Jiambalvo Acccounting Mgrl 4e Solutions Essay Example

Jiambalvo Acccounting Mgrl 4e Solutions Paper Chapter 3 Process Costing QUESTIONS 1. Job-order costing is used when a company produces individual products or batches of products that are unique. Generally, each unique product or batch is a â€Å"job† for which the company needs cost information. Therefore, manufacturing costs must be traced to specific jobs. Process costing, on the other hand, is used when a company produces large quantities of identical items. It is basically a system of averaging. The production costs are divided by the number of units to arrive at an average unit cost. 2. Student answers will vary but here is one possible answer. Three types of manufacturing companies which might use process costing include pharmaceutical firms, paint manufacturers, and chemical manufacturers. In each of these companies, the products are relatively homogenous and produced in large batches. In many cases, a product suitable for process costing will be a low-cost product, but not necessarily (i. e. , various drugs can be expensive, as can various chemicals). 3. Equivalent units is the quantity of partially completed units expressed in terms of whole units. To calculate equivalent units, the number of units is multiplied by the percentage of completion. 4. Direct labor and overhead, together, are called conversion costs. 5. The costs associated with units received from a preceding department within the company for further processing are called transferred-in costs. 6. Material may enter at the start of a production process while labor and overhead are incurred throughout the process. 7. Cost to account for = Cost in beginning work in process + Cost incurred in current period. 8. Reconciliation helps to ensure that mistakes are not made in calculations and units are not â€Å"lost. 9. Transferred-in costs are the costs associated with units received from a preceding department within the company received for further processing. Therefore, they occur in all production departments except the first. 10. The four steps involved in preparing a production cost report are as follows: a. Account for the number of physical units b. Calculate the cost per equivalent unit for material, labor, and overhead c. Assign costs to items completed and items in ending work in process d. Account for the amount of product cost EXERCISES E1. [LO 2, 3]. We will write a custom essay sample on Jiambalvo Acccounting Mgrl 4e Solutions specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on Jiambalvo Acccounting Mgrl 4e Solutions specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on Jiambalvo Acccounting Mgrl 4e Solutions specifically for you FOR ONLY $16.38 $13.9/page Hire Writer In the production of chips, much of manufacturing overhead is a fixed cost. This cost is assigned to completed items and work in process. By starting a large number of items at year end, and given the simplifying assumption that items in process are 50% complete, a significant proportion of the fixed manufacturing overhead will end up in work in process, which reduces the cost of finished items and ultimately the cost of goods sold. The result is that profit will be artificially inflated in the current period. This approach to increasing profit may mislead investors and other stakeholders and cause them to make bad decisions. Thus, the behavior is not ethical. E2. [LO 3]. Cost per equivalent unit is calculated for material, labor and overhead. For each of these items, we sum the cost in beginning work in process and the cost incurred during the period. This becomes the numerator of the calculation. Then, we determine the number of units completed and the equivalent units in ending work in process. This becomes the denominator of the calculation. It is important to note that the equivalent units in ending work in process may be different for material, labor, and overhead. This is because material, labor, and overhead enter the production process at different times. Materials often enter the process at the beginning of the process, and labor and overhead are added evenly throughout the process. E3. [LO 