Chapter 11 Test Questions & Answers Process Costing

CHAPTER 11

Process Costing

CHAPTER LEARNING OBJECTIVES

1. Provide an overview of process costing.

2. Identify the beginning and ending units in WIP Inventory and their degree of completion.

3. Calculate equivalent units of production.

4. Calculate costs per equivalent units of production.

5. Assign costs to units completed and to ending WIP Inventory.

6. Replicate process costing for units moved to a second WIP Inventory department to arrive at a total cost per unit.

7. Outline the features of operation costing.

Current count is:

Knowledge: 18

Comprehension: 7

Application: 94

Analysis: 18

Evaluation: 4

Synthesis: 0

Total: 141

Number and percentage of questions:

Easy: 21 questions, 15 percent (target of 25%)

Medium: 109 questions, 77 percent (target of 65%)

Hard: 11 questions, 8 percent (target of 10%)

Question types:

Multiple Choice: 110

Short Answer: 6

Brief Exercises: 12

Exercises: 10

Problems: 3

Multiple-Choice Questions

1. The details of Tom & Harry Inc. for a particular process are shown below: 

The cost of units in beginning Work-in-Progress (WIP) Inventory is $78,000, and in the ending WIP Inventory is $60,000. During the current period, the incurred costs of Direct Materials (DM), Direct Labor (DL), and Manufacturing Overheads (MOH) were $200,000, $80,000, and $40,000 respectively. Considering the given data, what will the Cost of Goods Manufactured (COGM) be?

1. $302,000 
2. $338,000 
3. $350,000 
4. $404,000 

Ans: B, LO 1, Bloom: AP, Difficulty: Easy, AACSB: Analytic, AICPA: AC: Measurement, Analysis and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution:  Cost of Goods Manufactured = Cost of Beginning WIP Inventory + Costs Incurred During the Process in the Current Period – Costs of Ending WIP Inventory = ($78,000 + ($200,000 + $80,000 + $40,000) – $60,000) = $338,000.

1. Syrup Sensations produces various syrups used by cafés as additives for their various caffeinated offerings. Syrup Sensations is working on compiling their costing data for the most recent year for their two best-selling syrups: Vanilla and Mint. Their accountant has gathered the following information:

Based upon the information above, what is the unit cost for each bottle of Vanilla syrup? (Round answer to nearest cent.)

1. $0.51
2. $0.52
3. $0.55
4. $0.57

Ans: B, LO 1, Bloom: K, Difficulty: Easy, AACSB: Analytic, AICPA: AC: Measurement, Analysis and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires use of the formula to calculate the Cost of Goods Manufactured (COGM). Then, divide that total by the number of vanilla bottles produced. Calculate Direct Materials (DM) used by adding together Sugar and Syrup Materials and Flavor Additives: $10,876 + $3,290 = $14,166. To calculate the Direct Labor (DL), add the Mixing and Bottling Wages: $26,744 + $17,880 = $44,624.

Lastly, use the COGM calculated to compute the unit costs:

Unit Costs = COGM/Number of Units Manufactured

Unit Costs = $91,690/175,000 units

Unit Costs = $0.52

1. Syrup Sensations produces various syrups used by cafés as additives for their various caffeinated offerings. Syrup Sensations is working on compiling their costing data for the most recent year for their two best-selling syrups: Vanilla and Mint. Their accountant has gathered the following information:

Based upon the information above, what is the unit cost for each bottle of Mint syrup? (Round answer to nearest cent.)

1. $0.47
2. $0.51
3. $0.53
4. $0.56

Ans: B, LO 1, Bloom: K, Difficulty: Easy, AACSB: Analytic, AICPA: AC; Measurement, Analysis and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires use of the formula to calculate the Cost of Goods Manufactured (COGM). Then, divide that total by the number of mint bottles produced. Calculate Direct Materials (DM) used by adding together Sugar and Syrup Materials and Flavor Additives: $9,993 + $3,375 = $13,368. To calculate the Direct Labor (DL), add the Mixing and Bottling Wages: $24,567 + $14,322 = $38,889.

Lastly, use the COGM calculated to compute the unit costs:

Unit Costs = COGM/Number of Units Manufactured

Unit Costs = $82,478/162,500

Unit Costs = $0.51

1. Yum Yum Cookies bakes, packages, and distributes a variety of delicious cookies, including their best-selling chocolate chip and oatmeal raisin cookies. John, the head accountant, is finishing his accounting recap for the year and has gathered some data about each of these treats.

Chocolate Chip:

Beginning WIP Inventory: $12,347

Ending WIP Inventory: $9,877

Oatmeal Raisin:

Beginning WIP Inventory: $8,442

Ending WIP Inventory: $3,200

John would like to take a closer look at the unit cost for each cookie to assist management in making better decisions for the upcoming year. John has compiled the following costing information:

Yum Yum has determined the unit cost of Chocolate Chip to be $2.56 and the unit cost of Oatmeal Raisin to be $2.54. How many Chocolate Chip cookies did they manufacture during the year? (Round units to whole number.)

1. 39,922 units
2. 42,836 units
3. 46,620 units
4. 50,472 units

Ans: B, LO 1, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires familiarity with the calculation for the Cost of Goods Manufactured (COGM). Normally, the next step would be to divide that total by the number of units produced. In this question, the unit cost is given, so the process needs to be worked backwards to solve for the units produced. To calculate the Direct Labor (DL), add the Stirring, Baking, and Packaging Wages: $26,744 + $17,880 + $10,876 = $55,500. Direct Materials (DM) costs are equal to the cost of the cookie materials: $18,290.

Now, use the COGM calculated to arrive at the number of cookies produced:

Unit Costs = COGM/Number of Units Manufactured

$2.56 = $109,661/Number of Units Manufactured

Number of Units Manufactured = $109,661/$2.56

Number of Units Manufactured = 42,836 units

1. Yum Yum Cookies bakes, packages, and distributes a variety of delicious cookies, including their best-selling chocolate chip and oatmeal raisin cookies. John, the head accountant, is finishing his accounting recap for the year and has gathered some data about each of these popular treats.

Chocolate Chip:

Beginning WIP Inventory: $12,347

Ending WIP Inventory: $ 9,877

Oatmeal Raisin:

Beginning WIP Inventory: $8,442

Ending WIP Inventory: $3,200

John would like to take a closer look at the unit cost for each cookie to assist management in making better decisions for the upcoming year. John has compiled the following costing information:

Yum Yum has determined the unit cost of Chocolate Chip to be $1.39 and the unit cost of Oatmeal Raisin to be $1.79. How many Oatmeal Raisin cookies did they manufacture during the year? (Round units to whole number.)

1. 52,058 units
2. 56,649 units
3. 58,577 units
4. 60,369 units

Ans: B, LO 1, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires familiarity with the calculation of the Cost of Goods Manufactured (COGM). Normally, that total would then be divided by the number of units produced. In this question, the unit cost is given, so the process will have to be worked backwards to solve for the units produced. To calculate the Direct Labor (DL), add the Stirring, Baking, and Packaging Wages: $24,567 + $14,322 + $9,993 = $48,882. Direct Materials (DM) is equal to the cost of the Cookie Materials: $16,375.

Now, use the COGM calculated to arrive at the number of cookies produced:

Unit Costs = COGM/Number of Units Manufactured

$1.79 = $101,402/Number of Units Manufactured

Number of Units Manufactured = $101,402/$1.79

Number of Units Manufactured = 56,649 units

1. Sharon is the head cost accountant for Blindz, Inc., a factory that produces contemporary window blinds for personal residences. She is reviewing the work of Tara, a new accountant at the company. Tara has been finalizing the process costing numbers and has arrived at an ending inventory balance of $49,677. After closer review, Sharon realizes that this number included a sale in the amount of $2,400 with a cost of $989. The sale was Free on Board (FOB) shipping point and had been loaded onto the carrier by the close of the year but had not yet reached the buyer. If Sharon had not caught Tara’s error, then how would this have impacted the income statement (ignoring income taxes)?
   • 1. Net Income would be overstated by $989.
     2. Net Income would be overstated by $2,400.
     3. Net Income would be understated by $989.
     4. Net Income would still be correctly stated.

Ans: A, LO 1, Bloom: AN, Difficulty: Easy, AACSB: Analytic, AICPA: AC: Measurement, Analysis and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: The sale that was overlooked was FOB shipping point and had reached the carrier which meant that it should have been removed from the ending inventory balance and included in Cost of Goods Sold (COGS). This led to an overstatement of the inventory balance and an understatement of Cost of Goods Sold. The cost that should have been subtracted should be the $989 rather than the sale amount of $2,400. This error would have led to an understatement by $989 in Cost of Goods Sold and an overstatement of Net income by $989.

1. Sharon is the head cost accountant for Blindz, Inc., a factory that produces contemporary window blinds for personal residences. She is reviewing the work of Tara, a new accountant at the company. Tara has been finalizing the process costing numbers and has arrived at an ending inventory balance of $49,677. After closer review, Sharon realizes that this number excluded a sale in the amount of $2,400 with a cost of $989. The sale was Free on Board (FOB) destination and had been loaded onto the carrier by the close of the year but had not yet reached the buyer. If Sharon had not caught Tara’s error, then how would this have impacted the income statement (ignoring income taxes)?
   • 1. Net Income would be overstated by $989.
     2. Net Income would be understated by $989.
     3. Net Income would be overstated by $2,400.
     4. Net Income would be understated by $2,400.

Ans: B, LO 1, Bloom: AN, Difficulty: Easy, AACSB: Analytic, AICPA: AC: Measurement, Analysis and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: The sale that was overlooked was FOB destination and had not reached the buyer which meant that it should have been included in the ending inventory balance and not Cost of Goods Sold (COGS). This has led to an understatement of the inventory balance and an overstatement of Cost of Goods Sold. The cost of $989 should not have been subtracted from inventory or added to COGS. This error would have led to an overstatement by $989 in Cost of Goods Sold and an understatement of Net income by $989.

1. From the following data, determine the total Cost of Goods Manufactured (COGM):

1. $251,090.90
2. $270,840.40 
3. $279,000.00
4. $310,400.00

Ans: A, LO 1, Bloom: AP, Difficulty: Easy, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: COGM is the same as total cost of units completed and transferred out from WIP inventory. Total cost of units completed and transferred out from WIP inventory = Cost of units in beginning WIP inventory + Costs added to units in beginning WIP inventory this period + Costs of units started and completed + Cost of units started and incomplete – Cost of units in ending WIP inventory, $78,000 + $16,040.40 + $157,050.50 + $59,309.10 – $59,309.10 = $251,090.90.

1. Alex Enterprises manufactures baseball equipment. During the last quarter of 2020, the company produced 50,000 baseball bats. The company’s accounting records reveal the following information about the last quarter’s production:

Based on the given information, determine the company’s Cost of Goods Manufactured (COGM) for the last quarter of 2020.

1. $156,000
2. $480,000
3. $516,000
4. $688,000

Ans: C, LO 1, Bloom: AP, Difficulty: Easy, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: COGM = Beginning WIP Inventory + DM + DL + MOH – Ending WIP Inventory: $104,000 + $227,000 + $109,000 + $162,000 – $86,000 = $516,000.

1. Alex Enterprises manufactures baseball equipment. During the last quarter of 2020, the company produced 50,000 baseball bats. The company’s accounting records reveal the following information about the last quarter’s production:

In the given scenario, how much per unit cost company has incurred in producing the baseball bat?

1. $3.12 per bat
2. $9.60 per bat
3. $10.32 per bat
4. $13.76 per bat

Ans: C, LO 1, Bloom: AP, Difficulty: Easy, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: First, determine the Cost of Goods Manufactured using the following formula: Beginning WIP Inventory + DM + DL + MOH – Ending WIP Inventory = Cost of Goods Manufactured, $104,000 + $227,000 + $109,000 + $162,000 – $86,000 = $516,000. Now, calculate the cost per unit by dividing the Cost of Goods Manufactured by the number of units produced as, $516,000/50,000 = $10.32 per bat.

1. Kevin is the accountant for Alex Enterprises, a manufacturer of baseball bats. Kevin made an error in the accounting process. Work-In-Process (WIP) was overstated by $25,000 for the month. What impact would this error have on both the cost of goods sold (COGS) and net income?
2. COGS would be overstated by $25,000; net income would be overstated by $25,000.
3. COGS would be overstated by $25,000; net income would be understated by $25,000.
4. COGS would be understated by $25,000; net income would be overstated by $25,000.
5. COGS would be understated by $25,000; net income would be understated by $25,000.

Ans: C, LO 1, Bloom: AN, Difficulty: Easy, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: Improperly overstating ending WIP would result in COGS being understated, and that would consequently result in net income being overstated.

1. Kevin, the accountant for Alex Enterprises, made an error in the accounting process for their manufacture of baseball bats. The inventory balances were understated by $10,000. What impact would this error have on both the cost of goods sold (COGS) and net income?
2. COGS would be overstated by $10,000; net income would be overstated by $10,000.
3. COGS would be overstated by $10,000; net income would be understated by $10,000.
4. COGS would be understated by $10,000; net income would be overstated by $10,000.
5. COGS would be understated by $10,000; net income would be understated by $10,000.

Ans: B, LO 1, Bloom: AN, Difficulty: Easy, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: Improperly understating inventory balances would result in COGS being overstated, and that would consequently result in net income being understated.

1. Harry Chemicals Ltd is using the First-In, First-Out (FIFO) method for inventory costing and reported the following details for the month of September:

Cost details related to the above inventories are as follows: Total cost in beginning WIP inventory is $2,200 (DM, $1,230; and Conversion, $970). Costs added to WIP inventory in the given period are $4,545 (DM, $1,515; and Conversion, $3,030). Based on the given information, calculate the cost per equivalent unit for DM and Conversion?

1. Cost per equivalent unit for DM is $0.61, and for Conversion is $1.21.
2. Cost per equivalent unit for DM is $0.71, and for Conversion is $1.31.
3. Cost per equivalent unit for DM is $0.85, and for Conversion is $1.91.
4. Cost per equivalent unit for DM is $1.10, and for Conversion is $1.60.

Ans: A, LO 1, Bloom: AN, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: Using the FIFO method, the cost per equivalent unit can be calculated as: costs added to WIP Inventory this period/total equivalent units of work done this period. For DM, this cost is equal to ($1,515/2,500 units) $0.61 per unit. For Conversion, this cost is equal to ($3,030/2,500 units) $1.21 per unit.

1. TradeMark Inc. began the year with a beginning inventory of $3,820 in their Sewing department. Using the Weighted-Average method, they calculated their equivalent units of production for this calendar year to be:

TradeMark calculated their cost per equivalent unit as follows: Direct Material, $84; and Conversion Costs, $43. How much cost should TradeMark assign to the units remaining in ending inventory for the current calendar year?

• 1. $3,397
  2. $12,600
  3. $15,997
  4. $19,817

Ans: C, LO 1, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires assignment of costs only to the units in ending WIP inventory during the current year. Direct Materials are 150 × $84 = $12,600, and Conversion costs are 79 × $43 = $3,397. So, Total Costs = $12,600 + $3,397 = $15,997.

1. Sew Lovely is a company that manufactures high-end silk scarves. These scarves are offered in several uniquely designed patterns that change seasonally. The head accountant is looking at the numbers for the month of August and is focused on the movement between the dying and sewing departments. He has compiled the following information about the dying department:

August 1 Work-in-Progress (WIP) Inventory (Dying): $703

Cost of Silk Added: $6,404

Conversion Costs (CC) Added: $8,200

August 31 WIP Inventory (Dying): $4,302

According to this information, what is the cost of units completed and transferred out from the WIP Inventory (Dying) account?

1. $11,005
2. $14,604
3. $15,307
4. $19,609

Ans: A, LO 1, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: In order to solve for this, envision a T-Account. All of the numbers provided should be debits to the WIP Inventory (Dying) account. Solve for a credit. This question requires use of the following formula:

$703 + $6,404 + $8,200 – X = $4,302

X = $11,005

1. Sew Lovely is a company that manufactures high-end silk scarves. These scarves are offered in several uniquely designed patterns that change seasonally. The head accountant is looking at the numbers for the month of August and is focused on the movement between the dying and sewing departments. He has compiled the following information about the dying department:

August 1 Work-in-Progress (WIP) Inventory (Dying): $703

Added Silk: $6,404

Conversion Costs (CC): $8,200

August 31 WIP Inventory (Dying): $4,302

According to this information, what journal entry would Sew Lovely use to recognize the transfer of costs from the Dying to the Sewing department?

Ans. B, LO 1, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: In order to solve for this, envision a T-Account. All of the numbers provided should be debits to the WIP Inventory—Dying account. Solve for a credit. This question requires use of the following formula:

$703 + $6,404 + $8,200 – X = $4,302

X = $11,005

This will involve a debit to WIP Inventory—Sewing and a credit to WIP Inventory—Dying, both in the amount of $11,005.

1. A manufacturer of fruit-flavored toaster pastries had a very busy month. After the accountant has looked over all of the production activity, they have determined that the following costs have been incurred:

Direct Materials (DM)

Dough, $8,400

Icing, $9,560

Strawberry, $1,308

Blueberry, $1,503

Raspberry, $1,018

Direct Labor (DL)

Salaries and Wages, $13,407

Manufacturing Overhead (MOH)

MOH Control, $12,706

All of the given costs were incurred within the baking department. Once units are completed, they move on to a finishing department before reaching their final destination at packaging where they packaged for sales. The baking department had a beginning balance of $1,307 and units completed and transferred of $48,469. Which of the following represents a correct portion of a journal entry to account for these costs?

1. A credit to DM Inventory—Dough to account for the use of the $8,400 of dough
2. A credit to Work-in-Progress (WIP) Inventory—Baking to account for DL and MOH.
3. A debit to DM Inventory—Strawberry to account for the use of the $1,308 of strawberries
4. A debit to MOH Control to account for the $12,706 of MOH

Ans: A, LO 1, Bloom: K, Difficulty: Medium, AACSB: Communication, AICPA: AC: Reporting, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires familiarity with the journal entries to record the transfer of costs from Direct Materials inventory into WIP inventory and the incurrence of Conversion Costs (CC). Choice A is correct as it correctly identifies that there needs to be a credit to the DM Inventory- Dough account in order to account for their use of dough.

1. A manufacturer of fruit-flavored toaster pastries had a very busy month. After the accountant has looked over all of the production activity, they have determined that the following costs have been incurred:

Direct Materials (DM)

Dough, $8,400

Icing, $9,560

Strawberry, $1,308

Blueberry, $1,503

Raspberry, $1,018

Direct Labor (DL)

Salaries and Wages, $13,407

Manufacturing Overhead (MOH)

MOH Control, $12,706

All of the given costs were incurred within the baking department. Once units are completed, they move on to a finishing department before reaching their final destination at packaging where they are packaged for sales. The baking department had a beginning balance of $1,307 and units completed and transferred of $48,469. What is the amount of ending inventory in the Work-in-Progress (WIP) Inventory— Baking account?

1. $740 credit balance
2. $740 debit balance
3. $21,789 credit balance
4. $21,789 debit balance

Ans. B, LO 1, Bloom: AN, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires familiarity with how the T-account for WIP Inventory—Baking would be affected by the above costs. Solve for a debit. This question requires use of the following formula:

DM: $8,400 + $9,560 + $1,308 + $1,503 + $1,018 = $21,789

$1,307 + $21,789 + $13,407 + $12,706 – $48,469 = X

X = $740 Ending Debit Balance

1. Sticky Fingers Corp is a manufacturer of gluten-free cinnamon rolls that are packaged and sold in quantities of six rolls. Sticky has chosen to implement a process costing system to account for their production costs at the recommendation of the head cost accountant, Trevor. He examined their records for the most current year and compiled the following information:

Beginning Work-in-Progress (WIP) Inventory: 256 units that are 100% completed for Direct Materials (DM) and 68% completed for Conversion Costs (CC)

Units Started During the Period: 18,540

Units Completed by the End of the Period: 16,400

Ending WIP Inventory: X units that are 100% completed for Direct Materials and 60% completed for Conversion Costs

Their beginning inventory includes the following costs: Direct Materials, $343; and Conversion Costs, $652. During the most recent year, Sticky added the following costs: Direct Materials, $48,900; and Conversion Costs, $58,777. Using the First-In, First-Out (FIFO) method, how much total cost should be assigned to units completed this period? (Round units to nearest whole number and costs to two decimal places.)

