CHAPTER 18

PROCESS COSTING

18-1 Industries using process costing in their manufacturing area include chemical processing,
oil refining, pharmaceuticals, plastics, brick and tile manufacturing, semiconductor chips,
beverages, and breakfast cereals.

18-2 Process costing systems separate costs into cost categories according to the timing of
when costs are introduced into the process. Often, only two cost classifications, direct materials
and conversion costs, are necessary. Direct materials are frequently added at one point in time,
often the start or the end of the process. All conversion costs are added at about the same time,
but in a pattern different from direct materials costs. Conversion costs are often added
throughout the process, which can of any length of time, lasting from seconds to several months.

18-3 Equivalent units is a derived amount of output units that takes the quantity of each input
(factor of production) in units completed or in incomplete units in work in process, and converts
the quantity of input into the amount of completed output units that could be made with that
quantity of input. Each equivalent unit is comprised of the physical quantities of direct materials
or conversion costs inputs necessary to produce output of one fully completed unit. Equivalent
unit measures are necessary since all physical units are not completed to the same extent at the
same time.

18-4 The accuracy of the estimates of completion depends on the care and skill of the
estimator and the nature of the process. Semiconductor chips may differ substantially in the
finishing necessary to obtain a final product. The amount of work necessary to finish a product
may not always be easy to ascertain in advance.

18-5 The five key steps in process costing are:

Step 1: Summarize the flow of physical units of output.
Step 2: Compute output in terms of equivalent units.
Step 3: Summarize total costs to account for.
Step 4: Compute cost per equivalent unit.
Step 5: Assign total costs to units completed and to units in ending work in process.

18-6 Three inventory methods associated with process costing are:

 Weighted average.
 First-in, first-out.
 Standard costing.

18-7 The weighted-average process-costing method calculates the equivalent-unit cost of all
the work done to date (regardless of the accounting period in which it was done), assigns this
cost to equivalent units completed and transferred out of the process, and to equivalent units in
ending work-in-process inventory.

18-1
18-8 FIFO computations are distinctive because they assign the cost of the previous
accounting period’s equivalent units in beginning work-in-process inventory to the first units
completed and transferred out of the process and assign the cost of equivalent units worked on
during the current period first to complete beginning inventory, next to start and complete new
units, and finally to units in ending work-in-process inventory. In contrast, the weighted-average
method costs units completed and transferred out and in ending work in process at the same
average cost.

18-9 FIFO should be called a modified or departmental FIFO method because the goods
transferred in during a given period usually bear a single average unit cost (rather than a distinct
FIFO cost for each unit transferred in) as a matter of convenience.

18-10 A major advantage of FIFO is that managers can judge the performance in the current
period independently from the performance in the preceding period.

18-11 The journal entries in process costing are basically similar to those made in job-costing
systems. The main difference is that, in process costing, there is often more than one work-in-
process account––one for each process.

18-12 Standard-cost procedures are particularly appropriate to process-costing systems where

there are various combinations of materials and operations used to make a wide variety of similar
products as in the textiles, paints, and ceramics industries. Standard-cost procedures also avoid
the intricacies involved in detailed tracking with weighted-average or FIFO methods when there
are frequent price variations over time.

18-13 There are two reasons why the accountant should distinguish between transferred-in
costs and additional direct materials costs for a particular department:

(a) All direct materials may not be added at the beginning of the department process.
(b) The control methods and responsibilities may be different for transferred-in items and
materials added in the department.

18-14 No. Transferred-in costs or previous department costs are costs incurred in a previous
department that have been charged to a subsequent department. These costs may be costs
incurred in that previous department during this accounting period or a preceding accounting
period.

18-15 Materials are only one cost item. Other items (often included in a conversion costs pool)
include labor, energy, and maintenance. If the costs of these items vary over time, this variability
can cause a difference in cost of goods sold and inventory amounts when the weighted-average
or FIFO methods are used.
A second factor is the amount of inventory on hand at the beginning or end of an
accounting period. The smaller the amount of production held in beginning or ending inventory
relative to the total number of units transferred out, the smaller the effect on operating income,
cost of goods sold, or inventory amounts from the use of weighted-average or FIFO methods.

18-2
18-16 Choice "4" is correct. Weighted average and FIFO equivalent units will be equal in the
event that beginning WIP is equal to zero. Absent the adjustments for beginning inventory, the
FIFO and weighted average computations of equivalent units is identical.

Choice "1" is incorrect. FIFO equivalent units are generally less than weighted average
equivalent units by virtue of adjustments to eliminate the impact of beginning inventory on the
FIFO computation and inclusion of all units in the weighted average computation.

Choice "2" is incorrect. Although FIFO equivalent units are generally less than weighted average
equivalent units, the elimination of beginning inventory from the computation makes the
equivalent units computed under both methods equal.

Choice "3" is incorrect. Equivalent units computed using weighted average are not always
greater than equivalent units computed using FIFO. The amounts are equal in the event that there
is no beginning inventory.

18-17 Choice "2" is correct.

In this question, they want a calculation of equivalent units for a month using the weighted-
average method of process costing.

Before computing the equivalent units, it is helpful to reconcile the actual units. 4,000 units were
in beginning inventory and 16,000 units were started, for a total of 20,000 units. 14,000 units
were completed and 6,000 units remained in ending inventory, again for a total of 20,000 units.

Converting to equivalent units using the weighted-average method, the units completed at 100%
complete and the units in ending inventory at their percentage of completion are considered.

In this question, the units in ending inventory are 80% complete. Equivalent units were thus
18,800 (14,000 + (6,000 × 0.80)). Using the weighted-average method, the percentage of
completion of the beginning inventory is not considered.

18-18 Choice "2" is correct.

In this question, they want they want a calculation of equivalent units for direct materials for a
quarter using the FIFO method of process costing.

Before computing the equivalent units, it is helpful to reconcile the actual units. 100 units were
in beginning inventory and 500 units were started, for a total of 600 units. 400 units were
completed and 200 units remained in ending inventory, again for a total of 600 units.

Converting to equivalent units using the FIFO method, the units started and completed at 100%
complete, the units in ending inventory at their percentage of completion, and the units in
beginning inventory at their percentage of completion are all considered.

Units started and completed during the quarter were 300 (400 completed − 100 in beginning
inventory). Equivalent units needed to complete the beginning inventory were 50 (100 × 0.50).
Equivalent units in the ending inventory were 150 (200 × 0.75). Therefore, total equivalent units
for the first quarter were 500 (50 + 300 + 150).

18-3
18-19 Choice "3" is correct.
In this question, they want a calculation of ending inventory cost using the weighted average
method of process costing. The general approach to this problem is to (1) compute the equivalent
units; (2) compute the unit cost of the production; and (3) apply the unit cost to the equivalent
units in the ending inventory.

Before computing the equivalent units, it is helpful to reconcile the actual units. 100 units were
in beginning inventory and 500 units were started, for a total of 600 units. 400 units were
completed and 200 units remained in ending inventory, again for a total of 600 units.

Converting to equivalent units using the weighted-average method, the units completed at 100
percent complete and the units in ending inventory at their percentage of completion are
considered. Equivalent units were thus 550 [400 + (200 × 0.75)]. Using the weighted average
method, the percentage of completion of the beginning inventory is not considered.

To compute the unit cost of production, the cost of the beginning inventory plus the cost added
during the month are considered. The cost of the beginning inventory was $50,000. $775,000 of
cost was added during the month, for a total of $825,000 ($50,000 + $775,000). The per
equivalent unit cost is $1,500 ($825,000 / 550).

There were 150 equivalent units in ending inventory (200 × 0.75). The cost of this inventory was
thus $225,000 ($1,500 × 150).

18-20 Choice “3” is correct.

$6.00 equivalent unit conversion cost using the weighted-average method.

Weighted-average equivalent units:

Units completed (given) 92,000
+ Ending WIP × % completed = 24,000 × 40% = 9,600
Weighted-average equivalent units 101,600

Weighted-average cost per equivalent unit:

= Beginning cost + Current cost / Equivalent units
= ($20,320 + $15,240) + ($182,880 + $391,160) / 101,600
= $6.00.

18-4
18-21 (25 min.) Equivalent units, zero beginning inventory.

1. Direct materials cost per unit ($775,000 ÷ 10,000) $ 77.50

Conversion cost per unit ($816,000 ÷ 10,000) 81.60
Assembly Department cost per unit $159.10

2a. Solution Exhibit 18-21A calculates the equivalent units of direct materials and conversion
costs in the Assembly Department of Panagra, Inc. in February 2020.
Solution Exhibit 18-21B computes equivalent unit costs.

2b. Direct materials cost per unit $ 77.50

Conversion cost per unit 85.00
Assembly Department cost per unit $162.50

3. The difference in the Assembly Department cost per unit calculated in requirements 1 and
2 arises because the costs incurred in January and February are the same but fewer equivalent
units of work are done in February relative to January. In January, all 10,000 units introduced are
fully completed resulting in 10,000 equivalent units of work done with respect to direct materials
and conversion costs. In February, of the 10,000 units introduced, 10,000 equivalent units of
work is done with respect to direct materials but only 9,600 equivalent units of work is done with
respect to conversion costs. The Assembly Department cost per unit is, therefore, higher.

SOLUTION EXHIBIT 18-21A

Summarize the Flow of Physical Units and Compute Output in Equivalent Units;
Assembly Department of Panagra, Inc. for February 2020.

(Step 2)
(Step 1) Equivalent Units
Physical Direct Conversion
Flow of Production Units Materials Costs
Work in process, beginning (given) 0
Started during current period (given) 10,000
To account for 10,000
Completed and transferred out
during current period 9,000 9,000 9,000
Work in process, ending* (given) 1,000
1,000  100%; 1,000  60% 1,000 600
Accounted for 10,000
Equivalent units of work done in current period 10,000 9,600

*Degree of completion in this department: direct materials, 100%; conversion costs, 60%.

18-5
SOLUTION EXHIBIT 18-21B
Compute the Cost per Equivalent Unit,
Assembly Department of Panagra, Inc. for February 2020.

Total
Production Direct Conversion
Costs Materials Costs
(Step 3) Costs added during February $1,605,000 $775,000 $816,000
Divide by equivalent units of work done
in current period (Solution Exhibit 18-21A)  10,000  9,600
Cost per equivalent unit $ 77.50 $ 85

18-22 (20 min.) Journal entries (continuation of 18-21).

1. Work in Process––Assembly 775,000

Accounts Payable 775,000
To record $775,000 of direct materials
purchased and used in production during
February 2020
2. Work in Process––Assembly 816,000
Various accounts 816,000
To record $816,000 of conversion costs
for February 2020; examples include energy,
manufacturing supplies, all manufacturing
labor, and plant depreciation
3. Work in Process––Testing 1,462,500
Work in Process––Assembly 1,462,500
To record 9,000 units completed and
transferred from Assembly to Testing
during February 2020 at
$162.50  9,000 units = $1,462,500

Postings to the Work in Process––Assembly account follow.

Work in Process –– Assembly Department

Beginning inventory, Feb. 1 0 3. Transferred out to
1. Direct materials 775,000 Work in Process––Testing 1,462,500
2. Conversion costs 816,000
Ending inventory, Feb. 28 128,500

18-6
18-23 (25 min.) Zero beginning inventory, materials introduced in middle of process.

