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Process Costing System - Exercises and Problems:
Learning Objective:
Prepare the format of cost of production report.
Calculate equivalent units of production.
What is the treatment of normal and abnormal loss in process costing system?
How the timing of normal and abnormal loss is considered in a cost of production
report?
1. Cost of Production Report:
A company's Department 2 costs for June were:
Cost from Department 1
$16320
Cost added in Department 2:
Materials
43,415
Labor
56,100
Factory overhead (FOH)
58,575
The quantity schedule shows 12,000 units were received during the month from
Department 1; 7,000 units were transferred to finished goods; and 5,000 units in
process at the end of June were 50% complete as to materials cost and 25%
complete as to conversion cost.
Required: Prepare Cost of production report.
Solution:
Department 2
Cost of Production Report
For the Month of June, 19___
Quantity Schedule:
Units received from department 1
12,000
Units transferred to finished goods
7,000
Units still in process (50% materials, 25% conversion)
5,000
Cost Charged to the Department:
Total cost
Unit cost
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Cost from preceding department:
Transferred in during the month (12,000 units)
$16,320
$1.36
-------
------
Materials
$43,415
$4.57
Labor
56,100
6.80
Factory overhead
58,575
7.10
-------
-------
$158,090
$18.47
--------
-------
$174,410
$19.83
Cost added by department:
Total cost added
Total cost to be accounted for
======= =====
Cost Accounted for as Follows:
$138,810
Transferred to finished goods (7,000 $19.83)
Work in process ending inventory:
Cost from preceding department
$6,800
Materials (5,000 50% $4.75)
11,425
Labor (5,000 25% $6.80)
8,500
Factory overhead (5,000 25% $7.10)
8,875
--------
35,600
--------
Total cost accounted for
$174,410
=======
Additional computations:
Equivalent production:
Materials = 7,000 + (5,000 50%) = 9,500 units
Labor and factory overhead = 7,000 + (5,000 25%) = 8,250 units
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2. Cost of Production Report - Normal Loss:
For December, the Production Control Department of Carola Chemical, Inc., reported
the following production data for Department 2:
Transferred in from Department 1
55,000 liters
Transferred out to Department 3
39,500liters
In process at the end of December (with 1/2 labor and factory
overhead)
10,500 liters
All materials were put into process in Department 1. The cost department collected
following figures for department 2:
Unit cost for units transferred in from department 1
$1.80
Labor cost in department 2
$27,520
Applied factory overhead
$15480
Required: A cost of production report for department 2 for December.
Solution:
Carola Chemical Inc.
Department 2
Cost of Production Report
For the Month of December. 19____
Quantity Schedule:
Units received from preceding department
55,000
======
Units transferred to next department
39,500
Units still in process (1/3 labor and overhead)
10,500
Units lost in process
5,000
55,000
-------
======
Total Cost
Unit Cost
Cost Charged to the Department:
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Cost from preceding department:
Transferred in during the month
$99,000
$1.80
--------
------
Labor [39,500 + (1/3 10,500) = 43,000 units]
$27,520
$0.64
Factory overhead
$15,480
$0.36
--------
------
$43,000
$1.00
Cost added by the department:
Total cost added
Adjustment for lost units
$0.18*
Total cost to be accounted for
--------
------
$142,000
$2.98
======= =====
Cost Accounted for as Follows:
Transferred to next department
$117,710
(39,500 $2.98)
Work in process - ending inventory:
Cost from preceding department
(10,500 $1.98)
$20,790
Labor (10,500 1/3 $0.64)
2,240
Factory overhead (10,500 1/3 $0.36)
1,260
24,290
--------
-------
Total cost accounted for
$142,000
======
*Adjustment for lost units:
Formula for Calculation:
(Cost from preceding departments / Units from preceding departments - Lost units) Unit cost from preceding department
(99,000 / 50,000) - 1.80 = $0.18
OR
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(5,000 1.80) = $9,000 / 50,000 = $0.18
3. Cost of Production Report:
Brooks Inc. uses process costing. The costs for Department 2 for April were:
Cost from preceding department
$20,000
Cost added by department:
Materials
$21,816
Labor
7,776
Factory overhead (FOH)
4,104
33,696
--------
The following information was obtained from the department's quantity schedule:
Units received
5,000
Units transferred out
4,000
Units still in process
1,000
The degree of completion of the work in process as to costs originating in
department 2 was: 50% of units were 40% complete; 20% were 30% complete; and
the balance were 20% complete.