1. $96,339.97
2. $97,580.00
3. $97,647.74
4. $108,716.12

Ans. C, LO 1, Bloom: E, Difficulty: Hard, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: (Total cost calculated in steps 3 and 5 of process costing may vary due to rounding.) This question requires the use of all five of the process costing steps. Before the first step, determine how many units to account for which will also produces the unknown ending inventory units, X. Begin by calculating physical units in the period and their degree of completion. Units in beginning WIP inventory plus units started this period = 256 + 18,540 = 18,796 total units to account for. Now, determine the ending inventory by deducting the units completed from the total units to account for: 18,796 – 16,400 = 2,396 units. Next, calculate the units that were started and completed using the following formula: New units started – Units in ending WIP inventory = 18,540 – 2,396 = 16,144 units.

For step two, account for equivalent units. Under FIFO, there will be a separate assessment of beginning inventory. Direct Materials: (256 × 0%) + (16,144 × 100%) + (2,396 × 100%) = 18,540 equivalent units. Conversion Costs: (256 × 32%) + (16,144 × 100%) + (2,396 × 60%) = 82 + 16,144 + 1,438 = 17,664 equivalent units. In step three, account for costs added to WIP inventory this period: Direct Materials: $48,900, and Conversion Costs: $58,777. For step four, calculate the cost per equivalent unit: Direct Materials, $48,900/18,540 = $2.64; and Conversion Costs, $58,777/17,664 = $3.33. Finally, step five requires allocation of costs based on the equivalent units calculated. The end result should appear as follows:

1. Lucky Charm is a factory that molds and assembles silver charms that are offered in a variety of themes including hearts, letters, and animals for use on charm bracelets. During the year, additional silver of $52,237 and Conversion Costs of $71,490 were added to the Molding department. During the year, the total cost of units completed by the Molding department and then transferred to Assembly amounted to $131,500. As of January 1, the beginning WIP Inventory (Molding) had a balance of $9,805. What is the ending balance of WIP Inventory (Molding)?
2. $2,032 credit balance
3. $2,032 debit balance
4. $7,773 credit balance
5. $133,532 debit balance

Ans: B, LO 1, Bloom: AP, Difficulty: Easy, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires use of the following formula:

1. Companies often find that they have partially completed units in beginning and/or ending inventory. Rather than disregarding these partially completed units or including the entirety of their costs, companies will assess the degree of completion for both Direct Materials (DM) and Conversion Costs (CC) at the reporting date. This will eventually lead to the calculation of equivalent units that have been completed. Which of the following would be considered the most relevant source for management to draw upon to create their assessments?
   1. Hypothetical forecasts drawn from a manager’s experience at a different factory
   2. Input received from sales staff personnel
   3. Quotes received from suppliers for potential purchases
   4. Results supported by purchase orders and invoices, materials requisitions, and corresponding costs already applied to WIP inventory

Ans: D, LO 2, Bloom: K, Difficulty: Medium, AACSB: Communication, AICPA: AC: Reporting, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: In this instance, answer the question from the perspective of a manager. Of the choices provided, the actual results would be the most reliable source on which management could rely. This answer is the only choice that is based upon factual information and/or from parties directly involved in the production process.

1. An organization finds that it has no beginning or ending Work-in-Progress (WIP) Inventory due to the way that it has set up its production operations. A company like this would not have to be concerned with assessing or calculating equivalent units of production. Which of the following is true for a company with no beginning or ending WIP Inventory in the production process?
   1. No beginning WIP Inventory means that final units were moved to ending WIP inventory.
   2. No beginning WIP Inventory means each unit worked on during the period was residual from the previous period.
   3. No ending WIP Inventory means that all production costs were moved to Finished Goods.
   4. No ending WIP Inventory means there could be a large number of unfinished units to count.

Ans: C, LO 2, Bloom: K, Difficulty: Medium, AACSB: Communication, AICPA: AC: Reporting, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires understanding the implications of having no beginning or ending WIP Inventory in the production process. Choice C is the only answer listed that correctly summarizes what having no ending WIP Inventory would mean in the event that the units have been sold.

1. As a company decides between using the First-In, First-Out (FIFO) or Weighted-Average method for their process costing, a number of factors must be considered. Management should always ensure that they have taken the proper time to consider all factors as companies are urged to apply the same method from year to year and switching between methods later on will not likely be possible. Which of the following is a rationale for selecting the Weighted-Average rather than the FIFO method?
   1. The Weighted-Average method is costlier than the FIFO method.
   2. The Weighted-Average method is the best fit when individual units are easy to identify separately.
   3. The Weighted-Average method is the best fit when individual units are impossible to identify separately.
   4. The Weighted-Average method is the more accurate method but also takes more time.

Ans: C, LO 2, Bloom: K, Difficulty: Medium, AACSB: Communication, AICPA: AC: Reporting, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires familiarity with the differences between the features of the FIFO and Weighted-Average methods. Choice C is the correct choice as it is the only choice to accurately identify an appropriate and accurate rationale for selecting Weighted-Average over FIFO. When the units are too difficult to identify separately, Weighted-Average would be the best choice.

1. As a company decides between using the First-In, First-Out (FIFO) or Weighted-Average method for their process costing, a number of factors must be considered. Management should always ensure that they have taken the proper time to consider all factors as companies are urged to apply the same method from year to year and switching between methods later on will not likely be possible. Which of the following is a rationale for selecting the FIFO rather than the Weighted-Average method?
   1. A company produces a bleach chemical, so FIFO will be their best option.
   2. FIFO is considered a simpler system to implement.
   3. FIFO is less time-consuming and less expensive than the Weighted-Average method.
   4. FIFO is more accurate than the Weighted-Average method.

Ans: D, LO 2, Bloom: K, Difficulty: Easy, AACSB: Communication, AICPA: AC: Reporting, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires that familiarity with the differences between the features of the FIFO and Weighted-Average methods. Choice D is the correct choice as it is the only choice to accurately identify an appropriate and accurate rationale for selecting the FIFO method over the Weighted-Average method. FIFO is considered more accurate and this results in it also being more time-consuming and more expensive.

1. At the end of their first month of operations, a cookie factory has some unfinished inventory in Work-in-Progress (WIP) (Packaging). Tara, the manager of the Packaging department wants to assess the unfinished inventory’s degree of completion to finalize the costing information. All Direct Materials (DM) in the process are added at the beginning of the process, and Conversion Costs (CC) are incurred evenly throughout the packaging process. If it takes two hours to complete the process and only 46 minutes elapsed, then the degree of completion for CC is which of the following? 
2. 26.08% 
3. 38.33% 
4. 46.00% 
5. 76.67%  

Ans. B, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution:  Out of 120 minutes for the total process, 46 minutes have been completed, so conversions are 46 minutes/120 minutes = 38.33% complete. 

1. Which of the following is a reason that managers might select the First-In, First-Out (FIFO) method over the Weighted-Average method?
2. Individual units can be separately identified.
3. The FIFO method allows costs from the previous period and the current period to be blended, and the Weighted-Average method does not.
4. The FIFO method is the simpler of the two methods.
5. The FIFO method results in more stable margins as compared to the Weighted-Average method if selling price cannot be changed.

Ans: A, LO 2, Bloom: K, Difficulty: Easy, AACSB: Communication, AICPA: AC: Reporting, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: FIFO is more appropriate when individual units can be separately identified. The other three choices are characteristics of the Weighted-Average method.

1. A freshly started company has given the following details for a particular process: There was no beginning Work-in-Progress (WIP) Inventory. A new batch of 1,000 units was introduced for processing at the beginning of the day. The company works 8 hours on a daily basis and a batch takes 6 hours of processing no matter how many units are introduced. In the first 6 hours, the entire 1,000 units were completed and removed from WIP Inventory to Finished Goods (FG) Inventory. 750 additional units were introduced upon completion. Conversion Costs (CC) evenly throughout the process. Find out the equivalent units for conversion costs in the ending WIP Inventory. 
2. 250 units 
3. 750 units 
4. 1,000 units 
5. 5,000 units 

Ans. A, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: It required 6 hours to start and complete the processing of the first 1,000 units. With 2 hours left in the day, 750 new units were introduced for processing. That means 2 hours out of 6 hours of work, so there was enough time left in the day to complete 1/3 of the process work. Equivalent units for conversion are therefore 750 units × one-third = 250 units.

1. Totally Tasty Tortillas is about to begin their third year of operations. They planned on completing their last batch for the current year but due to inclement weather, the factory had to unexpectedly shut down which left the batch incomplete. They have compiled the following production information for the current year:

Tortillas started: 37,000 units

Already in process at the beginning of the year: 1,246 units

Complete at year-end: 35,009 units

Conversion: 73% complete at year end

Totally Tasty uses the Weighted-Average method and adds all of its Direct Materials (DM) at the beginning of the process. How many units will Totally Tasty have in their ending inventory?

1. 1,991 units
2. 2,363 units
3. 3,237 units
4. 12,689 units

Ans: C, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires determining how which units will be included in the total number of units that remain in ending inventory. In order to calculate this, determine how many units Totally Tasty had over the whole period, and then remove the completed units. To calculate that, take the number of units started plus those already in process and subtract those units completed at year-end: 37,000 + 1,246 – 35,009 = 3,237 units.

1. Which of the following is true for how the method described would impact the cost of ending Work-in-Progress (WIP) Inventory in the production process?
2. The First-In, First-Out (FIFO) method will strive to focus on all costs in the process regardless of the period in which they occurred.
3. The Weighted-Average method will strive to only focus on costs added during the current period.
4. Using the FIFO method, the cost of ending inventory will consist of the first costs added in the process only.
5. Using the Weighted-Average method, the costs remaining in ending inventory will be a blend of previous period’s and the current period’s costs.

Ans: D, LO 2, Bloom: K, Difficulty: Medium, AACSB: Communication, AICPA: AC: Reporting, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: Reflect on the differences between how the FIFO and the Weighted-Average methods would impact the costs of ending inventory for the period. Choice D is the only answer listed that correctly identifies the way that the chosen method would impact the costs of inventory balance.

1. Devine Desserts specializes in the production of sweet plant-based bakery items. Their top seller for the past few years has been their cherry cheesecake made with a flourless crust and organic fruit topping. Devine is currently considered a boutique operation, but they are looking to increase production and to expand their offerings and customer base. In an effort to refine their spending efforts and advertising costs, they will be compiling some costing data on their cherry cheesecake. The following costing information applies to the current year:

The following production summary has also been compiled for this year’s operations:

If management decides to use the Weighted-Average method, then how much cost will be reflected in the Crust (C), Cherry Toppings (CT), and Conversion (CN) with respect to the units completed and removed from WIP inventory? (Do not round intermediate calculations.)

1. C, $54,179.86; CT, $54,179.86; and CN, $54,179.86
2. C, $59,701.67; CT, $29,011.42; and CN, $73,826.49
3. C, $59,723.47; CT, $29,031.86; and CN, $73,867.16
4. C, $60,749.00; CT, $29,500.00; and CN, $75,018.00

Ans: B, LO 2, Bloom: AP, Difficulty: Hard, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires the ability to walk through all five of the process costing steps using the Weighted-Average method. First, determine how many units to account for and realize that both beginning and ending inventories have to be derived from the given information. The ending inventory of the previous year becomes the beginning inventory of the current year. The beginning balance of the following year was the ending balance of the current year. The first step is to verify physical units in the period and their degree of completion. Units in beginning WIP inventory plus units started this period, 755 + 64,789 = 65,544 total units to account for. Now, determine the units completed this period with the help of total units accounted for (calculated above) and the given ending inventory balance, 65,544 – 1,130 = 64,414 units.

In step two, account for equivalent units. Using the Weighted-Average method, there will not be a separate assessment of beginning inventory. Crust: (64,414 × 100%) + (1,130 × 100%) = 65,544 equivalent units. Cherry Toppings: (64,414 × 100%) + (1,130 × 96%) = 65,498.8 equivalent units. Conversion Costs: (64,414 × 100%) + (1,130 × 92%) = 65,453.6 equivalent units. In step three, account for costs: Crust, $1,950 + $58,799 = $60,749; Cherry Toppings, $1,560 + $27,940 = $29,500; and Conversion Costs, $2,678 + $72,340 = $75,018. In step four, calculate the cost per equivalent unit: Crust, $60,749/65,544 = $0.9268; Cherry Toppings, $29,500/65,498.8 = $0.4504; and Conversion Costs, $75,018/65,453.6 = $1.1461. In step five, allocate costs based upon the equivalent units completed and removed from WIP inventory. Crust = (64,414 × $0.9268) = $59,701.67, Cherry Toppings = (64,414 × $0.4504) = $29,011.42, and Conversion Costs = (64,414 × $1.1461) = $73,826.49.

1. Maple Leaf Coffee Company has a beginning Work-in-Progress (WIP) Inventory of 4,000 units, and its degree of completion was 100% for Direct Materials (DM) and 80% for Conversion Costs (CC). During the period, Maple started 16,000 units and a total of 18,000 units were completed and removed from WIP Inventory. The ending Inventory of WIP was 2,000 units with a degree of completion as 100% of Direct Materials. The company uses the First-In, First-Out (FIFO) method, and the total equivalent units of Conversion Costs for the period was 16,000 units. Find the degree of completion for Conversion Costs of ending WIP Inventory.
2. 30%
3. 40%
4. 60%
5. 70%

Ans: C, LO 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: Under the FIFO Method, Total Equivalent Units of Conversion Cost = (Units in Beginning WIP Inventory × Percentage of Resource Added this Period) + (Units Started and Completed this Period × Percentage of Resource Added this Period) + (Units in Ending WIP Inventory × Percentage of Resource Added this Period).

Therefore, 16,000 units = (4,000 units × 20%) + (14,000 units × 100%) + (2,000 units × X%)

(2,000 × X%) = 16,000 units – 800 units – 14,000 units

X = 60%

1. As of June 1, Jelly and Telly Company had 2,000 units that were 100% complete with respect to Direct Materials (DM) and 80% complete with respect to Conversion Costs (CC). During the month of June, Jelly and Telly started 8,000 units and a total of 9,000 units were completed and removed from Work-in-Progress (WIP) Inventory. On June 30, they had 1,000 units remaining in inventory that were 100% complete with respect to Direct Materials and 40% complete with respect to Conversion Costs. Find the total equivalent units of Conversion Costs for the month of June if the company follows the First-In, First-Out (FIFO) method.
2. 6,800 units
3. 7,800 units
4. 8,000 units
5. 8,800 units

Ans: B, LO 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: Under the FIFO Method, the Total Equivalent Units of Conversion Costs = (Units in Beginning WIP Inventory × Percentage of Resource Added this Period) + (Units Started and Completed this Period × Percentage of Resource Added this Period) + (Units in Ending WIP Inventory × Percentage of Resource Added this Period).

Therefore, (2,000 units × 20%) + (7,000 units × 100%) + (1,000 units × 40%) = 400 units + 7,000 units + 400 units = 7,800 units

1. In the second quarter of its operation, Ding Dong Company has a beginning Work-in-Progress (WIP) Inventory of 700 units that were 100% complete for Direct Materials (DM) and 40% complete for Conversion Costs (CC). During the period, the company started 3,300 new units and a total of 3,000 units were completed and removed from WIP Inventory. At the end of the period, they had 1,000 units in ending inventory that were 100% complete with respect to Direct Materials and 60% complete with respect to Conversion Costs. If the company follows the Weighted-Average method of costing, then find the total equivalent units of Conversion Costs for the second quarter.
2. 2,600 units
3. 3,000 units
4. 3,600 units
5. 4,400 units

Ans: C, LO 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: Total Equivalent Units of Conversion Costs, according to Weighted-Average = (Units Completed and Removed from WIP Inventory × Percentage of Resource Added to Date) + (Units in Ending WIP Inventory × Percentage of Resource Added to Date).

Therefore, (3,000 units × 100%) + (1,000 units × 60%) = 3,000 units + 600 units = 3,600 units.

1. Tiny Tots Inc. started the period with an opening Work-in-Progress (WIP) Inventory of 1,400 units that were 100% complete with regard to Direct Materials (DM) and 40% complete with regard to Conversion Costs (CC). During the period, they started 6,600 new units, and they had completed and removed 6,000 units from WIP inventory. 2,000 units in ending inventory were 100% complete with respect to Direct Materials and 60% complete with respect to Conversion Costs. What will the total equivalent units of Direct Materials be if the First-In, First-Out (FIFO) method is used, and what would be the answer if the Weighted-Average method is used?
2. 6,000 for FIFO and 8,000 for Weighted-Average
3. 6,600 for FIFO and 8,000 for Weighted-Average
4. 8,000 for FIFO and 6,000 for Weighted-Average
5. 8,000 for FIFO and 6,600 for Weighted-Average

Ans: B, LO 3, Bloom: E, Difficulty: Hard, AACSB: Analytic, AICPA: AC: Measurement, Analysis and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: According to FIFO, Total Equivalent Units of Direct Materials = (Units in Beginning WIP Inventory × Percentage of Resource Added this Period) + (Units Started and Completed this Period × Percentage of Resource Added this Period) + (Units in Ending WIP Inventory × Percentage of Resource Added this Period)

= (1,400 units × 0%) + (4,600 units × 100%) + (2,000 units × 100%)

= 0 + 4,600 units + 2,000 units

= 6,600 units

According to Weighted-Average method, Total Equivalent Units of Direct Materials = (Units Completed and Removed from WIP Inventory × Percentage of Resource Added to Date) + (Units in Ending WIP Inventory × Percentage of Resource Added to Date)

= (6,000 units × 100%) + (2,000 units × 100%)

= 6,000 units + 2,000 units

= 8,000 units

1. Quality Tea manufacturing company has given the following details for a particular process: During the month of June, 1,600 units were already in process, and another 10,000 units were started. At the end of the period, 8,600 units were completed. All of the Direct Materials (DM) are added at the beginning of the process; however, Conversion Costs (CC) are added evenly throughout the process. Quality follows the Weighted-Average method of inventory valuation. Ending Work-in-Progress (WIP) Inventory was two-thirds complete with respect to Conversion Costs. Find equivalent units in the ending WIP Inventory with respect to Conversion Costs. (Round units to whole number.)
2. 1,000 units
3. 2,000 units
4. 3,000 units
5. 8,600 units

Ans: B, LO 3, Bloom: C, Difficulty: Easy, AACSB: Analytic, AICPA: AC: Measurement, Analysis and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: Units in Ending WIP Inventory = Units Already in Process at the Beginning + Units Started During the Period – Units Completed in the Period

Therefore, Ending WIP Inventory Units = 1,600 units + 10,000 units – 8,600 units = 3,000 units

Equivalent Units in Ending WIP Inventory with Respect to Conversion Costs = Units in Ending WIP Inventory × Percentage Completed During the Period = 3,000 units × 66.67% (two-thirds) = 2,000.10 or 2,000 units

1. An organization follows the Weighted-Average method for inventory valuation. For a particular period, 1,000 units were already under process at the beginning of the period, and 9,000 units were started during the period. At the end of the period, 7,000 units were completed. The nature of the process was set up such that Direct Material (DM) and Conversion Costs (CC) accrue evenly throughout the process. The Ending Work-in-Progress (WIP) Inventory of the process was one-third complete with respect to both DM and Conversion Costs. Find the equivalent units of DM to be completed in the next period. (Round units to whole number.)
2. 1,000 units
3. 2,000 units
4. 3,000 units
5. 7,000 units

Ans: B, LO 3, Bloom: C, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: Units in Ending WIP Inventory = Units Already in Process at the Beginning of the Period + New Units Started During the Period – Units Completed in the Period = 1,000 units + 9,000 units – 7,000 units = 3,000 units

DM in ending WIP Inventory is 33.33% (one-third) completed during the period, and therefore 66.67% (two-thirds) has to be completed in the next period.