1. Solution Exhibit 18-23A shows equivalent units of work done in the current period of
Chemical P, 100,000; Chemical Q, 70,000; Conversion costs, 90,000.

2. Solution Exhibit 18-23B summarizes the total Mixing Department costs for July 2020,
calculates cost per equivalent unit of work done in the current period for Chemical P, Chemical
Q, and conversion costs, and assigns these costs to units completed (and transferred out) and to
units in ending work in process.

SOLUTION EXHIBIT 18-23A

Summarize the Flow of Physical Units and Compute Output in Equivalent Units;
Mixing Department of Pilar Chemicals for July 2020.

(Step 1) (Step 2)
Equivalent Units
Physical Conversion
Flow of Production Units Chemical P Chemical Q Costs
Work in process, beginning (given) 0
Started during current period (given) 100,000
To account for 100,000
Completed and transferred out
during current period 70,000 70,000 70,000 70,000
Work in process, ending* (given) 30,000
30,000  100%; 30,000  0%;
30,000  66 2/3% 30,000 0 20,000
Accounted for 100,000
Equivalent units of work done
in current period 100,000 70,000 90,000

*Degree of completion in this department: Chemical P, 100%; Chemical Q, 0%; conversion costs, 66 2/3%.

18-7
SOLUTION EXHIBIT 18-23B
Summarize the Total Costs to Account for, Compute the Cost per Equivalent Unit, and Assign
Costs to the Units Completed and Units in Ending Work-in-Process Inventory; Mixing
Department of Pilar Chemicals for July 2020.

Total
Production Conversion
Costs Chemical P Chemical Q Costs
(Step 3) Costs added during July $1,100,000 $600,000 $140,000 $360,000
Total cos`ts to account for $1,100,000 $600,000 $140,000 $360,000

(Step 4) Costs added in current period $600,000 $140,000 $360,000

Divide by equivalent units of work
done in current period
(Solution Exhibit 18-23A)
 100,000 70,000  90,000
Cost per equivalent unit $ 6 $ 2 $ 4

(Step 5) Assignment of costs:

Completed and transferred out (70,000
units) $840,000 (70,000*  $6) + (70,000*  $2) + (70,000*  $4)
Work in process, ending
(30,000 units) 260,000 (30,000†  $6) + (0†  $2) + (20,000†  $4)
Total costs accounted for $1,100,000 $600,000 + $140,000 + $360,000

*Equivalent units completed and transferred out from Solution Exhibit 18-23A, Step 2.
†
Equivalent units in ending work in process from Solution Exhibit 18-23A, Step 2.

18-24 (15 min.) Weighted-average method, equivalent units.

Under the weighted-average method, equivalent units are calculated as the equivalent units of
work done to date. Solution Exhibit 18-24 shows equivalent units of work done to date for the
Assembly Division of Fenton Watches, Inc., for direct materials and conversion costs.

SOLUTION EXHIBIT 18-24

Summarize the Flow of Physical Units and Compute Output in Equivalent Units;
Weighted-Average Method of Process Costing, Assembly Division of Fenton Watches, Inc., for
May 2020.
(Step 2)
(Step 1) Equivalent Units
Physical Direct Conversion
Flow of Production Units Materials Costs
Work in process beginning (given) 80
Started during current period (given) 500
To account for 580
Completed and transferred out during current period 460 460 460
Work in process, ending* (120  60%; 120  30%) 120 72 36
Accounted for 580 ___ ___
Equivalent units of work done to date 532 496

18-8
 *Degree of completion in this department: direct materials, 60%; conversion costs, 30%.

18-25 (20 min.) Weighted-average method, assigning costs (continuation of 18-24).

Solution Exhibit 18-25 summarizes total costs to account for, calculates cost per equivalent unit
of work done to date in the Assembly Division of Fenton Watches, Inc., and assigns costs to
units completed and to units in ending work-in-process inventory.

SOLUTION EXHIBIT 18-25

Summarize the Total Costs to Account for, Compute the Cost per Equivalent Unit, and Assign
Costs to the Units Completed and Units in Ending Work-in-Process Inventory;
Weighted-Average Method of Process Costing, Assembly Division of Fenton Watches, Inc., for
May 2020.

Total
Production Direct Conversion
Costs Materials Costs
(Step 3) Work in process, beginning (given) $ 584,400 $ 493,360 $ 91,040
Costs added in current period (given) 4,612,000 3,220,000 1,392,000
Total costs to account for $5,196,400 $3,713,360 $1,483,040

(Step 4) Costs incurred to date $3,713,360 $1,483,040

Divide by equivalent units of work done to date
(Solution Exhibit 18-24)  532  496
Cost per equivalent unit of work done to date $ 6,980 $ 2,990

(Step 5) Assignment of costs:

Completed and transferred out (460 units) $4,586,200 460*$6,980)+(460*$2,990)
Work in process, ending (120 units) 610,200 (72†  $6,980) +(36†  $2,990)
Total costs accounted for $5,196,400 $3,713,360 + $1,483,040

*
Equivalent units completed and transferred out from Solution Exhibit 18-24, Step 2.
†
Equivalent units in work in process, ending from Solution Exhibit 18-24, Step 2.

18-9
18-26 (15 min.) FIFO method, equivalent units.

Under the FIFO method, equivalent units are calculated as the equivalent units of work done in
the current period only. Solution Exhibit 18-26 shows equivalent units of work done in May
2020 in the Assembly Division of Fenton Watches, Inc., for direct materials and conversion
costs.

SOLUTION EXHIBIT 18-26

Summarize the Flow of Physical Units and Compute Output in Equivalent Units;
FIFO Method of Process Costing, Assembly Division of Fenton Watches, Inc., for May 2020.

(Step 2)
(Step 1) Equivalent Units
Physical Direct Conversion
Flow of Production Units Materials Costs
Work in process, beginning (given) 80 (work done before current period)
Started during current period (given) 500
To account for 580
Completed and transferred out during current
period:
From beginning work in process§
80  (100%  90%); 80  (100%  40%) 80 8 48
Started and completed
380  100%, 380  100% 380† 380 380
Work in process, ending* (given) 120
120  60%; 120  30% ___ 72 36
Accounted for 580
Equivalent units of work done in current 460 464
period
§
Degree of completion in this department: direct materials, 90%; conversion costs, 40%.
†
460 physical units completed and transferred out minus 80 physical units completed and transferred out from
beginning work-in-process inventory.
*Degree of completion in this department: direct materials, 60%; conversion costs, 30%.

18-10
18-27 (20 min.) FIFO method, assigning costs (continuation of 18-26).

Solution Exhibit 18-27 summarizes total costs to account for, calculates cost per equivalent unit
of work done in May 2020 in the Assembly Division of Fenton Watches, Inc., and assigns total
costs to units completed and to units in ending work-in-process inventory.

SOLUTION EXHIBIT 18-27

Summarize the Total Costs to Account for, Compute the Cost per Equivalent Unit, and Assign
Costs to the Units Completed and Units in Ending Work-in-Process Inventory;
FIFO Method of Process Costing, Assembly Division of Fenton Watches, Inc., for May 2020.
Total
Production Direct Conversion
Costs Materials Costs
(Step 3) Work in process, beginning (given) $ 584,400 $ 493,360 $ 91,040
Costs added in current period (given) 4,612,000 3,220,000 1,392,000
Total costs to account for $5,196,400 $3,713,360 $1,483,040

(Step 4) Costs added in current period $3,220,000 $1,392,000

Divide by equivalent units of work done in  460  464
current period (Solution Exhibit 18-26)
Cost per equiv. unit of work done in current period $ 7,000 $ 3,000

(Step 5) Assignment of costs:

Completed and transferred out (460 units):
Work in process, beginning (80 units) $ 584,400 $493,360 + $91,040
Costs added to beginning work in process
in current period 200,000 (8*  $7,000) + (48*  $3,000)
Total from beginning inventory 784,400
Started and completed (380 units) 3,800,000 (380†  $7,000) + (380†  $3,000)
Total costs of units completed and
transferred out 4,584,400
Work in process, ending (120 units) 612,000 (72#  $7,000) + (36#  $3,000)
Total costs accounted for $5,196,400 $3,713,360 + $1,483,040

*Equivalent units used to complete beginning work in process from Solution Exhibit 18-26, Step 2
†
Equivalent units started and completed from Solution Exhibit 18-26, Step 2.
#
Equivalent units in work in process, ending from Solution Exhibit 18-26, Step 2.

18-11
18-28 (20–25 min.) Operation costing.

1. To obtain the conversion-cost rates, divide the budgeted cost of each operation by the number
of packages that are expected to go through that operation.

Budgeted Budgeted Conversion

Conversion Number of Cost per
Cost Packages Package
Mixing $18,080 22,600 $0.80
Shaping 3,250 13,000 0.25
Cutting 1,440 9,600 0.15
Baking 14,690 22,600 0.65
Slicing 1,300 13,000 0.10
Packaging 16,950 22,600 0.75

2.
Work Order Work Order
#215 #216
Bread type: Dinner Roll Multigrain Loaves
Quantity: 2,400 2,800
Direct Materials $ 1,320 $2,520
Mixing 1,920 2,240
Shaping 0 700
Cutting 360 0
Baking 1,560 1,820
Slicing 0 280
Packaging 1,800 2,100
Total $ 6,960 $9,660

The direct materials costs per unit vary based on the type of bread ($5,280 ÷ 9,600 = $0.55 for
the dinner rolls, and $11,700 ÷ 13,000 = $0.90 for the multigrain loaves). Conversion costs are
charged using the rates computed in part (1), taking into account the specific operations that each
type of bread actually goes through.

3. Work order #215 (Dinner rolls): Work order #216 (Multigrain loaves):
Total cost $ 6,960 Total cost: $9,660
Divided by number of Divided by number of
packages: ÷ 2,400 packages: ÷2,800
Cost per package Cost per package
of dinner rolls: $ 2.90 of multigrain loaves: $ 3.45

18-12
18-29 (25 min.) Weighted-average method, assigning costs.

1. & 2.

Solution Exhibit 18-29A shows equivalent units of work done to date for Tomlinson Corporation
for direct materials and conversion costs.

Solution Exhibit 18-29B summarizes total costs to account for, calculates the cost per equivalent
unit of work done to date for direct materials and conversion costs, and assigns these costs to
units completed and transferred out and to units in ending work-in-process inventory.

SOLUTION EXHIBIT 18-29A

Summarize the Flow of Physical Units and Compute Output in Equivalent Units; Weighted-
Average Method of Process Costing, Tomlinson Corporation for July 2020.

(Step 2)
(Step 1) Equivalent Units
Physical Direct Conversion
Flow of Production Units Materials Costs
Work in process, beginning (given) 8,700
Started during current period (given) 34,500
To account for 43,200
Completed and transferred out during current period 32,000 32,000 32,000
Work in process, ending* (given) 11,200
11,200  100%; 11,200  70% 11,200 7,840
Accounted for 43,200
Equivalent units of work done to date 43,200 39,840

*Degree of completion: direct materials, 100%; conversion costs, 70%.

