Chapter 6

PROCESS COSTING

MULTIPLE CHOICE

Question Nos. 16, 17, 22, and 23 are AICPA adapted.

Question No. 24 is CIA adapted.

A 1. The quality costs that are associated with materials and products that fail to meet quality
standards and result in manufacturing losses are known as:
A. internal failure costs
B. external failure costs
C. prevention costs
D. appraisal costs
E. none of the above

B 2. The quality costs that are associated with designing, implementing, and maintaining the quality
system are known as:
A. appraisal costs
B. internal failure costs
C. external failure costs
D. prevention costs
E. none of the above
C 3. The quality costs that are incurred to ensure that materials and products meet quality
standards are known as:
 A. external failure costs
B. prevention costs
C. appraisal costs
D. internal failure costs
E. none of the above

B 4. Goode Manufacturing has three producing departments in its factory. The ending inventory in
the Milling Department consisted of 3,000 units. These units were 60% complete with respect
to labor and factory overhead. Materials are applied at the end of the milling process. Unit
costs for the complete process in the Milling Department are: materials, $1; labor, $2; and
factory overhead, $3. The appropriate unit cost for each unit in the ending inventory is:
A. $2
B. $5
C. $3
D. $6
E. $4
Process Costing 84

D 5. When added materials in subsequent departments result in an increase of the units produced,
the unit transferred-in costs will:
A. be reclassified as new materials
B. be increased to provide for the additional units
C. be accounted for under the fifo costing method
D. be decreased as they are spread over more units
E. remain unchanged

B 9. Internal failure costs include all of the following except:

A. the cost of the scrap
B. the cost of warranty repairs and replacements
C. rework
D. downtime due to machine failures
E. all of the above

E 10. Assuming that there was no beginning work in process inventory and the ending work in
process inventory is 50% complete as to conversion costs, the number of equivalent units as
to conversion costs would be:
A. less than the units completed
B. more than the units completed
C. the same as the units placed in process
D. the same as the units completed
E. less than the units placed in process

B 9. Internal failure costs include all of the following except:

A. the cost of the scrap
B. the cost of warranty repairs and replacements
C. rework
D. downtime due to machine failures
E. all of the above
A 14. Chicago Processing Co. uses the average costing method and reported a beginning inventory
85 Chapter 6

of 5,000 units that were 20% complete with respect to materials in one department. During
the month, 11,000 units were started; 8,000 units were finished; ending inventory amounted to
8,000 units that were 60% complete with respect to materials. Total materials cost during the
period for work in process should be spread over:
A. 7,200 units
B. 16,000 units
C. 11,200 units
D. 13,200 units
E. 12,800 units

SUPPORTING CALCULATION: 8,000 + .60(8,000) = 12,800 units

E 15. In determining the cost of goods transferred in from a previous department under the average
cost method:
A. a simple average of unit costs is used
B. beginning inventory costs are separated from costs transferred in during the period
C. a first-in, first-out approach is used
D. equivalent production in ending inventory is separated from other transferred-in costs
E. a weighted average of unit costs is used

C 16. The average and fifo process costing methods differ in that the average method:
A. can be used under any cost flow assumption
B. is much more difficult to apply than the fifo method
C. requires that ending work in process inventory be stated in terms of equivalent units of
production

A 17. The first step in applying the average cost method is to:
A. add the beginning work in process costs to the current period's production costs
B. divide the current period's production costs by the equivalent units
C. subtract the beginning work in process costs from the current period's production costs
D. A and B
E. B and C
Process Costing 86

A 12. Read, Inc. instituted a new process in October. During October, 10,000 units were started in
Department A. Of the units started, 7,000 were transferred to Department B, and 3,000
remained in work in process at October 31. The work in process at October 31 was 100%
complete as to material costs and 50% complete as to conversion costs. Materials costs of
$27,000 and conversion costs of $39,950 were charged to Department A in October. What
were the total costs transferred to Department B?
A. $46,900
B. $53,600
C. $51,800
D. $57,120
E. none of the above
C 13. When spoilage occurs because of some internal failure, the unrecoverable cost should be
charged to:
A. Work in Process
B. Spoiled Goods Inventory
C. Factory Overhead Control
D. Applied Factory Overhead
E. none of the above
87 Chapter 6

