Cost Management A Strategic Emphasis 7th Edition Blocher Solutions Manual 1

Chapter 6 - Process Costing
Cost Management A Strategic Emphasis 7th

Edition by Blocher Stout Juras Cokins ISBN
9780077733773
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CHAPTER 6: PROCESS COSTING
QUESTIONS
6-2 Process costing is likely used in industries such as chemicals, oil refining, textiles,
paints, flour, canneries, rubber, steel, glass, food processing, mining, automobile
production lines, electronics, plastics, drugs, paper, lumber, leather goods, metal
products, sporting goods, cement, and watches.
6-4 Equivalent units are the number of completed units that could have been produced
given the amount of work actually performed on both complete and partially
completed units.
6-6 A production cost report is a report, which summarizes the physical units and
equivalent units of a department, the costs incurred during the period, and costs
assigned to both finished goods and work-in-process inventories. The five key
steps in preparing a production cost report are analysis of physical units,
6-1
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
calculation of equivalent units, determination of total costs to account for,

computation of unit costs, and assignment of total costs.
6-8 The weighted-average method would be inappropriate when a firm’s beginning and
ending inventories or manufacturing costs per unit change dramatically from period
to period.
6-2
6-10 From the standpoint of cost control, the FIFO method is superior to weighted-
average because the cost per equivalent unit under FIFO represents the cost for
the current period’s efforts only. It is difficult to monitor the separate performance
in different periods using the weighted-average method because the costs of the
prior period and the current period are mixed together.
6-12 Work-in-Process Inventory -- Second Department $50,000

Work-in-Process Inventory -- First Department $50,000
6-14 Under the weighted-average method, it makes no difference when a product is

started; all units completed in the same period or in the ending inventory of that
period are treated the same. In computing the equivalent units, this method looks
at only the output of the production process. In calculating the unit cost, this method
considers both the beginning work-in-process cost and the current period cost.
6-16 Backflush costing is a simple costing system that assigns materials and conversion
costs directly to finished goods inventory, by assuming there is little or no WIP
inventory. In contrast, process costing is used where work-in-process inventory is
significant; average cost per equivalent unit of production is determined from an
average of completed units and work-in-process inventory.
6-3
BRIEF EXERCISES
6-18
Work-in-process inventory, February 28 65,000
Learning Objective: 06-04

Topic: Illustration of Process Costing
Category:
Blooms: Apply
AACSB: Analytic
AICPA FN: Measurement
AICPA BB:
Difficulty: Easy
Feedback
Work-in-process inventory, 2/1 80,000
Units started 60,000
Total units to account for 140,000
Units completed (75,000)
6-20
Units started 5,200

Category:
Blooms: Apply
AACSB: Analytic
AICPA BB:
Difficulty: Easy
Feedback
Units completed 7,300
Total units accounted for 10,700
Work-in-process inventory, 9/1 (5,500)
Units started 5,200
6-4
6-22
a) Weighted Average
Materials: 47,000
Conversion: 45,500
b) FIFO
Materials: 45,000
Conversion: 44,500

Category:
Blooms: Apply
AACSB: Analytic
AICPA BB:
Difficulty: Easy
Feedback:
a) Weighted Average
Materials: 47,000 = 44,000 + 1.0 x 3,000
Conversion: 45,500 = 44,000 + .5 x 3,000
b) FIFO
Materials: 45,000 = 44,000 + 1.0 x 3,000 - 1.0 x 2,000
Conversion: 44,500 = 44,000 + .5 x 3,000 - .5 x 2,000
6-24 Ending WIP: 2,500 units

Category:
Blooms: Apply
AACSB: Analytic
AICPA BB:
Difficulty: Easy
Feedback
6-5
Units
Beginning WIP 5,000
Units started or Trans-in 20,000
Total to account for 25,000
Units Finished or Trans-out 22,000

Normal spoilage 400
Abnormal spoilage 100
Ending WIP 2,500
Total accounted for 25,000
6-26 The number of units transferred-in is 33,000 units

Category:
Blooms: Apply
AACSB: Analytic
AICPA BB:
Difficulty: Easy
Feedback
Units
Beginning WIP 6,000
Units started or Trans-in 33,000
Units Finished or Trans-out 35,000

