Chapter 3
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DO IT!
Compare Job
Order and Process
Cost Systems
Action Plan
✔ Use job order costing
in situations where
unit costs are high,
unit volume is low, and
products are unique.
✔ Use process costing
when there is a large
volume of relatively
homogeneous products.
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Indicate whether each of the following statements is true or false.
1. A law firm is likely to use process costing for major lawsuits.
2. A manufacturer of paintballs is likely to use process costing.
3. Both job order and process costing determine product costs at the end of a period of
time, rather than when a product is completed.
4. Process costing does not keep track of manufacturing overhead.
Solution
1. false.
2. true.
3. false.
Related exercise material: E3-1 and
4. false.
DO IT!
3-1.
DO IT!
Manufacturing
Costs in Process
Costing
Ruth Company manufactures ZEBO through two processes: blending and bottling. In
June, raw materials used were Blending $18,000 and Bottling $4,000. Factory labor costs
were Blending $12,000 and Bottling $5,000. Manufacturing overhead costs were Blending
$6,000 and Bottling $2,500. The company transfers units completed at a cost of $19,000 in
the Blending Department to the Bottling Department. The Bottling Department transfers
units completed at a cost of $11,000 to Finished Goods. Journalize the assignment of these
costs to the two processes and the transfer of units as appropriate.
Solution
Action Plan
✔ In process cost
accounting, keep
separate work in
process accounts for
each process.
✔ When the costs are
assigned to production, debit the separate work in process
accounts.
✔ Transfer cost of completed units to the next
process or to Finished
Goods.
The entries are:
Work in Process—Blending
Work in Process—Bottling
Raw Materials Inventory
(To record materials used)
18,000
4,000
22,000
Work in Process—Blending
Work in Process—Bottling
Factory Labor
(To assign factory labor to production)
12,000
5,000
17,000
Work in Process—Blending
Work in Process—Bottling
Manufacturing Overhead
(To assign overhead to production)
6,000
2,500
8,500
Work in Process—Bottling
Work in Process—Blending
(To record transfer of units to the Bottling
Department)
19,000
Finished Goods Inventory
Work in Process—Bottling
(To record transfer of units to finished goods)
11,000
Related exercise material: BE3-1, BE3-2, BE3-3, E3-2, E3-4, and
19,000
11,000
DO IT!
3-2.
D-1
D-2
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DO IT!
DO IT!
Equivalent Units
Action Plan
✔ To measure the work
done during the
period, expressed in
fully completed units,
compute equivalent
units of production.
✔ Use the appropriate
formula: Units completed and transferred
out 1 Equivalent units
of ending work in
process 5 Equivalent
units of production.
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The fabricating department has the following production and cost data for the current month.
Beginning
Work in Process
Units
Transferred Out
Ending
Work in Process
–0–
15,000
10,000
Materials are entered at the beginning of the process. The ending work in process units
are 30% complete as to conversion costs. Compute the equivalent units of production for
(a) materials and (b) conversion costs.
Solution
(a) Since materials are entered at the beginning of the process, the equivalent units
of ending work in process are 10,000. Thus, 15,000 units 1 10,000 units 5 25,000
equivalent units of production for materials.
(b) Since ending work in process is only 30% complete as to conversion costs, the equivalent units of ending work in process are 3,000 (30% 3 10,000 units). Thus, 15,000
units 1 3,000 units 5 18,000 equivalent units of production for conversion costs.
Related exercise material: BE3-5, BE3-10, E3-5, E3-6, E3-8, E3-9, E3-10, E3-11, E3-13, E3-14, E3-15,
and DO IT! 3-3.
DO IT!
Cost Reconciliation
Schedule
In March, Rodayo Manufacturing had the following unit production costs: materials $6
and conversion costs $9. On March 1, it had zero work in process. During March, Rodayo
transferred out 12,000 units. As of March 31, 800 units that were 25% complete as to conversion costs and 100% complete as to materials were in ending work in process. Assign
the costs to the units transferred out and in process.
Solution
Action Plan
The assignment of costs is as follows.
✔ Assign the total
manufacturing cost
of $15 per unit to
the 12,000 units
transferred out.
✔ Assign the materials
cost and conversion
costs based on equivalent units of production to units in ending
work in process.
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Costs accounted for
Transferred out (12,000 3 $15)
Work in process, March 31
Materials (800 3 $6)
Conversion costs (200a 3 $9)
Total costs
a
$180,000
$4,800
1,800
6,600
$186,600
800 3 25%
Related exercise material: BE3-4, BE3-6, BE3-7, BE3-8, BE3-9, BE3-10, E3-5, E3-6, E3-8, E3-9, E3-10,
E3-11, E3-14, E3-15, and DO IT! 3-4.
