PROCESS-COSTING

CHAPTER 17
PROCESS-COSTING
17-1 Industries using process costing in their manufacturing area include chemical processing,
oil refining, pharmaceutical, plastics, brick and tile manufacturing, semiconductor chips, beverages,
and breakfast cereals.
17-2 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, and all conversion costs are added at about the same time,
but in a pattern different from direct materials costs.
17-3 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.
17-4 The accuracy of the estimates of completion depend on the care and skill of the estimator
and the nature of the process. Aircraft blades 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.
17-5 The five key steps in process costing follow:
Step 1: Summarize the flow of physical units of output.
Step 2: Compute output in terms of equivalent units.
Step 3: Compute equivalent unit costs.
Step 4: Summarize total costs to account for.
Step 5: Assign total costs to units completed and to units in ending work in process.
17-6 Three inventory methods associated with process costing are:
• Weighted average.
• First-in, first-out.
• Standard costing.
17-7 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.
17-1

17-8 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 assigns 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.
17-9 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 as a matter of
convenience.
17-10 A major advantage of FIFO is that managers can judge the performance in the current
period independently from the performance in the preceding period.
17-11 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.
17-12 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.
17-13 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 this department.
17-14 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.
17-15 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.
17-16 (25 min.) Equivalent units, zero beginning inventory.
1. Direct materials cost per unit ($720,000 ÷ 10,000) $ 72
Conversion cost per unit ($760,000 ÷ 10,000) 76
Assembly Department cost per unit $148
17-2

17-16 (Cont’d.)
2a. Solution Exhibit 17-16A calculates the equivalent units of direct materials and conversion
costs in the Assembly Department of International Electronics in February 2004.
Solution Exhibit 17-16B computes equivalent units costs.
2b. Direct materials cost per unit $ 72
Conversion cost per unit 80
Assembly Department cost per unit $152
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 9,500 equivalent units of work is done with respect to
conversion costs. The Assembly Department cost per unit is, therefore, higher.
SOLUTION EXHIBIT 17-16A
Steps 1 and 2: Summarize Output in Physical Units and Compute Equivalent Units
Assembly Department of International Electronics for February 2004
(Step 2)
(Step 1) Equivalent Units
Physical Direct Conversion
Flow of Production Units Materials Costs
Work in process, beginning 0
Started during current period 10,000
To account for 10,000
Completed and transferred out
during current period 9,000 9,000 9,000
Work in process, ending* 1,000
1,000 × 100%; 1,000 × 50% 1,000 500
Accounted for 10,000
Work done in current period only 10,000 9,500
*Degree of completion in this department: direct materials, 100%; conversion costs, 50%.
SOLUTION EXHIBIT 17-16B
Compute Equivalent Unit Costs,
Assembly Department of International Electronics for February 2004
Total
Production
Costs
Direct
Materials
Conversion
Costs
(Step 3)Costs added during February $1,480,000 $720,000 $760,000
Divide by equivalent units of work done
in current period (Solution Exhibit 17-l6A) ÷ 10,000 ÷ 9,500
Cost per equivalent unit $ 72 $ 80
17-3

17-17 (20 min.) Journal entries (continuation of 17-16).
1. Work in Process––Assembly 720,000
Accounts Payable 720,000
To record $720,000 of direct materials
purchased and used in production during
February 2004
2. Work in Process––Assembly 760,000
Various accounts 760,000
To record $760,000 of conversion costs
for February 2004; examples include energy,
manufacturing supplies, all manufacturing
labor, and plant depreciation
3. Work in Process––Testing 1,368,000
Work in Process––Assembly 1,368,000
To record 9,000 units completed and
transferred from Assembly to Testing
during February 2004 at
$152 × 9,000 units = $1,368,000
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 720,000 Work in Process––Testing 1,368,000
2. Conversion costs 760,000
Ending inventory, Feb. 29 112,000
17-4

17-18 (25 min.) Zero beginning inventory, materials introduced in middle of
process.
1. Solution Exhibit 17-18A shows equivalent units of work done in the current period of
Chemical P, 50,000; Chemical Q, 35,000; Conversion costs, 45,000.
2. Solution Exhibit 17-18B calculates cost per equivalent unit of work done in the current period
for Chemical P, Chemical Q, and Conversion costs, summarizes the total Mixing Department costs
for July 2004, and assigns these costs to units completed (and transferred out) and to units in ending
work in process.
Mixing Department of Vaasa Chemicals for July 2004
(Step 1)
(Step 2)
Equivalent Units
Physical Conversion
Flow of Production Units Chemical P Chemical Q Costs
during current period 35,000 35,000 35,000 35,000
15,000 × 100%; 15,000 × 0%;
15,000 × 66 2/3% 15,000 0 10,000
Work done in current period only 50,000 35,000 45,000
*Degree of completion in this department: Chemical P, 100%; Chemical Q, 0%; conversion costs, 66 2/3%.
17-5

17-18 (Cont’d.)
Steps 3, 4, and 5: Compute Equivalent Unit Costs, Summarize Total Costs to Account For, and
Assign Costs to Units Completed and to Units in Ending Work in Process, Mixing Department of
Vaasa Chemicals for July 2004
Total
Production
Costs Chemical P Chemical Q
Conversion
Costs
(Step 3)Costs added during July $455,000 $250,000 $70,000 $135,000
Divide by equivalent units of work
done in current period (Solution
Exhibit 17-l8A) ÷ 50,000 ÷35,000 ÷ 45,000
Cost per equivalent unit $ 5 $ 2 $ 3
(Step 4)Total costs to account for $455,000
(Step 5) Assignment of costs:
(35,000 units) $350,000 (35,000*× $5) + (35,000*×$2) + (35,000*×$3)
Work in process ending
(15,000 units)
Chemical P 75,000 15,000†
× $5
Chemical Q 0 0†
× $2
Conversion costs 30,000 10,000†
×$3
Total work in process 105,000
Total costs accounted for $455,000
*Equivalent units completed and transferred out from Solution Exhibit 17-18A, Step 2.
†
Equivalent units in work in process, ending from Solution Exhibit 17-18A, Step 2.
17-6

17-19 (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 17-19 shows equivalent units of work done to date for the
Satellite Assembly Division of Aerospatiale for direct materials and conversion costs.
SOLUTION EXHIBIT 17-19
Weighted-Average Method of Process Costing, Satellite Assembly Division of Aerospatiale for
May 2004
(Step 1) (Step 2)
Physical Equivalent Units
Units Direct Conversion
Flow of Production (given) Materials Costs
Work in process beginning 8
Started during current period 50
To account for 58
Completed and transferred out during current period 46 46.0 46.0
Work in process, ending* (12 × 60%; 12 × 30%) 12 7.2 3.6
Accounted for 58
Work done to date 53.2 49.6
17-7

17-20 (20 min.) Weighted-average method, assigning costs (continuation of 17-19).
Solution Exhibit 17-20 calculates cost per equivalent unit of work done to date in the Assembly
Department of Aerospatiale, summarizes total costs to account for, and assigns costs to units
completed and to units in ending work-in-process inventory.
Assign Costs to Units Completed and to Units in Ending Work in Process
Weighted-Average Method of Process Costing, Satellite Assembly Department of Aerospatiale for
May 2004
Total
Production
Costs
Direct
Materials
Conversion
Costs
(Step 3) Work in process, beginning (given) $ 5,844,000 $ 4,933,600 $ 910,400
Costs added in current period (given) 46,120,000 32,200,000 13,920,000
Costs incurred to date $37,133,600 $14,830,400
Divide by equivalent units of work done to date
(Solution Exhibit 17-19) ÷ 53.2 ÷ 49.6
Cost per equivalent unit of work done to date $ 698,000 $ 299,000
(Step 4) Total costs to account for 51,964,000
Completed and transferred out (46 units) 45,862,000 (46*× $698,000) + (46* × $299,000)
Work in process, ending (12 units)
Direct materials 5,025,600 7.2†
× $698,000
Conversion costs
Total work in process
Total costs accounted for
1,076,400
6,102,000
$51,964,000
3.6†
× $299,000
*
Equivalent units completed and transferred out from Solution Exhibit 17-19, Step 2.
†
Equivalent units in work in process, ending from Solution Exhibit 17-19, Step 2.
17-8

