Process Costing: Discussion Questions

CHAPTER 6
PROCESS COSTING
DISCUSSION QUESTIONS
1. In sequential processing, products pass product (or further process it), additional
through a series of processes, one after materials and conversion costs are added by
another (i.e., in a given sequence). In parallel the receiving department.
processing, products pass through two or
more different sequences at the same time, 8. The cost flows for process-costing and job-
merging eventually at the final process. order costing systems are essentially the
same. Process costing requires a work-in-
2. Process costing collects costs by process process account for each process. Costs flow
(department) for a given period of time. Unit from one work-in-process account to another
costs are computed by dividing these costs until the final process is reached.
by the department’s output measured for the
same period of time. Job-order costing 9. The work-in-process account of the receiving
collects costs by job. Unit costs are computed department is debited, and the work-in-
by dividing the job’s costs by the units process account of the transferring
produced in the job. Process costing is department is credited. The finished goods
typically used for industries where units are account is debited, and the work-in-process
homogeneous and mass-produced. Job- account of the final department is credited
order costing is used for industries that upon completion of the product.
produce heterogeneous products (often
10. The first step is the preparation of a physical
custom-made).
flow schedule. This schedule identifies the
3. Equivalent units are the number of whole physical units that must be accounted for and
units that could have been produced, given provides an accounting. The second step is
the amount of materials, labour, and the equivalent unit schedule. This schedule
overhead used. Equivalent units are the computes the equivalent whole output for the
measure of a period’s output, a necessary period. The schedule’s computations rely on
input for the computation of unit costs in a information from the physical flow schedule.
process-costing system. The third step is computation of the unit cost.
To compute the unit cost, the manufacturing
4. In calculating this period’s unit cost, the
costs of the period for the process are divided
weighted average method treats prior period
by the period’s output. The output is obtained
output and costs carried over to the current
period as belonging to the current period. The from the equivalent unit schedule. The fourth
FIFO method excludes any costs and output step uses the unit cost to value goods
carried over from the prior period for this transferred out and those remaining in work
period’s unit cost computation. in process. The final step checks to see if the
costs assigned in step 4 equal the total costs
5. If the per-unit cost of the prior period is the to account for.
same as the per-unit cost of the current
period, there will be no difference between 11. A production report summarizes the activities
the results of the weighted average and FIFO and costs associated with a process for a
methods. Additionally, if no beginning work- given period. It shows the physical flow, the
in-process inventory exists, both the FIFO equivalent units, the unit cost, and the values
and weighted average methods give the of ending work in process and goods
same results. transferred out. The report serves the same
function as a job-order cost sheet in a job-
6. Separate equivalent units must be calculated order costing system.
for materials and conversion costs.
12. The weighted average method uses the
7. Transferred-in units represent partially
same unit cost for all goods transferred out.
completed units and are clearly a material for
the receiving department. To complete the The FIFO method divides goods transferred
Copyright © 2018 by Nelson Education Ltd. 6-1

out into two categories: units started and 14. Firms adopting JIT reduce inventories to
completed, and units from beginning work in insignificant levels. As a result, work-in-
process. The period’s unit cost is used to process inventories are close to zero, and
value goods started and completed. The cost equivalent units of production need not be
of goods transferred out from beginning work calculated. In essence, unit cost is total cost
in process is obtained by (1) assigning them for the period divided by output.
all costs carried over from the prior period
and (2) using the current period’s unit cost to 15. Service firms generally do not have work-in-
value the equivalent units completed this process inventories, and so equivalent units
period. of production are not needed. An important
factor in process costing for services is
13. Automation simply reduces computations determining just what constitutes a unit of
and paperwork. It also usually means more output.
accurate and rapid calculations.
6-2 Copyright © 2018 by Nelson Education Ltd.

CORNERSTONE EXERCISES
Cornerstone Exercise 6–1
1. Mixing Cooking Packaging

Direct materials $225,000 $ 75,000 $ 60,000
Direct labour 30,000 15,000 45,000
Applied overhead 45,000 22,500 67,500
Transferred-in cost:
From Mixing — 300,000 —
From Cooking — — 412,500
Total cost $300,000 $412,500 $585,000
2. Work in Process—Cooking ...................... 300,000

Work in Process—Mixing......................... 300,000
Work in Process—Packaging .................. 412,500

Work in Process—Cooking...................... 412,500
Finished Goods......................................... 585,000

Work in Process—Packaging .................. 585,000
Equivalent Units
Units completed 30,000
EWIP (0.40 × 2,000) 800
Output 30,800
1. Equivalent Units
EWIP (0.60 × 12,000) 7,200
Equivalent units 41,200
$618,000
Unit cost = = $15
41,200
2. Cost of goods transferred out ($15 × 34,000) $510,000

Cost of EWIP ($15 × 7,200) 108,000

1. Equivalent Units
EWIP (0.40 × 20,000) 8,000
Output for January 83,000
$166,000
2. Unit cost = = $2
83,000
3. Cost of goods transferred out ($2 × 75,000) = $150,000

EWIP ($2 × 8,000) = $16,000

Physical flow schedule:
Units in BWIP ........................................................ 75,000
Units started .......................................................... 425,000
Total units to account for................................ 500,000
Units completed and transferred out:
Units started and completed ................................ 375,000
Units completed from BWIP ................................. 75,000 450,000
Units in EWIP .............................................................. 50,000
Total units accounted for ................................ 500,000

Cutting Department
Production Report
For October
Weighted Average Method
UNIT INFORMATION
Physical flow:
Units to account for: Units accounted for:
Units in beginning WIP 4,000 Units completed 40,000
Units started 44,000 Units in ending WIP 8,000
Total units to acct. for 48,000 Total units acctd. for 48,000
Equivalent units:
Units in ending work in process × fraction complete 4,800
Total equivalent units 44,800
COST INFORMATION
Costs to account for:
Beginning work in process $ 50,000
Incurred during October 756,400
Total costs to account for $806,400
Cost per equivalent unit $18
Costs accounted for:

Transferred Ending
Out Work in Process Total
Goods transferred out
($18 × 40,000) $720,000 $ — $720,000
Goods in ending WIP
($18 × 4,800) — 86,400 86,400
Total costs accounted for $720,000 $86,400 $806,400

1. Materials Conversion
Units completed ..............................................................
65,200 65,200
Add: Units in ending WIP ×
Percentage complete (12,000 × 100%; 12,000 × 40%) 12,000 4,800
Equivalent units of output .............................................. 77,200 70,000
2. Unit materials cost: ($20,000 + $125,000) / 77,200 = $1.88
Unit conversion cost: ($15,000 + $210,000) / 70,000 = 3.21
Total unit cost $5.09
3. Cost transferred out: 65,200 × $5.09 = $331,868

Cost of EWIP:
Materials: 12,000 × $1.88 = $22,560
Conversion: 4,800 × $3.21 = 15,408
Total EWIP cost $37,968
1. Physical flow schedule:

Units in beginning work in process .............................. 400
Units started during the period ................................ 4,800
Total units to account for .................................... 5,200
Units started and completed .................................... 4,550
Units completed from beginning work in process 400 4,950
Units in ending work in process .................................... 250
Total units accounted for .................................... 5,200