Therefore, 3,000 units × 66.67% of DM are to be completed during the next period. So, 3,000 units × 66.67% = 2,000 units are to be completed next period.

1. Companies often find that they have partially completed units in their beginning and/or ending inventories. Rather than completely disregarding their existence or including the entirety of cost in their accounting, companies will sometimes assess the degree of completion for both Direct Materials (DM) and Conversion Costs (CC) as of the reporting date. This will eventually lead to the calculation of equivalent units that have been completed. Of the following choices, who would be the person or party most likely to provide reliable input for this process to management?
2. A new manager that insists upon using industry trends rather than historical company data
3. An operations team member who has been observing the production operation during factory hours on a regular basis
4. The top-selling sales staff member in the company
5. Third parties, such as vendors who are in the process of bidding for a contract with the organization

Ans: B, LO 3, Bloom: K, Difficulty: Medium, AACSB: Communication, AICPA: AC: Reporting, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: Answer the question from the perspective of a manager. Of the choices provided, an operations team member would be the most reliable party to speak with. Of the choices provided, it is the only one that draws from someone of something directly involved in the costing process.

1. Tarte Inc. started the year with 6,500 individual apple sauce containers in their Work-in-Progress (WIP) Inventory with 25% being complete overall. Tarte adds both Conversion Costs (CC) and Direct Material (DM) resources evenly throughout the process. During the year, Tarte started 105,000 more containers and had completed 90,000 in total by the end of the year. Their ending WIP Inventory units are 74% complete overall. Using the First-In, First-Out (FIFO) method of process costing, what are the equivalent units of production for the year?
2. 90,000 units
3. 104,285 units
4. 105,910 units
5. 111,500 units

Ans: B, LO 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires calculation of equivalent units of production using the FIFO method which means that the beginning inventory must be included in the calculation. First, determine how many units to account for. Using the FIFO method, this includes adding the beginning inventory of 6,500 to the units started during the period of 105,000 for a total of 111,500. Next, subtract the number of units completed and removed, 90,000, to arrive at an ending inventory of 21,500 units. The equivalent units under the FIFO method will be equal to the beginning units times the percentage of completion (6,500 × 75%) plus units started and completed times their percentage of completion ((105,000 – 21,500) × 100%) plus the units in ending WIP inventory times their percentage completion (21,500 × 74%). 4,875 + 83,500 + 15,910 = 104,285 units.

1. Tarte Inc. started the year with 6,500 individual apple sauce containers in their Work-in-Progress (WIP) Inventory with 25% being complete overall. Tarte adds both Conversion Costs (CC) and Direct Material (DM) resources evenly throughout the process. During the year, Tarte started 105,000 more containers and had completed 90,000 in total by the end of the year. Their ending WIP Inventory units are 74% complete overall. Using the Weighted-Average method of process costing, what are the equivalent units of production for the year?
   1. 90,000 units
   2. 104,285 units
   3. 105,910 units
   4. 111,500 units

Ans: C, LO 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires the calculation of equivalent units of production using the Weighted-Average method. Using the Weighted-Average method, omit the beginning inventory from the calculation. First, determine how many units to account for which includes adding the 90,000 completed units in this period to the 21,500 units in ending WIP inventory for a total of 111,500. The equivalent units under the Weighted-Average method will be equal to units completed times their percentage of completion (90,000 × 100%) plus the units in ending WIP inventory times their percentage of completion (21,500 × 74%), 90,000 + 15,910 = 105,910 units.

1. Jordan is a cost accountant at Barkley Inc, a factory that manufactures modern black candlesticks. Jordan is in the process of updating all of their records and has gathered the following process costing information for their Conversion Costs (CC):

Beginning Work-in-Progress (WIP) Inventory: 950 units, 23% completed

Units Started During the Period: 32,000

Units Completed by the End of the Period: 26,400

Ending WIP Inventory: 88% completed

Barkley adds both Conversion Costs and Direct Material (DM) resources evenly throughout the process. What are the equivalent units of production if Barkley employs the Weighted-Average method?

1. 31,214 units
2. 31,907 units
3. 32,164 units
4. 32,950 units

Ans: C, LO 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires the calculation of equivalent units of production using the Weighted-Average method. Using the Weighted-Average method, omit the beginning inventory from the calculation. First, determine how many units to account for which includes adding the beginning WIP inventory of 950 to the units started during the period of 32,000 for a total of 32,950. Next, subtract the number of units completed and removed, 26,400, to arrive at an ending inventory of 6,550 units. The equivalent units under the Weighted-Average method will be equal to units completed times their percentage of completion (26,400 × 100%) plus the units in ending WIP inventory times their percentage of completion (6,550 × 88%), 26,400 + 5,764 = 32,164 units.

1. Jordan is a cost accountant at Barkley Inc, a factory that manufactures modern black candlesticks. Jordan is in the process of updating all of their records and has gathered the following process costing information for their Conversion Costs (CC):

Beginning Work-in-Progress (WIP) Inventory: 950 units, 23% completed

Units Started During the Period: 32,000

Units Completed by the End of the Period: 26,400

Ending WIP Inventory: 88% completed

Barkley adds both Conversion Costs and Direct Material (DM) resources evenly throughout the process. What are the equivalent units of production if Barkley employs the First-In, First-Out (FIFO) method? (Round your final answer to the nearest whole unit.)

1. 26,443 units
2. 26,929 units
3. 31,421 units
4. 31,946 units

Ans: D, LO 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires the calculation of equivalent units of production using the FIFO method, and that means including beginning inventory in the calculation. First, determine how many units to account for which includes adding the beginning WIP inventory of 950 to the units started during the period of 32,000 for a total of 32,950. Next, subtract the number of units completed and removed, 26,400, to arrive at an ending WIP inventory of 6,550 units. The equivalent units under the FIFO method will be equal to the beginning units times their percentage of completion (950 × 77%) plus units started and completed times their percentage of completion ((32,000 – 6,550) × 100%) plus the units in ending inventory times their percentage of completion (6,550 × 88%). 732 + 25,450 + 5,764 = 31,946 units.

1. The management for Zero Corp. has asked their cost accountant Alec to compile some data about their process costing. Zero Corp. is a regional factory that manufactures peach-scented soy candles that are sold in glass mason jars. During their most recent year, Zero started 49,600 candles and completed a total of 37,450 by the end of the year. They began the year with 3,480 candles in their Work-in-Progress (WIP) Inventory, about 28% incomplete, and their ending WIP Inventory units are 19% incomplete overall. Zero adds both Conversion Costs (CC) and Direct Material (DM) resources evenly throughout the process. Alec has decided to use First-In, First-Out (FIFO) for their process costing and has determined their equivalent units to be (Round your final answer to the nearest whole unit.)
   1. 37,914 units
   2. 47,605 units
   3. 49,136 units
   4. 50,110 units

Ans: B, LO 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires the determination of equivalent units using the FIFO method. It should be noted that the question presents units for beginning and ending units in terms of what is incomplete versus what has been completed, so this will need to be factored in as well. First, determine how many units to account for, and that includes adding the beginning WIP inventory of 3,480 to the units started during the period of 49,600 for a total of 53,080. Next, subtract the number of units completed and removed, 37,450, to arrive at an ending inventory of 15,630 units. The equivalent units under the FIFO method will be equal to the beginning units times their percentage of completion (3,480 × 28%) plus units started and completed times their percentage of completion ((49,600 – 15,630) × 100%) plus the units in ending inventory times their percentage of completion (15,630 × 81%). 974.40 + 33,970 + 12,660.30 = 47,605 units.

1. The management for Zero Corp. has asked their cost accountant Alec to compile some data about their process costing. Zero Corp. is a regional factory that manufactures peach-scented soy candles that are sold in glass mason jars. During their most recent year, Zero started 49,600 candles and completed a total of 37,450 by the end of the year. They began the year with 3,480 candles in their Work-in-Progress (WIP) Inventory with 28% being incomplete, and their ending WIP Inventory units are 19% incomplete overall. Zero adds both Conversion Costs (CC) and Direct Material (DM) resources evenly throughout the process. Alec has decided to use the Weighted-Average method for their process costing and has determined their equivalent units to be (Round your final answer to the nearest whole unit.)
   1. 47,605 units
   2. 49,600 units
   3. 50,110 units
   4. 53,080 units

Ans: C, LO 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires the determination of equivalent units using the Weighted-Average method, so you will need to omit beginning inventory from the calculation. It should be noted that the question presents units for beginning and ending units in terms of what is incomplete versus what has been completed, so this will need to be factored in as well. First, determine how many units to account for, so that includes adding the beginning inventory of 3,480 to the units started during the period of 49,600 for a total of 53,080. Next, subtract the number of units completed and removed, 37,450, to arrive at an ending inventory of 15,630 units. The equivalent units using the Weighted-Average method will be equal to the units completed times their percentage of completion (37,450 × 100%) plus the units in ending inventory times their percentage of completion (15,630 × 81%), 37,450 + 12,660.30 = 50,110 units.

1. Humbert Inc., a factory that manufactures plastic ice cube trays, has opened a new department as of May 1 of this year. As of June 1, Humbert had 4,200 units that were 100% complete with respect to Direct Materials (DM) and 64% complete with respect to Conversion Costs (CC). During the year, Humbert started and completed 76,420 units. On June 30, they had 9,870 units remaining in inventory that were 100% complete with respect to Direct Materials and 42% complete with respect to Conversion Costs. What are the equivalent units of production for Direct Materials and Conversion Costs using the First-In, First-Out (FIFO) method? (Round to the nearest unit)
   1. DM, 82,077 units; and CC, 90,490 units
   2. DM, 86,290 units; and CC, 82,077 units
   3. DM, 87,802 units; and CC, 83,253 units
   4. DM, 90,490 units; and CC, 90,490 units

Ans: B, LO 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires familiarity with calculating equivalent units for two different costs while also taking FIFO into account, so that means that beginning inventory will need to factor in. For the Direct Materials, add the following: (4,200 × 0%) + 76,420 + (9,870 × 100%) = 86,290 units. For Conversion Costs, add the following: (4,200 × 36%) + 76,420 + (9,870 × 42%) = 1,512 + 76,420 + 4,145 = 82,077 units.

1. Humbert Inc., a factory that manufactures plastic ice cube trays, has opened a new department as of May 1 of this year. As of June 1, Humbert had 4,200 units that were 100% complete with respect to Direct Materials (DM) and 64% complete with respect to Conversion Costs (CC). During the year, Humbert started and completed 76,420 units. On June 30, they had 9,870 units remaining in inventory that were 100% complete with respect to Direct Materials and 42% complete with respect to Conversion Costs. What are the equivalent units of production for Direct Materials and Conversion Costs using the Weighted-Average method? (Round answer to the nearest unit)
   1. DM, 90,490 units; and CC, 84,765 units
   2. DM, 90,490 units; and CC, 90,490 units
   3. DM, 94,635 units; and CC, 90,490 units
   4. DM, 94,635 units; and CC, 96,215 units

Ans: A, LO 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires familiarity with calculating equivalent units for two different costs while also taking Weighted-Average into account, so that means that beginning inventory will not be factored in. For the Direct Materials, add the following: ((4,200 + 76,420) × 100%) + (9,870 × 100%) = 90,490 units. For Conversion Costs, add the following: ((4,200 + 76,420) × 100%) + (9,870 × 42%) = 80,620 + 4,145.40 = 84,765.4 = 84,765 units.

1. Tina is a cost accountant for Fey Industries, a factory that produces lemon-scented alcohol wipes that it distributes by the container. With cold and flu season right around the corner, Fey would like to make sure they have all of their process cost accounting information configured as soon as possible. Tina has gathered the following information about their inventory:

Using the Weighted-Average method of process costing, what are the equivalent units of production for the year for both Conversion Costs and Direct Materials? (Round to the nearest unit)

1. CC, 40,758 units; and DM, 45,096 units
2. CC, 41,297 units; and DM, 42,104 units
3. CC, 46,442 units; and DM, 42,104 units
4. CC, 46,442 units; and DM, 46,442 units

Ans: A, LO 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires familiarity with calculating equivalent units for two different costs while also taking Weighted-Average into account, so that means that beginning inventory will not be factored in. To calculate the number of units left in ending inventory, determine how many units to account for which includes adding the beginning inventory of 1,346 to the units started during the period of 43,750 for a total of 45,096. Next, subtract the number of units completed and removed, 38,622, to arrive at an ending inventory of 6,474 units. For the Direct Materials, add the following: (38,622 × 100%) + (6,474 × 100%) = 45,096 units. For Conversion Costs, add the following: (38,622 × 100%) + (6,474 × 33%) = 38,622 + 2,136.42 = 40,758 units.

1. Tina is a cost accountant for Fey Industries, a factory that produces lemon-scented alcohol wipes that it distributes by the container. With cold and flu season right around the corner, Fey would like to make sure they have all of their process cost accounting information configured as soon as possible. Tina has gathered the following information about their inventory:

Using the First-In, First-Out (FIFO) method of process costing, what are the equivalent units of production for the year for both Conversion Costs and Direct Materials? (Round final answer to the nearest unit)

1. CC, 39,951 units; and DM, 43,750 units
2. CC, 41,566 units; and DM, 42,104 units
3. CC, 41,566 units; and DM, 46,442 units
4. CC, 46,442 units; and DM, 42,104 units

Ans: A, LO 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires familiarity with calculating equivalent units for two different costs while also taking FIFO into account, so that means that beginning inventory will be factored in separately. To calculate the number of units left in ending inventory, determine how many units to account for which includes adding the beginning inventory of 1,346 to the units started during the period of 43,750 for a total of 45,096. Next, subtract the number of units completed and removed, 38,622, to arrive at an ending inventory of 6,474 units. For the Direct Materials, add the following: (1,346 × 0%) + (37,276 × 100%) + (6,474 × 100%) = 43,750 units. For Conversion Costs, add the following: (1,346 × 40%) + (37,276 × 100%) + (6,474 × 33%) = 538.40 + 37,276 + 2,136.42 = 39,951 units.

1. Tater Company produces tater tots that it packages in one pound bags and sells to vendors around the region. Management is compiling its cost information after August, its second month of operation. July ended with 8,600 packages in inventory that are 35% complete overall. They started 116,800 packages and completed 84,338 units during the month. Their ending Work-in-Progress (WIP) packages are 79% complete overall for August. What are the equivalent units of production if Tater uses the First-In, First-Out (FIFO) method? (Round to the nearest unit.)
   1. 113,767 units
   2. 125,377 units
   3. 130,990 units
   4. 134,000 units

Ans: A, LO 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires familiarity with the calculation of equivalent units while using FIFO, and that means that beginning inventory will be factored in separately. In addition, it requires the solution of both units in their beginning and ending inventories. To calculate the beginning inventory, along with the percentage of completion, look at what was remaining at the end of the previous month since this will become the beginning balance for August. July ended with 8,600 packages with 35% completion, so use these numbers for the beginning inventory for August. To solve for ending inventory, determine how many units to account for which uses the following formula: Beginning inventory plus units started minus units completed. 8,600 + 116,800 – 84,338 = 41,062 ending inventory packages. For the equivalent units, add the following: (8,600 × 65%) + (75,738 × 100%) + (41,062 × 79%) = 5,590 + 75,738 + 32,438.98 = 113,767 units.

1. Tater Company produces tater tots that it packages in one pound bags and sells to vendors around the region. Management is compiling its cost information after August, its second month of operation. July ended with 8,600 packages in inventory that are 35% complete overall. They have started 116,800 packages and completed 84,338 units during the month. Their ending Work-in-Progress (WIP) packages are 79% complete overall for August. What are the equivalent units of production if Tater uses the Weighted-Average method? (Round answer to the nearest unit)
2. 92,938 units
3. 116,777 units
4. 119,787 units
5. 125,376 units

Ans: B, LO 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires familiarity with the calculation of equivalent units while using the Weighted-Average method, so that means that beginning inventory will not be factored in separately. To solve for ending inventory, determine how many units to account for which uses the following formula: Beginning inventory plus units started minus units completed. 8,600 + 116,800 – 84,338 = 41,062 ending inventory packages. For the equivalent units, add the following: (84,338 × 100%) + (41,062 × 79%) = 84,338 + 32,438.98 = 116,776.98 = 116,777 units

1. The following are the details of Star Beer Co. for the month of July:

The cost per equivalent unit for Direct Materials (DM) is $5.00. The total equivalent units of DM are 28,400. The total costs to account for DM during the period are $148,000.

Find out the cost of DM in beginning Work-in-Progress (WIP) Inventory assuming company follows the First-In, First-Out (FIFO) method for inventories.

1. $6,000
2. $8,000
3. $9,000
4. $16,000

Answer: A, LO 4, Bloom: C, Difficulty: Hard, AACSB: Analytic, AICPA: AC: Measurement, Analysis and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: As the company is following FIFO,

Direct Materials costs added to WIP Inventory during July = Cost per equivalent unit of Direct Materials × Total equivalent units of Direct Materials

= $5.00 × 28,400

= $142,000

Cost of Direct Materials in beginning WIP Inventory = Total Costs to account for DM during July – Direct Material costs added to WIP Inventory during July

= $148,000 – $142,000

= $6,000

1. The following are the details of Jennifer Corp. with respect to Inventories and Conversion Costs (CC):

If the Jennifer Corp. follows the First-In, First-Out (FIFO) method, then find the total equivalent cost per unit for Conversion Costs.

1. $7.33
2. $8.15
3. $8.50
4. $9.67

Ans: A, LO 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: According to FIFO, the Total Equivalent Units for Conversion Costs = (Units in Beginning WIP Inventory × Percentage of Resource Added this Period) + (Units Started and Completed During the Period × Percentage of Resource Added this Period) + (Units in Ending WIP Inventory × Percentage of Resource Added this Period) = (1,600 units × 30%) + (26,200 units × 100%) + (2,000 units × 30%) = 480 units + 26,200 units + 600 units = 27,280 units.

Equivalent Cost per Unit of Conversion Costs = Conversion Cost Added to WIP Inventory this Period/Total Equivalent Units for Conversion Costs = $200,000/ 27,280 units = $7.33

1. The cost per equivalent unit of Direct Materials (DM) of a company for a particular process for June is $0.49. DM costs in beginning Work-in-Progress (WIP) Inventory is $260, and DM costs added to WIP Inventory during the period is $6,600. Assuming the company follows the Weighted-Average method of process costing, find the total equivalent units of DM for the above process.
2. 12,000 units
3. 14,000 units
4. 16,000 units
5. 18,500 units

Ans: B, LO 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: Total Costs to Account For = Direct Materials Costs in Beginning WIP Inventory + Direct Materials Costs Added to WIP Inventory during the Period

Therefore, Total Cost to Account For = $260 + $6,600

= $6,860

Total Equivalent Units of Direct Material = Total Costs to Account for/Cost per Equivalent Unit of DM

= $6,860/$0.49

= 14,000 units

1. A company that follows the Weighted-Average method for inventory valuation has determined the Direct Materials (DM) cost per equivalent unit of $5.00 for a particular period. For the same period, the company has reported 15,000 equivalent units of DM. If the DM costs added to Work-in-Progress (WIP) Inventory during the period is twice the DM costs in the beginning WIP Inventory, then find the DM costs added to WIP Inventory during the period.
2. $25,000
3. $35,000
4. $50,000
5. $65,000

Ans: C, LO 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: Total Costs to Account for Direct Materials = Direct Materials Costs per Equivalent Unit × Total Equivalent Units of Direct Materials

Therefore, Total Costs to Account For = $5.00 × 15,000 units = $75,000

Also, Total Costs to Account For = Direct Materials Costs in Beginning WIP Inventory + Direct Materials Costs Added to WIP Inventory during the Period

Therefore, $75,000 = X + 2X;

$75,000 = 3X;

X = $25,000

Hence, Direct Material Costs Added to WIP during the Period = 2X = $50,000.