E 10. All of the following accounts would be acceptable ones to credit at the time scrap is sold
except:
A. Scrap Sales
B. Cost of Goods Sold
C. Factory Overhead Control
D. Work in Process
E. all of the above would be acceptable

C 11. Scrap includes all of the following except:

A. the trimmings remaining after processing materials
B. defective materials that cannot be used or returned to the vendor
C. partially or fully completed units that are in some way defective
D. broken parts resulting from employee or machine failures
E. all of the above
Process Costing 88
89 Chapter 6

A 17. During March, Vaughan Company incurred the following costs on Job 009 for the manufacture
of 200 motors:

Original cost accumulation:

Direct materials.................................................................................................. $ 660
Direct labor......................................................................................................... 800
Factory overhead (150% of direct labor).......................................................... 1,200
$ 2,660

Direct costs of reworking 10 units:

Direct materials.................................................................................................. $100
Direct labor......................................................................................................... 160
........................................................................................................................... $260

The rework costs were attributable to the exacting specifications of the customer. What is the
cost per finished unit of Job 009?
A. $15.80
B. $14.60
C. $14.00
D. $13.30
E. none of the above

SUPPORTING CALCULATION:

$2,660 + $260 + (150% x $160) = $3,160  200 = $15.80

C 18. Spoilage occurs as a result of an internal failure in a process cost system. Using average
costing, the number of equivalent units that production costs should be charged to would be
based upon:
A. spoiled units
B. units transferred out and spoiled units
C. units transferred out, spoiled units, and units in ending inventory
D. units transferred out and units in ending inventory
Process Costing 90

E. none of the above

D 19. Spoilage occurs as a result of normal production shrinkage in a process cost system. Using
average costing, the number of equivalent units that production costs should be charged to
would be based upon:
A. spoiled units
B. units transferred out and spoiled units
C. units transferred out, spoiled units, and units in ending inventory
D. units transferred out and units in ending inventory
E. none of the above

B 20. In a process cost system, the cost of spoilage due to an internal production failure should be
recorded as:
A. dr. Work in Process; cr. Finished Goods
B. dr. Work in Process; cr. Factory Overhead Control
C. dr. Factory Overhead Control; cr. Work in Process
D. dr. Materials; cr. Factory Overhead
E. dr. Finished Goods; cr. Work in Process

SUPPORTING CALCULATION: ($12,800 + $69,700)  (85,000 + 14,000) = $.833

91 Chapter 6

B 21. Kennedy 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 is as follows:

Materials
Units Costs
Work in process, October 1............................................................ 6,000 $ 3,000
Units started.................................................................................... 50,000 25,560
Units completed and transferred out.............................................. 44,000

Using the average cost method, what was the materials cost of work in process at October
31?
A. $3,000
B. $6,120
C. $3,060
D. $5,520
E. $6,000

SUPPORTING CALCULATION:

($3,000 + $25,560)  (44,000 + 12,000) = $.51

$.51 x 12,000 = $6,120

A 25. In a process cost system, the cost of rework usually is debited to:
A. Factory Overhead Control
B. Applied Factory Overhead
C. Spoiled Goods Inventory
D. Work in Process
E. none of the above

The following questions are based on the Appendix to the chapter:

C 26. If spoilage occurs as a result of an internal failure in a process cost system, using fifo costing,
Process Costing 92

the number of equivalent units that production costs should be charged to would be based
upon:
A. spoiled units
B. units transferred out and spoiled units
C. units transferred out, beginning inventory, and units in ending inventory
D. units transferred out, spoiled units, units in ending inventory, and units in beginning
inventory
E. none of the above
93 Chapter 6

C 27. If spoilage occurs as a result of normal production shrinkage in a process cost system, using
fifo costing, the number of equivalent units that production costs should be charged to would
be based on:
A. spoiled units
B. units transferred out and spoiled units
C. units transferred out, beginning inventory, and units in ending inventory
D. units transferred out, spoiled units, units in ending inventory, and units in beginning
inventory
E. none of the above
B 28. Primo Products transferred 15,000 units to one department. An additional 5,000 units were in
beginning inventory in the department. At the end of the month, 12,000 units were transferred
to the next department, 6,000 units remained in work in process, 40% complete as to
conversion costs and the remaining units were lost at the 75% stage of conversion. Beginning
inventory was 60% complete as to conversion costs and lost units were the result of internal
failure. The equivalent units of conversion cost using fifo costing is:
A. 14,400
B. 12,900
C. 13,900
D. 13,400
E. none of the above