Cornerstone Exercise 6–8 (Continued)
Conversion Materials Materials

(raw milk) (flavourings)
Units completed 4,950 4,950 4,950 4,950
Units, EWIP 250 50 250 0
Equivalent units 5,200 5,000 5,200 4,950
Conversion Materials Materials

(raw milk) (flavourings)
Beginning work in process 375 70 100
Added in April 2,625 970 1,880
Total costs to account for 3,000 1,040 1,980
2. Cost per equivalent unit $ 0.60 $ 0.20 $ 0.40
3. Costs accounted for:

Conversion costs 4,950 * $0.60 = $2,970
Materials (raw milk) 4,950 * $0.20 = 990
Materials (flavourings) 4,950 * $0.40 = 1,980
Total costs transferred out $ 5,940
Units in ending inventory:

Conversion costs 50 * $0.60 =$ 30
Materials (raw milk) 250 * $0.20 = 50
Materials (flavourings) 0 * $0.40 = 0
Total cost of EWIP $ 80


Cornerstone Exercise 6–9 (Continued)
Conversion Materials
Units completed 1,600 1,600 1,600
Units, EWIP 200 80 200
Equivalent units 1,800 1,680 1,800
Conversion Materials
Beginning work in process 32,000 94,000
Added in September 94,000 302,000
Total costs to account for 126,000 396,000
2. Cost per equivalent unit $ 75 $ 220

Conversion costs 1,600 * $ 75 = $120,000
Materials 1,600 * $ 220 = 352,000
Total costs transferred out $472,000

Conversion costs 80 * $ 75 = $ 6,000
Materials 200 * $ 220 = 44,000
Total cost of EWIP $ 50,000


Transferred-In Conversion Materials

Units completed 1,500 1,500 1,500 1,500
Units, EWIP 300 300 150 300
Equivalent units 1,800 1,800 1,650 1,800
Transferred-In Conversion Materials

Beginning work in process 68,000 129,000 70,200
Added in October 472,000 44,250 19,800
Total costs to account for 540,000 173,250 90,000
2. Cost per equivalent unit $ 300 $ 105 $ 50

Transferred-in costs 1,500 * $ 300 = $450,000
Conversion costs 1,500 * $ 105 = 157,500
Materials 1,500 * $ 50 = 75,000
Total costs transferred out $682,500

Transferred-in costs 300 * $ 300 = $ 90,000
Conversion costs 150 * $ 105 = 15,750
Materials 300 * $ 50 = 15,000
Total cost of EWIP $120,750

Units in beginning work in process .............................. 40,000
Units started during the period...................................... 160,000
Total units to account for ............................................... 200,000
Units completed from beginning work in process 40,000 175,000
Units in ending work in process .................................... 25,000
2. Units completed 175,000

Units, EWIP 25,000
Equivalent units (transferred-in materials) 200,000
$142,000 + $458,000
3. Unit transferred-in cost = = $3
200,000
1. Equivalent Units
Units started and completed 59,000
Units in BWIP (0.20 × 10,000) 2,000
Units in EWIP (0.75 × 8,000) 6,000
Total 67,000
$90,450
2. Unit cost = = $1.35
67,000
3. Cost of units transferred out:

BWIP costs $ 9,600
To finish BWIP (2,000 x $1.35) 2,700
Started and completed (59,000 x $1.35) 79,650
Total $91,950
EWIP ($1.35 × 6,000) $ 8,100

Bebida Inc.
Mixing Department
Production Report
For August
(FIFO Method)
UNIT INFORMATION
Units in beginning WIP 10,000 Started and completed 59,000
Units started 67,000 From beginning WIP 10,000
From ending WIP 8,000
Total units 77,000 Total units 77,000
Equivalent units:
Started and completed 59,000
To complete beginning WIP (10,000 × 20%) 2,000
Units in ending WIP (8,000 × 75%) 6,000
COST INFORMATION
Costs in beginning WIP $ 9,600
Costs added by department 90,450
$90,450
Cost per equivalent unit = $1.35
67,000

Transferred out:
Units started and completed (59,000 × $1.35) $ 79,650
Units in beginning work in process:
From prior period 9,600
From current period (2,000 × $1.35) 2,700
Total cost transferred out 91,950
Goods in ending work in process (6,000 × $1.35) 8,100
Total costs accounted for $100,050

EXERCISES
Exercise 6–14
1.
Moulding Grinding Finishing
Direct materials $ 87,500 $ 10,200 $ 6,100
Direct labour 7,600 15,700 9,900
Applied overhead 9,700 67,900 9,600
Transferred-in costs 0 104,800 198,600
Total cost $104,800 $198,600 $224,200
2. Per unit cost = $224,200/6,000 = $37.37/unit (rounded)
Exercise 6–15
1a. Work in Process—Grinding ...................................... 42,000
Work in Process—Moulding ................................ 42,000
1b. Work in Process—Finishing ..................................... 82,000

Work in Process—Grinding ................................. 82,000
1c. Finished Goods .......................................................... 95,000

Work in Process—Finishing ................................ 95,000
3. The journal entries for the job-order and process-costing systems are generally
the same. There is one key difference. For process costing, each department
has its own WIP account. As goods are completed in one department, they are
transferred with their costs to the next department.
Exercise 6–16
1. Completed units 28,900

EWIP (2,800 x 0.3) 840
2. Unit manufacturing cost for December: $68,750 / 29,740 = $2.31*

*rounded
3. Cost of goods transferred out for December = 28,900 units × $2.31 per unit =
$66,759
4. EWIP for December = 840 equivalent units × $2.31 = $1,940

Exercise 6-17
EWIP 3,000
Equivalent units 24,000
Exercise 6–18
$30,000 + $12,000 + $3,360

1. Unit cost = = $1.80 per unit
25,200
2. Cost of ending work in process:
$1.80 × 7,200 = $12,960
Cost of goods transferred out:

$1.80 × 18,000 = $32,400
3. Garcia is using the weighted average method for calculating unit costs. Thus,
the unit cost for June will be a mixture of May and June costs. May costs will
not reflect the cost savings and so the June unit cost will be higher than
expected. Using FIFO for June would better reflect the effect of the cost
reductions and overcome the problem.
Exercise 6–19
$2,196,000
1. Unit cost: = $6.46 (rounded)
340,000

300,000 × $6.46 $1,938,000
Cost of ending WIP:
40,000 × $6.46 258,400
Total costs accounted for $2,196,400*
*Difference of $400 is due to rounding.