1. An organization in which Mr. Smith is in charge of the manufacturing department follows the First-In, First-Out (FIFO) method of inventory valuation. The following are the estimates for the next processing department:

Units in Beginning Work-in-Progress (WIP) Inventory Completed: 3,000 units

Total Estimated Costs of Units Completed and Removed from WIP Inventory: $18,806

Per Unit Estimated Cost: $1.71

In order to make the actuals meet the estimates, what should be Mr. Smith's target, to the nearest thousand, for units started and completed in the process be?

1. 2,000 units
2. 4,000 units
3. 8,000 units
4. 16,000 units

Ans: C, LO 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution:

Under the FIFO method, Unit Cost = Total Cost of Units Completed and Removed from WIP Inventory/(Units in Beginning WIP Inventory Completed + Units Started and Completed)

$1.71 = $18,806/(3,000 units + X units)

$1.71 × (3,000 units + X units) = $18,806

$5,130 + $1.71X = $18,806

$1.71X = $18,806 – $5,130

$1.71X = $13,676

X = $13,676/$1.71

X = 7,997.66 units

X = 8,000 units

1. A company is engaged in manufacturing a product that passes through two Work-in-Progress (WIP) processes or departments. The nature of the product is such that Direct Materials (DM) and Conversion Costs (CC) accrue evenly throughout the process. The company uses imported DM in its product, but now import is altogether banned, and this company has 5 kg left in raw materials inventory with no further procurement possible.

On June 30, there were 12 units that were incomplete and had consumed 9 kg of raw materials. The degree of completion of WIP Inventory as of June 30 was 75%. In the given scenario, how many units could be started and completed on July 1?

1. 1 unit
2. 2 units
3. 3 units
4. 12 units

Ans: B, LO 4, Bloom: C, Difficulty: Easy, AACSB: Analytic, AICPA: AC: Measurement, Analysis and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution:

As of the 30^th of June, 12 units were 75% complete and had consumed 9 kg. So, to complete these 12 units of the remaining 25%, an additional 3 kg will be consumed (if 75% used 9 kg, then 25% would use how many kgs?). The company has 5 kg in RM inventory, of which 3 kg will be consumed to finish the opening WIP inventory, so on July 1, the balance of 2 kg will be used for an additional 2 new units.

1. Some companies create products whose completion may be in various stages at the end of a given time period which then leaves those same unit as incomplete at the beginning of the next period. Companies that find themselves having incomplete products in both their beginning and ending inventory will have to decide between using the First-In, First-Out (FIFO) and Weighted-Average methods to track both the physical units and their associated costs. Which of the following would be added to determine the finished goods inventory costs if using the FIFO method?
   1. Costs added to units in beginning Work-in-Progress (WIP) Inventory
   2. Costs added to units in beginning WIP Inventory – Costs of units in beginning WIP Inventory
   3. Costs of units in ending WIP Inventory
   4. Costs of units started but not yet completed

Ans: A, LO 4, Bloom: K, Difficulty: Easy, AACSB: Communication, AICPA: AC: Reporting, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires familiarity with the way that finished goods inventory costs will be calculated under the FIFO method. Choice A is the correct choice as it is the only choice to correctly identify costs that would be added.

1. Some companies create products whose completion may be in various stages at the end of a given time period and that leaves those same units as incomplete at the beginning of the next period. Companies that find themselves having incomplete products in both their beginning and their ending inventories have to decide between using the First-In, First-Out (FIFO) method and Weighted-Average method to track both the physical units and their costs. Which of the following would be added to finished goods inventory costs while using the Weighted-Average method?
   1. Costs of units completed and removed
   2. Costs of units completed and removed from Work-in-Progress (WIP) Inventory + costs of units in ending WIP Inventory
   3. Only costs added during the current period
   4. Only costs assigned to beginning inventory

Ans: A, LO 4, Bloom: K, Difficulty: Easy, AACSB: Communication, AICPA: AC: Reporting, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires familiarity with the way that finished goods inventory costs will be calculated under the Weighted-Average method. Choice A is the correct choice as it is the only choice that correctly identifies costs that would be added.

1. Devine Desserts specializes in the production of sweet plant-based bakery items. Their top seller for the past few years has been their cherry cheesecake made with a flourless crust and organic fruit toppings. Devine is currently considered a boutique operation, but they are looking to increase production and to expand their offerings and customer base. In an effort to refine their spending efforts and advertising costs, they will be compiling some costing data on their cherry cheesecake. The following costing information applies to the current year:

The following production summary has also been compiled for this year’s operations:

If management decides to use the First-In, First-Out (FIFO) method, then how much cost will be assigned to the units completed and transferred out of the manufacturing process? (Do not round intermediate calculations.)

1. $155,862.58
2. $162,539.57
3. $162,620.10
4. $165,267.00

Ans: C, LO 4, Bloom: AP, Difficulty: Hard, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution:

This question requires the ability to walk through all five of the process costing steps. First, determine how many units to account for while realizing that both beginning and ending inventories have to be derived from the information given. The ending inventory of the previous year becomes the beginning inventory of the current year. The beginning balance of the following year was the ending balance of the current year. The first step is to verify physical units in the period and their degree of completion. Units in beginning WIP inventory plus units started this period, 755 + 64,789 = 65,544 total units to account for. Now, determine the units completed this period with the help of total units accounted for (calculated above) and the given ending inventory balance, 65,544 – 1,130 = 64,414 units. Next, calculate the units that were both started and completed as: New units started – Ending WIP inventory, 64,789 – 1,130 = 63,659 units.

In step two, account for equivalent units. Under FIFO, there will be a separate assessment of beginning inventory. Crust: (755 × 0%) + (63,659 × 100%) + (1,130 × 100%) = 64,789 equivalent units. Cherry Toppings: (755 × 0%) + (63,659 × 100%) + (1,130 × 96%) = 64,743.80 equivalent units. Conversion Costs: (755 × 68%) + (63,659 × 100%) + (1,130 × 92%) = 65,212.00 equivalent units. In step three, account for costs: Crust, $58,799; Cherry Toppings, $27,940; and Conversion Costs, $72,340. For step four, calculate the cost per equivalent unit: Crust, $58,799/64,789 = $0.9075; Cherry Toppings, $27,940/64,743.80 = $0.4315; and Conversion Costs, $72,340/65,212 = $1.1093. In step five, allocate costs based upon the equivalent units calculated. Crust = $1,950 + (63,659 × $0.9075) = $59,723.47. Cherry Toppings = $1,560 + (63,659 × $0.4315) = $29,031.86. Conversion Costs = $2,678 + (513.4 × $1.1093) + (63,659 × $1.1093) = $73,864.77. The total cost of units completed and transferred out of the manufacturing process = $59,723.47 + $29,031.86 + $73,864.77 = $162,620.10.

1. Devine Desserts specializes in the production of sweet plant-based bakery items. Their top seller for the past few years has been their cherry cheesecake made with a flourless crust and organic fruit topping. Devine is currently considered a boutique operation, but they are looking to increase production and to expand their offerings and customer base. In an effort to refine their spending efforts and advertising costs, they will be compiling some costing data on their cherry cheesecake. The following costing information applies to the current year:

The following production summary has also been compiled for this year’s operations:

If management decides to use the First-In, First-Out (FIFO) method, then how much cost will be assigned to the ending inventory in Crust (C), Cherry Toppings (CT), and Conversion (CN)? (Do not round intermediate calculations.)

1. C, $921.36; CT, $884.51; and CN, $847.65
2. C, $1,025.53, CT, $468.14; and CN, $1,153.23
3. C, $1,025.53, CT, $487.65; and CN, $1,250.91
4. C, $1,950.00, CT, $1,560.00; CN, and $2,678.00

Ans: B, LO 4, Bloom: AP, Difficulty: Hard, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires the ability to walk through all five of the process costing steps. First, determine how many units to account for and realize that both beginning and ending inventory have to be derived from the given information. The ending inventory of the previous year becomes the beginning inventory of the current year. The beginning balance of the following year was the ending balance of the current year. The first step is to verify physical units in the period and their degree of completion. Units in beginning WIP inventory plus units started this period: 755 + 64,789 = 65,544 total units to account for. Now, determine the units completed this period with the help of total units accounted for (calculated previously) and the given ending inventory balance, 65,544 – 1,130 = 64,414 units. Next, calculate the units that were both started and completed as: New units started - Ending WIP inventory, 64,789 – 1,130 = 63,659 units.

In step two, account for equivalent units. Under FIFO, there will be a separate assessment of beginning inventory. Crust: (755 × 0%) + (63,659 × 100%) + (1,130 × 100%) = 64,789 equivalent units. Cherry Toppings: (755 × 0%) + (63,659 × 100%) + (1,130 × 96%) = 64,743.80 equivalent units. Conversion Costs: (755 × 68%) + (63,659 × 100%) + (1,130 × 92%) = 65,212.00 equivalent units. In step three, account for costs: Crust, $58,799; Cherry Toppings, $27,940; and Conversion Costs, $72,340. In step four, calculate the cost per equivalent unit: Crust, $58,799/64,789 = $0.9075; Cherry Toppings, $27,940/64,743.80 = $0.4315; and Conversion Costs, $72,340/65,212 = $1.1093. In step five, allocate costs based on the ending equivalent units calculated in step two. Crust = 1,130 × $0.9075 = $1,025.53. Cherry Toppings = 1,084.8 × $0.4315 = $468.14. Conversion Costs = 1,039.6 × $1.1093 = $1,153.23.

1. Java Express is a coffee bean roaster who specializes in dark roasting beans grown in California. During the month, Java added the following costs: Conversion Costs (CC), $5,350; and Direct Materials (DM), $4,800. Their Beginning Work-in-Progress (WIP) Inventory includes the following costs: CC, $950; and DM, $760. Their accountant calculated the following equivalent units for CC to be 6,787, and the equivalent units completed for this month for DM were 7,400. Using the First-In, First-Out (FIFO) method, how much total cost will be included in the calculation for cost per equivalent unit for both Conversion Costs and Direct Materials?
   1. CC, $950; and DM, $760
   2. CC, $5,350; and DM, $4,800
   3. CC, $5,350; and DM, $5,560
   4. CC, $6,300; and DM, $5,560

Ans: B, LO 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires an understanding of how the use of FIFO impacts the amount of costs that will be included in the calculation of cost per equivalent unit versus what costs must be accounted for. FIFO does not include the costs of beginning inventory for either the Conversion Cost per equivalent unit or Direct Material cost per equivalent unit. FIFO is only concerned with costs added during this period. Also, disregard percentages of completion even if they are presented. Conversion Costs would be $5,350 and Direct Materials would be $4,800.

1. Java Express is a coffee bean roaster who specializes in dark roasting beans grown in California. During the month, Java added the following costs: Conversion Costs (CC), $5,350; and Direct Materials (DM), $4,800. Their Beginning Work-in-Progress (WIP) Inventory includes the following costs: CC, $950; and DM, $760. Their accountant calculated the following equivalent units for CC to be 6,787, and the equivalent units completed for this month for DM were 7,400. Using the Weighted-Average method, how much total cost will be included in the calculation for cost per equivalent unit for both Conversion Costs and Direct Materials?
   1. CC, $950; and DM, $760
   2. CC, $5,350; and DM, $4,800
   3. CC, $5,350; and DM, $5,560
   4. CC, $6,300; and DM, $5,560

Ans: D, LO 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires an understanding of how the use of the Weighted-Average method impacts the amount of costs that will be included in the calculation of cost per equivalent unit versus what costs must be accounted for. The Weighted-Average method does include the costs of beginning inventory for Conversion Costs or Direct Materials. The Weighted-Average method is concerned with costs accumulated up to this point. Also, disregard any percentages of completion should they be present. Conversion Costs would be $5,350 + $950 = $6,300 and Direct Material costs would be $4,800 + $760 = $5,560.

1. Jennifer is the head cost accountant for Pure Inc., a factory that produces hand sanitizer. Pure has recently experienced an uptick in sales and has been refining their accounting policies. Jennifer has been tasked with gathering data pertaining to their costs for the most recent month, June. She has gathered the following information:

Costs in Beginning Work-in-Progress (WIP) Inventory:

Antimicrobial Solution: $5,677

Conversion Costs (CC): $8,232

Costs Added to WIP Inventory in June

Antimicrobial Solution: $19,678

CC: $24,389

What amount of the cost of Antimicrobial Solution will be included in the calculation of equivalent cost per unit under First-In, First-Out (FIFO) and Weighted-Average (WA), respectively?

1. FIFO, $19,678; and WA, $19,678
2. FIFO, $19,678; and WA, $25,355
3. FIFO, $25,355; and WA, $5,677
4. FIFO, $25,355; and WA, $19,678

Ans: B, LO 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution:

This question requires a grasp on how to calculate the Direct Materials cost that will ultimately be included in the calculation of equivalent cost per unit. Also, know that the Antimicrobial Solution is the Direct Material, even though it is not labeled as such. Using FIFO, this calculation will not include the beginning inventory, but using the Weighted-Average method will include all accumulated costs. For FIFO, the amount added during June will be $19,678. Using the Weighted-Average method, the combined total of what was present at the beginning and what was added during June will be used: $5,677 + $19,678 = $25,355.

1. Jennifer is the head cost accountant for Pure Inc., a factory that produces hand sanitizer. Pure has recently experienced an uptick in sales and has been refining their accounting policies. Jennifer has been tasked with gathering data pertaining to their costs for the most recent month, June. She has gathered the following information:

Costs in Beginning Work-in-Progress (WIP) Inventory

Antimicrobial Solution: $5,677

Conversion Costs (CC): $8,232

Costs Added to WIP Inventory in June

Antimicrobial Solution: $19,678

CC: $24,389

What amount of the cost of Conversion Costs will be included in the calculation of equivalent cost per unit using First-In, First-Out (FIFO) and the Weighted-Average (WA) method, respectively?

1. FIFO, $19,678; and WA, $25,355
2. FIFO, $24,389; and WA, $8,232
3. FIFO, $24,389; and WA, $32,621
4. FIFO, $32,621; and WA, $24,389

Ans: C, LO 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires a grasp on how to calculate the Conversion Cost that will ultimately be included in the calculation of equivalent cost per unit. Under FIFO, this calculation will not include the beginning inventory, but using the Weighted-Average method will include all accumulated costs. For FIFO, it will be amount added during June of $24,389. Using the Weighted-Average method, the calculation will be the combined total of what was present at the beginning and what was added during June: $8,232 + $24,389 = $32,621.

1. The management for Funfetti Corp. has decided to analyze their first two years of operations. Funfetti specializes in the creation of organic sprinkles that it sells to specialty bakeries. Tom, the chief financial officer (CFO), is very interested in obtaining more insight into how their costs compare year-to-year. Tom has gathered the following information about last year. Beginning Work-in-Progress (WIP) Inventory: Direct Materials (DM), $1,600; and Conversion Costs (CC), $2,340. Costs Added Last Year: DM, $11,258; and CC, $15,609. Tom also gathered the following data pertaining to the current year. Beginning WIP Inventory: DM, $1,765; and CC, $2,220. Costs Added This Year: DM, $13,467; and CC, $18,996. Using horizontal analysis, how have total equivalent costs of DM changed using the First-In, First-Out (FIFO) method?
   1. 16.40% decrease
   2. 16.40% increase
   3. 19.62% decrease
   4. 19.62% increase

Ans: D, LO 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires understanding for both the calculation of total equivalent unit costs under FIFO and horizontal analysis. First, calculate the total equivalent unit costs of the DM under FIFO for last year, and then calculate the same figure for the current year. FIFO will not include the beginning inventory costs in its calculation. Last year: $11,258, Current year: $13,467. To complete the analysis, find the difference between this year and last year and divide by the value last year. ($13,467 – $11,258)/$11,258 = $2,209/$11,258 = 0.1962 or 19.62% increase.

1. The management for Funfetti Corp. has decided to analyze their first two years of operations. Funfetti specializes in the creation of organic sprinkles that it sells to specialty bakeries. Tom, the CFO, is very interested in obtaining more insight into how their costs compare year-to-year. Tom has gathered the following information about last year. Beginning Work-in-Progress (WIP) Inventory: Direct Materials (DM), $1,600; and Conversion Costs (CC), $2,340. Costs Added Last Year: DM, $11,258; and CC, $15,609. Tom also gathered the following data pertaining to this year. Beginning WIP Inventory: DM, $1,765; and CC, $2,220. Costs Added This Year: DM, $13,467; and CC, $18,996. Using horizontal analysis, how have total equivalent costs of the Conversion Costs changed using the Weighted-Average method?
   1. 15.40% decrease
   2. 15.40% increase
   3. 18.20% decrease
   4. 18.20 % increase

Ans: D, LO 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires understanding for both the calculation of total equivalent unit costs using the Weighted-Average method and horizontal analysis. First, calculate the total equivalent unit costs for the Conversion Costs using the Weighted-Average method for last year, and then calculate the same figure for this year. The Weighted-Average method will include the beginning inventory costs in its calculation. Last year: $2,340 + $15,609 = $17,949. Current year: $2,220 + $18,996 = $21,216. To complete the analysis, find the difference between this year and last year and divide that by the value last year. ($21,216 – $17,949)/$17,949 = $3,267/$17,949 = 0.1820 or 18.20% increase.

1. Frosty Corp. produces gluten-free vanilla cake icing that it sells in small containers. Their accountant is performing some process costing calculations and has gathered the following information for the current month of October:

The accountant must decide whether they will use the FIFO or Weighted-Average method for their costing. In order to facilitate this process, they have collected data from both perspectives. What is the cost per equivalent unit for icing using the FIFO method?

1. $0.61
2. $0.65
3. $0.74
4. $1.00

Ans: B, LO 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires several steps before being able to calculate the cost per equivalent unit. First, calculate what costs are included using the FIFO method, so that will ignore any beginning WIP Inventory costs. So, use the Icing cost added during the period of $4,473. Now, divide $4,473 by Equivalent Units (FIFO): $4,473/6,890 = $0.65 per unit.

1. Frosty Corp. produces gluten-free vanilla cake icing which it sells in small containers. Their accountant is performing some process costing calculations and has gathered the following information for the current month of October:

The accountant must decide whether they will select the FIFO or Weighted-Average method. In order to facilitate this process, they have collected data from both perspectives. What is the cost per equivalent unit for Conversion Costs using the Weighted-Average method?

1. $1.02
2. $1.15
3. $1.17
4. $1.32

Ans: C, LO 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires several steps before being able to calculate the cost per equivalent unit. First, calculate what costs are included when using the Weighted-Average method, so that will include beginning WIP Inventory costs. Use the beginning WIP Inventory of $986 plus the Conversion Cost added during the period of $6,930 for a total of $7,916. Now, divide by Equivalent Units (Weighted-Average): $7,916/6,765 = $1.17 per unit.