SUPPORTING CALCULATION:

Equivalent units in beginning inventory (40% x 5,000)......................................... 2,000

Equivalent units started and completed during period
(12,000 - 5,000)............................................................................................ 7,000
Equivalent units in ending inventory (40% x 6,000).............................................. 2,400
Equivalent units of spoilage (75% x 2,000)........................................................... 1,500
Total equivalent units
A 29. Primo Products transferred 15,000 units to one department. An additional 5,000 units were
added in the department. At the end of the month, 12,000 units were transferred to the next
department, 6,000 units remained in work in process, 40% complete as to conversion costs
Process Costing 94

and the remaining units were lost at the 75% stage of conversion. Beginning inventory was
60% complete as to conversion costs, and lost units were the result of normal production
shrinkage. The equivalent units of conversion cost using fifo is:
A. 11,400
B. 14,400
C. 12,900
D. 13,400
E. none of the above

SUPPORTING CALCULATION:

Equivalent units in beginning inventory (40% x 5,000)......................................... 2,000

Equivalent units started and completed during period
(12,000 - 5,000)............................................................................................ 7,000
Equivalent units in ending inventory (40% x 6,000).............................................. 2,400
D 30. The Hilo Company computed the physical flow of units for Department A for the month of April
as follows:

Units completed:
From work in process on April 1....................................................................... 10,000
From April production........................................................................................ 30,000
Total............................................................................................................ 40,000

Materials are added at the beginning of the process. Units of work in process at April 30 were
8,000. The work in process at April 1 was 80% complete as to conversion costs, and the work
in process at April 30 was 60% complete as to conversion costs. What are the equivalent
units of production for the month of April using the fifo method?

Materials Conversion Costs

A. 48,000 48,000
B. 40,000 47,600
C. 36,800 38,000
D. 38,000 36,800
95 Chapter 6

E. 48,000 44,800

SUPPORTING CALCULATION:

Materials = 30,000 + 8,000 = 38,000

Conversion = (10,000 x .2) + 30,000 + (8,000 x .6) = 36,800
Total equivalent units............................................................................................... 11,400
Process Costing 96

D 26. In order to compute equivalent units of production using the fifo method of process costing,
work for the period must be broken down to units:
A. started and completed during the period
B. completed during the period and units in ending inventory
C. completed from beginning inventory, started and completed during the month, and units
in ending inventory
D. started during the period and units transferred out during the period
E. processed during the period and units completed during the period

A 27. The first-in, first-out method of process costing will produce the same cost of goods
manufactured amount as the average cost method when:
A. there is no beginning inventory
B. there is no ending inventory
C. beginning and ending inventories are each 50% complete
D. beginning inventories are 100% complete as to materials
E. goods produced are homogeneous

B 28. The fifo method of process costing differs from the average cost method of process costing in
that fifo:
A. allocates costs based on whole units, but the average cost method uses equivalent units
B. considers the stage of completion of beginning work in process in computing equivalent
units of production, but the average cost method does not
C. does not consider the stage of completion of beginning work in process in computing
equivalent units of production, but the average cost method does
D. is applicable only to those companies using the fifo inventory pricing method, but the
average cost method may be used with any inventory pricing method
E. none of the above
12,900

A 29. Connor Company computed the flow of physical units completed for Department M for the
97 Chapter 6

month of March as follows:

Units completed:
From work in process on March 1.................................................................... 15,000
From March production..................................................................................... 45,000
Total............................................................................................................ 60,000

Materials are added at the beginning of the process. The 12,000 units of work in process at
March 31 were 80% complete as to conversion costs. The work in process at March 1 was
60% complete as to conversion costs. Using the fifo method, the equivalent units for March
conversion costs were:
A. 60,600
B. 55,200
C. 57,000
D. 54,600
E. 63,600

SUPPORTING CALCULATION: (15,000 x .4) + 45,000 + (12,000 x .8) = 60,600

Process Costing 98

E 31. Department A is the first stage of Mann Company's production cycle. The following information
is available for conversion costs for the month of April:

...................................................................................................................... Units
Beginning work in process (60% complete).......................................................... 20,000
Started in April........................................................................................................ 340,000
Completed in April and transferred to Department B............................................. 320,000
Ending work in process (40% complete)............................................................... 40,000

Using the fifo method, the equivalent units for the conversion cost calculation are:
A. 336,000
B. 360,000
C. 328,000
D. 320,000
E. 324,000

SUPPORTING CALCULATION:

(20,000 x .4) + 300,000 + (40,000 x .4) = 324,000

99 Chapter 6

PROBLEMS

1.
Cost of Production Report. Fort Myers Corporation manufactures a product that is processed in two
departments: Mixing and Cooking. At the beginning and end of May, there were no inventories of
unfinished work. During May, 50,000 units of this product were completed. Materials used during May cost
$28,000, of which one half were used in the Mixing Department and one half were used in the Cooking
Department. Direct labor wages totaled $60,000, with $40,000 applicable to Mixing and $20,000 to
Cooking. The amounts for direct factory overhead incurred for each department and for general factory
overhead apportioned to each department were:

Mixing Cooking
Department Department
Factory overhead incurred....................................................................... $7,500 $9,000
General factory overhead apportioned..................................................... 5,000 6,000

Required: Prepare a partial cost of production report, showing the total cost to be accounted for in each
department.

SOLUTION

Fort Myers Corporation

Partial Cost of Production Report
For May, 19--

Mixing Department Cooking Department

Total Equivalent Unit Total Equivalent Unit
Cost Units Cost Cost Units Cost
Cost from preceding
department................................ --- 50,000 --- $ 66,500 50,000 $1.33
Cost added by department..............
Materials.................................... $ 14,0001 50,000 $ 0.282 $ 14,000 50,000 $0.28
Process Costing 100

Labor......................................... 40,000 50,000 0.80 20,000 50,000 0.40

Factory overhead....................... 12,500 50,000 0.25 15,000 50,000 0.30
Total cost added............................. $ 66,500 $ 1.33 $ 49,000
.........................................$0.98
Total cost to be accounted
for.............................................. $ 66,500 $ 1.33 $ 115,500 $2.31

1
$28,000 x 1/2 = $14,000
2
$14,000  50,000 units = $.28
101 Chapter 6

PROBLEM

2.
Computation of Equivalent Production. Hanrahan Company uses process costing to account for the costs
of its only product, X. Production takes place in two departmentsSanding and Polishing. On December 31,
the inventory for Product X was as follows:

No unused materials
Work in process
Sanding Department......................................... 800 units (3/4 complete as to labor)
Work in process
Polishing Department....................................... 1,000 units (1/2 complete as to materials and
3/4 complete as to direct labor)
Finished Goods........................................................ 600 units

Required:

(1) Compute the equivalent units of materials in all inventories combined at December 31.
(2) Compute the equivalent units of the Sanding Department's direct labor in all inventories at December
31.

SOLUTION

(1) Work in processSanding Department................................................................................ 800

Work in processPolishing Department (1,000 units x 1/2).............................................. 500
Finished goods.................................................................................................................... 600
Units of materials in all inventories, Dec. 31....................................................................... 1,900

(2) Work in processSanding Department (800 units x 3/4)................................................. 600

Work in processPolishing Department............................................................................... 1,000*
Finished goods.................................................................................................................... 600*
Units of Sanding Dept.'s direct labor in all inventories, December 31................................ 2,200
Process Costing 102

* All Sanding Department direct labor would be in all of these units or else they never would have been
transferred.

1.
Journal Entries for Scrap. Munoz Metal Products accumulates metal shavings from the shop floor and
sells them periodically to a nearby scrap dealer. Scrap sales, on account, for the period just ended total
$2,300.

Required: Indicate the journal entries when:

(1)The scrap sales are viewed as additional revenue.

(2)The scrap sales are viewed as a reduction of the cost of goods sold during the period .
(3)The scrap sales are viewed as a reduction of factory overhead.
(4)The scrap sales are traceable to individual jobs and are viewed as a reduction in the cost of materials
used on the jobs.