Exercise 6–19 (Continued)
3. The weighted average method is simpler to use than FIFO, but it does not reflect
the unit cost as well if costs are changing significantly from one period to the
next. FIFO calculates the unit cost using only costs of the current period and
output of the current period. Weighted average rolls back and picks up the costs
and output in BWIP and counts them as if they belong to the current period.
These costs and output of two periods are mixed. For Walser, the unit cost
under weighted average is $6.46 (see solution to Requirement 1). The unit cost
for units in BWIP is $6.00 (= $210,000/35,000). This suggests that costs are rising
from period to period. If this type of cost fluctuation is typical, Walser should
switch to FIFO.
Exercise 6–20
Units to account for:

Units in beginning WIP …………………………………………… 30,500
Units started ………………………………………………………... 33,000
Total units ……………………………………………………….. 63,500
Units accounted for:

Started and completed ……………………………………………. 24,600
Units completed from beginning work in process …………… 30,500
Units in ending WIP ……………………………………………….….. 8,400
Total units …………………………………………………………… 63,500
Exercise 6–21
Units in beginning WIP .............................................................. 75,000
Units started ............................................................................... 369,000
Total units ............................................................................. 444,000
Completed from BWIP ............................................................... 75,000
Started and completed .............................................................. 324,000
Units in ending WIP ................................................................... 45,000
Total units ............................................................................. 444,000

Exercise 6–22
Cooking Department
Production Report
For April
(Weighted Average Method)
UNIT INFORMATION
Physical flow:
Units started 40,000 Units in ending WIP 10,000
Total units to acct. for 60,000 Total units acctd. for 60,000
Equivalent units:
Units in ending work in process 2,000
COST INFORMATION
Incurred during April 314,600
Cost per equivalent unit $7.85

Transferred Ending
($7.85 × 50,000) $392,500 $ — $392,500
Goods in ending WIP
($7.85 × 2,000) — 15,700 15,700
Exercise 6–23
Materials Conversion
Units completed ......................................................... 90,000 90,000
Percentage complete (30,000 × 60%) ............. 30,000 18,000
Equivalent units of output ......................................... 120,000 108,000

Exercise 6–24
$294,000  $2,106,000
1. Unit materials cost: = $5.00
480,000
$15,750  $472,410
Unit conversion cost: = 1.13
432,000
Total unit cost $6.13
2. Cost of goods transferred out: 360,000 × $6.13 = $2,206,800

Cost of ending WIP:
Materials: 120,000 × $5.00 = $600,000
Conversion: 72,000 × $1.13 = 81,360
Total ending WIP cost $681,360
Exercise 6–25
1. Units to account for:

Units in BWIP (40 percent complete) 175,000
Units started during the period 682,000
Total units to account for 857,000

Started and completed ........................................................522,000
From beginning work in process .........................................175,000
697,000
Units in EWIP (25 percent complete) .......................................160,000
Total units accounted for .....................................................857,000
2. Equivalent units: Transferred-In Materials Conversion

Completed 697,000 697,000 697,000
EWIP 160,000 160,000 40,000
Total 857,000 857,000 737,000

Exercise 6–26
$2,100 + $30,900
1. Unit transferred-in cost: = $0.44
75,000
$1,500 + $22,500
Unit materials cost: = $0.32
75,000
$3,000 + $45,300
Unit conversion cost: = $0.70
69,000
2. Total unit cost: $0.44 + $0.32 + $0.70 = $1.46
Exercise 6–27
To complete BWIP (27,000 (1 – 30%)) = 18,900

Started and completed = 168,000
EWIP (19,000 × 60%) = 11,400
Total equivalent units = 198,300
Exercise 6–28
$14,000
1. Unit cost = = $1.79 (rounded)
7,840
2. Cost of ending work in process:

$1.79 × 2,400 = $4,296
Cost of goods transferred out:
From BWIP:
Prior period costs $ 1,120
Completion costs ($1.79 × 840) 1,504
Started and completed ($1.79 × 4,600) 8,234
Total $10,858

PROBLEMS
Problem 6–29
Units in beginning WIP 400
Units started 4,000
Total units 4,400
Units transferred out (3,600):
Units from beginning WIP 400
Units in ending WIP 800
Total units 4,400
2. Materials Conversion
Units in beginning WIP 0 160
Units started and completed 3,200 3,200
Units in ending WIP 0 160
Equivalent units 3,200 3,520
3. Cost per equivalent unit:
Materials: $40,000 / 3,200 = $12.50

Conversion costs: $88,000/3,520 = $25

Materials:
From beginning inventory: = $ 4,000
Completed in the month: ($12.50 x 3,200) = 40,000
Total transferred out for materials $44,000
Conversion costs:
From beginning inventory: = $ 7,000
Completed in the month: ($25 x 160) + ($25 x 3,200) = 84,000
Total transferred out for conversion costs $91,000
Total transferred out in March: $ 135,000 ($44,000 + $91,000)
Cost of ending inventory: ($12.50 x 0) + ($25 x 160) = $4,000

Problem 6–29 (Continued)
5. Cost reconciliation:
Costs to account for: Costs accounted for:
Beginning WIP $ 11,000 Transferred out $ 135,000
March costs 128,000 Ending WIP 4,000
Total to acct. for $ 139,000 Total acctd. for $ 139,000
6. Students responses will vary. The following are points for consideration:
 Differences between FIFO and weighted average arise when direct materials
or conversion costs per unit vary greatly from period to period. While FIFO
tracks the costs separately for each period, the weighted average method
averages costs over periods. If per-unit costs vary greatly from period to
period and management prefers to have accurate costs for tracking
purposes, then FIFO is the preferred method.
 Differences in FIFO and weighted average can also arise when the volume of
inventory in ending WIP is significantly greater than inventory transferred
out during the period.
 Since the FIFO and weighted average methods are used to value inventory,
differences in the methods will result in differences in reported operating
and net income. As costs stabilize from period to period, the differences
between these two methods are reduced.
 If management requires accurate information for specific periods, then FIFO
is recommended. However, if costs remain stable over time and management
does not require such detailed information, the weighted average method is
an acceptable alternative.
 Both methods are GAAP-compliant.

Problem 6–30
1. Mixing department:
a. Units transferred to tableting = Total units* – Ending WIP
= 28,000 – 2,400 = 25,600
*Total units = Beginning WIP + Units started = 0 + 28,000
b. Units completed 25,600

Add: Units in ending work in process
2,400 × 50% 1,200
Equivalent units of output 26,800
2. Tableting department:
Units transferred out = Total units* – Ending WIP = 27,200 – 800 = 26,400
*Total units = Beginning WIP + Units transferred in = 1,600 + 25,600 = 27,200
3. The solution is to convert the transferred-in units to the same unit of measure
as the output for the tableting department. Each bottle has eight grams of
transferred-in material. Thus, 25,600 grams become 3,200 bottles. Using this
converted measure, the revised solution would be as follows:
Units transferred out = Total units* – Ending WIP = 3,400 – 100 = 3,300
*Total units = Beginning WIP + Units transferred in = 200 + 3,200 = 3,400
Problem 6–31
Units in beginning work in process ................ 60,000
Units started during the period........................ 120,000
Total units to account for ............................. 180,000
Started and completed ................................. 90,000
From beginning work in process................. 60,000 150,000
Units in ending work in process ...................... 30,000
Total units accounted for ............................. 180,000

2. Cabinets Components Conversion

Units completed 150,000 150,000 150,000
Units in EWIP 30,000 30,000 6,000*
Equivalent units 180,000 180,000 156,000
*0.20 × 30,000
3. Costs to account for: Cabinets Components Conversion Total

Beginning WIP $1,200,000 $12,600,000 $5,400,000 $19,200,000
Incurred during April 2,400,000 25,200,000 8,640,000 36,240,000
Total costs to acct. for $3,600,000 $37,800,000 $14,040,000 $55,440,000
÷ Equivalent units 180,000 180,000 156,000
Cost per equivalent unit $20 $210 $90 $320
4. Goods transferred out = 150,000 × $320 = $48,000,000

