Cost Accounting, 14e, Chapter 4 Solutions

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Chapter 4

Process Costing

Solutions to Questions Solutions to Questions 4-1

4-1 A process costing A process costing system shoulsystem should be used in situd be used in situations where a homogations where a homogeneous product ieneous product is produced on a cs produced on a continuous basisontinuous basis..

4-2

4-2 Job-order and processing costing are similar in the Job-order and processing costing are similar in the following ways:following ways: 1.

1. Job-order costinJob-order costing and process cg and process costing have the sosting have the same basic purposame basic purposes—to assign mates—to assign materials, labor, and overials, labor, and overhead cost to perhead cost to products and toroducts and to provide a mechanism for computing unit product costs.

provide a mechanism for computing unit product costs. 2.

2. oth syoth systemstems use the sams use the same basic mae basic manufacnufacturituring accoung accounts.nts. !.

!. "osts fl"osts flow throow through the accugh the accountounts in basics in basically the sally the same way in botame way in both systeh systems.ms.

4-3

4-3 "ost accumulation is simpler under process costing because costs only need to "ost accumulation is simpler under process costing because costs only need to be assigned to departments—not individual #obs. Abe assigned to departments—not individual #obs. A company usually has a small number of

company usually has a small number of processing departments, whereas a #ob-order costing system often must $eep trac$ of processing departments, whereas a #ob-order costing system often must $eep trac$ of the costs ofthe costs of hundreds or even thousands of #obs.

hundreds or even thousands of #obs.

4-4

4-4 %n a process costing system, a %n a process costing system, a &or$ in 'rocess account is maintained for &or$ in 'rocess account is maintained for each processing department.each processing department.

4-5

4-5 (he #ournal entry to record the transfer of wor$ in process from the (he #ournal entry to record the transfer of wor$ in process from the )i*ing +epartment to the iring +epartment is:)i*ing +epartment to the iring +epartment is: &or$ in 'rocess, iring...

&or$ in 'rocess, iring...  &or$ in 'rocess, )i*ing

&or$ in 'rocess, )i*ing 

4-6

4-6 (he costs that might be (he costs that might be added in the iring added in the iring +epartment include: 1/ costs transferred in from +epartment include: 1/ costs transferred in from the )i*ing +epartment0 2/ materials coststhe )i*ing +epartment0 2/ materials costs added in the iring +epartment0 !/ labor costs added in the iring +epartment0 and / overhead costs added in the iring +epartment.

added in the iring +epartment0 !/ labor costs added in the iring +epartment0 and / overhead costs added in the iring +epartment.

4-7

4-7 nder the weighted-average method, e3uivalent units of production consist of units transferred to nder the weighted-average method, e3uivalent units of production consist of units transferred to the ne*t department or to the ne*t department or to finishedfinished goods/ during the period plus the

goods/ during the period plus the e3uivalent units in the department4s ending wor$ in e3uivalent units in the department4s ending wor$ in process inventory.process inventory.

4-8

4-8 (he company will want to (he company will want to distinguish between the costs of the metals distinguish between the costs of the metals used to ma$e the used to ma$e the medallions, but the medals are otherwise identicalmedallions, but the medals are otherwise identical and go through the

and go through the same production processes. (hus, operation costing is ideally suited for the same production processes. (hus, operation costing is ideally suited for the company4s needs.company4s needs.

4-1 4-1

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Exercise 4-1

Exercise 4-125 minutes/25 minutes/ a.

a. (o record (o record issuing raw issuing raw materials fomaterials for use in pr use in production:roduction:

4-2 4-2

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&

&oorr$ i$ in 'n 'rroocceessss——))oollddiinng +g +eeppaarrttmmeenntt 2266,,555555 &

&oorr$ $ iin n ''rroocceessss——iirriinng +g +eeppaarrttmmeenntt 77,,555555 8

8aaw w ))aatteerriiaallss !!!!,,555555 b.

b. (o reco(o record direrd direct laboct labor costs incur costs incurredrred:: &