SOLUTION

(1) Accounts Receivable............................................................................. 2,300

Scrap Sales (or Other Income)..................................................... 2,300

(2) Accounts Receivable............................................................................. 2,300

Cost of Goods Sold....................................................................... 2,300

(3) Accounts Receivable............................................................................. 2,300

Factory Overhead Control.............................................................. 2,300

(4) Accounts Receivable............................................................................. 2,300

Work in Process............................................................................. 2,300
103 Chapter 6

PROBLEM

2.
Spoilage in a Job Order Cost System. Walker Inc. manufactures custom wood products. During the
current period, an order for 2,000 workbenches was begun on Job 1994. After the job was completed, the
benches were inspected and 100 units were determined to be defective. The customer has agreed to
accept the order with only 1,900 units instead of the quantity originally ordered. The spoiled units can be
sold as seconds for $25 each. Spoiled goods are kept in a separate inventory account from finished
goods. Total costs charged to
Job 1994 follow:

Materials ............................................................................................................................. $ 5,100

Labor (200 hours x $15 per hour)......................................................................................... 3,000
Factory overhead ($9.50 per labor hour)............................................................................... 1,900
Total cost charged to Job 1994.............................................................................................. $ 10,000

Custom jobs are marked up 150 percent on cost.

Process Costing 104

Required:

(1) Assuming that the defective units were the result of an internal failure (i.e., an employee error or a
machine failure), prepare the appropriate general journal entries to record the transfer of the
defective units to a separate inventory account and the completion and shipment of Job 1994 to
the customer.
(2) Assuming that the defective units were the result of a change in design specified by the customer
after the units were completed, prepare the appropriate general journal entries to record the
transfer of the defective units to the separate inventory account and the completion and shipment
of Job 1994 to the customer.

SOLUTION

(1) Spoiled Goods Inventory (10 units x $25 salvage).............................. 250

Factory Overhead Control..................................................................... 250
Work in Process (10 units x $50* cost)....................................... 500

Cost of Goods Sold............................................................................... 9,500

Work in Process ($10,000 - 500)................................................ 9,500

Accounts Receivable ($9,500 x 150%)............................................... 14,250

Sales.............................................................................................. 14,250

(2) Spoiled Goods Inventory (10 units x $25 salvage).............................. 250

Work in Process............................................................................. 250

Cost of Goods Sold............................................................................... 9,750

Work in Process ($10,000 - $250).............................................. 9,750

Accounts Receivable ($9,750 x 150%)................................................ 14,625

Sales.............................................................................................. 14,625
105 Chapter 6
Process Costing 106

PROBLEM

3.
Entries for Charging Rework Costs Caused by Internal Failure and by Change in Customer Specification.
Albany Appliances manufactured 100 microwave ovens in a recent production run and discovered that 10
ovens were defective and required reworking as follows:

Rework cost per unit:

Materials................................................................................................................................. $ 10
Labor...................................................................................................................................... 25
Factory overhead................................................................................................................... 25
Total................................................................................................................................ $ 60
Normal production cost per unit:
Materials................................................................................................................................. $ 50
Labor...................................................................................................................................... 75
Factory overhead................................................................................................................... 75
Total................................................................................................................................ $ 200

Required:

(1) Prepare the journal entries to record (a) the normal production costs, (b) the rework costs, and (c)
the transfer of the job costs to Finished Goods assuming that rework costs were caused by an
internal failure.
(2) Prepare the same journal entries as in (1), assuming that rework costs were caused by a change
in customer specifications.

SOLUTION

Debit Credit
(1) (a) Work in Process......................................................................... 20,000
Materials............................................................................... 5,000
Payroll.................................................................................. 7,500
107 Chapter 6

Applied Factory Overhead................................................... 7,500

(b) Factory Overhead Control ($60 x 10)....................................... 600

Materials............................................................................... 100
Payroll.................................................................................. 250
Applied Factory Overhead................................................... 250

(c) Finished Goods ($200 x 100)................................................... 20,000

Work in Process................................................................... 20,000

(2) (a) Same as first entry in (1) (a) above.