1. Fuji Corp. manufactures and sells apple pie filling that it sells to its vendors in aluminum containers. Fuji just completed their first month of operations, and they are excited to be planning for their second month. Fuji believes that reviewing their process costing results for their first month will be a crucial piece in preparing for their second month. Fuji would like to utilize the Weighted-Average method as they are producing homogeneous items that are difficult to distinguish from one another. Their costing information for their first month is as follows:

Based upon the information given, what is the cost per equivalent unit for the Direct Material(s)?

1. Aluminum, $3.20; and Pie Filling, $2.94
2. Aluminum, $3.34
3. Aluminum, $3.34; and Pie Filling, $3.04
4. Pie Filling, $2.94

Ans: C, LO 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires identification of the fact that Fuji has two Direct Materials: aluminum and pie filling. This question uses Weighted-Average, so include the beginning WIP inventory in the calculation of costs to be included. Start with aluminum: ($1,879 + $42,900)/13,422 containers = $3.34 per container. Next, move on to pie filling: ($1,132 + $33,306)/11,323 grams = $3.04 per gram.

1. Fuji Corp. manufactures and sells apple pie filling that it sells to its vendors in aluminum containers. Fuji just completed their first month of operations, and they are excited to be planning for their second month. Fuji believes that reviewing their process costing results for their first month will be a crucial piece in preparing for their second month. Fuji would like to utilize the First-In, First-Out (FIFO) method as they believe it will produce the most accurate results. Their costing information for their first month is as follows:

Based upon the information given, what is the cost per equivalent unit for the Direct Material(s) using the FIFO method?

1. Aluminum, $3.20; and Pie Filling, $2.94
2. Aluminum, $3.34; and Pie Filling, $3.04
3. Aluminum, $3.89
4. Pie Filling, $5.56

Ans: A, LO 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires identification of the fact that Fuji has two Direct Materials: aluminum and pie filling. This question is using FIFO, so do not include the beginning WIP inventory in the calculation of costs to be included. Start with aluminum: $42,900/13,422 containers = $3.20 per container. Next, move on to pie filling: $33,306/11,323 grams = $2.94 per gram.

1. Yummy Gummies, Co. is a company that produces organic gluten-free gummy vitamins and sells them in packs. Their management has decided that would like to expand operations from a few local grocery stores to include all health food stores in the state. They know that they will need to have a firm handle on all of their costs, including their actual product costs. Their accountant Savannah has already implemented process costing and will be completing a year-to-year comparison for management. Aside from expansion, management would like to identify any increases in costs that they find concerning and address them as soon as possible. The process costing information for last year:

Process costing information for the current year:

What would Savannah note as the change in cost per equivalent units for the Direct Materials using horizontal analysis? (Round intermediate calculation to two decimal places.)

1. 17.24% decrease
2. 17.24% increase
3. 20.83% decrease
4. 20.83% increase

Ans: A, LO 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires calculation of the cost per equivalent unit for the Direct Materials (Gummy Vitamins) for each year using the Weighted-Average method (as indicated by the data given). This means the Beginning WIP Inventory must be included. Last year: ($2,348 + $36,707)/22,456 = $1.74 per unit. This year: ($2,886 + $39,003)/28,996 = $1.44 per unit. For the horizontal analysis, use the following formula: (Current Year – Previous Year)/Previous Year = ($1.44 – $1.74)/$1.74 = (0.1724) or 17.24% decrease.

1. Yummy Gummies, Co. is a company that produces organic gluten-free gummy vitamins and sells them in packs. Their management has decided that would like to expand operations from a few local grocery stores to include all health food stores in the state. They know that they will need to have a firm handle on all of their costs, including the actual product costs. Their accountant Savannah has already implemented process costing and will be completing a year-to-year comparison for management. Aside from expansion, management would like to identify any increases in costs that they find concerning and address them as soon as possible. The process costing information for last year:

Process costing information for the current year:

What would Savannah note as the change in cost per equivalent unit for the conversion using horizontal analysis? (Round intermediate calculation to two decimal places.)

1. 15.06% decrease
2. 15.06% increase
3. 17.73% decrease
4. 17.73% increase

Ans: A, LO 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires calculation of the cost per equivalent unit for conversion for each year using the Weighted-Average method (as indicated by the data given). This means that the Beginning WIP Inventory must be included. Last year: ($4,660 + $41,555)/27,890 = $1.66 per unit. This year: ($5,002 + $43,789)/34,565 = $1.41 per unit. For the horizontal analysis, use the following formula: (Current Year – Previous Year)/Previous Year = ($1.41 – $1.66)/$1.66 = (0.1506) or 15.06% decrease.

1. Scrappy Company is preparing their costing data for their most recent year which is their fourth year of operations. Scrappy creates booklets of metallic scrapbook paper that it sells via an online platform to customers all around the world. They started the year with 980 units with Direct Materials (DM) 100% completed and Conversion Costs (CC) 37% completed. During the year, Scrappy started 56,780 units and completed 56,526 units, and at year-end they had 1,234 units with DM 100% completed and CC 78% completed. Their equivalent costs for DM are $27,890, and their equivalent costs for CC are $33,568. Scrappy has chosen the First-In, First-Out (FIFO) method for its process costing. What is the equivalent cost per unit for Direct Materials?

(Round units to whole number and cost to the nearest cent.)

• 1. $0.49
  2. $0.64
  3. $0.65
  4. $1.44

Ans: A, LO 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires familiarity with the calculations for equivalent units and equivalent cost per unit. Using the FIFO method, the focus is on what costs and units have been added during the current period. The equivalent units are calculated as follows: (980 × 0%) + (55,546 × 100%) + (1,234 × 100%) = 0 + 55,546 + 1,234 = 56,780 equivalent units. Now, calculate the equivalent cost per unit by dividing the equivalent Direct Material cost by the number of equivalent units that were just calculated. $27,890/56,780 = $0.49 cost per equivalent unit.

1. Scrappy Company is preparing their costing data for their most recent year which is the fourth year of operations. Scrappy creates booklets of metallic scrapbook paper that it sells via an online platform to customers all around the world. They started the year with 980 units with Direct Materials (DM) 100% completed and Conversion Costs (CC) 37% completed. During the year, Scrappy started 56,780 units and completed 56,526 units, and at year-end they had 1,234 units with DM 100% completed and CC 78% completed. Their equivalent costs for DM are $27,890, and their equivalent costs for CC are $33,568. Scrappy has chosen the First-In, First-Out (FIFO) method for its process costing. What is the equivalent cost per unit for Conversion Costs? (Round units to whole number and cost to two decimal places.)
   1. $0.58
   2. $0.59
   3. $0.77
   4. $0.79

Ans: B, LO 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires familiarity with the calculations for equivalent units and equivalent cost per unit. Using the FIFO method, the focus is on what costs and units have been added during the current period. The equivalent units are calculated as follows: (980 × 63%) + (55,546 × 100%) + (1,234 × 78%) = 617 + 55,546 + 963 = 57,126 equivalent units. Now, calculate the equivalent cost per unit by dividing the equivalent Direct Material cost by the number of equivalent units that were just calculated. $33,568/57,126 = $0.59 cost per equivalent unit.

1. Almondz Co. has equivalent costs for Direct Materials (DM) of $77,626 and equivalent costs for Conversion Costs (CC) of $86,777 for the month of July. They reported the following information for July:

Almondz uses the Weighted-Average method for their process costing. What is the equivalent cost per unit for Conversion Costs?

(Round units to whole number and cost to two decimal places.)

1. $1.21
2. $1.25
3. $1.40
4. $1.53

Ans: B, LO 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires calculation of the equivalent units for Almondz using the Weighted-Average method. This method does not account for beginning Work-in-Progress (WIP) Inventory separately. The units are calculated as follows: (60,740 × 100%) + (9,860 × 89%) = 60,740 + 8,775 = 69,515 units. To calculate the equivalent cost per unit, divide the equivalent costs by the number of units just calculated. $86,777/69,515 = $1.25.

1. Almondz Co. has equivalent costs for Direct Materials (DM) of $77,626 and equivalent costs for Conversion Costs (CC) of $86,777 for the month of July. They reported the following information for July:

Almondz uses the Weighted-Average method for their process costing. What is the equivalent cost per unit for Direct Materials? (Round units to whole number and cost two decimal places.)

1. $1.10
2. $1.12
3. $1.25
4. $1.37

Ans: A, LO 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires calculation of the equivalent units for Almondz using the Weighted-Average method. This method does not account for beginning WIP Inventory separately. The units are calculated as follows: (60,740 × 100%) + (9,860 × 100%) = 60,740 + 9,860 = 70,600 units. To calculate the equivalent cost per unit, divide the equivalent costs by the number of units just calculated. $77,626 /70,600 = $1.10 per unit.

1. Pete’s Gold Co. is a factory that produces gold plastic coins that are sold at party stores around the country. They are attempting to determine whether they would prefer to use the First-In, First-Out (FIFO) or Weighted-Average method for their process costing. Their unit production information for the most recent year is as follows:

The units above produced the following costs:

If Pete’s chooses to use the FIFO method, then what is their equivalent cost per unit for Conversion Costs? (Round units to whole number and cost to two decimal places.)

1. $0.51
2. $0.52
3. $0.53
4. $0.57

Ans: C, LO 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires calculation of both the equivalent units and equivalent costs for Conversion Costs using FIFO before calculating the equivalent cost per unit. For the equivalent units, account for the beginning inventory separately before combining. (3,600 × 48%) + (28,121 × 100%) + (2,788 × 73%) = 1,728 + 28,121 + 2,035 = 31,884 units. To calculate the equivalent costs, only use the costs added during the period of $16,904. Now, divide the cost by the number of equivalent units that were calculated. $16,904/31,884 = $0.53 per unit.

1. Pete’s Gold Co. is a factory that produces gold plastic coins that are sold at party stores around the country. They are attempting to determine whether they would prefer to use the First-In, First-Out (FIFO) or Weighted-Average method for their process costing. Their unit production information for the most recent year is as follows:

The units above produced the following costs:

If Pete’s chooses the Weighted-Average method, then what is their equivalent cost per unit for Direct Materials? (Round units to whole number and cost to two decimal places.)

1. $0.40
2. $0.41
3. $0.44
4. $0.45

Ans: A, LO 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires calculation of both the equivalent units and equivalent costs for Direct Materials using the Weighted-Average method before calculating the equivalent cost per unit. This method does not account for Beginning WIP Inventory separately. (31,721 × 100%) + (2,788 × 100%) = 31,721 + 2,788 = 34,509 units. To calculate the equivalent costs, use the beginning costs and the costs added during the period. $400 + $13,435 = $13,835. Now, divide the cost by the equivalent units that were calculated. $13,835/34,509 = $0.40 per unit.

1. The sewing process used by TradeMark Inc. began the year with an inventory of $3,820 (Direct Materials were 100% complete). Using First-In, First-Out (FIFO), they calculated their equivalent units of production for this year to be:

TradeMark has calculated their cost per equivalent unit as follows: Direct Material (DM) $84 and Conversion Costs (CC) $43. How much cost should TradeMark assign to the units completed and removed from WIP Inventory in the current year?

1. $101,600
2. $105,420
3. $106,796
4. $107,176

Ans: C, LO 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires assignment of costs only to the units completed and removed from WIP inventory during the current year which means that ending WIP inventory will not be factored in. Direct Materials: 800 × $84 = $67,200. Conversion Costs: (32 × $43) + (800 × $43) = $1,376 + $34,400 = $35,776. Total Costs: $3,820 + $67,200 + $35,776 = $106,796.

1. The sewing process used by TradeMark Inc. began the year with an inventory of $3,820 (Direct Materials were 100% complete). Using First-In, First-Out (FIFO), they calculated their equivalent units of production for this calendar year to be:

TradeMark has calculated their cost per equivalent unit as follows: Direct Material $84 and Conversion Costs $43. How much cost should TradeMark assign to ending WIP inventory for the current year?

1. $3,820
2. $15,997
3. $101,600
4. $117,597

Ans: B, LO 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires assignment of costs only to the units left in WIP inventory at the end of the current year. Direct Materials: 150 × $84 = $12,600; Conversion Costs: 79 × $43 = $3,397; so Total Costs: $12,600 + $3,397 = $15,997.

1. The sewing process used by TradeMark Inc. began the year with an inventory of $3,820. Using the Weighted-Average method, they calculated their equivalent units of production for this calendar year to be:

TradeMark has calculated their cost per equivalent unit as follows: Direct Material $84 and Conversion Costs $43. How much cost should TradeMark assign to the units completed and removed from WIP inventory in the current year using the Weighted-Average method?

1. $89,080
2. $109,855
3. $113,675
4. $125,852

Ans: B, LO 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires that assignment of costs only to the units completed and removed from WIP inventory during the current year, so that means beginning and ending WIP inventory will not be factored in. Direct Materials, 865 × $84 = $72,660; Conversion Costs, 865 × $43 = $37,195; so Total Costs = $72,660 + $37,195 = $109,855.

1. At John & Mary Corp., 1,000 units were in beginning Work-in-Progress (WIP)-Grinding this period, and their status was 100% complete for Direct Materials (DM) and 30% complete for Conversion Costs (CC). A total of 4,000 more units were started and 4,500 total units were completed and transferred to WIP-Fermenting, leaving 500 units in ending inventory. The status of ending inventory was 100% complete for DM and 20% complete for CC. The company has reported the equivalent costs per unit for DM and CC as $0.50 and $0.70 respectively. Determine the total cost of units in ending WIP Inventory following the Weighted-Average method of costing.
2. $320
3. $340
4. $460
5. $540

Ans: A, LO 5, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: Equivalent Units in Ending WIP Inventory:

For Direct Materials, 500 units × 100% = 500 units

For Conversion Costs, 500 units × 20% = 100 units

Therefore, Direct Materials Cost of Units in Ending WIP Inventory = 500 units × 0.50 = $250; and

Conversion Costs of Units in Ending WIP Inventory = 100 units × 0.70 = $70

Total Cost of Units in Ending WIP Inventory is $250 + $70 = $320

1. Tom & Joy Company follows the Weighted-Average method for inventory valuation and started the period with Work-in-Progress (WIP) Inventory of 1,000 units. Direct Materials (DM) costs and Conversion Costs (CC) in the beginning WIP Inventory are $580 and $740 respectively. During the period, an additional 4,000 units having $1,920 of DM costs and $2,480 of CC were added to the WIP Inventory. Total equivalent units of work done for DM and CC were 5,000 units and 4,600 units in that order.

At the end of the period, they had 500 units in ending inventory that were 100% complete with respect to DM and 20% complete with respect to CC. Find out the total cost of units completed and moved out of the WIP Inventory.

1. $5,200
2. $5,300
3. $5,400
4. $5,800

Ans: C, LO 5, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: Total costs to be accounted for Direct Materials = $580 + $1,920 = $2,500;

Total Direct Materials costs per equivalent unit = $2,500/5,000 units = $0.50;

Therefore, total Direct Materials costs of units completed and moved from WIP Inventory is 4,500 (1,000 + 4,000 – 500) units × $0.50 = $2,250.

Total costs to be accounted for Conversion Costs = $740 + $2,480 = $3,220;

Total Conversion Costs per equivalent unit = $3,220/4,600 units = $0.70;

Therefore, total Conversion Costs of units completed and moved from WIP Inventory is 4,500 (1,000 + 4,000 – 500) units × $0.70 = $3,150.

Total cost of units completed and moved out of the WIP Inventory is $5,400 ($2,250 + $3,150).

1. Nancy & Kary Corp., follow the Weighted-Average method of inventory valuation. The total cost of units completed and removed from Work-in-Progress (WIP) Inventory is $10,800, and the total cost of units in ending WIP Inventory is $640. What will be the Journal Entry for recording the costs of units completed and moved out of the WIP Inventory if the data pertains to the grinding process and the next process is the fermenting process?

Ans: C, LO 5, Bloom: AN, Difficulty: Easy, AACSB: Analytic, AICPA: AC: Measurement, Analysis and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: The total cost of units completed and moved to WIP Inventory-Fermenting is $10,800.

1. In an intermediate process named Polishing, the costs added to Work-in-Progress (WIP) Inventory-Polishing, during this period are $675 for Direct Material (DM), $525 for salaries and wages payable, and $475 for Manufacturing Overhead (MOH). What will the journal entry to record the incurrence of Conversion Costs (CC) be?

Ans: C, LO 5, Bloom: AN, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: To record the incurrence of Conversion Costs, Direct Labor and Manufacturing Overhead should be recorded individually. Therefore, WIP Inventory-Polishing should be debited with a total of $1,000, and Salaries and Wages Payable and Manufacturing Overhead will be credited individually for $525 and $475 respectively.

1. A factory is entering its second year of operations and has the following cost information for the stirring department: costs added to complete beginning inventory, $780; costs already in beginning inventory, $320; costs for new batches started, $5,677; and costs of incomplete inventory at the end of the period, $443. If this factory uses the First-In, First-Out (FIFO) method, then what is the total cost that they will include in their journal entry as it moves to the next department?
2. $5,891
3. $6,014
4. $6,334
5. $6,777

Ans: C, LO 5, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question asks which costs will be included in the amount that is completed and removed in order to move to the next department using the FIFO method. Both costs in the beginning inventory should be included: $780 + $320 = $1,100. To determine the amount that was both completed and removed, determine how much was completed (Units Started – Units in Ending Inventory): $5,677 – $443 = $5,234. To calculate the amount that will be moved to the next department, combine costs of beginning inventory plus costs of units started and completed, ending inventory will not be factored in again: $1,100 + $5,234 = $6,334

1. Annie, the accountant for a local cookie factory, has been finalizing costing information for the month so that the books can be updated and closed. After finishing the journal entries for the mixing department, she is now focusing on the baking department. The baking department began with Work-in-Progress (WIP) Inventory of $967, Transferred-In (TI) units of $6,708, and added $1,340 of cookie materials, $3,566 of Direct Labor, and $3,028 of Manufacturing Overhead in the beginning Work-in-Progress (WIP) Inventory. This department also had $347 of ending inventory in WIP. What journal entry must be made to transfer the cookies completed to the finished goods inventory?

Ans: C, LO 5, Bloom: AN, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: The first step to complete this involves determining the total cost of units completed and transferred out of the Baking Department. In order to do so, determine what amounts would have been debited to the WIP Inventory-Baking. This would include $967 costs of units in beginning inventory, $6,708 costs of units Transferred-In, $1,340 costs of cookie materials, $3,566 of Direct Labor, and $3,028 of Manufacturing Overhead added in beginning WIP Inventory this period. This will result in total of $967 + $6,708 + $1,340 + $3,566 + $3,028 = $15,609. Now, determine the costs of units completed & removed from WIP (Baking). Costs of units completed & removed: $15,609 – $347 = $15,262. The journal entry to transfer the cookies completed to the finished goods inventory will be: debit the Finished Goods Inventory and credit the WIP Inventory-Baking account, both in the amount of $15,262.

1. Sticky Fingers Corp is a manufacturer of gluten-free cinnamon rolls that are packaged and sold in quantities of six rolls. Sticky has chosen to implement a process costing system to account for their production costs at the recommendation of the head cost accountant, Trevor. He examined their records for the most current year and compiled the following information:

Beginning Work-in-Progress (WIP) Inventory: 256 units that are 100% completed for Direct Materials (DM) and 68% completed for Conversion Costs (CC)

Units Started During the Period: 18,540

Units Completed by the End of the Period: 16,400

Ending WIP Inventory: x units that are 100% completed for DM and 60% completed for CC

Their beginning inventory includes the following costs: DM, $343; and CC, $652. During the most recent year, Sticky added the following costs: DM, $48,900; and CC, $58,777. Using the Weighted-Average method, how much total cost should be assigned to the units completed this period?

(Do not round intermediate calculations.)