&oorr$ i$ in 'n 'rroocceessss——))oollddiinng +g +eeppaarrttmmeenntt 1166,,555555 &

&oorr$ $ iin n ''rroocceessss——iirriinng +g +eeppaarrttmmeenntt 77,,555555 &

&aaggees s ''aayyaabbllee 22!!,,555555 c.

c. (o r(o record ecord applying applying manufacturinmanufacturing oveg overhead:rhead: &

&oorr$ i$ in 'n 'rroocceessss——))oollddiinng +g +eeppaarrttmmeenntt 22,,555555 &

&oorr$ $ iin n ''rroocceessss——iirriinng g ++eeppaarrttmmeenntt !!99,,555555 )

)aannuuffaaccttuurriinng g vveerrhheeaadd ;;11,,555555 d.

d. (o record transfer of unfi(o record transfer of unfired, molded bric$s from thred, molded bric$s from the )olding +epare )olding +epartment to the iring +epartment to the iring +epartment:tment: &

&oorr$ $ iin n ''rroocceessss——iirriinng g ++eeppaarrttmmeenntt ;;99,,555555 &

&oorr$ $ iin n ''rroocceessss——))oollddiinng g ++eeppaarrttmmeenntt ;;99,,555555 e.

e. (o record transfer of finis(o record transfer of finished bric$s from the iring +ehed bric$s from the iring +epartment to the finished gopartment to the finished goods warehouods warehouse:se: 

iinniisshheed d <<ooooddss 115566,,555555 &

&oorr$ $ iin n ''rroocceessss——iirriinng g ++eeppaarrttmmeenntt 115566,,555555 f.

f. (o r(o recorecord "od "ost of st of <oo<oods =ds =old:old: "

"oosst t oof f <<oooodds s ==oolldd 1155;;,,555555 

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Exercise 4-2 15 minutes/ &eighted-Average )ethod

Equivalent Units Materials Conversion

nits transferred out ... 15,555 15,555 &or$ in process, ending:

!5,555 units > 95?... 21,555

!5,555 units > 75?... 17,555 @3uivalent units of production... !1,555 27,555

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Exercise 4-315 minutes/ &eighted-Average )ethod 1.

Materials Labor Overhead

"ost of beginning wor$ in process

inventory...  1,775  2!,;25 116,155 "ost added during the period... 66,!75 1,!!5 91,;75 (otal cost a/... 152,B55 !9,B75 16B,975 @3uivalent units of production b/... 1,255 1,155 1,155 "ost per e3uivalent unit a/ C b/. .. . 67.97 !.75 192.75 2.

"ost per e3uivalent unit for materials...  67.97 "ost per e3uivalent unit for labor... !.75 "ost per e3uivalent unit for overhead... 192.75 (otal cost per e3uivalent unit... 2B2.97

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Exercise 4-4 15 minutes/ &eighted-Average )ethod Material s Conversio n Total Ending work in process inventory:

@3uivalent units of production... !55 155 "ost per e3uivalent unit... !1.7; B.!2 "ost of ending wor$ in process inventory. .

B,;6 B!2

15,5 5

Units completed and transerred out:

nits transferred to the ne*t department. . . 1,!55 1,!55 "ost per e3uivalent unit... !1.7; B.!2 "ost of units transferred out...

1,526 12,11;

7!,1 

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Exercise 4-5 15 minutes/

a$ing +epartment "ost 8econciliation "osts to be accounted for:

"ost of beginning wor$ in process inventory. .  ,6!5 "osts added to production during the period.. 27,;75 (otal cost to be accounted for... !5,65 "osts accounted for as follows:

"ost of ending wor$ in process inventory...  1,125 "ost of units completed and transferred out... 2B,!;5 D (otal cost accounted for... !5,65

D(he cost of units completed and transferred out can be deduced as follows: "ost of beginning "ost s added "ost of ending "ost of unit s

wor$ in process E to production F wor$ in processE completed and inventory during the period inventory transferred out