Required: The cost of production report for Department 2 for April.
Solution:
Brooks Inc.
Department 2
Cost of Production Report
For the month of April, 19|____
Quantity Schedule:
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Units received from preceding department
5,000
======
Units transferred to next department
4,000
Units still in process
1,000
5,000
-------
======
Total Cost
Unit Cost
$20,000
$4.00
--------
------
Materials
$21,816
$5.05
Labor [39,500 + (1/3 10,500) = 43,000 units]
$7,776
$1.80
Factory overhead
$4,104
$0.95
--------
------
$33,696
$7.80
--------
------
$53,696
$11.80
(32 labor and overhead)
Cost Charged to the Department:
Cost from preceding department:
Transferred in during the month
Cost added by the department:
Total cost added
Total cost to be accounted for
======= =====
Cost Accounted for as Follows:
Transferred to next department
$47,200
(4,000 $11.80)
Work in process - ending inventory:
Cost from preceding department
(1000 $4.00)
$4,000
Materials (1,000 0.32 $5.05)
1,616
Labor (1,000 0.32 $1.80)
576
Factory overhead (10,500 0.32 $0.95)
304
6,496
--------
-------
Total cost accounted for
$53,696
======
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Additional Computations
Equivalent units of production:
Materials, labor, and factory overhead = 4,000 + (1,000 32%) = 4,320 units
Units in Process
Equivalent
50% were 40% complete
0.20
20% were 30% complete
0.06
30% were 20% complete
0.06
--------
Total
0.32
=====
OR
50% of 1,000 units 40% = 200 units
20% of 1,000 units 30% = 60 units
30% of 1,000 units 20% = 60 units
Total
=320 units
4. Equivalent Units of Production:
During April, 20,000 units were transferred in from department A at a cost of
$39,000. Materials cost of $6,500 and conversion cost of $9,000 were added in
department B. On April 30, department B had 5,000 units of work in process 60%
complete as to conversion as costs. Materials are added in the beginning of the
process in department B.
Required:
Equivalent units of production calculation.
The cost per equivalent unit for conversion costs.
Solution:
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(1) Quantity Schedule:
Units received from preceding department A
20,000
======
Units transferred to finished goods
15,000
Units still in process
5,000
20,000
--------
======
Equivalent Production:
Transferred in
fromDepartment
Materials
A
Conversion
Transferred to finished goods 15,000
15,000
15,000
Ending inventory
5,000
5,000
3,000
-------
--------
-------
20,000
20,000
20,000
======
======
======
(2) cost per equivalent unit for conversion costs:
$9,000 / 18,000 = $0.50 per unit
5. Costing of Units Transferred Out; Abnormal Loss
During February, the Assembly department received 60,000 units from Cutting
department at a unit cost of $3.54. Costs added in the Assembly department were:
materials, $41,650; labor, $101,700; and factory overhead. $56,500. There was no
beginning inventory. Of the 60,000 units received, 50,000 were transferred out;
9,000 units were in process at the end of the month (all materials, 2/3 converted);
1,000 lost units were 1/2 complete as to materials and conversion costs. The entire
loss is considered abnormal and is to be charged to factory overhead.
Required: Cost of production report.
