Cost Accounting 2 Final Revision — Part 2 Content: 2021Chapter “17 “ Process costing separate costs into two cost categories according to the time when costs are introduced into process: Direct Materials Conversion Costs The materials of the products, usually added at | All manufacturing costs other than direct one time, the beginning of the production materials, including manufacturing labor and process, or at the start of work in a subsequent | overhead. They are generally added evenly department down the assembly line. through time (during the process). * Equivalent Units: A derived amount of output units that: 1. Takes the quantity of each input in units completed and in u process and 2. Converts the quantity of input into the amount of completed output units that could be produced with that quantity of input Equivalent Units are calculated separately for each input (direct materials and conversion cost) ished units of work in Equivalent Units = Physical Units x Percentage of Completion Percentage of Completions: Is the degree of manufacturing reached on the units started but not completed in the process. = Five-step Process to allocate costs under process costing: Step 1&2: Flow of physical Ui (Step 1) (Step 2) Equivalent units Physical units | Direct materials | Conversion costs WIP, beginning x + units started during the period x Units to account for (Total A) XX Units completed and transferred out x WIP, ending pg Total equivalent units (Total 8) XX Steps 3, 4 and 5: Production Cost Report Total Equivalent units (Worksheet) cost _| Direct materials | Conversion costs Costs to account for WEP, beginning + costs added during the period Step 3> | Total costs to account for + Equivalent Units (EU) Step 4 | Cost per equivalent units Assignment of costs Step 5 > | Units completed and transferred out WIP, ending Total costs incurred Page | 1Process Costing will be explained under 3 cases: Case 1: Process costing with zero beginning and zero ending work-in-process inventory. All units are started and fully completed within the accounting period, so all the costs incurred will be assigned to those units. Case 2: Process costing with zero beginning work-in-process inventory and some ending work-in process inventory. As there is some WIP ending, this means that not all the units started were completed during the period, so we must estimate the percentage of completion. Notes: - We assume that direct materials are added at the beginning of the process, so once the units are started in the period, this means that it is fully processed for direct materials (100% complete). ~ The conversion costs are added throughout the process, so the units started but not fully completed (partially completed) will not be fully processed for conversion costs (percentage of completion will be less than 100%) depending on the problem. Case 3: Process costing with both some beginning and some ending work-in-process inventory. When there is a beginning and ending WIP, we have to choose between one of the two valuation methods to prepare the production cost report. 1- Weighted average. 2- First-in, First-out (FIFO). These different methods produce different costs for the units competed and for the ending work-in- process inventory, when the unit cost of inputs changes from one period to the next. But Total costs are the same under the two methods. 1- Weighted Average Method: The weighted-average process-costing method calculates the cost per equivalent unit of all work done to date (regardless of the accounting period in which it was done) and assigns this cost to equivalent units completed and transferred out of the process and to equivalent units in ending work-in-process inventory. The weighted-average cost is the total of all costs entering the Work in Process account (whether the costs are from beginning work in process or from work started during the current period) divided by total equivalent units of work done to date. Note: Under weighted average method ignore the percentage of completion in beginning WIP. 2- First in, First out (FIFO) method: The first-in, first-out (FIFO) process-costing method 1 Assigns the cost of the previous accounting period’s equivalent units in beginning work-in- process inventory to the first units completed and transferred out of the process and 2- Assigns the cost of equivalent units worked on during the current period: - First to complete the beginning inventory, - Next to start and complete new units, - And finally to units in ending work-in-process inventory. The FIFO method assumes that the earliest equivalent units in work in process are completed first. - Adistinctive feature of the FIFO process-costing method is that work done on the beginning inventory before the current period is kept separate from work done in the current period. = The costs incurred and units produced in the current period are used to calculate the cost per equivalent unit of work done in the current period. Page | 2* Notes for FIFO method: 1- Units completed should be divided into: - Units completed from WIP beginning units. - Units completed from started units during the period. 