"ost of

A,6!5 E A27,;75 F A1,125 E completed andunits transferred out "ost of units

completed and F A,6!5 E A27,;75 - A1,125 transferred out

"ost of units

completed and F A2B,!;5 transferred out

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Exercise 4-617 minutes/ &eighted-Average )ethod

1. Materials Labor Overhead

nits transferred to the ne*t

department... 9B5,555 9B5,555 9B5,555 &or$ in process, ending:

)aterials:

75,555 units > ;5? complete... !5,555 Gabor and overhead:

75,555 units > 25? complete... 15,555 15,555 @3uivalent units of production... 625,555 655,555 655,555

2. Materials Labor Overhead

"ost of beginning wor$ in process....  ;6,;55  !5,555  6,555 "ost added during the period... B59,255 !95,555 7B2,555 (otal cost a/... B97,655 55,555 ;5,555 @3uivalent units of production b/... 625,555 655,555 655,555 "ost per e3uivalent unit a/ C b/... 1.1B 5.75 5.65

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Exercise 4-7 !5 minutes/ &eighted-Average )ethod

1. @3uivalent units of production

!ulping Conversio n

(ransferred to ne*t department... 1;,555 1;,555 @nding wor$ in process:

'ulping: ;,555 units * 155? complete... ;,555

"onversion: ;,555 units * 97? complete... ,755 @3uivalent units of production... 172,555 175,755 2. "ost per e3uivalent unit

!ulping Conversio n

"ost of beginning wor$ in process...  1,755  55 "ost added during the period... 7B,!55 22,155 (otal cost a/... ;5,655 22,755 @3uivalent units of production b/... 172,555 175,755 "ost per e3uivalent unit, a/ C b/... 5.5 5.1B7 !. "ost of ending wor$ in process inventory and units transferred out

!ulping Conversio n

Total

@nding wor$ in process inventory:

@3uivalent units of production... ;,555 ,755 "ost per e3uivalent unit... 5.5 5.1B7

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inventory... nits completed and transferred out:

department... 1;,555 1;,555 "ost per e3uivalent unit... 5.5 5.1B7 "ost of units completed and

transferred out... 76,55 21,629 65,229

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Exercise 4-7 continued/ . "ost reconciliation

"osts to be accounted for:

"ost of beginning wor$ in process inventory

1,755 E 55/...  1,B55 "osts added to production during the period

7B,!55 E 22,155/... 61,55 (otal cost to be accounted for... 6!,!55 "osts accounted for as follows:

"ost of ending wor$ in process inventory...  !,59! "ost of units completed and transferred out... 65,229 (otal cost accounted for... 6!,!55

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Exercise 4-8 15 minutes/

&or$ in 'rocess—)i*ing !!5,555

8aw )aterials %nventory !!5,555

&or$ in 'rocess—)i*ing 2;5,555 &or$ in 'rocess—a$ing 125,555 &ages 'ayable !65,555 &or$ in 'rocess—)i*ing 1B5,555 &or$ in 'rocess—a$ing B5,555 )anufacturing verhead 265,555 &or$ in 'rocess—a$ing 9;5,555 &or$ in 'rocess—)i*ing 9;5,555 inished <oods B65,555 &or$ in 'rocess—a$ing B65,555 4-12

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Exercise 4-925 minutes/ &eighted-Average )ethod

1. "omputation of e3uivalent units in ending inventory:

Materials Labor Overhead

nits in ending inventory... 1,755 1,755 1,755

'ercent completed... B5? 5? 5?

@3uivalent units of production. . . 1,!75 ;55 ;55 2. "ost of ending wor$ in process inventory and units transferred out:

Materials Labor Overhea d

Total

@nding wor$ in process inventory: @3uivalent units of

production... 1,!75 ;55 ;55

"ost per e3uivalent unit. 2.55 9.55 1.55 "ost of ending wor$ in

process inventory... !2,55 ,255 6,55 7,555

nits completed and transferred out: nits transferred to the

ne*t department... 16,555 16,555 16,555

"ost per e3uivalent unit. 2.55 9.55 1.55 "ost of units completed

and transferred out... !2,555 12;,555 272,555 615,555 !. "ost reconciliation:

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(otal cost to be accounted for... 677,555 "osts accounted for as follows:

"ost of ending wor$ in process inventory...  7,555 "ost of units completed and transferred out... 615,555 (otal cost accounted for... 677,555

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Exercise 4-1 15 minutes/ &eighted-Average )ethod

1.