Normal spoilage 0
Abnormal spoilage 0
Ending WIP 4,000
Total accounted for 39,000
6-6
EXERCISES
6-28 Equivalent Units; Weighted-Average Method (15 min)
1. Calculate the number of tons completed and transferred out during the
month. Answer: 6,000
2. Calculate the number of equivalent units for both materials and

conversion for the month of May, assuming that the company uses the
weighted-average method.
Answer: Materials, 7,000; Conversion 6,600
3. How would your answer in part 2 change if the percentage of completion

in ending inventory were as follows: materials 30%, conversion 40%?
Answer: Materials, 6,600; Conversion 6,800
4. Process costing is a good fit for the fish processing industry because there
is single or a small number of products that are processed through a series
of well-defined processing steps: moving, cleaning, preparation for shipment,
etc.

Category:
Blooms: Apply
AACSB: Analytic
AICPA BB:
Difficulty: Easy
Feedback for parts 1, 2, and 3:
1. Work-in-process inventory, 5/1 1,000

Units started 7,000
6-7

Work-in-process inventory, 5/31 (2,000)
Units completed and transferred out 6,000
6-8
6-28 (continued -1)
2. Equivalent units -- Weighted-Average Method

Materials:
Work-in-process inventory, 5/31 2,000 x 50% = 1,000
Total equivalent units 7,000
Conversion:
Work-in-process inventory, 5/31 2,000 x 30% = 600
3. Equivalent units -- Weighted-Average Method

Materials:
Conversion:
6-9
6-30 Equivalent Units; Weighted-Average Method (15 min)
Equivalent Units:
Materials 205,500
Conversion: 204,000

Category:
Blooms: Apply
AACSB: Analytic
AICPA BB:
Difficulty: Easy
Feedback:
Quantity Schedule
Input
Output
Units completed (=210,000 – 15,000) 195,000
Work in process inventory (12/31) 15,000
Total units accounted for 210,000
Equivalent Units -- Weighted-Average Method

Materials
Work-in-process inventory(12/31) 15,000 x 70% = 10,500
Conversion:
Work-in-process inventory(12/31) 15,000 x 60% = 9,000
6-10
6-32 Equivalent Units; FIFO Method (20 min)
Equivalent Units:
Weighted Average:
Materials = 1,100
Conversion= 920
FIFO
Materials = 900
Conversion = 880

Category:
Blooms: Apply
AACSB: Analytic
AICPA BB:
Difficulty: Medium
Feedback:
Equivalent Units:
Weighted Average:
Materials = 800 + (100% x 300) = 1,100
Conversion = 800 + (40% x 300) = 920
FIFO
Materials = 800 + (100% x 300) – (100% x 200) = 900
Conversion = 800 + (40% x 300) - (20% x 200) = 880
6-11
6-34 Equivalent Units; FIFO Unit Cost (25 min)
Cost per Equivalent Unit

Weighted Average:
Materials: $1.80
Conversion: $3.4468
FIFO:
Materials: $1.7143
Conversion: $3.6585

Category:
Blooms: Apply
AACSB: Analytic
AICPA BB:
Difficulty: Medium
Feedback:
1.
Weighted Average:
Materials: $1.80 = ($60,000+$120,000)/(70,000+1.0x30,000)
Conversion: $3.4468 ($24,000+$300,000)/(70,000+.8x30,000)
FIFO:
Materials: $1.7143 = $120,000/(70,000+30,000-30,000)
Conversion: $3.6585 = ($300,000)/(70,000+.8x30,000-.4x30,000)
2. The differences between the cost per equivalent unit (FIFO vs weighted-
average) for materials and conversion are due to differences in the per unit
amounts in beginning WIP and current costs. These differences are
averaged together in the weighted-average method, while in the FIFO
method, the cost per equivalent unit is based on current costs only.
The Cost Report Follows:
6-12
6-34 (continued -1)
Weighted Average FIFO

Physical Percentage Equivalent Units Equivalent Units
Units Completion Materials Conversion Materials Conversion
Beginning WIP 30,000
Materials 100% 30,000
Conversion 40% 12,000
Units Finished 70,000 70,000 70,000 70,000 70,000

Ending WIP 30,000
Materials 100% 30,000 30,000
Conversion - 80% 24,000 24,000
Total accounted for 100,000 - - - -
Weighted Average EU 100,000 94,000 100,000 94,000
Less EUs in Beginning WIP 30,000 12,000
FIFO EU 70,000 82,000
DETERMINE TOTAL COSTS Materials Conversion Materials Conversion