2- Equivalent units (EU) for units completed from WIP beginning should be based on what is needed to complete it only (based on the percentage of completion of WIP beg.). 3- In FIFO method the percentage of completion in WIP beginning should be considered (unlike weighted average method, we ignore it). 4- The cost of WIP beginning should be recorded as total only in “costs to account for” without dividing it according to cost elements (not divided into DM and conversion cost). 5- Inthe assignment of costs, the cost of unit completed from WIP beginning are - Total cost of WIP beginning units (as given). - Costs needed to complete it in current period (based on the percentage of completion of WIP beg). 6- Under FIFO, the ending WIP inventory comes from units that were started but not fully completed during the current period. 7- Instep 4, only the costs incurred in the current period are divided over the equivalent units to calculate the cost per equivalent units. 8- Instep 5, the assignment of costs, the cost of unit completed are divided into: - Total cost of WIP beginning units (as given). - Costs needed to complete the beginning WIP in current period. - Costs of units started and completed during the period. ided into * Comparison of Weighted Average and FIFO methods: coGs Operating Income When Costs increase | Weighted average Higher COGS Lower O1 from period to period FIFO Lower COGS Higher O| When Costs decrease | Weighted average Lower COGS Higher O| from period to period FIFO Higher COGS Lower O1 * Transferred out Costs: Costs of units completed in process (A) and may be used in process (8) and will be transferred in for process (8). * Transferred in Costs: re costs incurred in previous departments that are carried forward as the product's cost when it moves to a subsequent process in the production cycle Also called Previous Department Costs. Transferred-in costs are treated as if they are a separate type of direct material added at the begin Notes for the FIFO Method: ig of the process. Direct Materials (Added at beginning) Conversion Costs Beginning | The Beginning WIP for DM always equal to ZERO. (100% - Beg WIP %) x physical units wip (because it received “DM” in the previous period) Units Started | Receive same amount of Physical units. ‘Same amount of Physical units. & Completed Ending wip | Te Ending WIP receives the total amount of the | Ending WIP degree of completion % "DM", based on the number of physical units. In the Weighted Average Method: - The Completed Units receives total amounts for Direct Materials and Conversion cost. ~The Ending WIP is treated the same as the FIFO Method. x_ physical units Page | 3Questions Ch 17 Exercise 1 (Final 2019 1. If WIP on Feb. 28, March 31 and April 30 are 1,000; 3,000 and 2,000 units respectively. Transferred units from previous process in March and April are 5,000 and 7,000 units respectively, then, transferred units from this process to next process in March are: ‘A) 3,000 units 8B) 8,000 units €) 6,000 units D) 4,000 units 2. If WIP on March 31 are 4,000 units (degree of completion 80%). Materials are added at 60% and using FIFO method, then, equivalent units for WIP on march 31 for Materials are: A) 3,200 units 8) 2,400 units €) 4,000 units D) 800 units 3. After finishing third process in March, costs of finishing WIP March 1 are LE 50,000, costs of started and finished units in March are LE 80,000, and costs of WIP March 31 are LE 60,000. Then, costs of units completed are: ‘A) LE 80,000 B) LE 190,000 C) LE 140,000 D) LE 130,000 4. Cost of WIP on March 1 are LE 90,000 (including materials LE 77,000 and conversion LE 13,000), costs during March are LE 205,000 (including materials LE 75,000 and conversion LE 130,000). Using FIFO Method, if the total equivalent units are 6,500 and 5,000 units for conversion and materials respectively. Then, the cost per unit for conversion is: ALE 22 B) LEIS, ) LE 20 D)LE 30 Exercise 1 Answer: No. | Choice Calculations Beg. Units in March (Ending units of Feb. 28) = 1,000 units 1 | A | Transferred units in March = 5,000 units, Ending Units in March 31 = 3,000 units Then, Completed & transferred units to next process = 1,000 + 5,000 ~ 3,000 = 3,000 units The WIP ending is completed by 80%, and DM is added at 60% level of manufacturing, which 2 | C | means that the WIP ending is fully utilized for DM (100% complete for DM). | Equivalent units of DM for WIP ending = 4,000 u x 100% = 4,000 units Cost of units completed = Cost of finishing WIP + Cost of started &finished units = 50,000 + 80,000 = LE 130,000 “iG ‘The cost per unit for conversio Exercise 2 (Final 2018): 1. Ina process-costing system, the calculation of equivalent units is used for calculating _. A) the dollar amount of sales affected during the period. B) the dollar price earned for a particular job. C) the dollar amount of revenue for the period including the revenue estimated to be received from the sale of equivalent units. D) the dollar amount of the cost of goods sold for the accounting period 2. An example of a business which would have no beginning or ending inventory but which could use process costing to compute unit costs would be a A) clothing manufacturer 8) corporation whose sole business activity is processing the customer deposits of several banks. C) manufacturer of custom houses D) manufacturer of large TVs. Page | 4Answer the following questions (From 3 to 6) using the information below: Misr Company operates a computer disk manufacturing plant, Direct materials are added at the end of, the process. The following data were for April 2018: Workin process, beginning inventory 150,000 units Transferred-in costs (22% complete) Direct materials (?2% complete) Conversion costs (90% complete) Transferred in during current period 450,000 units Completed and transferred out 400,000 units Work in process, ending inventory 200,000 units Transferred-in costs (?2% complete) Direct materials (??% complete) Conversion costs (65% complete) 3. How many units must be accounted for during the period? ‘A) 600,000 8) 450,000 ¢) 400,000 ) 800,000 4. How many of the units that were started and completed during April? ‘A) 400,000 8) 250,000 C) 600,000 D) 200,000 5. Calculate equivalent units for conversion costs using the FIFO method. ‘A) 15,000 8) 250,000 ¢) 265,000 1D) 395,000 6. Calculate equivalent units for conversion costs using the weighted-average method. A) 400,000 8) 130,000 ¢) 530,000 1D) 395,000 Exercise 2 Answers: No. | Choice Justification or Calculations a) 8 3 | a __ Units to account for = Beginning WIP Units + Units started during period (Transferred it 50,000 u + 450,000 u = 600,000 u |p _ | Units Started and Completed in April = Total Units completed — Beginning WIP Units =400,000u _- 150,000u = 250,000 u FF Units completed & trans. out Conversion Cost elo From Beginning WIP (90% completed) | 150,000 | 150,000 x (100% — 90%) = 15,000 From Units started & completed 250,000 250,000 WIP, ending (65% completed) 200,000 200,000 x 65% = 130,000 Total equivalent units (Total B) {600,000 Weighted Average: Conversion Cost 6 | C || Units completed & trans. out 400,000 ‘400,000 WIP, ending (65% completed) 200,000 | 200,000 x 65% = 130,000 Total equivalent units (Total 8) ‘600,000 Page |5Exercise 3 (Midterm 2019 (True or False) 1, Transferred-in costs are the costs that were incurred in previous departments or processes. 2. Under weighted average of process costing, the cost of beginning work-in-process account is blended in with current period costs. (micas) 3. In January 2019, Bright Colors Company placed 315,000 gallons of direct materials into the mixing process. All direct materials are placed in mixing at the beginning of the process and conversion costs occur evenly during the process. By the end of the month, there was 75,000 gallons still in process, 15% converted as to labor and factory overhead. If the Co. uses weighted-average costing to prepare a cost report, then the total equivalent gallons for direct materials and for conversion costs are: A) 315,000; 315,000 8) 315,000; 240,000 C) 315,000; 251,250) 315,000; 75,000 Use the following information to answer questions: ‘The following is the information related to process No. (2) Of Cairo University Co. for the month of February 2019: = Units received from process No. (1) 15,000 units. = Beginning work-in-process 3,000 units at 80% degree of completion and a total cost of $133,200. = Work-in-process ending 4,000 units and 40% completed tor conversion costs. - Costs added during the month: Transferred -in costs $270,000, direct materials $112,000, conversion costs $184,800. - 3/4 of materials are added at the start of the process and the remaining 1/4 is added when the process is 50% complete, ~The conversion costs are added uniformly during the process. ~The company uses the FIFO method to prepare the cost report. 