"ilograms o Cement

&or$ in process, )ay 1... 65,555 =tarted into production during the month... !55,555 (otal $ilograms in process... !65,555 +educt wor$ in process, )ay !1... 75,555 "ompleted and transferred out during the month... !!5,555

2. Equivalent Units #EU$

Materials Conversion

nits transferred out... !!5,555 !!5,555 &or$ in process, ending:

)aterials: 75,555 $ilograms > 5?... 25,555

"onversion: 75,555 $ilograms > 15?... 7,555 @3uivalent units of production... !75,555 !!7,555

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Exercise 4-11 !5 minutes/ &eighted-Average )ethod 1. Material s Conversio n

nits transferred to the ne*t process... !55,555 !55,555 @nding wor$ in process:

)aterials: 5,555 units > 75? complete... 25,555

"onversion: 5,555 units > 27? complete.. .. 15,555 @3uivalent units of production... !25,555 !15,555

2. Material

s

Conversio n

"ost of beginning wor$ in process...  7;,;55  1,B55 "ost added during the period... !67,555 21,755 (otal cost a/... 1,;55 22B,55 @3uivalent units of production b/... !25,555 !15,555 "ost per e3uivalent unit a/ C b/... 1.!6 5.9

!. Materials Conversio

n

Total Ending work in process inventory:

@3uivalent units of production

see above/... 25,555 15,555 "ost per e3uivalent unit see

above/... 1.!6 5.9 "ost of ending wor$ in process

inventory... 29,;55 9,55 !7,555

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Units completed and transerred out:

process... !55,555 !55,555 "ost per e3uivalent unit

see previous e*ercise/... 1.!6 5.9 "ost of units completed and

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Exercise 4-12 15 minutes/ &eighted-Average )ethod Material s Labor % Overhead

'ounds transferred to the 'ac$ing +epartment

during )ayD... B5,555 B5,555 &or$ in process, )ay !1:

)aterials: 25,555 pounds > 155? complete... 25,555 Gabor and overhead: 25,555 pounds > B5?

complete... 16,555 @3uivalent units of production... 715,555 756,555 D !5,555 E 65,555 H 25,555 F B5,555

Pro!le" 4-13 7 minutes/ &eighted-Average )ethod

1. @3uivalent nits of 'roduction

Material s

Conversio n

(ransferred to ne*t departmentD... !65,555 !65,555 @nding wor$ in process:

)aterials: 5,555 units * 97? complete... !5,555

"onversion: 5,555 units * 27? complete... 15,555 @3uivalent units of production... 15,555 !B5,555

Dnits transferred to the ne*t department F nits in beginning wor$ in process E nits started into

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production I nits in ending wor$ in process F 95,555 E !75,555 I 5,555 F !65,555 2. "ost per @3uivalent nit

Materials Conversio n

"ost of beginning wor$ in process...  6;,555  !;,555 "ost added during the period... 9,555 1B6,555 (otal cost a/... 7!!,555 2!,555 @3uivalent units of production b/... 15,555 !B5,555 "ost per e3uivalent unit, a/ C b/... 1.!5 5.;5 !. "ost of @nding &or$ in 'rocess %nventory and nits (ransferred ut

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Total

@nding wor$ in process inventory: @3uivalent units of production

materials: 5,555 units * 97? complete0 conversion: 5,555

units * 27? complete/... !5,555 15,555 "ost per e3uivalent unit... 1.!5 5.;5 "ost of ending wor$ in process

inventory... !B,555 ;,555 7,555 nits completed and transferred out:

department... !65,555 !65,555 "ost per e3uivalent unit... 1.!5 5.;5 "ost of units completed and

transferred out... B,555 226,555 922,555

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Pro!le" 4-13 continued/ . "ost 8econciliation