17-21 (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 17-21 shows equivalent units of work done in May 2004 in
the Assembly Department of Aerospatiale for direct materials and conversion costs.
FIFO Method of Process Costing, Satellite Assembly Division of Aerospatiale for May 2004
(Step 1)
(Step 2)
Equivalent Units
Flow of Production
Physical
Units
Direct
Materials
Conversion
Costs
Work in process, beginning (given)
Started during current period (given)
To account for
8
50
58
(work done before current period)
Completed and transferred out during current
period:
From beginning work in process§
8× (100% − 90%); 8× (100% − 40%)
8
0.8 4.8
Started and completed
38 × 100%, 38 × 100%
38†
38.0 38.0
Work in process, ending* (given)
12 × 60%; 12 × 30%
12
7.2 3.6
Accounted for 58
Work done in current period only 46.0 46.4
§
Degree of completion in this department: direct materials, 90%; conversion costs, 40%.
†
46 physical units completed and transferred out minus 8 physical units completed and transferred out from beginning
17-9

17-22 (20 min.) FIFO method, assigning costs (continuation of 17-21).
Solution Exhibit 17-22 calculates cost per equivalent unit of work done in May 2004 in the
Assembly Department of Aerospatiale, summarizes total costs to account for, and assigns costs to
units completed and to units in ending work-in-process inventory.
FIFO Method of Process Costing, Satellite Assembly Division of Aerospatiale for May 2004
Total
Production
Costs
Direct
Materials
Conversion
Costs
Work in process, beginning ($4,933,600 + $910,400) $ 5,844,000 (costs of work done before current period)
(Step 3) Costs added in current period (given) 46,120,000 $32,200,000 $ 13,920,000
Divide by equivalent units of work done in
current period (Solution Exhibit 17-21) ÷ 46 ÷ 46.4
Cost per equivalent unit of work done in current period $ 700,000 $ 300,000
(Step 4) Total costs to account for $51,964,000
Completed and transferred out (46 units):
Work in process, beginning (8 units)
Direct materials added in current period
$ 5,844,000
560,000 0.8*× $700,000
Conversion costs added in current period
Total from beginning inventory
Started and completed (38 units)
Total costs of units completed & transf. out
Direct materials
Conversion costs
Total work in process, ending
1,440,000
7,844,000
38,000,000
45,844,000
5,040,000
1,080,000
6,120,000
$51,964,000
4.8*× $300,000
(38†
× $700,000) + (38†
× $300,000)
7.2#
× $700,000
3.6#
× $300,000
*Equivalent units used to complete beginning work in process from Solution Exhibit 17-21, Step 2.
†
Equivalent units started and completed from Solution Exhibit 17-21, Step 2.
#
17-10

17-23 (25-30 min.) Standard-costing method, assigning costs (Refer to the information
in Exercise 17-19).
1. The calculations of equivalent units for direct materials and conversion costs are identical to
the calculations of equivalent units under the FIFO method. Solution Exhibit 17-21 shows the
equivalent unit calculations under standard costing given by the equivalent units of work done in
May 2004 in the Assembly Department.
2. Solution Exhibit 17-23 summarizes the total costs to account for, and assigns these costs to
units completed and transferred out and to units in ending work in process.
3. Solution Exhibit 17-23 shows the direct materials and conversion cost variances for
Direct materials $230,000 U
Conversion costs $232,000 U
Use of Standard Costs in Process Costing, Satellite Assembly Division of Aerospatiale for May
2004.
Total
Production
Costs
Direct
Materials
Conversion
Costs
(Step 3) Standard cost per equivalent unit (given) $ 695,000 $ 295,000
Direct materials, 7.2 × $695,000; Conversion costs,
3.2 × $295,000 $ 5,948,000
Costs added in current period at standard costs
Direct materials, 46.0 × $695,000; Conversion
costs, 46.4 × $295,000 45,658,000 $31,970,000 $13,688,000
(Step 4) Costs to account for $51,606,000
(Step 5) Assignment of costs at standard costs:
$ 5,948,000
556,000
1,416,000
7,920,000
0.8* × $695,000
4.8* × $295,000
Total costs of units transferred out
37,620,000
45,540,000
38†
× $695,000 + 38†
× $295,000
7.2#
× $695,000
3.6#
× $295,000
Direct materials 5,004,000
Conversion costs
1,062,000
6,066,000
$51,606,000
Summary of variances for current performance:
Costs added in current period at standard prices (see above)
Actual costs incurred (given)
Variance
$31,970,000
32,200,000
$ 230,000 U
$13,688,000
13,920,000
$ 232,000 U
*Equivalent units to complete beginning work in process from Solution Exhibit 17-21, Step 2.
†
Equivalent units started and completed from Solution Exhibit 17-21, Step 2.
#
17-11

17-24 (25 min.) Weighted-average method, assigning costs.
1. & 2. Solution Exhibit 17-24 calculates the cost per equivalent unit of work done to date for
direct materials and conversion costs, summarizes total costs to account for, and assigns these costs
to units completed and transferred out and to units in ending work-in-process inventory.
Weighted-Average Method of Process Costing, Chatham Company for July 2004
Total
Production
Costs
Direct
Materials
Conversion
Costs
(Step 3) Work in process, beginning (given) $130,000 $ 60,000 $ 70,000
Costs added in current period (given) 651,000 280,000 371,000
Costs incurred to date $340,000 $441,000
Divide by equivalent units of work done to
date (given) ÷ 50,000 ÷ 42,000
Cost per equivalent unit of work done to date $ 6.80 $ 10.50
(Step 4) Total costs to account for $781,000
Completed and transferred out (34,000 units) 588,200 (34,000* × $6.80) + (34,000* × $10.50)
Work in process, ending (16,000 units)
Direct materials 108,800 16,000†
× $6.80
Conversion costs
Total work in process
84,000
192,800
$781,000
8,000†
× $10.50
*Equivalent units completed and transferred out (given).
†
Equivalent units in work in process, ending (given).
17-12

17-25 (30 min.) FIFO method, assigning costs.
1. & 2. Solution Exhibit 17-25A calculates the equivalent units of work done in the current period.
Solution Exhibit 17-25B, calculates the cost per equivalent unit of work done in the current period
for direct materials and conversion costs, summarizes total costs to account for, and assigns these
costs to units completed and transferred out and to units in ending work-in-process inventory.
FIFO Method of Process Costing, Chatham Company for July 2004
(Step 1)
(Step 2)
Equivalent Units
Flow of Production
Physical
Units
Direct
Materials
Conversion
Costs
To account for
10,000
40,000
50,000
Completed and transferred out during current period:
10,000 × (100% − 100%); 10,000 × (100% – 70%)
10,000
0 3,000
24,000 × 100%, 24,000 × 100%
24,000†
24,000 24,000
16,000 × 100%; 16,000 × 50%
16,000
16,000 8,000
§
†
34,000 physical units completed and transferred out minus 10,000 physical units completed and transferred out from
beginning work-in-process inventory.
17-13

