Chapter 14
Process Costing
Process costing is a method of cost accumulation that accumulated production costs bydepartment. This system is commonly used by companies that manufactures on a continuous basis only one product or standard products.
Problems in process costing are often given in the CPA examination. To pass Practical Accounting 2, candidates must be thoroughly familiar with situations encountered in these problems, typical of which are the following:
1. Preparation of Cost of Production Report using: a. First-in, First – out (FIFO) costing method b. Average costing method
2. Accounting for spoilage (lost units) a. Normal spoilage
b. Abnormal spoilage
COST OF PRODUCTION REPORT
At the end of each month the cost of production report is prepared for each department by the cost accountant of the department. A production report has two sections:
1. Quantity schedule, which shows the follow of units. 2. cost analysis which shows the flow of cost.
Quantity Schedule
This section shows the number of units that were in process in the department at the start of the month, the number of units begun during the month, the number of units transferred out of the department during the month, the number of units still in work in process at the end of the month.
The principal problem in the quantity schedule is the computation of the equivalents
production (measure of work done in terms of completed units) of units finished and units in process for materials and conversion costs (labor and overhead). The computation of the equivalent units of production (EUP) will depend on the inventory costing method used. a. First in, First out (FIFO) Costing. Under this method, the stage of completion of the units of Beginning Work in Process (BWIP) is determined separately from the units started and finished this month. This means that the equivalent units of production are calculated only for work actually performed during the month.
b. Average Costing. Under this method, the unit in process at the beginning is combined with the units started and finished this month and presented in one batch of units. This means that the work performed on the units in progress beginning (last month) is treated as if it were performed this month.
Cost Analysis
This section summarized the costs incurred in the department, the cost per unit of the product, the total costs of products completed and transferred out of department, and the costs related to the ending inventory of work in process in each department. The principal problem in this section is the computation of unit cost and the allocation of the total costs to units finished and transferred out and to units in ending work in process.
Unit cost:
a. First in, first out (FIFO) Costing. Total costs incurred this month (current costs) divided by the equivalent units of production.
b. Average Costing. Cost last month (cost incurred in BWIP) plus cost this month (current costs) divided by the equivalent units production.
Allocation of total costs:
a. First in, first out (FIFO) Costing: Finished and transferred out:
BWIP: Cost last month
Cost this month = EUP x UC Started in process = Actual units UC
EWIP = EUP x UC b. Average Costing:
Finished and transferred out = Actual units x total UC EWIP = EUP x UC
ACCOUNTING FOR SPOILAGE (LOST UNITS)
Spoilage units are units of product that have been damaged or improperly manufactured and cannot be completed as salable products. Spoilage may be classified as normal spoilage,
because it is a common occurrence that is inherent in the manufacturing process and abnormal
spoilage that results from unusual and nonrecurring factors, such as fire or water damage.
Candidates should be familiar with the following procedures in presenting spoilage in the cost of production report.
Quantity Schedule. Normal and abnormal spoilage are presented separately and the equivalent units of production computed bases on the work done.
Cost Analysis. The costs of units lost through normal spoilage are absorbed by the remaining god units produced during the month. Costs of abnormal spoilage are presented separately and charged to a Loss Abnormal Spoilage account so that the completed units do not absorb the costs related abnormal lost units.
Computation of the cost of normal spoilage:
Spoiled units may be discovered at the start of the process, during the process or at the end of the process. The computation of the cost of lost units depends on the point of discovery as follows:
a. if lost units are discovered at the start or during the process –
In the first department = no cost
In the subsequent department = lost units x unit cost from preceding department b. if lost units are discovered at the end of the process –
In the first department = lost units x total unit costs in this department
In the subsequent department = lost units x total unit cost from preceding and in this department
point- In the first department = EUP of lost units x unit cost
In the subsequent department = cost from preceding department plus cost in this department (EUP x UC)
Allocation of cost of normal spoilage
Cost of normal spoilage is to be absorbed by the good units because good units cannot be made without also making some units that are spoiled. Cost of normal spoilage should be alloxated pro-rate among the good units on the bases of actual units or EUP. The allocations procedures are:
a. If lost units are discovered at the start or during the process –
First In, First Out Costing – To all the goods units started finished this month and units in process at the end.
Average costing – To all the good units, finished and in process. b. If lost units are discovered at the end of the process –
First in, First out costing – To all the units finished and transferred out.
Average costing – to all the good units finished and in process.
c. if lost units are discovered at inspection point. To all the good units that passed the inspection point.
PROBLEMS
1. Department of Hope Manufacturing Company presents the following production data for the month of May, 2013:
Opening inventory 3/8 completed 4,000 units
Started in process 13,000 units
Transferred 9,000 units
Closing inventory, 1/2 completed 4,000 units 3/4 completed 4,000 units
What are the equivalent units of production for the month of May, 2013.
FIFO AVERAGE a.12,500 units 13,000 units b.17,000 units 12,500 units C. 12,500 units 14,000 units d. 15,000 units 14,000 units
2. Rose Co, bad 3,000 units in work in process at April 1, 2013, which were 60% complete as to conversion cost, During April, 10,000 units was completed. At April 30, 4,000 units remained in work in process which were 40% complete as to conversion cost. Direct materials are added at the beginning of the process.
How many units were started during April?
a. 9,000 b. 9,800 c. 10,000 d. 11,000
3. The Ilang-llang Corporation, engaged in a manufacturing business and using process costing, gave the following production data for three different situations. Stages of completion of the inventories apply to all cost elements.
(1) Started in process, 6,500 units; transferred, 5,500 units; in process, 400 units 50% completed and 600 units 25% completed.
(2 ) Beginning inventory, 6,250 units 40% completed; started in process, 25,000 units; transferred, 26,250 units; in process at the end, 3,000 units 50% completed and 2,000 units 25% completed.
units; lost in processing, 500 units from production started this period (loss was normal and occurred throughout the production process); transferred, 14,000 units; in process at the end, 3,000 units 50% completed and 1,500 units 75% completed.
What are the equivalent production of the three different situations under FIFO and average costing? FIFO AVERAGE 1 2 3 1 2 3 a.5,850 25,750 14,825 5,850 28,250 16,625 b. 5,850 27,550 18,425 5,580 22,850 15,662 c.8,550 20,575 15,428 5,508 28,025 16,265 d. 5,058 20,775 12,524 5,850 28,250 16,625
4. Orchids Company has a process cost system using the FIFO cost flow method. All materials are introduced at the beginning of the process in Department One. The following information is available for the month of January 2012:
Units Work in process, 1/1/08 (40% complete as to conversion
costs) 500
Started in January 2,000
Transferred to Department Two during January 2,100 Work in process, 1/31/08 (25% complete as to
conversion costs) 400
What are the equivalent units of production for the month of January 2013?
Materials Conversion a.2,500 2,200 b.2,500 1,900 c.2,000 2,200 d.2,000 2,000
5. Anahaw Company's production cycle starts in the Mixing Department. The following information is available for the month of April 2013?
Units Work inprocess, April 1 (50% complete) 40,000
Started in April 240,000
work-in-process, April 30 (60% complete) 25,000
Materials are added in the beginning of the process in the Mixing Department. Using the weighted average method, what are the equivalent units of production for the month of April 2013?