18-13
SOLUTION EXHIBIT 18-29B
Summarize the Total Costs to Account for, Compute the Cost per Equivalent Unit, and Assign
Costs to the Units Completed and Units in Ending Work-in-Process Inventory; Weighted-
Average Method of Process Costing for Tomlinson Corporation for July 2020.
Total
Production Direct Conversion
Costs Materials Costs
(Step 3) Work in process, beginning (given) $104,700 $ 61,500 $ 43,200
Costs added in current period (given) 800,004 301,380 498,624
Total costs to account for $904,704 $362,880 $541,824

(Step 4) Costs incurred to date $362,880 $541,824

Divide by equivalent units of work done to
date (Solution Exhibit 18-29A)  43,200  39,840
Cost per equivalent unit of work done to date $ 8.40 $ 13.60

(Step 5) Assignment of costs:

Completed and transferred out (32,000 units) $704,000 (32,000*  $8.40) + (32,000*  $13.60)
Work in process, ending (11,200 units) 200,704 (11,200†  $8.40) + (7,840†  $13.60)
Total costs accounted for $904,704 $362,880 + $541,824

*Equivalent units completed and transferred out (given).

†
Equivalent units in ending work in process (given).

18-14
18-30 (30 min.) FIFO method, assigning costs.

1. Solution Exhibit 18-30A calculates the equivalent units of work done in the current
period. Solution Exhibit 18-30B summarizes total costs to account for, calculates the cost per
equivalent unit of work done in the current period for direct materials and conversion costs, and
assigns these costs to units completed and transferred out and to units in ending work-in-process
inventory.

SOLUTION EXHIBIT 18-30A

Summarize the Flow of Physical Units and Compute Output in Equivalent Units;
FIFO Method of Process Costing, Tomlinson Corporation for July 2020.

(Step 2)
(Step 1) Equivalent Units
Physical Direct Conversion
Flow of Production Units Materials Costs
Work in process, beginning (given) 8,700 (work done before current period)
Started during current period (given) 34,500
To account for 43,200
Completed and transferred out during current period:
From beginning work in process§
8,700  (100%  100%); 8,700  (100% – 25%) 8,700 0 6,525
Started and completed
23,300  100%, 23,300  100% 23,300† 23,300 23,300
Work in process, ending* (given)
11,200  100%; 11,200  70% 11,200 11,200 7,840
Accounted for 43,200
Equivalent units of work done in current period 34,500 37,665
§
Degree of completion in this department: direct materials, 100%; conversion costs, 25%.
†
32,000 physical units completed and transferred out minus 8,700 physical units completed and transferred out from
beginning work-in-process inventory.
*Degree of completion in this department: direct materials, 100%; conversion costs, 70%.

18-15
SOLUTION EXHIBIT 18-30B
Summarize the Total Costs to Account for, Compute the Cost per Equivalent Unit, and Assign Costs to the Units Completed and
Units in Ending Work-in-Process Inventory; FIFO Method of Process Costing, Tomlinson Corporation for July 2020.
Total
Production Direct Conversion
Costs Materials Costs
(Step 3) Work in process, beginning (given) $104,700 $ 61,500 $ 43,200
Costs added in current period (given) 800,004 301,380 498,624
Total costs to account for $904,704 $362,880 $541,824
(Step 4) Costs added in current period $301,380 $498,624
Divide by equivalent units of work done in
current period (Solution Exhibit 18-30A)  34,500  37,665
Cost per equivalent unit of work done in current period $ 8.74 $ 13.24
(Step 5) Assignment of costs:
Completed and transferred out (32,000 units):
Work in process, beginning (8,700 units) $104,700 $61,500 + $43,200
Cost added to beginning work in process in current
period 86,391 (0*  $8.74) + (6,525*  $13.24)
Total from beginning inventory 191,091
Started and completed (23,300 units) 512,134 (23,300†  $8.74) + (23,300†  $13.24)
Total costs of units completed and transferred out 703,225
Work in process, ending (11,200 units) 201,690 (11,200#  $8.74) + (7,840#  $13.24)
Total costs accounted for $904,915 $363,030 + $541,885

*Equivalent units used to complete beginning work in process from Solution Exhibit 18-30A, Step 2.
†
Equivalent units started and completed from Solution Exhibit 18-30A, Step 2.
#
Equivalent units in ending work in process from Solution Exhibit 18-30A, Step 2.

2. Using the weighted average method will result in a greater degree of cost smoothing because the cost of beginning inventory is
mixed together with costs added each period. This will produce a more consistent cost per equivalent unit than the FIFO method.

18-16
 In the case of Tomlinson Corporation, note that the direct material cost per equivalent unit went from $7.07 in the prior period
($61,500 ÷ 8,700 units) to $8.74 in July, while the conversion cost per equivalent unit decreased from $19.86 ($43,200 ÷ 2,175 equivalent
units in opening work-in-process) to $13.24 in July. Under the weighted-average method, these costs and equivalent units are combined
into consistent, blended rates of $8.40 and $13.60 for direct materials and conversion costs, respectively.

18-17
18-31 (35–40 min.) Transferred-in costs, weighted-average method.

1, 2. & 3. Solution Exhibit 18-31A calculates the equivalent units of work done to date.
Solution Exhibit 18-31B summarizes total costs to account for, calculates cost per equivalent unit
of work done to date for transferred-in costs, direct materials, and conversion costs, and assigns
these costs to units completed and transferred out and to units in ending work-in-process
inventory.

SOLUTION EXHIBIT 18-31A

Summarize the Flow of Physical Units and Compute Output in Equivalent Units;
Weighted-Average Method of Process Costing,
Finishing Department of Trendy Clothing for June 2020.

(Step 1) (Step 2)
Equivalent Units
Physical Transferred- Direct Conversion
Flow of Production Units in Costs Materials Costs
Work in process, beginning (given) 60
Transferred in during current period (given) 100
To account for 160
Completed and transferred out
during current period 120 120 120 120
Work in process, ending* (given) 40
40  100%; 40  0%; 40  75% 40 0 30
Accounted for 160
Equivalent units of work done to date 160 120 150

*Degree of completion in this department: transferred-in costs, 100%; direct materials, 0%; conversion costs, 75%.

18-18
SOLUTION EXHIBIT 18-31B
Summarize Total Costs to Account For, Compute Cost per Equivalent Unit, and Assign Costs to Units Completed and to Units
in Ending Work-in-Process Inventory;
Weighted-Average Method of Process Costing,
Finishing Department of Trendy Clothing for June 2020.

Total
Production Transferred-in Direct Conversion
Costs Costs Materials Costs
(Step 3) Work in process, beginning (given) $84,000 $ 60,000 $ 0 $24,000
Costs added in current period (given) 206,400 117,000 27,000 62,400
Total costs to account for $290,400 $ 177,000 $27,000 $86,400

(Step 4) Costs incurred to date $ 177,000 $27,000 $86,400

Divide by equivalent units of work done to date
(Solution Exhibit 18-31A) ÷ 160 ÷ 120 ÷ 150
Cost per equivalent unit of work done to date $1,106.25 $ 225 $ 576

(Step 5) Assignment of costs:

Completed and transferred out (120 units) $228,870 (120 a  $1,106.25) + (120 a  $225) + (120a  $576)
Work in process, ending (40 units): 61,530 (40b  $1,106.25) + (0b  $225) + (30b  $576)
Total costs accounted for $290,400 $ 177,000 + $27,000 + $86,400
a
Equivalent units completed and transferred out from Sol. Exhibit 18-31A, step 2.
b
Equivalent units in ending work in process from Sol. Exhibit 18-31A, step 2.

18-19
18-32 (35–40 min.) Transferred-in costs, FIFO method.

Solution Exhibit 18-32A calculates the equivalent units of work done in the current period (for
transferred-in costs, direct-materials, and conversion costs) to complete beginning work-in-
process inventory, to start and complete new units, and to produce ending work in process.
Solution Exhibit 18-32B summarizes total costs to account for, calculates the cost per equivalent
unit of work done in the current period for transferred-in costs, direct materials, and conversion
costs, and assigns these costs to units completed and transferred out and to units in ending work-
in-process inventory.

SOLUTION EXHIBIT 18-32A

Summarize the Flow of Physical Units and Compute Output in Equivalent Units;
FIFO Method of Process Costing,
Finishing Department of Trendy Clothing for June 2020.

(Step 1) (Step 2)
Equivalent Units
Physical Transferred-in Direct Conversion
Flow of Production Units Costs Materials Costs
Work in process, beginning (given) 60 (work done before current period)
Transferred-in during current period (given) 100
To account for 160
Completed and transferred out during current period:
From beginning work in processa 60
[60  (100% – 100%); 60  (100% – 0%); 60  (100% – 50%)] 0 60 30
Started and completed 60b
(60  100%; 60  100%; 60  100%) 60 60 60
Work in process, endingc (given) 40
(40  100%; 40  0%; 40  75%) ___ 40 0 30
Accounted for 160 ___ ___ ___
Equivalent units of work done in current period 100 120 120

aDegree of completion in this department: Transferred-in costs, 100%; direct materials, 0%; conversion costs, 50%.
b120 physical units completed and transferred out minus 60 physical units completed and transferred out from beginning
work-in-process inventory.
cDegree of completion in this department: transferred-in costs, 100%; direct materials, 0%; conversion costs, 75%.

18-20
SOLUTION EXHIBIT 18-32B
Summarize Total Costs to Account For, Compute Cost per Equivalent Unit, and Assign Costs to Units Completed and to
Units in Ending Work-in-Process Inventory;
FIFO Method of Process Costing,
Finishing Department of Trendy Clothing for June 2020.

Total
Production Transferred-in
Costs Costs Direct Materials Conversion Costs
(Step 3) Work in process, beginning (given) $ 69,000 $ 45,000 $ 0 $ 24,000
Costs added in current period (given) 203,400 114,000 27,000 62,400
Total costs to account for $272,400 $159,000 $27,000 $86,400

(Step 4) Costs added in current period $114,000 $27,000 $ 62,400

Divide by equivalent units of work done in current period
(Solution Exhibit 18-32A) ÷ 100 ÷ 120 ÷ 120
Cost per equivalent unit of work done in current period $ 1,140 $ 225 $ 520

(Step 5) Assignment of costs:

Completed and transferred out (160 units)
Work in process, beginning (60 units) $ 69,000 $45,000 + $0 + $24,000
Costs added to beginning work in process in current period 29,100 (0a  $1,140) + (60a  $225) + (30 a  $520)
Total from beginning inventory 98,100
Started and completed (60 units) 113,100 (60b  $1,140) + (60b  $225) + (60b  $520)
Total costs of units completed and transferred out 211,200
Work in process, ending (40 units): 61,200 (40c  $1,140) + (0c  $225) + (30c  $520)
Total costs accounted for $272,400 $159,000 + $27,000 + $86,400
a
Equivalent units used to complete beginning work in process from Solution Exhibit 18-32A, step 2.
b
Equivalent units started and completed from Solution Exhibit 18-32A, step 2.
c
Equivalent units in ending work in process from Solution Exhibit 18-32A, step 2.

18-21
 18-33 (20 min.) Operation costing.

