Accounting Chapter 3

The formula to reconcile the number of physical units the company worked on during the period is units in

beginning inventory + units started = units completed + units in ending inventory

The weighted average method..

calculates equivalent units adjustment for ending inventory only.

Equivalent unit is used to ...

convert partially complete units into the equivalent of a full unit.

The purchase of raw materials is recorded with a

debit to raw materials inventory credit to accounts payable

Three types of manufacturing costs

direct materials, direct labor, manufacturing overhead(rent, depreciation on equipment & factory buildings, utilities and insurance).

Given 100 units in beginning inventory, 1,500 units started and 200 units in ending inventory, the number of units competed equals

100 + 1500 - 200 = 1400

Equivalent units of production are needed to

determine the cost of partially completed units and properly prepare GAAP based financial statements

Conversion costs include

manufacturing overhead and direct labor

Manufacturing costs are accumulated by....

process rather than by job.

Which of the following products would be more suitable for process costing than job order costing?

gasoline, sunscreen, breakfast cereal

When computing equivalent costs using the weighted average method

only partially completed units in ending inventory are part of the calculation

Production report

-foundation of PCS -used to determine how much manufacturing cost to transfer out of work in process inventory and into the next department. -helps managers control and monitor production cost

Cost per equivalent units

= Beginning inventory + current cost

Calculate direct material units

= ending inventory units + goods transferred units

CC equivalent units

= ending inventory units X % completed + goods transferred

Brody Corp. uses a process costing system. Beginning inventory for January consisted of 1,300 units that were 43% completed. 10,100 units were started during January. On January 31, the inventory consisted of 510 units that were 76% completed. How many units were completed during the period?

Beginning inventory + units started - ending inventory = completed units. 1,300 + 10,100 − 510 = 10,890 (The percentage completed is distractor information.)

The foundation of process costing is

production report

Preparing a production report

-use the weighted average method 1. Reconcile the number of physical units 2. Convert physical units into equivalent units 3. Calculate the cost per equivalent unit 4. Reconcile the total cost of work in process inventory 5. Prepare production report

Using the weighted average method, if work in process inventory has 100 units that are 40% complete and 300 units were transferred to the next department during the period, there are a total of 340 equivalent units of production

300 + (100 x .40)= 340

Equivalent units

= physical units X % of completion

Calculate equivalent units

= units in ending inventory X the % of completion

Livingston Co. uses process costing to account for the production of elastic bands. Direct materials are added at the beginning of the process and conversion costs are incurred uniformly throughout the process. Beginning inventory consisted of $14,000 in materials and $8,000 in conversion costs. April costs were $72,000 for materials and $80,000 for conversion costs. During April 8,000 units were completed. Ending work in process inventory was 4,000 units (100% complete for materials, 50% for conversion). The equivalent cost per unit for materials using the weighted average method would be closest to:

EUs for materials = (8,000 × 100%) + (4,000 × 100%) = 12,000. Cost per equivalent unit for materials = ($14,000 + $72,000)/12,000 = $7.1667.

Brody Corp. uses a process costing system in which direct materials are added at the beginning of the process and conversion costs are incurred uniformly throughout the process. Beginning inventory for January consisted of 1,080 units that were 55% completed. 10,500 units were started into the process during January. On January 31, the inventory consisted of 600 units that were 30% completed. What would be the equivalent units for direct materials cost using the weighted average method?

First calculate completed units to be 10,980. 1,080 + 10,500 - 600 = 10,980 Both completed units and ending inventory are 100% complete with respect to direct materials, so the equivalent units for direct materials cost is the sum of 100% of the completed units plus 100% of the ending inventory. (10,980 × 100%) + (600 × 100%) = 11,580

Livingston Co. uses process costing to account for the production of elastic bands. Direct materials are added at the beginning of the process and conversion costs are incurred uniformly throughout the process. Beginning inventory consisted of $14,000 in materials and $8,000 in conversion costs. April costs were $72,000 for materials and $80,000 for conversion costs. During April 8,000 units were completed. Ending work in process inventory was 4,000 units (100% complete for materials, 50% for conversion). The cost per equivalent unit for conversion costs using the weighted average method would be:

For materials, Equivalent Units = (8,000 × 100%) + (4,000 × 100%) = 12,000, For conversion costs, Equivalent Units = (8,000 × 100%) + (4,000 × 50%) = 10,000. Cost per equivalent unit = ($8,000 + $80,000)/10,000 = $8.80.

TryFit Co. uses process costing to account for the production of energy food bars. Direct materials are added at the beginning of the process and conversion costs are incurred uniformly throughout the process. Beginning inventory consisted of $7,000 in materials and $4,000 in conversion costs. April costs were $36,000 for materials and $40,000 for conversion costs. During April 8,000 units were completed. Ending work in process inventory was 4,000 units (100% complete for materials, 50% for conversion). The value of units completed and transferred out using the weighted average method would be closest to:

Equivalent units for materials = (8,000 × 100%) + (4,000 × 100%) = 12,000 For conversion costs = (8,000 × 100%) + (4,000 × 50%) = 10,000. Cost per equivalent unit for conversion costs = ($4,000 + $40,000)/10,000 = $4.40 For materials = ($7,000 + $36,000)/12,000 = $3.5833. Total cost per unit = $4.40 + $3.5833 = $7.9833. Completed units = 12,000 - 4,000 = 8,000. $7.9833 × 8,000 = $63,866.40.

The journal entry to record labor cost for process #1

credit salaries and wages payable debit work in process inventory

The entry to record the sale of finished goods to customers is to

debit cost of goods sold and credit finished goods inventory

The journal entry to record transfer of completed units to finished goods is

debit finished goods credit work in process inventory

TryFit Co. uses process costing to account for the production of energy food bars. Direct materials are added at the beginning of the process and conversion costs are incurred uniformly throughout the process. Beginning inventory consisted of $7,000 in materials and $4,000 in conversion costs. April costs were $36,000 for materials and $40,000 for conversion costs. During April 8,000 units were completed. Ending work in process inventory was 4,000 units (100% complete for materials, 50% for conversion). The value of ending inventory using the weighted average method would be closest to:

Equivalent units for materials = (8,000 × 100%) + (4,000 × 100%) = 12,000 For conversion costs = (8,000 × 100%) + (4,000 × 50%) = 10,000. Cost per equivalent unit for conversion costs = ($4,000 + $40,000)/10,000 = $4.40 For materials = ($7,000 + $36,000)/12,000 = $3.5833. Equivalent units for ending inventory = 4,000 × 50% = 2,000 for conversion costs and 4,000 × 100% = 4,000 for materials. ($4.40 × 2,000) + ($3.5833 × 4,000) = $23,133.20.