Beginning WIP $ 60,000 $ 24,000
Current Costs 120,000 300,000 $ 120,000 $ 300,000
TOTAL $ 180,000 $ 324,000
WTAVG Cost per EU $ 1.8000 $ 3.4468

FIFO Cost per EU $ 1.7143 $ 3.6585
6-13
PROBLEMS
6-36 Weighted Average Method
1.
Materials Conversion
Equivalent units 30,000 28,000
Cost per Equiv. Unit $6.25 $5.85
2. $314,600
3. $ 36,700
Answers are shown in the process cost report below.

Equivalent Units
Physical Completion Direct Conversion
Units Percentage Materials Costs
Beg. WIP Inventory: 0
Direct Materials 0%
Conversion Cost 0%
Units started during May 30,000
Units to Account For 30,000
Units completed 26,000 100% 26,000 26,000

Ending WIP Inventory: 4,000
Direct Materials 100% 4,000 N/A
Conversion cost 50% N/A 2,000
Units Accounted For 30,000 ________ _______
Equivalent Units Produced N/A 30,000 28,000
Cost Element
Materials Conversion Total
Total Manufacturing Cost (numerator of calculation):
Beginning WIP Inventory $0 $0
Manufacturing Costs Added in Current Month $187,500 $163,800
Total Cost $187,500 $163,800
Number of Equivalent Units Produced 30,000 28,000
Cost per Equivalent Unit $6.250 $5.850 $12.10
Units Completed Units in Ending

and Transferred WIP
Out Inventory Total
Goods Completed and Transferred Out (26,000 x $12.10) $314,600 N/A $314,600
Units in Ending WIP Inventory:
Direct materials component (4,000 x $6.25) $25,000 $25,000
Conversion costs (2,000 x $5.85) $11,700 $11,700
TOTAL MANUFACTURING COSTS ACCOUNTED FOR $314,600 $36,700 $351,300
Beginning WIP Inventory $0

Manufacturing Costs Added during the month $351,300
TOTAL MANUFACTURING COSTS TO ACCOUNT FOR $351,300
6-14
6-15
6-38 FIFO Method (20 min) -- see solution above
6-40 Weighted-Average Method (30 min)
1. Equivalent units:(note: units started = 200,000+30,000-50,000=180,000)

Direct Materials: 224,000
Conversion: 215,000
2. Cost per equivalent unit:

Direct Materials: ¥ 3.910 (¥ is the symbol for the Chinese Yuan)
Conversion: ¥ 6.535
Total unit costs: ¥ 10.445
3. Cost of goods completed and transferred out: ¥ 2,089,000
4. Cost of work-in-process, 10/31: ¥ 191,865
Answers in Cost Report Follow:
6-16
Weighted Average
Physical Percentage Equivalent Units
Units Completion Materials Conversion
Materials 100%
Conversion 30%
Units Finished 200,000 200,000 200,000

Ending WIP 30,000
Conversion - 50% 15,000
Total accounted for 230,000 - -
Total Equivalent Units 224,000 215,000
DETERMINE TOTAL COSTS (all amounts in Yuan)

Materials Conversion Total
Beginning WIP ¥ 55,440 ¥ 54,425 ¥ $ 109,865
Current Costs 820,400 1,350,600 2,171,000
TOTAL ¥ 875,840 ¥ 1,405,025 ¥ $ 2,280,865
WTAVG Cost per EU ¥ 3.910 ¥ 6.535 ¥ 10.445
COST ASSIGNED -WEIGHTED AVERAGE Transferred WIP

Out Inventory Total
Finished Goods ( 200,000 units) ¥ 2,089,000 ¥ 2,089,000
Ending WIP ( 30,000 units)
Materials 80% 93,840 93,840
Conversion 50% - 98,025 98,025
TOTAL MANUFACTURING COSTS ACCOUNTED FOR ¥ 2,089,000 ¥ 191,865 ¥ 2,280,865
6-17
6-40 (continued-1)
5. The exchange rate as of August 15, 2014 was $1 US = 6.1470 Yuan,

a fall in the dollar of approximately 4% over the prior three years. The
rise of the Yuan means that the Lin Company faces greater competition
in foreign exports, as the cheaper dollar makes imports to China look
more attractive and exports to the U.S. more expensive.
6-42 Reconditioning Service; Weighted-Average (20 min)
1. Cost Report for November

