... $3.15

©The McGraw-Hill Companies, Inc., 2017

340 Fundamentals of Cost Accounting
8-27. (20 min.) Compute Cost per Equivalent Unit—FIFO method: Moline Facility.

Physical Materials Eq.

Units Units
Flow of units:
 Units to be accounted for:
 Beginning WIP inventory.......................................... 54,000
 Units started this period............................................ 144,000
  Total units to account for...................................... 198,000
 Units accounted for:
 Completed and transferred out
From beginning WIP inventory (54,000 x 100%) 54,000 0
  Started and completed currently (99,000a x 100%) 99,000 99,000
 Units in ending inventory:
  Materials (45,000 x 100%).................................... 45,000 45,000
   Total units accounted for................................... 198,000 144,000
a99,000 units started and completed = 153,000 units transferred out – 54,000 beginning
WIP units.

Direct
Materials
Flow of costs:
Costs to be accounted for:
  Total costs to be accounted for (current period costs only)........... $475,200
Cost per equivalent unit
 Materials ($475,200 ÷ 144,000 units) ............................................... $  3.30

©The McGraw-Hill Companies, Inc., 2017

Solutions Manual, Chapter 8 341
8-28. (20 min.) Compute Equivalent Units—FIFO method: Campo Company.

Physical Conversion
Units Eq. Units
Flow of units:
 Units to be accounted for:
 Beginning WIP inventory............................................... 90,000
 Units started this period................................................. 1,020,000
  Total units to account for............................................ 1,110,000
 Units accounted for:
 Completed and transferred out
From beginning WIP inventory [90,000 x (1 – 70%)] 90,000 27,000
  Started and completed currently (870,000a x 100%). 870,000 870,000
 Units in ending inventory:
  Conversion (150,000 x 40%)..................................... 150,000 60,000
   Total units accounted for........................................ 1,110,000 957,000
a 870,000 units started and completed = 960,000 units transferred out – 90,000 beginning
WIP units.

©The McGraw-Hill Companies, Inc., 2017

342 Fundamentals of Cost Accounting
8-29. (20 min.) Compute Equivalent Units and Cost per Equivalent Unit—
Weighted-Average method: Campo Company.

a. Physical
Units Equivalent Units
Materials Conversion
Eq. units Costs Eq. units
Flow of units:
 Units to be accounted for:
 Beginning WIP inventory.................................
90,000
 Units started this period...................................
1,020,000
  Total units to account for..............................
1,110,000
 Units accounted for:
 Completed and transferred out........................ 960,000 960,000 960,000
 Units in ending inventory................................. 150,000
  Materials (150,000 x 100%)......................... 150,000
  Conversion costs (150,000 x 60,000
40%)....................................................................
  Total units accounted for..............................1,110,000 1,110,000 1,020,000

b. Direct Conversion
Total Materials Costs
Flow of costs:
Costs to be accounted for:
 Costs in beginning WIP inventory.........................$ 146,300 $35,670 $110,630
 Current period costs..............................................
1,929,700 408,330 1,521,370
  Total costs to be accounted for......................... $2,076,000 $444,000 $1,632,000
Cost per equivalent unit
 Materials ($444,000 ÷ 1,110,000 units)................. $ 0.40
 Conversion costs ($1,632,000 ÷ 1,020,000
units).................................................................. $ 1.60

8-30. (10 min.) Cost Per Equivalent Unit: Weighted-Average Method.

The correct answer is (b). The weighted-average method of process costing combines the
costs of work done in the previous period and the current period.

©The McGraw-Hill Companies, Inc., 2017

Solutions Manual, Chapter 8 343
8-31. (35 min.) Compute Costs per Equivalent Unit—Weighted-Average Method:
Matsui Lubricants.

Physical
Units Equivalent Units
Materials Conversion
Eq. units Costs Eq. units
Flow of units:
 Units to be accounted for:
 Beginning WIP inventory.................................
600
 Units started this period...................................
4,000
  Total units to account for..............................
4,600
 Units accounted for:
 Completed and transferred outa......................
3,400 3,400 3,400
 Units in ending inventory.................................
1,200
  Materials (1,200 x 40%)............................... 480
  Conversion costs (1,200 x 20%).................. 240
  Total units accounted for..............................
4,600 3,880 3,640

a 3,400 units transferred out = 4,600 units to account for – 1,200 units in ending WIP
inventory.

Direct Conversion
Total Materials Costs
Flow of costs:
Costs to be accounted for:
 Costs in beginning WIP inventory.......... $ 1,248 $  976 $  272
 Current period costs............................... 18,084 11,440 6,644
  Total costs to be accounted for........... $19,332 $12,416 $6,916
Cost per equivalent unit
 Materials ($12,416 ÷ 3,880 units)........... $ 3.20
 Conversion costs ($6,916 ÷ 3,640 units) $ 1.90

©The McGraw-Hill Companies, Inc., 2017

344 Fundamentals of Cost Accounting
8-32. (20 min.)  Assign Costs to Goods Transferred Out and Ending Inventory—
Weighted-Average Method: Matsui Lubricants.

Direct Conversion
Total Materials Costs
Flow of costs:
Costs to be accounted for:
 Costs in beginning WIP inventory...................$ 1,248 $  976 $  272
 Current period costs........................................ 18,084 11,440 6,644
  Total costs to be accounted for....................$19,332 $12,416 $6,916
Cost per equivalent unit
 Materials ($12,416 ÷ 3,880 units).................... $ 3.20
 Conversion costs ($6,916 ÷ 3,640)................. $ 1.90
Costs accounted for:
 Costs assigned to units transferred out $17,340 $10,880 a $6,460 b
 Cost of ending WIP inventory.......................... 1,992 1,536 c 456 d
  Total costs accounted for.............................$19,332 $12,416 $6,916
Costs transferred out total $17,340, and costs in ending inventory total $1,992.

a $10,880 = 3,400 EU x $3.20 per EU.

b $6,460 = 3,400 EU x $1.90 per EU.
c $1,536 = 480 EU x $3.20 per EU.
d $456 = 240 EU x $1.90 per EU.

©The McGraw-Hill Companies, Inc., 2017

Solutions Manual, Chapter 8 345
8-33. (35 min.)  Compute Costs per Equivalent Unit—FIFO Method: Matsui
Lubricants.

Physical
Units Equivalent Units
Materials Conversion
Costs Eq. units
Eq. units
Flow of units:
 Units to be accounted for:
 Beginning WIP inventory....................................... 600
 Units started this period......................................... 4,000
  Total units to account for.................................... 4,600
 Units accounted for:
 Completed and transferred outa............................ 3,400
From beginning WIP inventory
Materials (600 x (1 – 60%)) 240
Conversion (600 x (1 – 53%)) 282
  Started and completed currently (2,800 x 100%) 2,800 2,800
 Units in ending inventory....................................... 1,200
  Materials (1,200 x 40%)..................................... 480
  Conversion costs (1,200 x 20%)........................ 240
  Total units accounted for.................................... 4,600 3,520 3,322
a 3,400 units transferred out
= 4,600 units to account for – 1,200 units in ending WIP inventory.

Direct Conversion
Total Materials Costs
Flow of costs:
Costs to be accounted for:
 Costs in beginning WIP inventory...................$ 1,248 $  976 $  272
 Current period costs........................................ 18,084 11,440 6,644
  Total costs to be accounted for....................$19,332 $12,416 $6,916
Cost per equivalent unit
 Materials ($11,440 ÷ 3,520 units).................... $ 3.25
 Conversion costs ($6,644 ÷ 3,322)................. $ 2.00

©The McGraw-Hill Companies, Inc., 2017

346 Fundamentals of Cost Accounting
8-34. (20 min.)  Assign Costs to Goods Transferred Out and Ending Inventory—
FIFO Method: Matsui Lubricants.

Physical
Units Equivalent Units
Materials Conversion Costs
Eq. units Eq. units
Flow of units:
 Units to be accounted for:
 Beginning WIP inventory.................................
600
 Units started this period...................................
4,000
  Total units to account for..............................
4,600
 Units accounted for:
 Completed and transferred outa......................3,400
From beginning WIP inventory
Materials (600 x (1 – 60%)) 240
Conversion (600 x (1 – 53%)) 282
  Started and completed currently
(2,800 x 100%)............................................. 2,800 2,800
 Units in ending inventory.................................
1,200
  Materials (1,200 x 40%)............................... 480
  Conversion costs (1,200 x 20%).................. 240
  Total units accounted for..............................
4,600 3,520 3,322
a 3,400 units transferred out = 4,600 units to account for – 1,200 units in ending WIP
inventory.

©The McGraw-Hill Companies, Inc., 2017

Solutions Manual, Chapter 8 347
8-34. (continued)
Direct Conversion
Total Materials Costs
Flow of costs:
Costs to be accounted for:
 Costs in beginning WIP inventory................... $ 1,248 $  976 $  272
 Current period costs........................................
18,084 11,440 6,644
  Total costs to be accounted for.................... $19,332 $12,416 $6,916
Cost per equivalent unit
 Materials ($11,440 ÷ 3,520 units).................... $ 3.25
 Conversion costs ($6,644 ÷ 3,322)................. $ 2.00

Costs accounted for:

 Costs assigned to units transferred
out:
  Costs from beginning WIP inventory........... $  1,248 $ 976 $ 272
  Current costs added to complete
beginning WIP inventory.....................................
1,344
    Materials ($3.25 x 240) ........................ 780
    Conversion costs ($2.00 x 282) ........... 564
 Current costs of units started and 14,700
completed:
   Materials ($3.25 x 2,800) ......................... 9,100
   Conversion costs ($2.00 x 2,800) ........... 5,600
Total costs transferred out..................................
$ 17,292 $10,856 $6,436
Cost of ending WIP inventory..............................2,040
   Materials ($3.25 x 480) ............................ 1,560
   Conversion costs ($2.00 x 240) .............. 480
  Total costs accounted for.............................
$19,332 $12,416 $6,916

Ending inventory is slightly higher under the FIFO method because the unit costs are
higher under FIFO.