1. $97,580.00
2. $97,608.03
3. $107,677.00
4. $108,646.06

Ans: A, LO 5, Bloom: AP, Difficulty: Hard, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: (Total cost calculated in steps 3 and 5 of process costing may vary due to rounding.) This question requires walking through all five of the process costing steps. To begin, first determine how many units to account for, and that will also inform you of the ending inventory. The first step is to verify physical units in the period and their degree of completion. Units in beginning WIP inventory plus units started this period- 256 + 18,540 = 18,796 total units to account for. Now, determine the ending inventory by deducting the units completed from the total units to account for: 18,796 – 16,400 = 2,396 units.

In step two, account for equivalent units. Using the Weighted-Average method, there will not be a separate assessment of beginning inventory. Direct Materials: (16,400 × 100%) + (2,396 × 100%) = 18,796 equivalent units. Conversion Costs: (16,400 × 100%) + (2,396 × 60%) = 16,400 + 1,437.6 = 17,837.6 equivalent units. In step three, account for costs: Direct Materials, $48,900 + $343 = $49,243; and Conversion Costs, $58,777 + $652 = $59,429. During step four, calculate the cost per equivalent unit: Direct Materials, 49,243/18,796 = $2.6199; and Conversion Costs, $59,429/17,837.6 = $3.3317. Finally, step five requires allocation of costs based on the equivalent units calculated. The end result should appear as follows:

1. Lucky Charm is a factory that molds and assembles silver charms that are offered in a variety of themes including hearts, letters, and animals for use on charm bracelets. During the year, additional silver of $52,237 and Conversion Costs of $71,490 were added to the Molding department. During the year, the total cost of units completed by the Molding department and then transferred to Assembly amounted to $131,500. As of January 1, the beginning Work-in-Progress (WIP) Inventory (Molding) had a balance of $9,805. What journal entry would Lucky use to recognize the transfer of costs from the Molding to the Assembly department?

Ans: C, LO 5, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires knowledge about which of the costs are needed for a journal entry that will transfer the cost of completed units from Molding to Assembly. To decrease an asset, which the WIP Inventory accounts are, you must credit them. To increase an asset, you would debit the appropriate account. The appropriate figure to use for both is the cost transferred between departments of $131,500.

1. For a particular period, Jack, who is the production manager of an organization that follows the Weighted-Average method of inventory valuation has been given the task to perform at a gross margin percentage of 32.00%. He has been informed by the marketing department that given the current scenario, the unit sales price of the product is frozen at $5.00, and it has been agreed that 5,500 units will be completed and removed from Work-in-Progress (WIP) Inventory into Finished Goods Inventory. He has been asked by the top management to run the entire process: procure the Direct Materials (DM), engage the labor, and apply the Manufacturing Overheads (MOH) in a way that fulfills management's desire of a gross margin percentage of 32.00%. In the given scenario, what should the maximum total costs of units completed and removed from the WIP Inventory be?
2. $4,675
3. $9,350
4. $18,700
5. $37,400

Ans: C, LO 6, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution:

Gross Margin per Unit = Sales Price per Unit × Gross Margin %

= $5.00 × 32%

= $1.6

Unit Costs = Sales Price per Unit – Gross Margin per Unit

= $5.00 – $1.6

= $3.4

Unit Costs = Total Costs of Units Completed and Removed from WIP Inventory/Units Completed this Period;

Assume that Total Costs of Units Completed and Removed from WIP Inventory is X.

$3.4 = X/5,500 units

X = $3.4 × 5,500 units

X = $18,700

1. The Cost Accountant of an organization, Jimmy, has been tasked with suggesting the inventory valuation method such that the gross margin percentage of an organization is higher than it currently is. He has the following estimated information on hand:

The selling price of a unit is estimated at $7.50. What would the gross margin percentage Jimmy will arrive at be, using both FIFO and Weighted-Average respectively? (Round cost per unit to nearest cent.)

1. 31.60% for FIFO and 32.00% for Weighted-Average
2. 32.50% for FIFO and 31.80% for Weighted-Average
3. 40.00% for FIFO and 50.00% for Weighted-Average
4. 41.30% for FIFO and 42.70% for Weighted-Average

Ans: A, LO 6, Bloom: AN, Difficulty: Hard, AACSB: Analytic, AICPA: AC: Measurement, Analysis and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: Under FIFO the method, the Cost per Unit = Total Costs of Units Completed and Removed from WIP Inventory/(Units in Beginning WIP Inventory Completed + Units Started and Completed) = $28,209/(1,500 units + 4,000 units) = $5.13

Under Weighted-Average method, Cost per Unit = Total Costs of Units Completed and Removed from WIP Inventory/Units Completed this Period = $28,050/5,500 units = $5.10

1. An organization follows the Weighted-Average method of inventory valuation. You are appointed as a cost accountant of the organization and a task has been assigned to fix the selling price of a product such that the gross margin percentage is set at its target of 40%. The estimated total cost of units completed and removed from Work-in-Progress (WIP) Inventory is $60,000. The estimated number of units to be completed is 5,000. What selling price should you fix?
2. $10
3. $15
4. $20
5. $25

Ans: C, LO 6, Bloom: C, Difficulty: Easy, AACSB: Analytic, AICPA: AC: Measurement, Analysis and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: Under the Weighted-Average method, the Cost per Unit = Total Cost of Units Completed and Removed from WIP Inventory/ Units Completed this Period = $60,000/ 5,000 Units = $12.00 per Unit

X = Selling Price per Unit = $12 per Unit × (100%/60%) = $20.00

1. Carmine Inc. creates all of its parts in the cutting department before they are passed on to the finishing department. Carmine adds the packaging material at the beginning of the finishing process. The finishing department had a beginning Work-in-Progress (WIP) Inventory of 450 units in April that were 74% complete with respect to Conversion Costs (CC). During April, the finishing department had 3,678 units Transferred-In (TI) from the cutting department and had completed 3,002 units by the end of the month. This left 1,126 units in ending inventory that were 50% complete with respect to CC. What are the equivalent units of production for April for TI, Direct Materials (DM), and CC under the First-In, First-Out (FIFO) method? (Round units to nearest whole number.)
   1. TI, 3,678 units; DM, 3,678 units; and CC, 3,232 units
   2. TI, 3,682 units; DM, 3,682 units; and CC, 3,682 units
   3. TI, 4,128 units; DM, 4,128 units; and CC, 4,128 units
   4. TI, 4,578 units; DM, 4,578 units; and CC, 3,682 units

Ans: A, LO 6, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires calculation of equivalent units for three different cost categories using the FIFO method. With FIFO, you should be focused on only units and costs added during the period, so beginning inventory will have to be evaluated separately. For Transferred-In and Direct Materials, this will be equal to (Units in Beginning WIP Inventory × Percentage of Costs Added) + (Units Transferred-In and Completed × Percentage of Costs Added) + (Units in Ending WIP Inventory × Percentage of Costs Added) = (450 units × 0%) + (2,552 units × 100%) + (1,126 units × 100%) = 0 + 2,552 units + 1,126 units = 3,678 units. For Conversion Costs, this will be equal to (Units in Beginning WIP Inventory × Percentage of Costs Added) + (Units Transferred-In and Completed × Percentage of Costs Added) + (Units in Ending WIP Inventory × Percentage of Costs Added) = (450 units × 26%) + (2,552 units × 100%) + (1,126 units × 50%) = 117 units + 2,552 units + 563 units = 3,232 units.

1. Carmine Inc. creates all of its parts in the cutting department before they are passed on to the finishing department. Carmine adds packaging material at the beginning of the finishing process. The finishing department had a beginning Work-in-Progress (WIP) Inventory of 450 units in April that were 74% complete with respect to Conversion Costs (CC). During April, the finishing department had 3,678 units Transferred-In (TI) from the cutting department and had completed 3,002 units by the end of the month. This left 1,126 units in ending inventory that are 45% complete with respect to CC. What are the equivalent units of production for April for TI, Direct Materials (DM), and CC under the Weighted-Average method? (Round units to nearest whole number.)
   1. TI, 4,128 units; DM, 4,128 units; and CC, 3,509 units
   2. TI, 4,128 units; DM, 4,128 units; and CC, 4,015 units
   3. TI, 4,578 units; DM, 4,578 units; and CC, 3,565 units
   4. TI, 4,578 units; DM, 4,578 units; and CC, 4,578 units

Ans: A, LO 6, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires you to calculate equivalent units for three different cost categories using the Weighted-Average method. With the Weighted-Average method, the focus is on all units and costs completed this period, so beginning inventory will not have to be evaluated separately. For Transferred-In and Direct Materials, this will be equal to (Units Completed this Period × Percentage of Costs Added) + (Units in Ending WIP Inventory × Percentage of Costs Added) = (3,002 units × 100%) + (1,126 units × 100%) = 3,002 units + 1,126 units = 4,128 units. For Conversion Costs, this will be equal to (Units Completed this Period × Percentage of Costs Added) + (Units in Ending WIP Inventory × Percentage of Costs Added) = (3,002 units × 100%) + (1,126 units × 45%) = 3,002 units + 507 units = 3,509 units.

1. Stryker Industries produces stethoscopes made from steel and rubber that begin in the molding department before being transferred to the assembly department. After the products have been assembled, they are packaged and shipped to customers across the country. The following production information has been gathered for the month of June:

Using the Weighted-Average method, calculate the equivalent units of production for Transferred-In (TI), Direct Materials (DM), and Conversion Costs (CC) during the month of June. (Round units to nearest whole number.)

• • 1. TI, 8,433 units; DM, 8,453 units; and CC, 7,294 units
    2. TI, 8,443 units; DM, 8,443 units; and CC, 7,770 units
    3. TI, 8,453 units; DM, 8,433 units; and CC, 7,770 units
    4. TI, 8,453 units; DM, 8,453 units; and CC, 7,770 units

Ans: D, LO 6, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: In this question, the equivalent units of production will need to be calculated for three different cost categories using the Weighted-Average method. For Transferred-In and Direct Materials costs, this will be equal to (Units Completed this Period × Percentage of Costs Added) + (Units in Ending WIP Inventory × Percentage of Costs Added) = ((993 units + 6,456 units) × 100%) + (1,004 units × 100%) = 7,449 units + 1,004 units = 8,453 units. For Conversion Costs, this will be equal to (Units Completed this Period × Percentage of Costs Added) + (Units in Ending WIP Inventory × Percentage of Costs Added) = (7,449 units × 100%) + (1,004 × 32%) = 7,449 units + 321 units = 7,770 units.

1. Stryker Industries produces stethoscopes made from steel and rubber that begin in the molding department before being to the assembly department. After the products have been assembled, they are packaged and shipped to customers across the country. The following production information has been gathered for the month of June:

Using the First-In, First-Out (FIFO) method, calculate the equivalent units of production for Transferred-In (TI), Direct Materials (DM), and Conversion Costs (CC) during the month of June. (Round units to nearest whole number.)

• • 1. TI, 7,440 units; DM, 7,440 units; and CC, 7,294 units
    2. TI, 7,440 units; DM, 7,440 units; and CC, 7,449 units
    3. TI, 7,460 units; DM, 7,460 units; and CC, 7,293 units
    4. TI, 7,460 units; DM, 7,460 units; and CC, 7,294 units

Ans: C, LO 6, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: In this question, the equivalent units of production will need to be calculated for three different cost categories using the FIFO method. In this method, the beginning inventory will need a separate evaluation unlike with the Weighted-Average method. For Direct Materials and Transferred-In costs, this will be equal to (Units in Beginning Work-in-Progress (WIP) Inventory Completed this Period × Percentage of Costs Added) + (Units Transferred-In and Completed this Period × Percentage of Costs Added) + (Units in Ending WIP Inventory × Percentage of Costs Added) = (993 units × 0%) + (6,456 units × 100%) + (1,004 units × 100%) = 0 + 6,456 units + 1,004 units = 7,460 units. For Conversion Costs, this will be equal to (Units in Beginning WIP Inventory Completed this Period × Percentage of Costs Added) + (Units Transferred-In and Completed this Period × Percentage of Costs Added) + (Units in Ending WIP Inventory × Percentage of Costs Added) = (993 units × 52%) + (6,456 units × 100%) + (1,004 units × 32%) = 516 units + 6,456 units + 321 units = 7,293 units.

1. Artemis Inc. manufactures organic cotton dishcloths that it sells in an online store. Their products begin in the cutting department before moving to the sewing department where they are completed. Their accounting department has gathered the following costing information for the month of September:

The following represents the equivalent units of production for the month of September:

Using the FIFO method, calculate the equivalent cost per unit for Transferred-In (TI), Direct Materials (DM), and Conversion Costs (CC) during the month of September. (Round answers to the two decimal places.)

• • 1. TI, $2.17 per unit; DM, $2.41 per unit; and CC, $3.10 per unit
    2. TI, $2.17 per unit; DM, $2.41 per unit; and CC, $3.52 per unit
    3. TI, $2.41 per unit; DM, $2.17 per unit; and CC, $3.10 per unit
    4. TI, $2.50 per unit; DM, $2.77 per unit; and CC, $3.52 per unit

Ans: A, LO 6, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: First, determine the total equivalent costs for each cost category. For Transferred-In, Direct Materials, and Conversion Costs, only use the costs added during the period and disregard the beginning WIP Inventory costs. To calculate the equivalent cost per unit, divide the costs added to WIP Inventory by the total equivalent units of production. Transferred-In: $11,700/ 5,391 units = $2.17 per unit, Direct Materials: $13,008/5,391 units = $2.41 per unit, and Conversion Costs: $16,772/ 5,411 units = $3.10 per unit.

1. Artemis Inc. manufactures organic cotton dishcloths that it sells in an online store. Their products begin in the cutting department before moving to the sewing department where they are completed. Their accounting department has gathered the following costing information for the month of September:

The following represents the equivalent units of production for the month of September:

Using the Weighted-Average method, calculate the equivalent cost per unit for Transferred-In (TI), Direct Materials (DM), and Conversion Costs (CC) during the month of September. (Round answers to the two decimal places.)

• • 1. TI, $1.98 per unit; DM, $2.20 per unit; and CC, $2.90 per unit
    2. TI, $2.28 per unit; DM, $2.53 per unit; and CC, $3.30 per unit
    3. TI, $2.50 per unit; DM, $2.77 per unit; and CC, $3.52 per unit
    4. TI, $2.53 per unit; DM, $2.28 per unit; and CC, $3.30 per unit

Ans: B, LO 6, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question will require multiple steps before arriving at the equivalent cost per unit. First, calculate the total equivalent costs for each cost category. For Transferred-In, Direct Materials, and Conversion Costs, add the costs in beginning WIP Inventory and costs added to WIP inventory. To calculate the equivalent cost per unit, divide the total accounted cost by the equivalent units. Transferred-In: $13,500/ 5,917 units = $2.28 per unit, Direct Materials: $14,958/ 5,917 units = $2.53 per unit, and Conversion Costs: $19,072/5,774 units = $3.30 per unit.

1. A factory manufactures sterling silver hoop earrings that it sells to large regional retail establishments. The company has just completed its first month of operations and has some important policy and procedure decisions to make. Their accountants have compiled some cost and production information so that a Process Costing method can be selected. The following table represents the cost data for the month:

The above costs were generated in order to meet the following production for the month:

What is the equivalent cost per unit for Transferred-In (TI), Direct Materials (DM), and Conversion Costs (CC) during the month using the First-In, First-Out (FIFO) method? (Round costs to two decimal places.)

• • 1. TI, $0.55 per unit; DM, $0.55 per unit; and CC, $0.99 per unit
    2. TI, $0.55 per unit; DM, $0.78 per unit; and CC, $0.99 per unit
    3. TI, $0.78 per unit; DM, $0.78 per unit; and CC, $0.99 per unit
    4. TI, $0.88 per unit; DM, $0.62 per unit; and CC, $1.08 per unit

Ans: D, LO 6, Bloom: AP, Difficulty: Hard, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires two different figures to calculate the equivalent cost per unit: the total equivalent costs and the equivalent units. The total equivalent costs have been provided, so the equivalent units will have to be calculated. The costs for Transferred-In are given, but the units Transferred-In and completed needs to be calculated as: Units Transferred-In – Units in Ending Inventory = 7,352 units – 903 units = 6,449 units. Next, calculate the equivalent units for each cost category. For Transferred-In and Direct Materials, this is equal to, (884 units × 0%) + (6,449 units × 100%) + (903 units × 100%) = 0 + 6,449 units + 903 units = 7,352 units. Now, divide the total equivalent cost by these units to arrive at the equivalent cost per unit. For Transferred-In, $6,443/ 7,352 units = $0.88 per unit; and for Direct Materials, $4,556/ 7,352 units = $0.62 per unit. Equivalent units for Conversion Costs: (884 units × 31%) + (6,449 units × 100%) + (903 units × 70%) = 274 units + 6,449 units + 632 units = 7,355 units. Next, divide the total equivalent cost by these units to arrive at the equivalent cost per unit. Conversion Costs: $7,908/7,355 units = $1.08 per unit.

1. A factory manufactures sterling silver hoop earrings that it sells to large regional retail establishments. The company has just completed its first month of operations and has some important policy and procedure decisions to make. Their accountants have compiled some cost and production information so that a Process Costing method can be selected. The following table represents the cost data for the month:

The above costs were generated in order to meet the following production for the month:

What is the equivalent cost per unit for Transferred-In (TI), Direct Materials (DM), and Conversion Costs (CC) during the month using the Weighted-Average method? (Round units to the nearest whole number and costs to the two decimal places.)

• • 1. TI, $0.60; DM per unit, $0.86 per unit; and CC, $1.04 per unit
    2. TI, $0.86; DM per unit, $0.60 per unit; and CC, $1.04 per unit
    3. TI, $0.60; DM per unit, $0.86 per unit; and CC, $1.07 per unit
    4. TI, $0.95; DM per unit, $0.66 per unit; and CC, $1.19 per unit

Ans: D, LO 6, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires two different figures to calculate the equivalent cost per unit: the total equivalent costs and the equivalent units. The total equivalent costs have been provided, so the equivalent units will have to be calculated. The costs for Transferred-In are given, but the units completed needs to be calculated as Units in Beginning Inventory + Units Transferred-In – Units in Ending Inventory = 884 units + 7,352 units – 903 units = 7,333 units. Next, calculate the equivalent units for each cost category. For Transferred-In and Direct Materials, this will be equal to (7,333 units × 100%) + (903 units × 100%) = 7,333 + 903 units = 8,236 units. Now, divide the total equivalent cost by these units to arrive at the equivalent cost per unit. Transferred-In: $7,809/8,236 units = $0.95 per unit; and Direct Materials: $5,463/ 8,236 units = $0.66 per unit. Equivalent units for Conversion Costs: (7,333 units × 100%) + (903 units × 70%) = 7,333 units + 632 units = 7,965 units. Now, divide the total equivalent cost by these units to arrive at the equivalent cost per unit. Conversion Costs: $9,502/7,965 units = $1.19 per unit.

1. Annie, the accountant for a local cookie factory, has been finalizing costing information for the month so that the books can be updated and closed. After finishing the journal entries for the mixing department, she is now focusing on the baking department. The baking department began with Work-in-Progress (WIP) Inventory of $967, and added $1,340 of cookie materials, $3,566 of Direct Labor, and $3,028 of Manufacturing Overhead in the beginning WIP Inventory. It has completed $15,626 costs of units in the process and reported $347 of ending inventory in WIP. What is the total cost of units Transferred-In (TI) from the mixing department?
   1. $6,725
   2. $7,072
   3. $8,901
   4. $15,626

Ans: B, LO 6, Bloom: AP, Difficulty: Easy, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: To solve this, determine the total cost of units TI from the mixing department. It can be calculated as: Total Cost of Units TI from the mixing department = Total Cost of Units Completed – Costs of Units in Beginning WIP Inventory – Costs Added to Units in Beginning WIP Inventory this Period + Costs of Units in Ending WIP inventory = $15,626 – $967 – $7,934 + $347 = $7,072.

