Process Costing

Match each costing system characteristic to job order costing, process costing, or both.

1. Used by companies that manufacture identical items through a series of uniform production steps or processes

2. Transfers costs from Work-in-Process Inventory to Finished Goods Inventory to Cost of Goods Sold

3. Used by companies that manufacture unique products or provide specialized services

4. Has multiple Work-in-Process Inventory accounts

5. Tracks direct materials, direct labor, and manufacturing overhead costs

Question: The Cutting Department has 6,500 units in process at the end of September that are 100% complete for direct materials and 85% complete for conversion costs. Calculate the equivalent units of production for direct materials and conversion costs.

The Blending Department for CenTex Paints started October with 1,000 gallons in process and started in production 9,500gallons. During the month, 7,000 gallons were completed and transferred to the next department. Ending work-in-process was3,500 gallons (100% complete with respect to direct materials and 30% complete for conversion costs). The department uses the

weighted-average method. The Blending Department incurred the following costs:

7. Prepare a production cost report for the Blending Department for the month of October.

The Finishing Department started the month with 500 units in process, received 2,000 units from the Assembly Department, and transferred 2,100 units to the finished goods storage area. All direct materials are added at the beginning of the process. The units in process at the end of the month are 45% complete concerning conversion costs. The department uses the weighted-average method. The Finishing Department incurred the following costs:

8. How many units are still in process at the end of the month?

9. Compute the equivalent units of production for the Finishing Department.

10. Determine the cost per equivalent unit for transfer, direct materials, and conversion costs.

11. Determine the cost to be transferred to Finished Goods Inventory.

Question: Castillo Company has three departments: Mixing, Bottling, and Packaging. At the end of the month, the production cost reports for the departments show the costs of the products completed and transferred were \(75,000 from Mixing to Bottling, \)50,000 from Bottling to Packaging, and $65,000 from Packaging to Finished Goods Inventory. Prepare the journal entries for the transfer of the costs.

Describe some ways managers use production cost reports to make business decisions.

Bishop Company uses the FIFO method in its process costing system. The Mixing Department started the month with 500 units in a process that was 20% complete, started in the production of 2,000 units, and transferred 2,100 units to the finished goods storage area. All materials are added at the beginning of the process, and conversion costs occur evenly. The units in process at the end of the month are 45% complete concerning conversion costs. The department incurred the following costs:

14A. How many units are still in process at the end of the month?

15A. Compute the equivalent production units for the Mixing Department for the current month.

16A. Determine the cost per equivalent unit for the current period for direct materials and conversion costs.

17A. Determine the cost to be transferred to the next department.

Question: What types of companies use job order costing systems?

Question: What types of companies use process costing systems?

Question: List ways in which job order costing systems are similar to process costing systems.

Question: Describe the flow of costs through a process costing system.

Question: What are equivalent units of production?

Question: Why is the calculation of equivalent units of production needed in a process costing system?

Question: What are conversion costs? Why do some companies using process costing systems use conversion costs?

Question: What is a production cost report?

Question: What are the primary differences between job order costing systems and process costing systems?

Most companies using a process costing systems have to calculate more than one EUP. Why? How many do they have to calculate?

 What is the weighted-average method for process costing systems?

What is the purpose of the Costs Accounted For section of the production cost report?

What are transferred in costs? When do they occur?

Explain the additional journal entries required by process costing systems that are not needed in job order costing systems.

Question: Department 1 is transferring units that cost $40,000 to Department 2. Give the journal entry.

Question: What are the four steps in preparing a production cost report?

Question: Explain the terms to account for and accounted for.

Question: If a company began the month with 50 units in process, started another 600 units during the month, and ended the month with 75 units in process, how many units were completed?

Question: Department 4 has completed production on units that have a total cost of $15,000. The units are ready for sale. Give the journal entry.

Question: How is the cost per equivalent unit of production calculated?

Describe ways the production cost report can be used by management.

Describe how the FIFO method is different from the weighted-average method.

Describe the three groups of units that must be accounted for when using the FIFO method.

When might it be beneficial for a company to use the FIFO method? When is the weighted-average method more practical?

Question: The Jimenez Toy Company makes wooden toys. The company uses a process costing system. Arrange the company’s accounts in the order the production costs are most likely to flow, using 1 for the first account, 2 for the second, and so on.

Question: Evergreen Orange manufactures orange juice. Last month’s total manufacturing costs for the Tampa operation included:

What was the conversion cost for Evergreen Orange’s Tampa operation last month?

Question: Cadwell manufactures cell phones. The conversion costs to produce cell phones for November are added evenly throughout the process in the Assembly Department. The company uses the weighted-average method. For each of the following separate assumptions, calculate the equivalent units of production for conversion costs in the ending Work-in-Process Inventory for the Assembly Department:

1. 12,000 cell phones were 60% complete

2. 21,000 cell phones were 40% complete

Question: Spring Fresh produces premium bottled water. Spring Fresh purchases artesian water, stores the water in large tanks, and then runs the water through two processes: filtration and bottling.