Materials Conversion a.240,000 250,000 b.255,000 255,000 c.270,000 280,000 d.280,000 270,000
6. Materials are added at the start of the process in Jasmin company's cutting department, the first stage of the production cycle. The following information is available for the month of March 2013.
units Work in process, March 1 (60% complete as to
conversion costs) 60,000
Started in March 150,000
Transferred to the next department 110,000
Lost in production 30,000
Work in process, March 31 (50% complete as to
conversion costs 70,000
Under Jasmin's cost accounting system, the costs incurred on the lost units are absorbed by the remaining good units. Using the First in, First out method, what are the equivalent units for the materials unit cost calculation?
a. 120,000 b.145,000 c. 180,000 d. 210,000
7. Bayani Manufacturing Company, using the FIFO process cost system, has the following data for the month of April:
Percent Complete
Actual Units Materials Conversion cost
Beginning Inventory 15,000 * I 00% 40%
Transferred in 150,000 Transferred out 120,000
Ending Inventory 45,000 100% 30%
What are the equivalent units of production for the month of April?
Materials Conversion Costs a.150,000 127,500
b.165,000 139,500 C. 135,000 124,500 d. 150,000 133,500
8. Eastern Products Inc., Input all materials at the start of operations in Process 1. The inventory is process at the beginning of January consisted of 4,000 units with a total cost of materials of P100,000 and labor and overhead of P20,000 . In January, 20,000 units were started in process with material cost of P500,000. Labor and overhead in January cost P280,000. As of end of January., the inventory was 100% complete in materials but only 60% in labor and overhead. The ending inventory consisted of 10,000 units. The equivalent units of labor and overheard for the month of January amounted to:
a.20,000 b.10,000 C. 26,000 d. 30,000
9. Yakal Company computed the flow of physical units completed for Department M for the month, of March 2013 as follows:
Units completed:
From work-in process on March 1, 2008 15,000
From March production 45,000
No. 9 – Continued
Materials are added at the beginning of the process. The 12,000 units of work in process at March 31, 2013, were 80% complete as to conversion costs. The work in process at March 1, 2043 was 80% complete as to conversion costs. Using the FIFO method, the equivalent units for March conversion costs were:
a. 55,200 b. 57,000 C. 60,600 d. 63,600
10. Mataba Company sells food processors and manufactures them in a single continuous process. At the end of August there were 200 units valued at P30,095, which consists of P25,200 in materials cost and P4,895 in conversion cost. These were 100% complete as to materials and 25% complete as to conversion cost 1200 units were added to production during September, and these had materials costs of P168,000. Processors which have not been
completed at the end of September total 200 units and were 100% complete as to materials and 50% complete as to conversion cost. Conversion cost during September were P158,125. There were no units lost in process.
What are the equivalent units of production for September?
a.1,400 1,350 b.1,200 1,100 c.1,200 1,150 d.1,200 1,250
11. The Wiring Department is the second stage of Acacia Company's production cycle. On May 1, the beginning work-in process contained 25,000 units which were 60% complete as to conversion costs. During May, 100,000 units were transferred-in from the first stage of Acacia's production cycle. On May 31, the ending work in Process contained 20,000 units which were 80% complete as to conversion costs. Material costs are added at the end of the process, using the weighted-average method, the equivalent units were:
Materials Conversion costs a.125,000 100,000
b.105,000 105,000 c.105,000 121,000 d.125,000 121,000
12. Dhalia Company adds materials at the beginning of the process in Department A Information concerning the materials used in April 2013 production is as follows:
Units
Work-in-process at April 10,000
Started during April 50,000
Completed and transferred to next
department during April 36,000
Normal spoilage incurred 3,000
Abnormal spoilage incurred 5,000
Work in process at April 30 16,000
Under Dhalia's cost accounting system, costs of normal spoilage are treated as part of the costs of good units produced. However, the costs of abnormal spoilage are charged to factory
overhead. Using the weighted-average method, what are the equivalent units for the materials unit cost calculation for the month of April?
a.47,000 b.52,000 C. 55,000 d. 57,000
13. The following information pertains Lanao's First Department for the month of April:
Number of units Cost of Materials
Beginning work-in-process 15,000 P 5,000
Started in April 40,000 18,000
Units completed 42,000
Ending work-in-process 12,000
All materials are added at the beginning of the process. Using the weighted average method, the cost per equivalent unit for materials is:
a.P0.59 b.P0.55 C. P0.45 d. P0.43
14. Information concerning Dept. B of Simon Co. follovvs: Units
Beg. work in process 5,000 P6,300 P2,90 P- P 3,400
Units transferred in 35,000 58,000 17,500 25,500 15,000
40,000 P64,300 P20,400 25,500 P18,400
Units completed 37,000 End. work in process 3,000
Conversion costs were 20% complete as to the beginning work in process and 40% complete as to the ending work in process. All materials are added at the end of the process. Simon Co. uses the weighted average method.
The unit cost for conversion costs and for transferred-in cost rounded to the nearest centavo are:
a. P0.44 and P0.48 b. P0.46 and P0.51 c.P0.48 and P0.51 d. P0.50 and P0.53
15. Reyna Company manufactures product X in a two-stage production cycle in Departments A and B, Materials are added at the beginning of the process in Department B. Roy uses the weighted-average method. Conversion costs for department B were 50% complete as to the 6,000 units in the beginning work-in- process and 75% complete as to the 8,000 units in the ending work-in-process,12,000 units were completed and transferred out of Department B during February 2013. An analysis of the costs relating to work-in-process and production activity in Department B for February 2013 is as follows:
Transferred Cost In Materials Conversion Work-in-process, February 1: costs attached P12,000 P2,500 P1,000 February activity: costs added 29,000 5,500 5,000
The total cost per equivalent unit transferred out for February 2013 of product X, rounded to the nearest centavo, was:
a. P2.75 b. P2.78 c. P2.82 d. P2.85
16. On April 1,2013, the Hari Company had 6,000 units of WIP in Department B, the second and last stage of their production cycle. The costs attached to these 6,000 units were P12,000 of costs transferred in from Department A, P2,500 of material cost added in department B and P2,000 of conversion cost added in Department B. Materials are added in the beginning of the process in Department B. Conversion was 50% complete on April 1,2013. During April, 14,000 units were transferred in from Department A at a cost of P27,000; and a materials costs of P3,500 and conversion costs of P3,000 were added in Department B. On April 30, 2011, Department B had 5,000 units were added in Department B. On April 30,2011 Department B had 5,000 units of WIP 60% complete as to conversion costs. The costs attached to these 5,000 units were P 1 0,500 of costs transferred in from Department A, P1,800 of material costs added in Department B and P800 of conversion costs added in Department B.
Using the weighted-average method, what are the unit costs?
Transferred Materials Conversion
in cost
a.P1.95 P.25 P.27
b.P1.95 P.30 P.28
c.P1.80 P.30 P.27
d. P1.70 P.25 P.28
I 7. Department CC has the following April production information: Beginning work in process 24,000 units Units started during the month 780,000 units Units transferred to next operation in April 744,000 units Ending work in process (40% complete) 60,000 units Beginning work in process cost P 120,000
No 17 Continued
The unit cost of production is:
a.P 7.00 b. P20.22 c. P 6.89 d. P 6.69
I 8. For the month of March, Payaso Inc. registered the following information: Beginning work in process (70% complete) 40,000 units
Started in March 300,000 units
Ending work in process (80% complete) 60,000 units
The cost of beginning work in process was FP 140,000 while the production costs for the month registered at P 1 ,172,000. Using the average method, what is the unit cost of production for March?
a.P4.00 b.P3.86 C. P3.91 d. P4.69
I 9. The Masaya Corporation manufactures only one product, and the raw materials must pass through Processes A, B, and C, in that order, before completion.