Solution:
Assembly Department
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Cost of Production Report
For the month of April, 19|____
Quantity Schedule:
Units received from preceding department
60,000
======
Units transferred to next department
50,000
Units still in process (All materials - 2/3 labor and overhead) 9,000
Units lost in process (Abnormal loss - 1/2 materials, labor,
and overhead)
1,000
60,000
-------
======
Total Cost
Unit Cost
$212,400
$3.54
--------
------
Materials
$41,650
$1.70
Labor
$101,700
$1.80
Factory overhead
$56,500
$1.00
--------
------
$199,850
$3.50
--------
------
$412,250
$7.04
Cost Charged to the Department:
Cost from preceding department:
Transferred in during the month
(60,000 units)
Cost added by the department:
Total cost added
Total cost to be accounted for
======= =====
Cost Accounted for as Follows:
Transferred to next department
$352,000
(50,000 $7.04)
Transferred to Factory Overhead:
From preceding department
(1,000 $3.54)
Materials (1,000 1/2 $0.70)
$3,540
350
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Labor (1,000 1/2 $1.80)
900
Factory overhead
500
(1,000 1/2 $1.00)
5,290
-------Work in process - ending inventory:
Cost from preceding department
Materials
(9000 $3.54)
(9,000 0.70)
$31,860
6,300
Labor (9,000 2/3 1.80)
10,800
Factory overhead
6,000
54,960
--------
-------
(9,000 2/3 1.00)
Total cost accounted for
$412,250
======
Additional Computations
Equivalent Production:
Materials = 50,000 + 9,000 + 1,000/2 lost units = 59,500 units
Labor and factory overhead = 50,000 + (9,000 2/3) + 1,000/2 lost units = 56,500
Unit Cost:
Materials = $41,650 / 59,500 = $0.70 per unit
Labor = $101,700 / 56,500 = $1.80 per unit
Factory overhead = $56,500 / 56,500 = $1.00 per unit
6. Cost of Production Report; Normal and Abnormal Loss:
The Sterling Company uses process costing. In department B, conversion costs are
incurred uniformly throughout the process. Materials are added at the end of the
process, following inspection. Normal spoilage is expected to be 5% of good output.
The following information related to department B for January:
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Units
Dollars
Received from department A
12,000
$84,000
Transferred to finished goods
9,000
Ending inventory (70% complete)
2,000
Cost incurred:
Materials
18,000
Labor and factory overhead
45,600
Required: Cost of Production report for department B.
Solution:
The Sterling Company
Department B
Cost of Production Report
For the month of January
Quantity Schedule:
Units received from preceding department
12,000
======
Units transferred to finished goods
9,000
Units still in process
2,000
Units lost in process (Normal Spoilage 9000 5%)
450
Units lost in process (Abnormal Spoilage 1,000 - 450)
550
12,000
-------
======
Total Cost
Unit Cost
$84,000
$7.00
--------
------
$18,000
$2.00
Cost Charged to the Department:
Cost from preceding department:
Transferred in during the month
(12,000 units)
Cost added by the department:
Materials
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Labor and factory 0verhead
Total cost added
Total cost to be accounted for
$45,600
$4.00
--------
------
$63,600
$6.00
--------
------
$147,600
$13.00
======= =====
Cost Accounted for as Follows:
Transferred to finished goods
$121,950
[(9,000 $13) + (450* $11)]
Transferred to Factory Overhead
6,050
(550** $11)
Work in process - ending inventory:
Cost from preceding department
Labor and factory overhead
(2000 $7.00)
(2,000 70% $4)
$14,000
5,600
19,600
--------
-------
Total cost accounted for
$147,600
======
*Normal spoilage
**Abnormal spoilage
Additional Computations
Equivalent Production:
Materials = 9,000 units
Labor and factory overhead = 9,000 + (2,000 70%) + 450 + 550
Unit Costs:
Materials = $18,000 / 9,000 = $2.00 per unit
Labor and factory overhead = $45,600 / 11,400 = $4.00 per unit
7. Cost of Production Report; Spoiled Units - Normal and Abnormal:
Hettinger Inc., uses process costing system in its two producing departments. In
department 2, inspection takes place at the 96% stage of completion, after which
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materials are added to good units. A spoilage rate of 3% of good output is
considered normal.