Physical Percentage Weighted Average
Units Completion Materials Conversion Total
Beginning WIP 150
Materials 50%
Conversion 30%
Units started 1,200
Units Finished 1,050 1,050 1,050

Ending WIP 300
Materials 30% 90
Conversion - 20% 60
DETERMINE TOTAL COSTS Materials Conversion Total

Beginning WIP $ 15,000 $ 20,000 $ 35,000
Current Costs 200,000 385,000 585,000
TOTAL $ 215,000 $ 405,000 $ 620,000
WTAVG Cost per EU $ 188.5965 $ 364.8649 $ 553.4614

COST ASSIGNED -WEIGHTED AVERAGE and Transferred WIP
Out Inventory Total
Finished Goods 1,050 units $ 581,134 $581,134
Ending WIP 300 units
Materials 16,974 $16,974
Conversion - 21,892 $21,892
TOTAL MANUFACTURING COSTS ACCOUNTED FOR $ 581,134 $ 38,866 $ 620,000
6-18
Problem 6-42 (continued-1)
2. The information in the cost report shows two relevant items of

information regarding planning for the coming month’s work. First,
note there has been an increase in WIP during November, a month in
which there were fewer units in process (1,350 units) . December’s
work will require 1,500 + 300 = 1,800 units in process, somewhat
larger than November’s requirement. GWI should be concerned
about its capacity and ability to meet the December orders on a
timely basis. Second, the cost report shows that the cost per
equivalent unit for conversion, at $365, is somewhat higher than the
average for prior months. This might reflect higher labor costs and
could be a result of the increase in volume (November completed
1,050 units relative to an average of 1,000 to 1,300 completed units
per month).
6-19
6-44 FIFO Method (25 min)
See the solution for 6-43 above for the calculation of cost per equivalent
unit under FIFO. Note regarding the part 4 of problem 6-43: the effect on
the cost per equivalent unit appears under both the weighted average and
the FIFO methods.
6-46 FIFO Method; Two Departments (60-70 min)
Molding Department
FIFO
Beginning WIP 0
Materials 100% -
Conversion 20% -
Units started (lbs) 50,000
Units Finished or Trans-out (lbs) 50,000 50,000 50,000

Ending WIP 0
Materials 100%
Conversion - 40%
Total accounted for (lbs) 50,000 - -
Total FIFO Equivalent Units 50,000 50,000

Beginning WIP $ - $ - $ -
Current Costs 450,000 90,000 540,000
TOTAL $ 450,000 $ 90,000 $ 540,000
FIFO Cost per EU $ 9.00 $ 1.80 $ 10.80

COST ASSIGNED - FIFO and Transferred Work-in-process
Out Inventory Total
Finished Goods ( 50,000 lbs)
Prior period costs in Beginning WIP -
Current per. cost to complete Beg WIP -
Cost of units started and finished $ 540,000
TOTAL 540,000 $ 540,000
Ending WIP ( 0 lbs)

Materials - -
Conversion - - -
TOTAL MANUFACTURING COSTS ACCOUNTED FOR $ 540,000 $ - $ 540,000
6-20
Problem 6-46 (Continued -1)
Finishing Department
FIFO
Physical Percent Transferred Equivalent Units
Units Completion in Costs Materials Conversion
Beginning WIP 5,000 100%
Materials 0% -
Conversion 40% 2,000
Units started or Trans-in 50,000 100% 50,000
Units Finished or Trans-out 53,000 100% - 53,000

Ending WIP 2,000 100%
Materials - 0%
Conversion - 40% 800
Total accounted for 55,000 - - -
Weighted Average Equivalent Units 50,000 - 53,800
Less Equivalent Units in Beg WIP - 2,000
FIFO Equivalent Units 50,000 - 51,800
COST ADDED -----This Dept-----

Trans-in Materials Conversion Total
Beginning WIP ? - ? 15,000
Current Costs 540,000 - 80,000 620,000
TOTAL $ 540,000 $ - $ 80,000 $ 635,000
FIFO Cost per EU $ 10.8000 - $ 1.5444 $ 12.3444
Completed Ending Work

