Process Costing

Q 1) Candid, Inc. is a manufacturer of digital cameras. It has two departments: assembly and testing. In
January 2017, the company incurred $800,000 on direct materials and $805,000 on conversion costs, for a
total manufacturing cost of $1,605,000.

Required:
1. Assume there was no beginning inventory of any kind on January 1, 2017. During January, 5,000
cameras were placed into production and all 5,000 were fully completed at the end of the month. What is
the unit cost of an assembled camera in January?
2. Assume that during February 5,000 cameras are placed into production. Further assume the same total
assembly costs for January are also incurred in February, but only 4,000 cameras are fully completed at
the end of the month. All direct materials have been added to the remaining 1,000 cameras. However, on
average, these remaining 1,000 cameras are only 60% complete as to conversion costs. (a) What are the
equivalent units for direct materials and conversion costs and their respective costs per equivalent unit
for February? (b) What is the unit cost of an assembled camera in February 2017?
3. Explain the difference in your answers to requirements 1 and 2.
Solution:
Equivalent units, zero beginning inventory.

1. Direct materials cost per unit ($800,000 ÷ 5,000) $ 160.00

Conversion cost per unit ($805,000 ÷ 5,000) 161.00
Assembly Department cost per unit $321.00
2a.
Summarize the Flow of Physical Units and Compute Output in Equivalent Units;

(Step 2)

(Step 1) Equivalent Units

Physical Direct Conversion

Flow of Production Units Materials Costs

Work in process, beginning (given) 0

Started during current period (given) 5,000
To account for 5,000
Completed and transferred out
during current period 4,000 4,000 4,000

Work in process, ending* (given) 1,000

1,000  100%; 1,000  60% 1,000 600
Accounted for 5,000
Equivalent units of work done in current period 5,000 4,600

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*Degree of completion in this department: direct materials, 100%; conversion costs, 60%.

Compute the Cost per Equivalent Unit,

Total
Production Direct Conversion
Costs
Costs Materials

(Step 3) Costs added during February $1,605,000 $800,000 $805,000

Divide by equivalent units of work done
 4,600
in current period (Solution Exhibit 17-21A)  5,000
Cost per equivalent unit $ 160 $ 175

2b. Direct materials cost per unit $ 160

Conversion cost per unit 175
Assembly Department cost per unit $335

3. The difference in the Assembly Department cost per unit calculated in requirements 1 and 2 arises
because the costs incurred in January and February are the same but fewer equivalent units of work are
done in February relative to January. In January, all 5,000 units introduced are fully completed resulting in
5,000 equivalent units of work done with respect to direct materials and conversion costs. In February, of
the 5,000 units introduced, 5,000 equivalent units of work is done with respect to direct materials but only
4,600 equivalent units of work is done with respect to conversion costs. The Assembly Department cost per
unit is, therefore, higher.
Q 2) The assembly division of Quality Time Pieces, Inc. uses the weighted-average method of process
costing. Consider the following data for the month of May 2017:
Physical Units Direct Conversion
(Watches) Materials Costs
Beginning work in process (May 1)a 100 $ 459,888 $ 142,570
Started in May 2017 510
Completed during May 2017 450
b
Ending work in process (May 31) 160
Total costs added during May 2017 $3,237,000 $1,916,000
a
Degree of completion: direct materials, 80%; conversion costs, 35%.
b
Degree of completion: direct materials, 80%; conversion costs, 40%.
Required:
1. Compute equivalent units for direct materials and conversion costs. Show physical units in the first
column of your schedule.

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 2. summarize the total costs to account for, calculate the cost per equivalent unit for direct materials
and conversion costs, and assign costs to the units completed (and transferred out) and units in
ending work in process.
Solution:
(Step 2)
(Step 1) Equivalent Units
Physical Direct Conversion
Flow of Production Units Materials Costs
Work in process beginning (given) 100
Started during current period (given) 510
To account for 610
Completed and transferred out during current period 450 450 450
Work in process, ending* (160  80%; 160  40%) 160 128 64
Accounted for 610 ___ ___
Equivalent units of work done to date 578 514

*Degree of completion in this department: direct materials, 80%; conversion costs, 40%.

Total
Production Direct Conversion
Costs Materials Costs
(Step 3) Work in process, beginning (given) $ 602,458 $ 459,888 $ 142,570
Costs added in current period (given) 5,153,000 3,237,000 1,916,000
Total costs to account for $5,755,458 $3,696,888 $2,058,570

(Step 4) Costs incurred to date $3,696,888 $2,058,570

Divide by equivalent units of work done to
date (Solution Exhibit above)
 578  514
Cost per equivalent unit of work done to $ 6,396 $ 4,005
date
(Step 5) Assignment of costs:
Completed and transferred out (460 units) $4,680,450 (450*  $6,396) + (450*  $4,005)

Work in process, ending (120 units) 1,075,008 (128†  $6,396) + (64† 

$4,005)
Total costs accounted for $5,755,458 $3,696,888 + $2,058,570

*
Equivalent units completed and transferred out from Solution Exhibit 17-24, Step 2.
†
Equivalent units in work in process, ending from Solution Exhibit 17-24, Step 2.
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Q 3) The following information concerns Westheimer Corporation’s equivalent units in May 20X1:

Units
Beginning work-in-process (50% complete) 4,000
Units started during May 16,000
Units completed and transferred 14,000
Ending work-in-process (80% complete) 6,000

Using the weighted-average method, what were Westheimer’s May 20X1 equivalent units?