©The McGraw-Hill Companies, Inc., 2017

348 Fundamentals of Cost Accounting
8-35. (35 min.)  Compute Costs per Equivalent Unit—Weighted-Average Method:
Pacific Ink.

Physical
Units Equivalent Units
Materials Conversion Costs
Eq. units Eq. units
Flow of units:
 Units to be accounted for:
 Beginning WIP inventory.................................
48,000
 Units started this perioda 84,000
  Total units to account for..............................
132,000
 Units accounted for:
 Completed and transferred out (given)............ 102,000 102,000 102,000
 Units in ending inventory.................................
30,000
  Materials (30,000 x 80%)............................. 24,000
  Conversion costs (30,000 x 40%)................ 12,000
  Total units accounted for..............................
132,000 126,000 114,000
a84,000 units started this period = 132,000 units to account for – 48,000 units in
beginning work-in-process inventory.

Direct Conversion
Total Materials Costs
Flow of costs:
Costs to be accounted for:
 Costs in beginning WIP inventory................... $ 744,960 $  304,920 $  440,040
 Current period costs........................................
5,371,440 2,343,600 3,027,840
  Total costs to be accounted for.................... $6,116,400 $2,648,520 $3,467,880
Cost per equivalent unit
 Materials ($2,648,520 ÷ 126,000 units)........... $ 21.02
 Conversion costs ($3,467,880 ÷ 114,000)...... $ 30.42

©The McGraw-Hill Companies, Inc., 2017

Solutions Manual, Chapter 8 349
8-36. (20 min.)  Assign Costs to Goods Transferred Out and Ending Inventory—
Weighted-Average Method: Pacific Ink.

Direct Conversion
Total Materials Costs
Flow of costs:
Costs to be accounted for:
 Costs in beginning WIP inventory................... $ 744,960 $  304,920 $  440,040
 Current period costs........................................
5,371,440 2,343,600 3,027,840
  Total costs to be accounted for.................... $6,116,400 $2,648,520 $3,467,880
Cost per equivalent unit
 Materials ($2,648,520 ÷ 126,000 units)........... $ 21.02
 Conversion costs ($3,467,880 ÷ 114,000)...... $ 30.42
Costs accounted for:
 Costs assigned to units transferred out $5,246,880 $2,144,040 a $3,102,840 b
 Cost of ending WIP inventory..........................869,520 504,480 c 365,040 d
  Total costs accounted for.............................
$6,116,400 $2,648,520 $3,467,880

Costs transferred out total $5,246,880 and costs in ending inventory total $869,520.
a $2,144,040 = 102,000 EU x $21.02 per EU.
b $3,102,840 = 102,000 EU x $30.42 per EU.
c $504,480 = 24,000 EU x $21.02 per EU.
d $365,040 = 12,000 EU x $30.42 per EU.

©The McGraw-Hill Companies, Inc., 2017

350 Fundamentals of Cost Accounting
8-37. (35 min.)  Compute Costs per Equivalent Unit—FIFO Method: Pacific Ink.

Physical
Units Equivalent Units
Materials Conversion
Eq. units Costs Eq.
units
Flow of units:
 Units to be accounted for:
 Beginning WIP inventory............................ 48,000
 Units started this perioda 84,000
  Total units to account for......................... 132,000
 Units accounted for:
 Completed and transferred out 102,000
From beginning WIP inventory
Materials (48,000 x (1 – 30%))....... 33,600
Conversion (48,000 x (1 – 30%))... 33,600
Started and completed .......................... 54,000 54,000
 Units in ending inventory............................ 30,000
  Materials (30,000 x 80%)........................ 24,000
  Conversion costs (30,000 x 40%)........... 12,000
  Total units accounted for......................... 132,000 111,600 99,600
a 84,000 units started this period = 132,000 units to account for – 48,000 units in
beginning work-in-process inventory.

Direct Conversion
Total Materials Costs
Flow of costs:
Costs to be accounted for:
 Costs in beginning WIP inventory................... $ 744,960 $  304,920 $  440,040
 Current period costs........................................
5,371,440 2,343,600 3,027,840
  Total costs to be accounted for.................... $6,116,400 $2,648,520 $3,467,880
Cost per equivalent unit
 Materials ($2,343,600 ÷ 111,600 units)........... $ 21.00
 Conversion costs ($3,027,840 ÷ 99,600)........ $ 30.40

©The McGraw-Hill Companies, Inc., 2017

Solutions Manual, Chapter 8 351
8-38. (20 min.)  Assign Costs to Goods Transferred Out and Ending Inventory—
FIFO Method: Pacific Ink.

Physical
Units Equivalent Units
Materials Conversion
Eq. units Costs Eq. units
Flow of units:
 Units to be accounted for:
 Beginning WIP inventory................................. 48,000
 Units started this perioda 84,000
  Total units to account for..............................132,000
 Units accounted for:
 Completed and transferred out 102,000
To complete beginning WIP inventory
Materials (48,000 x (1 – 30%))............ 33,600
Conversion (48,000 x (1 – 30%))........ 33,600
Started and completed ............................... 54,000 54,000
 Units in ending inventory................................. 30,000
  Materials (30,000 x 80%)............................. 24,000
  Conversion costs (30,000 x 40%)................ 12,000
  Total units accounted for..............................132,000 111,600 99,600
a84,000 units started this period = 132,000 units to account for – 48,000 units in
beginning work-in-process inventory.

©The McGraw-Hill Companies, Inc., 2017

352 Fundamentals of Cost Accounting
8-38. (continued)
Direct Conversion
Total Materials Costs
Flow of costs:
Costs to be accounted for:
 Costs in beginning WIP inventory................... $ 744,960 $  304,920 $  440,040
 Current period costs........................................
5,371,440 2,343,600 3,027,840
  Total costs to be accounted for.................... $6,116,400 $2,648,520 $3,467,880
Cost per equivalent unit
 Materials ($2,343,600 ÷ 111,600 units)........... $ 21.00
 Conversion costs ($3,027,840 ÷ 99,600)........ $ 30.40

Costs accounted for:

 Costs assigned to units transferred out:
  Costs from beginning WIP inventory........... $ 744,960 $  304,920 $ 440,040
  Current costs added to complete
beginning WIP inventory........................ 1,727,040
  Materials ($21.00 x 33,600) ........................ 705,600
  Conversion costs ($30.40 x 33,600) ........... 1,021,440
 Current costs of units started and
completed:...............................................
2,775,600
  Materials ($21.00 x 54,000) ........................ 1,134,000
  Conversion costs ($30.40 x 54,000) ........... 1,641,600
Total costs transferred out..................................
$ 5,247,600 $2,144,520 $3,103,080
Cost of ending WIP inventory..............................868,800
  Materials ($21.00 x 24,000) ........................ 504,000
  Conversion costs ($30.40 x 12,000) ........... 364,800
 Total costs accounted for................................ $6,116,400 $2,648,520 $3,467,880

Ending inventory is slightly lower under the FIFO method because the unit costs are lower
under FIFO. This means that current costs are slightly lower than last period’s costs.
Because ending WIP inventory is carried at current costs under FIFO, the ending WIP
costs are lower under FIFO.

©The McGraw-Hill Companies, Inc., 2017

Solutions Manual, Chapter 8 353
8-39. (50 min.) Prepare a Production Cost Report—FIFO method: Lansing, Inc.

Physical Units Equivalent Units

Prior Department
Department No. T
Flow of units:
 Units to be accounted for:
 Beginning WIP inventory................................. 15,000
 Units started this period................................... 35,000
  Total units to account for.............................. 50,000
 Units accounted for:
 Completed and transferred out
  From beginning WIP inventory.................... 15,000
   Prior department....................................... 0
   Dept. T [15,000 units x (1–60%)]............. 6,000
a
  Started and completed currently.................. 30,000 30,000 30,000
Units in ending WIP inventory............................. 5,000
  Prior department.......................................... 5,000
  Department T (5,000 units x 20%)............... 1,000
   Total units accounted for.......................... 50,000 35,000 37,000

a 30,000 = 35,000 units started – 5,000 units in ending WIP inventory.