On October 1, the inventories of Process C and Finished Goods were: Process C -- 1,200 units, 2/3 completed, P4,200. Finished Goods -- 1,000 units, at P3.00 per unit.
During October, 2,000 units valued at P5,000 were transferred in from Process B.
Direct labor cost in Process C was P3,100 and the overhead cost applied to Process C was P3,200.
The inventories on October 31 were:
Process C -- 660 units, 1/2 completed. Finished Goods -- 1,300 units
The conversion cost per equivalent unit for October is: No. 19 --- continued a.P1.50 b.P2.75 C. P3.00 d. P3.50
20. Materials are added at the start of the process in Arce Company's Blending Department, the first stage of the production cycle. The following information is available for the month of July, 2013.
Work-in-process, July 1 (60% complete as to conversion
costs) 60,000 units
Started in July 150,000 units
Transferred to the next department 110,000 units
Lost in production 30,000 units
'Work-in-process, July 31 (50% complete as to
conversion costs) 70,000 units
Under Arce's cost accounting system, the costs incurred on the lost units are absorbed by the remaining good units. Using the weighted-average method, what are the equivalent units for the materials unit cost calculation?
a. 120,000 b. 145,000 c. 180,000 d. 210,000
21. Information for the month of May concerning Department A, the first stage of Pinay Corporation's production cycle is as follows:
Conversion Materials Costs Work-in-process, beginning P 4,000 P 3,000
Current costs 20,000 16,000
Total costs P24,000 P19,000
Equivalent units based on
Weighted-average method 100,000 95,000
Average unit costs P 0.24 P 0.20
Goods completed 90,000 units
No. 21 --- Continued
Material costs are added at the beginning of the process. The ending work-in process is 50% complete as to conversion costs. How would the total costs accounted for be distributed, using the weighted-averaged method?
Goods Completed Work-in Process, End
a P39,600 P3,400
b. P39,600 P4,400
C. P43,000 P0
dr. P44,000 P3,400
22. Samahan, Inc. manufactures a highly sensitive smoke alarm and uses the first-in, first-out method for process costing and finished goods costing. In costing finished goods, the unit cost for units completed from the work in process at the beginning of the period is kept separate from the unit cost of those started and completed during the period.
The total manufacturing costs for the month of June is P264,000 and 2,750 units are completed during the month.
The inventories at the beginning of June area
Smoke alarms in process (8O%
complete) 1,250 units P128,000
Smoke alarms on hand (complete) 600 units 76,800
The inventories at the end of June are: Smoke alarms in process (50%
complete) 500 units
Smoke alms on hand (complete) 700 units How would the total costs accounted for be distributed?
Work-in Process Finished Goods a. P33,000 P92,000
b. P33,000 P79,000 c. P32,000 P92,000
d. P66,000 P52
23. China, Inc. manufactures a product which goes through three consecutive Processes, Process I , Process 2 and Process 3. Data for the month of September, 2013 are as follows:
Process 1 Process 2 Process 3
P8,000 P13,000 P2,000
Opening Work in Process 20,000 4,000 5,000
Conversion Costs 6,000 9,000 4,000
What was the value of the output transferred from Process 3 to the finished goods warehouse for the month of September?
a. P63,000 b. P65,000 c. P67,000 d. P69,000
24. Lucas Company adds materials in the beginning of the process in the 'Forming Department, which is the first of two stages of its production cycle. Information concerning the materials used in the Forming Department in October 2013 are as follows:
Units Material Costs
Work in process at October 1, 2013 6,000 P3,000
Units started during October 50,000 50,000
Units completed and transferred to
the next department during October 40,000
Using the weighted-average method, what was the materials cost of work in process at October 31, 2013?
a. P3,060 b. P5,520 C. P6,000 d. P6,120
25. During March 2013 Binata Co.'s Department Y equivalent unit product costs, computed under the weighted-average method, were as follows:
Materials P1
Conversion 3
Transferred-In 5
Materials are introduced at the end of the process in Department There were 4,000 units (40% complete as to conversion cost) in work-in-process at March 31, 2013, The total costs assigned to the March 31, 2013, work-in-process inventory should be
a. P36,000 b. P28,800 c. P2 7,200 d. P24,800
26. The following data pertains to Finishing Department for the month of May, 2013:
I. Opening Inventory 4,000 units
Percentage of completion Value
Material 100% P1,992
Labor 50% 1,074
Overhead 50% 826
Put in process 20,000 units Materials value - P 12,000 Labor --- P9,984
Overhead is 100% of labor cost.
2, Units completed and transferred to store a 21,000 units 3. In process at the end - 3,000 units
Materials - all
Labor and overhead - 60%
No.26 Continued
What is the cost of the work-in process at the end for the month of May?
Average Method FIFO Method
a. P3,577 P3.500
b. P3,477 P3,228
c. P3,528 13,477
d. P3,500 P3,577
27. For the month of May, the Cutting Department of Damit Co had 80% complete as to the beginning work in process and 50% complete as to the ending work in process. Related data follow:
Units Conversion Costs
Work in process, 1 May 50,000 P88,000
Units started and costs incurred in May 270,000 572,000 Units completed and transferred to
the next department in May 200,000
If the company were using FIFO method, the conversion cost of the work in process in the Cutting Department at the end of May would amount to
a.P156,000 b.P254,000 C. P132,000
d. P176,000
28. Matalino, Inc. instituted a new process in October 2013. During October, 10,000 units were started in Department A. Of the units started, 1,000 were lost in the process, 7,000 were transferred to Department B and 2,000 remained work-in-process at October 31, 2013. The work-in-process at October 31, 2013 was 100% complete as to material costs and 50% complete as to conversion costs. Material costs of P27,000 and conversion costs of P40,000 were charged to Department A in October. What were the total costs transferred to
Department B?
a. P46,900 b.P5.3,600 c. P56,000 d. P57,120
29. The following data for September were taken from the cost records of the Mixing Department of Love Manufacturing Company, which uses average costing method: Work in process, August 31:
(all materials, 50% converted) 1,000 units Put into process during the month of September 10,000 units Work in process, September 30:
(all materials, 60% converted) 1,400 units Costs:
Work in process, August 31:
Materials P 24,000
Labor 15,000
Factory overhead 7,000
Put into process during September
Materials 251,000
Labor 193,000
Factory overhead 149,000
The total cost of the units completed and transferred was:
a. P576,000 b. P605,400 c. P640,400 d. P693,800`
30. The Forming Department is the first of a two stage production process. Spoilage is identified when the units have completed the forming process. Cost of spoiled units are assigned to units completed and transferred to the second department in the period spoilage is identified. The following information concerns Forming 's conversion costs in May 2013.