Solution: Before computing the equivalent units, it is helpful to reconcile the actual units. 4,000 units were
in beginning inventory and 16,000 units were started, for a total of 20,000 units. 14,000 units were
completed and 6,000 units remained in ending inventory, again for a total of 20,000 units.
Converting to equivalent units using the weighted-average method, the units completed at 100% complete
and the units in ending inventory at their percentage of completion are considered.
In this question, the units in ending inventory are 80% complete. Equivalent units were thus 18,800 (14,000
+ (6,000 × 0.80)). Using the weighted-average method, the percentage of completion of the beginning
inventory is not considered. Hence, the equivalent units are 18,800 Units.
Q 4) Sepulveda Corporation uses a process costing system to manufacture laptop PCs. The following
information summarizes operations for its VeryLite model during the quarter ending March 31, Year 1:

Direct
Units Materials
Work-in-process inventory, January 1 100 $ 60,000
Started during the quarter 500
Completed during the quarter 400
Work-in-process inventory, March 31 200
Costs added during the quarter $840,000

Beginning work-in-process inventory was 50% complete for direct materials. Ending work-in-process
inventory was 75% complete for direct materials. What were the equivalent units for direct materials for the
quarter using the FIFO method?

Solution: Before computing the equivalent units, it is helpful to reconcile the actual units. 100 units were in
beginning inventory and 500 units were started, for a total of 600 units. 400 units were completed and 200
units remained in ending inventory, again for a total of 600 units.
Converting to equivalent units using the FIFO method, the units started and completed at 100% complete,
the units in ending inventory at their percentage of completion, and the units in beginning inventory at their
percentage of completion are all considered.
Units started and completed during the quarter were 300 (400 completed − 100 in beginning inventory).
Equivalent units needed to complete the beginning inventory were 50 (100 × 0.50). Equivalent units in the
ending inventory were 150 (200 × 0.75). Therefore, total equivalent units for the first quarter were 500 (50 +
300 + 150).

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Q 5) Penn Manufacturing Corporation uses a process-costing system to manufacture printers for PCs. The
following information summarizes operations for its NoToner model during the quarter ending September
30, Year 1:

Direct
Units Labor
Work-in-process inventory, July 1 100 $ 50,000
Started during the quarter 500
Completed during the quarter 400
Work-in-process inventory, September 30 200
Costs added during the quarter $775,000

Beginning work-in-process inventory was 50% complete for direct labor. Ending work-in-process inventory
was 75% complete for direct labor. What is the total value of the direct labor in the ending work-in-process
inventory using the weighted-average method?

Solution: The general approach to this problem is to (1) compute the equivalent units; (2) compute the unit
cost of the production; and (3) apply the unit cost to the equivalent units in the ending inventory.
Before computing the equivalent units, it is helpful to reconcile the actual units. 100 units were in beginning
inventory and 500 units were started, for a total of 600 units. 400 units were completed and 200 units
remained in ending inventory, again for a total of 600 units.
Converting to equivalent units using the weighted-average method, the units completed at 100 percent
complete and the units in ending inventory at their percentage of completion are considered. Equivalent
units were thus 550 [400 + (200 × 0.75)]. Using the weighted average method, the percentage of completion
of the beginning inventory is not considered.
To compute the unit cost of production, the cost of the beginning inventory plus the cost added during the
month are considered. The cost of the beginning inventory was $50,000. $775,000 of cost was added during
the month, for a total of $825,000 ($50,000 + $775,000). The per equivalent unit cost is $1,500 ($825,000 /
550).
There were 150 equivalent units in ending inventory (200 × 0.75). The cost of this inventory was thus
$225,000 ($1,500 × 150).
Q 6) Kimberly Manufacturing uses a process-costing system to manufacture Dust Density Sensors for the
mining industry. The following information pertains to operations for the month of May, Year 5.

Units
Beginning work-in-process inventory, May 1 16,000
Started in production during May 100,000
Completed production during May 92,000
Ending work-in-process inventory, May 31 24,000

The beginning inventory was 60% complete for materials and 20% complete for conversion costs. The
ending inventory was 90% complete for materials and 40% complete for conversion costs.
Costs pertaining to the month of May are as follows.
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 Beginning inventory costs are: materials, $54,560; direct labor $20,320; and factory overhead, $15,240.
 Costs incurred during May are: materials used, $468,000; direct labor, $182,880; and factory overhead,
$391,160.

Using the weighted-average method, calculate the equivalent-unit conversion cost for May?
Solution: Weighted-average equivalent units:
Units completed (given) 92,000
+ Ending WIP × % completed = 24,000 × 40% = 9,600
Weighted-average equivalent units 101,600

Weighted-average cost per equivalent unit:

= Beginning cost + Current cost / Equivalent units
= ($20,320 + $15,240) + ($182,880 + $391,160) / 101,600
= $6.00.
Hence, $6.00 equivalent unit conversion cost using the weighted-average method.