1]. a. There are 6 steps: Step 1, Auger—the grain is cracked by steel grinders. Step 2, Mash Tun—malt is mixed with warm water. Step 3, Boil Kettle–the base of beer, or â€Å"wort† (sweet barley water), is pumped into the boiling kettle where it is boiled, concentrated and clarified, and hops are added. Step 4, Wort Chiller/Diverter Panel—the wort is cooled before it is moved to a fermentation cellar where it will become beer. Step 5, Fermentation Vessel—here, specially cultured yeast is added to induce fermentation. Step 6, Storage/Serving Tank—fill the storage tank, room kept at 41-43 degree Fahrenheit. Beer is served directly from the tank through the wall of the cooler into the bar. b. Bloomington Brewing Company produces a large number of identical units in a continuous process. Thus, the company is likely to use process costing. c. Barley is added at the start in the Auger. d. The Mash Tun is where the cracked malt is combined with water to create the wort. E4. [LO 1]. Case 1 |Units in ending work in process |2,000 | |Plus: Units completed during October |15,000 | |Less: Units in beginning work in process |(5,000) | |Units started during October |12,000 | Case 2 Units in beginning work in process |16,000 | |Plus: Units started during March | 3,500 | |Units to account for |19,500 | |Less: Units in completed during March |(14,400) | |Units in ending work in process | 5,100 | Case 3 Units in beginning work in process |250,000 | |Plus: Units started during December | 900,000 | |Units to account for |1,150,000 | |Less: Units in ending work in process |(350,000) | |Units completed during December | 800,000 | E5. [LO 1]. Units in beginning work in process800 Units started in August95,000 Units to account for95,800 cans Units completed90,000 Units in ending work in process? Total units accounted for95,800 cans Units in ending work in process = 95,800 90,000 = 5,800 cans. E6. [LO 1]. Units in beginning work in process5,000 Units started in August? Units to account for37,000 gallons Units completed30,000 Units in ending work in process7,000 Total units accounted for37,000 gallons Units started in August = 37,000 ? 5,000 = 32,000 gallons. E7. [LO 3]. Direct Labor Beginning WIP$140,000 Cost incurred in March 700,000 Total cost$840,000 Units Units completed30,000 pounds Equivalent units, ending WIP (10,000 pounds ( 50%) 5,000 Total35,000 pounds Cost per equivalent unit = $840,000 ? 35,000 pounds = $24 per pound E8. [LO 3, 4]. Let X = the cost in beginning work in process Material: ($250,000 + X) ? (40,000 + 10,000) = $6 X = $50,000 Labor: ($120,000 + X) ? (40,000 + 3,000) = $3 X = $9,000 Overhead: ($160,000 + X) ? (40,000 + 3,000) = $4 X = $12,000 E9. [LO 2]. The denominator is equal to units completed plus equivalent units in ending work in process. Material Units completed 2,000 Equivalent units in ending work in process (500 ( 0. 90) 450 Total2,450 Labor Units completed2,000 Equivalent units in ending work in process (500 ( 0. 50) 250 Total2,250 E10. [LO 2, 3, 4]. a. Cost per equivalent unit for material is $6. 00. Material cost in items completed is $222,000. Therefore, the number of completed units is 37,000 (i. e. , $222,000 ? $6. 00). Units in beginning work in process2,000 Units started in July40,000 Units to account for42,000 cans Units completed37,000 Units in ending work in process? Total units accounted for42,000 This implies that 5,000 units are in ending work in process. b. Cost of ending work in process is $8,750 as follows: Material (. 25 ( 5,000 units ( $6. 00)$7,500 Labor and overhead (. 1 ( 5,000 units ( $2. 50) 1,250 Ending work in process$8,750 E11. [LO 2, 3, 4]. Ending Work in Process Material (900 ( 1. 0 ( $0. 70)$630 Labor and overhead (900 ( . 75 ( $0. 80) 540 Total$1,170 Cost of Items Completed Material (4,500 ( $0. 70)$3,150 Labor and overhead (4,500 ( $0. 80) 3,600 Total$6,750 E12. [LO 2, 3, 4]. Ending Work in Process Material (10 ( . 85 ( $2,000)$ 17,000 Labor (10 ( . 70 ( $750)5,250 Overhead (10 ( . 