Units Conversion Cost Beginning work-in-process (50% complete) 2,000 P10,000
Units started in May 8,000 75,000
Spoilage-Normal 500
Units completed and transferred 7,000 Ending work in process (80% complete) 2,500
No. 30 Continued
Using the weighted-average method, what was Forming's conversion cost transferred to the second production department?
a. P59,850 b. P64,125 C. P67,500 d. P71,250
31. Manuel Company uses process cost system with average costing to account for the production of its only product The product is manufactured in two departments. Units are started in Assembling Department, and then transferred to the Finishing Department, where they are completed. Units are inspected at the end of the production process in the Assembling Department, and the cost of abnormal lost is charged to Factory Overhead Control account. Data related to June operations in the Assembling Department are:
Quantity:
Units in beginning inventory (60% materials,
35% labor, and 25% overhead) 1,000
Units started in process this period 59,000 Units transferred to the Finishing Department this
period 8,000
Units in ending inventory (100% materials, 75% labor,
Aand 50% overhead) 1,500
Cost data:
Beginning Inventory Added This Period Costs charged to the Department:
Materials P 1 ,260 P36,240
Direct labor 770 10,780
What is the total cost transferred to the Finishing Department?
a. P56, 752 b. P59,600 C. P59,452
d. P58,000 or less
32. Datu Chemical Industries, Inc. produces a product through a continuous process in different departments. Each department has an independent cost accountant who prepares cost of production report. You have been assigned as cost accountant for Department A.
Production data of Department A for the month of July, 2013 were as follows: Work in process, July 1 (70% completed) 14,000 units
Started in process 70,000 units
Work in process, July 31 (60% completed) 12,000 units Lost units (normal) at end of process 2,000 units In this department, costs are applied as follows:
Materials --- added at the start. Labor and overhead --- evenly applied Department costs incurred in July were:
Materials P56,000
Labor 17,000
Overhead 13,000
Work in process, July 1 8,000
What is the cost of?
Units transferred Work in process-July 31
a. P82,390 P 9,600
b. P81,890 P 9,600
c. P72,000 P12,840
d. P82,3 90 P12,840
33. The Classmate Company manufactures a single product in a continuous process in two departments. Cost and production data for the finishing department, the last department for the month of April, 2013 are shown below:
Costs:
Cost from preceding department P135,000
Work in process, April 1 18,000
Materials
-Labor 85,800
No. 33 Continued
Quantity:
Units in process, April 1
(All materials, 50% converted) 4,000 Units received from preceding department 30,000 Units in process, April 30
(All materials, 60% converted) 6,000
Loss during the process 3,000
In the Finishing Department, what is the total cost transferred to finished goods?
a. P250,000 b. P286,000 C. P238,000 d. P210,000
34. Adonis Manufacturing Company makes a single product in two departments. The production data for Department 2 for May 2013 follows:
Quantities:
In process, May I, (40% completed) 4,000 units Received from Department 1 30,000 units Completed and transferred 25,000 units In process, May 31, (60% completed) 6,000 units Production Costs:
May 1 May 31
Received from Department 1 P16,300 P89,100
Materials 3,800 67,500
Conversion cost 1,940 81,000
Materials are added at the start of the process, and losses normally occur during the early stage of the operation.
Using the Average Costing Method, what is the inventory cost of the ending work in process?
a. P44,640 b. P45,460 c. P45,600 d. P46,000
Numbers 35 to 37 are based on the following information
Air Force Inc. manufactures their product in two departments in a continuous process. Production data for the month of October 2013 are as follows:
Received from preceding department 2,000 units
Normal spoilage 200 units
Abnormal spoilage 300 units
Units completed and transferred out 1,700 units Ending work in process, 1/3 completed 300 units Conversion costs in beginning inventory P610 Current period conversion costs P3,990 All spoilage occurs at the end of the process.
35. What is the conversion cost per equivalent unit?
FIFO Method Average Method a. P1.90 P1.73
b. P2.19 P2.00 c. P2.00 P1.90 d. P1.90 P2.00
36. What is the conversion cost of normal spoilage?
FIFO Method Average Method
a. P438 P400
b. P380 P346
c. P400 P380
d. P380 P400
37. What is the conversion cost of abnormal spoilage?
FIFO Method Average Method a. P570 P519
b. P657 P600 c. P570 P600 d. P600 P570
Use the following data in answering Numbers 38 to 41
The Cooking Department of Red Crab, Inc., uses process system Direct materials are added at the beginning of the cooking process. Conversion costs are added evenly during the cooking process. Consider the following data for the Cooking Department for January:
Physical Units Direct Materials Conversion costs Work in process, January 1:
25% conversion costs
Good units completed and transferred
out during January 61,000
Spoiled units 8,000
Work in process, January 31 15,000
Costs added during January P1,480,000 P942,000
Cost per equivalent unit of work
done in January P20 P12
Red Crab uses the FIFO method of process costing. Inspection occurs when production is 100% complete, normal spoilage is 11% of good units completed during the period.
38. What is the total cost of the units completed and transferred-out?
a. P1,632,000 b. P1,972,000 c. P2,186,720 d. P2,228,000
39. What is the total cost of the units in ending work in process?
a. P444,000 b. P685,280 C. P658,720 d. P300,000
40. What is the cost of abnormal spoilage?
a. P256,000 b. P214,720 c. P 41,280 d. 41,000
Questions 41 and 42 are based on the following information:
A sporting goods manufacturer buys wood as a direct material for baseball bats. The Fanning Department processes the baseball bats, and the bats are then transferred to the Finishing Department where a sealant is applied. The Forming Department began manufacturing 10,000 "Casey sluggers" during the month of May. There was no beginning inventory.
Direct materials P33,000
Conversion costs 17,000
Total P50,000
A total of 8,000 bats were completed and transferred to the Finishing Department; the remaining 2,000 bats were still in the forming process at the end of the month. All of the
Forming Department's direct materials were placed in process, but, on average, only 25% of the conversion cost was applied to the ending work-in- process inventory.
41. The cost of the units transferred to the Finishing Department is:
a. P50,000 b. P40,000 C. P53,000 d. P42,400
42. The cost of the work-in-process inventory in the Forming Department at the end of May is:
a. P10,000 b. P 2,500 c. P20,000 d. P 7,600
Question 43 and 44 are based on the following information:
A manufacturer began operations on October 1. It buys wood as a direct material for the
production of floor lamps. The company’s Forming Department processes the lamp frames, and the frames are then transferred to the Finishing Department where a sealant is applied. The Forming Department began manufacturing 10,000 lamps during the month of October. Costs for the Forming Department for the month of October were as follows:
Direct materials P66,000
Conversion cost 34,000
43. The cost of the units transferred to the Finishing Department (after rounding each calculation to the nearest cent) is:
a. P68,760 b. P60,000 c. P39,600 d. P29,160
44. The cost (after rounding each calculation to the nearest cent) of the work-in-process inventory in the Forming Department of October is:
b. P26,400 c. P31,260 d. P45,840
Question 45 and 44 are based on the following information:
A company employs a process costing system for its two-department manufacturing operation using the first-in, first-out (FIFO) inventory method. When units are completed in Department 1, they are transferred to Department 2 for completion. Inspection takes place in Department 2 immediately before the direct materials are added, when the process is 70% complete with respect to conversion. The specific identification method is used to account for lost units. The number of defective units (that is, those failing inspection) is usually below the normal tolerance limit of 4% of units inspected. Defective units have minimal value, and the company sells them without any further processing for whatever it can.