& Trans-out in Process Total
COST ASSIGNED -FIFO
Finished Goods 53,000 units
Prior period costs in Beginning WIP $ 15,000
Current per. cost to complete Beg WIP
Materials 5,000 Equiv units -
Conversion 3,000 Equiv units 4,633
Units started & finished 48,000 Equiv units 592,531
TOTAL $ 612,164
Ending WIP 2,000 units

Trans in $ 21,600 21,600
Materials - -
Conversion - 1,236 1,236
TOTAL MANUFACTURING COSTS ACCOUNTED FOR $ 612,164 $ 22,836 $ 635,000
6-21
6-48 Weighted Average Process Costing; Spoilage (50 min)
1.
Equivalent Units
Whole Percent Weighted Average
Beginning WIP 2,000 100%
Materials 100%
Conversion 30%
Units started or Trans-in 30,000 100%
Units Finished or Trans-out 24,500 100% 24,500 24,500

Normal spoilage 500 100% 500 500
Abnormal spoilage 500 100% 500 500
Ending WIP 6,500 100%
Materials - 100% 6,500
COST ADDED -----This Dept-----

Materials Conversion* Total
Beginning WIP $ 58,750 $ 42,000 $ 100,750
Current Costs 346,600 181,600 528,200
TOTAL $ 405,350 $ 223,600 $ 628,950
WTAVG Cost per EU $ 12.6672 $ 7.2834 $ 19.9506
Completed Ending Work

& Trans-out in Process Total
Finished Goods 24,500 units $ 488,789 $ 488,789
plus Normal Spoilage 500 units 9,975 9,975
Abnormal Spoilage 500 units 9,975
Ending Work-in-process 6,500 units

Materials 6,500 units 82,337 82,337
Conversion 5,200 units - 37,874 37,874
Total Costs Accounted For $ 498,764 $ 120,210 $ 628,950
* Total conversion cost = labor cost + labor cost X $3

= $10,500 + $10,500x$3 = $42,000
=$45,400 + $45,400x$3 = $181,600
6-22
6-48 (continued -1)
2. The new capacity will allow the company to grow which is positive
for future revenues and profits, but it also has apparently caused two
significant problems. One is the increase in work-in-process
inventory, which is costly and can lead to waste, especially since the
product is paint. The quality of paint can erode if not properly sealed
and stored. Another is the significant amount of waste, 1,000
spoiled gallons of paint, one half of which was abnormal spoilage. It
is possible that the new process created some changes in equipment
and/or operations which led to increased human or machine error,
and thus the spoilage. Together with the increased work-in-process
inventory, this is a significant concern. Also, the company’s strategy
is based on quality, and its ability to sell at higher prices indicates that
the company’s customers expect the highest quality in paint. The
spoilage issues are a threat to the continued success of that strategy.
The company should review the implementation of the new process,
and perhaps make some significant changes.
3. The spoiled paint could be an environmentally harmful chemical, and
if so, should be disposed of in an environmentally appropriate way.
This could be costly to the company, and the cost should be captured
in spoilage costs (both normal and abnormal). Customers of the
company expect both quality and a sustainability policy that protects
the environment.
6-23
6-50 Process Costing and Activity Based Costing (40 min)
1.
Weighted Average
Materials 100%
Conversion 60%
Units started 1,200,000
Total to account for 1,400,000
Units Finshed 900,000 900,000 900,000

Ending WIP 500,000
Total accounted for 1,400,000 - -
Total Equivalent Units (000s) 1,400,000 1,150,000

Beginning WIP $ 55,000 $ 7,250 $ 62,250
Current Costs 185,000 75,400 260,400
TOTAL $ 240,000 $ 82,650 $ 322,650
WTAVG Cost per EU (in 000s) $ 0.17143 $ 0.07187 $ 0.24330
Completed Ending
COST ASSIGNED -WEIGHTED AVERAGE and Trans- WIP
Out Inventory Total
Ending WIP 500,000 units
Materials 85,714 $85,714
Conversion - 17,967 $17,967
TOTAL MANUFACTURING COSTS $ 218,968 $ 103,682 $ 322,650
6-24
6-50 (continued -1)
2.
Weighted Average
Units Percentage Equivalent Units Number of
Physical Completion Materials Conversion Batches
Materials 100%
Conversion 60%
Units started 1,200,000 30
Total to account for 1,400,000
Units Finished 900,000 900,000 900,000

