Cost15EChapter17-Solutions

17-1CHAPTER17PROCESSCOSTING17-1Industriesusingprocesscostingintheirmanufacturingareasincludechemicalprocessing,oilrefining,pharmaceuticals,plastics,brickandtilemanufacturing,semiconductorchips,beverages,andbreakfastcereals.17-2Processcostingsystemsseparatecostsintocostcategoriesaccordingtothetimingofwhencostsareintroducedintotheprocess.Often,onlytwocostclassifications,directmaterialsandconversioncosts,arenecessary.Directmaterialsarefrequentlyaddedatonepointintime,oftenthestartortheendoftheprocess.Allconversioncostsareaddedataboutthesametimebutinapatterndifferentfromdirectmaterialscosts.Conversioncostsareoftenaddedthroughouttheprocess,whichcanofanylengthoftime,lastingfromsecondstoseveralmonths.17-3Equivalentunitsisaderivedamountofoutputunitsthattakesthequantityofeachinput(factorofproduction)inunitscompletedorinincompleteunitsinworkinprocessandconvertsthequantityofinputintotheamountofcompletedoutputunitsthatcouldbemadewiththatquantityofinput.Eachequivalentunitiscomprisedofthephysicalquantitiesofdirectmaterialsorconversioncostsinputsnecessarytoproduceoutputofonefullycompletedunit.Equivalentunitmeasuresarenecessarybecauseallphysicalunitsarenotcompletedtothesameextentatthesametime.17-4Theaccuracyoftheestimatesofcompletiondependsonthecareandskilloftheestimatorandthenatureoftheprocess.Semiconductorchipsmaydiffersubstantiallyinthefinishingnecessarytoobtainafinalproduct.Theamountofworknecessarytofinishaproductmaynotalwaysbeeasytoascertaininadvance.17-5Thefivekeystepsinprocesscostingfollow:Step1:Summarizetheflowofphysicalunitsofoutput.Step2:Computeoutputintermsofequivalentunits.Step3:Summarizetotalcoststoaccountfor.Step4:Computecostperequivalentunit.Step5:Assigntotalcoststounitscompletedandtounitsinendingworkinprocess.17-6Threeinventorymethodsassociatedwithprocesscostingareweightedaverage.first-in,first-out.standardcosting.17-7Theweighted-averageprocess-costingmethodcalculatestheequivalent-unitcostofalltheworkdonetodate(regardlessoftheaccountingperiodinwhichitwasdone),assignsthiscosttoequivalentunitscompletedandtransferredoutoftheprocess,andtoequivalentunitsinendingwork-in-processinventory.17-217-8FIFOcomputationsaredistinctivebecausetheyassignthecostofthepreviousaccountingperiod’sequivalentunitsinbeginningwork-in-processinventorytothefirstunitscompletedandtransferredoutoftheprocessandassignthecostofequivalentunitsworkedonduringthecurrentperiodfirsttocompletebeginninginventory,nexttostartandcompletenewunits,andfinallytounitsinendingwork-in-processinventory.Incontrast,theweighted-averagemethodcostsunitscompletedandtransferredoutandinendingworkinprocessatthesameaveragecost.17-9FIFOshouldbecalledamodifiedordepartmentalFIFOmethodbecausethegoodstransferredinduringagivenperiodusuallybearasingleaverageunitcost(ratherthanadistinctFIFOcostforeachunittransferredin)asamatterofconvenience.17-10AmajoradvantageofFIFOisthatmanagerscanjudgetheperformanceinthecurrentperiodindependentlyfromtheperformanceintheprecedingperiod.17-11Thejournalentriesinprocesscostingarebasicallysimilartothosemadeinjob-costingsystems.Themaindifferenceisthat,inprocesscosting,thereisoftenmorethanonework-in-processaccount––oneforeachprocess.17-12Standard-costproceduresareparticularlyappropriatetoprocess-costingsystemswheretherearevariouscombinationsofmaterialsandoperationsusedtomakeawidevarietyofsimilarproductsasinthetextiles,paints,andceramicsindustries.Standard-costproceduresalsoavoidtheintricaciesinvolvedindetailedtrackingwithweighted-averageorFIFOmethodswhentherearefrequentpricevariationsovertime.17-13Therearetworeasonswhytheaccountantshoulddistinguishbetweentransferred-incostsandadditionaldirectmaterialscostsforaparticulardepartment:(a)Alldirectmaterialsmaynotbeaddedatthebeginningofthedepartmentprocess.(b)Thecontrolmethodsandresponsibilitiesmaybedifferentfortransferred-initemsandmaterialsaddedinthedepartment.17-14No.Transferred-incostsorpreviousdepartmentcostsarecostsincurredinapreviousdepartmentthathavebeenchargedtoasubsequentdepartment.Thesecostsmaybecostsincurredinthatpreviousdepartmentduringthisaccountingperiodoraprecedingaccountingperiod.17-15Materialsareonlyonecostitem.Otheritems(oftenincludedinaconversioncostspool)includelabor,energy,andmaintenance.Ifthecostsoftheseitemsvaryovertime,thisvariabilitycancauseadifferenceincostofgoodssoldandinventoryamountswhentheweighted-averageorFIFOmethodsareused.Asecondfactoristheamountofinventoryonhandatthebeginningorendofanaccountingperiod.Thesmallertheamountofproductionheldinbeginningorendinginventoryrelativetothetotalnumberofunitstransferredout,thesmallertheeffectonoperatingincome,costofgoodssold,orinventoryamountsfromtheuseofweighted-averageorFIFOmethods.17-317-16(25min.)Equivalentunits,zerobeginninginventory.1.Directmaterialscostperunit($800,000÷5,000)$160.00Conversioncostperunit($805,000÷5,000)161.00AssemblyDepartmentcostperunit$321.002a.SolutionExhibit17-16AcalculatestheequivalentunitsofdirectmaterialsandconversioncostsintheAssemblyDepartmentofCandid,Inc.inFebruary2014.SolutionExhibit17-16Bcomputesequival