Generally, the amount collected equals, or slightly exceeds, the transportation cost. A summary of the manufacturing activity for Department 2, in units for the current month, is presented below:
Physical Flow(output units) Beginning inventory (60% complete with respect to conversion) 20,000
Units transferred from Department 1 180,000
Total units to account for 200,000
Units completed in Department 2 during the month 170,000 Units found to be defective at inspection 5,000 Ending inventory (80% complete with respect to conversion) 25,000
Total units accounted for 200,000
45. The equivalent units for direct materials for the current month would be:
a. 175,000 units b. 181,500 units c. 193,000 units d. P200,000 units
46. The units that failed inspection during the current month would be classified as:
a. abnormal spoilage b. normal scrap
c. normal rework units d. normal waste
DXR Compamy employs process cost system. A unit of product passes through two department. Assembly and Finishing before it is complete. Information regarding Assembly Department follow:
BWIP, Aug. 1 4,000 units
Spoiled units 3,000
Suited in Production 26,000
Transffered out 24,000
Raw materials are added at the beginning of processing in the Assembly Department without changing the number of units being processed. Work-in-process on August 1 was 90% complete as to conversion while 80% converted on August 31. In the Assembly Department, inspection takes place when the units are 75% converted. The company usually experienced a 5% loss based on the completed units,
Cost data for the month of August follow:
Materials Labor Overhead
BWIP P32,400 P26,400 P28,500
Current cost 111,600 88,200 114,750
Using Weighted Average Costing: Assuming that the allocation of cost of normal lost units is based on EUP.
47. What the cost of units transferred-out?
a. P331,200 b. P331,400 c. P343,684 d. P343,860
48. What is the cost of units of ending work-in-process?
a. P37,376 b. P37,500 c.P36,200 d. P37,400
Using FIFO Costing: Assuming that the allocation of the cost of normal lost units is based on actual units.
49. What is the cost of units transferred out?
b. P258,067 c. P339,267 d. P368,069
50. What is the cost of units of ending work-in-process?
a. P33,850 b. P32,310 c. P31,580 d. P33,580
ANSWERS
1.C 11.c 21.a 31.b 41.d 2.d 12.d 22.a 32.d 42.d 3.a 13.d 23.d 33.c 43.a 4.d 14.c 24.d 34.a 44.C 5.d 15.b 25.d 35.d 4S. C 6.a 16.b 26.b 36.d 46.b7.a 17.a 27.a 37.c 47.a
8.a 18.a 28.c 38.c 48.a
9.c 19.c 29.a 39.a 49.a
10.d 20.c 30.c 40.C 5O. a
SOLUTIONS AND EXPLANATIONS
1. Under FIFO method the work done this month on the opening inventory should be determined. The equivalent production is computed as follows:
Transferred: Opening inventory (3/8 x 4,000) 2,000 Started (9,000- 4,000) 5,000 Closing Inventory: 1/2 x 4,000 2,000 3/4 x 4,000 3,000 5,000 Equivalent production 12,000
Under the average cost method, to compute the equivalent production, the work done on the opening inventory is not determined.
Transferred
Closing Inventory: 9,000
1/2 x 4,000 2,000
Equivalent production 14,000
2. This is computed by using the equation, units in process beginning and units started is equal to units completed and units in process at the end, therefore the with units started is 11,000 units as computed below:
Units completed 10,000
Units in process-end 4,000
Units as accepted for 14,000
Less: Units in process, beg. 3,000
Units started 11,000
3. FIFO:
Case 1 Case 2 Case 3
Units completed and
transferred 5,500 26,250 14,000
Add: Units in process, ending: 1. (400 x 50%) + (600 x 25%) 350 2. (3,000 x 50%) + (2,000 x 25%) 2,000 3. (3,000 x 50%) + (1,500 x 75%) ____ ____ 2,625
Equivalent production figures,
Average Costing 5,850 28,250 16,625
Less: Units in process, beginning:
2. (6,250 x 40%) 2,500
3. (6,000 x 30%) ____ _____ 1,800
Equivalent production figures,
FIFO Costing 5,850 25,750 14,825
Case .1 Case 2 Case 3
Units completed and transferred 5,500 26,250 14,000 Add: Units in process, ending:
1. (400 x 50%) + (600 x 25%) 350 2. (3,000 x 50%) + (2,000 x
25%) 2,000
3. (3,000 x 50%) + (1,500 x
75%) _____ ____ 2,625
Equivalent production figures,
4. The computation is:
Materials Conversion
Work to complete WIP-Beg. 0 300
Units started and transferred 1,600 1,600
Work to date on WIP-end 400 100
EUP 2,000 2,000
Since materials are introduced at the beginning of the process, WIP Beg. is already complete as to materials. All materials were added this month for any units started this month, whether those units were transferred or remain in W1P End, since WIP Beg. is 40% complete on 1/1/08 as to conversion costs, 60% of the work (60% x 500, or 300) must have been done in January. WIP End is 25% complete at 1/31/08, which means 25% of the conversion work (25% x 400, or 100) was done in January. Remember, under the FIFO assumption, equivalent production measures only the work done in the current period.
5. Equivalent units, under the weighted-average method, is equal to units completed plus equivalent units in ending work-in-process.
Beginning work-in-process 40,000
Units started 240,000
Units to be accounted for 80,000
Less ending work-in-process 25,000
Units completed 255,000
Computation of equivalent units of production is then computed as follows:
Materials Conversion
Units completed 255,000 255,000
Equivalent units 25,000 15,000
Equivalent units 280,000 270,000
Materials added at beginning of process; 100% complete (25,000) (60% complete)
6. Since the materials are added at the beginning of the process, all units are 100% complete with respect to materials.
Actual Work Done Materials
Actual Work Done Materials Finished and transferred:
Work in process, March 1 60,000
-Started in March
(110,000-60,000) 50,000 100% 50,000
Work in process, March 31 70,000 100% 70,000
production
As stated in the problem, the cost of the 30,000 spoiled units will be spread over the 180,000 equivalent units. Hence, the spoiled units are not considered in the equivalent unit
computation.
7. The computation is shown below:
Materials Conversion Cost Transferred out: Beginning inventory 9,000 Transferred in (120,000-15,000) 105,000 105,000 Ending inventory 45,000 13,000 Equivalent production 150,000 127,000 8. Units finished [(R4,000 20,000 — 10,000) x 100% =] 14,000 Units in process-end (10,000 x 60%) 6,000
Equivalent units of labor and overhead 20,000
Note: The average method was used because the percentage of completion as to conversion cost on the units in process beginning is not given.
9. Equivalent units for conversion costs can be computed under the FIFO method as follows:
Units completed:
Work in process, March 1 (15,000 x 40%)* 6,000
From March production 45,000
Work in process, March 31 (12,000 x 80%) 9,600
Equivalent units 60,600
* Work done this month. Another computation is:
Units completed 60,000
Work in process, March 31 9,600
Total 69,600
Less: Work in process, March 1 (15,000 x
60%)* 9,000
Equivalent units 60,600
10. Using the FIFO, the computation is:
Actual Materials Conversion Cost
Units completed:
In process, beginning 200 150
Started & completed 1,000 1,000 1,000
Units in process, end 200 200 100
Equivalent units 1,200 1,250
11. Under the weighted-average method, the computation is as follows:
Actual Material Conversion Cost
Units in process, beg. 25,000 Units transferred in 100,000 Total units to account for 125 000
Units completed (Squeeze) 105,000 105,000 105,000
Units in process, end 20,000 ______ 16,000
Units as accounted for 125,000 105,000 121,000
No. 11 - Continued
Under the average method the equivalent production &the total units transferred-in would be the total units in process, beginning and the unit transferred-in of
100,000.