70 ( $1,500) 10,500 Total$32,750 Cost of Items Completed Material (95 ( $2,000)$190,000 Labor (95 ( $750)71,250 Overhead (95 ( $1,500) 142,500 Total$403,750 E13. [LO 2, 3, 4]. a. Material: Cost in beginning work in process$ 25,000 Cost incurred during the period 421,970 Total$446,970 Conversion costs: Cost in beginning work in process$ 13,000 Cost incurred during the period 394,880 Total$407,880 Equivalent units in ending work in process: Material (3,000 units ( . 85)2,550 Conversion costs (3,000 ( . 45)1,350 Cost per equivalent unit for material: $446,970 ? (45,000 + 2,550)$9. 40 Cost per equivalent unit for conversion costs: $407,880 ? (45,000 + 1,350) 8. 80 Total cost per equivalent units$18. 20 b. Cost of items completed in November: 45,000 units ( $18. 20$819,000 c. Cost of ending work in process: Material cost (2,550 ( $9. 40)$23,970 Conversion cost (1,350 ( $8. 80) 11,880 Total cost of ending work in process$35,850 E14. [LO 2, 3]. Units in beginning WIP |40,000 | |Units started during June |500,000 | |Units to account for |540,000 | |Less: Units in ending WIP |(30,000) | |Units Completed |510,000 | Equivalent Unit Calculation UnitsMaterialLaborOverhead Units completed510,000510,000510,000 Equivalent units Ending WIP (100% material, 5% conversion costs) 30,000 22,500 22,500 Total540,000532,500532,500 E15. [LO 2]. |Units in beg. WIP |2,200,000 | |Units started during Ju ne | 750,000 | |Units to account for |2,950,000 | |Less: Units in Ending WIP | (230,000) | |Units Completed |2,720,000 | Equivalent Unit Calculation UnitsMaterialConversion Units completed2,720,000 2,720,000 Equivalent units Ending WIP (100% material, 60% conversion costs) 230,000 138,000 Total2,950,0002,858,000 E16. [LO 1, 2]. |Units in beg. WIP |40,000 | |Units started during June |190,000 | |Units to account for |230,000 | |Less: Units in Ending WIP |(50,000) | |Units Completed |180,000 | Equivalent Unit Calculation UnitsMaterialConversion Units completed180,000180,000 Equivalent units ending WIP (80% material, 45% conversion costs) 40,000 22,500 Total220,000202,500 E17. [LO 2, 3]. Cost per Equivalent Unit Calculation MaterialConversionTotal Cost Beginning WIP$ 46,000$ 43,000$ 89,000 Cost incurred during Sept. 180,000 250,000 430,000 Total$226,000$293,000$519,000 Equivalent units14,00012,200 Cost per equivalent unit$16. 14$24. 02$40. 16 E18. Incremental Analysis. The sales price should be lowered because the total net income increases by $5,000 over the current level. Units sold 112,000 Direct material $ 28,000 Direct labor 112,000 Manufacturing overhead 200,000 Total cost$340,000 Profit is $80,000 [(112,000 x $3. 75) $340,000] New profit $ 80,000 Current profit 75,000 Incremental profit$ 5,000 PROBLEMS P1. [LO 3, 4]. a. The company started the month with 10,000 units and 105,000 units were entered into production. Thus, the company must account for 115,000 units. At the end of the month, the company had 5,000 units in ending work in process. This implies that 110,000 units were completed (115,000 5,000). The denominators for the calculations of cost per equivalent are: Units Equivalent Units Completedin Ending WIPTotal Material110,0005,000115,000 Labor110,0003,500113,500 Overhead110,0003,500113,500 Beginning WIPCost AddedTotalDenominatorCost per EU Material$4,000$76,500$80,500115,000$0. 70 Labor 2008,8809,080113,5000. 08 Overhead 300 9,915 10,215113,500 0. 09 Total$4,500$95,295$99,795$0. 87 b. Cost of items completed in May is $95,700: 110,000 units ( $0. 87 = $95,700 Cost of items in ending work in process: Material (5,000 equivalent units ( $0. 70)$3,500 Labor (3,500 equivalent units ( $0. 08)280 Overhead (3,500 equivalent units ( $0. 09) 315 Total$4,095 c. Beginning work in process$ 4,500 Cost added 95,295 Total$99,795 Cost of items completed$95,700 Cost of ending WIP 4,095 Total$99,795 P2. [LO 3, 4]. a. The company started the month with 500 units and 2,700 units were entered into production. Thus, the company must account for 3,200 units. At the end of the month, the company had 600 units in ending work in process. This implies that 2,600 units were completed (3,200 600). The denominators for the calculations of cost per equivalent are: Units Equivalent Units Completedin Ending WIPTotal Material2,6004203,020 Labor2,6003602,960 Overhead2,6003602,960 BeginningCost per WIPCost AddedTotalDenominatorEU Material$ 45,000$ 269,080$ 