©The McGraw-Hill Companies, Inc., 2017

354 Fundamentals of Cost Accounting
8-39. (continued)
Prior Department
Total Department No. T
Flow of costs:
Costs to be accounted for:
 Costs in beginning WIP inventory................... $169,150 $116,000 $ 53,150
 Current period costs........................................ 489,050 280,000 209,050
  Total costs to be accounted for.................... $658,200 $396,000 $262,200
Cost per equivalent unit
 Prior department ($280,000 ÷ 35,000 units) ... $  8.00
 Department. T ($209,050 ÷ 37,000 units) ...... $  5.65

Costs accounted for:

 Costs assigned to units transferred out:
  Costs from beginning WIP inventory........... $169,150 $116,000 $53,150
  Current costs added to complete
beginning WIP inventory..................................... 33,900
   Prior department....................................... 0
   Department T ($5.65 x 6,000 units) ........ 33,900
 Current costs of units started and 409,500
completed: ..........................................................
   Prior department ($8.00 x 30,000)........... 240,000
   Department T ($5.65 x 30,000) .............. 169,500
Total costs transferred out.................................. $612,550 $356,000 $256,550
Cost of ending WIP inventory.............................. 45,650
   Prior department ($8.00 x 5,000) ............ 40,000
   Department T ($5.65 x 1,000) ................. 5,650
  Total costs accounted for............................. $658,200 $396,000 $262,200

©The McGraw-Hill Companies, Inc., 2017

Solutions Manual, Chapter 8 355
8-40. (50 min.) Prepare a Production Cost Report—Weighted-Average Method:
Lansing Inc.

a. Physical
Units Equivalent Units
Prior Department
Department No. T
Flow of units:
 Units to be accounted for:
 Beginning WIP inventory................................. 15,000
 Units started this period................................... 35,000
  Total units to account for.............................. 50,000
 Units accounted for:
 Completed and transferred out........................ 45,000 45,000 45,000
 Units in ending inventory................................. 5,000
  Prior department (5,000 units x 100%)........ 5,000
  Department No. T (5,000 units x 20%)........ 1,000
   Total units accounted for.......................... 50,000 50,000 46,000

Total Prior Department

Department No. T
Flow of costs:
Costs to be accounted for:
 Costs in beginning WIP inventory...................$169,150 $116,000 $ 53,150
 Current period costs........................................ 489,050 280,000 209,050
  Total costs to be accounted for....................$658,200 $396,000 $262,200
Cost per equivalent unit
 Prior department ($396,000 ÷ 50,000 units).... $  7.92
 Department No. T ($262,200 ÷ 46,000).......... $  5.70
Costs accounted for:
 Costs assigned to units transferred out...........$612,900 $356,400 $256,500
 Costs of ending WIP inventory........................ 45,300 39,600 5,700
  Total costs accounted for.............................$658,200 $396,000 $262,200
b. The ending inventory is lower under the weighted-average method than under the
FIFO method. Under weighted-average, the ending inventory is $45,300. This is $350
less than FIFO, which is $45,650. The difference is due to the differences in costs per
equivalent unit between FIFO and weighted-average.

©The McGraw-Hill Companies, Inc., 2017

356 Fundamentals of Cost Accounting
8-40. (continued)
c. The decision depends on the decisions that will be made using the data. If the most
current cost information is desired, FIFO might be the better method. If there are
random fluctuations that the company wants to smooth, weighted average might be
best. In this case, the difference is so small it is unlikely to make a difference.
However, if prices fluctuate more, the differences might become more significant.

8-41. (50 min.) Prepare a Production Cost Report—Weighted-Average Method:

Yarmouth Company.

Physical
Units Equivalent Units
Mixing Finishing
Department Department
Flow of units:
 Units to be accounted for:
 Beginning WIP inventory................................. 30,000
 Units started this period...................................294,000
  Total units to account for..............................324,000
 Units accounted for:
 Completed and transferred out........................282,000 282,000 282,000
 Units in ending inventory................................. 42,000
  Mixing (42,000 units x 100%)....................... 42,000
  Finishing (42,000 units x 60%).................... 25,200
   Total units accounted for..........................324,000 324,000 307,200

Total Direct Conversion

Materials Costs
Flow of costs:
Costs to be accounted for:
 Costs in beginning WIP inventory................... $723,636 $657,600 $ 66,036
 Current period costs........................................7,565,964 5,174,400 2,391,564
  Total costs to be accounted for.................... $8,289,600 $5,832,000 $2,457,600
Cost per equivalent unit
 Mixing ($5,832,000 ÷ 324,000 units)............... $  18.00
 Finishing ($2,457,600 ÷ 307,200).................... $  8.00
Costs accounted for:
 Costs assigned to units transferred out........... $7,332,000 $5,076,000 $2,256,000
 Costs of ending WIP inventory........................ 957,600 756,000 201,600
  Total costs accounted for.............................
$8,289,600 $5,832,000 $2,457,600

©The McGraw-Hill Companies, Inc., 2017

Solutions Manual, Chapter 8 357
8-42. (50 min.) Production Cost Report—FIFO method: Yarmouth Company.

a.
Physical Units Equivalent Units
Mixing Finishing
Department Department
Flow of units:
 Units to be accounted for:
 Beginning WIP inventory................................. 30,000
 Units started this period................................... 294,000
  Total units to account for.............................. 324,000
 Units accounted for:
 Completed and transferred out
  From beginning WIP inventory.................... 30,000
   Mixing....................................................... 0
   Finishing [30,000 units x (1–30%)]........... 21,000
a
  Started and completed currently.................. 252,000 252,000 252,000
Units in ending WIP inventory............................. 42,000
  Mixing........................................................... 42,000
  Finishing (42,000 units x 60%).................... 25,200
   Total units accounted for.......................... 324,000 294,000 298,200
a 252,000 = 294,000 units started – 42,000 units in ending WIP inventory.

©The McGraw-Hill Companies, Inc., 2017

358 Fundamentals of Cost Accounting
8-42. (continued)
Mixing Finishing
Total Department Department
Flow of costs:
Costs to be accounted for:
 Costs in beginning WIP inventory................... $723,636 $657,600 $ 66,036
 Current period costs........................................ 7,565,964 5,174,400 2,391,564
  Total costs to be accounted for.................... $8,289,600 $5,832,000 $2,457,600
Cost per equivalent unit
 Mixing ($5,174,400 ÷ 294,000 units) .............. $  17.60
 Finishing ($2,391,564 ÷ 298,200 units) .......... $  8.02

Costs accounted for:

 Costs assigned to units transferred out:
  Costs from beginning WIP inventory........... $723,636 $657,600 $ 66,036
  Current costs added to complete beginning
WIP inventory...................................................... 168,420
   Mixing....................................................... 0
   Finishing ($8.02 x 21,000 units) .............. 168,420
 Current costs of units started and completed: 6,456,240
   Mixing ($17.60 x 252,000)........................ 4,435,200
   Finishing ($8.02 x 252,000) .................... 2,021,040
Total costs transferred out.................................. $7,348,296 $5,092,800 $2,255,496
Cost of ending WIP inventory.............................. 941,304
   Prior department ($17.60 x 42,000) ........ 739,200
   Department B ($8.02 x 25,200) ............... 202,104
  Total costs accounted for............................. $8,289,600 $5,832,000 2,457,600

b. The ending inventory is higher under the weighted-average method than under the
FIFO method. Under weighted-average, the ending inventory is $957,600. This is
$16,296 more than FIFO, which is $941,304. The difference is due to the
differences in costs per equivalent unit between FIFO and weighted-average.

©The McGraw-Hill Companies, Inc., 2017

Solutions Manual, Chapter 8 359
8-42. (continued)

[Link] decision depends on the decisions that will be made using the data. If the
most current cost information is desired, FIFO might be the better method. If there
are random fluctuations that the company wants to smooth, weighted average
might be best.

8-43. (10 min.) Cost Per Equivalent Unit: Weighted-Average Method.

The correct answer is (b). The difference between the weighted-average and FIFO
methods of process costing is how they handle beginning WIP. When there is no
beginning WIP there is no difference between the two costing methods.
Answer (a) is incorrect because both methods assume units are homogeneous. Answer
(c) is incorrect because amounts in beginning inventory will differ between FIFO and
weighted-average. If there are no ending inventories, then the cost of goods manufactured
is the sum of the current costs, which will be the same under both methods, and the costs
in beginning work in process, which can differ. Answer (d) is incorrect because the cost
per equivalent unit can differ and so the costs assigned to the equivalent units in ending
inventory can differ.

©The McGraw-Hill Companies, Inc., 2017

360 Fundamentals of Cost Accounting
8-44. (50 min.) Operations Costing―Ethical Issues: Brokia Electronics.
a.

Basic Photo UrLife

(40,000 (30,000 (10,000
Total units) units) units)
Materials....................... $2,240,000 $480,000 $1,200,000 $560,000

Conversion
Assemblya............... $ 2,100,000 1,050,000 787,500 262,500
Special Packaging... 600,000 –0– –0– 600,000
Total conversion... $ 2,700,000 $1,050,000 $787,500 $862,500
Total Product Cost $4,940,000 $1,530,000 $1,987,500 $1,422,500
Number of Units 40,000 30,000 10,000
Cost per unit $38.25 $66.25 $142.25
a Unit cost is $26.25 (= $2,100,000 ÷ 80,000 units)
b.

(1)

Basic Photo UrLife

(40,000 (30,000 (10,000
Total units) units) units)
Materials $2,240,000 $480,000 $1,200,000 $560,000

Conversion
Assemblya $ 2,100,000 450,000 1,125,000 525,000
Special Packaging 600,000 –0– –0– 600,000
Total conversion cost $ 2,700,000 $450,000 $1,125,000 $1,125,000
Total Product Cost $4,940,000 $930,000 $2,325,000 $1,685,000
Number of Units 40,000 30,000 10,000
Cost per unit $23.25 $77.50 $168.50

a Unit cost is 93.75% of material dollars (= $2,100,000 ÷ $2,240,000 material

dollars)

(2) If there is a reason that conversion costs are related to material dollars (for example,
because of the difficulty of working with different materials), this change might be
justified. If it is done simply to shift cost to the cost-plus customer, this is not ethical.

©The McGraw-Hill Companies, Inc., 2017

Solutions Manual, Chapter 8 361
8-45. (50 min.) Operation Costing: Ferdon Watches.
a.