17-25 (Cont’d.)
FIFO Method of Process Costing, Chatham Company for July 2004
Total
Production
Costs
Direct
Materials
Conversion
Costs
Work in process, beginning ($60,000 + $70,000) $130,000 (costs of work done before
current period)
(Step 3) Costs added in current period (given) 651,000 $280,000 $371,000
current period (Solution Exhibit 17-25A)
÷ 40,000 ÷ 35,000
Cost per equivalent unit of work done in current period $ 7 $ 10.60
Completed and transferred out (34,000 units):
Work in process, beginning (10,000 units)
$130,000
0 0* × $7
Started and completed (24,000 units)
Total costs of units completed & transferred out
Direct materials
Conversion costs
31,800
161,800
422,400
584,200
112,000
84,800
196,800
$781,000
3,000* × $10.60
24,000†
× $7 + 24,000†
× 10.60
16,000#
× $7
8,000#
× $10.60
*Equivalent units used to complete beginning work in process from Solution Exhibit 17-25A, Step 2.
†
Equivelant units started and completed from Solution Exhibit 17-25A, Step 2.
#
17-14

17-26 (30 min.) Standard-costing method, assigning costs (Refer to the information
in Exercise 17-24).
1. The calculations of equivalent units for direct materials and conversion costs are identical to
the calculations of equivalent units under the FIFO method. Solution Exhibit 17-25A shows the
equivalent unit calculations for standard costing given by the equivalent units of work done in July
2004. Solution Exhibit 17-26 uses the standard costs (direct materials, $6.50; conversion costs,
$10.30) to summarize total costs to account for, and to assign these costs to units completed and
transferred out and to units in ending work-in-process inventory.
2. Solution Exhibit 17-26 shows the direct materials and conversion costs variances for
Direct materials $20,000 U
Conversion costs $10,500 U
Use of Standard Costs in Process Costing, Chatham Company for July 2004.
Total
Production
Costs
Direct
Materials
Conversion
Costs
(Step 3) Standard cost per equivalent unit (given) $ 6.50 $ 10.30
Direct materials, 10,000 × $6.50; Conversion costs,
7,000 × $10.30 $137,100
Direct materials, 40,000 × $6.50;
Conversion costs, 35,000 × $10.30 620,500 260,000 360,500
(Step 4) Costs to account for $757,600
$137,100
0
30,900
168,000
0* × $6.50
3,000*× $10.30
403,200
571,200
(24,000†
× $6.50) + (24,000†
× $10.30)
Direct materials 104,000 16,000#
× $6.50
Conversion costs
82,400
186,400
$757,600
8,000#
× $10.30
Summary of variances for current performance:
Costs added in current period at standard prices (see above)
Variance
$260,000
280,000
$ 20,000 U
$360,500
371,000
$ 10,500 U
*Equivalent units to complete beginning work in process from Solution Exhibit 17-25A, Step 2.
†
Equivalent units started and completed from Solution Exhibit 17-25A, Step 2.
#
17-15

17-27 (35–40 min.) Transferred-in costs, weighted-average method.
1. & 2. Solution Exhibit 17-27A calculates the equivalent units of work done to date. Solution
Exhibit 17-27B calculates the cost per equivalent unit of work done to date for transferred-in costs,
direct materials, and conversion costs, summarizes total costs to account for, and assigns these costs
to units completed and transferred out and to units in ending work-in-process inventory.
Weighted-Average Method of Process Costing
Cooking Department of Hideo Chemicals for June 2004
(Step 1) (Step 2)
Flow of Production
Units
(given)
Transferred-
in Costs
Direct
Materials
Conversion
Costs
Transferred in during current period 80
To account for 120
during current period 90 90 90 90
Work in process, ending* 30
30 × 100%; 30 × 0%; 30 × 50% 30 0 15
Accounted for 120
Work done to date 120 90 105
*Degree of completion in this department: transferred-in costs, 100%; direct materials, 0%; conversion costs, 50%.
17-16

17-27 (Cont’d.)
Total
Production
Costs
Transferred
-in Costs
Direct
Materials
Conversion
Costs
(Step 3) Work in process, beginning (given) $ 58,000 $ 40,000 $ 0 $18,000
Costs added in current period (given) 172,925 87,200 36,000 49,725
Costs incurred to date $127,200 $36,000 $67,725
to date (Solution Exhibit 17-27A) ÷ 120 ÷ 90 ÷ 105
Equivalent unit costs of work done to date $ 1,060 $ 400 $ 645
Completed and transferred out (90 units) $189,450 (90*× $1,060) + (90* × $400) + (90*× $645)
Transferred-in costs
Direct materials
31,800
0
30†
× $1,060
0†
× $400
Conversion costs
9,675
41,475
$230,925
15†
× $645
†Equivalent units in work in process, ending from Solution Exhibit 17-27A, Step 2.
17-28 (35–40 min.) Transferred-in costs, FIFO method.
1. & 2. Solution Exhibit 17-28A 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 17-28B calculates the cost per equivalent unit of work done in the current period
for transferred-in costs, direct materials, and conversion costs, summarizes total costs to account
for, and assigns these costs to units completed and transferred out and to units in ending work-in-
process inventory.
17-17

17-28 (Cont’d.)
FIFO Method of Process Costing
(Step 1)
(Step 2)
Equivalent Units
Flow of Production
Physical
Units
Transferred-
in Costs
Direct
Materials
Conversion
Costs
Transferred in during current period (given)
To account for
40
80
120
40 × (100% − 100%); 40 × (100% − 0%);
40 × (100% − 75%)
40
0 40 10
50 × 100%; 50 × 100%; 50 × 100%
50†
50 50 50
30 × 100%; 30 × 0%; 30 × 50%
30
30 0 15
Accounted for 120
Work done in current period only 80 90 75
§
Degree of completion in this department: Transferred-in costs, 100%; direct materials, 0%; conversion costs, 75%.
†
90 physical units completed and transferred out minus 40 physical units completed and transferred out from beginning
17-18

17-28 (Cont’d.)
Steps 3, 4, and 5: Compute Equivalent Unit Costs, Summarize Total Costs to Account For,
and Assign Costs to Units Completed and to Units in Ending Work in Process
Total
Production
Costs
Transferred
-in Costs
Direct
Materials
Conversion
Costs
Work in process, beginning
($39,200 + $0 + $18,000) $ 57,200 (Costs of work done before current period)
(Step 3) Costs added in current period (given) 171,325 $85,600 $36,000 $49,725
current period (Solution Exhibit 17-28A) ÷ 80 ÷ 90 ÷ 75
Cost per equiv. unit of work done in current period $ 1,070 $ 400 $ 663
Transferred-in costs added in current period
$ 57,200
0
16,000
0*×$1,070
40*×$400
Total costs of units completed & tfd. out
Direct materials
Conversion costs
6,630
79,830
106,650
186,480
32,100
0
9,945
42,045
$228,525
10*×$663
(50†
×$1,070) + (50†
× $400)+ (50†
×$663)
30#
×$1,070
0#
×$400
15#
×$663
†
#
17-19