314,0803,020$104 Labor 11,00077,80088,8002,96030 Overhead 80,000 497,200 577,2002,960 195 Total$136,000$844,080$980,080$329 b. Cost of items completed in August is $855,400: 2,600 units ( $329 = $855,400 Cost of items in ending work in process: Material (420 equivalent units ( $104)$ 43,680 Labor (360 equivalent units ( $30)10,800 Overhead (360 equivalent units ( $195) 70,200 Total$124,680 c. Beginning work in process$136,000 Cost added 844,080 Total$980,080 Cost of items completed$855,400 Cost of ending WIP 124,680 Total$980,080 P3. [LO 2, 3, 4, 5]. a. Kao Tiles, Inc—October Unit Reconciliation Units in beg. WIP (65% material, 35% conversion costs)5,000 Units started during6,000 Units to account for11,000 Units completed4,000* Units in ending WIP (75% material, 50% conversion costs)7,000 Units accounted for11,000 *Computed as 11,000 7,000 = 4,000. Cost per Equivalent Unit Calculation MaterialLabor OverheadTotal Cost Beginning WIP$170,000$160,000$ 50,000$ 380,000 Cost incurred during Oct. 422,000 1,055,000 107,500 1,584,500 Total$592,000$1,215,000$157,500$1,964,500 Units Units completed4,0004,0004,000 Equivalent units Ending WIP (75% material, 50% conversion cost) 5,2503,5003,500 Total9,2507,5007,500 Cost per equivalent unit$64$162$21$247 Cost Reconciliation Total cost to account for $1,964,500 Cost of completed units (4,000 units ( $247) $ 988,000 Cost of ending WIP Material (5,250 equivalent units ( $64)$336,000 Labor (3,500 equivalent units ( $162)567,000 Overhead (3,500 equivalent units ( $21) 73,500 976,500 Total cost accounted for$1,964,500 b. Finished Goods Inventory988,000 Work in Process Inventory988,000 P4. [LO 2, 3, 4, 5]. Aussie Yarn Company—August Unit Reconciliation Units in beg. WIP ((100% material, 70% conversion costs)6,000 Units started during29,000 Units to account for35,000 Units completed30,000* Units in ending WIP (100% material, 50% conversion costs) 5,000 Units accounted for35,000 *Computed as 35,000 5,000 = 30,000. Cost per Equivalent Unit Calculation MaterialLabor OverheadTotal Cost Beginning WIP$ 5,000$ 1,300$ 1,800$ 8,100 Cost incurred during August 26,500 12,350 14,450 53,300 Total$31,500$13,650$16,250$61,400 Units Units completed30,00030,00030,000 Equivalent units, ending WIP 5,000 2,500 2,500 Total35,00032,50032,500 Cost per equivalent unit$0. 90$0. 42$0. 50$1. 82 Cost Reconciliation Total cost to account for $61,400 Cost of completed units (30,000 units ( $1. 82) $54,600 Cost of ending WIP Material (5,000 equivalent units ( $0. 90)$4,500 Labor (2,500 equivalent units ( $0. 42)1,050 Overhead (2,500 equivalent units ( $0. 50) 1,250 6,800 Total cost accounted for$61,400 P5. [LO 1]. a. Work in process, dept. 175,000 Material inventory75,000 To record material used in department 1 Work in process, dept. 215,000 Material inventory15,000 To record material used in department 2 b. Work in process, dept. 140,000 Wages payable40,000 To record labor in department 1 Work in process, dept. 250,000 Wages payable50,000 To record labor in department 2 c. Work in process, dept. 1220,000 Manufacturing overhead220,000 To record overhead applied in department 1 Work in process, dept. 2100,000 Manufacturing overhead100,000 To record overhead applied in department 2 d. Work in process, dept. 2359,000 Work in process, dept. 1359,000 To record cost of units transferred from department 1 to department 2 Note: This includes all beginning costs and costs incurred, since there isno ending work in process in this department (24,000 + 75,000 + 40,000+ 220,000). Finished goods inventory538,000 Work in process, dept. 2 538,000 To record cost units completed and transferred to finished goods. Note: 44,000 + 15,000 + 50,000 + 100,000 + 359,000 – 30,000 = 538,000. P6. [LO 1]. a. Work in process45,000 Material inventory45,000 To record material used in production b. Work in process16,875 Wages payable16,875 To record labor c. Work in process50,625 Manufacturing overhead50,625 To record overhead applied d. Finished goods inventory112,500 Work in process112,500 To record cost of units completed e. Cost of goods sold112,500 Finished goods inventory112,500 To record cost of units sold P7. [LO 2, 3, 4, 5]. a. 200 b. 2,500 c. 200 d. 140 e. 140 f. 2,500 g. 2,440 h. 2,440 i. 1. 