6;,555 E !;,555/... 122,555 "osts added to production during the period

9,555 E 1B6,555/... ;7,555 (otal cost to be accounted for... 9;9,555 "osts accounted for as follows:

"ost of ending wor$ in process inventory...  7,555 "ost of units completed and transferred out... 922,555 (otal cost accounted for... 9;9,555

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Pro!le" 4-14 7 minutes/ &eighted-Average )ethod

1. @3uivalent nits of 'roduction

Material s

Conversio n

(ransferred to ne*t department... 75,555 75,555 @nding wor$ in process:

)aterials: 65,555 units * 97? complete... ;5,555

"onversion: 65,555 units * 27? complete... 25,55 5 @3uivalent units of production... 715,555 95,555 2. "ost per @3uivalent nit

"ost of beginning wor$ in process...  !;,775  1!,755 "ost added during the period... !B1,675 269,!55 (otal cost a/... 26,55 !55,655 @3uivalent units of production b/... 715,555 95,555 "ost per e3uivalent unit, a/ C b/... 5.6 5.; !. Applying "osts to nits

Total

@3uivalent units of production ;5,555 25,555

"ost per e3uivalent unit... 5.6 5.;

"ost of ending wor$ in process 75,55 12,655 ;!,255

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inventory... nits completed and transferred out:

department... 75,555 75,555 "ost per e3uivalent unit... 5.6 5.; "ost of units completed and

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Pro!le" 4-14 continued/ . "ost 8econciliation

!;,775 E 1!,755/...  75,575 "osts added to production during the period

!B1,675 E 269,!55/... ;9B,175 (otal cost to be accounted for... 92B,255 "osts accounted for as follows:

"ost of ending wor$ in process inventory...  ;!,255 "ost of units completed and transferred out... ;;;,555 (otal cost accounted for... 92B,255

Pro!le" 4-157 minutes/ &eighted-Average )ethod

1. @3uivalent units of production

Material s

Conversio n

(ransferred to ne*t departmentD... 295,555 295,555 @nding wor$ in process:

)aterials: 7,555 units * 155? complete... 7,555

"onversion: 7,555 units * ;5? complete... 29,555 @3uivalent units of production... !17,555 2B9,555

Dnits transferred to the ne*t department F nits in beginning wor$ in process E nits started into production I nits in ending wor$ in process F !7,555 E 265,555 I 7,555 F 295,555

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2. "ost per e3uivalent unit

"ost of beginning wor$ in process...  !,55  25,!55 "ost added during the period... !B9,;55 169,;55 (otal cost a/... 1,555 259,B55 @3uivalent units of production b/... !17,555 2B9,555 "ost per e3uivalent unit, a/ C b/... 1.5 5.95 !. "ost of ending wor$ in process inventory and units transferred out

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@3uivalent units of production. .. 7,555 29,555 "ost per e3uivalent unit... 1.5 5.95 "ost of ending wor$ in process

inventory... ;!,555 16,B55 61,B55 nits completed and transferred out:

department... 295,555 295,555 "ost per e3uivalent unit... 1.5 5.95 "ost of units completed and

transferred out... !96,555 16B,555 7;9,555

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Pro!le" 4-167 minutes/ &eighted-Average )ethod 1.a. &or$ in 'rocess—lending 19,;55 &or$ in 'rocess—ottling 7,555 8aw )aterials 1B2,;55 b. &or$ in 'rocess—lending 9!,255 &or$ in 'rocess—ottling 19,555

=alaries and &ages 'ayable B5,255

c. )anufacturing verhead 7B;,555 Accounts 'ayable 7B;,555 d. &or$ in 'rocess—lending 61,555 )anufacturing verhead 61,555 &or$ in 'rocess—ottling 156,555 )anufacturing verhead 156,555 e. &or$ in 'rocess—ottling 922,555 &or$ in 'rocess—lending 922,555 inished <oods B25,555 &or$ in 'rocess—ottling B25,555 g. Accounts 8eceivable 1,55,555 =ales 1,55,555

"ost of <oods =old 6B5,555

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Pro!le" 4-16continued/ 2.