(b) Work in Process......................................................................... 600

Materials............................................................................... 100
Payroll.................................................................................. 250
Applied Factory Overhead................................................... 250

(c) Finished Goods........................................................................... 20,600

Work in Process................................................................... 20,600
Process Costing 108

PROBLEM

4.
Journal Entries for Process Cost System. Xavier Corporation uses process costing in its two production
departments. A separate work in process account is kept in the general ledger for each production
department. The following data relate to operations for the month of March:

Beginning Added
Inventory During March
Direct materials cost: Department A $ 5,000 $25,000
Department B 3,000 20,000
Direct labor cost: Department A 6,000 40,000
Department B 4,500 35,000
Applied overhead: Department A 12,000 90,000
Department B 4,500 35,000

During March, 45,000 units with a cost of $5 each were transferred from Department A to Department B,
and 40,000 units with a cost of $9 each were transferred from Department B to finished goods inventory.

Required: Prepare the appropriate general journal entries to record the cost charged to the producing
departments during March and the cost of units transferred from Department A to Department B and
Department B to finished goods inventory.

SOLUTION

Work in Process  Department A.................................................................... 25,000

Work in Process  Department B.................................................................... 20,000
Materials................................................................................................... 45,000

Work in Process  Department A.................................................................... 40,000

Work in Process  Department B.................................................................... 35,000
Payroll...................................................................................................... 75,000
109 Chapter 6

Work in Process  Department A.................................................................... 90,000

Work in Process  Department B.................................................................... 35,000
Applied Factory Overhead........................................................................ 125,000

Work in Process  Department B.................................................................... 225,000

Work in Process  Department A............................................................ 225,000

Finished Goods Inventory................................................................................ 360,000

Work in Process  Department B............................................................ 360,000
Process Costing 110

5.
Spoilage With a Salvage Value in a Process Cost System Using an Average Cost Flow Assumption.
Carter Company manufactures a single product in two departments, Cutting and Finishing. Units of a
product are started in the Cutting Department and then transferred to the Finishing Department where they
are completed. Units are inspected at the 80% stage of completion in the Finishing Department. Good
units are transferred to finished goods inventory when completed and spoiled units are transferred to a
separate inventory account. Spoiled units are inventoried at their salvage value of $3 each, and the
unrecoverable cost of spoilage, which was caused by an internal failure, should be charged to the
appropriate account.
Materials are added at the beginning of the production process. At the end of June, 2,000 units were
still in process in the Finishing Department, 100% complete as to materials and 60% complete as to
conversion costs. During July, 20,000 units were transferred from the Cutting Department to the Finishing
Department and 15,000 were transferred from the Finishing Department to finished goods inventory. At the
end of July, the Finishing Department still had 4,000 units in process, 100% complete as to materials and
20% complete as to conversion costs. Cost data related to July operations in the Finishing Department
follow:

Beginning Added
Costs charged to the department:....................................................................... Inventory This Period
Cost from preceding department.................................................................. $6,050 $54,450
Materials........................................................................................................ 3,410 30,690
Labor............................................................................................................. 1,638 14,742
Factory overhead.......................................................................................... 2,184 19,656

Required: Complete the following cost of production report for the Finishing Department based on the
data presented for July, assuming the company uses a process cost system with average costing to
account for its production.
111 Chapter 6

SOLUTION

Carter Corporation
Finishing Department
Cost of Production Report
For July, 19--

Quantity Schedule Materials Labor Overhead Quantity

Beginning inventory............................................. 2,000
Received from Cutting Department..................... 20,000
22,000

Transferred to finished goods............................. 15,000

Ending inventory.................................................. 100% 20% 20% 4,000
Spoiled in process............................................... 100% 80% 80% 3,000
22,000

Total Equivalent Unit

Cost Charged to Department Cost Units* Cost
Beginning inventory:
Cost from preceding department................... $ 6,050
Materials........................................................ 3,410
Labor. .......................................................... 1,638
Factory overhead........................................... 2,184
Total cost in beginning inventory............ $ 13,282

Cost added during period:

Cost from preceding department................... $ 54,450 22,000 $2.75
Materials........................................................ 30,690 22,000 1.55
Labor. ........................................................... 14,742 18,200 .90
Factory overhead........................................... 19,656 18,200 1.20
Total cost added during period............... $ 119,538
Total cost charged to the department................. $ 132,820 $6.40
Process Costing 112