Cost of ending WIP = (30,000 × $20) + (30,000 × $210) + (6,000 × $90)
= $7,440,000
5. Costs to account for:

Beginning work in process $19,200,000
Incurred during April 36,240,000
Total costs to account for $55,440,000
Goods transferred out $48,000,000
Goods in ending work in process 7,440,000
Total costs accounted for $55,440,000

Problem 6–32
1. Physical flow:
BWIP + started = completed + EWIP
120,000 + X = 360,000 + 75,000
X = 315,000
Equivalent units: Materials Conversion

Completed 360,000 360,000
EWIP 75,000 45,000*
Total 435,000 405,000
*75,000 × 0.6 = 45,000
Costs to account for: Materials Conversion

BWIP – plastic cabinets $ 450,000
Speakers/comp. 14,750,000
Conversion $ 7,640,000
Added:
Plastic cabinets 1,600,000
Speakers/comp. 29,680,000
Conversion 16,540,000
Total $46,480,000 $24,180,000
Grand total $70,660,000
Per unit cost:

Materials $46,480,000/435,000 = $106.8506 (rounded)
Conversion $24,180,000/405,000 = 59.7037 (rounded)
Total = $166.5543

Units transferred out 360,000 × $166.5543 = $59,959,548
EWIP – material 75,000 × $106.8506 = 8,013,795
Conversion 45,000 × $59.7037 = 2,686,667 (rounded)
$70,660,010*

2. Although the answers may vary, some essential elements should be

mentioned in the report. The job-order cost sheet summarizes the
manufacturing activity for a job, whereas the production report summarizes
the manufacturing activity in a process department for a period of time. Both
reports provide unit cost information, although the production report only
provides the unit cost for a given process. Only the last process provides the
total cost per unit. A similar observation can be made about the detail
concerning materials and conversion costs. The job-order cost sheet acts as
a subsidiary work-in-process account. The production report also provides
the cost of ending work in process for each process. The sum of these
amounts will give the total work in process—so the production report serves
a similar information function. Thus, the purpose and content of the reports
are very similar.
Problem 6–33
Units started 550
Total units 625
Units completed 500
Units in ending WIP 125
Total units 625
2. Transferred-in Materials Conversion

Units completed 500 500 500
Units in ending WIP 125 125 50
Equivalent units 625 625 550
3. Cost per equivalent unit:
Transferred-in Materials Conversion

From beginning WIP $ 270 $ 1,775 $ 135
Added in the month 10,450 17,600 10,890
Total cost $10,720 $19,375 $11,025
Cost per equivalent unit $17.152 $31 $20.045

4. Cost of units:
Transferred out:
Transferred-in $ 8,576.00 (500 x $17.152)
Materials 15,500.00 (500 x $31)
Conversion costs 10,022.50 (500 x $20.045)
Total transferred out $34,098.50
Ending WIP:
Transferred-in $ 2,144.00 (125 x $17.152)
Materials 3,875.00 (125 x $31)
Conversion costs 1,002.50 (50 x $20.045)
Total in ending WIP $7,021.50
5.
Cost reconciliation:
Beginning WIP $ 2,180 Transferred out $34,098.50
June costs 38,940 Ending WIP 7,021.50
Total to acct. for $41,120 Total acctd. for $41,120.00
Problem 6–34
Units in beginning work in process ......................... 20,000
Units started during the period.................................. 60,000
Total units to account for ....................................... 80,000
Started and completed ........................................... 40,000
From beginning work in process........................... 20,000 60,000
Units in ending work in process ............................... 20,000
Total units accounted for ....................................... 80,000

2. Units completed 60,000
Percentage complete
(20,000 × 60%) 12,000
Equivalent units of output 72,000
$11,520 + $72,000
3. Unit cost: = $1.16
72,000
4. First, calculate the cost per unit for the equivalent units in beginning inventory
(60% × 20,000 = 12,000 equivalent units in BWIP):
$11,520
Prior period unit cost = = $0.96 per unit
12,000
Next, calculate the current-period (FIFO) cost per unit:
FIFO equivalent units for materials = Weighted average equivalent units less
prior-period equivalent units
= 72,000 – 12,000 = 60,000
$72,000
FIFO unit cost = = $1.20
60,000
The weighted average unit cost = ( 12,000

72,000
)$0.96 + (
60,000
72,000
)$1.20
= $1.16

Problem 6–35
Production Report:
Physical flow: BWIP + started = completed + EWIP

60,000 + X = 480,000 + 40,000
X = 460,000

Completed 480,000 480,000
EWIP 40,000 28,000*
Total 520,000 508,000
*40,000 × 0.7 = 28,000

BWIP $168,000 $ 49,300
Added 472,000 182,000
Total $640,000 $231,300
Grand total $871,300
Per unit cost: Materials $640,000/520,000 = $1.2308 (rounded)

Conversion $231,300/508,000 = 0.4553 (rounded)
Total = $1.6861

Units transferred out 480,000 × $1.6861 = $809,328
EWIP – material 40,000 × $1.2308 = 49,232
Conversion 28,000 × $ 0.4553 = 12,748*
$871,308
*rounded
Difference of $8 is due to rounding.

Problem 6–36
1. Units to account for: Units accounted for:
Units in beginning WIP 6,000 Transferred out 18,000
Units started 14,000* Units in ending WIP 2,000
Total 20,000 Total 20,000
*20,000 – 6,000 = 14,000
2. Equivalent Units
Transferred out 18,000
Ending WIP 500 (2,000 × 25%)
Total 18,500
$552 + $8,698
3. Unit cost: = $0.50
18,500
4. Cost transferred out:
18,000 × $0.50 = $9,000
Cost of ending WIP:

500 × $0.50 = $250
5. To assign costs to spoiled units, they should appear as an item in the equivalent
units schedule:
Equivalent Units
Transferred out 17,000
Spoiled units 1,000
Ending WIP 500 (2,000 × 25%)
Total 18,500
The cost per equivalent unit is the same as calculated without spoilage.
Spoilage cost = 1,000 × $0.50 = $500
If the spoilage cost is abnormal, then it will not be assigned to production. A
common approach is to treat the $500 as a loss for the period. If the spoilage is
normal, then it would be added to the cost of goods transferred out.

