Process Costing

1. The formula for a chemical compound requires one pound of Chemical X and one pound of Chemical Y. In the simplest sense, one
pound of Chemical X is processed in Department A and transferred to Department B for further processing where one pound of
Chemical Y is added when the process is 50 percent complete. When the processing is complete in Department B, the finished
compound is transferred to finished goods. The process is continuous, operating 24 hours a day. Normal spoilage occurs in
Department A. Five percent of material is lost in the first few seconds of processing. No spoilage occurs in Department B.

The following data are available for the month of August 20X6:

Required:
a. Prepare a schedule showing finished equivalents for Chemical X and for conversion cost for Department A using the FIFO method.
b. Determine for Department B the number of units of good product completed during August and the number of units in process on
August 31.
c. Prepare a schedule for Department B showing finished equivalents for preceding department cost, cost of Chemical Y, and conversion
cost using the FIFO method.

2. The Sweet Temptations Company has two processing departments, Cooking and Packaging. Ingredients are placed into production
at the beginning of the process in Cooking, where they are formed into various shapes. When finished, they are transferred into
Packaging, where the candy is placed into heart and tuxedo boxes and covered with foil. All material added in Packaging is
considered as one material for convenience. Since the boxes contain a variety of candies, they are considered partially complete
until filled with the appropriate assortment. The following information relates to the two departments for February 20X7:

Cooking Department:
Beginning WIP (30% complete as to conversion) 4,500 units
Units started this period . 15,000 units
Ending WIP (60% complete as to conversion) 2,400 units
Packaging Department:
Beginning WIP (90% complete as to material, 80% complete as
to conversion) 1,000 units
Units started during period ?
Ending WIP (80% complete as to material and 80% complete as
to conversion) 500 units

Required:
a. Determine equivalent units of production for both departments using the weighted average method.
b. Determine equivalent units of production for both departments using the FIFO method.

3. Landers Company

Landers Company has the following information available for May:

All material is added at the start of production and all products completed are transferred out.

a. Refer to Landers Company. Prepare an equivalent units schedule using the (a) FIFO and (b) weighted average method.
b. Refer to Landers Company. Prepare a schedule showing the computation for cost per equivalent unit assuming the (a) FIFO and (b)
weighted average method.
c. Refer to Landers Company. Prepare a schedule showing the assignment of costs assuming the (a) FIFO and (b) weighted average
method.
Job Order Costing

Problem 1: Richards Company employs a job order costing system. Only three jobs-Job #205, Job #206, and Job #207-were worked on
during January and February. Job #205 was completed February 10; the other two jobs were still in production on February 28, the end of
the company's operating year. Job cost sheets on the three jobs follow:

The following additional information is available:

a. Manufacturing overhead is assigned to jobs on the basis of direct labor cost.
b. Balances in the inventory accounts at January 31 were as follows:
Raw Material $40,000
Work in Process. ?
Finished Goods 85,000

Required:

a. Prepare T-accounts for Raw Material, Work in Process Inventory, Finished Goods Inventory, and Manufacturing Overhead Control.
Enter the January 31 inventory balances given previously; in the case of Work in Process Inventory, compute the January 31
balance and enter it into the Work in Process Inventory T-account.
b. Prepare journal entries for February as follows:
1. Prepare an entry to record the issue of materials into production and post the entry to appropriate T-accounts. (In the case
of direct material, it is not necessary to make a separate entry for each job.) Indirect materials used during February
totaled $4,000.
2. Prepare an entry to record the incurrence of labor cost and post the entry to appropriate T-accounts. (In the case of direct
labor, it is not necessary to make a separate entry for each job.) Indirect labor cost totaled $8,000 for February.
3. Prepare an entry to record the incurrence of $19,000 in various actual manufacturing overhead costs for February (credit
Accounts Payable).
c. What apparent predetermined overhead rate does the company use to assign overhead cost to jobs? Using this rate, prepare a
journal entry to record the application of overhead cost to jobs for February (it is not necessary to make a separate entry for each
job). Post this entry to appropriate T-accounts.
d. As stated earlier, Job #205 was completed during February. Prepare a journal entry to show the transfer of this job off of the
production line and into the finished good warehouse. Post the entry to appropriate T-accounts.
e. Determine the balance at February 28 in the Work in Process inventory account. How much of this balance consists of the cost of
Job #206? Job #207?

Problem 2: Sanderson Company manufactures custom-built conveyor systems for factory and commercial operations. Erin Smith is the
cost accountant for Sanderson and she is in the process of educating a new employee, Heather Fontenot about the job order costing
system that Sanderson uses. (The system is based on normal costs; overhead is applied based on direct labor cost and rounded to the
next whole dollar.) Lisa gathers the following job order cost records for July:

To explain the missing job number, Erin informed Heather that Job #668 had been completed in June. She also told her that Job #667
was the only job in process at the beginning of July. At that time, the job had been assigned $4,300 for direct material and $900 for direct
labor. At the end of July, Job #671 had not been completed; all others had. Erin asked Heather several questions to determine whether
she understood the job order system.

Required: Help Heather answer the following questions:

a. What is the predetermined overhead rate used by ABC Company?
b. What was the total cost of beginning Work in Process inventory?
c. What was total prime cost incurred for the month of July?
d. What was cost of goods manufactured for July?