©The McGraw-Hill Companies, Inc., 2017

362 Fundamentals of Cost Accounting
8-45. (continued)
b.
Gag-Gift Commuter Sport Retirement
(5,000 (10,000 (13,000 (2,000
Total units) units) units) units)
Materials..................... $ 321,000 $15,000 $90,000 $156,000 $60,000

Conversion
Assemblya............... $120,000 $20,000 $40,000 $52,000 $ 8,000
Polishingb................ 69,000 –0– 30,000 39,000 –0–
Special Finishingc.... 20,000 –0– –0– –0– 20,000
Packagingd.............. 90,000 15,000 30,000 39,000 6,000
Total conversion. . . $299,000 $35,000 $100,000 $130,000 $ 34,000
Total Product Cost...... $620,000 $50,000 $190,000 $286,000 $94,000
Number of Units.......... 5,000 10,000 13,000 2,000
Cost per unit................ $10.00 $19.00 $22.00 $47.00

a Unit cost is $4.00 (= $120,000 ÷ 30,000 units).

b Unit cost is $3.00 (= $69,000 ÷ 23,000 units).
c Unit cost is $10.00 (= $20,000 ÷ 2,000 units).
d Unit cost is $3.00 (= $90,000 ÷ 30,000 units).

©The McGraw-Hill Companies, Inc., 2017

Solutions Manual, Chapter 8 363
Solutions to Problems

8-46. (45 min.) Compute Equivalent Units: Multiple Choice.

a. The answer is (4).
Conversion
Materials Costs
Units transferred out............................................
790,000 a 790,000 a
EU in ending inventory:
 Materials 100% x 80,000 units........................ 80,000 EU
 Conversion costs 30% x 80,000 24,000 EU
units.....................................................................
EU produced this period...................................... 870,000 EU 814,000 EU

aUnits transferred out = units started + beg. inventory – ending inventory

= 720,000 + 150,000 – 80,000
= 790,000
b. The answer is (3).
Prior Conversion
Department Materials Costs
Costs
Units transferred out............................................
330,000 a 330,000 a 330,000 a
EU in ending inventory:
 Prior department costs.................................... 40,000 EU
 Materialsb......................................................... –0– EU
 Conversion costs 65% x 40,000 26,000 EU
units.....................................................................
EU produced this period......................................370,000 EU 330,000 EU 356,000 EU
a320,000 started + 50,000 in beg. inv. – 40,000 in ending inv. = 330,000 transferred out.
bMaterials are added at the end of the process.

c. The answer is (4).

EU to complete beginning inventory 70%a x 20,000 14,000 EU
units.....................................................................
Started and completedb...................................... 300,000 EU
EU in ending inventory 70% x 40,000 units........ 28,000 EU
EU done this period............................................. 342,000 EU
a70% = 100% – 30% already done at the beginning of the period.
b 300,000 units = 320,000 transferred out – 20,000 from beginning inventory.

©The McGraw-Hill Companies, Inc., 2017

364 Fundamentals of Cost Accounting
8-46. (continued)

d. The answer is (1).

Conversion
Materials Costs
To complete beginning inventory:
 Materials: 0%a x 40,000 units.......................... 0
 Conversion costs: 30%b x 40,000 units........... 12,000 EU
Started and completed during the period............140,000 c EU 140,000 EU
Units still in ending inventory:
 Materials: 100% x 32,000 units....................... 32,000 EU
 Conversion costs: 50% x 32,000 units............ 16,000 EU
Work done in current period................................172,000 EU 168,000 EU
a 0% = 100% – 100% already done at the beginning of the period.
b 30% = 100% – 70% already done at the beginning of the period.
c 140,000 = 180,000 transferred out – 40,000 from beginning inventory.

©The McGraw-Hill Companies, Inc., 2017

Solutions Manual, Chapter 8 365
8-47. (30 min) FIFO Method: Glasgow Corporation.
a. Equivalent Units
Physical Conversion
Units Costs
Flow of units
 Units to be accounted for:
 Beginning WIP inventory.................................
20,000
 Units started this period...................................
108,000
   Total units to account for..........................
128,000
 Units accounted for:
 Completed and transferred out
  From beginning WIP inventory.................... 20,000
   (20,000 x 20%)......................................... 4,000
  Started and completed currently.................. 60,000 60,000
 Units in ending WIP inventory.........................
48,000
   (48,000 x 50%)......................................... 24,000
    Total units accounted for......................128,000 88,000

Conversion Costs
Flow of costs:
Costs to be accounted for:
 Costs in beginning WIP inventory.............................. $ 232,200
 Current period costs.................................................. 1,306,800
  Total costs to be accounted for.............................. $1,539,000

Cost per equivalent unit ($1,306,800 ÷ 88,000) ........... $  14.85

Costs accounted for:
 Costs assigned to units transferred out:
  Costs from beginning WIP inventory..................... $ 232,200
  Current costs added to complete
   beginning WIP inventory:
   Conversion costs ($14.85 x 4,000) ................... 59,400
 Current costs of units started and completed:
  Conversion costs ($14.85 x 60,000) ..................... 891,000
 Total costs transferred out......................................... $1,182,600
Cost of ending WIP inventory:
   Conversion costs ($14.85 x 24,000) ................. 356,400 (Answer)
  Total costs accounted for....................................... $1,539,000

©The McGraw-Hill Companies, Inc., 2017

366 Fundamentals of Cost Accounting
8-47. (continued)
b.

Cost per unit for the previous period is $14.5125 (= $232,200 ÷ 16,000 equiv. units)
[16,000 equiv units = (20,000 equiv units in beginning inventory x 80%)]
Cost per unit for the current period is $14.85 as calculated in (a) above.

©The McGraw-Hill Companies, Inc., 2017

Solutions Manual, Chapter 8 367
8-48. (50 min.) Prepare a Production Cost Report—Weighted Average Method: Kansas Supplies.

a.
Kansas Supplies
Assembling Department
Production Cost Report—Weighted-Average
Flow of Production Units
(Section 1)
Physical
units
Units to be accounted for:
 Beginning WIP inventory.................................
75,000
 Units started this period...................................
375,000
Total units to be accounted for............................
450,000
(Section 2)
COMPUTE EQUIVALENT UNITS
Prior Manufacturing
department Materials Labor overhead
costs
Units accounted for:
 Units completed and transferred out:
  From beginning inventory............................ 75,000
  Started and completed currently.................. 225,000
  Total transferred out.....................................
300,000 300,000 300,000 300,000 300,000
 Units in ending WIP inventory.........................
150,000 150,000 135,000 (90%) 105,000 (70%) 52,500 (35%)
Total units accounted for.....................................
450,000 450,000 435,000 405,000 352,500

©The McGraw-Hill Companies, Inc., 2017

368 Fundamentals of Cost Accounting
8-48. (continued)
Prior Manufacturing
Total costs department Materials Labor overhead
costs
Costs to be accounted for: (Section 3)
 Costs in beginning WIP inventory................... $ 382,800 $192,000 $120,000 $ 43,200 $27,600
 Current period costs........................................ 1,865,400 960,000 576,000 216,000 113,400
Total costs to be accounted for........................... $2,248,200 $1,152,000 $696,000 $259,200 $141,000
Cost per equivalent unit: (Section 4)
 Prior department costs ($1,152,000  450,000) $2.56
 Materials ($696,000  435,000)....................... $1.60
 Labor ($259,200  405,000)............................ $0.64
 Manufacturing overhead ($141,000  352,500) $0.40
Costs accounted for: (Section 5)
 Costs assigned to units transferred out:
  Prior department costs ($2.56 x 300,000). . . $768,000 $768,000
  Materials ($1.60 x 300,000)......................... 480,000 $ 480,000
  Labor ($0.64 x 300,000)............................... 192,000 $192,000
  Manufacturing overhead ($0.40 x 300,000). 120,000 $120,000
 Total costs of units transferred out.................. $1,560,000
Costs assigned to ending WIP inventory:
  Prior department costs ($2.56 x 150,000). . . $384,000 384,000
  Materials ($1.60 x 135,000)......................... 216,000 216,000
  Labor ($0.64 x 105,000)............................... 67,200 67,200
  Manufacturing overhead ($0.40 x 52,500)... 21,000 21,000
 Total ending WIP inventory............................. $688,200
Total costs accounted for.................................... $2,248,200 $1,152,000 $696,000 $259,200 $141,000

©The McGraw-Hill Companies, Inc., 2017

Solutions Manual, Chapter 8 369
8-48. (continued)

b. The report to management should include the following items:

Materials: The $1.60 per unit goal set by management is currently being achieved by the Assembling Dept.
Labor: Equivalent unit labor costs per unit ($0.64) is below management’s goal of $0.80.
Manufacturing overhead: overhead costs per unit ($0.40) is slightly higher than management’s goal of $0.36.

8-49. (50 min.) Prepare a Production Cost Report—FIFO Method: Kansas Supplies.

a.
Kansas Supplies
Assembling Department
Production Cost Report—FIFO
Flow of Production Units (Section 2)
(Section 1) COMPUTE EQUIVALENT UNITS
Prior
Physical department Manufacturing
units costs Materials Labor overhead
Units to be accounted for:
 Beginning WIP inventory.................................
75,000
 Units started this period...................................
375,000
Total units to be accounted for............................
450,000
Units accounted for:
 Units completed and transferred out:
  From beginning inventory............................ 75,000 –0– –0– 30,000 (40%) a 37,500 (50%) b
  Started and completed currently.................. 225,000 225,000 225,000 225,000 225,000
 Units in ending WIP inventory.........................
150,000 150,000 135,000 (90%) 105,000 (70%) 52,500 (35%)
Total units accounted for.....................................
450,000 375,000 360,000 360,000 315,000

©The McGraw-Hill Companies, Inc., 2017

370 Fundamentals of Cost Accounting
a40% = 100% – 60% already done at the beginning of the period.
b50% = 100% – 50% already done at the beginning of the period.