Problem 6–37
Production Report:
Physical Flow: BWIP + added = completed + EWIP

27,000 + 138,400 = X + 31,700
X = 133,700

Completed 133,700 133,700
EWIP 12,680* 12,680*
Total 146,380 146,380
*31,700 × 0.4 = 12,680

BWIP $ 357,600 $ 374,300*
Added 737,000 992,000**
Total $1,094,600 $1,366,300
Grand total $2,460,900
*$217,500 + $156,800 = $374,300
**$524,000 + $468,000 = $992,000
Per unit cost: Materials $1,094,600/146,380 = $ 7.4778 (rounded)

Conversion $1,366,300/146,380 = 9.3339
Total = $16.8117

Units transferred out 133,700 × $16.8117 = $2,247,724*
EWIP – material 12,680 × $7.4778 = 94,819*
Conversion 12,680 × $9.3339 = 118,354*
$2,460,897
*rounded

Problem 6–38
J Booth Company
Assembly Department
Production Report
For August
(FIFO Method)
UNIT INFORMATION
Units in beginning WIP 48,000 Started and completed 90,400
Units started 112,000 From beginning WIP 48,000
From ending WIP 21,600
Equivalent units:
To complete beginning WIP (48,000 × 40%) 19,200
Units in ending WIP (21,600 × 70%) 15,120
COST INFORMATION
Costs in beginning WIP $285,520
Cost per equivalent unit ($666,304/124,720) $5.3424

Transferred out:
Units started and completed (90,400 × $5.3424) $482,953
Units in beginning work in process:
From prior period 285,520
From current period (19,200 × $5.3424) 102,574
Total costs transferred out 871,047
Goods in ending work in process (15,120 × $5.3424) 80,777

Problem 6–39

Units in BWIP 20,000 Units completed 500,000
Units started 510,000 From EWIP 30,000
Equivalent unit schedule:

Units in ending WIP (30,000 × 0.70) 21,000
2. Unit cost computation:

Costs in BWIP $ 260,000
Costs added 10,780,000
Total costs $ 11,040,000
$11,040,00 0
Unit cost =
521,000
= $21.19
3. Ending work in process = 21,000 × $21.19

= $444,990
Goods transferred out: 500,000 × $21.19 = $10,595,000
4. Cost reconciliation:
Beginning WIP $ 260,000 Transferred out $ 10,595,000
August costs 10,780,000 Ending WIP 444,990
Total to acct. for $ 11,040,000 Total acctd. for $ 11,039,990

5. Equivalent unit schedule:

Paraffin Pigment
Units completed 500,000 500,000
Units in ending WIP 21,000 21,000
Total equivalent units 521,000 521,000
Unit cost computation:
Paraffin Pigment
Costs in BWIP $ 120,000 $ 100,000
Costs added 3,060,000 2,550,000
Total costs $3,180,000 $2,650,000
$3,180,000
Unit paraffin cost = = $6.10 (rounded)
521,000
$2,650,000
Unit pigment cost = = $5.09 (rounded)
521,000
Problem 6–40
1. Department A
a. Physical flow schedule:
Units in beginning WIP 5,000
Units started in November 25,000
Units in ending WIP 2,000
Total units accounted for 30,000
b. Equivalent unit calculation:
Add: Equivalent units in ending WIP (2,000 × 0.80) 1,600

c. Costs charged to the department:

Materials Conversion Total
Beginning WIP $10,000 $ 6,900 $ 16,900
Incurred during November 57,800 95,220 153,020
Total costs $67,800 $102,120 $169,920
Unit cost calculation:
$169,920
Unit cost =
29,600
= $5.74
d. and e. Cost reconciliation:

Costs incurred during November 153,020
Total costs accounted for:
Goods transferred out (28,000 × $5.74) $160,720
Costs in ending WIP (1,600 × $5.74) 9,184
Total costs accounted for $169,904*
2. Work in Process—Department A ............................. 57,800

Raw Materials........................................................ 57,800
Work in Process—Department A ............................. 95,220
Conversion Costs—Department A ..................... 95,220*
Work in Process—Department B ............................. 160,720
Work in Process—Department A ........................ 160,720
*Because conversion costs are not broken into direct labour and overhead
components, a control account for conversion costs is used. A conversion cost
control account is more commonly used because direct labour is becoming a
small percentage of total manufacturing costs. Automation is one cause;
changing the nature of direct labour as in JIT is another cause. In manufacturing
cells, direct labour also performs many so-called traditional overhead activities
such as maintenance and inspection—thus, taking on the nature of “conversion
labour.”

Problem 6–41
1. Benson Pharmaceuticals
Picking Department Production Report
For March (Weighted Average Method)
UNIT INFORMATION
Units started 150
Total units to account for 160
Units accounted for: Physical Flow Equivalent Units
Units completed 140 140
Units in ending WIP 20 10
Total units accounted for 160 150
COST INFORMATION
Costs to account for: Materials Conversion* Total
Beginning WIP $ 252 $ 846 $ 1,098
Incurred during March 3,636 13,854 17,490
Total costs to account for $3,888 $14,700 $18,588
÷ Equivalent units 150
Cost per equivalent unit $123.92
*Conversion is labour plus overhead (200% of labour):
BWIP: 282 + (282 × 2) = $846
March: 4,618 + (4,618 × 2) = $13,854
Transferred Ending
(140 × $123.92) $17,349 $— $17,349
Ending work in process:
(10 × $123.92) 1,239 1,239

2. Benson Pharmaceuticals
Encapsulating Department Production Report
For March (Weighted Average Method)
UNIT INFORMATION
Units started 210,000
Physical Equivalent Units

Units accounted for: Flow Trans. In Materials Conversion
Units completed 208,000 208,000 208,000 208,000
Units in ending WIP 6,000 6,000 6,000 2,400*
Total units acctd. for 214,000 214,000 214,000 210,400
*6,000 × 0.40
COST INFORMATION
Costs to account for: Trans. In Materials Conversion* Total
Beginning WIP $ 140 $ 32 $ 50 $ 222
Incurred during March 17,349 1,573 4,860 23,782
Total costs to acct. for $17,489 $1,605 $4,910 $24,004
÷ Equivalent units 214,000 214,000 210,400
Cost per equivalent unit $0.0817 $0.0075 $0.0233 $0.1125
*BWIP: $20 + ($20*1.5); March: 1,944 + (1,944 × 1.5)
Transferred Ending
(208,000 × $0.1125) $23,400 — $23,400
Ending work in process:
Trans. In (6,000 × $0.0817) — $490 490
Materials (6,000 × $0.0075) — 45 45
Conversion (2,400 × $0.0233) — 56 56
Total costs accounted for $23,400 $591 $23,991

3. Weighted average is easier to use than FIFO because it does not require
separate tracking for units in BWIP. FIFO requires that prior period work and
costs be accounted for separately. The weighted average method co-mingles
prior period work and costs with current period work and costs, thus making
the computations much easier. The weighted average method will produce
essentially the same results as the FIFO method if the cost of inputs remains
relatively unchanged from one period to the next. If there are significant
changes in costs, then the unit cost of the two periods can be significantly
different. Of course, if BWIP is very small, then the effect of using weighted
average will not be noticeable either.
Problem 6–42
1. Gary’s proposal requires Donna to falsify the equivalent unit calculation so that
income and assets can be inflated and reported incorrectly. Falsification of the
production report would be a violation of at least two major ethical standards:
integrity and credibility. If Donna agrees to the proposal, she would be taking
action that would discredit her profession. In addition, Donna has an ethical
obligation to communicate information fairly and objectively, disclosing all
information that would be needed for the loan officer to fairly assess the merits
of the company’s request for a loan. Clearly, Donna should not agree to falsify
the production report.
2. Donna has an obligation to report Gary to a superior only if an actual ethical

problem exists. If Gary decides that the course of action he is suggesting is not
really in his or the company’s best interests, then no ethical problem exists and
no action by Donna is needed.
3. If Gary insists on his idea of falsification of the division’s reports, Donna should
attempt to resolve the conflict by appealing to Gary’s immediate supervisor (and
on up, if necessary, and with the immediate supervisor’s knowledge, assuming
he or she is not involved) until a satisfactory resolution is achieved. If no
satisfactory resolution is possible, then Donna should consult her own attorney
as to legal obligations and rights concerning the ethical conflict.