4, Number of units completed and finished in February is: A) 4,000 units 8) 14,000 units €) 22,000 units D) 11,000 units 5. Total equivalent units for transferred-in costs are: ‘A) 15,000 units B) 14,000 units C) 13,200 units D) 18,000 units 6. Total equivalent units for material costs are’ A) 17,000 units B) 13,200 units €) 14,000 units ) 13,000 units 7. Total equivalent units for conversion costs are: A) 15,000 units 8) 13,200 units €) 11,000 units D) 15,600 units 8, What are the total costs to account for? A) $184,800 8) $382,000 ) $566,800 ) $700,000 9, The total cost per equivalent unit is: A) $18 8) $40 sia b) $22 10. What are the total costs of units completed from work in process beginning inventory? A) $133,200 8) $440,000 c) $141,600 D) $8,400 Page |6Exercise 3 Answers: No | Mark: Correction, Justification or Calculations a{ | 2_|_T_| There is no distinction between the beginning WIP and current period costs. ae Physical Equivalent units units Direct materials | Conversion costs WIP, beginning ° +units started during the period _| 315,000 3| C | | Units to account for (Total A) 315,000 Units completed & transferred out | 240,000 240,000 240,000 WIP, ending 75,000 75,000 (75000%15%) Total equivalent units (Total B) 315,000 315,000 251,250 ‘Summarizing the physical units and equivalent units (Step 1 & 2): 4] B ; Physical Equivalent units Flow of Production | units _| Transferred in | Direct materials | Conversion costs WIP, beginning 3,000 5 | a _|{tunits started 15,000 Units to account for 18,000 Units comp. & trans. out From Beginning WIP 3,000 ° o (3,000x20%4) =600 Units started & completed | 11,000 | 11,000 11,000 6) C || wip, ending 4,000 4,000 000) (4,000x40%)=1,600 Total equivalent units 18,000 | 15,000 13,200 Units completed and finished = Beg. WIP + Units completed = 3,000 + 11,000 = 44600 v7 Calculating product costs (Step 3, 4 & 5): Equivalent units Total cost /Transferredin| DM cc 8 D__|| Costs to account fo WIP, beginning 133,200 - - + costs added during the period 566,800 | 270,000 | 112,000 | _ 184,800 Total cost to account for 700,000 | 270,000 | 112,000 | 184,800 9) 8 | equivalent units (EU) 45,000 _| 14,000 | _ 13,200 Cost per equivalent unit 40 18 4 WIP, beginning 133,200 10| C || Costsaddedto complete WIP beg. | 8,400 | (0x18)=0 | (0x8)=0 | (600x14}-8,400 Total Cost of Beg WIP completed Page | 7Exercise 4 (Midterm 2018): 1 | Which of the following statements best describes conversion costs? a) conversion costs are all manufacturing and nonmanufacturing cost. b) conversion costs are all manufacturing costs other than direct materials costs. ¢c) conversion costs are all nonmanufacturing costs including marketing costs. d) conversion costs are all nonmanufacturing costs other than fixed selling and distribution costs. ‘Answer the following questions (2 & 3) using the information below: ABC Chemical Inc. placed 220,000 liters of direct materials into the mixing process. At the end of the month, 5,000 liters were still in process, 30% converted as to labor and factory overhead. All direct materials are placed in mixing at the beginning of the process and conversion costs occur ‘evenly during the process. ABC uses weighted-average costing. 2 | Determine the equivalent units in process for direct materials and conversion costs, assuming there was no beginning inventory. a) 225,000 ,216,500 b) 220,000 ,216,500 ) 200,000 ,205,000 d) 216,000 ,220,000 3 | Determine the equivalent units in process for direct materials and conversion costs, assuming that 12,000 liters of chemicals were 40% complete prior to the addition of the 220,000 liters. a) 228,500 ,232,000 b) 233,000 228,500 c) 232,000 218,500 d) 232,000 ,228,500 Answer the following questions (5, 6 & 7) using the information below: ‘Assembly department of ABC Technologies had 100 units as work in process at the beginning of the month. These units were 50% complete. It has 200 units which are 25% complete at the end of the month. During the month, it completed and transferred 500 units. Direct materials are added at the beginning of production. Conversion costs are allocated evenly throughout production. ABC uses weighted-average process-costing method. 