Department 2 records for April shows:
Received from department 1
30,000 units
cost
$135,000
Materials
$12,500
Conversion cost (labor + factory overhead)
$139,340
Transferred to finished goods
25,000 units
Ending work in process inventory (50% complete)
4,200 units
Required: Cost of production report.
Solution:
The Sterling Company
Department B
Cost of Production Report
For the month of January
Quantity Schedule:
Units received from preceding department
30,000
======
Units transferred to finished goods
25,000
Units still in process
4,200
(50% complete)
Units lost in process (Normal Spoilage 25,000 3%)
750
Units lost in process (Abnormal Spoilage 800 - 750)
50
30,000
-------
======
Total Cost
Unit Cost
$135,000
$4.50
--------
------
Cost Charged to the Department:
Cost from preceding department:
Transferred in during the month
Cost added by the department:
(30,000 units)
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Materials
Labor and factory 0verhead
(Conversion cost)
Total cost added
Total cost to be accounted for
$12,500
$0.50
$139,340
$5.00
--------
------
$151,840
$5.50
--------
------
$286,840
$10.00
======= =====
Cost Accounted for as Follows:
Transferred to finished goods:
Cost of completed units
(25,000 $10.00)
$250,000
Normal spoilage - all related to units transferred to finished
goods:
Cost from preceding department
Conversion cost
(750 $4.50)
3,375
3,600
(720 $5.00)
$256,975
-------Transferred to Factory Overhead
- Abnormal spoilage:
Cost from preceding department
(50 $4.50)
Conversion cost (48 $5.00)
$225
240
465
-------Work in process - ending inventory:
Cost from preceding department
Labor and factory overhead
Total cost accounted for
(4,200 $4.50)
(2,100 $5)
$18,900
10,500
29,400
--------
------$286,840
======
Additional Computations
Equivalent Production:
Materials = 25,000 units
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Labor and factory overhead = 25,000 + (42,00 50%) + (750 96%) + (50
96%)
= 27,888 units
Unit Costs:
Materials = $12,500 / 25,000 = $.50 per unit
Labor and factory overhead = $139,340 / 27,888 = $5.00 per unit
8.Computation of Equivalent Production:
Pietra - Gonatas, Inc. uses process costing to account for the costs of its only
product, product D. Production takes place in three departments; Fabrication,
Assembly, and Packaging.
At the end of the fiscal year, June 30, the following inventory of product D is on
hand:
No unused raw materials or packaging materials.
Fabrication department: 300 units, 1/3 complete as to raw materials and 1/2
complete as to direct labor
Assembly department: 1,000 units, 2/5 complete as to direct labor.
Packaging department: 100 units, 3/4 complete as to packaging materials and 1/4
complete as to direct labor.
Shipping for finished goods are: 400 units.
Required:
The number of equivalent units of raw materials in all inventories at June 30.
The number of equivalent units of the fabrication department's direct labor in all
inventories at June 30
The number of equivalent units of packaging materials in all inventories at June 30.
Solution:
(1)
Equivalent units of raw materials
in all inventories, June 30, 19__
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Fabrication department
(300 1/3)
100
Assembly department
1,000
Packaging department
100
Shipping area
400
-------1,600
=======
(2)
Equivalent units of Fabrication department's direct labor in all
inventories, Jun 30, 19___
Fabrication department
(300 1/3)
150
Assembly department
1,000
Packaging department
100
Shipping area
400
--------1,650
=======
(3)
Equivalent units of packaging materials in all inventories, June
30, 19___
Packaging department
Shipping area
(300 4/3)
75
400
------475
======