4. In this situation, the ethical dilemma is complicated by two factors: Donna’s age
and a low likelihood of resolution by appealing to higher-level authorities.
Donna’s age may make it more difficult to find alternative employment (at least
at the same level and pay), and it may mean possible forfeiture of retirement
benefits. Seeking help from an expert in ethics and consulting a lawyer are
certainly good recommendations. Donna has the option of fighting back, and at
her age (with retirement benefits at stake), a good offense may be her best
defense.
Problem 6–43
1. Department A
a. Physical flow schedule:
Units started in November 25,000
From beginning WIP 5,000
Units in ending WIP 2,000
b. Equivalent unit calculation:
Equivalent units in beginning WIP (1 – 0.40) × 5,000 3,000
Equivalent units in ending WIP (2,000 × 0.80) 1,600
c. Costs charged to the department:
Materials Conversion Total
Beginning WIP $10,000 $ 6,900 $ 16,900
Incurred during November 57,800 95,220 153,020
Total costs $67,800 $102,120 $169,920
$153,020
Unit cost =
27,600
= $5.54

d. and e. Cost reconciliation:
Cost of units started and completed (23,000 × $5.54) $127,420
Cost of units in beginning WIP:
Prior period costs 16,900
Current cost to finish units (3,000 × $5.54) 16,620
Total cost of units transferred out 160,940
Costs in ending WIP:
(1,600 × $5.54) 8,864
Beginning WIP $ 16,900
Costs incurred 153,020
2. Journal entries:
Raw Materials........................................................ 57,800
Conversion Costs—Department A ..................... 95,220*
Work in Process—Department B ............................. 160,940
Work in Process—Department A ........................ 160,940
*Because conversion costs are not broken into labour and overhead
components, a control account for conversion costs is used. A conversion
cost control account is more commonly used because direct labour is
becoming a small percentage of total manufacturing costs. Automation is one
cause; changing the nature of direct labour as in JIT is another cause. In
manufacturing cells, direct labour also performs many so-called traditional
overhead activities such as maintenance and inspection—thus, taking on the
nature of “conversion labour.”

Problem 6–44
Production Report: Picking Department
Physical Flow: BWIP + Added = Completed + EWIP

20 + X = 220* + 16
20 + 216 = 220 + 16
236 = 236
*Completed Units are made up of BWIP 20 + Started and Completed 200
Equivalent Units: Materials Conversion

BWIP to Complete 0 8*
Started and Completed 200 200
EWIP 16 12**
Total 216 220
*20 × (1–60%) = 8
**16 × 0.75 = 12
Costs To Account For: Materials Conversion

BWIP $ 575 $ 1,830*
Added $ 7,680 27,060**
Total $ 8,255 $28,890
Grand Total $37,145
*Labour $610 + $610 × 2 = $1,830
**Labour $9,020 + $9,020 × 2 = $27,060
Per Unit Cost: Materials $7,680*/216 = $ 35.5556

Conversion $27,060*/220 = $123.0000
Total = $158.5556
*Do not include BWIP costs in per unit cost calculations.
Cost Allocated:
Units Transferred Out
BWIP - Opening balance $575 + $1,830 = $ 2,405
To Complete 8 × $123.0000 = 984
Started and Completed 200 × $158.5556 = 31,711
EWIP - Material 16 × $35.5556 = 569
Conversion 12 × $123.0000 = 1,476
$37,145

Production Report: Encapsulating Department
Physical Flow: BWIP + Added = Completed + EWIP

6,000 + X = 320,000* + 3,000
6,000 + 317,000 = 320,000 + 3,000
323,000 = 323,000
*Completed Units are made up of BWIP 6,000 + Started
and Completed 314,000
Equivalent Units: Materials Conversion

BWIP to Complete 0 3,600*
Started and Completed 314,000 314,000
EWIP 3,000 600**
Total 317,000 318,200
*6,000 × (1-40%) = 3,600
**3,000 × 0.2 = 600
Costs To Account For: Materials Conversion

BWIP 48 80*
Cost Transferred In
BWIP - Balance $ 575*** $ 1,830***
Completed 984***
Started and Completed 24,600*** 7,111***
Added $ 1,275 7,690**
Total $26,498 $17,695
Grand Total $44,193
*Labour $32 + $32 × 1.5 = $80
**Labour $3,076 + $3,076 × 1.5 = $7,689
***From Production Report from Previous Department
Per Unit Cost: Materials $26,450*/317,000 = $0.0834

Conversion $17,615*/318,200 = $0.0554
Total = $0.1388
*Do not include BWIP costs in per unit cost calculations.
Cost Allocated:
Units Transferred Out
BWIP - Opening balance $48 + $80 = $ 128
To Complete 3,600 × $0.0554 = 199
Started and Completed 314,000 × $0.1388 = 43,583
EWIP - Material 3,000 × $0.0834 = 250
Conversion 600 × $0.0554 = 33
$44,193

Problem 6–45
1. and 2.
Sherbrooke Toboggan Company
Sealing Department
Production Report For August
(Weighted Average Cost Method)
UNIT INFORMATION

Units started during period 15,000 Units in ending WIP 5,000
Total units to account
for 17,000 Total units accounted for 17,000
Equivalent Units
Transferred In Materials Conversion Cost

Units completed 12,000 12,000 12,000
Units in ending WIP 5,000 5,000 1,750
Total equivalent units 17,000 17,000 13,750
COST INFORMATION
Transferred Conversion
In Materials Cost Total
Beginning WIP $105,000 $ 3,950 $ 12,350 $ 121,300
Incurred during the period 750,000 30,000 125,500 905,500
Total cost to account for $855,000 $33,950 $137,850 $1,026,800
Cost per equivalent unit $50.2941 $1.9971 $10.0255 $62.3167
Transferred
Out Ending WIP Total
Goods transferred out (12,000 × $62.3167) $747,800 $ 747,800
Goods in ending WIP:
Transferred in (5,000 × $50.2941) $251,471 251,471
Materials (5,000 × $1.9971) 9,986 9,986
Conversion (1,750 × $10.0255) ________ 17,545 17,545
Total costs accounted for $747,800 $279,002 $1,026,802

Problem 6–46
1.
Sherbrooke Toboggan Company
Sealing Department
Production Report For August
(First-In, First-Out Method)
UNIT INFORMATION

Units started during period 15,000
Equivalent Units
Physical Transferred
Flow In Material Conversion
Units started and completed 10,000 10,000 10,000 10,000
Units completed from
beginning WIP 2,000 – – 800
Units in ending WIP 5,000 5,000 5,000 1,750
_____ ______ ______ ______
Total units accounted for 17,000 15,000 15,000 12,550
COST INFORMATION
Transferred Conversion
In Materials Cost Total
Beginning WIP $105,000 $ 3,950 $ 12,350 $ 121,300
Incurred during the period 750,000 30,000 125,500 905,500
Total cost to account for $855,000 $33,950 $137,850 $1,026,800
Cost per equivalent unit $50 $2 $10 $62

Transferred Ending
Out WIP Total
Units in beginning WIP:
From prior period $121,300 $121,300
From current period (800 × $10) 8,000 8,000
Units started and completed (10,000 × $62) 620,000 620,000
Goods in ending WIP:
Transferred in (5,000 × $50) $250,000 250,000
Materials (5,000 × $2) 10,000 10,000
Conversion (1,750 × $10) ________ 17,500 17,500
Total costs accounted for $749,300 $277,500 $1,026,800
2. The solution to this problem differs from the solution to Problem 6-45 in that,
under the FIFO method, the costs of completed units that started in the
beginning WIP are calculated separately from the costs of units started and
completed in the current period. As a result, goods transferred out of WIP to the
next department will not necessarily carry the same costs, whereas all units
transferred out under the weighted average cost method all carry the same
costs.

