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

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

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

17-17 (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

17-19 (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

Steps 1 and 2: Summarize Output in Physical Units and Compute Equivalent Units

Weighted-Average Method, 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

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

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.

SOLUTION EXHIBIT 17-20

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

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
(Step 5) Assignment of costs:
Completed/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.


17-21 (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.

SOLUTION EXHIBIT 17-21

Steps 1 and 2: Summarize Output in Physical Units and Compute Equivalent Units

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 work-in-process inventory.

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

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.

SOLUTION EXHIBIT 17-22

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

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 in prior 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 in current period / $ 700,000 / $ 300,000
(Step 4)Total costs to account for / $51,964,000
(Step 5)Assignment of costs:
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 & trfd. out
Work in process, ending (12 units)
Direct materials
Conversion costs
Total work in process, ending
Total costs accounted for / 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.
#Equivalent units in work in process, ending from Solution Exhibit 17-21, Step 2.

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

Work in Process––Forming Department 104,000

Cost of goods completed and transferred out

during April from the Forming Department

to the Finishing Department

b. Finished Goods 168,552

Work in Process––Finishing Department 168,552

Cost of goods completed and transferred out

during April from the Finishing Department

to Finished Goods inventory

SOLUTION EXHIBIT 17-38A

Steps 1 and 2: Summarize Output in Physical Units and Compute Equivalent Units

Weighted-Average Method of Process Costing

Finishing Department of Star Toys for April 2004

(Step 1) / (Step 2)
Physical / Equivalent Units
Flow of Production / Units
(given) / Transferred-
in Costs / Direct
Materials / Conversion
Costs

Work in process, beginning 500

Transferred in during current period 2,000

To account for 2,500

Completed and transferred out

during current period 2,100 2,100 2,100 2,100

Work in process, ending* 400

400 ´ 100%; 400 ´ 0%; 400 ´ 30% 400 0 120

Accounted for 2,500

Work done to date 2,500 2,100 2,220

*Degree of completion in this department: transferred-in costs, 100%; direct materials, 0%; conversion costs, 30%.

SOLUTION EXHIBIT 17-38B

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

Weighted-Average Method of Process Costing

Finishing Department of Star Toys for April 2004

Total
Production
Costs / Transferred
-in Costs / Direct
Materials / Conversion
Costs
(Step 3) Work in process, beginning (given) / $ 25,000 / $ 17,750 / $ 0 / $ 7,250
Costs added in current period (given) / 165,500 / 104,000 / 23,100 / 38,400
Costs incurred to date / $121,750 / $23,100 / $45,650
Divide by equivalent units of work done
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
(Step 4) Total costs to account for / $190,500
(Step 5) Assignment of costs:
Completed and transferred out (2,100 units) / $168,552 / (2,100*´$48.70) + (2,100* ´ $11) + (2,100*´ $20.563)
Work in process, ending (400 units)
Transferred-in costs
Direct materials / 19,480
0 / 400†´$48.70
0† $11
Conversion costs
Total work in process, ending
Total costs accounted for / 2,468
21,948
$190,500 / 120† ´ $20.563

*Equivalent units completed and transferred out from Solution Exhibit 17-38A, Step 2.

†Equivalent units in work in process, ending from Solution Exhibit 17-38A, Step 2.

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

Work in Process––Forming Department 103,566

Cost of goods completed and transferred out

during April from the Forming Dept. to

the Finishing Dept.

b. Finished Goods 166,723

Work in Process––Finishing Department 166,723

Cost of goods completed and transferred out

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

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 17-38B) / FIFO
(Solution Exhibit 17-39B) / Difference
Cost of units completed and transferred out
Work in process, ending
Total costs accounted for / $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.