84 j. 5. 25 k. 10. 75 l. 17. 84 P8. [LO 2, 3, 4, 5] Step 1. Cost per equivalent unit = 1. 70 + 1. 32 + 2. 64 = 5. 6 Cost of completed items (given) = $2,886,600 Cost per equivalent unit = $5. 66 Therefore, the number of completed units = $2,886,600 ? 5. 66 = 510,000 Step 2. Units in ending WIP (given)4,000 Add number of completed units 510,000 Units accounted for 514,000 Step 3. Units to account for = units accounted for 514,000 Less units in beginning WIP (given) 8,000 Units st arted during December506,000 Step 4. Equivalent units, ending WIP: Material (4,000 ( 100%)4,000 Labor (4,000 ( 20%) 800 Overhead (4,000 ( 20%)800 Step 5. Units completed (calculated above)510,000 Total units for cost per equivalent unit calculation: Material = 510,000 + 4,000514,000 Labor and Overhead = 510,000 + 800510,800 Step 6. Total cost in cost per equivalent unit calculation: Material = 514,000 ( $1. 70$873,800 Labor = 510,800 ( 1. 32$674,256 Overhead = 510,800 ( 2. 64$1,348,512 Step 7. Cost incurred in December: Material = $873,800 – 45,200 $828,600 Labor = $674,256 – 10,500 $663,756 Overhead = $1,348,512 ? 26,300 $1,322,212 Step 8. Cost Reconciliation: Total cost to account for $2,896,568 Cost of completed units (510,000 ( $5. 66)$2,886,600 Cost of Ending WIP Materials (4,000 ( $1. 70)$6,800 Labor (800 ( $1. 32) 1,056 Overhead (800 ( $2. 64) 2,112 9,968 Total cost accounted for:$2,896,568 P9. [LO 2, 3, 4, 5]. Mixing Department, Simply Shine Shampoo—March Unit Reconciliation Units in beg. WIP (100% material, 90% conversion costs)15,000 Units started during660,000 Units to account for675,000 Units completed645,000* Units in ending WIP (100% material, 70% conversion costs) 30,000 Units accounted for675,000 *Computed as 675,000 ? 30,000 = 645,000. Cost per Equivalent Unit Calculation MaterialLabor OverheadTotal Cost Beginning WIP$ 8,500$ 1,200$ 2,500$ 12,200 Cost incurred during March254,750 78,720 130,700 464,170 Total$263,250$79,920$133,200$476,370 Units Units completed645,000645,000645,000 Equivalent units, ending WIP 30,000 21,000 21,000 Total675,000666,000666,000 Cost per equivalent unit$0. 39$0. 12$0. 20$0. 71 Cost Reconciliation Total cost to account for $476,370 Cost of completed units (645,000 units ( $0. 71) $ 457,950 Cost of ending WIP Material (30,000 equivalent units ( $. 39)$11,700 Labor (21,000 equivalent units ( $. 12)2,520 Overhead (21,000 equivalent units ( $. 20) 4,200 18,420 Total cost accounted for$476,370 Packing Department, Simply Shine Shampoo—March Unit Reconciliation Units in Beg. WIP (60% material, 50% conversion costs)14,500 Units started during645,000 Units to account for659,500 Units completed624,500* Units in ending WIP (80% material, 60% conversion costs) 35,000 Units accounted for659,500 *Computed as 659,500 ? 35,000 = 624,500. Cost per Equivalent Unit Calculation MaterialLaborOverheadTrans. InTotal Cost Beginning WIP$ 925$ 60$ 115$ 3,805$ 4,905 Cost incurred during Mar. 85,700 11,350 17,000 457,950 572,000 Total$86,62511,410$17,115$461,755$576,905 Units Units completed624,500624,500624,500624,500 Equivalent units, ending WIP 28,000 21,000 21,000 35,000 Total652,500645,500645,500659,500 Cost per equivalent unit $0. 1328$0. 0177$0. 0265$0. 7002 $0. 8772 Cost Reconciliation Total cost to account for $576,905 Cost of completed units (624,500 units ( $0. 8772) $ 547,811 Cost of ending WIP Material (28,000 equivalent units ( $. 1328)$3,718 Labor (21,000 equivalent units ( $. 0177)372 Overhead (21,000 equivalent units ( $. 0265)557 Trans. in (35,000 equivalent units ( $. 7002) 24,507 29,154 Total cost accounted for$576,965 (Note: Difference of $60 due to rounding. ) P10. [LO 2, 3, 4, 5]. Mixing Department, Carnival Caramel Company—March Unit Reconciliation Units in beg. WIP (100% material, 70% conversion costs)3,000 Units started during45,000 Units to account for48,000 Units completed46,000* Units in ending WIP (100% material, 50% conversion costs) 2,000 Units accounted for48,000 *Computed as 48,000 ? 