12. No equivalent production is to be computed on normal spoilage since the cost is to be allocated to all the good units. However abnormal spoilage is to be given a
100% e equivalent production since its costs are charged to factory overhead. Therefore, the equivalent production under the average method is 57,000 units, Computed as follows: Completed and transferred (100%) 36,000
Work in process, end (100%) 16,000
Abnormal spoilage (100%) 5,000
Equivalent production of materials 57,000
13. Under the weighted average method, equivalent units of production and cost per unit are based on all work (this period's and last period's) done on units completed plus all work done to date on the units in ending work in process. Since materials are added at the beginning of the production process, both the units completed in the ending work-in-process are 100 percent complete with respect to materials.
Units completed 42,500
Ending work in process 12,500
Total equivalent units 55 000
Cost of materials:
Beginning work in process P 5,500
Units started 18,000
Total costs incurred P23,00
Divided by Equivalent Production ÷55,000
Cost pa equivalent unit P.43
14. Unit cost for conversion cost Units completed
Units in process, end (3,000 x 40%) 37,000 Equivalent production for conversion cost 1,200 Unit cost, rounded to the nearest centavo is: 38,200
P18,400 + 38,200 P0.48
Unit cost for transferred-in cost is P0.51, completed by dividing transferred in
cost (P20,400) by the total units of in Process beginning and units transferred-in (40,000 units). 15. Since Reyna Company is using the weighted-average method, the solutions approach is to combine the transferred-in cost, material costs and conversion costs in the beginning inventory with their counterparts for costs added in February The next step is to compute the equivalent units for the transferred-in, materials and conversion elements. Finally, dividing the total costs of the beginning inventory and costs added in the period for each element by the equivalent units for the corresponding element gives the unit cost for each of the elements.
Department B
Beginning work-in Completed and
process (conv. 50%) 6,000 12,000 transferred
Transferred in Ending
work-in-(not needed) ? 8,000 process (conv. 75%)
Department B Product X Equivalent Units:
Transferred in
Units completed and transferred 12,000 12,000 12,000
Ending work-in process (conv. 75%) 8,000 8,000 6,000
Equivalent units production 20,000 20,000 18,000
Cost per Equivalent Unit:
Beginning work-in process P12,000 P 2,000 P 1,000
Costs added in February 29,000 5,000 5,000
P41,000 P 8,000 P 6,000
Total P 2.78
16. First compute equivalent units of production as shown below: Physical
Flow Stage ofCompletion Transferred-in Materials Conversion
M CC Beginning work-in-process, 4/1/08 6000 100% 50% Transferred in 14,000 Available 20,000 Units completed 15,000 15000 15,000 15,000 Ending work-in-process, 4/30/08 5,000 100% 60% 5,000 5,000 5,000 Weighted average equivalent units 20,000 20,000 18,000 No. 16 -- continued
Under the weighted average method, unit costs (rounded) as follows:
Transferred in (P12,000 + P27,000) + 20,000 =P1.95 Materials (P2,500 + P3,500) + 20,000 = P0.30 Conversion cost (P2,000 • + P3,000) t 18,000 = P0.28
17.
Total cost to account for (P120,000 +
P5,256,000) P5,376,000
Divided by the equivalent production:
Units finished and transferred 744,000
Work in process, end (60,000 x 40%) 24 000 ÷768,000
Unit cost of production P 7.00
18.
Total cost of units in process beginning and cost for the month
(P140,000 + P1,172,000) P1,312,000
Divided by the equivalent production:
Units finished and transferred (340,000-60,000) 280,000
Work in process, end (60,000 x 80%) 48,000 ÷ 328,000
19. Since no materials are added in process C, then only unit cost for conversion Cost is to be computed:
Units in process, Oct. 1 (1,200 x 1/3) 400
Units started and completed this October:
Total units completed R1,200 + 2,000- 600] 2,600
Less: In process, Oct. 1 1,200 1,400
Units in process, Oct. 31 (600 x 1/2) 300
Equivalent units of production 2,100
Unit cost of labor and overhead (116,300 ÷
2,100) p 3.00
Unit cost of labor and overhead (116,300 ÷ 2,100)
20. Since the materials are added at the beginning of the process, all units are 100% complete with respect to materials.
Units % Complete Equivalent units
completed units 110000 x 100% = 110000
Units in ending
inventory 70,000 x 100% = 70,000
Total equivalent units 180,000
As stated in the problem, the cost of the 30,000 spoiled units will be spread over the
180,000 equivalent units. Hence, the spoiled units are not considered in the equivalent unit computation.
21. The total cost of P43,000 (P24,000 for materials and P19,000 for Conversion cost) is distributed as follows:
Goods completed (90,000 x P.44) P39,600
Work in process, end:
Materials (10,000 x P0.24) P2,400
Conversion cost (5,000 x P0.20) 1,000 3,400
Total P43,000
22. Cost assigned to work in process inventory, end: Units completed:
Units in process, June 1 (1,250 x 20%) 250
Units started and completed (2,750 —1,250) 1,500 1,750
Units in process, June 30 (500 x 50%) 250
Equivalent production 2,000
Unit cost, FIFO (P264,000 ÷ 2,000) P 132
Cost assigned to the finished inventory
at the end of June: 700 x P132 P92,400
Note: On a "first-in, first-out" basis, all units in the finished goods inventory at the end of June would have come from units that were started and completed during the month of June. 23.
Total cost of opening work in process (8,000 +13,000
+ 2,000) P23,000
Add: Materials cost P29,000
Conversion cost 36,000 65,000
Total cost 88,000
Less: Cost of closing work ,in process 19 000
Cost of units transferred to finished goods P69,000
24. The major point to remember is that both the equivalent units and equivalent units cost computations combine the beginning inventory with the current Production.
