Connect - Managerial Accounting Chapter 3

1.

Prepare journal entries to record the following production activities.

1.	Purchased $80,000 of raw materials on credit.
2.	Used $42,000 of direct materials in production.
3.	Used $22,500 of indirect materials in production.

Transaction	General Journal	Debit	Credit
1	Raw materials inventory	80,000
	Accounts payable		80,000
2	Work in process inventory	42,000
	Raw materials inventory		42,000
3	Factory overhead	22,500
	Raw materials inventory		22,500

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2.

Prepare journal entries to record the following production activities.

1.	Incurred $75,000 of direct labor in production (credit Factory Payroll Payable).
2.	Incurred $20,000 of indirect labor in production (credit Factory Payroll Payable).
3.	Paid factory payroll.

Transaction	General Journal	Debit	Credit
1	Work in process inventory	75,000
	Factory payroll payable		75,000
2	Factory overhead	20,000
	Factory payroll payable		20,000
3	Factory payroll payable	95,000
	Cash		95,000

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2.

Prepare journal entries to record the following production activities.

1.	Incurred total labor cost of $95,000, which is paid in cash.

Event	General Journal	Debit	Credit
1	Factory payroll	95,000
	Cash		95,000

2.	Used $75,000 of direct labor in production.

Event	General Journal	Debit	Credit
1	Goods in process inventory	75,000
	Factory payroll		75,000

3.	Used $20,000 of indirect labor.

Event	General Journal	Debit	Credit
1	Factory overhead	20,000
	Factory payroll		20,000

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3.

Prepare journal entries to record the following production activities.

1.	Paid overhead costs (other than indirect materials and indirect labor) of $38,750.
2.	Applied overhead at 110% of direct labor costs. Direct labor costs were $75,000.

Transaction	General Journal	Debit	Credit
1	Factory overhead	38,750
	Cash		38,750
2	Work in process inventory	82,500
	Factory overhead		82,500

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4.

Prepare journal entries to record the following production activities.

1.	Transferred completed goods from the Assembly department to finished goods inventory. The goods cost $135,600.
2.	Sold $315,000 of goods on credit. Their cost is $175,000.

Transaction	General Journal	Debit	Credit
01	Finished goods inventory	135,600
	Work in process inventory-Assembly		135,600
2-a.	Accounts receivable	315,000
	Sales		315,000
2-b.	Cost of goods sold	175,000
	Finished goods inventory		175,000

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5.

The production department in a process manufacturing system completed 80,000 units of product and transferred them to finished goods during a recent period. Of these units, 24,000 were in process at the beginning of the period. The other 56,000 units were started and completed during the period. At period end, 16,000 units were in process.

Prepare the department’s equivalent units of production with respect to direct materials under each of three separate assumptions using the weighted average method for process costing.

Equivalent Units of Production (EUP)—Weighted Average Method 1. All direct materials are added to products when processing begins. Units % Materials EUP—Materials Goods completed 80,000 100% 80,000 Ending work in process 16,000 100% 16,000 Total EUP 96,000 96,000 2. Beginning inventory is 40% complete as to materials and conversion costs. Ending inventory is 75% complete as to materials and conversion costs. Units % Materials EUP—Materials Goods completed 80,000 100% 80,000 Ending work in process 16,000 75% 12,000 Total EUP 96,000 92,000 3. Beginning inventory is 60% complete as to materials and 40% complete as to conversion costs. Ending inventory is 30% complete as to materials and 60% complete as to conversion costs. Units % Materials EUP—Materials Goods completed 80,000 100% 80,000 Ending work in process 16,000 30% 4,800 Total EUP 96,000 84,800

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6.

During April, the production department of a process manufacturing system completed a number of units of a product and transferred them to finished goods. Of these transferred units, 60,000 were in process in the production department at the beginning of April and 240,000 were started and completed in April. April's beginning inventory units were 60% complete with respect to materials and 40% complete with respect to labor. At the end of April, 82,000 additional units were in process in the production department and were 80% complete with respect to materials and 30% complete with respect to labor.

  

1.	Compute the number of units transferred to finished goods.

Units in beginning inventory	60,000
Units started and completed	240,000
Total units transferred to finished goods	300,000

2.	Compute the number of equivalent units with respect to both materials used and labor used in the production department for April using the weighted-average method.

Equivalent units of production - weighted average
	Units	% Materials	EUP- Materials	% Labor	EUP- Labor
Units completed and transferred out	300,000	100%	300,000	100%	300,000
Units of ending goods in process	82,000	80%	65,600	30%	24,600
Equivalent units of production	382,000		365,600		324,600

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Questions 7-9
[The following information applies to the questions displayed below.]