©The McGraw-Hill Companies, Inc., 2017

Solutions Manual, Chapter 8 371
8-49. (continued)

Costs DETAILS
Prior
Total Costs department Manufacturing
costs Materials Labor overhead
Costs to be accounted for: (Section 3)
 Costs in beginning WIP inventory................... $ 382,800 $192,000 $120,000 $ 43,200 $27,600
 Current period costs........................................ 1,865,400 960,000 576,000 216,000 113,400
Total costs to be accounted for........................... $2,248,200 $1,152,000 $696,000 $259,200 $141,000
Cost per equivalent unit: (Section 4)
 Prior department costs ($960,000  375,000) $2.56
 Materials ($576,000  360,000).................... $1.60
 Labor ($216,000  360,000)............................ $0.60
 Manufacturing overhead ($113,400  315,000) $0.36

©The McGraw-Hill Companies, Inc., 2017

372 Fundamentals of Cost Accounting
8-49. (continued)
Details
Prior Manufacturing
Total Costs department Materials Labor overhead
costs
Costs accounted for: (Section 5)
 Costs assigned to units transferred out:
  Costs from beginning WIP inventory........... $ 382,800 $192,000 $120,000 $ 43,200 $27,600
  Current costs added to complete beginning WIP inventory:
   Prior department costs............................. –0– –0–
   Materials................................................... –0– –0–
   Labor ($0.60 x 30,000)............................. 18,000 18,000
   Manufacturing overhead ($0.36 x 37,500) 13,500 13,500
  Total costs from beginning inventory........... $414,300
Current costs of units started and completed:
  Prior department costs ($2.56 x 225,000). . . 576,000 576,000
  Materials ($1.60 x 225,000)......................... 360,000 360,000
  Labor ($0.60 x 225,000)............................... 135,000 135,000
  Manufacturing overhead ($0.36 x 225,000). 81,000 81,000
 Total costs of units started and completed...... $1,152,000
Total costs of units transferred out...................... $1,566,300
Costs assigned to ending WIP inventory:
 Prior department costs ($2.56 x 150,000)....... $384,000 384,000
 Materials ($1.60 x 135,000)............................. 216,000 216,000
 Labor ($0.60 x 105,000).................................. 63,000 63,000
 Manufacturing overhead ($0.36 x 52,500)...... 18,900 18,900
Total ending WIP inventory................................. $681,900
Total costs accounted for.................................... $2,248,200 $1,152,000 $696,000 $259,200 $141,000

©The McGraw-Hill Companies, Inc., 2017

Solutions Manual, Chapter 8 373
8-49. (continued)
b. The report to management should include the following items:
Materials: The equivalent unit materials cost per unit ($1.60) is the same as management’s goal of $1.60.
Labor: Equivalent unit labor costs per unit ($0.60) is below management’s goal of $0.80.
Manufacturing overhead: Overhead costs per unit ($0.36) is equal to management’s goal of $0.36.

©The McGraw-Hill Companies, Inc., 2017

374 Fundamentals of Cost Accounting
8-50. (60 min.) Prepare a Production Cost Report and Adjust Inventory Balances—Weighted-Average Method:
Fremont Corporation.
a.
Fremont Corporation
Production Cost Report—Weighted-Average
Flow of Production Units
(Section 1)
Physical units
Units to be accounted for:
 Beginning WIP inventory................................. 80,000
 Units started this period................................... 400,000
Total units to be accounted for............................ 480,000
(Section 2)
COMPUTE EQUIVALENT UNITS
Materials Labor Overhead
Units accounted for:
 Units completed and transferred out:
  From beginning inventory............................ 80,000
  Started and completed currently.................. 280,000
  Total transferred out..................................... 360,000 360,000 360,000 360,000
 Units in ending WIP inventory......................... 120,000 120,000 48,000 (40%) 48,000 (40%)
Total units accounted for..................................... 480,000 480,000 408,000 408,000

©The McGraw-Hill Companies, Inc., 2017

Solutions Manual, Chapter 8 375
8-50. (continued)

Costs Details
Total costs Materials Labor Overhead
Costs to be accounted for: (Section 3)
 Costs in beginning WIP inventory................... $  1,222,800 $  240,000 $  546,000 $  436,800
 Current period costs........................................ 5,534,400 1,560,000 2,208,000 1,766,400
Total costs to be accounted for........................... $6,757,200 $1,800,000 $2,754,000 $2,203,200
Cost per equivalent unit: (Section 4)
 Materials ($1,800,000  480,000)................. $3.75
 Labor ($2,754,000  408,000)....................... $6.75
 Overhead ($2,203,200  408,000)................ $5.40
Costs accounted for: (Section 5)
 Costs assigned to units transferred out:
  Materials ($3.75 x 360,000)......................... $1,350,000 $1,350,000
  Labor ($6.75 x 360,000)............................... 2,430,000 $2,430,000
  Overhead ($5.40 x 360,000)........................ 1,944,000 $1,944,000
 Total costs of units transferred out.................. 5,724,000
Costs assigned to ending WIP inventory:
  Materials ($3.75 x 120,000)......................... 450,000 450,000
  Labor ($6.75 x 48,000)................................. 324,000 324,000
  Overhead ($5.40 x 48,000).......................... 259,200 259,200
 Total ending WIP inventory............................. 1,033,200
Total costs accounted for.................................... $6,757,200 $1,800,000 $2,754,000 $2,203,200

©The McGraw-Hill Companies, Inc., 2017

376 Fundamentals of Cost Accounting
8-50. (continued)

b. Adjustment required:
Work in Finished
Process Goods
Per problem statement........................................
$793,152 $337,560
Correct.................................................................
1,033,200 318,000 a
Difference............................................................
$(240,048) $ 19,560
Journal entry:

 Work in Process...............................................
240,048
  Finished Goods............................................19,560
  Cost of Goods Sold...................................... 220,488
Additional computations:
a20,000 units of finished goods inventory ($3.75 + 6.75 + 5.40) = $318,000

c. Income would have been understated.

Work in process would have been understated.
Finished goods would have been overstated.

©The McGraw-Hill Companies, Inc., 2017

Solutions Manual, Chapter 8 377
8-51. (40 min.) Prepare a Production Cost Report and Show Cost Flows Through
Accounts—FIFO Method: Recyclers, Inc.
Recyclers, Inc.
Production Cost Report—FIFO
a.
Flow of Production Units (Section 2)
Compute Equivalent
Units
(Section 1) Conversion
Physical units costs
Units to be accounted for:
 Beginning WIP inventory................................. 300
 Units started this period................................... 2,700
Total units to be accounted for............................ 3,000
Units accounted for:
 Units completed and transferred out:
  From beginning inventory............................ 300 120 (40%)a
  Started and completed currently.................. 2,550 2,550
 Units in ending WIP inventory......................... 150 30 (20%)
Total units accounted for..................................... 3,000 2,700
a40% = 100% – 60% already done at the beginning of the period.

©The McGraw-Hill Companies, Inc., 2017

378 Fundamentals of Cost Accounting
8-51. (continued)
Costs Total costs Conversion
costs
Costs to be accounted for: (Section 3)
 Costs in beginning WIP inventory....................... $   576 $   576
 Current period costs............................................ 10,800 10,800
Total costs to be accounted for.............................. $11,376 $11,376
Cost per equivalent unit: (Section 4)
 Conversion costs ($10,800  2,700)................... $4.00
Costs accounted for: (Section 5)
 Costs assigned to units transferred out:
  Costs from beginning inventory....................... $   576 $   576
  Current costs added to complete beginning
WIP inventory:
   Conversion costs ($4.00 x 120)................... 480 480
 Total costs from beginning inventory.................. $1,056
 Current costs of units started and completed:
  Conversion costs ($4.00 x 2,550)................... 10,200 10,200
 Total costs of units started and completed......... $10,200
 Total costs of units transferred out..................... $11,256
 Costs assigned to ending WIP inventory:
  Conversion costs ($4.00 x 30)........................ 120 120
 Total ending WIP inventory................................. $   120
Total costs accounted for....................................... $11,376 $11,376

b. Work in Process
Beginning inventory:
 Conversion costs 576  
This period's costs:
 Conversion costs 10,800 11,256a To Finished Goods Inventory
Ending inventory 120
All costs have been accounted for.

Various Payables Finished Goods Inventory

10,800 11,256
a$11,256 = $1,056 + $10,200

c. The company’s target has not been achieved. Production costs total $4.00 per unit,
less than management’s target of $3.95.

©The McGraw-Hill Companies, Inc., 2017

Solutions Manual, Chapter 8 379
8-52. (40 min.) Prepare a Production Cost Report and Show Cost Flows Through
Accounts—Weighted-Average Method: Recyclers, Inc.
Recyclers, Inc.
Production Cost Report—Weighted Average
a.
Flow of Production Units (Section 2)
Compute Equivalent
Units
(Section 1) Conversion
Physical units costs
Units to be accounted for:
 Beginning WIP inventory................................. 300
 Units started this period................................... 2,700
Total units to be accounted for............................ 3,000
Units accounted for:
a
 Units completed and transferred out: 2,850 2,850
 Units in ending WIP inventory......................... 150 30 (20%)
Total units accounted for..................................... 3,000 2,880
a2,850= 300 beginning work in process + 2,700 units started – 150 ending work in
process.