4 | The number of equivalent units of work done during the month for direct materials is__ 2) 600 units b) 800 units ) 700 units d) 500 units 5 | Calculate the total equivalent units in ending inventory for assignment of conversion costs? a) 25 units b) 50 units c) 150 units d) 200 units 6 | What is the total equivalent units in ending inventory for assignment of direct materials cost? a) 25 units b) 50 units c) 150 units ) 200 units 7 | Onoccasion, the FIFO and the weighted-average methods of process costing will result in the same dollar amount of cots being transferred to the next department. Which of the following scenarios would have that result? a) when the beginning and ending inventories are equal in terms of unit numbers b) when the beginning and ending inventories are equal in terms of the percentage of completion for both direct materials, and conversion costs ) when there is no ending inventory 4) when there is no beginning inventory ‘Answer the following questions (8 & 9) using the information below: Comfort chair company manufacturers a standard recliner. During February, the firm's Assembly Department started production of 73,000 chairs. During the month, the firm completed 78,000 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 Comfort. Beginning work in process was 30% complete as to conversion costs, while ending work in process was 80% complete as to conversion costs. Page |8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 How many of the units that were started and completed during February? a) 83,000 units _b) 78,000 units ¢) 73,000 unitsd) 63,000 units What were the equivalent units for conversion costs during February? a) 81,500 units ——_b) 83,000 units c) 73,000 unitsd) 77,500 units 10 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. ¢) direct labor costs added at the beginning of the process. d) a separate direct material added at the beginning of the process. uw ‘Ahmad Company operates a computer disk manufacturing plant. Direct materials are added at the end of the process. The following data were for February 2018: Workin process, beginning inventory 150,000 units Conversion costs (90% complete) Transferred in during current period 450,000 units Completed and transferred out 400,000 ur Work in process, ending inventory 200,000 units Conversion costs (65% complete) Calculate equivalent units for conversion costs using the FIFO method. 2) 401,500 units __b) 350,000 units __c) 300,000 units__d) 395,000 units 12 ‘Answer the following questions (12, 13 & 14) using the information below: ‘ABC Industries manufactures plastic toys. During October, ABC's Fabrication Department started work on 10,000 models. During the month, the company completed 11,000 models, and transferred them to the Distribution Department. The company ended the month with 1,500 models in ending inventory. There were 2,500 models in beginning inventory. All direct materials costs are added at the beginning of the production cycle. The FIFO method of process costing is being followed. Beginning work in process was 25% complete as to conversion costs, while ending work in process was 50% complete as to conversion costs. Beginning inventory: Direct materials costs $19,200, Conversion costs $10,800 Manufacturing costs added during the accounting period: Direct materials costs $70,000 Conversion costs $240,000 ‘What were the equivalent units for conversion costs during October? a) 10,125 units b) 11,375 units ¢) 11,125 units) 9,000 units 13 What is the amount of direct materials cost assigned to ending work-in-process inventory at the end of October? a) $22,727 b) $17,202 ) $7,720 d) $10,500 4 What is the cost assigned to ending inventory during October? a) $26,678 b) $31,536 ) $36,000 ) $38,000 Page |9Exercise 4 Answers: No | Choice Justification or Calculations 1] 8 een Physical Equivalent units —_ units Direct materials | Conversion costs WIP, beginning 0 + units started during the period __| 220,000 2 8 Units to account for (Total A) 220,000 Units completed & transferred out | 215,000 215,000 215,000 WIP, ending 5,000 _| (5000x100%) = 5000 _| (5000x30%) = 1,500 Total equivalent units (Total B) 220,000 216,500 oe Physical Equivalent units units Direct materials | Conversion costs WIP, beginning 12,000 + units started during the period _| 220,000 3 |p _| Units to account for (Total A) 232,000 Units completed & transferred out | 227,000 227,000 227,000 WIP, ending 5,000_| (5000x100%) = 5000 | (5000x30%) = 1,500 Total equivalent units (Total B) 220,000 