1. An organization specializes in manufacturing wooden wardrobes. It gives its customers a choice of woods including teak wood, satin wood, Sal wood, Indian rosewood etc. For the purpose of ascertainment of total cost, which costing system needs to be implemented? 
2. Batch Costing 
3. Job Costing  
4. Operation Costing 
5. Process Costing 

Ans: C, LO 7, Bloom: K, Difficulty: Easy, AACSB: Communication, AICPA: AC: Reporting, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: Operation costing is suitable for products that allow for choice of Direct Materials (DM) but that follow a common process thereafter for the addition of conversion cost. 

1. 2 Tight Jeans is clothing manufacturer that specializes in the production of jeans that are offered in a variety of washes and cuts. Not every pair of jeans use all of 2 Tight’s processes. The following costs per pair of jeans have been predetermined for the company’s key processes for medium-sized jeans:

A batch of 4,280 pairs has recently been completed. This batch included 2,000 pairs of Acid Wash jeans that require the following processes: cutting, sewing, acid washing, and inspecting and 2,280 pairs of Sand Blasted jeans that require the following processes: cutting, sewing, sand blasting, and inspecting. The denim needed to make either type of jeans costs $1.00 per pair. What is the total cost that would be assigned to this batch? (Round the final answer to the nearest dollar.)

1. $17,200
2. $18,495
3. $19,608
4. $22,775

Ans: D, LO 7, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires familiarity with operation costing. To calculate the total cost assigned to the batch, calculate the total cost of each type of jeans within the batch. Acid Wash Jeans: ($1.42 × 2,000) + ($1.31 × 2,000) + ($0.48 × 2,000) + ($1.09 × 2,000) + ($1.00 × 2,000) = $2,840 + $2,620 + $960 + $2,180 + $2,000 = $10,600. Sand Blasted Jeans- ($1.42 × 2,280) + ($1.31 × 2,280) + ($0.52 × 2,280) + ($1.09 × 2,280) + ($1.00 × 2,280) = $3,237.60 + $2,986.80 + $1,185.60 + $2,485.20 + $2,280 = $12,175.20. Lastly, combine the total costs for each type of jeans to get the total cost: $10,600 + $12,175.20 = $22,775.20 = $22,775.

1. 2 Tight Jeans is clothing manufacturer that specializes in the production of jeans that are offered in a variety of washes and cuts. Not every pair of jeans use all of 2 Tight’s processes. The following costs per pair of jeans have been predetermined for the company’s key processes for medium-sized jeans:

A batch of 4,280 pairs has recently been completed. This batch included 2,000 pairs of Acid Wash jeans that require the following processes: cutting, sewing, acid washing, and inspecting and 2,280 pairs of Sand Blasted jeans that require the following processes: cutting, sewing, sand blasting, and inspecting. The denim needed to make either type of jeans costs $1.00 per pair. What is the total cost that would be assigned to each kind of jeans in this batch? (Round answers to the nearest dollar)

1. Acid Wash Jeans, $10,600; Sand Blasted Jeans, $12,175
2. Acid Wash Jeans, $12,175; Sand Blasted Jeans, $10,600
3. Acid Wash Jeans, $9,895; Sand Blasted Jeans, $8,600
4. Acid Wash Jeans, $8,600; Sand Blasted Jeans, $9,895

Ans: A, LO 7, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires familiarity with operation costing. To calculate the total cost assigned to each kind of jeans in the batch, calculate the total cost of each type of jeans within the batch. Acid Wash Jeans: ($1.42 × 2,000) + ($1.31 × 2,000) + ($0.48 × 2,000) + ($1.09 × 2,000) + ($1.00 × 2,000) = $2,840 + $2,620 + $960 + $2,180 + $2,000 = $10,600. Sand Blasted Jeans: ($1.42 × 2,280) + ($1.31 × 2,280) + ($0.52 × 2,280) + ($1.09 × 2,280) + ($1.00 × 2,280) = $3,237.60 + $2,986.80 + $1,185.60 + $2,485.20 + $2,280 = $12,175.20 = $12,175.

1. All Terrain manufacturers bicycles for various sporting goods stores, and their top sellers include a cruiser bike and a mountain bike. They recently completed a batch that included 497 cruiser bikes and 766 mountain bikes. A second batch for a different supplier included 545 cruiser bikes and 812 mountain bikes. Costing information for the bikes is as follows:

The cost of materials is $6.78 for each cruiser bike and $7.86 for each mountain bike. What is the total cost assigned to the first batch?

1. $24,683.11
2. $24,683.11
3. $28,642.79
4. $29,000.56

Ans: C, LO 7, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires familiarity with operation costing. To calculate the total cost assigned to the first batch, calculate the total cost of each type of bike within the batch. Cruiser Bike: ($4.25 × 497) + ($3.58 × 497) + ($1.02 × 497) + ($1.89 × 497) + ($2.42 × 497) + ($2.89 × 497) + ($6.78 × 497) = $2,112.25 + $1,779.26 + $506.94 + $939.33 + $1,202.74 + $1,436.33 + 3,369.66 = $11,346.51. Mountain Bike: ($4.25 × 766) + ($3.58 × 766) + ($1.58 × 766) + ($2.42 × 766) + ($2.89 × 766) + ($7.86 × 766) = $3,255.50 + $2,742.28 + $1,210.28 + $1,853.72+ $2,213.74 + 6,020.76 = $17,296.28. Lastly, combine the total costs of each type of bike to get the total cost for the batch: $11,346.51 + $17,296.28 = $28,642.79.

1. All Terrain manufacturers bicycles for various sporting goods stores, and their top sellers include a cruiser bike and a mountain bike. They recently completed a batch that included 497 cruiser bikes and 766 mountain bikes. A second batch for a different supplier included 545 cruiser bikes and 812 mountain bikes. Costing information for the bikes is as follows:

The cost of materials is $6.78 for each cruiser bike and $7.86 for each mountain bike. What is the total cost assigned to the second batch?

1. $26,847.07
2. $30,777.31
3. $31,132.42
4. $35,062.66

Ans: B, LO 7, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires familiarity with operation costing. To calculate the total cost assigned to the second batch, calculate the total cost of each type of bike within the batch. Cruiser Bike: ($4.25 × 545) + ($3.58 × 545) + ($1.02 × 545) + ($1.89 × 545) + ($2.42 × 545) + ($2.89 × 545) + ($6.78 × 545) = $2,316.25 + $1,951.10 + $555.90 + $1,030.05 + $1,318.90 + $1,575.05 + $3,695.10 = $12,442.35. Mountain Bike: ($4.25 × 812) + ($3.58 × 812) + ($1.58 × 812) + ($2.42 × 812) + ($2.89 × 812) + ($7.86 × 812) = $3,451.00 + $2,906.96 + $1,282.96 + $1,965.04 + $2,346.68 + $6,382.32 = $18,334.96. Lastly, combine the total costs of each type of bike to get the total cost for the batch: $12,442.35 + $18,334.96 = $30,777.31.

1. A shoe company designs and manufactures a variety of shoes including their two top sellers, wedge heels and stilettos. The company has been debating a new advertising campaign in an effort to ramp up sales for these offerings. In order to decide, they feel that getting a handle on their costing information is critical. The company took the advice of their head accountant and implemented an operation costing system that cost them extra on the front end. The company has calculated the following predetermined cost for each of the key processes:

Each pair of wedge heels has a selling price of $25 and Direct Materials (DM) cost of $10. Each pair of stilettos has a selling price of $40 and DM cost of $12. A recent batch of 130 stilettos was sold to a high-end retailer. A second batch containing 85 wedge heels was sold to a bargain shoe store. What is total cost assigned to each batch? (Round answers to two decimal places.)

1. Wedge Heels, $573.75; and Stilettos, $894.40
2. Wedge Heels, $894.40; and Stilettos, $573.75
3. Wedge Heels, $1,423.75; and Stilettos, $2,454.40
4. Wedge Heels, $2,454.40; and Stilettos, $1,423.75

Ans: C LO 7, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires calculating the total cost of each batch using operational costing. For the batch of 130 stilettos, calculate the cost as follows: (130 × $2.26) + (130 × $2.15) + (130 × $0.89) + (130 × $1.58) + (130 × $12.00) = $293.80 + $279.50 + $115.70 + $205.40 + $1,560.00 = $2,454.40. For the batch of 85 wedge heels, calculate the cost as follows: (85 × $2.26) + (85 × $2.15) + (85 × $0.34) + (85 × $0.42) + (85 × $1.58) + (85 × $10.00) = $192.10 + $182.75 + $28.90 + $35.70 + $134.30 + $850.00 = $1,423.75.

1. A shoe company designs and manufactures a variety of shoes including their two top sellers, wedge heels and stilettos. The company has been debating a new advertising campaign in an effort to ramp up sales for these offerings. In order to decide, they feel that getting a handle on their costing information is critical. The company took the advice of their head accountant and implemented an operation costing system that cost them extra on the front end. The company has calculated the following predetermined cost for each of the key processes:

Each pair of wedge heels has a selling price of $25 and Direct Materials (DM) cost of $10. Each pair of stilettos has a selling price of $40 and DM cost of $12. A recent batch of 130 stilettos was sold to a high-end retailer. A second batch containing 85 wedge heels was sold to a bargain shoe store. What is the gross profit percentage for each batch? (Round calculations to two decimal places.)

1. Wedge Heels, 33.0%; and Stilettos, 52.8%
2. Wedge Heels, 52.8%; and Stilettos, 33.0%
3. Wedge Heels, 73.0%; and Stilettos, 82.8%
4. Wedge Heels, 82.8%; and Stilettos, 73.0%

Ans: A, LO 7, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires calculating the total cost of each batch using operational costing. For the batch of 130 stilettos, calculate the cost as follows: (130 × $2.26) + (130 × $2.15) + (130 × $0.89) + (130 × $1.58) + (130 × $12.00) = $293.80 + $279.50 + $115.70 + $205.40 + $1,560.00 = $2,454.40. Now, calculate the total sales amount for that batch: 130 × $40.00 = $5,200. Next, calculate the gross profit: $5,200 – $2,454.40 = $2,745.60. Lastly, calculate the gross profit percentage: $2,745.60/$5,200 = 52.8%. For the batch of 85 wedge heels, calculate the cost as follows: (85 × $2.26) + (85 × $2.15) + (85 × $0.34) + (85 × $0.42) + (85 × $1.58) + (85 × $10.00) = $192.10 + $182.75 + $28.90 + $35.70 + $134.30 + $850.00 = $1,423.75. Now, calculate the total sales amount: 85 x $25.00 = $2,125.00. Next, calculate the gross profit: $2,125.00 – $1,423.75 = $701.25. Lastly, calculate the gross profit percentage: $701.25/$2,125 = 33.00%.

1. Samantha is compiling the key processes of the factory where she works. Her focus on been on the key processes of the conversion work. All units require cutting and assembly, but not all units require quality control. Since the company is set up to create their products in batches while using the benefits of process costing, they have implemented an operation costing system. Samantha has collected the following budgeted costs and production volumes for the current year:

The company recently completed a batch of 1,280 units where the first half of the batch required cutting, assembly, and quality control, and the second half of batch only required cutting and assembly. The cost of Direct Materials (DM) associated with each type of these units is $4.89 per unit, and each unit has a selling price of $19.75 per unit. What is the total amount of Conversion Costs (CC) assigned to this batch? (Round answers to two decimal places.)

1. $3,384.59
2. $5,026.74
3. $5,900.80
4. $6,769.18

Ans: C, LO 7, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires familiarity with calculating Conversion Costs using an operation costing system. The first step entails calculating the per-unit budgeted cost for each key process. Cutting: $198,500/70,000 = $2.84 per unit, Assembly: $76,400/70,000 = $1.09 per unit, and Quality Control: $49,006/36,000 = $1.36 per unit. Since half of the units need all three processes and half need only cutting and assembly, the total amount of Conversion Costs will be (1,280 × $2.84) + (1,280 × $1.09) + (640 × $1.36) = $3,635.20 + $1,395.20 + $870.40 = $5,900.80.

1. Samantha is compiling the key processes of the factory where she works. Her focus on been on the key processes of the conversion work. All units require cutting and assembly, but not all units require quality control. Since the company is set up to create their products in batches while using the benefits of process costing, they have implemented an operation costing system. Samantha has collected the following budgeted costs and production volumes for the current year:

The company recently completed a batch of 1,280 units where first half required cutting, assembly, and quality control, and the second half only required cutting and assembly. The total Direct Materials (DM) associated with either type of these units is $4.89 per unit, and each unit has a selling price of $19.75 per unit. What is the gross profit percentage per unit for each half of this batch? (Round calculations to two decimal places.)

1. 1^st Half, 48.46%; and 2^nd Half, 55.34%
2. 1^st Half, 55.36%; and 2^nd Half, 48.46%
3. 1^st Half, 73.22%; and 2^nd Half, 80.12%
4. 1^st Half, 80.12%; and 2^nd Half, 73.22%

Ans: A, LO 7, Bloom: AP, Difficulty: Hard, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires familiarity with calculating Conversion Costs (CC) using an operation costing system. The first step entails calculating a per-unit budgeted cost for each key process. Cutting: $198,500/70,000 = $2.84 per unit, Assembly: $76,400/70,000 = $1.09 per unit, and Quality Control: $49,006/36,000 = $1.36 per unit. The first half of the batch needs all three processes, and the second half only needs cutting and assembly. 1^st half: $2.84 + $1.09 + $1.36 + $4.89 = $10.18. Now, subtract from sales price to arrive at the gross profit: $19.75 – $10.18 = $9.57. Next, divide the gross profit by sales to arrive at the gross profit percentage: $9.57/$19.75 = 48.46%. 2nd half: $2.84 + $1.09 + $4.89 = $8.82. Now, subtract from sales price to arrive at the gross profit: $19.75 – $8.82 = $10.93. Lastly, divide the gross profit by sales to arrive at the gross profit percentage: $10.93/$19.75 = 55.34%.

1. Operation costing, also known as hybrid costing, is a method employed by organizations that would like to have features in their system of both job costing and process costing. Which of the following scenarios would most likely lead to the exploration of implementing an operation costing system instead of using only a job costing or only a process costing system?
2. A variety of Direct Materials are available, but common conversion processes exist.
3. Costs of individual units are easily distinguishable from one another.
4. Costs of individual units are impossible to distinguish from one another.
5. One kind of Direct Material is available, but common conversion processes exist.

Ans: A, LO 7, Bloom: K, Difficulty: Medium, AACSB: Communication, AICPA: AC: Reporting, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: This question requires familiarity with the features of operation costing as compared to job costing and process costing. Choice A is the only answer listed that correctly identifies a situation that would lead to the implementation of operation costing. The other choices are either inaccurate or apply to only job costing or only process costing.

Short Answers

1. What is the purpose of Process Costing? When is it typically used? What are the different ways that inventory can be costed?

Ans: NA, LO 1, Bloom: K, Difficulty: Medium, AACSB: Communication, AICPA: AC: Reporting, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: The purpose of Process Costing is to provide an effective and efficient way to provide accurate costing for homogeneous products that are produced in a continuous process rather than a discrete jobs. This results in a consistent and uniform cost for each unit produced. Process Costing is typically used when it is not plausible to separate or distinguish the costs of individual units from the other units that are being produced. Companies that use Process Costing are generally producers of similar or identical items where differentiating between items is not feasible. When a company is creating items in batches with tailored costs, they would instead elect to use Job Costing. Under Process Costing, inventory can be costed using either a First-In, First-Out (FIFO) or a Weighted-Average method.

1. Why is Cost of Goods Manufactured (COGM) a very important number to management? How does COGM vary between Process Costing and Job Costing? At a high level, what implications does the use of Process Costing have on periodic financial reporting?

Ans: NA, LO 1, Bloom: K, Difficulty: Medium, AACSB: Communication, AICPA: AC: Reporting, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: COGM is a very important number to management since it is used to determine whether or not the costs of their work has remained as planned and on track. The overall formula for COGM will not vary between process and Job Costing but Process Costing uses additional steps to account for computing quantities and values for the period; for example, the number of units completed and moved from Work-in-Progress (WIP) Inventory, or the number of units in ending inventory. At a high level, Process Costing impacts periodic financial reporting by trying to fine-tune the proper costing allocations between WIP inventory, Finished Good (FG) Inventory, and COGS, all of which appear on the income statement and focus on the current period. The overall goals are two-fold. The first goal is to reduce the likelihood of overstating inventory balances on the balance sheet since that would result in an understatement to COGS and an overstatement of net income on the income statement. The second goal is to avoid an understatement of inventory balances on the balance sheet since that would result in and overstatement of COGS and an understatement of net income on the income statement. Management should strive to report the most accurate numbers they can, so implementing measures to fight against misstatements is advisable.

1. How many steps are involved in process costing? Please list each step, and describe what that step will entail.

Ans: NA, LO 1, Bloom: K, Difficulty: Medium, AACSB: Communication, AICPA: AC: Reporting, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: Process costing involves five steps: Step 1) Verify physical units in the period and identify their degrees of completion, 2) Determine physical status of units and convert into equivalent units, 3) Account for costs, 4) Calculate cost per equivalent unit, and 5) Assign costs to units in ending Work-in-Progress (WIP) Inventory and in Finished Goods (FG) Inventory.

Step 1 involves the verification of units to account for by comparing the total of units in beginning WIP inventory and units started this period to the total of units completed and removed from WIP inventory and ending units remaining in WIP inventory. The totals of units to account for should be the same regardless of the method used. This step also discloses the degree of completion for Direct Materials (DM) and Conversion Costs (CC) at the beginning and at the ending of the period. Step 2 involves conversion of incomplete units into equivalent units of production. Equivalent units for Direct Materials and conversion costs are measured separately in this step. Equivalent units under the First-In, First-Out (FIFO) method are calculated by multiplying the Number of Physical Units by the Percentage of Resource Added this Period. On the other hand, the Weighted-Average method considers the Percentage of Resource Added to Date instead of the Percentage of Resource Added this Period. Step 3 calculates the total costs incurred to date for the WIP inventory account by tracking the costs of Direct Materials and conversion costs separately. Under each method, the processing of Step 3 remains same. Step 4 involves the calculation of equivalent costs per unit. Using the FIFO method, use the following formula: Cost added to WIP Inventory this Period/Total Equivalent Units of Work Done this Period. On the contrary, the Weighted-Average method focuses on the total costs to account for instead of just considering the Cost added to WIP inventory. Step 5 is the final step wherein costs to Ending WIP Inventory and Finished Goods Inventory are assigned based on the equivalent cost per unit calculated in Step 4.

1. Process Costing affords companies the opportunity to select between First-In, First-Out (FIFO) or Weighted-Average for costing their inventory. When is it appropriate to use each method? How are FIFO and Weighted-Average similar? How are they different? Which method should a company that produces chemical liquid bleach utilize?

Ans: NA, LO 2, Bloom: C, Difficulty: Medium, AACSB: Communication, AICPA: AC: Reporting, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: While a company does have the flexibility to select between FIFO and Weighted-Average, it should be noted that they will be urged to use that method moving forward to remain consistent. FIFO would be an appropriate choice if the products being created have units that can be easily identified, for example, assembled lawnmowers. Weighted-Average would be an appropriate choice if the products being created are indistinguishable from one another, for example petroleum or natural gas that does not come in natural units. FIFO is considered more complex, costly, and accurate than Weighted-Average. Both methods should produce similar results in the event of low or no inflation. Weighted-Average will spread out inflation’s impact during inflationary periods or if prices fluctuate. A company that produces chemicals, like liquid bleach in this example, would be advised to use Weighted-Average for their inventory costing.

