Chapter 17

In-Class Exercises and Discussion Questions

Discussion Questions
Question 1. Nihon, Inc., is a manufacturer of digital cameras. It has two departments: assembly
and testing. In January 2012, the company incurred $750,000 on direct materials and $798,000
on conversion costs, for a total manufacturing cost of $1,548,000.
1. Assume there was no beginning inventory of any kind on January 1, 2012. During January,
10,000 cameras were placed into production and all 10,000 were fully completed at the end of
the month. What is the unit cost of an assembled camera in January?

2. Assume that during February 10,000 cameras are placed into production. Further assume the
same total assembly costs for January are also incurred in February, but only 9,000 cameras are
fully completed at the end of the month. All direct materials have been added to the remaining
1,000 cameras. However, on average, these remaining 1,000 cameras are only 50% complete as
to conversion costs. (a) What are the equivalent units for direct materials and conversion costs
and their respective costs per equivalent unit for February? (b) What is the unit cost of an
assembled camera in February 2012?

3. Explain the difference in your answers to requirements 1 and 2.

4. Prepare summary journal entries for the use of direct materials and incurrence of conversion
costs. Also prepare a journal entry to transfer out the cost of goods completed. Show the postings
to the Work in Process account

Question 1: Answers

1. Direct materials cost per unit ?

Conversion cost per unit ?
Assembly Department cost per unit $?

2a.

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

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Assembly Department of Nihon, Inc. for February 2012.
(Step 2)
(Step 1) Equivalent Units
Physical Direct Conversion
Flow of Production Units Materials Costs
Work in process, beginning (given) ?
Started during current period (given) ?
To account for ?
Completed and transferred out
during current period ? ? ?
Work in process, ending* (given) ?
? ?
Accounted for ?
Equivalent units of work done in current period ? ?
*Degree of completion in this department: direct materials, 100%; conversion costs, 50%.

Compute Cost per Equivalent Unit,

Assembly Department of Nihon, Inc. for February 2012.
Total
Production Direct Conversion
Costs Materials Costs
(Step 3) Costs added during February ? ? ?
Divide by equivalent units of work done
?
in current period ?
Cost per equivalent unit $ ? $ ?

2b. Direct materials cost per unit ?

Conversion cost per unit ?
Assembly Department cost per unit ?

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4. Journal entries

1.

(To record $750,000 of direct materials purchased and used in production during Feb 2012)

2.

(To record $798,000 of conversion costs for February 2012; examples include energy,
manufacturing supplies, all manufacturing labor, and plant depreciation)

3.

(To record 9,000 units completed and transferred from Assembly to Testing during Feb
2012)

Postings to the Work in Process––Assembly account follow.

Work in Process –– Assembly Department

Beginning inventory ? 3. Transferred out to

1. Direct materials ? Work in Process––Testing ?

2. Conversion costs ?
Ending inventory ?

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Question 2. Weighted-average and FIFO method. Consider the following data for the
assembly division of Fenton Watches, Inc.: The assembly division uses the weighted-average
method of process costing.
Physical Units Direct Conversion
(Watches) Materials Costs
Beginning work in process (May 1)a 80 $ 493,360 $ 91,040
Started in May 2012 500
Completed during May 2012 460
Ending work in process (May 31)b 120
Total costs added during May 2012 $3,220,000 $1,392,000
a
Degree of completion: direct materials, 90%; conversion costs, 40%.
b
Degree of completion: direct materials, 60%; conversion costs, 30%.

1. Using the Weighted-Average, compute equivalent units for direct materials and conversion
costs. Show physical units in the first column of your schedule.
2. Using the Weighted-Average, summarize total costs to account for, calculate cost per
equivalent unit for direct materials and conversion costs, and assign total costs to units
completed (and transferred out) and to units in ending work in process.
3. Suppose the assembly division at Fenton Watches, Inc., uses the FIFO method of process
costing instead of the weighted-average method. Compute equivalent units for direct materials
and conversion costs. Show physical units in the first column of your schedule.