Victory Company uses weighted-average process costing to account for its production costs. Direct labor is added evenly throughout the process. Direct materials are added at the beginning of the process. During November, the company transferred 700,000 units of product to finished goods. At the end of November, the goods in process inventory consists of 180,000 units that are 30% complete with respect to labor. Beginning inventory had $420,000 of direct materials and $139,000 of direct labor cost. The direct material cost added in November is $2,220,000, and the direct labor cost added is $3,254,000.

7.

Required:
1.	Determine the equivalent units of production with respect to direct labor and direct materials.

Equivalent units of production (EUP)- weighted average method
	Units	% Materials	EUP- Materials	% Labor	EUP- Labor
Units completed and transferred out	700,000	100%	700,000	100%	700,000
Ending goods in process - units	180,000	100%	180,000	30%	54,000
Total units	880,000		880,000		754,000

8.

2.	Compute both the direct labor cost and the direct materials cost per equivalent unit. (Round "Cost per EUP" to 2 decimal places.)

Cost per equivalent unit of production			Materials		Labor
Cost of beginning goods in process			$420,000		$139,000
Costs incurred this period			2,220,000		3,254,000
Total costs		Costs	$2,640,000	Costs	$3,393,000
÷ Equivalent units of production		EUP	880,000	EUP	754,000
Cost per equivalent unit of production (rounded to 2 decimals)			$3.00		$4.50

9.

3.	Compute both direct labor cost and direct materials cost assigned to units completed and transferred out and ending goods in process inventory. (Round "Cost per EUP" to 2 decimal places.)

Cost of units transferred out:	EUP	Cost per EUP	Total cost
Direct materials	700,000	$3.00	2,100,000
Direct labor	700,000	$4.50	3,150,000
Total costs transferred out				$5,250,000
Costs of ending goods in process	EUP	Cost per EUP	Total cost
Direct materials	180,000	$3.00	540,000
Direct labor	54,000	$4.50	243,000
Total cost of ending goods in process				$783,000
Total costs accounted for				$6,033,000

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10.

Hi-Test Company uses the weighted-average method of process costing to assign production costs to its products. Information for September follows. Assume that all materials are added at the beginning of its production process, and that conversion costs are added uniformly throughout the process.

Work in process inventory, September 1 (2,000 units, 100% complete with respect to       direct materials, 80% complete with respect to direct labor and overhead; includes       $45,000 of direct material cost, $25,600 in direct labor cost, $30,720 overhead cost)	$	101,320
Units started in April		28,000
Units completed and transferred to finished goods inventory		23,000
Work in process inventory, September 30 (? units, 100% complete with respect to       direct materials, 40% complete with respect to direct labor and overhead)		?
Costs incurred in September
Direct materials	$	375,000
Conversion	$	341,000

Required:

Compute each of the following, assuming Hi-Test uses the weighted-average method of process costing.(Round "Cost per EUP" to 2 decimal places.)

1.	The number of physical units that were transferred out and the number that are in ending work in process inventory.

	Units Reconciliation Units to account for Beginning work in process 2,000 Units started this period 28,000 30,000 Total units accounted for Completed and transferred out 23,000 Ending work in process 7,000 Total units accounted for 30,000

2&3.	The number of equivalent units for materials and conversion for the month.

	Equivalent Units of Production (EUP) Units % Materials EUP-Materials % Conversion EUP-Conversion Units completed and transferred out 23,000 100% 23,000 100% 23,000 Units of ending work in process 7,000 100% 7,000 40% 2,800 Equivalent units of production 30,000 30,000 25,800

4&5.	The cost per equivalent unit of materials and conversion for the month.

	Cost per Equivalent Unit of Production Direct Materials Conversion Cost of beginning work in process $45,000 $56,320 Costs incurred this period 375,000 341,000 Total costs $420,000 $397,320 ÷ Equivalent units of production 30,000 25,800 Cost per equivalent unit of production $14.00 $15.40

6.	The total cost of goods transferred out.

	Costs Transferred Out EUP Cost per EUP Total cost Direct materials 23,000 $14.00 $322,000.00 Conversion 23,000 $15.40 354,200.00 Total transferred out $676,200.00

7.	The total cost of ending work in process inventory.

	Costs of Ending Work in Process EUP Cost per EUP Total cost Direct materials 7,000 $14.00 $98,000.00 Conversion 2,800 $15.40 43,120.00 Total cost of ending work in process $141,120.00

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11.

The following partially completed process cost summary describes the July production activities of Ashad Company. Its production output is sent to its warehouse for shipping. All direct materials are added to products when processing begins. Beginning goods in process inventory is 20% complete with respect to direct labor and overhead.