% Unit Total
Cost Accounted for as Follows Units Complete Cost Cost
Transferred to
finished goods.............................. 15,000 100% $ 6.40 $96,000
Transferred to spoiled goods
inventory at salvage value........... 3,000 3.00 9,000
Charge to factory overhead
for spoilage:
Cost from preceding
department............................. 3,000 100% $ 2.75 $ 8,250
Materials....................................... 3,000 100% 1.55 4,650
Labor. .......................................... 3,000 80% .90 2,160
Factory overhead.......................... 3,000 80% 1.20 2,880
$ 17,940
Less salvage value of
spoiled units........................... 3,000 3.00 9,000 8,940
Work in process,
ending inventory:
Cost from preceding
department............................. 4,000 100% $ 2.75 11,000
Materials....................................... 4,000 100% 1.55 6,200
Labor. .......................................... 4,000 20% .90 720
Factory overhead.......................... 4,000 20% 1.20 960 18,880
Total cost accounted for..................... $132,820

* Total number of equivalent units required in the cost accounted for section determined as follows:

Prior
Dept. Cost Materials Labor Overhead
Equivalent units transferred out........................... 15,000 15,000 15,000 15,000
Equivalent units in ending inventory................... 4,000 4,000 800 800
Equivalent units of spoilage................................ 3,000 3,000 2,400 2,400
Total equivalent units.......................................... 22,000 22,000 18,200 18,200
113 Chapter 6

PROBLEM

6.
Cost of Production Report, Increase in Quantity with Added Materials, Average Costing. Carlson Chemical
Company produces a chemical in three departments, Mixing, Blending, and Bottling. Mixing, where the
compounds are added, is the first department. The powder is then transferred to the second department
where water is added to produce a liquid. After water has been added, the chemical is bottled for storage
and transported to customers. A process cost system with an average cost flow assumption is used to
account for work in process inventories. Data related to operations in the Blending Department during the
month of October follow:

Units in beginning inventory.............................................................................................................. 2,000

Units received from the Mixing Department this period.................................................................... 4,000
Units added to process in the Blending Department this period...................................................... 12,000
Units transferred to Bottling Department this period......................................................................... 14,000
Units in ending inventory (100% materials, 40% labor and overhead)........................................... 4,000

Beginning Added
Costs charged to the department: Inventory This Period
Costs from the preceding department................................................... $2,300 $11,200
Materials................................................................................................ 720 2,520
Direct labor............................................................................................ 1,150 2,750
Factory overhead.................................................................................. 2,100 5,700

Required: Prepare a cost of production report for the Blending Department.

Process Costing 114

SOLUTION

Carlson Chemical Company

Blending Department
Cost of Production Report
For October, 19--

Quantity Schedule............................................... Materials Labor Overhead Quantity

Beginning inventory............................................. 2,000
Received from Mixing Department...................... 4,000
Added to process in Blending Department......... 12,000
18,000

Transferred to Bottling Department..................... 14,000

Ending inventory.................................................. 100% 40% 40% 4,000
18,000

Total Equivalent Unit

Cost Charged to Department............................. Cost Units* Cost
Beginning Inventory:
Cost from preceding department................... $ 2,300
Materials.................................................. 720
Labor....................................................... 1,150
Factory overhead.................................... 2,100
Total cost in beginning inventory.................. $ 6,270
Cost added during period:
Cost from preceding department................... $ 11,200 18,000 $ .75
Materials.................................................. 2,520 18,000 .18
Labor....................................................... 2,750 15,600 .25
Factory overhead.................................... 5,700 15,600 .50
Total cost added during period..................... $ 22,170
Total cost charged to the department................. $ 28,440 $ 1.68
115 Chapter 6

% Unit Total
Cost Accounted for as Follows......... Units Complete Cost Cost
Transferred to Bottling
Department................................... 14,000 100% $1.68 $23,520
Work in process,
ending inventory:
Cost from preceding
department............................. 4,000 100 .75 $3,000
Materials................................. 4,000 100 .18 720
Labor...................................... 4,000 40 .25 400
Factory overhead................... 4,000 40 .50 800 4,920
Total cost accounted for..................... $28,440

* Total number of equivalent units required in the cost accounted for section determined as follows:

Prior
Dept. Cost Materials Labor Overhead
Equivalent units transferred out.......................... 14,000 14,000 14,000 14,000
Equivalent units in ending inventory................... 4,000 4,000 1,600 1,600
Total equivalent units.......................................... 18,000 18,000 15,600 15,600
Process Costing 116

The remaining problems are based on material in the chapter Appendix.