4. Use the FIFO method to summarize total costs to account for, calculate cost per equivalent
unit for direct materials and conversion costs, and assign total costs to units completed (and
transferred out) and to units in ending work in process.

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 Question 2. Answers
1. Steps 1 and 2:
Weighted-Average Method of Process Costing, Assembly Division of Fenton Watches, Inc., for
May 2012.

(Step 2)
(Step 1) Equivalent Units
Physical Direct Conversion
Flow of Production Units Materials Costs
Work in process beginning (given) ?
Started during current period (given) ?
To account for ?
Completed and transferred out during current period ? ? ?
Work in process, ending* ? ? ?
Accounted for ? ___ ___
Equivalent units of work done to date ? ?
*Degree of completion in this department: direct materials, 60%; conversion costs, 30%.

2. Weighted-average method, assigning costs.

Steps 3, 4, and 5:

Total
Production Direct Conversion
Costs Materials Costs
(Step 3) Work in process, beginning (given) ? ? ?
Costs added in current period (given) ? ? ?
Total costs to account for ? ? ?

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(Step 4) Costs incurred to date ? ?
Divide by equivalent units of work done to
date (Solution Exhibit 17-19)
 ?  ?
Cost per equivalent unit of work done to date ? ?

(Step 5) Assignment of costs:

Completed and transferred out (460 units) ? ? + ?
Work in process, ending (120 units) ? ? + ?
Total costs accounted for $? $? + $?

3. FIFO method, equivalent units.

Steps 1 and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units;
(Step 2)
(Step 1) Equivalent Units
Physical Direct Conversion
Flow of Production Units Materials Costs
Work in process, beginning (given) ? (work done before current period)
?
Started during current period (given)
?
To account for
Completed and transferred out during current
period:
?
From beginning work in process§
80  (100%  90%); 80  (100%  40%)
? ?
Started and completed ?
380  100%, 380  100% ? ?
Work in process, ending* (given) ?
___
120  60%; 120  30% ? ?
Accounted for ?
Equivalent units of work done in current period ? ?

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 4. FIFO method, assigning costs.
Steps 3, 4, and 5:
Total
Production Direct Conversion
Costs Materials Costs
(Step 3) Work in process, beginning (given) ? ? ?
Costs added in current period (given) ? ? ?
Total costs to account for ? ? ?

(Step 4) Costs added in current period ? ?

Divide by equivalent units of work done in  ?  ?
current period
Cost per equiv. unit of work done in current period $ ? $ ?

(Step 5) Assignment of costs:

Completed and transferred out (460 units):
Work in process, beginning (80 units) ? ? + ?
Costs added to beginning work in process
in current period ? ? + ?
Total from beginning inventory ?

?
Started and completed (380 units) ? + ?

Total costs of units completed and

transferred out ?

Work in process, ending (120 units) ? + ?

?
Total costs accounted for $? $? + $?

Question 3. The Zygon Corporation was recently formed to produce a semiconductor chip that
forms an essential part of the personal computer manufactured by a major corporation. The direct
materials are added at the start of the production process while conversion costs are added
uniformly throughout the production process. June is Zygon's first month of operations, and

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therefore, there was no beginning inventory. Direct materials cost for the month totaled
$895,000, while conversion costs equaled $4,225,000. Accounting records indicate that 475,000
chips were started in June and 425,000 chips were completed.

Ending inventory was 50% complete as to conversion costs.

Required:
a. What is the total manufacturing cost per chip for June?
b. Allocate the total costs between the completed chips and the chips in ending inventory.

Multiple-Choice Questions
1) Costing systems that are used for the costing of like or similar units of products in mass
production are called:
A) inventory-costing systems
B) job-costing systems
C) process-costing systems
D) weighted-average costing systems

2) Which one of the following statements is true?

A) In a job-costing system, individual jobs use different quantities of production resources.
B) In a process-costing system each unit uses approximately the same amount of resources.
C) An averaging process is used to calculate unit costs in a job-costing system.
D) Both A and B are correct.

3) Conversion costs:
A) include all the factors of production
B) include direct labor and overhead
C) in process costing are usually considered to be added evenly throughout the production
process
D) Both B and C are correct.