1. Calculate the conversion cost rates for each department:

Breeze Fresh Joy Total

Budgeted 50-oz. containers 11,000 8,000 21,000 40,000
Budgeted labor hours 275a 200c 525e 1,000
Budgeted machine hours 55b 40d 105f 200

a
11,000  1.5 minutes ÷ 60 minutes/hour = 275 hours
b
11,000  0.3 minutes ÷ 60 minutes/hour = 55 hours
c
8,000  1.5 minutes ÷ 60 minutes/hour = 200 hours
d
8,000  0.3 minutes ÷ 60 minutes/hour = 40 hours
e
21,000  1.5 minutes ÷ 60 minutes/hour = 525 hours
f
21,000  0.3 minutes ÷ 60 minutes/hour = 105 hours

Budgeted Budgeted
Conversion Quantity of
Cost Cost Driver Cost Driver Conversion Cost Rate
Spray Drying $ 8,000 Labor hours 1,000 $8.00 per labor hour
Mixing 22,800 # of containers 19,000 $1.20 per container
Blending 30,450 # of containers 21,000 $1.45 per container
Packaging 1,000 Machine hours 200 $5.00 per machine hour

2. Budgeted cost of goods manufactured:

Breeze Fresh Joy

Direct Materials $21,450 $20,000 $52,500
Spray Dryingg 2,200 1,600 4,200
Mixingh 13,200 9,600 0
Blending 0 0 30,450
Packagingi 275 200 525
Total $37,125 $31,400 $87,675

g
$8.00 per labor hour  (275; 200; 525 labor hours)
h
$1.20 per container  (11,000; 8,000 containers)
i
$5.00 per machine hour  (55; 40; 105 machine hours)

3. Budgeted cost per container

Breeze Fresh Joy
Total budgeted costs $37,125 $31,400 $87,675
Number of containers 11,000 8,000 21,000
Budgeted cost per container $ 3.375 $ 3.925 $ 4.175

18-22
18-34 (30–35 min.) Standard-costing with beginning and ending work in process.

1. Solution Exhibit 18-34A computes the equivalent units of work done in November 2020
by Priscilla’s Pearls Company for direct materials and conversion costs.

2. and 3. Solution Exhibit 18-34B summarizes total costs of the Priscilla’s Pearls Company for
November 30, 2020, and using the standard cost per equivalent unit for direct materials and
conversion costs, assigns these costs to units completed and transferred out and to units in ending
work in process. The exhibit also summarizes the cost variances for direct materials and
conversion costs for November 2020.

SOLUTION EXHIBIT 18-34A

Summarize the Flow of Physical Units and Compute Output in Equivalent Units; Standard
Costing Method of Process Costing, Priscilla’s Pearls Company for the Month Ended November
30, 2020.

(Step 2)
(Step 1) Equivalent Units
Physical Direct Conversion
Flow of Production Units Materials Costs
Work in process, beginning (given) 29,000 (work done before current period)
Started during current period (given) 124,200
To account for 153,200
Completed and transferred out during current period:
From beginning work in process§ 29,000
29,000  (100%  100%); 29,000  (100% – 60%) 0 11,600
Started and completed 98,000†
98,000  100%, 98,000  100% 98,000 98,000
Work in process, ending* (given) 26,200
26,200  100%; 26,200  40% _______ 26,200 10,480
Accounted for 153,200 _______ _______
Equivalent units of work done in current period 124,200 120,080
§
Degree of completion in this department: direct materials, 100%; conversion costs, 60%.
†
127,000 physical units completed and transferred out minus 29,000 physical units completed and transferred out
from beginning work-in-process inventory.
*Degree of completion in this department: direct materials, 100%; conversion costs, 40%.

18-23
SOLUTION EXHIBIT 18-34B
Summarize the Total Costs to Account for, Compute the Cost per Equivalent Unit, and Assign
Costs to the Units Completed and Units in Ending Work-in-Process Inventory; Standard-Costing
Method of Process Costing, Priscilla’s Pearls Company for the Month Ended November 30,
2020.

Total
Production Direct Conversion
Costs Materials Costs
(Step 3) Work in process, beginning (given) $ 226,200 $ 69,600 + $ 156,600
Costs added in current period at standard costs 1,378,800 (124,200  2.40) + (120,080  $9.00)
Total costs to account for $1,605,000 $367,680 + 1,237,320

(Step 4) Standard cost per equivalent unit (given) $ 2.40 $ 9.00

(Step 5) Assignment of costs at standard costs:
Completed and transferred out (127,000 units):
Work in process, beginning (29,000 units) $ 226,200 $69,600 + $156,600
Costs added to beg. work in process in 104,400 (0*  $2.40) + (11,600*  $9.00)
current period 330,600
Total from beginning inventory
Started and completed (98,000 units) 1,117,200
Total costs of units transferred out 1,447,800 (98,000†  $2.40) + (98,000†  $9.00)
Work in process, ending (26,200 units)
157,200 (26,200#  $2.40) + (10,480#  $9.00)
Total costs accounted for $1,605,000 $367,680 + $1,237,320
Summary of variances for current performance:
Costs added in current period at standard costs (see Step 3
above) $298,080 $1,080,720
Actual costs incurred (given) 327,500 1,222,000
Variance $ 29,420 U $ 141,280 U

*Equivalent units to complete beginning work in process from Solution Exhibit 18-34A, Step 2.
†
Equivalent units started and completed from Solution Exhibit 18-34A, Step 2.
#
Equivalent units in ending work in process from Solution Exhibit 18-34A, Step 2.

18-35 (30 min.) Equivalent units, comprehensive.

1.
Summarize the Flow of Physical Units and Compute Output in Equivalent Units;
Weighted-Average Method of Process Costing,
Third Wave Bakery for May 2020.
(Step 1) (Step 2)
Equivalent Units
Physical Baking Filling Frosting Conversion
Flow of Production Units (doz) Materials Materials Materials Costs
Work in process, beginning (given) 500
Started during current period (given) 1,500
To account for 2,000
Completed and transferred out

18-24
 during current period 1,800 1,800 1,800 1,800 1,800
Work in process, ending* (given) 200
200  100%; 100%; 0%; 80% 200 200 0 160
Accounted for 2,000
Equivalent units of work done to date 2,000 2,000 1,800 1,960

*Degree of completion in this department: cupcake, 100%; filling 100%; frosting, 0%; Conversion costs, 80%.

2.
Summarize the Flow of Physical Units and Compute Output in Equivalent Units;
FIFO Method of Process Costing,
Third Wave Bakery for May 2020.
(Step 1) (Step 2)
Equivalent Units
Physical Baking Filling Frosting Conversion
Flow of Production Units (doz) Materials Materials Materials Costs
Work in process, beginning (given) 500
Started during current period (given) 1,500
To account for 2,000
Completed and transferred out
during current period:
From beginning work in process 500
500  0%; 100%; 100%; 30% 0 500 500 150
Started and completed† 1,300
1,300  100%; 100%; 100%; 100% 1,300 1,300 1,300 1,300
Work in process, ending (given) 200
200  100%; 100%; 0%; 80% 200 200 0 160
Accounted for 2,000
Equivalent units of work done in May 1,500 2,000 1,800 1,610
†
1800 dozen completed and transferred out minus 500 dozen completed and transferred out from beginning work-in-
process inventory.

18-25
18-36 (25 min.) Weighted-average method.

1. Because direct materials are added at the beginning of the assembly process, the units in
this department must be 100% complete with respect to direct materials. Solution Exhibit 18-
36A shows equivalent units of work done to date:
Direct materials 25,000 equivalent units
Conversion costs 24,250 equivalent units

SOLUTION EXHIBIT 18-36A

Summarize the Flow of Physical Units and Compute Output in Equivalent Units; Weighted-
Average Method of Process Costing, Assembly Department of Larsen Company for October
2020.

(Step 1) (Step 2)
Equivalent Units
Physical Direct Conversion
Flow of Production Units Materials Costs
Work in process, beginning (given) 5,000
Started during current period (given) 20,000
To account for 25,000
Completed and transferred out
during current period 22,500 22,500 22,500
Work in process, ending* (given) 2,500
2,500  100%; 2,500  70% 2,500 1,750
Accounted for 25,000
Equivalent units of work done to date 25,000 24,250

*Degree of completion in this department: direct materials, 100% (because they are added at the start of the
process); conversion costs, 70%.

2. To show better performance, a department supervisor might report a higher degree of

completion resulting in understated cost per equivalent unit and overstated operating income. If
performance for the period is very good, the department supervisor may be tempted to report a
lower degree of completion, reducing income in the current period. This has the effect of
reducing the costs carried in ending inventory and the costs carried to the following year in
beginning inventory. In other words, estimates of degree of completion can help to smooth
earnings from one period to the next.
To guard against the possibility of bias, managers should ask supervisors specific
questions about the process they followed to prepare estimates. Top management should always
emphasize obtaining the correct answer, regardless of how it affects reported performance. This
emphasis drives ethical actions throughout the organization.

3. & 4. Solution Exhibit 18-36B summarizes the total assembly department costs for October
2020, calculates cost per equivalent unit of work done to date, and assigns these costs to units
completed (and transferred out) and to units in ending work in process using the weighted-
average method.

18-26
SOLUTION EXHIBIT 18-36B
Summarize the Total Costs to Account for, Compute the Cost per Equivalent Unit, and Assign
Costs to the Units Completed and Units in Ending Work in Process Inventory; Weighted-
Average Method of Process Costing, Assembly Department of Larsen Company for October
2020.
Total
Production Direct Conversion
Costs Materials Costs
(Step 3) Work in process, beginning (given) $1,652,750 $1,250,000 $ 402,750
Costs added in current period (given) 6,837,500 4,500,000 2,337,500
Total costs to account for $8,490,250 $5,750,000 $2,740,250

(Step 4) Costs incurred to date $5,750,000 $2,740,250

Divide by equivalent units of work done to date
(Solution Exhibit 18-36A)  25,000  24,250
Cost per equivalent unit of work done to date $ 230 $ 113

(Step 5) Assignment of costs:

Completed and transferred out (22,500 units) $7,717,500 (22,500*  $230) + (22,500*  $113)
Work in process,
Total costs ending
accounted for(2,500 units) 772,750
$8,490,250 (2,500 †
 $230) + (1,750
$5,750,000 †
 $113)
$2,740,250

*
Equivalent units completed and transferred out from Solution Exhibit 18-36A, Step 2.
†
Equivalent units in work in process, ending from Solution Exhibit 18-36A, Step 2.

18-27
18-37 (10 min.) Journal entries (continuation of 18-36).

1. Work in Process––Assembly Department 4,500,000

Accounts Payable 4,500,000
Direct materials purchased and used in
production in October.

2. Work in Process––Assembly Department 2,337,500

Various accounts 2,337,500
Conversion costs incurred in October.

3. Work in Process––Testing Department 7,717,500

Work in Process––Assembly Department 7,717,500
Cost of goods completed and transferred out
in October from the Assembly Department to the Testing Department.

Work in Process––Assembly Department

Beginning inventory, October 1 1,652,750 3. Transferred out to
1. Direct materials 4,500,000 Work in Process–Testing 7,717,500
2. Conversion costs 2,337,500
Ending Inventory, October 31 772,750

18-28
18-38 (20 min.) FIFO method (continuation of 18-36).

1. The equivalent units of work done in the Assembly Department in October 2020 for
direct materials and conversion costs are shown in Solution Exhibit 18-38A.