Problem 6–47
1.
UNIT INFORMATION

Units in beginning WIP 750 Units completed 7,660
Units started during period 7,400 Units in ending WIP 490
Total units to account for 8,150 Total units accounted for 8,150
Equivalent units: Baking Decorating Conversion

Material Material Costs
Completed 7,660 7,660 7,660
EWIP 490 392* 392*
Total 8,150 8,052 8,052
*490 × 0.8 = 392

Baking Decorating Conversion
Material Material Costs
BWIP $ 985 $ 600 $ 1,050
Added 11,825 3,060 16,564
Total $12,810 $3,660 $17,614
Grand total $34,084
Per unit cost: Baking materials $12,810/8,150 = $1.5718

Decorating material $3,660/8,052 = 0.4545
Conversion $17,614/8,052 = 2.1875
Total = $4.2138

Units transferred out 7,660 × $4.2138 = $32,278
EWIP - baking material 490 × $1.5718 = 770
Decorating material 392 × $0.4545 = 178
Conversion 392 × $2.1875 = 858
$34,084
2. The number of units transferred to the packaging department during February

is 7,660. The transferred-in cost of those units is $32,278.

PROFESSIONAL EXAMINATION PROBLEM*
Professional Examination Problem 6–48 PROCESS COSTING,

EQUIVALENT UNITS—DELPHI CORPORATION
a) Transferred- Direct Direct Mfg.

In Costs Materials Labour Overhead
Equivalent units
Units transferred out 4,000 4,000 4,000 4,000
Ending WIP
2,000 × 100% 2,000
2,000 × 90% 1,800
2,000 × 70% 1,400
2,000 × 35% _____ _____ _____ 700
6,000 5,800 5,400 4,700
Costs in opening WIP $ 32,000 $ 20,000 $ 7,200 $ 5,500

Costs added 160,000 96,000 36,000 18,000
$192,000 $116,000 $43,200 $23,500
Cost per unit $32 $20 $8 $5

Total cost/unit = $65
Cost of goods transferred out

Units transferred out: 4,000 × $65 $260,000
Cost of ending inventory

Transferred-in costs: 2,000 × $32 $ 64,000
Direct materials: 1,800 × $20 36,000
Direct labour: 1,400 × $8 11,200
Manufacturing overhead: 700 × $5 3,500
$114,700
T-account perspective:
WIP – Assembly WIP – Finishing
B $64,700 260,000 TO5
1
TI 260,000
TI2 160,000
CA3 150,000
E4 114,700
1B = Beginning
2 TI= Transferred in
3 CA = Costs added
4 E= Ending
5 TO = Transferred out
*
© CPA Ontario.

Professional Examination Problem 6–48 (Continued)
b) Transferred- Direct Direct Mfg.

In Costs Materials Labour Overhead
Equivalent units
Units in opening WIP
1,000 × 0% -0-
1,000 × 0% -0-
1,000 × 40% 400
1,000 × 50% 500
Units started and completed 3,000 3,000 3,000 3,000
Ending WIP
2,000 × 100% 2,000
2,000 × 90% 1,800
2,000 × 70% 1,400
2,000 × 35% _____ _____ _____ 700
5,000 4,800 4,800 4,200
Costs added $160,000 $96,000 $36,000 $18,000
Cost per unit $32.00 $20.00 $7.50 $4.2857

Total cost/unit = $63.7857
Cost of goods transferred out

Costs in opening WIP $ 64,700
Cost to complete opening WIP
Direct labour: 400 × $7.50 3,000
Manufacturing overhead: 500 × $4.2857 2,143
69,843
Units started and completed: 3,000 × $63.7857 191,357
$261,200
Cost of ending inventory

Transferred-in costs: 2,000 × $32 $ 64,000
Direct materials: 1,800 × $20 36,000
Direct labour: 1,400 × $7.50 10,500
Manufacturing overhead: 700 × $4.2857 3,000
$113,500
T-account perspective:
WIP – Assembly WIP – Finishing

1
B $64,700 261,200 TO5 TI 261,200
TI2 160,000
CA3 150,000
E4 113,500
1B = Beginning
2 TI= Transferred in
3 CA = Costs added
4 E= Ending
5 TO = Transferred out

CASES
Case 6-49
1. Unit cost computation:
Units, beginning work in process 0
Units started 2,800
From beginning work in process 0
Units, ending work in process 300
Costs charged to the department:

Direct Conversion
Materials Costs Total
Costs in beginning work in process $ 0 $ 0 $ 0
Costs added by department 114,000 82,201* 196,201
Total costs $114,000 $82,201 $196,201
*45,667 + (.80 × 45,667) (rounded)
Equivalent units calculation:

Direct Conversion
Materials Costs
Units completed 2,500 2,500
Equivalent units in ending work in process 300 240

Unit cost = Unit direct materials cost + Unit conversion costs
$114,000 $82,201
= +
2,800 2,740
= $40.71* + $30
= $70.71
*Rounded

Case 6–49 (Continued)
2. Since conversion activity is the same for both bows, only the materials cost will
differ. Thus, the unit materials cost is computed and then added to the unit
conversion cost obtained in Requirement 1.
Econo Model
Units started 1,600
Direct materials cost charged to the department:

Direct Materials
Costs in beginning work in process $ 0
Total costs $30,000

Direct Materials
Add: Equivalent units in ending work in process 100

$30,000
= + $30
1,600
= $18.75 + $30
= $48.75

Deluxe Model
Units started 1,200

Direct materials cost charged to the department:

Direct Materials
Costs in beginning work in process $ 0
Total costs $84,000

Direct Materials
Add: Equivalent units in ending work in process 200

$84,000
= + $30
1,200
= $70 + $30
= $100

3. Unit cost for Econo model $48.75

Unit cost for Deluxe model $100.00
Unit cost for both together $70.71
Using pure process costing understates the cost of the Deluxe model and
overstates the cost of the Econo model. The error is large, so Karen seems to
be justified in her belief that a pure process-costing relationship is not
appropriate.
Process costing could be used for all departments other than the pattern
department. In the pattern department, process-costing procedures can be used
for conversion costs, but the cost of direct materials should be tracked by
batch.
4. The profitability of the Econo line was being understated by nearly $22, while
that of the Deluxe line was overstated by over $29, producing an erroneous $51
difference in profitability under the current process-costing system. This easily
could be enough of a difference to make the marketing manager’s request for
additional advertising dollars a sound one. It is quite possible that Aaron was
wrong in not granting the request—wrong because he was using the wrong
cost information. This example illustrates the importance of an accurate costing
system.
Case 6–50
Units, beginning work in process 10,000
Units started (transferred in) 51,000

From beginning work in process 10,000
Units, ending work in process 11,000

Costs:
Costs incurred by the gating department:
Direct materials (23% × $378,000) $ 86,940
Direct labour (35% × $530,300) 185,605
Overhead (35% × $643,518) 225,231*
Total costs added $497,776
*Assumes that overhead is used in the same proportion as direct labour.