4) Which of the following statement(s) concerning conversion costs is correct?

A) Estimating the degree of completion of direct materials in a partially completed unit is usually
easier to calculate than estimating the degree of completion for conversion costs.
B) The calculation of equivalent units is relatively easy for the textile industry.
C) Estimates are usually not considered acceptable.
D) Both B and C are correct.

5) In a process-costing system average unit costs are calculated

A) by dividing total costs in a given accounting period by total units produced in that period.
B) by multiplying total costs in a given accounting period by total units produced in that period.
C) by dividing total costs in a given accounting period by units started in that period.
D) by multiplying total costs in a given accounting period by units started in that period.

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6) The purpose of the equivalent-unit computation is to:
A) convert completed units into the amount of partially completed output units that could be
made with that quantity of input
B) assist the business in determining the cost assigned to ending inventory and work-in-process
inventory.
C) convert partially completed units into the amount of completed output units that could be
made with that quantity of input
D) Both B and C are correct.

7) In a process-costing system, the calculation of equivalent units is used for calculating:

A) the dollar amount of ending inventory
B) the dollar amount of the cost of goods sold for the accounting period
C) the dollar cost of a particular job
D) Both A and B are correct.

Answer question 8 and 9 using the information below:

Dustin Plastics, Inc., manufactures plastic moldings for car seats. Its costing system utilizes two
cost categories, direct materials and conversion costs. Each product must pass through
Department A and Department B. Direct materials are added at the beginning of production.
Conversion costs are allocated evenly throughout production.

Data for Department A for February 2012 are:

Work in process, beginning inventory, 40% converted 200 units
Units started during February 600 units
Work in process, ending inventory 100 units

Costs for Department A for February 2012 are:

Work in process, beginning inventory:
Direct materials $200,000
Conversion costs $200,000
Direct materials costs added during February $2,000,000
Conversion costs added during February $2,500,000

8) What is the unit cost per equivalent unit of beginning inventory in Department A?
A) $2,000
B) $3,500
C) $7,000
D) $7,500

9) How many units were completed and transferred out of Department A during February?
A) 100 units
B) 600 units
C) 700 units
D) 800 units

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10) The weighted-average process-costing method calculates the equivalent units by:
A) considering only the work done during the current period
B) the units started during the current period minus the units in ending inventory
C) the units started during the current period plus the units in ending inventory
D) the equivalent units completed during the current period plus the equivalent units in ending
inventory

11) If there was no beginning work in process and no ending work in process under the
weighted-average process costing method, the number of equivalent units for direct materials, if
direct materials were added at the start of the process, would be:
A) equal to the units started or transferred in
B) equal to the units completed
C) less than the units completed
D) Both A and B are correct.

12) Under the weighted-average method, the stage of completion of beginning work in process:
A) is relevant in determining the equivalent units
B) must be combined with the work done during the current period to determine the equivalent
units
C) is irrelevant in determining the equivalent-unit calculation
D) can almost always be determined with a high degree of precision

Answer question 13-18 using the information below:

The Cuckoo Clock Shop manufactures clocks on a highly automated assembly line. Its costing
system uses two cost categories, direct materials and conversion costs. Each product must pass
through the Assembly Department and the Testing Department. Direct materials are added at the
beginning of the production process. Conversion costs are allocated evenly throughout
production. Cuckoo Clock Shop uses weighted-average costing.

Data for the Assembly Department for June 2013 are:

Work in process, beginning inventory 250 units
Direct materials (100% complete)
Conversion costs (50% complete)

Units started during June 800 units

Work in process, ending inventory: 150 units
Direct materials (100% complete)
Conversion costs (75% complete)

Costs for June 2013:

Work in process, beginning inventory:
Direct materials $90,000
Conversion costs $135,000
Direct materials costs added during June $500,000
Conversion costs added during June $500,000

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13) What are the equivalent units for direct materials and conversion costs, respectively, for
June?
A) 1,200.5 units; 1,160.64 units
B) 1,050 units; 1,012.5 units
C) 1,050 units; 1,050 units
D) 962 units; 990 units

14) What is the total amount debited to the Work-in-Process account during the month of June?
A) $225,000
B) $1,000,000
C) $1,135,000
D) $1,225,000

15) What is the direct materials cost per equivalent unit during June?
A) $561.90
B) $865.10
C) $789.50
D) $945.18

16) What is the conversion cost per equivalent unit in June?