Accounts 8eceivable 8aw )aterials

g/ 1,55,555 al. 1B6,;55 a/ 1B2,;55 al. ;,555 &or$ in 'rocess lending +epartment &or$ in 'rocess ottling +epartment

al. !2,655 e/ 922,555 al. B,555 f/ B25,555

a/ 19,;55 a/ 7,555

b/ 9!,255 b/ 19,555

d/ 61,555 d/ 156,555

al. 12,;55 e/ 922,555

al. 21,555

inished <oods )anufacturing verhead

al. 25,555 g/ 6B5,555 c/ 7B;,555 d/ 76B,555

f/ B25,555 al. 9,555

al. 75,555

Accounts 'ayable =alaries and &ages 'ayable

c/ 7B;,555 b/ B5,255

=ales "ost of <oods =old

g/ 1,55,555 g/ 6B5,555

Pro!le" 4-17;5 minutes/

(30)

&eighted-Average )ethod

1. "omputation of e3uivalent units in ending inventory:

Mi&ing Materials Conversio n

nits transferred to the ne*t department... ;5.5 ;5.5 ;5.5 @nding wor$ in process:

)i*ing: 1 unit > 155? complete... 1.5

)aterials: 1 unit > 25? complete... 5.2

"onversion: 1 unit > 15? complete... 5.1 @3uivalent units of production... ;1.5 ;5.2 ;5.1 2. "osts per e3uivalent unit:

"ost of beginning wor$ in process inventory....  1,;5  2;  157 "ost added during the period... B,95 6,52 ;1,1B9 (otal cost... B;,!65 6,26 ;1,!52 @3uivalent units of production... ;1.5 ;5.2 ;5.1 "ost per e3uivalent unit... 1,765 15 1,525

(31)

Pro!le" 4-17continued/

!. "osts of ending wor$ in process inventory and units transferred out:

Total

@3uivalent units of production... 1.5 5.2 5.1

"ost per e3uivalent unit... 1,765 15 1,525

"ost of ending wor$ in process inventory.... 1,765 26 152 1,915 nits completed and transferred out:

nits transferred to the ne*t department... ;5.5 ;5.5 ;5.5

"ost per e3uivalent unit... 1,765 15 1,525

"ost of units transferred out... B,655 6,55 ;1,255 1;,55

. "ost reconciliation:

"ost to be accounted for:

1,;5 E 2; E 157/...  1,991 "ost added to production during the period

B,95 E 6,52 E ;1,1B9/... 1;,!!B (otal cost to be accounted for... 1;;,115 "osts accounted for as follows:

"ost of ending wor$ in process inventory...  1,915 "ost of units transferred out... 1;,55 (otal cost accounted for... 1;;,115

(32)

Pro!le" 4-18

!5 minutes/

&eighted-Average )ethod

1. (otal units transferred to the ne*t department... .

!5,555

Gess units in the )ay 1 inventory...

7,555

nits started and completed in )ay...

27,555

2. (he e3uivalent units were:

Material

s

Conversio

n

(ransferred to ne*t department...

!5,555

@nding wor$ in process:

)aterials: ,555 units * 97? complete...

!,555

"onversion: ,555 units * 75? complete...

2,555

@3uivalent units of production...

!!,555

!2,555

!. (he costs per e3uivalent unit were:

Materials Conversio

n

"ost of beginning wor$ in process...

 B,555

 ,55

"ost added during the period...

79,555

!5,655

(otal cost a/...

;;,555

!7,255

(33)

unit is almost certainly less than !.15 per unit because the conversion

costs are li$ely to include fi*ed costs.

(34)

Case 4-19

B5 minutes/

•

(his case is difficult—particularly part !, which re3uires analytical s$ills.

•

ecause there are no beginning inventories, it ma$es no difference

whether the weighted-average or % method is used by the company.

Kou may choose to specify that the % method be used rather than

the weighted-average method.