  

Equivalent units of production	Direct Materials		Direct Labor		Factory Overhead
Units transferred out	32,000		32,000		32,000
Units of ending goods in process	2,500		1,500		1,500
Equivalent units of production	34,500		33,500		33,500

  

Costs	Direct Materials		Direct Labor		Factory Overhead
Costs of beginning goods in process	$	18,550	$	760	$	1,520
Costs incurred this period		357,500		62,890		125,780
Total costs	$	376,050	$	63,650	$	127,300

Units in beginning goods in process   (all completed during July)	2,000
Units started this period	32,500
Units completed and transferred out	32,000
Units in ending goods in process	2,500

  

Prepare its process cost summary using the weighted-average method. (Round "Cost per EUP" to 2 decimal places.)

Costs Charged to Production
Costs of beginning goods in process	$20,830.00
Costs incurred this period	546,170.00
Total costs to account for	$567,000.00
Total costs accounted for	567,000.00
*Difference due to rounding cost/unit	$0.00
Unit reconciliation
Units to account for
Beginning goods in process	2,000
Units started this period	32,500
Total units to account for	34,500
Total units accounted for
Completed and transferred out	32,000
Ending goods in process	2,500
Total units accounted for	34,500
Equivalent units of production (EUP)- weighted average method
	Units	% Materials	EUP- Materials	% Labor	EUP- Labor	% Overhead	EUP- Overhead
Units completed and transferred out	32,000	100%	32,000	100%	32,000	100%	32,000
Units of ending goods in process	2,500	100%	2,500	60%	1,500	60%	1,500
Equivalent units of production	34,500		34,500		33,500		33,500
Cost per EUP			Materials		Labor		Overhead
Cost of beginning goods in process			$18,550		$760		$1,520
Costs incurred this period			357,500		62,890		125,780
Total costs		Costs	$376,050	Costs	$63,650	Costs	$127,300
÷  Equivalent units of production		EUP	34,500	EUP	33,500	EUP	33,500
Cost per equivalent unit of production			$10.90		$1.90		$3.80
Cost Assignment and Reconciliation
Costs transferred out	EUP	Cost per EUP	Total cost
Direct materials	32,000	$10.90	$348,800.00
Direct labor	32,000	$1.90	60,800.00
Factory overhead	32,000	$3.80	121,600.00
Total transferred out				$531,200.00
Costs of ending goods in process	EUP	Cost per EUP	Total cost
Direct materials	2,500	$10.90	27,250.00
Direct labor	1,500	$1.90	2,850.00
Factory overhead	1,500	$3.80	5,700.00
Total ending goods in process				35,800.00
Total costs accounted for				$567,000.00

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A company's beginning Work in Process inventory consisted of 20,000 units that were 20% complete with respect to direct labor. These beginning units were completed and another 90,000 units were started during the current period. Of those started, 60,000 were finished and the remaining 30,000 were 40% complete at the end of the period. Using the weighted-average method, the equivalent units of production with regard to direct labor were:
92,000

Process and job order manufacturing operations both combine materials, labor, and overhead items in the process of producing products.
True

The Fabricating Department started the current month with a beginning Work in Process inventory of $10,000. During the month, it was assigned the following costs: direct materials, $76,000; direct labor, $24,000; and factory overhead, 50% of direct labor cost. Also, inventory with a cost of $109,000 was transferred out of the department to the next phase in the process. The ending balance of the Work in Process Inventory account for the Fabricating Department is:
$13,000

If Department L uses $53,000 of direct labor and Department M uses $21,000 of direct labor, the following journal entry would be recorded using a process costing system:

Work in Process Inventory, Department L	53,000
Work in Process Inventory, Department M	21,000
Factory Payroll Payable		74,000

True

Equivalent units of production are always the same as the total number of physical units finished during the period.
False

The following journal entry would be made to record the use of $6,100 of direct labor in a production department during the reporting period:

Factory Overhead	6,100
Work in Process Inventory		6,100

False

Which of the following characteristics applies to process costing but not to job order cost accounting?
Equivalent units of production

The Finishing Department transferred out completed units with a cost of $74,000. This transfer should be recorded with the following entry:

Finished Goods Inventory	74,000
Work in Process Inventory, Finishing Dept.		74,000

True

In process costing, the classification of materials as direct or indirect depends on whether or not they are clearly linked with a specific process or department.
True

If Department R uses $60,000 of direct materials and Department S uses $15,000 of direct materials, the following journal entry would be recorded by the process costing system:

Work in Process Inventory, Department R	60,000
Work in Process Inventory, Department S	15,000
Raw Materials Inventory		75,000

True

Hybrid systems contain features of both process and job order operations.
True

If the indirect labor cost in August for clerical and maintenance that help production in all departments was $123,000, the following journal entry would be recorded in a process costing system:

Factory Overhead	123,000
Factory Payroll Payable		123,000

True

In process costing there is never a balance remaining in Factory Overhead that needs to be closed at period end.
False

A company uses the weighted average method for inventory costing. During a period, Department B finished and transferred 50,000 units to Department C. Also in Department B during the period, 10,000 units were started but brought only to a stage of being 60% completed. The number of equivalent units produced by Department B during the period was:
56,000 units.