Direct Conversion
Materials Costs
Units started and completed 40,000 40,000
Units completed from beginning work in process — 4,000
Add: Equivalent units in ending work in process 11,000 6,600

$86,940 $410,836
= +
51,000 50,600
= $1.70* + $8.12*
= $9.82
*Rounded
Value of ending work in process:

Direct materials (11,000 × $1.70) $18,700
Conversion costs (6,600 × $8.12) 53,592
Total cost of units in ending work in process $72,292
Assumptions: Overhead is used at the same rate as direct labour.
The FIFO method is used because the costs associated with the beginning work
in process are not known. Only the manufacturing costs added this period are
known. Since the FIFO method requires only current output and current costs
to calculate the unit cost, it is the method that should be used. Once a cost per
equivalent unit is known, the ending work in process can be valued.

2. Units, beginning work in process 8,000
Units started (transferred in) 50,000
From beginning work in process 8,000
Units, ending work in process 8,000

Direct Conversion Transferred
Materials Costs In
Units started and completed 42,000 42,000 42,000
Units to complete, beginning
work in process — 6,400 —
Add: Equivalent units in ending
work in process 8,000 2,400 8,000
Total equivalent units 50,000 50,800 50,000
Costs:
Transferred-in cost (50,000 × $9.82) $491,000*
Costs incurred by shell creating:
Direct materials ($378,000 × 0.47***) $177,660
Direct labour ($530,300 × 0.15) 79,545
Overhead ($643,518 × 0.15) 96,528**
Total conversion cost 353,733
Total costs $844,733
*Assumes that all units transferred out, including those finished from
beginning work in process, have a cost of $9.82 per unit. In essence, this
assumes that the unit cost of this period equals the unit cost of the prior
period.
**Rounded
***70% less 23% = 0.47

Unit cost = Unit direct materials cost + Unit conversion costs +

Unit transferred-in cost
$177,660 $176,073 $491,000
= + +
50,000 50,800 50,000
= $3.55* + $3.47* + $9.82
= $16.84
*Rounded
Units, ending work in process:

Direct materials (8,000 × $3.55) $ 28,400
Conversion costs (2,400 × $3.47) 8,328
Transferred in (8,000 × $9.82) 78,560
Total cost of ending work in process $115,288
In addition to the same assumptions made for the first department, we had to
assume that the unit cost of all units transferred out was equal to the FIFO
method unit cost. This assumption holds if the cost of producing last period did
not change for this period. Even if the cost did change, the error is not likely to
be large. For purposes of estimating the value of ending work in process, the
assumption is quite workable.
Case 6–51
The objective is to determine whether FIFO or weighted average process costing
generates higher COGS.
Under normal low-inflation (and high-inflation) scenarios, FIFO process
costing will lead to lower COGS as new inputs are purchased at ever-higher prices,
whereas weighted average process costing will lead to higher COGS as the costs
of inputs are averaged across time periods.
Due to pup joint input price drops, the implication upon COGS for FIFO
process costing is reversed. Inputs to be entered into COGS first under FIFO are
the more expensive inputs; consequently, COGS will be higher than COGS would
be under weighted average process costing.
As a result, Elise should advise management that FIFO process costing
provides greater evidence of injury than weighted average process costing.
Importantly, had 100% (instead of 30%) of pup joint input inventory on hand
been sold between September and November 2015, there would be zero difference
in COGS (and injury evidence) between FIFO and weighted average process
costing methods.
The solution can be determined by applying numbers, though it is not
necessary.

For example:
For when input costs were high, assume 750 units (75%) are purchased for
$20 per unit.
For when input costs were low, assume 250 units (25%) are purchased for
$10 per unit.
Total number of pup joint units produced is 1,000.
Under FIFO process costing, the use of 30% of pup joints inputs would generate
COGS of $6,000 (300 units (1,000 units x 30%) x $20 per unit).
Under weighted average process costing, the use of 30% of pup joint inputs would
generate COGS of $5,250 (300 units (1,000 units x 30%) x $17.50 per unit ((750 units
x $20 per unit + $250 units x $10 per unit) divided by 1,000 units)
The COGS generated by FIFO is higher, hence the FIFO process costing method
generates lower gross profit and net income, and greater evidence of injury.

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CHAPTER 6

Copyright © 2018 by Nelson Education Ltd. 6-1

6-2 Copyright © 2018 by Nelson Education Ltd.

Cornerstone Exercise 6–1

1. Mixing Cooking Packaging

2. Work in Process—Cooking ...................... 300,000

Work in Process—Packaging .................. 412,500

Finished Goods......................................... 585,000

Cornerstone Exercise 6–2

Cornerstone Exercise 6–3

2. Cost of goods transferred out ($15 × 34,000) $510,000

Copyright © 2018 by Nelson Education Ltd. 6-3

3. Cost of goods transferred out ($2 × 75,000) = $150,000

Cornerstone Exercise 6–5

6-4 Copyright © 2018 by Nelson Education Ltd.

Costs accounted for:

Copyright © 2018 by Nelson Education Ltd. 6-5

2. Unit materials cost: ($20,000 + $125,000) / 77,200 = $1.88

Unit conversion cost: ($15,000 + $210,000) / 70,000 = 3.21

Total unit cost $5.09

3. Cost transferred out: 65,200 × $5.09 = $331,868

Cornerstone Exercise 6–8

1. Physical flow schedule:

6-6 Copyright © 2018 by Nelson Education Ltd.

Conversion Materials Materials

Conversion Materials Materials

2. Cost per equivalent unit $ 0.60 $ 0.20 $ 0.40

3. Costs accounted for:

Units completed and transferred out:

Units in ending inventory:

Cornerstone Exercise 6–9

1. Physical flow schedule:

Copyright © 2018 by Nelson Education Ltd. 6-7

2. Cost per equivalent unit $ 75 $ 220

3. Costs accounted for:

Units completed and transferred out:

Units in ending inventory:

6-8 Copyright © 2018 by Nelson Education Ltd.

1. Physical flow schedule:

Transferred-In Conversion Materials

Transferred-In Conversion Materials

2. Cost per equivalent unit $ 300 $ 105 $ 50

3. Costs accounted for:

Units completed and transferred out:

Units in ending inventory:

Copyright © 2018 by Nelson Education Ltd. 6-9

2. Units completed 175,000

Cornerstone Exercise 6–12

3. Cost of units transferred out:

6-10 Copyright © 2018 by Nelson Education Ltd.

Costs accounted for:

Copyright © 2018 by Nelson Education Ltd. 6-11

2. Per unit cost = $224,200/6,000 = $37.37/unit (rounded)

1b. Work in Process—Finishing ..................................... 82,000

1c. Finished Goods .......................................................... 95,000

1. Completed units 28,900

2. Unit manufacturing cost for December: $68,750 / 29,740 = $2.31*

4. EWIP for December = 840 equivalent units × $2.31 = $1,940

6-12 Copyright © 2018 by Nelson Education Ltd.