managerial

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SolutionsManual,Chapter4141

Chapter4

SystemsDesign:ProcessCosting

SolutionstoQuestions

4-1Aprocesscostingsystemshouldbe

udinsituationswhereahomogeneousprod-

uctisproducedonacontinuousbasis.

4-2

-ordercostingandprocesscostinghave

thesamebasicpurpos—toassignmateri-

als,labor,andoverheadcosttoproducts

andtoprovideamechanismforcomputing

unitproductcosts.

stemsuthesamebasicmanufac-

turingaccounts.

lowthroughtheaccountsinbasically

thesamewayinbothsystems.

4-3Costaccumulationissimplerunder

processcostingbecaucostsonlyneedtobe

assignedtodepartments—notparatejobs.A

companyusuallyhasasmallnumberofprocess-

ingdepartments,whereasajob-ordercosting

systemoftenmustkeeptrackofthecostsof

hundredsoreventhousandsofjobs.

4-4Inaprocesscostingsystem,aWorkin

Processaccountismaintainedforeachparate

processingdepartment.

4-5Thejournalentrywouldbe:

WorkinProcess,Firing........

XXXX

WorkinProcess,Mixing.

XXXX

4-6Thecoststhatmightbeaddedinthe

FiringDepartmentinclude:(1)coststransferred

infromtheMixingDepartment;(2)materials

costsaddedintheFiringDepartment;(3)labor

costsaddedintheFiringDepartment;and(4)

overheadcostsaddedintheFiringDepartment.

4-7Undertheweighted-averagemethod,

equivalentunitsofproductionconsistofunits

transferredtothenextdepartment(ortofin-

ishedgoods)duringtheperiodplustheequiva-

lentunitsinthedepartment’ndingworkin

processinventory.

4-8Thecompanywillwanttodistinguish

betweenthecostsofthemetalsudtomake

themedallions,butthemedalsareotherwi

identicalandgothroughthesameproduction

,operationcostingisideally

suitedforthecompany’sneeds.

4-9Undertheweighted-averagemethod,

eachunittransferredoutofthedepartmentis

countedasoneequivalentunit—regardlessofin

whatperiodtheworkwasdonetocompletethe

heFIFOmethod,onlythework

partconsistsoftheunitsinthebeginninginven-

eworkneededtocompletethe

unitsisshownaspartoftheequivalentunitsfor

erpartoftheunits

transferredoutconsistsoftheunitsstartedand

completedduringthecurrentperiod.

4-10Theweighted-averagemethodmixes

costsfromthecurrentperiodwithcostsfrom

,undertheweighted-

averagemethod,thedepartment’sapparent

performanceinthecurrentperiodisinfluenced

tosomeextentbywhathappenedinapriorpe-

rast,theFIFOmethodcleanlypa-

ratesthecostsandworkofthecurrentperiod

kesthe

FIFOmethodsuperiortotheweighted-average

methodforcostcontrolbecaucurrentper-

formanceshouldbemeasuredinrelationto

costsofthecurrentperiodonly.

4-11Operatingdepartmentsaretheunitsin

anorganizationwithinwhichthecentralpur-

posoftheorganizationarecarriedout;the

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142ManagerialAccounting,12thEdition

-

trast,rvicedepartmentsprovidesupportor

-

plesofrvicedepartmentsincludelaundryr-

vicesinahotelorhospital,internalauditing,

airportmaintenancervices(groundcrews),

cafeteria,personnel,costaccounting,andsoon.

4-12Servicedepartmentcostsareallocated

e

departmentcostsarefirstallocatedtotheoper-

llocatedcostsare

thenincludedintheoperatingdepartments’

overheadrates,whichareudtocostproducts

andrvices.

4-13Interdepartmentalrvicexistwhen-

evertworvicedepartmentsprovidervices

toeachother.

4-14Underthedirectmethod,interdepart-

mentalrvicesareignored;rvicedepartment

costsareallocateddirectlytooperatingdepart-

ments.

4-15Underthestep-downmethod,thecosts

ofthervicedepartmentperformingthegreat-

estamountofrvicefortheotherrvicede-

partmentsareallocatedfirst,thecostsofthe

rvicedepartmentperformingthenextgreatest

amountofrviceareallocatednext,andso

arvicedepartment’scostshavebeenallo-

cated,costsarenotreallocatedbacktoitunder

thestep-downmethod.

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SolutionsManual,Chapter4143

Exerci4-2(10minutes)

Weighted-AverageMethod

EquivalentUnits

MaterialsConversion

Unitstransferredtothenextdepartment.......410,000410,000

Endingworkinprocess:

Materials:30,000units×70%complete.....21,000

Conversion:30,000units×50%complete..

15,000

Equivalentunitsofproduction.......................431,000425,000

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144ManagerialAccounting,12thEdition

Exerci4-3(10minutes)

Weighted-AverageMethod

MaterialsLaborOverheadTotal

Workinprocess,May1........$14,550$23,620$118,100

CostaddedduringMay........88,350

14,33071,650

Totalcost(a)......................$102,900

$37,950$189,750

Equivalentunitsof

production(b)..................