SOLUTION EXHIBIT 18-38A

Summarize the Flow of Physical Units and Compute Output in Equivalent Units; FIFO Method
of Process Costing, Assembly Department of Larsen Company for October 2020.
(Step 1) (Step 2)
Equivalent Units
Physical Direct Conversion
Flow of Production Units Materials Costs
Work in process, beginning (given) 5,000 (work done before current period)
Started during current period (given) 20,000
To account for 25,000
Completed and transferred out during current period:
From beginning work in process§
5,000  (100%  100%); 5,000  (100%  60%) 5,000 0 2,000
Started and completed
17,500 100%, 17,500  100% 17,500† 17,500 17,500
Work in process, ending* (given) 2,500
2,500  100%; 2,500  70% _____ 2,500 1,750
Accounted for 25,000
______
Equivalent units of work done in current period 20,000 21,250
§
Degree of completion in this department: direct materials, 100%; conversion costs, 60%.
†
22,500 physical units completed and transferred out minus 5,000 physical units completed and transferred out from
beginning work-in-process inventory.
*Degree of completion in this department: direct materials, 100%; conversion costs, 70%

The cost per equivalent unit of work done in the Assembly Department in October 2020 for
direct materials and conversion costs is calculated in Solution Exhibit 18-38B. This exhibit also
summarizes the total Assembly Department costs for October 2020 and assigns these costs to
units completed (and transferred out) and units in ending work in process under the FIFO
method.

18-29
SOLUTION EXHIBIT 18-38B

Summarize the Total Costs to Account for, Compute the Cost per Equivalent Unit, and
Assign Costs to the Units Completed and Units in Ending Work-in-Process Inventory;
FIFO Method of Process Costing, Assembly Department of Larsen Company for October
2020.

Total
Production Direct Conversion
Costs Materials Costs
(Step 3) Work in process, beginning (given) $1,652,750 $1,250,000 $ 402,750
Costs added in current period (given) 6,837,500 4,500,000 2,337,500
Total costs to account for $8,490,250 $5,750,000 $2,740,250

(Step 4) Costs added in current period $4,500,000 $2,337,500

Divide by equivalent units of work done in
current period (Solution Exhibit 18-38A)  20,000  21,250
Cost per equivalent unit of work done in $ 225 $ 110
current period

(Step 5) Assignment of costs:

Completed and transferred out (22,500
units):
Work in process, beginning (5,000 units) $1,652,750 $1,250,000 + $ 402,750
Costs added to beg. work in process
in current period 220,000 (0*  $225) + (2,000*  $110)
Total from beginning inventory 1,872,750
Started and completed (17,500 units) 5,862,500 (17,500†  $225) + (17,500†  $110)
Total costs of units completed &
transferred out 7,735,250
Work in process, ending (2,500 units) 755,000 (2,500#  $225) + (1,750#  $110)
Total costs accounted for $8,490,250 $5,750,000 + $2,740,250

*Equivalent units used to complete beginning work in process from Solution Exhibit 18-38A, Step 2.
†
Equivalent units started and completed from Solution Exhibit 18-38A, Step 2.
#
Equivalent units in ending work in process from Solution Exhibit 18-38A, Step 2.

18-30
2. The cost per equivalent unit of beginning inventory and of work done in the current period differ:
Beginning Work Done in
Inventory Current Period
Direct materials $250.00 ($1,250,000  5,000 equiv. units) $225.00
Conversion costs 134.25 ($402,750  3,000 equiv. units) 110.00
Total cost per unit $384.25 $335.00

Direct Conversion
Materials Costs
Cost per equivalent unit (weighted-average) $230* $113*
Cost per equivalent unit (FIFO) $225** $110**
*
from Solution Exhibit 18-36B
**
from Solution Exhibit 18-38B

The cost per equivalent unit differs between the two methods because each method uses different costs as the numerator of the
calculation. FIFO uses only the costs added during the current period, whereas weighted-average uses the costs from the beginning
work-in-process as well as costs added during the current period. Both methods also use different equivalent units in the denominator.
The following table summarizes the costs assigned to units completed and those still in process under the weighted-average
and FIFO process-costing methods for our example.

Weighted
Average FIFO
(Solution (Solution
Exhibit 18-36B) Exhibit 18-38B) Difference
Cost of units completed and transferred out $7,717,500 $7,735,250 + $17,750
Work in process, ending 772,750 755,000  $17,750
Total costs accounted for $8,490,250 $8,490,250

The FIFO ending inventory is lower than the weighted-average ending inventory by $17,750. This is because FIFO assumes that all
the higher-cost prior-period units in work in process are the first to be completed and transferred out, while ending work in process
consists of only the lower-cost current-period units. The weighted-average method, in contrast, smoothens the cost per equivalent unit
by assuming that more of the lower-cost units are completed and transferred out, while some higher-cost units in beginning work in
process are placed in ending work in process. So, in this case, the weighted-average method results in a lower cost of units completed
and transferred out and a higher ending work-in-process inventory relative to the FIFO method.

18-31
 Larsen’s managers should consider the FIFO method because even though it shows lower operating income and higher cost of
goods sold, it lowers taxes. Managers may have an incentive, however, to use the weighted-average method and show higher income
if the managers’ compensation increases with higher operating income or if there are debt covenants that would be violated by
showing lower income. Another advantage of the FIFO method is that it provides better information for managing the business
because it keeps separate the costs of the current period from costs incurred in previous periods.

18-32
18-39 (30 min.) Transferred-in costs, weighted-average method (related to 18-36 to 18-38).

1. Transferred-in costs are 100% complete, and direct materials are 0% complete in both
beginning and ending work-in-process inventory. The reason is that transferred-in costs are
always 100% complete as soon as they are transferred in from the Assembly Department to the
Testing Department. Direct materials in beginning or ending work in process for the Testing
Department are 0% complete because direct materials are added only when the testing process is
90% complete and the units in beginning and ending work in process are only 70% and 60%
complete, respectively.

2. Solution Exhibit 18-39A computes the equivalent units of work done to date in the
Testing Department for transferred-in costs, direct materials, and conversion costs.

3. Solution Exhibit 18-39B summarizes total Testing Department costs for October 2020,
calculates the cost per equivalent unit of work done to date in the Testing Department for
transferred-in costs, direct materials, and conversion costs, and assigns these costs to units
completed and transferred out and to units in ending work in process using the weighted-average
method.

4. Journal entries:
a. Work in Process––Testing Department 7,717,500
Work in Process––Assembly Department 7,717,500
Cost of goods completed and transferred out
during October from the Assembly
Department to the Testing Department
b. Finished Goods 23,459,600
Work in Process––Testing Department 23,459,600
Cost of goods completed and transferred out
during October from the Testing Department
to Finished Goods inventory

18-33
 SOLUTION EXHIBIT 18-39A
Summarize the Flow of Physical Units and Compute Output in Equivalent Units; Weighted-
Average Method of Process Costing, Testing Department of Larsen Company for October 2020.
(Step 1) (Step 2)
Equivalent Units
Physical Transferred-in Direct Conversion
Flow of Production Units Costs Materials Costs
Work in process, beginning (given) 7,500
Transferred in during current period (given) 2,500
To account for 30,000
Completed and transferred out
during current period 26,300 26,300 26,300 26,300
Work in process, ending* (given) 3,700
3,700  100%; 3,700  0%; 3,700  60% 3,700 0 2,220
Accounted for 30,000
Equivalent units of work done to date 30,000 26,300 28,520

*Degree of completion in this department: transferred-in costs, 100%; direct materials, 0%; conversion costs, 60%.

18-34
SOLUTION EXHIBIT 18-39B
Summarize the Total Costs to Account for, Compute the Cost per Equivalent Unit, and Assign Costs to the Units Completed and Units in
Ending Work-in-Process Inventory; Weighted-Average Method of Process Costing, Testing Department of Larsen Company for October
2020.

Total
Production Transferred Direct Conversion
Costs -in Costs Materials Costs
(Step 3) Work in process, beginning (given) $ 3,767,960 $ 2,932,500 $ 0 $ 835,460
Costs added in current period (given) 21,378,100 7,717,500 9,704,700 3,955,900
Total costs to account for $25,146,060 $10,650,000 $9,704,700 $4,791,360

(Step 4) Costs incurred to date $10,650,000 $9,704,700 $4,791,360

Divide by equivalent units of work done to
date (Solution Exhibit 18-39A)  30,000  26,300  28,520
Equivalent unit costs of work done to date $ 355 $ 369 $ 168

(Step 5) Assignment of costs:

Completed and transferred out (26,300 units) $23,459,600 (26,300*  $355) + (26,300*  $369) + (26,300*  $168)
Work in process, ending (3,700 units) 1,686,460 (3,700†  $355) + (0†  $369) + (2,220†  $168)
Total costs accounted for $25,146,060 $10,650,000 + $9,704,700 + $4,791,360

*Equivalent units completed and transferred out from Solution Exhibit 18-39A, Step 2.
†
Equivalent units in ending work in process from Solution Exhibit 18-39A, Step 2.

18-35
18-40 (30 min.) Transferred-in costs, FIFO method (continuation of 18-39).

1. As explained in Problem 18-39, requirement 1, transferred-in costs are 100% complete

and direct materials are 0% complete in both beginning and ending work-in-process inventory.

2. The equivalent units of work done in October 2020 in the Testing Department
for transferred-in costs, direct materials, and conversion costs are calculated in Solution Exhibit
18-40A.

3. Solution Exhibit 18-40B summarizes total Testing Department costs for October 2020,
calculates the cost per equivalent unit of work done in October 2020 in the Testing Department
for transferred-in costs, direct materials, and conversion costs, and assigns these costs to units
completed and transferred out and to units in ending work in process using the FIFO method.

4. Journal entries:
a. Work in Process––Testing Department 7,735,250
Work in Process––Assembly Department 7,735,250
Cost of goods completed and transferred out
during October from the Assembly Dept. to
the Testing Dept.

b. Finished Goods 23,381,891

Work in Process––Testing Department 23,381,891
Cost of goods completed and transferred out
during October from the Testing Department
to Finished Goods inventory.

18-36
SOLUTION EXHIBIT 18-40A
Summarize the Flow of Physical Units and Compute Output in Equivalent Units; FIFO Method
of Process Costing, Testing Department of Larsen Company for October 2020.
(Step 2)
(Step 1) Equivalent Units
Physical Transferred- Direct Conversion
Flow of Production Units in Costs Materials Costs
Work in process, beginning (given) 7,500 (work done before current period)
Transferred-in during current period (given) 22,500
To account for 30,000
Completed and transferred out during current
period:
From beginning work in process§ 7,500
7,500  (100%  100%); 7,500  (100%  0%);
7,500  (100%  70%) 0 7,500 2,250
Started and completed 18,800†
18,800  100%; 18,800  100%; 18,800  100% 18,800 18,800 18,800
Work in process, ending* (given) 3,700
3,700  100%; 3,700  0%; 3,700  60% ______ 3,700 0 2,220
Accounted for 30,000
_____ ______
Equivalent units of work done in current period 22,500 26,300 23,270
§
Degree of completion in this department: Transferred-in costs, 100%; direct materials, 0%; conversion costs, 70%.
†
26,300 physical units completed and transferred out minus 7,500 physical units completed and transferred out from
beginning work-in-process inventory.
*Degree of completion in this department: transferred-in costs, 100%; direct materials, 0%; conversion costs, 60%.