Note: Under weighted average, ignore the percentage of completion for Beginning WIP. ‘ Physical Equivalent units |e Flow of Production units Direct materials | Conversion costs WIP, beginning 100 + units started during the period 600 5 |B || Units to account for (Total A) 700 Units completed & transferred out | 500 500) 500 WIP, ending 200 _| (200x100%) = 200 _| (200x25%) = 50 6 | D || Total equivalent units (Total B) 700 700 550 Units started = 500 completed + 200 ending — 100 beg = 600 units 7[ 0 Started and completed units = 78,000 completed — 15,000 beg and completed = 63,000 unit : Physical Equivalent units 8 D eee ease units Direct materials Conversion costs WIP, beginning 15,000 +units started during the period _| 73,000 Units to account for (Total A) 88,000 | Units completed & trans. out From Beginning WIP ° (15000%70%)= 10,500 9] a From Units started & completed 63,000 63,000 WIP, ending (10000x100%)=10,000 | (10000%80% Total equivalent units (Total B) 73,000 81,500 ao] 0 Page | 10nae Physical | Equivalent units units Direct materials | Conversion costs WIP, beginning 150,000 +units started during the period _| 450,000 11) p__ | Units to account for (Total A) 600,000 From Beginning WIP 150,000 0 {(150000x40%6)= 15000 From Units started & completed | 250,000 250,000 250,000 WIP, ending 200,000 | (200,000x100%) = | (200,000x65%) = 200,000 130,000 [otal equivalent units (Total B) 600,000 450,000 395,000 ‘Summarizing the physical units and equivalent units (Step 1 & 2): noe Physical Equivalent units ] units Direct materials | Conversion costs | WIP, beginning 2,500 | + units started during the period 10,000 | wiic Units to account for (Total A) 12,500 | Units completed & trans. out From Beginning WIP 2,500 (2500x75%)= 1875 From Units started & completed | 8,500 8,500 WIP, ending 1,500 (2500x50%)= 750 Total equivalent units (Total B) 12,500 | Calculating product costs (Step 3, 4 & 5): Equivalent units Total cost Direct materials | Conversion costs Costs to account for: 13) D |) WIP, beginning 30,000 - - + costs added during the period | 310,000 70,000 240,000 [Total costs to account for 340,000 70,000 240,000 | + equivalent units (EU) + 10,000 #11,125 Cost per equivalent units 5 7 21.573 | Assignment of costs Units completed and transfer out WIP, beginning 30,000 Costs added to complete WIP beg. | 40,444 (ox7)=0 | (1,875x21.57) = 40,444 14 | A | Total Cost of Beg WIP completed Units started & completed 242,845 (8,500x21.57) =183,345, WIP, ending 26,678 | (1,500x7}= 10,500 | (750x21.57) = 16,178 Total costs incurred Page | 11Exercise 5 (Midterm 2017} (True or False) 1 Conversion costs include all manufacturing costs including direct materials, direct labor, and other direct and indirect manufacturing costs. (McQs) Us 10. 4. the following data and information to determine the best choice from number 2 to 11: MARY Co. uses process costing. The following data are available for March 2017: = Work in process units on March 1* are 5,000 (80% completion) and its cost is LE. 20,000. - Units started during the month are 25,000, - Work in process ending is 10,000 units (60% completion). - Costs added during the month are materials L.E. 50,000 and conversion L.£. 66,000. The company uses the FIFO method. Materials are added at the beginning of the process, while the conversion costs are added uniformly during the process. Number of finished units is: A) 10,000 units 8) 12,000 units C)15,000units_ —_D) 20,000 units Number of units that started and finished in March 2017: ‘A) 10,000 units B) 12,000 units C) 15,000 units D) 20,000 units Total equivalent units for material costs are: A) 15,000 units B) 22,000 units C) 25,000 units 1) 30,000 units Total equivalent units for conversion costs are: A) 25,000 units 8) 30,000 units) 15,000units_ ——_—D) 22,000 units The material cost per equivalent unit is: A)LE.2 BLES CLES D)LES The conversion cost per equivalent unit is: ALE2 8)LE.3 CLES DLE Cost of the beginning work in process completed on March 31st is: A) LE. 25,000 8) LE. 20,000 C) LE, 23,000 D) LE. 22,000 Cost of started and finished units is A) LE. 15,000 8) Le. 30,000 C) LE. 45,000 D) LE. 75,000 Cost of transferred units to second process is: A) LE. 65,000 8) LE. 98,000 C) LE, 100,000 D) LE. 56,000 Cost of ending work in process is: A) LE. 38,000 8) Le. 30,000 C) LE. 12,000 D) LE, 20,000 Page | 12Exercise 5 Answers: No. | Mark Correction, Justification or Calculations 1 | F_| including direct labor, and Indirect manufacturing costs (overhead), Questions from 2 to 11: 2 | p | Completed