117 Chapter 6

This problem is based on material presented in the Appendix to the chapter.

PROBLEM

7.
Spoilage With a Salvage Value in a Process Cost System With a Fifo Cost Flow Assumption. School
Craft Petroleum Company uses a process cost system with a fifo cost flow assumption to account for
production, which is manufactured in two departments. Units of product are started in the Cracking
Department and then transferred to the Refining Department where they are completed. Units are
inspected at the end of the production process in the Refining Department. Good units are transferred to
finished goods inventory and spoiled units are transferred to a separate inventory account. Spoiled units
are inventoried at their salvage value of $8 each, and the unrecoverable cost of spoilage resulting from an
internal production failure is charged to the appropriate account. Data related to September operations in
the Refining Department follow:

Units in beginning inventory (60% materials, 30% labor, 30% overhead)................................... 2,800
Units received from Cracking Department this period.................................................................... 8,400
Units transferred to the finished goods inventory this period........................................................ 7,600
Units transferred to special inventory account this period............................................................. 1,100
Units in ending inventory (100% materials, 50% labor, 50% overhead)...................................... 2,500

Beginning Added
Costs charged to the department:....................................................................... Inventory This Period
Cost from preceding department................................................................... $17,889 $68,040
Materials........................................................................................................ 2,733 11,900
Labor............................................................................................................. 7,278 30,063
Factory overhead........................................................................................... 12,350 51,016

Required: Prepare a cost of production report for the Refining Department based on the data presented
for September.
Process Costing 118

SOLUTION

School Craft Petroleum Company

Refining Department
Cost of Production Report
For September, 19--

Quantity Schedule Materials Labor Overhead Quantity

Beginning inventory............................................. 60% 30% 30% 2,800
Received from Cracking Department................... 8,400
11,200

Transferred to finished goods............................. 7,600

Ending inventory.................................................. 100% 50% 50% 2,500
Spoiled in process............................................... 100% 100% 100% 1,100
11,200

Total Equivalent Unit

Cost Charged to Department Cost Units* Cost
Beginning inventory:
Cost from preceding department................... $ 17,889
Materials........................................................ 2,733
Labor .......................................................... 7,278
Factory overhead........................................... 12,350
Total cost in beginning inventory............ $ 40,250
Cost added during current period:
Cost from preceding department................... $ 68,040 8,400 $ 8.10
Materials........................................................ 11,900 9,520 1.25
Labor .......................................................... 30,063 9,110 3.30
Factory overhead........................................... 51,016 9,110 5.60
Total cost added during period............... $ 161,019
Total cost charged to the department................. $ 201,269 $ 18.25
119 Chapter 6

% Unit Total
Cost Accounted for as Follows Units Complete Cost Cost
Transferred to finished goods:
From beginning inventory............... $ 40,250
Cost to complete this
period:
Materials............................. 2,800 40% $ 1.25 $ 1,400
Labor.................................. 2,800 70% 3.30 6,468
Factory overhead............... 2,800 70% 5.60 10,976 $ 59,094
Started and completed
this period................................ 4,800 100% $ 18.25 87,600
Total cost transferred to
Finishing Department............... $ 146,694
Transferred to spoiled goods
inventory at salvage value............. 1,100 $ 8.00 8,800
Charged to factory overhead for
spoilage:
Cost of completed spoiled
units.......................................... 1,100 100% $ 18.25 $ 20,075
Less salvage value of spoiled
units.......................................... 1,100 8.00 8,800 11,275
Work in process,
ending inventory:
Cost from preceding
department............................... 2,500 100% $ 8.10 $ 20,250
Materials......................................... 2,500 100% 1.25 3,125
Labor. ........................................... 2,500 50% 3.30 4,125
Factory overhead........................... 2,500 50% 5.60 7,000 34,500
Total cost accounted for....................... $ 201,269

* Number of equivalent units of cost added during the current period determined as follows:

Prior
Process Costing 120

Dept. Cost Materials Labor Overhead

To complete beginning inventory................... 0 1,120 1,960 1,960
Started and completed this period................. 4,800 4,800 4,800 4,800
Ending inventory............................................. 2,500 2,500 1,250 1,250
Spoiled units................................................... 1,100 1,100 1,100 1,100
Total equivalent units.......................................................................................