17.29 (15 min.) Operation costing (Chapter Appendix).
Costs of Work Order 815 and Work Order 831 are as follows:
Work Order 815 Work Order 831
Number of units (pairs) 1,000 5,000
Direct materials costs $30,000 $ 50,000
Conversion costs:
Cutting (1,000; 5,000 × $10) 10,000 50,000
Sewing (1,000; 5,000 × $15) 15,000 75,000
Lining (1,000; 0 × $8) 8,000 –
Packing (1,000; 5,000 × $2) 2,000 10,000
Total costs $65,000 $185,000
Total cost per unit 1,000
$65,000
= $65 5,000
$185,000
= $37
17-30 (25 min.) Weighted-average method.
1. Solution Exhibit 17-30A shows equivalent units of work done to date
Direct materials 100 equivalent units
Conversion costs 97 equivalent units
2. & 3. Solution Exhibit 17-30B calculates cost per equivalent unit of work done to date,
summarizes the total Assembly Department costs for October 2004, and assigns these costs to units
completed (and transferred out) and to units in ending work in process using the weighted-average
method.
17-20

17-30 (Cont’d.)
Weighted-Average Method of Process Costing, Assembly Department of Global Defense Inc. for
October 2004
(Step 1) (Step 2)
To account for 100
during current period 90 90 90
10 × 100%; 10 × 70% 10 7
Accounted for 100
Work done to date 100 97
Weighted-Average Method of Process Costing, Assembly Department of Global Defense Inc.
for October 2004
Total
Production
Costs
Direct
Materials
Conversion
Costs
(Step 3) Work in process, beginning (given) $ 580,000 $ 460,000 $ 120,000
Costs added in current period (given) 2,935,000 2,000,000 935,000
Divide by equivalent units of work done to date
(Solution Exhibit 17-30A) ÷ 100 ÷ 97
Cost per equivalent unit of work done to date $ 24,600 $10,876.29
Completed and transferred out (90 units) $3,192,866 (90* × $24,600) + (90* × $10,876.29)
Direct materials 246,000 10†
× $24,600
Conversion costs
76,134
322,134
$3,515,000
7†
× $10,876.29
†
17-21

17-30 (Cont’d.)
17-30 Excel Application
Process Costing
Global Defense, Inc.
Original Data
Physical Units Direct Conversion
(Missiles) Materials Costs
Work in process, October 1 20 $460,000 $120,000
Started during October 2004 80
Completed during October 2004 90
Work in process, October 31 10
Costs added during October 2004 $2,000,000 $935,000
Problem 1
Direct Conversion
Flow of Production Physical Units Materials Costs
To account for 100
Good units completed and transferred out
during current period 90 90 90
Work in process, ending 10
10 x 100%; 10 x 70% 10 7
Accounted for 100
Work done to date 100 97
Problem 2
Total Direct Conversion
Production Materials Costs
Costs
Work in process, beginning $ 580,000 $ 460,000 $ 120,000
Costs added in current period 2,935,000 2,000,000 935,000
Equivalent units of work done
to date 100 97
Cost per equivalent unit of work
done to date $24,600 $10,876.29
Problem 3
Total
Production Direct Conversion
Costs Materials Costs
Total costs to account for $3,515,000
Assignment of costs:
Completed and transferred out $3,192,866 2,214,000 978,866
Work in process, ending
Direct materials 246,000
Conversion costs 76,134
Total work in process ending 322,134
Total costs accounted for $3,515,000
17-22

17-31 (10 min.) Journal entries (continuation of 17-30).
1. Work in Process––Assembly Department 2,000,000
Accounts Payable 2,000,000
Direct materials purchased and used in
production in October.
2. Work in Process––Assembly Department 935,000
Various accounts 935,000
Conversion costs incurred in October.
3. Work in Process––Testing Department 3,192,866
Work in Process––Assembly Department 3,192,866
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 1 580,000
1. Direct materials 2,000,000
3. Transferred out to
Work in Process–Testing 3,192,866
Ending Inventory, October 31 322,134
17-23

17-32 (20 min.) FIFO method (continuation of 17-30 and 17-31).
1. The equivalent units of work done in the current period in the Assembly Department in
October 2004 for direct materials and conversion costs are shown in Solution Exhibit 17-32A.
2. The cost per equivalent unit of work done in the current period in the Assembly Department
in October 2004 for direct materials and conversion costs is calculated in Solution Exhibit 17-32B.
3. Solution Exhibit 17-32B summarizes the total Assembly Department costs for October 2004,
and assigns these costs to units completed (and transferred out) and units in ending work in
process under the FIFO method.
The cost per equivalent unit of beginning inventory and of work done in the current period
differ:
Beginning
Inventory
Work Done in
Current Period
Direct materials
Conversion costs
$23,000 ($460,000 ÷ 20 equiv. units)
$10,000 ($120,000 ÷ 12 equiv. units)
$25,000
$11,000
Direct
Materials
Conversion
Costs
Cost per equivalent unit (weighted-average) $24,600* $10,876.29*
Cost per equivalent unit (FIFO) $25,000** $11,000**
*from Solution Exhibit 17-30B
**from Solution Exhibit 17-32B
The cost per equivalent unit differs between the two methods because each method uses different
costs to calculate the numerator of the calculation. FIFO uses only the costs added during the
period whereas weighted-average uses the costs from the beginning work-in-process as well as
costs added during the 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
(Solution
Exhibit 17-30B)
FIFO
(Solution
Exhibit 17-32B) Difference
Cost of units completed and transferred out
$3,192,866
322,134
$3,515,000
$3,188,000
327,000
$3,515,000
–$4,866
+$4,866
The FIFO ending inventory is higher than the weighted-average ending inventory by $4,866.
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, smoothes 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.
17-24

17-32 (Cont’d.)
FIFO Method of Process Costing, Assembly Department of Global Defense Inc. for October 2004
(Step 1)
(Step 2)
Equivalent Units
Flow of Production
Physical
Units
Direct
Materials
Conversion
Costs
To account for
20
80
100
(work done before current
period)
Completed and transferred out during current
period:
20 × (100% − 100%); 20 × (100% − 60%)
20
0 8
70 ×100%, 70 × 100%
70†
70 70
10 × 100%; 10 × 70%
10
10 7
Accounted for 100
Work done in current period only 80 85
§
†
90 physical units completed and transferred out minus 20 physical units completed and transferred out from
17-25

17-32 (Cont’d.)
FIFO Method of Process Costing, Assembly Department of Global Defense Inc. for October 2004
Total
Production
Costs
Direct
Materials
Conversion
Costs
Work in process, beginning ($460,000 + $120,000) $ 580,000 (costs of work done before
current period)
(Step 3) Costs added in current period (given) 2,935,000 $2,000,000 $935,000
current period (Solution Exhibit 17-32A) ÷ 80 ÷ 85
Cost per equivalent unit of work done in current period $ 25,000 $ 11,000
$ 580,000
0 0* × $25,000
Total costs of units completed & transf. out
Direct materials
Conversion costs
88,000
668,000
2,520,000
3,188,000
250,000
77,000
327,000
$3,515,000
8* × $11,000
(70†
× $25,000) + (70†
× $11,000)
10#
× $25,000
7#
× $11,000
†
#
17.33 (30 min.) Transferred-in costs, weighted-average method
(related to 17-30 to 17-32).
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 17-33A 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 17-33B calculates the cost per equivalent unit of work done to date in the
Testing Department for transferred-in costs, direct materials, and conversion costs, summarizes
total Testing Department costs for October 2004, and assigns these costs to units completed and
transferred out and to units in ending work in process using the weighted-average method.
17-26

17-33 (Cont’d.)
4. Journal entries:
a. Work in Process––Testing Department 3,192,866
during October from the Assembly
Department to the Testing Department
b. Finished Goods 9,303,123
Work in Process––Testing Department 9,303,123
during October from the Testing Department
to Finished Goods inventory
Testing Department of Global Defense Inc. for October 2004
(Step 1) (Step 2)
Flow of Production
Units
(given)
Transferred-in
Costs
Direct
Materials
Conversion
Costs
Transferred in during current period 90
To account for 120
during current period 105 105 105 105
15 × 100%; 15 × 0%; 15 × 60% 15 0 9
Accounted for 120
Work done to date 120 105 114
17-27