During February, the filtration process incurred the following costs in processing

200,000 liters:

Spring Fresh had no beginning Work-in-Process Inventory in the Filtration Department in February and uses the weighted-average method.

Requirements

1. Compute the February conversion costs in the Filtration Department.

2. The Filtration Department completely processed 200,000 liters in February. What was the filtration cost per liter?

Question: Identify each costing system characteristic as job order costing or process costing.

a. One Work-in-Process Inventory account

b. Production cost reports

c. Cost accumulated by process

d. Job cost sheets

e. Manufactures homogenous products through a series of uniform steps

f. Multiple Work-in-Process Inventory accounts

g. Costs transferred at end of period

h. Manufactures batches of unique products or provides specialized services

Refer to Short Exercise S18-5. At Spring Fresh, water is added at the beginning of the filtration process. Conversion costs are added evenly throughout the process. Now assume that in February, 155,000 liters were completed and transferred out of the Filtration Department into the Bottling Department. The 45,000 liters remaining in Filtration’s ending Work-in-Process Inventory were 80% of the way through the filtration process. Recall that Spring Fresh has no beginning inventories.

Compute the equivalent units of production for direct materials and conversion

costs for the Filtration Department.

The Packaging Department started the month with 600 units in process, received 1,200 units from the Finishing Department, and transferred 1,500 units to Finished Goods. Direct materials are added at the beginning of the process and conversion costs are incurred evenly. The units still in process at the end of the month are 60% complete for conversion costs. Calculate the number of units still in process at the end of the month and the equivalent units of production. The company uses the weighted-average method.

Question: The Finishing Department of Lee and Lewis, Inc., the last department in the manufacturing process, incurred production costs of \(220,000 during the month of June.If the June 1 balance in Work-in-Process Inventory—Finishing is \)0 and the June 30balance is $70,000, what amount was transferred to Finished Goods Inventory?

Question: The Mixing Department of Complete Foods had 62,000 units to account for in October. Of the 62,000 units, 38,000 units were completed and transferred to the next department, and 24,000 units were 20% complete. All of the materials are added at the beginning of the process. Conversion costs are added evenly throughout the mixing process and the company uses the weighted-average method.

Compute the total equivalent units of production for direct materials and

conversion costs for October.

Question: Refer to the data in Short Exercise S18-8 and your results for equivalent units of production. The Mixing Department of Complete Foods has direct materials costs of \(46,500 and conversion costs of \)23,540 for October.

Compute the cost per equivalent unit of production for direct materials and for

conversion costs.

Question: Refer to Short Exercises S18-8 and S18-9. Use Complete Foods’s costs per equivalent unit of production for direct materials and conversion costs that you calculated in Short Exercise S18-9.

Calculate the cost of the 38,000 units completed and transferred out and the

24,000 units, 20% complete, in the ending Work-in-Process Inventory.

The Finishing Department reports the following data for the month:

Equivalent unit of production:

Calculate the cost per equivalent units of production for each input. The company

uses the weighted-average method.

Miller Company sells several products. Sales reports show that the sales volume of its most popular product has increased the past three quarters while overall profits have decreased. How might production cost reports assist management in making decisions about this product?

Question: The Mixing Department’s production cost report for May shows \(12,500 in total costs, of which \)2,500 will remain in the department assigned to the units still in process at the end of the month. Prepare the journal entry to record the transfer of costs from the Mixing Department to the Packaging Department.

Question: Spring Fresh produces premium bottled water. Spring Fresh purchases artesian water, stores the water in large tanks, and then runs the water through two processes: filtration and bottling.

During February, the filtration process incurred the following costs in processing

200,000 liters:

Spring Fresh had no beginning Work-in-Process Inventory in the Filtration Department in February.

Requirements

1. Use the FIFO method to compute the February conversion costs in the Filtration Department.

2. The Filtration Department completely processed 200,000 liters in February. Use

the FIFO method to determine the filtration cost per liter.

Refer to Short Exercise S18A-15. At Spring Fresh, water is added at the beginning of the filtration process. Conversion costs are added evenly throughout the process. Now assume that in February, 130,000 liters were completed and transferred out of the Filtration Department into the Bottling Department. The 70,000 liters remaining in Filtration’s ending Work-in-Process Inventory were 80% of the way through the filtration process. Recall that Spring Fresh has no beginning inventories.

Compute the equivalent units of production for direct materials and conversion

costs for the Filtration Department using the FIFO method.

For each of the following products or services, indicate if the cost would most likely be determined using a job order costing system or a process costing system.

a. Soft drinks

b. Automobile repairs

c. Customized furniture

d. Aluminum foil

e. Lawn chairs

f. Chocolate candy bars

g. Hospital surgery

h. Pencils

Match the following terms to their definitions.

Complete the missing amounts and labels in the T-accounts.

                      Work-in-process inventory – Cutting 

                   Work-in-process inventory – Finishing

                   Work-in-process inventory – Packaging

                     Finished goods inventory

                             Cost of goods sold