18-37
SOLUTION EXHIBIT 18-40B
Summarize the Total Costs to Account for, Compute the Cost per Equivalent Unit, and Assign Costs to the Units Completed and Units
in Ending Work-in-Process Inventory; FIFO Method of Process Costing, Testing Department of Larsen Company for October 2020.

Total
Production Transferred-in Direct Conversion
Costs Costs Materials Costs
(Step 3) Work in process, beginning (given) $ 3,635,460 $ 2,800,000 $ 0 $ 835,460
Costs added in current period (given) 21,395,850 7,735,250 9,704,700 3,955,900
Total costs to account for $25,031,310 $10,535,250 $9,704,700 $4,791,360

(Step 4) Costs added in current period $ 7,735,250 $9,704,700 $3,955,900

Divide by equivalent units of work done in
current period (Solution Exhibit 18-40A)  22,500  26,300  23,270
Cost per equiv. unit of work done in current period $ 343.79 $ 369.00 $ 170.00

(Step 5) Assignment of costs:

Completed and transferred out (26,300 units):
Work in process, beginning (7,500 units) $ 3,635,460 $2,800,000 + $ 0 + $835,460
Costs added to beg. work in process in current 3,150,000 (0*  $343.79) + (7,500*  $369.00) + (2,250*  $170.00)
period
Total from beginning inventory 6,785,460
Started and completed (18,800 units) 16,596,452 (18,800†  $343.79) + (18,800†  $369.00) + (18,800† $170.00)
Total costs of units completed & transferred 23,381,912
out
Work in process, ending (3,700 units) 1,649,423 (3,700#  $343.79) + (0#  $369.00) + (2,220#  $170.00)
Total costs accounted for $25,031,335 $10,535,275 + $9,704,700 + $4,791,360

*Equivalent units used to complete beginning work in process from Solution Exhibit 18-40A, Step 2.
†
Equivalent units started and completed from Solution Exhibit 18-40A, Step 2.
#
Equivalent units in ending work in process from Solution Exhibit 18-40A, Step 2.

18-38
18-41 (25 min.) Weighted-average method.

1. Solution Exhibit 18-41A shows equivalent units of work done to date of:

Direct materials 570 equivalent units

Conversion costs 468 equivalent units

Note that direct materials are added when the Assembly Department process is 10%
complete. Both the beginning and ending work in process are more than 10% complete and
hence are 100% complete with respect to direct materials.
Solution Exhibit 18-41B summarizes the total Assembly Department costs for April
2020, calculates cost per equivalent unit of work done to date for direct materials and conversion
costs, and assigns these costs to units completed (and transferred out), and to units in ending
work in process using the weighted-average method.

SOLUTION EXHIBIT 18-41A

Summarize the Flow of Physical Units and Compute Output in Equivalent Units;
Weighted-Average Method of Process Costing,
Assembly Department of McKnight Handcraft for April 2020.

(Step 1) (Step 2)
Equivalent Units
Physical Direct Conversion
Flow of Production Units Materials Costs
Work in process, beginning (given) 60
Started during current period (given) 510
To account for 570
Completed and transferred out
during current period 450 450 450
Work in process, ending* (given) 120
120  100%; 120  15% 120 18
Accounted for 570
Equivalent units of work done to date 570 468
*
Degree of completion in this department: direct materials, 100%; conversion costs, 15%.

18-39
SOLUTION EXHIBIT 18-41B
Summarize Total Costs to Account For, Compute Cost per Equivalent Unit, and Assign Costs to
Units Completed and to Units in Ending Work-in-Process Inventory;
Weighted-Average Method of Process Costing,
Assembly Department of McKnight Handcraft for April 2020.

Total
Production Direct Conversion
Costs Materials Costs
(Step 3) Work in process, beginning (given) $ 1,686 $ 1,530 $ 156
Costs added in current period (given) 29,394 17,850 11,544
Total costs to account for $31,080 $19,380 $11,700

(Step 4) Costs incurred to date $19,380 $11,700

Divide by equivalent units of work done to
date (Solution Exhibit 18-41A)  570  468
Cost per equivalent unit of work done to date $ 34 $ 25

(Step 5) Assignment of costs:

Completed and transferred out (450 units) $26,550 (450*  $34) + (450*  $25)
Work in process, ending (120 units) 4,530 (120†  $34) + (18†  $25)
Total costs accounted for $31,080 $19,380 + $11,700

*
Equivalent units completed and transferred out from Solution Exhibit 18-41A, Step 2.
†
Equivalent units in ending work in process from Solution Exhibit 18-41A, Step 2.

2. To show better performance, a department supervisor might report a higher degree

of completion resulting in understated cost per equivalent unit and overstated operating
income. If performance for the period is very good, the department supervisor may be
tempted to report a lower degree of completion reducing income in the current period.
This has the effect of reducing the costs carried in ending inventory and the costs carried
to the following year in beginning inventory. In other words, estimates of degree of
completion can help to smooth earnings from one period to the next.
To guard against the possibility of bias, managers should ask supervisors specific
questions about the process they followed to prepare estimates. Top management should
always emphasize obtaining the correct answer, regardless of how it affects reported
performance. This emphasis drives ethical actions throughout the organization.

18-40
18-42 (20 min.) FIFO method (continuation of 18-41).

1. & 2. The equivalent units of work done in April 2020 in the Assembly Department for direct
materials and conversion costs are shown in Solution Exhibit 18-42A.

Solution Exhibit 18-42B summarizes the total Assembly Department costs for April 2020,
calculates the cost per equivalent unit of work done in April 2020 in the Assembly Department
for direct materials and conversion costs, and assigns these costs to units completed (and
transferred out) and to units in ending work in process under the FIFO method.
The equivalent units of work done in beginning inventory is: direct materials, 60  100% =
60; and conversion costs 60  40% = 24. The cost per equivalent unit of beginning inventory and
of work done in the current period are:
Work Done in
Current Period
Beginning (Calculated Under
Inventory FIFO Method)
Direct materials $25.50 ($1,530  60) $35
Conversion costs $6.50 ($156  24) $26

The following table summarizes the costs assigned to units completed and those still in
process under the weighted-average and FIFO process-costing methods for our example.

Weighted
Average FIFO
(Solution (Solution
Exhibit 18-41B) Exhibit 18-42B) Difference
Cost of units completed and transferred out $26,550 $26,412 + $138
Work in process, ending 4,530 4,668 – $138
Total costs accounted for $31,080 $31,080

The FIFO ending inventory is higher than the weighted-average ending inventory by $138.
This is because FIFO assumes that all the lower-cost prior-period units in work in process are the
first to be completed and transferred out while ending work in process consists of only the
higher-cost current-period units. The weighted-average method, however, smooths out cost per
equivalent unit by assuming that more of the higher-cost units are completed and transferred out,
while some lower-cost units in beginning work in process are placed in ending work in process.
Hence, in this case, the weighted-average method results in a higher cost of units completed and
transferred out and a lower ending work-in-process inventory relative to the FIFO method.
Given the relatively small difference in the income numbers generated by the two
methods, McKnight’s managers would likely be indifferent between the two methods. If the
differences are expected to be larger in future years, the managers should act in the firm’s
method and choose the method that will lower McKnight’s operating income and taxes. They
may have an incentive, however, to use the alternate method in order to obtain higher levels of
income-based compensation or if there are debt covenants that would be violated by showing
lower income. One advantage of the FIFO method worth considering is that it provides better
information for managing the business because it keeps separate the costs of the current period
from costs incurred in previous periods.
18-41
SOLUTION EXHIBIT 18-42A
Summarize the Flow of Physical Units and Compute Output in Equivalent Units;
FIFO Method of Process Costing, Assembly Department of McKnight Handcraft for April 2020.
(Step 2)
(Step 1) Equivalent Units
Physical Direct Conversion
Flow of Production Units Materials Costs
Work in process, beginning (given) 60 (work done before current period)
Started during current period (given) 510
To account for 570
Completed and transferred out during current period:
From beginning work in process§ 60
60  (100%  100%); 60  (100%  40%) 0 36
Started and completed 390†
390  100%; 390  100% 390 390
Work in process, ending* (given) 120
120  100%; 120  15% 120 18
Accounted for 570
Equivalent units of work done in current period 510 444
§
Degree of completion in this department: direct materials, 100%; conversion costs, 40%.
†
450 physical units completed and transferred out minus 60 physical units completed and transferred out from
beginning work-in-process inventory.
*Degree of completion in this department: direct materials, 100%; conversion costs, 15%.

SOLUTION EXHIBIT 18-42B

Summarize Total Costs to Account For, Compute Cost per Equivalent Unit, and Assign Costs to
Units Completed and to Units in Ending Work-in-Process Inventory;
FIFO Method of Process Costing, Assembly Department of McKnight Handcraft for April 2020.

Total
Production Direct Conversion
Costs Materials Costs
(Step 3) Work in process, beginning (given) $ 1,686 $ 1,530 $ 156
Costs added in current period (given) 29,394 17,850 11,544
Total costs to account for $31,080 $19,380 $11,700
(Step 4) Costs added in current period $17,850 $11,544
Divide by equivalent units of work done in
current period (Exhibit 18-42A)  510  444
Cost per equivalent unit of work done in current
period $ 35 $ 26
(Step 5) Assignment of costs:
Completed and transferred out (450 units):
Work in process, beginning (60 units) $ 1,686 $1,530 + $ 156
Costs added to begin. work in process in
current period 936 (0*  $35) + (36*  $26)
Total from beginning inventory 2,622
Started and completed (360 units) 23,790 (390†  $35) + (390†  $26)
Total costs of units completed & tsfd. out 26,412
Work in process, ending (130 units) 4,668 (120#  $35) + (18#  $26)
Total costs accounted for $31,080 $19,380 + $11,700

*Equivalent units used to complete beginning work in process from Solution Exhibit 18-42A, Step 2.
†Equivalent units started and completed from Solution Exhibit 18-42A, Step 2.
#
Equivalent units in ending work in process from Solution Exhibit 18-42A, Step 2.

18-42
18-43 (20 min.) Transferred-in costs, weighted-average method.

11. Solution Exhibit 18-43A computes the equivalent units of work done to date in the
Binding Department for transferred-in costs, direct materials, and conversion costs.
Solution Exhibit 18-43B summarizes total Binding Department costs for April 2020,
calculates the cost per equivalent unit of work done to date in the Binding Department for
transferred-in costs, direct materials, and conversion costs, and assigns these costs to units
completed and transferred out and to units in ending work in process using the weighted-average
method.

2. Journal entries:
a. Work in Process–– Binding Department 155,520
Work in Process––Printing Department 155,520
Cost of goods completed and transferred out
during April from the Printing Department
to the Binding Department
b. Finished Goods 264,708
Work in Process–– Binding Department 264,708
Cost of goods completed and transferred out
during April from the Binding Department
to Finished Goods inventory
to Finished Goods inventory

SOLUTION EXHIBIT 18-43A

Summarize the Flow of Physical Units and Compute Output in Equivalent Units; Weighted-
Average Method of Process Costing, Binding Department of Publishers, Inc., for April 2020.
(Step 1) (Step 2)
Equivalent Units
Physical Transferred- Direct Conversion
Flow of Production Units in Costs Materials Costs
Work in process, beginning (given) 1,260
Transferred-in during current period (given) 2,880
To account for 4,140
Completed and transferred out during current
period: 3,240 3,240 3,240 3,240
Work in process, endinga (given) 900
(900  100%; 900  0%; 900  70%) 900 0 630
Accounted for 4,140
Equivalent units of work done to date 4,140 3,240 3,870
a
Degree of completion in this department: transferred-in costs, 100%; direct materials, 0%;
conversion costs, 70%.