17-33 (Cont’d.)
Total
Production
Costs
Transferred
-in Costs
Direct
Materials
Conversion
Costs
(Step 3) Work in process, beginning (given) $1,317,600 $ 985,800 $ 0 $ 331,800
Costs added in current period (given) 8,658,866 3,192,866 3,885,000 1,581,000
Costs incurred to date $4,178,666 $3,885,000 $1,912,800
to date (Solution Exhibit 17-33A) ÷ 120 ÷ 105 ÷ 114
Equivalent unit costs of work done to date $ 34,822.22 $ 37,000 $ 16,778.95
Completed and transferred out (105 units) $9,303,123 (105*× $34,822.22) +(105*×$37,000) + (105*×$16,778.95)
Direct materials
522,333
0
15†
× $34,822.22
0†
× $37,000
Conversion costs
151,010
673,343
$9,976,466
9†
× $16,778.95
†
17-34 (30 min.) Transferred-in costs, FIFO method (continuation of 17-33).
1. As explained in Problem 17-33, 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 2004 in the Testing Department for
transferred-in costs, direct materials, and conversion costs are calculated in Solution Exhibit 17-
34A.
3. Solution Exhibit 17-34B calculates the cost per equivalent unit of work done in October
2004 in the Testing Department for transferred-in costs, direct materials, and conversion costs,
summarizes total Testing Department costs for October 2004, 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 3,188,000
during October from the Assembly Dept. to
the Testing Dept.
17-28

17-34 (Cont’d.)
b. Finished Goods 9,281,527
Work in Process––Testing Department 9,281,527
during October from the Testing Department
to Finished Goods inventory.
(Step 1)
(Step 2)
Equivalent Units
Flow of Production
Physical
Units
Transferred-
in Costs
Direct
Materials
Conversion
Costs
Transferred-in during current period (given)
To account for
30
90
120
30 × (100% − 100%); 30 × (100% − 0%);
30 × (100% − 70%)
30
0 30 9
75 × 100%; 75 × 100%; 75 × 100%
75†
75 75 75
15 × 100%; 15 × 0%; 15 × 60%
15
15 0 9
Accounted for 120
Work done in current period only 90 105 93
§
†
105 physical units completed and transferred out minus 30 physical units completed and transferred out from
17-29

17-34 (Cont’d.)
Total
Production
Costs
Transferred
-in Costs
Direct
Materials
Conversion
Costs
($331,800 + $0 + $980,060)) $1,311,860 (Costs of work done before current period)
(Step 3) Costs added in current period (given) 8,654,000 $3,188,000 $3,885,000 $1,581,000
current period (Solution Exhibit 17-34A) ÷ 90 ÷ 105 ÷ 93
Cost per equiv. unit of work done in current period $ 35,422.22 $ 37,000 $ 17,000
Tfd-in costs added in current period
$1,311,860
0
1,110,000
0*× $35,422.22
30*×$37,000
Direct materials
Conversion costs
153,000
2,574,860
6,706,667
9,281,527
531,333
0
153,000
684,333
$9,965,860
9*×$17,000
(75†
×$35,422.22)+(75†
×$37,000)+(75†
×$17,000)
15#
× $35,422.22
0#
×$37,000
9#
×$17,000
†
#
17-30

17-35 (25 min.) Weighted-average method.
Solution Exhibit 17-35A shows equivalent units of work done to date of
Direct materials 2,500 equivalent units
Conversion costs 2,125 equivalent units
Note that direct materials are added when the Forming 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 17-35B calculates cost per equivalent unit of work done to date for direct
materials and conversion costs, summarizes the total Forming Department costs for April 2004,
and assigns these costs to units completed (and transferred out), and to units in ending work in
process using the weighted-average method.
Weighted-Average Method of Process Costing, Forming Department of Star Toys for April 2004
(Step 1) (Step 2)
during current period 2,000 2,000 2,000
500 × 100%; 500 × 25% 500 125
Accounted for 2,500
Work done to date 2,500 2,125
17-31

17-35 (Cont’d.)
Weighted-Average Method of Process Costing, Forming Department of Star Toys for April 2004
Total
Production
Costs
Direct
Materials
Conversion
Costs
(Step 3) Work in process, beginning (given) $ 9,625 $ 7,500 $ 2,125
Costs added in current period (given) 112,500 70,000 42,500
Costs incurred to date $77,500 $44,625
Divide by equivalent units of work done to
date (Solution Exhibit 17-35A) ÷ 2,500 ÷ 2,125
Cost per equivalent unit of work done to date $ 31 $ 21
Completed and transferred out (2,000 units) $104,000 2,000* × $31 + 2,000* × $21
Direct materials 15,500 500†
× $31
Conversion costs
2,625
18,125
$122,125
125†
× $21
†
17-36 (5–10 min.) Journal entries (continuation of 17-35).
1. Work in Process––Forming Department 70,000
Accounts Payable 70,000
To record direct materials purchased and
used in production during April
2. Work in Process––Forming Department 42,500
Various Accounts 42,500
To record Forming Department conversion
costs for April
3. Work in Process––Finishing Department 104,000
Work in Process––Forming Department 104,000
To record cost of goods completed and transferred
out in April from the Forming Department
to the Finishing Department
17-32

17-36 (Cont’d.)
Work in Process––Forming Department
Beginning inventory, April 1 9,625 3. Transferred out to
1. Direct materials 70,000 Work in Process––Finishing 104,000
Ending inventory, April 30 18,125
17-37 (20 min.) FIFO method (continuation of 17-35).
The equivalent units of work done in April 2004 in the Forming Department for direct
materials and conversion costs are shown in Solution Exhibit 17-37A.
Solution Exhibit 17-37B calculates the cost per equivalent unit of work done in April 2004
in the Forming Department for direct materials and conversion costs, summarizes the total
Forming Department costs for April 2004, 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, 300 × 100% =
300; and conversion costs 300 × 40% = 120. The cost per equivalent unit of beginning inventory
and of work done in the current period are:
Beginning
Inventory
Work Done in
Current Period
(Calculated Under
FIFO Method)
Direct materials
Conversion costs
$25 ($7,500 ÷ 300)
$17.708 ($2,125 ÷ 120)
$31.818
$21.197
Weighted
Average
(Solution
Exhibit 17-35B)
FIFO
(Solution
$104,000
18,125
$122,125
$103,566
18,559
$122,125
–$434
+$434
The FIFO ending inventory is higher than the weighted-average ending inventory by $434.
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, smoothes 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.
17-33

17-37 (Cont’d.)
FIFO Method of Process Costing, Forming Department of Star Toys for April 2004
(Step 1)
(Step 2)
Equivalent Units
Flow of Production
Physical
Units
Direct
Materials
Conversion
Costs
To account for
300
2,200
2,500
300× (100% − 100%); 300× (100% − 40%)
300
0 180
1,700 × 100%; 1,700 × 100%
1,700†
1,700 1,700
500 × 100%; 500 × 25%
500
500 125
Accounted for 2,500
§
†
2,000 physical units completed and transferred out minus 300 physical units completed and transferred out from
17-34