A) $627.16
B) $789.57
C) $865.10
D) $945.18

17) What amount of direct materials costs is assigned to the ending Work-in-Process account for
June?
A) $84,285
B) $141,776.25
C) $129,765
D) $118,425

18) What amount of conversion costs are assigned to the ending Work-in-Process account for
June?
A) $509,78.32
B) $70,555.50
C) $63,225.25
D) $90,074

19) A distinct feature of the FIFO process-costing method is that the:

A) work done on beginning inventory before the current period is blended with the work done
during the current period in the calculation of equivalent units
B) work done on beginning inventory before the current period is kept separate from the work
done during the current period in the calculation of equivalent units
C) work done on ending inventory is kept separate from the work done during the current period

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in the calculation of equivalent units and is usually not included in the calculation
D) FIFO process-costing method is only minimally different from the weighted-average process-
costing method

20) An assumption of the FIFO process-costing method is that:

A) the units in beginning inventory are not necessarily assumed to be completed by the end of
the period
B) the units in beginning inventory are assumed to be completed first
C) ending inventory will always be completed in the next accounting period
D) no calculation of conversion costs is possible

Answer question 21-24 using the information below:

The Rest-a-Lot chair company manufacturers a standard recliner. During February, the firm's
Assembly Department started production of 75,000 chairs. During the month, the firm completed
80,000 chairs, and transferred them to the Finishing Department. The firm ended the month with
10,000 chairs in ending inventory. There were 15,000 chairs in beginning inventory. All direct
materials costs are added at the beginning of the production cycle and conversion costs are added
uniformly throughout the production process. The FIFO method of process costing is used by
Rest-a-Lot. Beginning work in process was 30% complete as to conversion costs, while ending
work in process was 80% complete as to conversion costs.

Beginning inventory:
Direct materials $24,000
Conversion costs $35,000

Manufacturing costs added during the accounting period:

Direct materials $168,000
Conversion costs $278,000

21) How many of the units that were started during February were completed during February?
A) 85,000
B) 80,000
C) 75,000
D) 65,000

22) What were the equivalent units for conversion costs during February?
A) 83,500
B) 85,000
C) 75,000
D) 79,500

23) What is the amount of direct materials cost assigned to ending work-in-process inventory at
the end of February?
A) $19,200
B) $22,400

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C) $25,600
D) $22,500

24) What is the cost of the goods transferred out during February?
A) $417,750
B) $456,015
C) $476,750
D) $505,000

25) Operating income can differ materially between the results for the weighted-average and
FIFO methods when:
A) direct materials or conversion costs per unit vary significantly from period to period
B) the physical inventory levels of work in process are large relative to the total number of units
transferred out
C) Neither of these answers is correct.
D) Both of these answers is correct.

26) A major advantage of using the FIFO process-costing method is that:

A) FIFO makes the unit cost calculations simpler
B) in contrast with the weighted-average method, FIFO is considered GAAP
C) FIFO provides managers with information about changes in the costs per unit from one period
to the next
D) All of these answers are correct.

27) A disadvantage of the weighted-average method compared to the FIFO process-costing

method is that:
A) FIFO is computationally simpler
B) FIFO provides better management information for planning and control purposes
C) when unit cost per input prices fluctuate markedly from month to month, its per unit cost is
less representative than FIFO
D) the information it provides about changes in unit prices from one period to the next is less
useful than the information provided by FIFO

28) Transferred-in costs are treated as if they are:

A) conversion costs added at the beginning of the process
B) costs of beginning inventory added at the beginning of the process
C) direct labor costs added at the beginning of the process
D) a separate direct material added at the beginning of the process

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