Equivalent Units Physical Flow
Physical Raw Material Stage Equivalent units
Flow of Completion Raw Materials
Beginning inventory 6,000 100% Started 50,000 Available 56,000 Completed 44,000 100% 44,000 Ending inventory 12,000 100% 12,000 Weighted average equivalent units 56,000
Unit cost of material [(P3,000 P25,560) ÷ 56,000] = P.51
Material cost of work in process, Oct 31 (12,000 x .51) P6,120
25. Cost of work-in process at March 31, 2011.
Materials 0 Conversion cost (4,000 x 40%) x P3 P 4,800 Transferred in cost (4,000 x P5) 20,000 Total P24, 8000 26. Equivalent productions: Average method:
Material Conversion Cost
In process, end 3,000 1,800 Equivalent production 24,000 22,800 FIFO Method: Unit in process 4,000 2,000 Units started (21,000-4,000) 17,000 17,000 In process, end 3,000 1,800 Equivalent production 24,000 20,800 Unit Cost: Average method: Material (P1,992 + P12,000) + 24,000 = P0.583 Conversion cost (P1,920 + P19,968) 4- 22,800 = 0.96
Total units cost P1.543
FIFO method:
Materials (P12,000 ÷ 24,000) P 0.50
Conversion cost (P19,968 ÷ 20,800) 0.96
Total unit cost P 1.46
Cost of work in process, end: Average: Materials (3,000 x P0,583) P1,749 Conversion cost (3,000 x 60%) x P0.96) 1,728 Total P3,477 FIFO method: Materials (3,000 x P0.50) P1,500 Conversion cost (3,000 x 60%) x P.96 1,728 Total p3,228
27. Equivalent Production of Conversion cost:
Work in process, May I (50,000 x 20%) 10,000 Units started and completed (200,000 -- 50,000) 150,000 Work inprocess, May 30 (320,000 200,000) X 50%) 60,000
Total 220,000
Unit cost (P572,000÷ 220,000) P 2.60
Conversion cost (60,000 x P2.60) P156,000
Materials Conversion Cost Unit completed 7,000 7,000 Units lost in process, end 2,000 1,000 Equivalent production 9,000 8,000 Unit cost: Material (P27,000 ÷ 9,000) P3 Conversion cost (P40,000 ÷ 8,000) 5
Total unit cost P8
Total cost of units transferred to Dept. B: 7,000 units x P8 = P56,000
Note - This situation allocates all the material and conversion costs incurred to "units lost". Assuming a conceptually sound cost system, the following implications can be drawn: 1. the loss was "normal", and
2. the loss was reported before work-win-process reached the current stage Of completion.
29. The total unit cost is computed first as follows: Equivalent production
units Materials Conversion cost
(Labor & Overhead) In process, Aug. 31 1,000
Put into process 10,000 In process, Sept. 30 ( 1 400)
Completed 9,600 9,600 9,600
In process, Sept. 30
(all M; 60% L&OH) 1,400 1,400 840
Equiv. production units 11,000 10,440
Average unit costs:
Direct Labor: (P15,000 + P193,800)/10,440 = 20 Overhead (P 7,600 + P149,000)/10,440 = 15
Total P60
Total cost of units completed and transferred:
9,600 x P60 P576,000
30. The computation is as follows:
Actual Conversion
Units Costs
Units completed 7,000 7,000
Spoilage --- normal 500 500
Work in process, end (80%) 2,500 2,000
10,000 9,500
Unit Cost (P85,500/9,500) P9
Conversion Costs transfered: Good units completed (7,000 x
P9) P63,000
Spoiled units (500 x P9) 4 500
Conversion costs transferred P67,500
31. The computations are as follows:
Work EP Work EP Work EP
Actual Done Mat. Done Lab. Done CC
Quantity Schedule: 1000 In process, beginning 9000 Started in process 10000 Accounted for as follows: Finished and
transferred 8,000 100% 8,000 100% 8,000 100% 8,000
Abnormal lost 500 100% 500 100% 500 100% 500
10,000 10,000 9,625 9250
Total cost transferred:
Materials: (P1,260 + P36,240) ÷ 10,000 P 3.75 Direct Labor: (P770 + P10,780) ÷ 9,625 1.20 Overhead: (P1,400 + P21,725) ÷9,250 2.50
Cost per equivalent unit P 7.45
Multiplied by: No. of units transferred 8,000
Total cost transferred P59,600
32. Since the details of the costs of Work in Process, beginning is not given, FIFO method is to be used.
Equivalent productions:
Actual Materials: Conversion Costs
WIP, beginning, F/T 14,000 4,200 ( 30%)
Started, F/T (squeeze) 56,000 56,000 (100%) 56,000 (100%)
In process, ending 12,000 12,000 (100%) 7200( 60%)
Normal lost units 2,000 2000 (100%) 2000 (100%)
Total 84,000 70,000 69,400
Unit costs:
Materials (P56,000 / 70,000) P0.80 Conversion costs (P31,230/69,400) P0.45
Adjustment for lost units:
Cost of lost units (2,000 x P1.25) P2,500 Divided by absorbing good units (F/T) 70,000
Adjusted unit cost P0.35714
No. 32 -- continued
Cost of units finished and transferred:
Beginning MP, F/T:
Cost last month P8,000
Cost this month:
Conversion costs (4,200 x
P0.45) 1,890
Adjustment for lost units (
14,000 x P0.35714) 500 P10,390
started, F/T [56,000 x (P1.25 +
P0.35714)] 72,000
Total P82,390
Cost of units in process
Materials (12,000 x P.80) P9,600 Conversion costs (7,200 x
P.45) 3,240 P12,840
33. The computations are shown below:
Actual Work EP
Quantity Schedule: 4,000 Done CC
In process, beginning 30,000
Received from Preceding Dept. 34,000 Accounted for as follows:
In process, beg., F&T 4,000 1/2 2
Started F&T (25,000 - 4,000) 21,000 100% 21
In process, ending 6,000 60% 3
Normal lost 3,000
34,000 26,000
Cost per equivalent unit:
From preceding dept.: (P135,000 /30,000) P4.50
From this dept:
-Materials 5.00
Conv. cost: (P85,800 + P47,200) 26,600 50
27,000*
Total cost transferred: In process, beg., F&T
Cost last month P18,000
Cost this month:
Materials 0
Conv. Costs: (PS x 2,000) 10,000 28,000
Started F&T: (P 1 0.00 x 21,000) 210,000
Total cost transferred to FG P238,000
*21,000+ 6,000, remaining good units.
34. To compute the cost of the ending work in process, the following are the First: Compute the equivalent units of production as follows:
Actual Materials Conversion cost
Completed and transferred 25,000 25 25
In process, end 6,000 6 3
Lost units (34,000 -31,000) 3,000 -
-Total equivalent production 31,000 28,000
Second: Compute the unit cost using the average method as follows:
Total EUP Unit
Cost Cost
Cost from preceding department:
May 1 P 16,300 4,000
May 31 89,100 30,000
Total P105,400 34,000 P3,10
Cost added this department: Materials: May I P 3,800 May 31 67 500 Total P 71,300 31,000 2.30 Conversion Costs: May 1 P 1,940 May 31 81,000 Total P 82,830 28,600 2.90
Adjustment for lost units:
Cost from preceding department:
(3,000 x P3.10) P 9,300 31,000 30
Total adjusted unit cost P8.60
Finally: Compute the cost of ending work in process (6,0(0 units):
Cost from preceding department(6,000 x P3.10 P18,600
Materials (6,000 x P2.30) P13,800
Conversion costs (3,600 x P2.90) 10,440 24,240
Adjustment fat lost units (6,000 x .30) 1,800
Total p44 640
35.