18-43
SOLUTION EXHIBIT 18-43B
Summarize the Total Costs to Account for, Compute the Cost per Equivalent Unit,
and Assign Costs to the Units Completed and Units in Ending Work-in-Process
Inventory; Weighted-Average Method of Process Costing, Binding Department of
Publishers, Inc., for April 2020.

Total
Production Transferred- Direct Conversion
Costs in Costs Materials Costs
$
(Step 3) Work in process, beginning (given) $ 55,440 39,060 $ 0 $16,380

Costs added in current period (given) 267,948 155,520 28,188 84,240

Total costs to account for $323,388 $194,580 $28,188 $100,620

(Step 4) Costs incurred to date $194,580 $28,188 $100,620

Divide by equivalent units of work done
to date (Solution Exhibit 18-43A) ÷ 4,140 ÷ 3,240 ÷ 3,870
Cost per equivalent unit of work done to $
date 47.00 $ 8.70 $ 26.00

(Step 5) Assignment of costs:

Completed and transferred out (3,240 (3,240a × $47.00) + (3,240a × $8.70) +
units) $264,708 (3,240a × $26)
Work in process, ending (900 units): 58,680 (900b × $47.00) + (0b × $8.70) + (630b × $26)
+ +
Total costs accounted for $323,388 $194,580 $28,188 $100,620

a
Equivalent units completed and transferred out from Sol. Exhibit 18-43A, step 2.
b
Equivalent units in ending work in process from Sol. Exhibit 18-43A, step 2.

18-44
18-44 (30 min.) Transferred-in costs, FIFO method (continuation of 18-43).

1. Solution Exhibit 18-44A calculates the equivalent units of work done in April 2020 in the
Binding Department for transferred-in costs, direct materials, and conversion costs.
Solution Exhibit 18-44B summarizes total Binding Department costs for April 2020,
calculates the cost per equivalent unit of work done in April 2020 in the Binding Department for
transferred-in costs, direct materials, and conversion costs, and assigns these costs to units
completed and transferred out and to units in ending work in process using the FIFO method.
Journal entries:
a. Work in Process–– Binding Department 149,760
Work in Process––Printing Department 149,760
Cost of goods completed and transferred
out during April from the Printing
Department to the Binding Department.

b. Finished Goods 259,488

Work in Process–– Binding Department 259,488
Cost of goods completed and transferred out
during April from the Binding Department
to Finished Goods inventory.

2. The equivalent units of work done in beginning inventory is as follows: Transferred-in costs,
1,260  100% = 1,260; direct materials, 1,260  0% = 0; and conversion costs, 1,260  50% =
630. The cost per equivalent unit of beginning inventory and of work done in the current period
are:

Beginning Work Done in

Inventory Current Period

Transferred-in costs (weighted average) $31.00 ($39,060  1,260) $54.00 ($155,520  2,880)
Transferred-in costs (FIFO) $35.00 ($44,100  1,260) $52.00 ($149,760  2,880)
Direct materials  $ 8.70
$26.00 ($16,380  630) $26.00
Conversion costs

The following table summarizes the costs assigned to units completed and those still in process
under the weighted-average and FIFO process-costing methods for the Binding Department.

Weighted
Average FIFO
(Solution (Solution
Exhibit 18-43B) Exhibit 18-44B) Difference
Cost of units completed and transferred out $264,708 $259,488 – $5,220
Work in process, ending 58,680 63,180 + $4,500
Total costs accounted for $323,388 $322,668

18-45
 The FIFO ending inventory is higher than the weighted-average ending inventory by
$4,500. This is because FIFO assumes that all the lower-cost prior-period units in work in
process (resulting from the lower transferred-in costs in beginning inventory) are the first to be
completed and transferred out while ending work in process consists of only the higher-cost
current-period units. The weighted-average method, however, smoothens out cost per equivalent
unit by assuming that more of the higher-cost units are completed and transferred out, while
some of the lower-cost units in beginning work in process are placed in ending work in process.
Hence, in this case, the weighted-average method results in a higher cost of units completed and
transferred out and a lower ending work-in-process inventory relative to FIFO. Note that the
difference in cost of units completed and transferred out (–$5,220) does not exactly offset the
difference in ending work-in-process inventory (+$4,500). This is because the FIFO and
weighted-average methods result in different values for transferred-in costs with respect to both
beginning inventory and costs transferred in during the period.

SOLUTION EXHIBIT 18-44A

Summarize the Flow of Physical Units and Compute Output in Equivalent Units; FIFO Method
of Process Costing, Binding Department of Publishers, Inc., for April 2020.

(Step 1) (Step 2)
Equivalent Units
Physical Transferred-in Direct Conversion
Flow of Production Units Costs Materials Costs
Work in process, beginning (given) 1,260 (work done before current period)
Transferred-in during current period (given) 2,880
To account for 4,140
Completed and transferred out during current period:
From beginning work in processa 1,260
[1,260 × (100% – 100%); 1,260 × (100% – 0%); 1,260 ×
(100% – 50%)] 0 1,260 630
Started and completed 1,980b
(1,980 × 100%; 1,980 × 100%; 1,980 × 100%) 1,980 1,980 1,980
Work in process, endingc (given) 900
(900 × 100%; 900 × 0%; 900 × 70%) ____ 900 0 630
Accounted for 4,140 ____ ____ ____
Equivalent units of work done in current period 2,880 3,240 3,240

a
Degree of completion in this department: Transferred-in costs, 100%; direct materials, 0%; conversion costs, 50%.
b
3,240 physical units completed and transferred out minus 1,260 physical units completed and transferred out from beginning work-in-process
inventory.
c
Degree of completion in this department: transferred-in costs, 100%; direct materials, 0%; conversion costs, 70%.

18-46
SOLUTION EXHIBIT 18-44B
Summarize the Total Costs to Account for, Compute the Cost per Equivalent Unit, and Assign Costs to the Units Completed and Units
in Ending Work-in-Process Inventory; FIFO Method of Process Costing, Binding Department of Publishers, Inc., for April 2020.
Total
Production Transferred-in Direct Conversion
Costs Costs Materials Costs
(Step 3) Work in process, beginning (given) $ 60,480 $ 44,100 $ 0 $16,380
Costs added in current period (given) 262,188 149,760 28,188 84,240
Total costs to account for $322,668 $193,860 $28,188 $100,620

(Step 4) Costs added in current period $149,760 $28,188 $84,240

Divide by equivalent units of work done in current
period
(Sol. Exhibit 18-44A) ÷ 2,880 ÷ 3,240 ÷ 3,240
Cost per equivalent unit of work done in current
period $ 52.00 $ 8.70 $ 26.00

(Step 5) Assignment of costs:

Completed and transferred out (3,240 units)
Work in process, beginning (1,260 units) $ 60480 $44,100 + $ 0 + $16,380
Costs added to beginning work in process in
current period 27,342 (0a × $52) + (1,260a × $8.70) + (630a × $26)
Total from beginning inventory 87,822
Started and completed (1,980 units) 171,666 (1,980b × $52) + (1,980b × $8.70) + (1,980b × $26)
Total costs of units completed and
transferred out 259,488
Work in process, ending (900 units): 63,180 (900c × $52) + (0c × $0.54) + (630c × $26)
Total costs accounted for $322,668 $193,860 + $28,188 + $100,620

a
Equivalent units used to complete beginning work in process from Solution Exhibit 18-44A, step 2.
b
Equivalent units started and completed from Solution Exhibit 18-44A, step 2.
c
Equivalent units in ending work in process from Solution Exhibit 18-44A, step 2.

18-47
18-45 (30 -35 min.) Standard costing, journal entries.

1. Solution Exhibit 17-45A computes the equivalent units of work done in May 2020 by the
Tiffenex Company for direct materials and conversion costs.

2. and 3. Solution Exhibit 17-45B summarizes total costs of the Tiffenex Company for May 31,
2020, and using the standard cost per equivalent unit for direct materials and conversion costs,
assigns these costs to units completed and transferred out and to units in ending work in process.
The exhibit also summarizes the cost variances for direct materials and conversion costs for May
2020.

SOLUTION EXHIBIT 17-45A

Summarize the Flow of Physical Units and Compute Output in Equivalent Units;
Standard Costing Method of Process Costing,
Tiffenex Company for the Month Ended May 31, 2020
.
(Step 2)
(Step 1) Equivalent Units
Physical
Units Direct Conversion
Flow of Production (pairs) Materials Costs
Work in process, beginning (given) 8,000 (work done before current period)
Started during current period (given) 72,000
To account for 80,000
Completed and transferred out during current period:
From beginning work in process§ 8,000
8,000  (100%  100%); 8,000  (100% – 30%) 0 5,600
Started and completed 67,000†
67,000  100%, 67,000  100% 67,000 67,000
Work in process, ending* (given) 5,000
5,000  100%; 5,000  80% ______ 5,000 4,000
Accounted for 80,000 _____ _____
Equivalent units of work done in current period 72,000 76,600
§
Degree of completion in this department: direct materials, 100%; conversion costs, 30%.
†
75,000 physical units completed and transferred out minus 8,000 physical units completed and transferred out from
beginning work-in-process inventory.

*Degree of completion in this department: direct materials, 100%; conversion costs, 80%.

18-48
SOLUTION EXHIBIT 17-45B
Summarize Total Costs to Account for, Compute Cost per Equivalent Unit, and Assign Costs to
Units Completed and to Units in Ending Work-in-Process Inventory; Standard-Costing Method
of Process Costing, the Tiffenex Company for the Month Ended May 31, 2020.

Total
Production Direct Conversion
Costs Materials Costs
(Step 3) Work in process, beginning (given) $ 23,200 $ 16,000 + $ 7,200
Costs added in current period at standard costs 373,800 (72,000  $2) + (76,600  $3)
Total costs to account for $397,000 $160,000 + $237,000

(Step 4) Standard cost per equivalent unit (given) $ 2.00 $ 3.00

(Step 5) Assignment of costs at standard costs:
Completed and transferred out (75,000 units):
Work in process, beginning ( 8,000 units) $ 23,200 $ 16,000 + $ 7,200
Costs added to beginning work in process in
current period 16,800 (0*  $2.00) + (5,600*  $3)
Total from beginning inventory 40,000 $ 16,000 + $ 24,000

Started and completed (67,000 units) 335,000 (67,000†  $2) + (67,000†  $3)
Total costs of units transferred out 375,000
Work in process, ending (5,000 units) 22,000 (5,000#  $2) + (4,000#  $3)
Total costs accounted for $397,000 $160,000 + $237,000
Summary of variances for current performance:
Costs added in current period at standard costs (see Step 3 above) $144,000 $229,800
Actual costs incurred (given) 145,200 226,500
Variance $ 1,200 U $ 3,300 F

*Equivalent units to complete beginning work in process from Solution Exhibit 17-45A, Step 2.
†
Equivalent units started and completed from Solution Exhibit 17-45A, Step 2.
#
Equivalent units in ending work in process from Solution Exhibit 17-45A, Step 2.