2,000 = 46,000. Cost per Equivalent Unit Calculation MaterialLabor OverheadTotal Cost Beginning WIP$ 4,000$ 1,600$ 1,900$ 7,500 Cost incurred during March 45,440 23,310 25,830 94,580 Total$49,440$24,910$27,730$102,080 Units Units completed46,00046,00046,000 Equivalent units, ending WIP 2,000 1,000 1,000 Total48,00047,00047,000 Cost per equivalent unit$1. 3$0. 53$0. 59$2. 15 Cost Reconciliation Total cost to account for $102,080 Cost of completed units (46,000 units ( $2. 15) $98,900 Cost of ending WIP Material (2,000 equivalent units ( $1. 03)$2,060 Labor (1,000 equivalent units ( $. 53)530 Overhead (1,000 equivalent units ( $. 59) 590 3,180 Total cost accounted for$102,080 Shaping Department, Carnival Caramel Company—March Unit Reconciliation U nits in beg. WIP (80% conversion costs)4,000 Units started during46,000 Units to account for50,000 Units completed49,000* Units in ending WIP (60% conversion costs) 1,000 Units accounted for50,000 Computed as 50,000 – 1,000 = 49,000. Cost per Equivalent Unit Calculation MaterialLabor OverheadTrans. InTotal Cost Beginning WIP—$ 800$ 600$ 4,420$ 5,820 Cost incurred during March— 13,584 9,32098,900 121,804 Total—$14,384$9,920$103,320$127,624 Units Units completed49,00049,00049,000 Equivalent units, ending WIP 600 600 1,000 Total49,60049,60050,000 Cost per equivalent unit$0. 29$0. 20 $2. 07 $2. 56 Cost Reconciliation Total cost to account for $127,624 Cost of completed units (49,000 units ( $2. 56) $ 125,440 Cost of ending WIP Material$ 0 Labor (600 equivalent units ( $. 9)174 Overhead (600 equivalent units ( $. 20)120 Trans. in (1,000 equivalent units ( $2. 07)2,070 2,364 Total cost accounted for$127,804 (Note: Difference due to rounding. ) P11. [LO 3, 4, 5] . Blending Department, Tropical Sun Ltd. —May Unit Reconciliation Units in beg. WIP (80% material, 55% conversion costs)7,000 Units started during 97,000 Units to account for104,000 Units completed and transferred to bottling91,000 Units in ending WIP (65% material, 20% conversion costs) 13,000 Units accounted for104,000 *Computed as 48,000 ? 2,000 = 46,000. Cost per Equivalent Unit Calculation MaterialConversionTotal Cost Beginning WIP$ 6,900$ 8,000$ 14,900 Cost incurred during March 106,473 143,632 250,105 Total$113,373$151,632$265,005 Units Units completed and trans. out91,00091,000 Equivalent units, ending WIP 8,450 2,600 Total99,45093,600 Cost per equivalent unit$1. 14$1. 62$2. 76 Cost Reconciliation Total cost to account for $265,005 Cost of units trans. out (91,000 units ( $2. 76) $251,160 Cost of ending WIP Material (8,450 equivalent units ( $1. 14)$9,633 Conversion costs (2,600 equivalent units ( $1. 62)4,212 13,845 Total cost accounted for$265,005 P12. [LO 2, 3, 4, 5]. a. Cost incurred in January: Material = $295,000 + 750,000 + 490,250$1,535,250 Labor = $162,500 $162,500 Overhead = ($162,500 ? 25) ( $70 $455,000 Total cost of material: $1,535,250 Total cost of conversion (162,500 + 455,000): $617,500 b. MaterialConversion Total Cost Beginning WIP$ 255,000 $ 65,000$ 320,000 Cost incurred during Jan. 1,535,250 617,500 2,152,750 Total$1,790,250$682,500 $2,472,750 Units Units completed 29,000 29,000 Equivalent units (55% conversion costs) ending WIP 9,500 5,225 Total equivalent units 38,500 34,225 Cost per equivalent unit$46. 50$19. 94$66. 44 Cost of goods completed during Jan. = 29,000 ( $66. 44 = $1,926,760 . | |Materials |Conversion |Total | |Ending work in process inventory: | | | | |Equivalent units of production (materials: 9,500 units ? 100% complete; |9,500 |5,225 | | |conversion: 9,500 units ? 55% complete) | | | | |Cost per equivalent unit |$ 46. 50 |$ 19. 4 | | |Cost of ending work in process inventory |$441,750 |$104,187 |$545,937 | P13. [LO 2, 3, 4, 5]. a. Unit Rec onciliation Units in beginning WIP (40% complete)400 Units started during1,000 Units to account for1,400 Units completed1,150* Units in ending WIP (80% complete) 250 Units accounted for1,400 *Computed as 1,400 250 = 1,150. b. Cost per Equivalent Unit Calculation LaborOverhead Total Cost Beginning WIP$36,000 $6,000 $42,000 Cost incurred during March 102,780 49,000 151,780 Total$138,780$55,000 $193,780 Units Units completed 1,1501,150 Equivalent units ending WIP (80% complete) 200 200 Total equivalent units1,350 1,350 Cost per equivalent unit$102. 80$40. 74$143. 54 c. 1,150 ? $143. 54 = $165,071 d. 200 ? $143. 