Actual Work EP
Quantity schedule, 500 Done CC
In process, beginning 2,000 Received from preceding
department 2,500
Accounted for as follows ask FIFO:
in process, beg., F&T 500 3/5 500
Received, F&T (1,7004- 500) 1,200 100% 1,200
In process, ending 300 1/3 300
Normal lost 200 100% 200
Abnormal lost 300 100% 300
2,500 2,100
Accounted for as follows Average
Finished and transferred. 1,700 100% 1,700
In process, ending 300 1/3 100
Normal lost 200 100% 200
Abnormal lost 300 100% 300
2,500 2,300
Conversion cost per equivalent
unit: FIFO Average
In-process, beginning P P 610
Added Conversion Costs 3,990 3,990
P3,990 P4,600
Divided by Equivalent Units 2,100 2,300
EUP P1.90 P2.00
36.FIF 0: Conversion Costs component of normal lost: 200 x P1.90 = P380 Average; Conv, Costs component of normal lost: 200 x P2.00 = P400 37. FIFO: Conv. Costs component of abnormal lost: 300 x P1.90 = P570 Average: Conv. Costs component of abnormal lost: 300 x P2,00 = P600
38. To compute cost of good units completed and transferred out, the following steps are to be used
Step I: Compute the total equivalent units of production for Materials and conversion Costs as
follows:
Direct Conversion
Materials Costs Cost added in January (Current cost) P1,480,000 P942,000 Divided by cost per equivalent unit of
production for January P 20 P 12
Equivalent units of production in January 74,000 78,500
Step 2: Compute the equivalent units of production of units in process, ending by working
backward in the quantity schedule as follows:
Equivalent production
Actual Direct Conversion
Units Materials Costs
Work in process, beginning 10,000
Started during January 74,000
To account for 84,000
Completed and transferred (61,000)
From beginning work in process 10,000 - 7
Started and completed, 100% 51,000 51,000 51,000
Normal spoilage (61,000 x 11%), 100% 6,710 6,710 6,710 Abnormal spoilage (8,000— 6 710), 100% 1,290 1,290 1,290
Work in process ending 15,000 15,000(a) 12,000(b)
Total 84,000 74,000 78,000
(a) , Total equivalent units ofproductton
(step I) 74, ,000 78,500
Less equivalent twits of production: Completed and transferred:
-From beginning WIP ( 7,500)
From started and completed (51,000) (51,000)
Normal spoilage ( 6 (6,710)
Abnormal spoilage 1,290 ( 1,290)
Equivalent production of WIP 15,000 12,000
No 38 Continued
as follows:
Completed and transferred out (61,000) units From beginning WIP:
Cost last month P 250k000
Cost this month:
Conversion costs (7,500 x P12) 90,000
Total P 340,000
From started (5 1 ,000 x P32) 1,632,000 Normal spoilage (6,710 x P32) 214,720 Total cost of units transferred out P2,186,720
39. The cost of units in ending work in process is computed as follows: Direct materials (15,000 x P20) P300,000
Conversion costs (12,000 x P 2) 144,000
Total cost of work in process, ending P444,000
40. The computation of abnormal spoilage is shown below:
Abnormal spoilage (1,290 x P32) P41,280
41. The correct answer is (d). The total equivalent units for raw materials equal I 0,000 because all materials for the ending work-inn-process had already been added to production. Hence, the materials cost per unit was P330 (P33,000 4. 10,000). For conversion costs, the total equivalent units equals 8,500 [8,000 completed + (25%x 2,000 in EWIP)}. Thus, the conversion cost was P2.00 per unit (P17,000 /8,500). The total cost transferred was therefore P42,400 [8,000 units x. (133.30+P2.00)),
42. The correct answer is (d). As calculated in the preceding question, P42,400 ofcosts were transferred out. Consequently, the cost of ending work-in-process must have been P7,600 (P50,000 total costs incurred --- P42,400).
43. The correct answer 00. The total equivalent units for raw materials equal i10,000 units (the total units placed into production) because all direct materials were added to production. The materials cost per equivalent unit is therefore P6 60 (P66,000 total DM costs 10,000 equivalent units). The total equivalent units for conversion costs equal 7,000 units [6,000 finished units /(25% x 4,000 units in EWIP)] Hence conversion cost per equivalent unit is P4.86 (P34,000 total CC ÷ 7,000 equivalent units). Total product cost per equivalent unit is P,11.46 (P6.60 + P4.86), so total transferred-out cost is P68,760 (P11.46 x 6,000 units transferred).
44.The correct answer is (c). As determined in the preceding question, direct materials cost and conversion cost per equivalent unit are P6.60 and P4.86, respectively.Because the ending work in-process contains 4,0® equivalent units of direct materials costs (4,000 physical units x 100%)
and 1,000 equivalent units of conversion costs (4,000 physical units x 25%). its recorded balance is P31,260 (4,000 x P6.60) + (1,000 x P4.86).
45. The correct answer is (c). The equivalent unit for direct materials equals 195,000 units (20,000 BWIP + 150,000 units started and completed + 25,000 EWIP). This calculation recognizes that direct materials had not been added to beginning inventory (60% complete) and spoiled units (70% complete), but that ending inventory (80% complete) includes direct materials.
46. The correct answer is (b). The units that failed inspection are classified as normal scrap because they have minimal value and can be sold without further reworking. The defective units are less than 4% tolerance limit for normal spoilage. Scrap can be sold, disposed of, or reused.
47.The answer is (c), computed as follows:
First, compute the EIJP and the unit cost as follows:
EUP Actual Materials Conversion Cost
Transferred-out 24,000 24,000 24,000
Ending WIP 3,000 3,000 2,400
Normal lost units 1200 1,200 900
Abnormal lost units 1,800 1,800 1,350
30,000 30,000 28,650
N0.47 continued
Unit Cost.
Materials (P1 44,000 ÷ 30,000) P4.80 Conversion cost (P257,850 ÷ 28,650) 9.00
Total units cost P13.80
The cost of units transferred-out can now be computed as follows: Transferred out (24,000 x
P13.80) P331 ,200
Add: Cost of normal lost units
M (1,200 x 4.80) 5,760 CC (900 x 9.00) 8,100 Total 13,860 Allocation: M (24/27 x 5.760) 5,120 CC (24/26.4 x 8,100) 7,364 12,484
Total cost of units
transferred-out P343,684
48. The answer is (a). The computation is: Ending work-in-process:
M (3,000 x 4.80) 14,400
CC (2,400 x 9.00) 21,60 P36,000
Normal lost units:
M (3127 x 5,760) 640
CC (2.4/26.4 x 8,100) 736 1,376
Total cost of ending
work-in-process P37,376
49. The answer is (a) as computed below:
EUP Actual Materials Conversion Cost
Transferred-out
Beginning WIP 4,000 - 4,000
SIP 20,000 20,000 20,000
Ending WIP 3,000 3,000 2,400
Normal lost units 1 ,200 1,200 900
Abnormal lost units 1,800 1,800 1,350
30,000 26,000 25,050
No. 49 -.Continued
Schedule I - Allocation of normal lost units based on actual units:
Transferred-out
Beginning WIP(4/27 x P13,860) P 2,053
SIP (20/27 x P13,860) 10,267
Ending W1P ( 3/27 x P13,860) 1,540
Total P13,1860
Unit Cost (Rounded):
Materials (11,600 +26,000) P 4.29
CC (202,950 25,050) 8.10
Total unit cost P12.39
Transferred-out:
BWIP: Cost last month P 87,300
Cost this month 1,716
Normal lost units (Sch. 1) 2,053 P 91,069
SIP: Completed (20,000 x P12.39) P247,800
Normal lost units (Sch. 1) 10,267 258,067
50. The answer is (a) as computed below: EWIP:
M (3,000 x P4.29) P 12,870
CC (2,400 x P8.10) 19,440
Normal lost unit (Sch. 1) 1,540