17-37 (Cont’d.)
FIFO Method of Process Costing, Forming Department of Star Toys for April 2004
Total
Production
Costs
Direct
Materials
Conversion
Costs
(given: $7,500 + $2,125) $ 9,625 (work done before current period)
(Step 3) Costs added in current period (given) 112,500 $70,000 $42,500
current period (Exhibit 17-37A) ÷ 2,200 ÷ 2,005
Cost per equivalent unit of work done in current
period $31.818 $21.197
$ 9,625
0 0* × $31.818
Total costs of units completed & tsfd. out
Direct materials
Conversion costs
3,815
13,440
90,126
103,566
15,909
2,650
18,559
$122,125
180*
× $21.197
(1,700†
× $31.818) + (1,700†
× $21.197)
500#
× $31.818
125#
× $21.197
†
#
17-35

17.38 (30 min.) Transferred-in costs, weighted average
(related to 17-35 through 17-37).
1. Solution Exhibit 17-38A computes the equivalent units of work done to date in the Finishing
Department for transferred-in costs, direct materials, and conversion costs.
Solution Exhibit 17-38B calculates the cost per equivalent unit of work done to date in the
Finishing Department for transferred-in costs, direct materials, and conversion costs, summarizes
total Finishing Department costs for April 2004, 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––Finishing Department 104,000
during April from the Forming Department
to the Finishing Department
b. Finished Goods 168,552
Work in Process––Finishing Department 168,552
during April from the Finishing Department
to Finished Goods inventory
Finishing Department of Star Toys for April 2004
(Step 1) (Step 2)
Flow of Production
Units
(given)
Transferred-
in Costs
Direct
Materials
Conversion
Costs
Transferred in during current period 2,000
400 × 100%; 400 × 0%; 400 × 30% 400 0 120
Accounted for 2,500
Work done to date 2,500 2,100 2,220
17-36

17-38 (Cont’d.)
Total
Production
Costs
Transferred
-in Costs
Direct
Materials
Conversion
Costs
(Step 3) Work in process, beginning (given) $ 25,000 $ 17,750 $ 0 $ 7,250
to date (Solution Exhibit 17-38A) ÷ 2,500 ÷ 2,100 ÷ 2,220
Equivalent unit costs of work done to date $ 48.70 $ 11 $20.563
Completed and transferred out (2,100 units) $168,552 (2,100*×$48.70) + (2,100* × $11) + (2,100*× $20.563)
Direct materials
19,480
0
400†
×$48.70
0† ×$11
Conversion costs
2,468
21,948
$190,500
120†
× $20.563
†
17-39 (30 min.) Transferred-in costs, FIFO method (continuation of 17-38).
1. Solution Exhibit 17-39A calculates the equivalent units of work done in April 2004 in the
Finishing Department for transferred-in costs, direct materials, and conversion costs.
Solution Exhibit 17-37B calculates the cost per equivalent unit of work done in April 2004
in the Finishing Department for transferred-in costs, direct materials, and conversion costs,
summarizes total Finishing Department costs for April 2004, 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––Finishing Department 103,566
during April from the Forming Dept. to
the Finishing Dept.
17-37

17-39 (Cont’d.)
b. Finished Goods 166,723
Work in Process––Finishing Department 166,723
during April from the Finishing Department
to Finished Goods inventory.
2. The equivalent units of work done in beginning inventory is: Transferred-in costs, 500 ×
100% = 500; direct materials, 500 × 0% = 0; and conversion costs, 500 × 60% = 300. The cost per
equivalent unit of beginning inventory and of work done in the current period are:
Beginning
Inventory
Work Done in
Current Period
Transferred-in costs (weighted average)
Transferred-in costs (FIFO)
Direct materials
Conversion costs
$35.50 ($17,750 ÷ 500)
$35.04 ($17,520 ÷ 500)
—
$24.167 ($7,250 ÷ 300)
$52 ($104,000 ÷ 2,000)
$51.783 ($103,566 ÷ 2,000)
$11
$20
Weighted
Average
(Solution
Exhibit 17-38B)
FIFO
(Solution
$168,552
21,948
$190,500
$166,723
23,113
$189,836
–$1,829
+$1,165
The FIFO ending inventory is higher than the weighted-average ending inventory by $1,165.
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, smoothes 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 (–$1,829) does not fully offset the difference in ending work-in-
process inventory (+$1,165). 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.
17-38

17-39 (Cont’d.)
(Step 1)
(Step 2)
Equivalent Units
Flow of Production
Physical
Units
Transferred-
in Costs
Direct
Materials
Conversion
Costs
To account for
500
2,000
2,500
500 × (100% − 100%); 500 × (100% − 0%);
500 × (100% − 60%)
500
0 500 200
1,600 × 100%; 1,600 × 100%; 1,600 × 100%
1,600†
1,600 1,600 1,600
400 × 100%; 400 × 0%; 400 × 30%
400
400 0 120
Accounted for 2,500
§
Degree of completion in this department: Transferred-in costs, 100%; direct materials, 0%;
conversion costs, 60%.
†
2,100 physical units completed and transferred out minus 500 physical units completed and transferred out from
17-39

17-39 (Cont’d.)
Total
Production
Costs
Transferred
-in Costs
Direct
Materials
Conversion
Costs
current period (Solution Exhibit 17-39A) ÷ 2,000 ÷ 2,100 ÷ 1,920
Cost per equiv. unit of work done in current
period $ 51.783 $ 11 $ 20
$ 24,770
0
5,500
0*×$51.783
500*×$11
Direct materials
Conversion costs
4,000
34,270
132,453
166,723
20,713
0
2,400
23,113
$189,836
200*×$20
(1,600†
× $51.783)+ (1,600†
×$11)+ (1,600†
×$20)
400#
×$51.783
0#
× $11
120#
× $20
†
#
17-40

17-40 (45 min.) Transferred-in costs, weighted-average and FIFO methods.
1. Solution Exhibit 17-40A computes the equivalent units of work done to date in the Drying
and Packaging Department for transferred-in costs, direct materials, and conversion costs. Solution
Exhibit 17-40B calculates the cost per equivalent unit of work done to date in the Drying and
Packaging Department for transferred-in costs, direct materials, and conversion costs, summarizes
total Drying and Packaging Department costs for week 37, and assigns these costs to units
completed and transferred out and to units in ending work in process using the weighted-average
method.
2. Solution Exhibit 17-40C computes the equivalent units of work done in week 37 in the
Drying and Packaging Department for transferred-in costs, direct materials, and conversion costs.
Solution Exhibit 17-40D calculates the cost per equivalent unit of work done in week 37 in the
Drying and Packaging Department for transferred-in costs, direct materials, and conversion costs,
summarizes total Drying and Packaging Department costs for week 37, and assigns these costs to
units completed and transferred out and to units in ending work in process using the FIFO method.
Drying and Packaging Department of Frito-Lay Inc. for Week 37
(Step 1) (Step 2)
Flow of Production
Units
(given)
Transferred-
in Costs
Direct
Materials
Conversion
Costs
Work in process, beginning 1,250
Transferred in during current period 5,000
1,000 × 100%; 1,000 × 0%; 1,000 × 40% 1,000 0 400
Accounted for 6,250
Work done to date 6,250 5,250 5,650
17-41

17-40 (Cont’d.)
Total
Production
Costs
Transferred
-in Costs
Direct
Materials
Conversion
Costs
(Step 3) Work in process, beginning (given) $ 38,060 $ 29,000 $ 0 $ 9,060
to date (Solution Exhibit 17-40A) ÷ 6,250 ÷ 5,250 ÷ 5,650
Equivalent unit costs of work done to date $ 20 $ 4.80 $ 8.40
Completed and transferred out (5,250 units) $174,300 5,250*× $20 + 5,250*× $4.80 + 5,250*× $8.40
Direct materials
20,000
0
1,000†
× $20
0†
× $4.80
Conversion costs
3,360
23,360
$197,660
400†
× $8.40
†Equivalent units in work in process, ending from Solution Exhibit 17-40A, Step 2.
17-42