Ending WIP 500,000 70
Total accounted for 1,400,000 - - -
Total Equivalent Units (000s) 1,400,000 1,150,000
Total Number of Batches 100
Conversion
DETERMINE TOTAL COSTS Materials Non-Batch Batch Total
Beginning WIP $ 55,000 $ 4,250 3,000 $ 62,250
Current Costs 185,000 46,900 28,500 260,400
TOTAL $ 240,000 $ 51,150 $ 31,500 $ 322,650
WTAVG Cost per EU (in 000s) $ 0.1714 $ 0.0445 $ 0.2159

Cost per batch $ 315.00
Completed Ending
COST ASSIGNED -WEIGHTED AVERAGE and Trans- WIP
Out Inventory Total
Batch Costs 30 batches $ 9,450 $9,450
Ending WIP 500,000 units -
Materials 500,000 $ 85,714 $85,714
Conversion 250,000 - 11,120 $11,120
Batch costs 70 batches - 22,050 $22,050
TOTAL MANUFACTURING COSTS $ 203,766 $ 118,884 $ 322,650
6-25
Problem 6-50 (continued -2)
Ted is apparently correct about the under-costing of ending working

process. The activity-based method, which separates the batch-related
costs from the other conversion costs, shows $118,884 ending work in
process, $15,202 (or 15%) greater than the conventional costing of
$103,682. This analysis also has implications for costing and pricing the
smaller orders, which require the same batch-level costs of $315 per batch
as for the larger orders.
6-26
6-52 Implementing Process Cost Systems; Activity-based Costing;

Standard Costing (25 min)
Case 1: Because of the moderate volatility in materials prices and because

of the relatively large percentage of costs in ending work-in-process, the
FIFO method should be chosen over the weighted-average method in this
case. The batch sizes fit in a relatively narrow range (100-250 batch size
for 3,000 batches) so that ABC costing is not likely to be needed. Because
of the moderate volatility in materials prices, the company might consider
standard costing to identify the nature and causes of these fluctuations.
Thus: FIFO, standard cost, non-ABC (traditional)
Case 2: This is the simplest case, with stable prices, low ending inventory
and average batch size. A normal cost, traditional, weighted-average
method is likely to work fine. Because prices do not fluctuate, there is little
need for department-level standards and analysis to identify cost variances,
and since there is little ending inventory, there is little need for FIFO
equivalent units. Also, the relatively narrow range of batch sizes suggests
that ABC costing would probably not be needed to identify the potential for
under-costed batches of product. Thus: weighted-average, normal, non-
ABC
Case 3: this case involves highly volatile materials prices and materials are
a significant percentage of product cost, so that a standard cost and a FIFO
method would be appropriate. The fact that ending work-in-process is a
relatively significant cost supports this conclusion; using FIFO would mean
a more accurate assignment of costs between ending work-in-process and
finished units. The range of batch sizes is relatively small, so that an ABC
based system may not be needed. Thus: FIFO, standard cost, non-ABC
Case 4: Prices are stable so that standard costing and FIFO are probably
not needed. Also, ending work-in-process inventory is relatively low, so
that FIFO is probably not needed to more accurately determine the
assignment of costs to ending work-in-process and finished goods.
However, the range of batch sizes is quite large (100 to 1,000 for a total of
5,000 batches), so that ABC costing should be considered as a means to
more accurately costing each batch of product, and to identify undercosted
batches. Thus: weighted –average, normal costing, ABC costing
6-27
6-52 (continued -1)
Case 5: The range of batch sizes is relatively narrow, so there is no

apparent need for ABC costing. However, with the relatively large
percentage of materials cost in product, and because of the moderate
volatility in materials prices, a standard costing system should be
considered. Also, because of the materials price volatility and the
significant percentage of ending work-in-process inventory costs, a FIFO
measure of equivalent units should be considered: Thus: FIFO, standard
costing, non-ABC.
6-28
6-54 Backflush Costing
1.
(1) Materials purchased.
Materials Inventory 710,000
Accounts Payable, Cash 710,000
(2) Conversion cost incurred.