54= 28,708 $193,779 P14. [LO 2, 3, 4, 5]. Unit Reconciliation Units in beg. WIP (100% material, 40% conversion costs)7,000 Units started during 31,000 Units to account for38,000 Units completed32,000* Units in ending WIP (100% material, 60% conversion costs) 6,000 Units accounted for38,000 *Computed as 38,000 ? 6,000 = 32,000. Cost per Equivalent Unit Calculation MaterialLabor OverheadTotal Cost Beginning WIP$7,500$3,400$ 2,200$ 13,100 Cost incurred during July 33,160 10,484 17,024 60,668 Total$40,660$13,884$19,224$73,768 Units Units completed32,00032,00032,000 Equivalent units (60% conversion cost), ending WIP6,0003,6003,600 Total38,000 35,60035,600 Cost per equivalent unit$1. 07$0. 39 $0. 54$2. 00 Cost Reconciliation Total cost to account for $73,768 Cost of completed units (32,000 units ( $2. 00) $ 64,000 Cost of ending WIP Material (6,000 equivalent units ( $1. 07)$6,420 Labor (3,600 equivalent units ( $0. 39) 1,404 Overhead (3,600 equivalent units ( $0. 54) 1,944 9,768 Total cost accounted for$73,768 P15. [LO 2, 3, 4, 5]. a. Unit Reconciliation Units in beg. WIP (100% material, 70% conversion costs)7,000 Units started during83,000 Units to account for90,000 Units completed88,000* Units in ending WIP (100% material, 80% conversion costs) 2,000 Units accounted for90,000 *Computed as 90,000 – 2,000 = 88,000. Cost per Equivalent Unit Calculation MaterialLabor OverheadTotal Cost Beginning WIP$3,000$300$ 200$ 3,500 Cost incurred during Sept. 71,700 7,764 8,760 88,224 Total$74,700$8,064$8,960$91,724 Units Units completed88,00088,00088,000 Equivalent units ending WIP (80% conversion cost)2,0001,6001,600 Total90,000 89,60089,600 Cost per equivalent unit$0. 83$0. 09 $0. 10$1. 02 b. Cost of goods completed during May = 88,000 ( $1. 02 = $89,760 Cost of WIP remaining on May 31: Material (2,000 ( $0. 83) $1,660 Labor (1,600 ( 0. 09) 144 Conversion (1,600( $0. 10) 160 Total $1,964 c. Cost Reconciliation Total cost to account for $91,724 Cost of completed units (88,000 units ( $1. 02) $89,760 Cost of ending WIP 1,964 Total cost accounted for $91,724 P16. [LO 2, 3, 4, 5]. a. Compute Equivalent Units Material Conversion Units completed110,000110,000 Equivalent units (45% conversion cost), ending WIP 20,000 9,000 Total 130,000119,000 . Cost per Equivalent Unit Calculation MaterialConversionTotal Cost Beginning WIP$ 42,000 $ 340,300$ 382,300 Cost incurred during May 86,700 733,080 819,780 Total$128,700$1,073,380 $1,202,080 Equivalent units130,000119,000 Cost per equivalent unit$0. 99$9. 02$10. 01 c. Cost of goods completed during May = 110,000 ( $10. 01 = $1,101,100 d. Cost of WIP remaining on May 31: Material (20,000 ( $0. 99)$ 19,800 Conversion (9,000( $9. 02) 81,180 Total $100,980 e. Finished Goods Inventory1,101,100 Work in Process Inventory1,101,100 P17. [LO 1]. a. Work in process 144,375 Material inventory144,375 $1. 75 ( 55% ( 150,000 = 144,375) To record material used in production b. Work in process65,625 Wages payable65,625 ($1. 75 ( 25% ( 150,000 = 65,625) To record labor c. Work in process52,500 Manufacturing overhead52,500 ($1. 75 ( 20% ( 150,000 = 52,500) To record overhead applied d. Finished goods inventory262,500 Work in process262,500 (144,375 + 65,625 + 52,500 = 262,500) To record cost of units completed e. Cost of goods sold262,500 Finished goods inventory262,500 To record cost of units sold P18. You get what you measure. a. Equivalent cost per unit will be $0. 45 if production is increased to 350,000 units. Units produced 350,000 Direct material$ 17,500 (350,000 x $0. 05) Direct labor 35,000 (350,000 x $0. 10) Manufacturing overhead 105,000 Total cost$157,500 Equivalent cost per unit $0. 45 ($157,500 ? 350,000) b. Increasing the level of production from 300,000 units to 350,000 units would reduce the cost per unit to $0. 45. But, if sales stay at 300,000 units it would also increase inventory levels. The increase of 50,000 units would increase total costs by $22,500 (50,000 x $0. 