units = 5,000 beg + 25,000 started — 10,0000 ending = 20,000 units finished ‘Summarizing the physical units and equivalent units (Step 1 & 2): irene Physical Equivalent units Bil units Direct materials | Conversion costs WIP, beginning 5,000 + units started during the period _| 25,000 Units to account for (Total A) 30,000 4 | ¢ || Units completed & trans. out From Beginning WIP 5,000 ° (5000x20%)= 1000 From Units started & completed | 15,000 15,000 15,000 WIP, ending 10,000 _| (10000x100%)=10000 | (10000x60%)=6000 5 | P| [Total equivalent units (Total B) 30,000 25,000 Calculating product costs (Step 3, 4 & 5): Equivalent units GiG Total cost |"“Direct materials | Conversion costs Costs to account for WIP, beginning 20,000 - - 7 | 8 || +costs added duringthe period | 116,000 50,000 66,000 Total costs to account for 136,000 50,000 66,000 + equivalent units (EU) Cost per equivalent unit Assignment of costs + 25,000 + 22,000 Units completed and transfer out 9 | || WIP, beginning 20,000 Costs added to complete WIP beg. | _ 3,000 (0x2)=0 (1000%3) = 3,000 Total Cost of Beg WIP completed Units started & completed (15000x2)= 30,000 | _(15000x3)=45,000 wo} 8B Total costs of units completed WIP, ending (10000x2)= 20,000 | (6,000x3) = 18,000 Total costs incurred 136,000 n| a Exercise 6 (Quiz Dr Waleed 2019): 1. The purpose of the equivalent-unit computation is tO wu. A) convert completed units into the amount of partially completed output units that could be made that quantity of input. 8) assist the business in determining the cost assigned to ending inventory and work in process Inventory. C) predict the future production capabilities of the organization. D) satisfy the GAAP requirements which requires all partially completed goods to be reported as equivalent-units. 2. Process costing should be used to assign costs to products when. A) the units produced are similar B) cost reduction is the top most priority C) the units produced are dissimilar D) cost reduction is not the primary objective Page | 133. Vital Industries manufactured 1,200 units of its product huge in the month of April. It incurred a total cost of $120,000 during the month. Out of this $120,000, $45,000 comprised of direct materials used in the product and the rest was incurred because of the conversion cost involved in the process. Ryan had no opening or closing inventory. What will be the total cost per unit of the product, assuming conversion costs contained $10,000 of indirect labor? a) $100 8) $90 $70 0) $30 4. If number of W.I.P units on March 31 are 4,000 units (80%). Materials are added at 60%. Then, Equivalent units for W.ILP on March 31 for Materials column are: A) 3,200 units B) 2,400 units ) 4,000 units D) O units 5. If number of W.,P units on March 31 are 4,000 units (80%). Materials are added at the end of processing. Then, Equivalent units for W.l.P on March 31 for Materials column are: A) 3,200 units 8B) 2,400 units €) 4,000 units D) Ounits 6. After finishing third process in March, costs of finishing W.I.P March 1 are LE 40,000, costs of started and finished units in March are LE 70,000, costs of W.|.P March 31 are LE 50,000. Then, costs of completed units are: ‘A) LE 50,000 B) LE 190,000 C) LE 160,000 D) LE 110,000 7. Cost of beginning balance of W.I.P on March 1 are LE 90,000 (including materials LE 65,000 and conversion LE 25,000), costs during March are LE 205,000 (including materials LE 75,000 and conversion LE 120,000). Using FIFO method, if the total equivalent units are 6,000 and 5,000 units for conversion and materials respectively. Then, cost per unit for conversion is: A) LE 10 8) LEIS, C) LE 20 D) LE 30 ‘Answer the following questions (from no. 8 to 15) Assembly department of Zahra Technologies had 100 units as work in process at the beginning of the month ‘These units were 50% complete. It has 200 units which are 25% complete at the end of the month (their costs are direct material LE 2,000 and conversion 10,000). During the month, it completed and transferred 500 units. Direct materials are added at the beginning of production. Conversion costs are allocated evenly throughout production. Zahra uses weighted-average process- costing method. During this month, cost of direct material is LE 40,000, cost of conversion is LE 100,000. 