Metaline Corp. uses the weighted average method for inventory costs and had the following information available for the year. The number of units transferred to finished goods during the year is:

Beginning Work in Process (40% complete, $1,100)	200 units
Ending inventory of Work in Process (80% complete)	400 units
Total units started during the year	3,200 units

3,000 units

Since the process cost summary describes the activities of a production department for a specified reporting period, it does not present information about any costs incurred in prior periods.
False

A company uses a process costing system. Its Weaving Department completed and transferred out 120,000 units during the current period. The ending inventory in the Weaving Department consists of 40,000 units (20% complete with respect to direct materials and 60% complete with respect to conversion costs).
Determine the equivalent units of production for the Weaving Department for direct materials and conversion costs assuming the weighted average method.
128,000; 144,000

During March, the production department of a process operations system completed and transferred to finished goods 25,000 units that were in process at the beginning of March and 110,000 units that were started and completed in March. March's beginning inventory units were 100% complete with respect to materials and 55% complete with respect to labor. At the end of March, 30,000 additional units were in process in the production department and were 100% complete with respect to materials and 30% complete with respect to labor. The production department incurred direct materials cost of $253,000 and its beginning inventory included materials cost of $93,500. Compute the direct materials cost per equivalent unit for the department using the weighted-average method.
$2.10

The following is an account for a production department, showing its costs for one month:

Work in Process Inventory
Beginning Balance	5,400	Completed and transferred out	49,410
Direct materials	21,600
Direct labor	16,200
Overhead	10,800
Ending Balance	4,590

Assume that materials are added at the beginning of the production process and that direct labor and overhead are applied uniformly. If the started and completed units cost $41,850, what was the cost of completing the units in the beginning Work in Process inventory?

$2,160

A process cost summary usually does not include the number of equivalent units of production for the period.
False

One section of the process cost summary describes the equivalent units of production for the department during the reporting period and presents the calculations of the direct materials and conversion costs per equivalent unit.
True

In a process costing system, the purchase of raw materials is credited to the Raw Materials Inventory.
True

In a process costing system costs are measured upon completion of each job.
False

Process costing systems are commonly used by companies that manufacture standardized products by passing them through a series of manufacturing steps.
True

If the predetermined overhead allocation rate is 250% of direct labor cost and the Finishing Department's direct labor cost for the reporting period is $20,000, the following entry would record the allocation of overhead to the products processed in this department:

Work in Process Inventory, Finishing Dept	50,000
Factory Overhead		50,000

True

Conversion cost per equivalent unit is the combined cost of direct labor and factory overhead per equivalent unit.

True

A process cost summary is an accounting report that describes the costs charged to each department, the equivalent units of production by each department, and determining the costs assigned to each department's output.

True

The managers of process operations focus on the series of repetitive processes, or steps, resulting in a noncustomized product or service.

True

In a process costing system, direct material costs incurred are recorded:

Directly to a Work in Process Inventory account.

A company that applies process costing is most frequently characterized by:

Similar products and high production volume.

Metaline Corp. uses the weighted average method for inventory costs and had the following information available for the year. Equivalent units of production for the year are:

Beginning inventory of Work in Process (40% complete, $1,100)	200 units
Ending inventory of Work in Process (80% complete)	400 units
Total units started during the year	3,200 units

3,320 units.

Which of the following products is most likely to be produced in a process operations system?

Cereal

A company uses a process costing system. Its Assembly Department's beginning inventory consisted of 30,000 units, 75% complete with respect to direct labor and overhead. The department completed and transferred out 127,500 units this period. The ending inventory consists of 20,000 units that are 25% complete with respect to direct labor and overhead. All direct materials are added at the beginning of the process. The department incurred direct labor costs of $24,000 and overhead costs of $32,000 for the period. Assuming the weighted average method, the direct labor cost per equivalent unit (rounded to the nearest cent) is:

$0.18.

Luker Corporation uses a process costing system. The company had $160,500 of beginning Finished Goods Inventory on October 1. Luker completed and transferred to finished goods a total of $837,000. The ending Finished Goods Inventory balance on October 31 was $158,200. The entry to account for the cost of goods sold in October is:

Debit Cost of Goods Sold $839,300; credit Finished Goods Inventory $839,300.

A hybrid costing system would be most appropriate when:

A manufacturer is able to standardize processes while at the same time attempting to meet individual customer needs.

The purchase of raw materials on account in a process costing system is recorded with a:

Debit to Raw Materials Inventory and a credit to Accounts Payable.