45). Overall costs would increase not decrease even though gross margin per unit would look better for Jim. This is not a good idea for the company as a whole. Case 3-1, LO 1, 3, 4 TECH-TONIC SPORTS DRINK Summary Company is considering alternative accounting treatments for the cost of lost units. †¢Introduces the topic of lost units without the need for complex calculations. †¢Brings up the idea that management may select a specific accounting treatment to manage earnings. Questions to ask students 1. What is the situation facing the Western Beverage Company and their product Tech-Tonic Sports Drink Syrup? 2. What is the difference in reported profit for the month of April between the two approaches? . Which approach is most appropriate from a conceptual standpoint? 4. Which method will be favored by senior managers at Western Beverage? Discussion I begin the discussion by asking a student to summarize the situation facing Western Beverage. In April, this company had 300,000 spoiled (lost) units, and the company is considering two ways to treat the cost of the spoiled units. One approach is to â€Å"bury† the cost in the cost of units completed and the cost of units in process. The second approach is to calculate the cost of the spoiled units and charge this cost to cost of goods sold in April. What is the difference in reported profit for the month of April between the two approaches? Recall that 80% of the units completed were sold. Thus, 80% of the cost of units completed will be charged to cost of goods sold. This holds for both methods 1 and 2. In addition, under method 2, cost of goods sold will be increased by the charge for lost units ($879,000). Thus, the difference is $255,000 higher cost of goods sold (lower income from operations) with method 2. Method 1 (80% of cost of units completed (80% of $1,659,000)$1,327,200 Method 2 (80% of cost of units completed (80% of $879,000)$ 703,200 Plus cost of lost units 879,000 Total$1,582,200 Excess cost of goods sold under method 2$ 255,000 Which approach is most appropriate from a conceptual standpoint? The fact that the cost of the lost units does not benefit future periods suggests that the entire cost of the lost units should be expensed in April as per method 2. Which method will be favored by Senior managers at Western Beverage? This depends on the specifics of their bonus agreement. Suppose that with method 1, they will be below target earnings by $200,000. In this case they may strongly support method 2 which will let them â€Å"earn† their bonuses. However, suppose that they are already above target earnings even with method 1. In this case, they may favor method 2 since this method will make it easier to achieve the target next month (because ending Finished Goods Inventory is lower in April, Cost of Goods Sold will be lower in May with method 2). Case 3-2, LO 1, 2, 3 JENSEN PVC, INC. Summary Company is considering lowering its price below current cost per unit. †¢Relates information produced by a process costing system to decision making. †¢Brings up the important concept of incremental analysis. Questions to ask students 1. What is the situation facing Jensen PVC? . Would decreasing the price be a good decision? Discussion I begin the discussion by asking a student to summarize the situation facing Jensen PVC. The company produces PVC irrigation pipe and, due to weak crop prices, farmers are cutting back on irrigation projects. With the reduction in output, cost per unit ($0. 40 per foot) has increased to the point where it exceeds the current selling price ($0. 39 per foot). The next question to ask is â€Å"Does decreasing the price below current unit cost make sense? † Hopefully, a student will answer yes and take the class through the following incremental analysis. Old revenue $0. 39 ? 6,500,000 feet$2,535,000 New revenue $0. 35 ? 15,000,000 5,250,000 Incremental revenue$2,715,000 Less incremental cost 9,000,000 extra feet ? $0. 15 for material labor* 1,350,000 Incremental profit associated with decreasing price$1,365,000 * Material and labor = $0. 30 ? $0. 15 = $0. 15 in 2011 or $0. 40 ? $0. 25 = $0. 15 in 2012. Some students may argue that decreasing the price today may make future price increases more difficult. However, I’d argue that the company is having a very serious problem today and may not survive in the future unless the current price is re-calculated.