8, The number of starting units is... A) 700 units 8) 800 units C) 600 units D) 500 units 9. The number of equivalent units of work done during the month for direct materials is... ‘A) 700 units 8) 800 units C) 600 units D) 500 units 10. Calculate the total equivalent units in ending inventory for assignment of conversion costs? A) 25 units 8) 50 units C) 150 units D) 200 units 11. What is the total equivalent units in ending inventory for assignment of direct materials cost? A) 25 units 8) 50 units C) 150 units D) 200 units 12. What is the cost per unit for direct material? A) LE 200 B) LE 70 C) LE 60 D) None of these 13. What is the cost per unit for conversion? A) LE 200 8) LE 70 C) LE 6O D) None of these 14. What is the cost of completed and transferred units? A) LE 152,000 B) LE 130,000 C) LE 22,000 D) None of these 15. What is the cost of W.|.P ending units? A) LE 152,000 8) LE 130,000 C) LE 22,000 D) None of these Page | 14Answer the following questions (from no. 16 to 19) ‘Comfort Chair Company manufactures a standard recliner. During February, the firm's Assembly Department started production of 73,000 chairs. During the month the firm completed 78,000 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 Comfort. 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 accounting period: Direct materials $168,000, conversion costs $278,000 16. How many of the units that were started and completed during February? A) 83,000 8) 78,000 ¢) 73,000 ) 63,000 17. What were the equivalent units for conversion costs during February? A) 81,500 8) 83,000, ¢) 73,000 ) 77,500 18. What is the amount of direct materials cost assigned to ending work-in-process inventory at the end of February? a sisc00. 8) $23,000 ¢) $25,000 ) $27,000 19. What is the cost of the goods transferred out during February? A) $417,750.5 8) $454,608.5 ) $476,750.6 ) $505,000.2 Exercise 6 Answers: No | Choice Calculations 1] 8 A 3_| A _| Total cost per unit of the product = 120,000 + 1,200 units = $100 The WIP ending is completed by 80%, and DM is added at 60% level of manufacturing, which 4 | C__| means that the WIP ending is fully utilized for DM (100% complete for DM). Equivalent units of DM for WIP ending = 4,000 u x 100% = 4,000 units 5 | p__| The WiP ending is completed by 80%, and DM is added at the end of the process, which means that the WIP ending is not utilized for DM (0% complete for DM). 6 |p __| cost of units completed = Cost of finishing WIP + Cost of started & finished units 40,000 + 70,000 = LE 110,000 LE 120,000 7 |_| The cost per unit for conversion = - Te = LE 20 ‘Summarizing the physical units and equivalent units (Step 1 & 2): Bi| a Physical | __ Equivalent units units Direct materials | Conversion costs WIP, beginning 100 S| A || +units started during the period 600 Units to account for (Total A) 700 10) 8 || Units completed & trans. out From Units started & completed | 500 500 500 ul o WIP, ending 200 20 (200 x 25%) = 50_| Total equivalent units (Total B) 700 550 Page | 1512 |__| Calculating product costs (Step 3, 4 & 5): Equivalent units Total cost i 7 Direct materials [Conversion costs 13) 4 _ || Coststo account for: WIP, beginning 2,000 10,000 + costs added during the period 40,000 100,000 14) 8 || Total costs to account for 152,000 42,000 110,000 + equivalent units (EU) +700 +550 Cost per equivalent units 260 60 200 ‘Assignment of costs Units completed and transfer out (500x60)=30,000 | (500x200}=100,000 15) ¢ |] wip, ending (200x60}=12,000 | _(50x200)=10,000 Total costs incurred 152,000 Started and completed units = 78,000 completed — 15,000 beg and completed = 63,000 unit ‘Summarizing the physical units and equivalent units (Step 1 & 2): : Physical Equivalent unit ie} 0 Flow of Production units_[" Direct materials | Conversion costs WIP, beginning 15,000 + units started during the period _|_73,000 Units to account for (Total A) 88,000 Units completed & trans. out From Beginning WIP 15,000 ° w|oa From Units started & completed 63,000 WIP, ending 10,000 10,000 Total equivalent units (Total B) 88,000 73,000 Calculating product costs (Step 3, 4 & 5): i Equivalent units otalcost [Direct materials | Conversion costs Costs to account for: ae) || MIP, beginning $59,000 - - + costs added during the period 446,000 168,000, 278,000 Total costs to account for 505,000 168,000 278,000 + equivalent units (EU) 73,000 +81,500 Cost per equivalent units 5.711 2.30 3.411 Assignment of costs Units completed and transfer out WIP, beginning 59,000 Costs added to complete WIP beg. | 35,815.5 (0x2.30)=0 | (10,500x 3.411) =35,815.5 19 |B || Total cost of Beg WIP completed | 94,8155 Units started & completed 359,793 (63,000 x 5.711) =359,793 Total costs of units completed WIP, ending 50,288 10,000%2.30=23,000 | 8,000%3.411-27,288 Total costs incurred 504,896.5 Page | 16