©The McGraw-Hill Companies, Inc., 2017

380 Fundamentals of Cost Accounting
8-52. (continued)
Costs Total costs Conversion
costs
Costs to be accounted for: (Section 3)
 Costs in beginning WIP inventory....................... $   576 $   576
 Current period costs............................................ 10,800 10,800
Total costs to be accounted for.............................. $11,376 $11,376
Cost per equivalent unit: (Section 4)
 Conversion costs ($11,376  2,880)................... $3.95
Costs accounted for: (Section 5)
 Costs assigned to units transferred out:
  Conversion costs ($3.95 x 2,850)................... $11,257.50 $11,257.50
 Costs assigned to ending WIP inventory:
  Conversion costs ($3.95 x 30)........................ 118.50 118.50
Total costs accounted for....................................... $11,376 $11,376

b. Work in Process
Beginning inventory:
 Conversion costs 576.00  
This period's costs:
 Conversion costs 10,800.00 11,257.50 To Finished Goods Inventory
Ending inventory 118.50
All costs have been accounted for.

Various Payables Finished Goods Inventory

10,800 11,257.50

c. The company’s target has just been achieved. Production costs total $3.95 per unit,
which is just equal to management’s target of $3.95.

©The McGraw-Hill Companies, Inc., 2017

Solutions Manual, Chapter 8 381
8-53. (60 min.) FIFO Process Costing: Pantanal, Inc.

Pantanal, Inc.
Assembling Department
Production Cost Report—FIFO
Flow of Production Units (Section 2)
(Section 1) COMPUTE EQUIVALENT UNITS
Prior
Physical units department
costs Materials Conversion
Units to be accounted for:
 Beginning WIP inventory................................. 12,500
 Units started this period...................................127,500
Total units to be accounted for............................140,000
Units accounted for:
 Units completed and transferred out:
  From beginning inventory............................ 12,500 –0– 5,000 (40)% a 7,500 (60%) b
  Started and completed currently..................107,500 107,500 107,500 107,500
 Units in ending WIP inventory......................... 20,000 20,000 18,000 (90%) 10,000 (50%)
Total units accounted for.....................................140,000 127,500 130,500 125,000

a40% = 100% – 60% already done at the beginning of the period.

b60% = 100% – 40% already done at the beginning of the period.

©The McGraw-Hill Companies, Inc., 2017

382 Fundamentals of Cost Accounting
8-53. (continued)

Costs DETAILS
Prior
department
Total Costs costs Materials Conversion
Costs to be accounted for: (Section 3)
 Costs in beginning WIP inventory................... $323,400 $ 98,000 $ 164,400 $ 61,000
 Current period costs........................................ 3,306,600 2,142,000 939,600 225,000
Total costs to be accounted for........................... $3,630,000 $2,240,000 $1,104,000 $286,000
Cost per equivalent unit: (Section 4)
 Prior department costs ($2,142,000  127,500) $16.80
 Materials ($939,600  130,500)....................... $7.20
 Conversion ($225,000  125,000)................... $1.80

©The McGraw-Hill Companies, Inc., 2017

Solutions Manual, Chapter 8 383
8-53. (continued)

Details

Prior
department
Total Costs costs Materials Conversion
Costs accounted for: (Section 5)
 Costs assigned to units transferred out:
  Costs from beginning WIP inventory................................... $ 323,400 $ 98,000 $ 164,400 $ 61,000
  Current costs added to complete beginning WIP inventory:
   Prior department costs..................................................... –0– –0–
   Materials ($7.20 x 5,000)................................................ 36,000 36,000
   Conversion ($1.80 x 7,500)............................................. 13,500 13,500
  Total costs from beginning inventory................................... $ 372,900
Current costs of units started and completed:
  Prior department costs ($16.80 x 107,500)......................... $1,806,000 1,806,000
  Materials ($7.20 x 107,500)................................................. 774,000 774,000
  Conversion ($1.80 x 107,500)............................................. 193,500 193,500
 Total costs of units started and completed............................. $2,773,500
Total costs of units transferred out............................................. $3,146,400
Costs assigned to ending WIP inventory:
 Prior department costs ($16.80 x 20,000)............................... $ 336,000 336,000
 Materials ($7.20 x 18,000)...................................................... 129,600 129,600
 Conversion ($1.80 x 10,000)................................................... 18,000 18,000
Total ending WIP inventory......................................................... $ 483,600
Total costs accounted for............................................................ $3,630,000 $2,240,000 $1,104,000 $286,000

©The McGraw-Hill Companies, Inc., 2017

384 Fundamentals of Cost Accounting
8-54. (50 min.) Prepare a Production Cost Report—Weighted-Average Method:
Saline Solutions.

a. 60 percent complete. The key to this problem is to set up the production cost report to
the extent you can and then fill in the missing information.
Physical
Units Equivalent Units
Materials Conversion
Flow of units:
 Units to be accounted for:
 Beginning WIP inventory................................. 50,000
 Units started this period...................................490,000
  Total units to account for..............................540,000
 Units accounted for:
 Completed and transferred out........................470,000 470,000 470,000
 Units in ending inventory................................. 70,000
  Mixing (70,000 units x 100%)....................... 70,000
  Finishing (70,000 units x ??% [i])................. 42,000 h
   Total units accounted for..........................540,000 540,000 b 512,000

Total Direct Conversion

Materials Costs
Flow of costs:
Costs to be accounted for:
 Costs in beginning WIP inventory................... $482,424 $438,400 d $ 44,024 e
 Current period costs........................................5,043,976 3,449,600 1,594,376
  Total costs to be accounted for.................... $5,526,400 $3,888,000 c $1,638,400 f
Cost per equivalent unit
 Materials ($3,888,000 ÷ 540,000 units)........... $  7.20 a
 Conversion ($1,638,400 ÷ 512,000 [g])........... $  3.20 a
Costs accounted for:
 Costs assigned to units transferred out........... $4,888,000 $3,384,000 $1,504,000
 Costs of ending WIP inventory........................ 638,400 504,000 134,400
  Total costs accounted for.............................
$5,526,400 $3,888,000 $1,638,400

©The McGraw-Hill Companies, Inc., 2017

Solutions Manual, Chapter 8 385
8-54. (continued)

Notes:
a. Given.
b. Because the units are fully complete with respect to materials, the equivalent
units are equal to the physical units.
c. $3,888,000 = 540,000 EU x $7.20.
d. $438,400 = $3,888,000 – $3,449,600.
e. $44,024 = $482,424 (given) – $438,400.
f. $1,638,400 = $ 44,024 + $1,594,376.
g. 512,000 EU = $1,638,400  $3.20
h. 42,000 EU = 512,000 EU – 470,000 (started and completed).
i. 60% = 42,000 EU  70,000 Physical units in ending inventory.

b. $4,888,000 (see the cost of production report).

c. $638,400 (see the cost of production report).

©The McGraw-Hill Companies, Inc., 2017

386 Fundamentals of Cost Accounting
8-55. (30 min.) Determine Degree of Completion—FIFO method: Saline Solutions.

a. The ending work in process is at least 60% complete with respect to conversion costs.

This is a problem that requires relatively few computations, but a thorough understanding
of process costing. There are various ways to work through to an answer; the following is
one.

First, note that rubber is added at the beginning of the process, so that any work-in-
process inventories are always fully complete with respect to rubber. Second, the
beginning work-in-process inventory is 80% complete with respect to conversion, so it is
fully complete with respect to thinner as well.

Now, the ratio of total costs is equal to the ratio of the equivalent unit cost:

$1,057,500 $2.25
= = 0.45
$2,350,000 $5.00

This implies that the denominator in calculating the cost per equivalent unit is the same for
both rubber and thinner. Because the ending inventory is fully complete with respect to
rubber and because the equivalent units started and completed are the same for both
rubber and thinner, the equivalent units in the work-in-process ending inventory must be
the same for both rubber and thinner. This implies that the work-in-process ending
inventory must be fully complete with respect to thinner. Thus, the work-in-process ending
inventory must be more than 60% complete with respect to conversion costs.

©The McGraw-Hill Companies, Inc., 2017

Solutions Manual, Chapter 8 387
8-56. (40 min.) Solving For Unknowns—FIFO Method.

a.
Units started and completed equals the units transferred out (units completed this
period) less the units started in a previous period (beginning inventory):

40,000 units transferred out

–5,000 units in beginning inventory
35,000 units started and completed.
b.

Current units started equals units transferred out minus beginning inventory plus
ending inventory or, in equation form:

Current units started = TO – BB + EB

= 9,500 – 4,000 + 3,000
= 8,500 units

©The McGraw-Hill Companies, Inc., 2017

388 Fundamentals of Cost Accounting
8-56. (continued)

c. Equivalent units = Beginning inventory

x (1 – percentage of completion of beginning inventory)
+ 100% of units started and completed
+ ending inventory times its percentage of completion
= 5,600 equivalent units
Let X be the unknown percentage of completion. Then,
5,600 = 1,000 (1 – X) + 4,500 + (3,000 x 30%)
5,600 = 1,000 – 1,000X + 5,400
collecting terms:
5,600 – 5,400 – 1,000 = –1,000X
800 = 1,000X
X = 80%

Also, using BB = TO + EB – TI
= (4,500 + 1,000) + 900 – 5,600
= 800 units
800 = 1,000X
X = 80%

d. The cost per equivalent unit is obtained by dividing the ending inventory costs by the
equivalent units in ending inventory:

$87,000 ÷ 10,000 = $8.70 per EU

Equivalent units worked this period are the sum of the equivalent units to:
(a) complete the beginning inventory
(b) start and complete some units, and
(c) to start the ending inventory

which, for the problem are: 42,000 + 60,000 + 10,000 = 112,000

The total costs incurred are the cost per equivalent unit times the equivalent units
worked this period, that is 112,000  $8.70 = $974,400.