1,2001,1001,100

Costperequivalentunit

(a)÷(b)..........................

$85.75$34.50$172.50$292.75

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SolutionsManual,Chapter4145

Exerci4-4(10minutes)

Weighted-AverageMethod

MaterialsConversionTotal

Endingworkinprocessinventory:

Equivalentunitsofproduction.................300100

Costperequivalentunit..........................$31.56$9.32

Costofendingworkinprocessinventory.$9,468$932$10,400

Unitscompletedandtransferredout:

Unitstransferredtothenextdepartment..1,3001,300

Costperequivalentunit..........................$31.56$9.32

Costofunitscompletedandtransferredout$41,028$12,116$53,144

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146ManagerialAccounting,12thEdition

Exerci4-8(15minutes)

ServiceDepartmentsOperatingDepartments

Admini-

stration

Physical

Plant

Services

Undergraduate

Programs

Graduate

ProgramsTotal

Departmentalcostsbefore

allocations......................

$2,070,000$720,000$23,650,000$2,980,000$29,420,000

Allocations:

Administrationcosts

(40/45,5/45)..............(2,070,000)1,840,000230,000

PhysicalPlantcosts

(250/300,50/300)*.....

(720,000)

600,000120,000

Totalcostsafterallocation.$0$0$26,090,000$3,330,000$29,420,000

*Badonthespaceoccupiedbythetwooperatingdepartments,whichis300,000squarefeet.

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SolutionsManual,Chapter4147

Exerci4-9(15minutes)

Service

Departments

Operating

Departments

Admini-

stration

Building

ServicesGroceries

Coffee

ShopTotal

Departmentalcostsbeforeallocations..$200,000$60,000$3,860,000$340,000$4,460,000

Allocations:

Administrationcosts(320/3,200,

2,720/3,200,160/3,200)*.............

(200,000)20,000170,00010,000

BuildingServicescosts

(9,500/10,000,500/10,000)†........(80,000)76,0004,000

Totalcostsafterallocation..................$0$0$4,106,000$354,000$4,460,000

*Badonemployeehoursintheotherthreedepartments,320+2,720+160=3,200.

†Badonspaceoccupiedbythetwooperatingdepartments,9,500+500=10,000.

BoththeBuildingServicesDepartmentcostsof$60,000andtheAdministrationcostsof$20,000that

havebeenallocatedtotheBuildingServicesDepartmentareallocatedtothetwooperatingdepart-

ments.

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148ManagerialAccounting,12thEdition

Exerci4-11(20minutes)

Weighted-AverageMethod

alsLaborOverhead

Unitstransferredtothenextde-

partment........................................790,000790,000790,000

Endingworkinprocess:

Materials:50,000units×60%

complete.....................................30,000

Labor:50,000units×20%com-

plete...........................................10,000

Overhead:50,000units×20%

complete.....................................10,000

Equivalentunitsofproduction............820,000800,000800,000

alsLaborOverhead

Costofbeginningworkinprocess.......$68,600$30,000$48,000

Costsaddedduringtheperiod............907,200370,000592,000

Totalcost(a).....................................$975,800$400,000$640,000

Equivalentunitsofproduction(b).......820,000800,000800,000

Costperequivalentunit(a)÷(b)........$1.19$0.50$0.80

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SolutionsManual,Chapter4149

Exerci4-14(10minutes)

Weighted-AverageMethod

Materials

Labor&

Overhead

PoundstransferredtothePackingDepartment

duringMay........................................................

490,000490,000

Workinprocess,May31:

Materials:20,000pounds×100%complete........20,000

Laborandoverhead:20,000pounds×90%

complete........................................................18,000

Equivalentunitsofproduction...............................510,000508,000

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150ManagerialAccounting,12thEdition

Problem4-19(45minutes)

Weighted-AverageMethod

lentUnitsofProduction

MaterialsConversion

Transferredtonextdepartment.......................450,000450,000

Endingworkinprocess:

Materials:80,000unitsx75%complete........60,000

Conversion:80,000unitsx25%complete.....20,000

Equivalentunitsofproduction.........................510,000470,000

rEquivalentUnit

MaterialsConversion

Costofbeginningworkinprocess................$36,550$13,500

Costaddedduringtheperiod.......................391,850

287,300

Totalcost(a)..............................................$428,400$300,800

Equivalentunitsofproduction(b)................510,000470,000

Costperequivalentunit,(a)÷(b)...............$0.84$0.64

ngCoststoUnits

MaterialsConversionTotal

Endingworkinprocessinventory:

Equivalentunitsofproduction

(materials:80,000unitsx75%

complete;conversion:80,000

unitsx25%complete).......60,00020,000

Costperequivalentunit.......$0.84$0.64

Costofendingworkinprocess$50,400$12,800$63,200

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SolutionsManual,Chapter4151

inventory..........................