4.
Direct Materials
Direct Materials Control ` 145,200
Accounts Payable Control 145,200

Work in Process 144,000

Direct Materials Variance 1,200
Direct Materials Control 145,200

Conversion Costs
Conversion Costs Control 226,500
Various Accounts (e.g., Acc Dep – Factory, Wages Pay) 226,500

Work in Process 229,800

Conversion Costs Allocated 229,800

Conversion Costs Allocated 229,800

Conversion Costs Variance 3,300
Conversion Costs Control 226,500

18-49
18-46 (25 min.) Multiple processes or operations, costing.

1. Conversion costs incurred in March = $68,850

Equivalent units of work:

Units completed and transferred: 12,000 × 100% = 12,000
Units formed but not assembled: 4,000 × 60% = 2,400
Units assembled but not finished: 2,000 × 90% = 1,800
Total equivalent units: 16,200

Conversion cost per equivalent unit = $68,850 ÷ 16,200 = $4.25

2. Cost per equivalent unit for the three materials categories:

$67,500  $4,500 $63, 000

Cullets:  = $3.50
12, 000  4, 000  2, 000 18, 000

$24, 000  $3, 000 $21, 000

Silicone:  = $1.50
12, 000  2, 000 14, 000

$6, 000
Polypropylene:  = $0.50
12, 000

3. Cost of 12,000 bottles completed and transferred:

Materials: 12,000 × ($3.50 + $1.50 + $0.50) = $ 66,000

Conversion costs: 12,000 × $4.25 = $ 51,000

$117,000

4. Cost of 4,000 units formed but not assembled (i.e., at end of first operation):

Materials (only cullets): 4,000 × $3.50 = $14,000

Conversion costs: 4,000 × 60% × $4.25 = $10,200

$24,200

5. Cost of 2,000 units assembled but not finished (i.e., at end of second operation):

Materials (cullets and silicone): 2,000 × ($3.50 + $1.50) = $10,000

Conversion costs: 2,000 × 90% × $4.25 = $ 7,650

$17,650
.

18-50
18-47 (20 min.) Benchmarking, ethics.

1.
Equivalent Units
Physical Direct Conversion
Flow of Production Units Materials Costs
Completed and transferred out
during current period 30,000 30,000 30,000
Work in process, ending* (given) 10,000
10,000  80%; 10,000  50% 8,000 5,000
Accounted for 40,000
Equivalent units of work done to date 38,000 35,000
*Degree of completion reported in this plant: direct materials, 80%; conversion costs, 50%.

2. Total Production Direct Conversion

Costs Materials Costs
Costs incurred to date $339,700 $114,000 $225,700
Divide by equivalent units of work done to
date  38,000  35,000
Cost per equivalent unit of work done to date $ 3.00 $6.44857

Assignment of costs:
Completed and transferred out (30,000 $283,457 (30,000 × $3)
(33,000* + (30,000  $6.44857)
units)
Work in process, ending (10,000 units) 56,243 (8,000  $3)
(1,800 †
 $2)+ (5,000  $6.44857)

Total costs accounted for $339,700 $114,000

$ 69,600+ $225,700*

3. The reported monthly cost per equivalent unit of direct materials or conversion costs is
lower when the plant manager overestimates the percentage of completion of ending work in
process; the overestimate increases the denominator and, thus, decreases the cost per equivalent
unit. If cost of goods produced is lower, then the cost of goods sold would be lower and thus
profits greater. Cost of goods transferred out reported was $268,500 when the actual cost of
goods transferred out should have been $283,500, thus decreasing the cost of the goods by
$15,000 and thus increasing profits by $15,000. The plant manager has two motivations to report
lower cost per equivalent unit numbers: (1) to get a bonus and (2) to be recognized in the
company newsletter.

4. The plant controller has certain ethical responsibilities.

These include:
 Competence: The plant controller is expected to have the competence to make
equivalent unit computations. This competence does not always extend to making
estimates of the percentage of completion of a product. In this case, however, the the
percentage of completion of direct materials and completion costs of the laminate

18-51
 flooring is probably easy to understand and observe. Hence, a plant controller could
obtain reasonably reliable evidence on percentage of completion at a plant.
 Objectivity: The plant controller should not allow the possibility of the plant being
written about favorably in the company newsletter to influence the way equivalent
unit costs are computed. The plant controller has a responsibility to communicate
information fairly and objectively.

5. While the plant controller has responsibility for preparing the accounting reports
for the plant, in most cases, the plant controller reports directly to the plant manager. If
this reporting relationship is strong, it creates a conflict of interest situation for the plant
controller. The corporate controller may want to strengthen the reporting relationship
with the plant controller. If the plant controller has strong dual responsibility to the
corporate controller in addition to the plant manager, it would strengthen governance and
responsibility for accurate reporting. It would also enable the corporate controller to
directly probe the accounting records of the plant.

6. The corporate controller could seek evidence on possible manipulations as follows:

a. Have plant controllers report detailed breakdowns on the stages of production and
then conduct end-of-month audits to verify the actual stages completed for ending
work in process.
b. Examine trends in ending work in process. Plants that report low amounts of ending
work in process relative to total production are not likely to be able to greatly affect
equivalent unit cost amounts by manipulating percentage of completion estimates.
Plants that show sizable quantities of total production in ending work in process are
more likely to be able to manipulate equivalent cost computations by manipulating
percentage of completion estimates.

18-52
Try It! 18-1

(a) Equivalent units for direct materials = 500,000

Equivalent units for conversion costs = 200,000 completed + (300,000 × 50%) = 350,000

(b) Cost per equivalent unit: Direct materials = $ 950,000 ÷ 500,000 = $ 1.90
Conversion costs = $4,620,000 ÷ 350,000 = $13.20
Total cost = $15.10

Cost of completed units = 200,000 × $15.10 = $3,020,000

Cost of ending WIP: Direct materials: 300,000 × $ 1.90 = $ 570,000

Conversion costs: 150,000 × $13.20 = $1,980,000
$2,550,000

18-53
Try It! 18-2

Weighted-Average Method of Process Costing:

Units started during March = 33,000 + 2,000 – 5,000 = 30,000

Summarize the Flow of Physical Units and Compute Output in Equivalent Units:

(Step 2)
(Step 1) Equivalent Units
Physical Direct Conversion
Flow of Production Units Materials Costs
Work in process beginning (given) 5,000
Started during current period 30,000
To account for 35,000
Completed and transferred out during current period 33,000 33,000 33,000
Work in process, ending* (2,000  80%; 2,000  40%) 2,000 1,600 800
Accounted for 35,000 ___ ___
Equivalent units of work done to date 34,600 33,800
*Degree of completion: direct materials, 80%; conversion costs, 40%

Summarize Total Costs to Account For, Compute Cost per Equivalent Unit, and Assign Costs to
Units Completed and to Units in Ending Work-in-Process Inventory:

Total
Production Direct Conversion
Costs Materials Costs
(Step 3) Work in process, beginning (given) $ 20,990 $ 7,540 $ 13,450
Costs added in current period (given) 512,300 179,300 333,000
Total costs to account for $533,290 $186,840 $346,450

(Step 4) Costs incurred to date $186,840 $346,450

Divide by equivalent units of work done to date  34,600  33,800
Cost per equivalent unit of work done to date $ 5.40 $ 10.25

(Step 5) Assignment of costs:

Completed and transferred out (33,000 units) $516,450 (33,000a  $5.40) + (33,000a  $10.25)
Work in process, ending (2,000 units) 16,840 (1,600b  $5.40) + (800b × $10.25)
Total costs accounted for $533,290 $186,840 + $346,450

a
Equivalent units completed and transferred out from Step 2.
b
Equivalent units in ending work in process from Step 2.

18-54
 Try It! 18-3

First-In, First-Out (FIFO) Method of Process Costing:

Summarize the Flow of Physical Units and Compute Output in Equivalent Units:
(Step 2)
(Step 1) Equivalent Units
Physical Direct Conversion
Flow of Production Units Materials Costs
Work in process, beginning (given) 5,000 (work done before current period)
Started during current period (given) 30,000
To account for 35,000
Completed and transferred out during current
period:
From beginning work in processa 5,000
5,000  (100%  40%); 5,000  (100%  10%) 3,000 4,500
b
Started and completed 28,000
28,000  100%, 28,000  100% 28,000 28,000
Work in process, endingc (given) 2,000
2,000  80%; 2,000  40% ___ 1,600 800
Accounted for 35,000
Equivalent units of work done in current period 32,600 33,300
a
Degree of completion: direct materials 40%; conversion costs, 10%
b
33,000 physical units completed and transferred out minus 5,000 hysical units completed and transferred out from
beginning work-in-process inventory
c
Degree of completion: direct materials 80%; conversion costs, 40%

18-55
Summarize Total Costs to Account For, Compute Cost per Equivalent Unit, and Assign Costs to
Units Completed and to Units in Ending Work-in-Process Inventory:

Total
Production Direct Conversion
Costs Materials Costs
(Step 3) Work in process, beginning (given) $ 20,990 $ 7,540 $ 13,450
Costs added in current period (given) 512,300 179,300 333,000
Total costs to account for $533,290 $186,840 $346,450

(Step 4) Costs added in current period $179,300 $333,000

Divide by equivalent units of work done in
current period  32,600  33,300
Cost per equivalent unit of work done to date $ 5.50 $ 10.00

(Step 5) Assignment of costs:

Completed and transferred out (33,000 units):
Work in process, beginning (5,000 units) $ 20,990 $ 7,540 + $13,450
Costs added to beginning work in process
in current period 61,500 (3,000a  $5.50) + (4,500a  $10.00)
Total from beginning inventory 82,490
Started and completed (28,000 units) 434,000 (28,000b  $5.50) +(28,000b  $10.00)
Total cost of units completed and
transferred out 516,490
Work in process, ending (2,000 units) 16,800 (1,600c  $5.50) + (800c × $10.00)
Total costs accounted for $533,290 $186,840 + $346,450

a
Equivalent units used to complete beginning work in process from Step 2
b
Equivalent units started and completed from Step 2
c
Equivalenat units in ending work in process from Step 2

18-56
Try It! 18-4

1. To obtain the conversion-cost rates, divide the budgeted cost of each operation by the number
of packages that are expected to go through that operation.

Budgeted Budgeted Conversion

Conversion Number of Cost per
Cost Packages Package
Baking $20,500 25,000 $0.82
Shaping 2,100 15,000 0.14
Cutting 2,000 10,000 0.20

2.
Work Order Work Order
#215 #216
Bread type: Dinner Roll Multigrain Loaves
Quantity: 3,600 4,000

Direct Materials ($0.80 × 3,600; $1 × 4,000) $2,880 $4,000

Baking ($0.82 × 3,600; 4,000) 2,952 3,280
Shaping ($0.14 × 0; 4,000) 0 560
Cutting ($0.20 × 3,600; 0) 720 0
Total $5,552 $7,840

The direct materials costs per unit vary based on the type of bread ($8,000 ÷ 10,000 = $0.80 for
the dinner rolls, and $15,000 ÷ 15,000 = $1.00 for the multi-grain loaves).

Conversion costs are charged using the rates computed in part (1), taking into account the
specific operations that each type of bread actually goes through.

18-57