©The McGraw-Hill Companies, Inc., 2017

Solutions Manual, Chapter 8 389
8-57. (50 min.) Solving For Unknowns—Weighted-Average Method.

a. Units transferred out equals beginning inventory plus current work minus ending
inventory. In equation form:
TO = BB + TI (current work) – EB
= 12,300 + 10,500 – 10,000
= 12,800

b. The inventory equation yields:

BB + TI = TO + EB
Given the information in the problem, we can compute the right hand side. There are
4,800 (24,000 x 20%) equivalent units in ending inventory at a cost of $18,000. The
cost per equivalent unit is $3.75 (or $18,000  4,800 EU).
The right hand side of the equation is the total equivalent units represented by all costs
in the account (72,000 EU) times the cost per equivalent unit ($3.75). The resulting
$270,000 and the beginning inventory cost of $56,800 are entered in the equation:

$56,800 + TI = $270,000
and solving for TI:
TI = $270,000 – $56,800
= $213,200

©The McGraw-Hill Companies, Inc., 2017

390 Fundamentals of Cost Accounting
8-57. (continued)

c. First, we compute the cost of ending inventory:

BB + TI (current work) = TO + EB
$11,400 + $108,600 = $115,200 + EB
EB = $120,000 – $115,200
= $4,800
Equivalent units in ending inventory equals $4,800 divided by the cost per
equivalent unit.
Costs per equivalent unit is the $115,200 transferred out costs divided by the units
transferred out:
$115,200 ÷ 28,800 units = $4 per EU

Cost assigned to ending inventory is based on the relationship:

$4,800 = Equivalent units in EB times $4.00 and solving for EU in EB

EU in EB = $4,800 ÷ $4
= 1,200 EU

d. The materials cost per equivalent unit is:

$26,880 ÷ 12,800 units transferred out = $2.10 per EU
Since ending inventory contains direct materials cost of $5,040, it must contain
2,400 ( = $5,040 ÷ $2.10) equivalent units.
If the inventory is 25% complete with respect to direct materials costs, then these
2,400 equivalent units represent 25% of the physical count of units in the ending
inventory. Therefore, since 2,400 EU = .25 (units in EB)
Then
units in EB = 2,400 ÷ .25
= 9,600

©The McGraw-Hill Companies, Inc., 2017

Solutions Manual, Chapter 8 391
8-58. (50 min.) Operation Costing—Work-in-Process Inventory: Washington, Inc.

The solution to this problem is to apply process costing methods for the conversion
costs and then add the cost of materials for each product. Because there is no
beginning work-in-process inventory, FIFO and weighted-average process costing
gives the same results.

a.
The material costs per unit are:

Material Number of Unit Material

Product Cost Units Cost

X-10........... $75,000 ÷ 500 = $ 150

X-20........... 135,000 ÷ 300 = 450
X-40........... 240,000 ÷ 200 = 1,200

The conversion costs per equivalent unit are:

Department A:

Physical Conversion Costs

Units Equivalent Units
Flow of units:
 Units to be accounted for:
 Beginning WIP inventory.................................
–0–
 Units started this perioda 1,000
  Total units to account for..............................
1,000
 Units accounted for:
 Completed and transferred outb 840 840
 Units in ending inventoryc 160
  Conversion costs (160 x 25%)..................... 40
  Total units accounted for..............................
1,000 880

a 1,000 units = 500 X-10 + 300 X-20 + 200 X-40

b 840 units = 400 X-10 + 260 X-20 + 180 X-40
c 160 units = 1,000 units started – 840 units transferred out.

©The McGraw-Hill Companies, Inc., 2017

392 Fundamentals of Cost Accounting
8-58. (continued)

Conversion
Total Costs
Flow of costs:
Costs to be accounted for:
 Costs in beginning WIP inventory...................
$ –0– $  –0–
 Current period costs........................................
264,000 264,000
  Total costs to be accounted for....................
$ 264,000 $ 264,000
Cost per equivalent unit
 Conversion costs ($264,000 ÷ 880)................ $ 300

Department B:

Physical Conversion Costs

Units Equivalent Units
Flow of units:
 Units to be accounted for:
 Beginning WIP inventory.................................
–0–
 Units started this perioda 440
  Total units to account for..............................
440
 Units accounted for:
 Completed and transferred outb 390 390
 Units in ending inventoryc 50
  Conversion costs (50 x 60%)....................... 30
  Total units accounted for..............................
440 420
a 440 units = 260 X-20 + 180 X-40
b 390 units = 225 X-20 + 165 X-40
c 50 units = 440 units started – 390 units transferred out.

Conversion
Total Costs
Flow of costs:
Costs to be accounted for:
 Costs in beginning WIP inventory...................
$ –0– $  –0–
 Current period costs........................................
42,000 42,000
  Total costs to be accounted for....................
$ 42,000 $ 42,000
Cost per equivalent unit
 Conversion costs ($42,000 ÷ 420).................. $ 100

©The McGraw-Hill Companies, Inc., 2017

Solutions Manual, Chapter 8 393
8-58. (continued)

Cost of units transferred to finished goods:

Unit Unit Unit

Product Material Department Department Unit Cost
Cost A Cost B Cost

X-10........... $150 + $ 300 + $ –0– = $ 450

X-20........... 450 + 300 + 100 = 850
X-40........... 1,200 + 300 + 100 = 1,600
b.
Work-in-Process Ending Inventory Balances are (note the number of units is equal to the
difference between the units started and units completed):
Department A:

Material cost Number Unit

of Units Cost Total Cost
X-10......................... 100  $150 $ 15,000
X-20......................... 40  450 18,000
X-40......................... 20  1,200 24,000
Total material cost...... $ 57,000

Conversion costs........ 40  300 12,000

Total............................ $ 69,000
Department B:

Material cost Number Unit

of Units Cost Total Cost
X-20......................... 35  $450 15,750
X-40......................... 15  1,200 18,000
Total material cost...... $ 33,750

Conversion costs........
From Dept. A........... 50  300 15,000
From Dept. B........... 30  100 3,000
Total............................ $ 51,750

©The McGraw-Hill Companies, Inc., 2017

394 Fundamentals of Cost Accounting
8-59. (50 min.) Operation Costing—Work-in-Process Inventory: Miller Outdoor
Equipment.
The solution to this problem is to apply process costing methods for the conversion
costs and then add the cost of materials for each product. Because there is no
beginning work-in-process inventory, FIFO and weighted-average process costing
gives the same results.
a.
The material costs per unit are:

Material Number of Unit Material

Product Cost Units Cost

Rookie....... $18,000 ÷ 600 = $ 30

Novice....... 17,280 ÷ 480 = 36
Hiker.......... 13,050 ÷ 290 = 45
Expert........ 11,250 ÷ 150 = 75
The conversion costs per equivalent unit are:
Stitching Department:

Physical Conversion Costs

Units Equivalent Units
Flow of units:
 Units to be accounted for:
 Beginning WIP inventory.................................
–0–
 Units started this perioda 1,520
  Total units to account for..............................
1,520
 Units accounted for:
 Completed and transferred outb 1,380 1,380
 Units in ending inventoryc 140
  Conversion costs (140 x 40%)..................... 56
  Total units accounted for..............................
1,520 1,436

a 1,520 units = 600 Rookie + 480 Novice + 290 Hiker + 150 Expert.
b 1,380 units = 540 Rookie + 450 Novice + 270 Hiker + 120 Expert.
c 140 units = 1,520 units started – 1,380 units transferred out.

©The McGraw-Hill Companies, Inc., 2017

Solutions Manual, Chapter 8 395
8-59. (continued)

Conversion
Total Costs
Flow of costs:
Costs to be accounted for:
 Costs in beginning WIP inventory...................
$ –0– $  –0–
 Current period costs........................................
60,312 60,312
  Total costs to be accounted for....................
$ 60,312 $ 60,312
Cost per equivalent unit
 Conversion costs ($60,312 ÷ 1,436)............... $ 42

Customizing Department:

Physical Conversion Costs

Units Equivalent Units
Flow of units:
 Units to be accounted for:
 Beginning WIP inventory.................................
–0–
 Units started this perioda 840
  Total units to account for..............................
840
 Units accounted for:
 Completed and transferred outb 790 790
 Units in ending inventoryc 50
  Conversion costs (50 x 20%)....................... 10
  Total units accounted for..............................
840 800
a 840 units = 450 Novice + 270 Hiker + 120 Expert
b 790 units = 440 Novice + 250 Hiker + 100 Expert
c 50 units = 840 units started – 790 units transferred out.

