Problem Set 7

Process Costing

Problem 1 (GNBv14; 4:2;4a-1)

Lindex Company uses a process costing system. The following data are available for one
department for October:
Percent Completed
Units Materials Conversion
Work in Process, October 1 50,000 90% 60%
Work in Process, October 31 30,000 70% 50%

The department started 390,000 units into production during the month and transferred 410,000
completed units to the next department.

Compute the equivalent units of production for October, assuming that the company uses the
FIFO method of accounting for units and costs.

Compute the equivalent units of production for October, assuming that the company uses the
weighted-average method of accounting for units and costs.

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 PROBLEM 1 Solution

FIFO Method
Materials Conversion
To complete beginning work in process:
Materials: 50,000 units × (100% − 90%) ....... 5,000
Conversion: 50,000 units × (100% − 60%) .... 20,000
Units started and completed during October* .... 360,000 360,000
Ending work in process:
Materials: 30,000 units × 70% complete ........ 21,000
Conversion: 30,000 units × 50% complete ..... 15,000
Equivalent units of production .......................... 386,000 395,000
* 390,000 units started into production – 30,000 units in ending
work in process = 360,000 units started and completed

Weighted-Average Method

Equivalent Units
Materials Conversion
Units transferred out .................................... 410,000 410,000
Work in process, ending:
30,000 units × 70% ................................... 21,000
30,000 units × 50% ................................... 15,000
Equivalent units of production ....................... 431,000 425,000

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 Problem 2 (GNBv14; 4:6;4a-7)
Kalox, Inc. manufactures an antacid product that passes through two departments. Data for May
for the first department follow:

Gallons Materials Labor Overhead

Work in Process, May 1 80,000 $68,600 $30,000 $48,000
Gallons started in process 760,000
Gallons transferred out 790,000
Work in Process, May 31 50,000
Cost added during May $907,200 $370,000 $592,000

The beginning work in process inventory was 80% complete with respect to materials and 75%
complete with respect to labor and overhead. The ending work in process inventory was 60%
complete with respect to materials and 20% complete with respect to labor and overhead.

Assuming that the company uses the FIFO method of accounting for units and costs, compute the
equivalent units for May’s activity in the first department.

Assuming that the company uses the FIFO method of accounting for units and costs, determine
the costs per equivalent unit for May.

Assuming that the company uses the weighted-average method of accounting for units and costs,
compute the equivalent units for May’s activity in the first department.

Assuming that the company uses the weighted-average method of accounting for units and costs,
determine the costs per equivalent unit for May.

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 PROBLEM 2 Solution
FIFO Method
1. Materials Labor Overhead
To complete beginning work in process:
Materials:
80,000 gallons × (100% − 80%) ............. 16,000
Labor:
80,000 gallons × (100% − 75%) ............. 20,000
Overhead:
80,000 gallons × (100% − 75%) ............. 20,000
Units started and completed during the period 710,000 710,000 710,000
Ending work in process:
Materials: 50,000 gallons × 60% ................ 30,000
Labor: 50,000 gallons × 20% ..................... 10,000
Overhead: 50,000 gallons × 20% ............... 10,000
Equivalent units of production........................ 756,000 740,000 740,000
2. Materials Labor Overhead
Cost added during the period (a) ...................... $907,200 $370,000 $592,000
Equivalent units of production (b) ..................... 756,000 740,000 740,000
Cost per equivalent unit (a) ÷ (b) ..................... $1.20 $0.50 $0.80
Weighted-Average Method
1. Materials Labor Overhead
Units transferred to the next department ...... 790,000 790,000 790,000
Work in process, ending:
Materials:
50,000 units × 60% complete ................ 30,000
Labor and overhead:
50,000 units × 20% complete ................ 10,000 10,000
Equivalent units of production ...................... 820,000 800,000 800,000

2. Materials Labor Overhead

Cost of beginning work in process ............ $ 68,600 $ 30,000 $ 48,000
Cost added during the period ................... 907,200 370,000 592,000
Total cost (a)........................................... $975,800 $400,000 $640,000
Equivalent units of production (b) ............. 820,000 800,000 800,000
Cost per equivalent unit (a) ÷ (b) ............. $1.19 $0.50 $0.80

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 Problem 3 (GNBv14; 4a:9)
Krollon Company uses the FIFO method in its process costing system. The following data are for
the most recent month of operations in one of the company’s processing departments:

Units in beginning inventory 400

Units started into production 4,300
Units in ending inventory 300
Units transferred to the next department 4,400

Materials Conversion
Percentage completion of beginning inventory 70% 30%
Percentage completion of ending inventory 80% 40%

According to the company’s costing system, the cost of beginning inventory was $7,886, of
which $4,897 was for materials and the remainder was for conversion cost. The costs added
during the month amounted to $181,652. The costs per equivalent unit for the month were:

Materials Conversion
Cost per equivalent unit $18.20 $23.25

1. Compute the total cost per equivalent unit for the month.

2. Compute the equivalent units of material and of conversion costs in the ending inventory.

3. Compute the equivalent units of material and of conversion costs that were required to
complete the beginning inventory.

4. Determine the number of units started and completed during the month.

5. Determine the costs of ending inventory and units transferred out.

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 PROBLEM 3 Solution

FIFO method
1. Computation of the total cost per equivalent unit of production:
Cost per equivalent unit of production for material ............. $18.20
Cost per equivalent unit of production for conversion ......... 23.25
Total cost per equivalent unit of production ....................... $41.45

2. Computation of equivalent units in ending inventory:

Materials Conversion
Units in ending inventory ......... 300 300
Percentage completed ............. 80 % 40 %
Equivalent units of production .. 240 120

3. Computation of equivalent units required to complete the beginning

inventory:
Materials Conversion
Units in beginning inventory .... 400 400
Percentage uncompleted ......... 30 % 70 %
Equivalent units of production .. 120 280

4. Units transferred to the next department ............. 4,400

Less units from the beginning inventory .............. 400
Units started and completed during the period ..... 4,000

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 Exercise 4A-9 (continued)
5. Materials Conversion Total
Ending work in process inventory:
Equivalent units of production................................................. 240 120
Cost per equivalent unit ......................................................... $18.20 $23.25
Cost of ending work in process inventory ................................ $4,368 $2,790 $7,158
Units transferred out:
Cost from the beginning work in process inventory .................. $4,897 $2,989 $7,886
Cost to complete the units in beginning work in process inventory:
Equivalent units of production required to complete the
units in beginning inventory ............................................ 120 280
Cost per equivalent unit ..................................................... $18.20 $23.25
Cost to complete the units in beginning inventory ................ $2,184 $6,510 $8,694
Cost of units started and completed this period:
Units started and completed this period .............................. 4,000 4,000
Cost per equivalent unit ..................................................... $18.20 $23.25
Cost of units started and completed this period ................... $72,800 $93,000 $165,800
Total cost of units transferred out ........................................... $182,380

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