17-40 (Cont’d.)
SOLUTION EXHIBIT 17-40C
(Step 1)
(Step 2)
Equivalent Units
Flow of Production
Physical
Units
Transferred-
in Costs
Direct
Materials
Conversion
Costs
To account for
1,250
5,000
6,250
1,250 × (100% − 100%); 1,250 × (100% − 0%);
1,250 × (100% − 80%)
1,250
0 1,250 250
4,000 × 100%; 4,000 × 100%; 4,000 × 100%
4,000†
4,000 4,000 4,000
1,000 × 100%; 1,000 × 0%; 1,000 × 40%
1,000
1,000 0 400
Accounted for 6,250
§
†
17-43

17-40 (Cont’d.)
SOLUTION EXHIBIT 17-40D
Total
Production
Costs
Transferred
-in Costs
Direct
Materials
Conversion
Costs
current period (Solution Exhibit 17-40C) ÷ 5,000 ÷ 5,250 ÷ 4,650
Cost per equiv. unit of work done in current period $ 18.80 $ 4.80 $ 8.258
$ 37,980
0
6,000
0*× $18.80
1,250*× $4.80
Direct materials
Conversion costs
2,065
46,045
127,432
173,477
18,800
0
3,303
22,103
$195,580
250*× $8.258
(4,000†
× $18.80)+(4,000†
× $4.80) +(4,000†
×$8.258)
1,000#
×$18.80
0#
×$4.80
400#
×$8.258
*Equivalent units used to complete beginning work in process from Solution Exhibit 17-40C, Step 2.
†
Equivalent units started and completed from Solution Exhibit 17-40C, Step 2.
#
Equivalent units in work in process, ending from Solution Exhibit 17-40C, Step 2.
17-44

17-41 (25 min.) Standard costing with beginning and ending work in
process.
1. Solution Exhibit 17-41A shows equivalent units of work done in the current period of
Direct materials 20,000 equivalent units
Conversion costs 18,700 equivalent units
Solution Exhibit 17-41B uses the standard costs of work done in the current period: direct
materials, $6; conversion costs, $3; to summarize the total Cooking Department costs for May
2004, and assign these costs to units completed (and transferred out) and to units in ending work
in process using the standard costing method.
2. May variances for direct materials and conversion costs are as follows:
Direct Materials Conversion Costs
Output in equivalent units for May
Standard costs of May month's output
Direct materials, $6; Conversion costs, $3
Actual costs incurred during May (given)
Variances
20,000
$120,000
125,000
$ 5,000 U
18,700
$56,100
57,000
$ 900 U
Use of Standard Costs in Process Costing, Cooking Department of Victoria Corporation for May
2004
(Step 1)
(Step 2)
Equivalent Units
Flow of Production
Physical
Units
Direct
Materials
Conversion
Costs
To account for
3,000
20,000
23,000
3,000 × (100% − 100%); 3,000 × (100% − 60%)
3,000
0 1,200
15,000 × 100%; 15,000 × 100%
15,000||
15,000 15,000
5,000 × 100%; 5,000 × 50%
5,000
5,000 2,500
§
Degree of completion in this department: direct materials, 100%; conversions, 60%.
||
17-45

17-41 (Cont’d.)
Use of Standard Costs in Process Costing, Cooking Department of Victoria Corporation for May
2004.
Total
Production
Costs
Direct
Materials
Conversion
Costs
(Step 3) Standard cost per equivalent unit (given) $ 6 $ 3
Direct materials, 3,000 × $6; Conversion costs, 1,800 × $3 $ 23,400
Direct materials, 20,000 × $6; Conversion costs, 18,700 × $3 176,100 120,000 56,100
(Step 4) Costs to account for $199,500
$ 23,400
0
3,600
27,000
0* × $6
1,200* × $3
135,000
162,000
(15,000†
× $6)+(15,000†
×$3)
Direct materials 30,000 5,000#
× $6
Conversion costs
7,500
37,500
$199,500
2,500#
× $3
Summary of variances for current performance
Costs added in current period at standard prices (see step 3 above)
Variance
$120,000
125,000
$ 5,000 U
$56,100
57,000
$ 900 U
*Equivalent units to complete beginning work Solution Exhibit 17-41A, Step 2.
†
#
17-46

17-42 (25-30 min.) Operation costing, equivalent units.
1. Materials and conversion costs of each operation, the total units produced, and the material
and conversion cost per unit for the month of May are as follows:
Extrusion Form Trim Finish
1. Units produced 11,000 11,000 5,000 2,000
2. Materials costs $132,000 $ 44,000 $15,000 $12,000
3. Materials cost per unit (2 ÷1) 12.00 4.00 3.00 6.00
4. Conversion costs 269,500 132,000 69,000 42,000
5. Conversion cost per unit (4 ÷ 1) 24.50 12.00 13.80 21.00
The unit cost and total costs in May for each product are as follows:
Standard Deluxe Executive
Cost Elements Model Model Model
Extrusion materials $ 12.00 $ 12.00 $ 12.00
Form materials 4.00 4.00 4.00
Trim materials – 3.00 3.00
Finish materials – – 6.00
Extrusion conversion 24.50 24.50 24.50
Form conversion 12.00 12.00 12.00
Trim conversion – 13.80 13.80
Finish conversion – – 21.00
Total unit cost $ 52.50 $ 69.30 $ 96.30
Multiply by units produced × 6,000 × 3,000 × 2,000
Total product costs $315,000 $207,900 $192,600
2. Equivalent
Unit Cost Units Total Costs
Deluxe model work-in process costs
at the trim operation
Extrusion material
(100% complete when transferred in) $12.00 1,000 $12,000
Extrusion conversion
(100% complete when transferred in) 24.50 1,000 24,500
Form material
Form conversion
Trim material (100% complete) 3.00 1,000 3,000
Trim conversion (60% complete) 13.80 600* 8,280
Work-in-process costs $63,780
*1,000 units × 60% complete
17-47

17-43 (20 min.) Equivalent-unit computations, benchmarking, ethics.
1. The reported monthly cost per equivalent unit of either 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. 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.
2. 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 exists, Major may create a conflict of interest situation for the plant controller. Only if
the plant controller reports directly to the corporate controller, and indirectly to the plant manager,
should Major show the letters to the plant controller without simultaneously showing them to the
plant manager.
3. The plant controller’s ethical responsibilities to Major and to Leisure Suits are the same.
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 Leisure Suits’s case, however, the products are 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 up
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.
4. Major 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. Divisions 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. Divisions 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.
17-48