Conversion
Total Costs
Flow of costs:
Costs to be accounted for:
 Costs in beginning WIP inventory...................
$ –0– $  –0–
 Current period costs........................................
28,800 28,800
  Total costs to be accounted for....................
$ 28,800 $ 28,800
Cost per equivalent unit
 Conversion costs ($28,800 ÷ 800).................. $ 36

©The McGraw-Hill Companies, Inc., 2017

396 Fundamentals of Cost Accounting
8-59. (continued)

Cost of units transferred to finished goods:

Unit Stitching Customizing

Product Material Department Department Unit Cost
Cost Unit Cost Unit Cost

Rookie....... $30 + $ 42 + $ –0– = $ 72

Novice....... 36 + 42 + 36 = 114
Hiker.......... 45 + 42 + 36 = 123
Expert........ 75 + 42 + 36 = 153
b.
Work-in-Process Ending Inventory Balances are (note the number of units is equal to the
difference between the units started and units completed):
Stitching Department:

Material cost Number Unit

of Units Cost Total Cost
Rookie..................... 60  $30 $ 1,800
Novice...................... 30  36 1,080
Hiker........................ 20  45 900
Expert...................... 30  75 2,250
Total material cost...... $ 6,030

Conversion costs........ 56*  42 2,352

Total............................ $ 8,382
* 140 units, 40% complete.

©The McGraw-Hill Companies, Inc., 2017

Solutions Manual, Chapter 8 397
8-59. (continued)
Customizing Department:

Material cost Number Unit

of Units Cost Total Cost
Novice................................. 10  $36 360
Hiker.................................... 20  45 900
Expert.................................. 20  75 1,500
Total material cost.................. $ 2,760

Conversion costs....................
From Stitching..................... 50  42 2,100
From Customizing............... 10*  36 360
Total conversion costs..... $2,460
Total....................................... $ 5,220

* 50 units, 20% complete.

©The McGraw-Hill Companies, Inc., 2017

398 Fundamentals of Cost Accounting
8-60. (50 min.) Process Costing and Ethics – Increasing Production to Boost
Profits: Pacific Siding, Inc.

a. The CEO and CFO expect to produce profits by reducing the unit cost of each sold.
This will occur because of the fixed overhead costs. (Recall “most of the overhead
costs are fixed.”) Because each unit transferred out in March will have a lower unit
costs, reported costs of goods sold will be lower. Therefore, profit will be higher.

©The McGraw-Hill Companies, Inc., 2017

Solutions Manual, Chapter 8 399
8-60. (continued)
b. See the revised data entry section and production cost report below:

Data Entry Section  

Unit Information   Percent Complete  
  Units    
  (board Direct Direct    
  feet) materials labor Overhead  
Units in beginning WIP inventory (all completed this period) 250,000 n/a n/a n/a  
Units started and completed during the period 140,000 100% 100% 100%  
Units started and partially completed during the period 225,000 80% 85% 90%  
 
    Direct Direct    
Cost Information materials labor Overhead  
Costs in beginning WIP inventory $76,000 $90,000 $150,000  
Costs incurred during the period   $95,000 $102,000 $150,000  
           

©The McGraw-Hill Companies, Inc., 2017

400 Fundamentals of Cost Accounting
8-60. (continued)
Revised Production Cost Report
Month Ending March 31

Step 1: Summary of Physical Units and Equivalent Unit Calculations    

Physical
Units to be accounted for Units
Units in beginning WIP inventory 250,000
Units started during the period 365,000
Total units to be accounted for 615,000

Equivalent Units
Direct Direct
Units accounted for materials labor Overhead
Units completed and transferred out 390,000 390,000 390,000 390,000
Units in ending WIP inventory 225,000 180,000 191,250 202,500
Total units accounted for 615,000 570,000 581,250 592,500

Step 2: Summary of Costs to be Accounted for      

Direct Direct
Costs to be accounted for materials labor Overhead Total
Costs in beginning WIP inventory $76,000 $90,000 $150,000 $316,000
Costs incurred during the period 95,000 102,000 150,000 347,000
Total costs to be accounted for $171,000 $192,000 $300,000 $663,000

Step 3: Calculation of Cost per Equivalent Unit      

8-60. (continued) Direct Direct

©The McGraw-Hill Companies, Inc., 2017

Solutions Manual, Chapter 8 401
 materials labor Overhead Total
Total costs to be accounted for (a) $171,000 $192,000 $300,000
Total equivalent units accounted for 570,000 581,250 592,500
Cost per equivalent unit (a) / (b) $0.3000 $0.3303 $0.5063 $1.1366

Step 4: Assign Costs to Units Transferred Out and Units in Ending WIP Inventory  
Direct Direct
materials labor Overhead Total
Costs assigned to units transferred out $117,000 $128,826 $197,468 $443,294
Costs assigned to ending WIP inventory 54,000 63,174 102,532 219,706
Total costs accounted for $171,000 $192,000 $300,000 $663,000

©The McGraw-Hill Companies, Inc., 2017

402 Fundamentals of Cost Accounting
8-60. (continued)
c. The costs assigned to units transferred out has decreased from $541,621 to $443,294,
or $98,327. Because all the units transferred out will be sold before the end of March,
profits will be $98,327 higher than originally planned.
d. This is not ethical. The reason for the production increase was solely to manipulate
income and distort results for the year. There is no indication that the increase in
production was to meet much larger demand.

©The McGraw-Hill Companies, Inc., 2017

Solutions Manual, Chapter 8 403
Solutions to Integrative Cases

8-61. (70 min.) Show Cost Flows—FIFO Method: Vermont Co.

Work in Process
Beginning Balance 716,000 Transferred out:
Current work: 716,000a  From beginning inventory
 materials (given) 300,40  From current work
0
 conversion (given) 1,287,000 240,320a   materials
833,976b   conversion costs
Ending Balance 513,104

Additional computations:
a $240,320= 40,000 EU transferred x ($300,400 ÷ 50,000 EU for materials)
(40,000 EU = 50,000 – 10,000 in ending inventory)
b $833,976 = 40,500 EU transferred out x ($1,287,000 ÷ 62,500 EU for conversion costs;
40,500 EU = 62,500 – 22,000 in ending inventory)

Finished Goods
Transferred in 1,790,296 a 1,432,237 To Cost of Goods Sold (80%)
Balance 358,059
aFrom total credits in Work in Process.

Cost of Goods Sold

From Finished Goods 1,432,237 Overapplied overhead 55,000
(See explanation below)
Overhead applied in beginning WIP inventory is 125% of direct labor costs (i.e.,
$325,000 ÷ $260,000). Since the application rate has not changed, the ratio of applied
overhead to total conversion costs found in the beginning inventory should also hold
for conversion costs this period.

For this period, 1.25 D.L. + D.L. = $1,287,000

2.25 D.L. = $1,287,000
D.L. = $572,000
So, total conversion costs – direct labor = overhead applied
$1,287,000 – $572,000 = $715,000
Based on the balance in the manufacturing overhead account, actual overhead is
$660,000. Therefore, overhead is overapplied by $55,000 (i.e., $715,000 – $660,000).

©The McGraw-Hill Companies, Inc., 2017

404 Fundamentals of Cost Accounting
8-61. (continued)
The journal entry to assign the overapplied overhead to cost of goods sold is:
Overapplied overhead.........................................
55,000
  Cost of goods sold................................... 55,000

©The McGraw-Hill Companies, Inc., 2017

Solutions Manual, Chapter 8 405
8-62. (45 min.) Job Costing, Process Costing, Choosing a Costing Method:
Bouwens Corporation.
This problem is computationally straight-forward, but requires the student to think
about the use of the costs from the costing system and how to best reflect the
production costs for a single product for two customer types.
a. The “job” costs for each product are the unit costs in each building:
M-Solv C-Solv
(B-155) (B-159)
Materials costs..................... $14,000 $ 40,000
Conversion costs................. 30,000 120,000
Total costs........................ $44,000 $160,000
Units produced..................... 2,000 10,000
Unit cost............................... $22 $16

b. The “process” costs for each product are the unit costs for both buildings divided by
total production:
M-Solv C-Solv
(B-155) (B-159) Total
Materials costs..................... $14,000 $ 40,000 $ 54,000
Conversion costs................. 30,000 120,000 150,000
Total costs........................ $44,000 $160,000 $204,000
Units produced..................... 2,000 10,000 12,000
Unit cost............................... $17

c. Neither method best reflects the costs for the individual products. Jill is correct the
military requires the use of a “special” chemical and the costs assigned to M-Solv
should reflect this. This suggests that the “job” system in requirement (a) is correct. On
the other hand, Jack is correct that the assignment of labor is not caused by product
requirements. This suggests that the process system in requirement (b) is correct. The
best system would be similar to an operations system where we accounted for the
material cost by product and the conversion costs on a factory-wide basis.

©The McGraw-Hill Companies, Inc., 2017

406 Fundamentals of Cost Accounting
8-62. (continued)
d. Compute the unit costs for materials and conversion costs separately.

M-Solv C-Solv
(B-155) (B-159)
Materials costs..................... $14,000 $ 40,000
Units produced..................... 2,000 10,000
Unit cost (materials)............. $7 $4

Then compute conversion costs for the factory:

M-Solv C-Solv
(B-155) (B-159) Total
Conversion costs................. 30,000 120,000 $150,000
Units produced..................... 2,000 10,000 12,000
Unit cost (conversion).......... $12.50

Now, compute the unit product cost:

M-Solv C-Solv
(B-155) (B-159)
Unit materials costs.............. $7.00 $4.00
Conversion costs................. 12.50 12.50
Total costs........................ $19.50 $16.50

©The McGraw-Hill Companies, Inc., 2017

Solutions Manual, Chapter 8 407
©The McGraw-Hill Companies, Inc., 2017
408 Fundamentals of Cost Accounting