Unitscompletedandtransferredout:

Unitstransferredtothenext

department.......................450,000450,000

Costperequivalentunit.......$0.84$0.64

Costofunitscompletedand

transferredout..................$378,000$288,000$666,000

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152ManagerialAccounting,12thEdition

Problem4-19(continued)

conciliation

Coststobeaccountedfor:

Costofbeginningworkinprocessinventory

($36,500+$13,500)................................$50,050

Costsaddedtoproductionduringtheperiod

($391,850+$287,300).............................679,150

Totalcosttobeaccountedfor......................$729,200

Costsaccountedforasfollows:

Costofendingworkinprocessinventory......$63,200

Costofunitscompletedandtransferredout..666,000

Totalcostaccountedfor..............................$729,200

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SolutionsManual,Chapter4153

Problem4-21(45minutes)

Weighted-AverageMethod

lentUnitsofProduction

MaterialsConversion

Transferredtonextdepartment*.....................380,000380,000

Endingworkinprocess:

Materials:40,000unitsx75%complete........30,000

Conversion:40,000unitsx25%complete.....10,000

Equivalentunitsofproduction.........................410,000390,000

*Unitstransferredtothenextdepartment=Unitsinbeginningworkinprocess+Unitsstartedinto

production−Unitsinendingworkinprocess=70,000+350,000−40,000=380,000

rEquivalentUnit

MaterialsConversion

Costofbeginningworkinprocess................$86,000$36,000

Costaddedduringtheperiod.......................447,000

198,000

Totalcost(a)..............................................$533,000$234,000

Equivalentunitsofproduction(b)................410,000390,000

Costperequivalentunit,(a)÷(b)...............$1.30$0.60

EndingWorkinProcessInventoryandUnitsTransferredOut

MaterialsConversionTotal

Endingworkinprocessinventory:

Equivalentunitsofproduction

(materials:40,000unitsx75%

complete;conversion:40,0000

unitsx25%complete).......30,00010,000

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154ManagerialAccounting,12thEdition

Costperequivalentunit.......$1.30$0.60

Costofendingworkinprocess

inventory..........................

$39,000$6,000$45,000

Unitscompletedandtransferredout:

Unitstransferredtothenext

department.......................

380,000380,000

Costperequivalentunit.......$1.30$0.60

Costofunitscompletedand

transferredout..................

$494,000$228,000$722,000

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SolutionsManual,Chapter4155

Problem4-21(continued)

conciliation

Coststobeaccountedfor:

Costofbeginningworkinprocessinventory

($86,000+$36,000)................................$122,000

Costsaddedtoproductionduringtheperiod

($447,000+$198,000).............................645,000

Totalcosttobeaccountedfor......................$767,000

Costsaccountedforasfollows:

Costofendingworkinprocessinventory......$45,000

Costofunitscompletedandtransferredout..722,000

Totalcostaccountedfor..............................$767,000

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156ManagerialAccounting,12thEdition

Problem4-23(45minutes)

FoodAdmin.X-Ray

Out-

patientOBGeneral

ServicesServicesServicesClinicCareHospital

Variablecosts..................................$73,150$6,800$38,100$11,700$14,850$53,400

FoodServicesallocation:

$1.90permeal×1,000meals......(1,900)1,900

$1.90permeal×500meals.........(950)950

$1.90permeal×7,000meals.......(13,300)013,300

$1.90permeal×30,000meals.....(57,000)57,000

esallocation:

$0.50perfile×1,500files...........(750)750

$0.50perfile×3,000files...........(1,500)1,500

$0.50perfile×900files..............(450)450

$0.50perfile×12,000files.........(6,000)6,000

X-RayServicesallocation:

$4perX-ray×1,200X-rays.........(4,800)4,800

$4perX-ray×350X-rays............(1,400)1,400

$4perX-ray×8,400X-rays.........

(33,600)33,600

Totalvariablecosts..........................$0$0$0$18,000$30,000$150,000

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SolutionsManual,Chapter4157

Problem4-23(continued)

FoodAdmin.X-Ray

Out-

patientOBGeneral

ServicesServicesServicesClinicCareHospital

Fixedcosts......................................$48,000$33,040$59,520$26,958$99,738$344,744

FoodServicesallocation:

2%×$48,000...........................(960)960

1%×$48,000...........................(480)480

17%×$48,000...........................(8,160)08,160

80%×$48,000...........................(38,400)38,400

esallocation:

10%×$34,000............................(3,400)3,400

20%×$34,000............................(6,800)6,800

30%×$34,000............................(10,200)10,200

40%×$34,000............................(13,600)13,600

X-RayServicesallocation:

13%×$63,400............................(8,242)8,242

3%×$63,400............................(1,902)1,902

84%×$63,400............................

(53,256)53,256

Totalfixedcosts..............................$0$0$0$42,000$120,000$450,000

Totaloverheadcosts........................$0$0$0$60,000$150,000$600,000

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158ManagerialAccounting,12thEdition

Problem4-23(continued)

Computationofallocationrates:

VariableFoodServices:

Variablefoodrvicecost$73,150

==$1.90permeal

Totalmealsrved38,500meals

es:

Variableadministrativecost$6,800+$1,900

==$0.50perfile

Filesprocesd17,400files

VariableX-RayServices:

VariableX-raycost$38,100+$950+$750

==$4.00perX-ray

X-raystaken9,950X-rays