17-44 (45 min.) Transferred-in costs, equivalent unit costs, working backward.
1. The equivalent units of work done in the current period for each cost category are computed
in Solution Exhibit 17-44B using data on costs added in current period and cost per equivalent unit
of work done in current period.
Transferred- Direct Conversion
In Costs Materials Costs
Costs added in current period $58,500 $57,000 $57,200
Divided by cost per equivalent unit of work
done in current period ÷ $6.50 ÷ $3 ÷ $5.20
Equivalent units of work done
in current period 9,000 19,000 11,000
2.
processinwork
endinginunitsPhysical
addedunits
Physical
processinwork
beginninginunitsPhysical
outedtransferrand
completedunitsPhysical
−+=
= 15,000 + 9,000 − 5,000 = 19,000
Solution Exhibit 17-44A shows the equivalent units of work done in June to complete
beginning work in process and the equivalent units of work done in June to start and complete
4,000 units. Note that direct materials in beginning work in process is 0% complete because it is
added only when the process is 80% complete and the beginning WIP is only 60% complete. We
had calculated the total equivalent units of work done in the current period in requirement 1:
transferred-in costs, 9,000; direct materials, 19,000; and conversion costs, 11,000. The missing
number is the equivalent units of each cost category in ending work in process (see Solution
Exhibit 17-44A).
Transferred-in costs 5,000
Direct materials 0
Conversion costs 1,000
3. Percentage of completion for each cost category in ending work in process can be calculated
by dividing equivalent units in ending work in process for each cost category by physical units of
work in process (5,000 units).
Transferred-in costs 5,000 ÷ 5,000 = 100%
Direct materials 0 ÷ 5,000 = 0%
Conversion costs 1,000 ÷ 5,000 = 20%
4. Solution Exhibit 17-44B summarizes the total costs to account for, and assigns these costs to
units completed and transferred out and to units in ending work in process.
17-49

17-44 (Cont’d.)
Thermo-assembly Department of Lennox Plastics for June 2004
(Step 1)
(Step 2)
Equivalent Units
Flow of Production
Physical
Units
Transferred-
in Costs
Direct
Materials
Conversion
Costs
To account for
15,000
9,000
24,000
15,000 × (100% − 100%); 15,000 × (100% − 0%);
15,000 × (100% − 60%)
15,000
0 15,000 6,000
4,000 × 100%; 4,000 × 100%; 4,000 × 100%
4,000†
4,000 4,000 4,000
5,000 × 100%; 5,000 × 0%; 5,000 × 20%
5,000
5,000 0 1,000
Work done in current period only
(from Solution Exhibit 17-44B) 9,000 19,000 11,000
§
Degree of completion in this department: Transferred-in costs, 100%; direct materials, 0%;
conversion costs, 60%.
†
17-50

17-44 (Cont’d.)
Thermo-assembly Department of Lennox Plastics for June 2004
Total
Production
Costs
Transferred
-in Costs
Direct
Materials
Conversion
Costs
($90,000 + $0 + $45,000) $135,000 (Costs of work done before current period)
current period ÷ 9,000 ÷19,000 ÷11,000
Cost per equiv. unit of work done in current period $ 6.50 $ 3 $ 5.20
$135,000
0
45,000
0*× $6.50
15,000* × $3
Direct materials
Conversion costs
31,200
211,200
58,800
270,000
32,500
0
5,200
37,700
$307,700
6,000*× $5.20
(4,000†
× $6.50) + (4,000†
× $3) + (4,000†
× $5.20)
5,000#
×$6.50
0#
× $3
1,000#
×$5.20
†
#
Chapter 17 Internet Exercise
The Internet exercise is available to students only on the Prentice Hall Companion Website
www.prenhall.com/horngren. Students can click on Cost Accounting, 11th
ed., and access the
Internet Exercise for the chapter, which links to the Web site of a company or organization. The
Internet Exercise on the Web will be updated periodically so that it is current with the latest
information available on the subject organization's Web site. A printout copy of the Internet
exercise for this chapter as of early 2002 appears below.
The solution to the Internet exercise, which will also be updated periodically, is available to
instructors from the Companion Website's faculty view. To access the solution, click on Cost
Accounting, 11th
ed., Faculty link, and then register once to obtain your password through the
online form. After the initial registration, you will have a personal login ID and password to use
to log in. A printout of the solution to the Internet exercise for this chapter as of early 2002
follows. The exercise and solution provide instructors with an idea of the content of the Internet
exercise for this chapter.
17-51

Internet Exercise (Cont’d.)
Internet Exercise
In this exercise you will take a tour of the Golden Cheese Company of California, the world’s
largest fully integrated cheese plant. To take the tour go to:
http://ourworld.compuserve.com/homepages/gccc/.
1a. Click on the “Welcome” link. What are the primary products of the Golden Cheese
Company?
1b. What are the secondary products of the manufacturing process?
1c. Are there any residual waste byproducts?
1d. What journal entry is made to record the transfer of milk into the production process?
2a. Click on the “Process Schematic.” What is the first product transferred out of the cheese
production process? What journal entry is made to record this transfer?
2b. What is the second product transferred out of the cheese production process? What journal
entry is made to record this transfer?
3a. Whey cream is either sold as a finished product or processed further. What journal entries
are made to record the transfer for final sale?
3b. What journal entry is made to record the transfer of whey cream for further processing?
4. Briefly describe the “Cheddaring” and “Blocking” steps in the cheese production process.
5. What proportion of milk solids is converted into cheese? What happens to the rest?
Solution to Internet Exercise
1a. The Golden Cheese Company produces a variety of cheese products, including specialized
whey and protein concentrate products (used in baby foods and nutritional supplements).
1b. Even the residual milk sugar is fermented and distilled into ethyl alcohol that is used as a
fuel additive.
1c. All the components of the milk are utilized. The residual milk sugar is fermented and
distilled into ethyl alcohol, which is used as a fuel additive. Remaining milk solids are
concentrated into an animal feed. Only water is left after all the products and byproducts
are extracted, and the water is used in cleaning the plant.
1d. Work in Process – Cheese XXX
Materials Inventory – Milk XXX
2a. Sweet cream is the first byproduct transferred out of the cheese production process into the
whey cream production process. The journal entry to record the transfer is:
Work in Process – Whey Cream XXX
Work in Process – Cheese XXX
2b. The second product transferred out of the cheese production process is sweet whey. The
journal entry to record the transfer is
Work in Process – Cheese XXX
17-52

Internet Exercise (Cont’d.)
3a. The following journal entry is used to record whey cream transferred to finished goods.
Finished Goods – Whey Cream XXX
3b. The journal entry to record the transfer of whey cream to whey protein concentrate
processing is
Work in Process – Whey Protein Concentrate XXX
4. After curds and whey are separated, the curds go through a “cheddaring” process. In the
cheddaring process curds are blown into the cheddar-master tower where they are stacked for two
hours. This increases lactic acid production, which controls curd moisture and leads to proper curd
texture. Next, the curd is blown into blockformers where the curd is pressed into 44-pound
blocks, and cooled to 50 degrees. Then the cheese is transferred to the shredding process where it
is weighed and cut for sale.
5. Approximately half of the solids in milk are converted to cheese; the remaining solids, and
virtually all of the liquid, are drained from the cheese curd as whey.
Chapter 17 Video Case
The video case can be discussed using only the case writeup in the chapter. Alternatively,
instructors can have students view the videotape of the company that is the subject of the case.
The videotape can be obtained by contacting your Prentice Hall representative. The case
questions challenge students to apply the concepts learned in the chapter to a specific business
situation.
NANTUCKET NECTARS: PROCESS COSTING
1. In a process-costing system, the unit cost of a product or service is obtained by assigning
total costs to many identical or similar units, in this case, single-serve juice beverage bottles.
2.
Direct Material Item Stage in Production Process
Raw ingredients for juices (water, cane sugar, fruit
juice concentrates, etc.)
Beginning
Bottles and caps Middle
Labels, cardboard trays, shrink-wrap End
3. Conversion costs include labor associated with the production line, depreciation on
production equipment, plant utilities, plant maintenance costs, and plant property taxes.
4. In the process described for the manufacture of Nantucket Nectars juices, there is no
partially completed inventory, as the product is mixed and bottled within a few hours each
production day. Accordingly, the calculation of equivalent units in this case makes little sense. As
there is no partially completed ending inventory, there will be no difference between the cost of
the units transferred out under the weighted average or FIFO methods.
17-53

PROCESS-COSTING

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