Conversion Cost Incurred 1,450,000
Wages payable, other accounts 1,450,000
(3) Finished goods are shown for the standard cost of the 155,000 yards
produced. 155,000 x ($4.25+$8.50) = $1,976,250
Finished Goods 1,976,250
Materials Inventory ($4.25x155,000) 658,750
Conversion Cost Applied 1,317,500
($8.50x155,000)
(4a) Close the two conversion cost accounts to Cost of Goods Sold:
Conversion Cost Applied 1,317,500
Cost of Goods Sold 132,500
Conversion Cost Incurred 1,450,000
(4b) Close the actual usage of inventory to Cost of Goods Sold

Actual usage = $142,000+$710,000 - $185,000 = $667,000
Difference = $667,000 - $658,750 = $8,250
Cost of Goods Sold 8,250
Materials Inventory 8,250
Note to Instructor: the above treatment of the differences between actual

and applied materials and conversion is simplified for this brief section on
backflush costing, and assumes that the topic is covered prior to standard
costing. If covered after standard costing, the treatment of the materials
and conversion variances can be enhanced.
6-29
2. Backflush costing is used when the level of work-in-process inventory

is very small. This can be the case for firms that use just-in-time
manufacturing (JIT), so that purchases are carefully coordinated with
scheduled production on a daily basis. Backflush costing is a
practical and convenient costing method for cases like this.
6-30

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Chapter 6 - Process Costing

Cost Management A Strategic Emphasis 7th

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CHAPTER 6: PROCESS COSTING

calculation of equivalent units, determination of total costs to account for,

6-12 Work-in-Process Inventory -- Second Department $50,000

6-14 Under the weighted-average method, it makes no difference when a product is

Learning Objective: 06-04

Learning Objective: 06-04

Learning Objective: 06-04

6-24 Ending WIP: 2,500 units

Learning Objective: 06-04

Units Finished or Trans-out 22,000

6-26 The number of units transferred-in is 33,000 units

Learning Objective: 06-04

Units Finished or Trans-out 35,000

6-28 Equivalent Units; Weighted-Average Method (15 min)

2. Calculate the number of equivalent units for both materials and

3. How would your answer in part 2 change if the percentage of completion

Learning Objective: 06-04

1. Work-in-process inventory, 5/1 1,000

Total units to account for 8,000

6-28 (continued -1)

2. Equivalent units -- Weighted-Average Method

3. Equivalent units -- Weighted-Average Method

6-30 Equivalent Units; Weighted-Average Method (15 min)

Learning Objective: 06-04

Equivalent Units -- Weighted-Average Method

6-32 Equivalent Units; FIFO Method (20 min)

Learning Objective: 06-04

6-34 Equivalent Units; FIFO Unit Cost (25 min)

Cost per Equivalent Unit

Learning Objective: 06-04

6-34 (continued -1)

Weighted Average FIFO

Units Finished 70,000 70,000 70,000 70,000 70,000

DETERMINE TOTAL COSTS Materials Conversion Materials Conversion

WTAVG Cost per EU $ 1.8000 $ 3.4468

Answers are shown in the process cost report below.

Units completed 26,000 100% 26,000 26,000

Equivalent Units Produced N/A 30,000 28,000

Units Completed Units in Ending

Beginning WIP Inventory $0

6-38 FIFO Method (20 min) -- see solution above

6-40 Weighted-Average Method (30 min)

1. Equivalent units:(note: units started = 200,000+30,000-50,000=180,000)

2. Cost per equivalent unit:

3. Cost of goods completed and transferred out: ¥ 2,089,000

4. Cost of work-in-process, 10/31: ¥ 191,865

Answers in Cost Report Follow:

Units Finished 200,000 200,000 200,000

DETERMINE TOTAL COSTS (all amounts in Yuan)

WTAVG Cost per EU ¥ 3.910 ¥ 6.535 ¥ 10.445

COST ASSIGNED -WEIGHTED AVERAGE Transferred WIP

5. The exchange rate as of August 15, 2014 was $1 US = 6.1470 Yuan,

6-42 Reconditioning Service; Weighted-Average (20 min)

1. Cost Report for November

Units Finished 1,050 1,050 1,050

DETERMINE TOTAL COSTS Materials Conversion Total

WTAVG Cost per EU $ 188.5965 $ 364.8649 $ 553.4614

Units Completed Units in Ending

Problem 6-42 (continued-1)