Comprehensive
DO IT!
Karlene Industries produces plastic ice cube trays in two processes: heating and stamping.
All materials are added at the beginning of the Heating Department process. Karlene uses
the weighted-average method to compute equivalent units.
DO IT!
D-3
On November 1, the Heating Department had in process 1,000 trays that were 70%
complete. During November, it started into production 12,000 trays. On November 30,
2014, 2,000 trays that were 60% complete were in process.
The following cost information for the Heating Department was also available.
Work in process, November 1:
Materials
$ 640
Conversion costs
360
Cost of work in process, Nov. 1 $1,000
Costs incurred in November:
Material
$3,000
Labor
2,300
Overhead
4,050
Instructions
(a) Prepare a production cost report for the Heating Department for the month of
November 2014, using the weighted-average method.
(b) Journalize the transfer of costs to the Stamping Department.
Solution to Comprehensive DO IT!
Action Plan
✔ Compute the physical
unit flow—that is, the
total units to be
accounted for.
✔ Compute the equivalent
units of production.
✔ Compute the unit
production costs,
expressed in terms
of equivalent units
of production.
✔ Prepare a cost reconciliation schedule,
which shows that the
total costs accounted
for equal the total
costs to be accounted
for.
(a)
Karlene Industries
Heating Department
Production Cost Report
For the Month Ended November 30, 2014
Equivalent Units
Physical
Units
Step 1
Quantities
Conversion
Materials
Costs
Step 2
Units to be accounted for
Work in process, November 1
Started into production
1,000
12,000
Total units
13,000
Units accounted for
Transferred out
Work in process, November 30
11,000
2,000
11,000
2,000
11,000
1,200
Total units
13,000
13,000
12,200
Materials
Conversion
Costs
Costs
Unit costs
Step 3
Total cost
(a)
$ 3,640*
Equivalent units
(b)
13,000
12,200
$0.28
$0.55
Unit costs [(a) 4 (b)]
Total
$ 6,710** $10,350
$0.83
Costs to be accounted for
Work in process, November 1
Started into production
$ 1,000
9,350
Total costs
$10,350
*$640 1 $3,000
**$360 1 $2,300 1 $4,050
Cost Reconciliation Schedule Step 4
Costs accounted for
Transferred out (11,000 3 $0.83)
Work in process, November 30
Materials (2,000 3 $0.28)
Conversion costs (1,200 3 $0.55)
$ 9,130
$560
660
Total costs
(b) Work in Process—Stamping
Work in Process—Heating
(To record transfer of units to the Stamping
Department)
1,220
$10,350
9,130
9,130
D-4
DO IT!
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DO IT!
REVIEW
Compare job order and
process cost systems.
(LO 1, 2), C
Assign and journalize
manufacturing costs.
DO IT! 3-1 Indicate whether each of the following statements is true or false.
1.
2.
3.
4.
Many hospitals use job order costing for small, routine medical procedures.
A manufacturer of computer flash drives would use a job order cost system.
A process cost system uses multiple work in process accounts.
A process cost system keeps track of costs on job cost sheets.
DO IT! 3-2 Kopa Company manufactures CH-21 through two processes: Mixing and
Packaging. In July, the following costs were incurred.
(LO 4), AP
Raw materials used
Factory labor costs
Manufacturing overhead costs
Mixing
Packaging
$10,000
8,000
12,000
$28,000
36,000
54,000
Units completed at a cost of $21,000 in the Mixing Department are transferred to the
Packaging Department. Units completed at a cost of $106,000 in the Packaging Department are transferred to Finished Goods. Journalize the assignment of these costs to the
two processes and the transfer of units as appropriate.
Compute equivalent units.
DO IT! 3-3 The assembly department has the following production data for the current
(LO 5), AP
month.
Beginning
Work in Process
Units
Transferred Out
Ending
Work in Process
–0–
20,000
12,000
Materials are entered at the beginning of the process. The ending work in process units
are 70% complete as to conversion costs. Compute the equivalent units of production for
(a) materials and (b) conversion costs.
Prepare cost reconciliation
schedule.
(LO 6, 7), AP
DO IT! 3-4 In March, Kelly Company had the following unit production costs: materials
$10 and conversion costs $8. On March 1, it had zero work in process. During March,
Kelly transferred out 22,000 units. As of March 31, 4,000 units that were 40% complete
as to conversion costs and 100% complete as to materials were in ending work in
process.
(a) Compute the total units to be accounted for.
(b) Compute the equivalent units of production.
(c) Prepare a cost reconciliation schedule, including the costs of materials transferred
out and the costs of materials in process.