1. "omputation of the "ost of <oods =old:

Transerred

'n

Conversion

nits completed and sold...

275,555

@nding wor$ in process:

(ransferred in:

25,555 units * 155? complete...

25,555

"onversion:

25,555 units * 27? complete...

7,555

@3uivalent units of production...

295,555

277,555

Transerred

'n

Conversion

"ost of beginning wor$ in process...



5 

5 "ost added during the period...

B,221,555

1;,!25,555

(35)

by ;2,755 from ;1,797,555 down to ;1,712,755. =ee the ne*t page

for the necessary calculations.

(36)

Case 4-19

continued/

(he percentage of completion, , affects the cost of goods sold by its

effect on the unit cost, which can be determined as follows:

nit cost F 162.!5 E

A1;,!25,555

275,555 E 25,555

And the cost of goods sold can be computed as follows:

"ost of goods sold F 275,555 > nit cost

ecause the cost of goods sold must be reduced down to ;1,712,755,

the unit cost must be 2;.57 ;1,712,755 C 275,555 units/. (hus, the

re3uired percentage completion, , to obtain the ;2,755 reduction in

cost of goods sold can be found by solving the following e3uation:

A1;,!25,555

A162.!5 E

F A2;.57

275,555 E 25,555

A1;,!25,555

F A2;.57 - A162.!5

275,555 E 25,555

A1;,!25,555

F A;!.97

275,555 E 25,555

(37)

Case 4-19

continued/

!. continued/

"omputation of the "ost of <oods =old:

Transerred

'n

Conversion

nits completed and sold...

275,555

@nding wor$ in process:

(ransferred in:

25,555 units * 155? complete...

25,555

"onversion:

25,555 units * !5? complete...

;,555

@3uivalent units of production...

295,555

27;,555

Transerred

'n

Conversion

"ost of beginning wor$ in process...



5 

5 "ost added during the period...

B,221,555

1;,!25,555

(otal cost a/...

B,221,555 1;,!25,555

@3uivalent units of production b/...

295,555

27;,555

"ost per e3uivalent unit, a/ C b/...

162.!5

;!.97

"ost of goods sold F 275,555 units > 162.!5 per unit E ;!.97 per

(38)

Case 4-19

continued/

rom a broader perspective, if the net profit figures reported by the

managers in a division cannot be trusted, then the company would be

foolish to base bonuses on the net profit figures. A bonus system based

on divisional net profits presupposes the integrity of the accounting

system.

(he company should perhaps reconsider how it determines the bonus. %t

is 3uite common for companies to pay an Nall or nothingO bonus

contingent on ma$ing a particular target. (his inevitably creates powerful

incentives to bend the rules when the target has not 3uite been attained.

%t might be better to have a bonus without this Nall or nothingO feature.

or eample, managers could be paid a bonus of ? of profits above

target profits rather than a bonus that is a preset percentage of their

base salary. nder such a policy, the effect of adding that last dollar of

profits that #ust pushes the divisional net profits over the target profit will

add a few pennies to the manager4s compensation rather than

thousands of dollars. (herefore, the incentives to misstate the net

operating income are reduced. &hy tempt people unnecessarilyQ

(39)

Case 4-27 minutes/ &eighted-Average )ethod

1. (he revised computations follow: @3uivalent nits of 'roduction:

Transerred

'n Materials

Conversio n

(ransferred to ne*t department... 155,555 155,555 155,555 @nding wor$ in process:

(ransferred in: 7,555 units * 155? complete... 7,555

)aterials: 7,555 units * 5? complete... 5

"onversion: 7,555 units * 5? complete... 2,555

@3uivalent units of production... 157,555 155,555 152,555 "ost per @3uivalent nit:

Transerred

'n Costs Materials

Conversio n

"ost of beginning wor$ in process...  6,625  !,55  15,255 "ost added during the period... 61,65 29,;55 B;,B55 (otal cost a/... B5,!55 !1,555 159,155 @3uivalent units of production b/... 157,555 155,555 152,555 "ost per e3uivalent unit, a/ C b/... 5.6; 5.!1 1.57