1. If a manager were trying to better understand the way in which Process Costing works, then how should the concept of equivalent units be explained to him? The manager would further like to understand how First-In, First-Out (FIFO) varies from Weighted-Average when determining equivalent units. How could this difference be described to the manager?

Ans: NA, LO 3, Bloom: C, Difficulty: Medium, AACSB: Communication, AICPA: AC: Reporting, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: Process Costing is driven by homogeneous units being moved through a process, and as a result, units will be at various stages of completion at the end of a given period. Management is charged with providing accurate financial records, and part of this process includes a determination of how much work was completed and ultimately, a correct calculation of the Cost of Goods Manufactured. Equivalent units are incomplete units that have been converted to better represent a portion or percentage of physical units that could have been completed with the number of resources consumed. FIFO and Weighted-Average both utilize the number of physical units in their calculation. FIFO multiplies the units against the percentage of resources added this period, while Weighted-Average multiplies it against the percentage of resource added to date.

1. What is an operation costing system? Which systems are integrated and reflected using this method? Would the manufacturer of laptop computers be a suitable candidate for using operation costing? Please fully explain the rationale used.

Ans: NA, LO 7, Bloom: K, Difficulty: Medium, AACSB: Communication, AICPA: AC: Reporting, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: An operation costing system is considered a hybrid method that combines aspects of both Job and Process Costing. It is best utilized by companies that produce similar products through a common process, but where client customization choices such as fabrics, internal components, or finishes would result in a variety of products of similar types rather than one homogeneous offering. A manufacturer of laptops would be a suitable candidate to use operation costing. Laptop computers may appear homogeneous, but they can vary in color, the size of their screens, the type of software, and hardware installed, and other features that may be selected for different customized models.

Brief Exercises

1. Zesty Corp. produces bottles of ranch dressing in their regional factory. Jonah, the head cost accountant, would like to gather some data for the most recent year to calculate their unit costs. Jonah compiled the following cost information: Dressing Materials (DM), $34,500; Plastic Bottles and Labels, $18,428; Assembly Line Wages, $56,708; Packaging Wages, $33,303; and Manufacturing Overhead (MOH), $76,402. Their Beginning Work-in-Progress (WIP) Inventory was $6,500, and their Ending WIP Inventory was $9,803. During the year, Zesty Corp. produced 127,990 bottles of ranch dressing. What is the unit cost for the bottles of ranch based on the information Jonah has gathered?

Ans: NA, LO 1, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: Unit Costs = $1.69

This question requires familiarity with formulas for both unit costs and Cost of Goods Manufactured (COGM), which becomes the numerator of unit costs. Begin with COGM which equals Beginning WIP Inventory plus Direct Materials used plus Direct Labor (DL) used plus MOH minus Ending WIP Inventory. To calculate DM, identify the costs that fit into this category: Dressing Materials and Plastic Bottles and Labels. $34,500 + $18,428 = $52,928 for Direct Materials. To calculate DL, identify the costs that fit into this category: Assembly Line Wages and Packaging Wages. $56,708 + $33,303 = $90,011 for Direct Labor. Now, calculate the COGM:

Lastly, use the COGM that was calculated to compute the unit costs:

Unit Costs = COGM/Number of Units Manufactured

Unit Costs = $216,038/127,990 bottles of ranch dressing

Unit Costs = $1.69

1. Cheshire Inc. manufactures chewy salmon-flavored cat treats. Cheshire is currently selling to vendors in their state, but they have plans to begin producing these treats for stores across the entire US within the next year. Susan, the accountant, is currently gathering costing data about the month of November at the request of management. She has documented the following information:

What are the equivalent units of production for the conversion costs of Cheshire Inc., if Susan employs the First-In, First-Out (FIFO) method? (Round your final answer to the nearest whole unit.)

Ans: NA, LO 1, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: 39,178 units

The end result of this question is to calculate the equivalent units of production with regard to conversion costs under FIFO, but there are intermediate steps to complete before doing the final calculation. Since the problem deals with conversion costs under FIFO, calculate the beginning inventory to apply the appropriate completion of work during this period. Even if the month of November does not have a beginning inventory listed, the ending balance for of October, and that becomes the beginning balance for November, so we can use 3,444 units at 66% complete. Now, calculate units started and completed as follows: 43,750 – 8,572 = 35,178. Finally, solve for the equivalent units: (3,444 × 34%) + (35,178 × 100%) + (8,572 × 33%) = 1,170.96 + 35,178.00 + 2,828.76 = 39,177.72 = 39,178 units.

1. Luminous Tile manufactures ceramic subway tiles, producing tiles that are identical in size and thickness. The tiles are created from different materials, and they have different colors that also have the option of being metallic or matte. Not all tiles require the use of all processes utilized by Luminous. They have estimated the following predetermined costs per tile for their key processes:

Luminous completed a batch of 16,720 tiles that it then divided into boxes of 44 tiles each. If this batch required the use of the Blending, Pressing, Matte, Glazing, and Firing processes, and the tile materials cost $6,792 for the entire batch, how much total cost would be assigned to each box of 44 tiles in this batch? (Round all calculations to two decimal places.)

Ans: NA, LO 7, Bloom: AN, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: $132.88 total cost per box

In order to solve this question, determine the individual cost per box. This will involve calculating the process cost per box:

Direct Materials (DM)

$6,792/16,720 = $0.41

$0.41 × 44 = $18.04 per box

Total Cost per box = $114.84 + $18.04 = $132.88

1. Sheldon is the senior manager at Stellar Corp., a factory that manufactures small containers of silver glitter that it sells to various crafting stores. Sheldon has started to become more involved in understanding how the Process Costing they use impacts their overall operations. He has asked their controller to gather and present their most recent data for the year that just ended. The following information pertains to units produced for that year along with the percentage of completion for conversion costs:

The controller suggested that they use the Weighted-Average method for their Process Costing calculations. Sheldon would like to know what their equivalent units of production would be for the most recent year. (Round your answer to the nearest whole unit.)

Ans: NA, LO 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: Equivalent Units = 24,730 units

This question requires calculation of several items including the ending inventory of containers of glitter that can then be used to calculate the equivalent units of production for the conversion costs. To complete this step, determine how many units to account for by adding the beginning inventory of 2,989 to the units started during the period of 24,594 and then subtract the number of units completed and removed, 22,300, to arrive at an ending inventory of 5,283 units. Since this is Weighted-Average, the beginning inventory does not need to be factored in separately. For conversion costs, add the following: (22,300 × 100%) + (5,283 × 46%) = 22,300 + 2,430.18 = 24,730 units.

1. Picture This Company manufactures 8.5” × 11” black plastic picture frames that it sells through an e-commerce site. They are now in their third month of operations, and the Beginning Work-in-Progress (WIP) Inventory included the following costs: Direct Materials (DM), $1,980; and Conversion Costs (CC), $2,330. During the month of June, they added the following costs: DM, $9,780; and CC, $12,568. Picture This will be using the First-In, First-Out (FIFO) method for their Process Costing. How much total conversion costs will they have to account for, and how much will they include in their cost of equivalent units for conversion costs?

Ans: NA, LO 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: Total Costs = $14,898, and Equivalent Units Cost = $12,568

This question requires understanding how to calculate both the total conversion costs to be accounted for and the costs that will be used in the per equivalent unit calculation under FIFO for conversion costs. Costs in Beginning WIP Inventory is given, and it will be included in the total costs to account for but not the costs that will factor into the equivalent unit calculation. Total costs to account for the conversion costs = $2,330 + $12,568 = $14,898. Costs that will be included in the equivalent unit cost calculation will be equal to only costs added during the period = $12,568.

1. Fresh Mint Co. produces packs of mint-flavored chewing gum that are sold to businesses in boxes that contain 50 packs each. Business has been steady, and Fresh Mint is gearing up to launch a new campaign with the hopes of increasing sales by at least 5% within the next quarter. They would like to use the current quarter to evaluate their Process Costing Costs and are going to look into both the First-In, First-Out (FIFO) and Weighted-Average methods. They began the quarter with the following costs: Direct Materials (DM), $3,400; and Conversion Costs (CC), $5,687, and during the quarter they added the following costs: DM - $18,977; and CC - $27,654. How much cost should they include in their calculation for equivalent unit costs for Direct Materials under both the FIFO and Weighted-Average methods?

Ans: NA, LO 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution:

FIFO: $18,977

Weighted-Average: $22,377

In this question, determine which of the costs listed would be included in the calculation of equivalent unit costs for Direct Materials under both FIFO and Weighted-Average. FIFO will only include the costs added during the current period of $18,977 and will disregard the beginning Work-in-Progress (WIP) costs. Weighted-Average, on the other hand, will include all costs accumulated up to this point and will include both costs added during the current period of $18,977 and beginning costs of $3,400 for a total of $22,377.

1. Sarah is the Head Cost Accountant for Hourglass Inc., a company that manufactures sand that is poured into containers and sold to various vendors. Hourglass uses Process Costing rather than Job Costing to account for its costs and has been performing the costing using the Weighted-Average method. Their Beginning Work-in-Progress (WIP) Inventory included the following: Conversion Costs (CC), $958; and Direct Materials (DM), $428. During the current year, they added the following costs: CC, $12,765; and DM, $10,444. Recently, Sarah has begun to wonder if First-In, First-Out (FIFO) would have produced a significant costing difference for Hourglass. What is the difference in equivalent unit costs between the FIFO and Weighted-Average methods?

Ans: NA, LO 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: Conversion Costs: $958 more under Weighted-Average, Direct Materials: $428 more under Weighted-Average

This question will require the calculation of equivalent unit costs under both methods and then comparison of those results. For FIFO, the cost included in equivalent units will only be what was added during the current period as it will omit the beginning WIP inventory costs. This will be equal to Conversion Costs of $12,765 and Direct Materials of $10,444. For Weighted-Average, take both the beginning WIP inventory costs and what was added during the period into consideration. This will be equal to Conversion Costs of $958 + $12,765 = $13,723 and Direct Materials of $428 + $10,444 = $10,872. First, compare the Conversion Costs between the two by taking Weighted-Average and subtracting FIFO: $13,723 – $12,765 = $958 more under Weighted-Average. Next, compare the Direct Materials between the two by taking Weighted-Average and subtracting FIFO: $10,872 – $10,444 = $428 more under Weighted-Average.

1. Archie’s Orchard Company is an orchard that specializes in producing organic peach baby food that uses peaches grown on-site. Archie’s uses the Weighted-Average method for their Process Costing. They had a beginning Work-in-Progress (WIP) Inventory of 1,400 units (100% complete for Direct Materials (DM) and 53% complete for Conversion Costs (CC)). They started 19,003 units and had ending WIP Inventory of 1,117 units (100% complete for DM and 76% complete for CC). Beginning WIP Inventory included the following costs: DM, $1,004; and CC, $1,135. During the year, they added the following costs: DM, $10,300; and CC, $14,331. What are the equivalent units and the cost per equivalent unit for Conversion Costs? (Round units to whole number and cost to two decimal places.)

Ans: NA, LO 3, 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution:

For Conversion Costs:

Equivalent Units: 20,135 units

Cost per Equivalent unit: $0.77 per unit

This question requires calculation of the equivalent units and equivalent cost for Conversion Costs before calculating per unit cost. This is accomplished as follows:

Equivalent Units:

(19,286 × 100%) + (1,117 × 76%)

19,286 + 849 = 20,135 units

Equivalent Costs:

$1,135 + $14,331 = $15,466

Cost per Equivalent unit:

$15,466/20,135 units = $0.77 per unit

1. Sharon is the head cost accountant at 10-Key, Inc., a factory that manufactures calculators. 10-Key is entering its second year of production and would like to expand operations into an online market. Prior to doing this, management has asked Sharon to gather as much data as possible about their Process Costing so they can make an informed decision. 10-Key has the following costs related to its first year of operation:

Beginning Work-in-Progress (WIP) Inventory costs: Direct Materials (DM), $1,980; and Conversion Costs (CC), $2,330

Costs added this year: DM, $9,780; and CC, $12,568

During their first year, 10-Key had the following production:

Beginning WIP Inventory of 897 units

100% complete for DM and 43% complete for CC

Started 10,005 units

Completed 8,743 units

Ending WIP Inventory of 2,159 units

100% complete for DM and 35% complete for CC

Using the First-In, First-Out (FIFO) method of Process Costing, Sharon will complete the analysis requested by management. What is the equivalent cost per unit for both Direct Materials and Conversion Costs? (Round units to whole number and cost to two decimal places.)

Ans: NA, LO 3, 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: Equivalent cost per unit for: Direct Materials, $0.98 per unit; and Conversion Costs, $1.38 per unit

This question will require multiple steps to be completed in order to calculate the equivalent cost per unit for both Direct Materials and Conversion Costs.

Direct Materials

Equivalent Units:

(897 × 0%) + (7,846 × 100%) + (2,159 × 100%)

0 + 7,846 + 2,159 = 10,005 units

Equivalent Costs:

$9,780

Equivalent Cost per Unit:

$9,780/10,005 units = $0.98 per unit

Conversion Costs

Equivalent Units:

(897 units × 57%) + (7,846 units × 100%) + (2,159 units × 35%)

511 + 7,846 + 756 = 9,113 units

Equivalent Costs:

$12,568

Equivalent Cost per Unit

$12,568/9,113 units = $1.38 per unit

1. Rosey Inc. is a factory that manufactures pink silk flower petals. They have gathered the following production information along with percentages of completion for their most recent month of February:

Rosey had beginning Work-in-Progress (WIP) Inventory costs that included: Silk, $3,808; and Conversion Costs, $4,993. Rosey added the following costs during the year: Silk, $57,009; and Conversion Costs, $67,013. What is the cost per equivalent unit for Conversion Costs using both the First-In, First-Out (FIFO) and Weighted-Average methods? (Round units to whole number and cost to two decimal places.)

Ans: NA, LO 3, 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: FIFO, $2.58 per unit; and Weighted-Average, $2.67 per unit

This question requires calculation of the cost per equivalent unit for Conversion Costs under two different costing methods. Each per unit cost will require intermediate steps before arriving at the final answer.

FIFO

Equivalent Units:

(5,440 × 82%) + (19,800 × 100%) + (2,201 × 79%)

4,461 + 19,800 + 1,739 = 26,000 units

Equivalent Costs:

$67,013

Equivalent Cost per Unit :

$67,013/26,000 units = $2.58 per unit

Weighted-Average

Equivalent Units:

(25,240 × 100%) + (2,201 × 79%)

25,240 + 1,739 = 26,979 units

Equivalent Costs:

$4,993 + $67,013 = $72,006

Equivalent Cost per unit:

$72,006/26,979 units = $2.67 per unit

1. I Heart You Candies molds and cooks heart-shaped candy for Valentine’s Day. I Heart You Candies had the following costs during their most recent year:

Beginning WIP Inventory-Molding: $12,458

Additional Direct Materials (DM): $99,800

Additional Conversion Costs (CC): $143,670

Transferred-out Costs from the Molding Department: $248,900

What journal entry would be made in order to record moving cost of units completed out of WIP inventory-Molding? What is the ending balance in WIP Inventory-Molding?

Ans: NA, LO 5, Bloom: AN, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution: The journal will involve crediting the total cost of items that have been moved from the Molding Department to the Cooking Department. We will credit the Molding Department so we can decrease the asset and debit the Cooking Department to increase the asset.

The ending balance involves the following formula:

Beginning balance

+ DM Costs added

+ CC Costs added

– Transferred-out from WIP

= Ending Balance

1. Softy Sheets creates 500 thread-count sheets, and they started to focus on costing information for the various sizes and types of sheets they create. Their sheets originate in the Cutting department and then are put together in the Sewing department. All Direct Material (DM) in the Sewing department is added up front, and Conversion Costs (CC) are added evenly throughout the process. Beginning Work-in-Progress (WIP) Inventory for the Sewing department in May included 950 units with 100% complete for DM costs and 59% complete for CC. During May, 4,200 units were transferred in from the Cutting department, and Sewing had completed 4,788 units. By the end of May, all of this work left 362 units in Ending WIP Inventory for the Sewing department with 100% complete for DM costs and 38% complete for CC. What are the equivalent units of production for all three categories of cost using the First-In, First-Out (FIFO) method? (Round your answer to the nearest whole unit.)

Ans: NA, LO 6, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution:

Transferred-In: 4,200 units

Direct Materials: 4,200 units

Conversion Costs: 4,366 units

Transferred-In

(950 × 0%) + (3,838 × 100%) + (362 × 100%) =

0 + 3,838 + 362 = 4,200 units

Direct Materials

(950 × 0%) + (3,838 × 100%) + (362 × 100%) =

0 + 3,838 + 362 = 4,200 units

Conversion Costs

(950 × 41%) + (3,838 × 100%) + (362 × 38%) =

390 + 3,838 + 138 = 4,366 units

Exercises

1. ShineBright is a chemical production company that specializes in the creation, bottling, and distribution of liquid bleach. ShineBright has continued to experience growth over the past few years and has decided to ask their controller, Shawn, to evaluate their current costing position. Management would like to determine whether switching to Process Costing in a previous year was the correct choice. The company understands that continuing to use this method requires a lot of deliberate planning to ensure that inventory is appropriately valued in its various stages of completion. Shawn has gathered the following data for the current year:

Shawn has been employed with ShineBright for a few years and believes that Process Costing is the correct choice for the company. The company produced 297,400 bottles of liquid bleach this year and anticipates a 10% increase for next year. Taking into consideration all of this information, please answer the following questions:

1. What is the unit cost of the liquid bleach during the current year?
2. Assuming that ShineBright sees a 10% increase in sales for the following year and a corresponding 12% increase in Direct Materials and a 15% increase in Direct Labor, how will this impact the unit cost? Use the beginning and ending WIP inventory from the current year.
3. Is Process Costing the best option for ShineBright as Shawn predicts? How does this method compare to a method such as Job Order Costing?

Ans: NA, LO 1, Bloom: AN, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution:

1. Unit Costs = $1.32

This question requires familiarity with formulas for both Unit Costs and Cost of Goods Manufacture (COGM), the numerator of unit costs. Begin with COGM, which equals Beginning WIP Inventory plus Direct Materials (DM) used plus Direct Labor (DL) used plus Manufacturing Overhead (MOH) minus Ending WIP Inventory. Some of these components are given but others require additional calculation. To calculate DM, identify the costs that fit into this category: Bleach Compound and Plastic for Bottles. $64,599 + $37,806 = $102,405 in Direct Materials. To calculate DL, identify the costs that fit into this category: Assembly Line Wages and Bottling Wages. $88,732 + $65,220 = $153,952 in Direct Labor. Lastly, calculate MOH which is 90% of the Direct Labor costs. $153,952 × 90% = $138,556.80. Now, calculate the Cost of Goods Manufactured:

Lastly, use the COGM you calculated to compute the unit costs:

Unit Costs = COGM/Number of Units Manufactured

Unit Costs = $393,469.80/297,400 Bottles of Liquid Bleach

Unit Costs = $1.32

1. Unit Costs = $1.37

This question requires familiarity with formulas for both Unit Costs and Cost of Goods Manufacture, the numerator of unit costs. Using the costs calculated in part (a), update DM, DL, and MOH to reflect the increases. To calculate DM, identify the costs that fit into this category: Bleach Compound and Plastic for Bottles. $64,599 + $37,806 = $102,405 × 1.12 = $114,693.60 in Direct Materials. To calculate DL, identify the costs that fit into this category: Assembly Line Wages and Bottling Wages. $88,732 + $65,220 = $153,952 × 1.15 = $177,044.80 in Direct Labor. Lastly, calculate MOH which is 90% of the Direct Labor costs. $177,044.80 × 90% = $159,340.32. Now, calculate the Cost of Goods Manufactured:

Next, calculate the new units that will be produced. 297,400 units × 1.10 = 327,140 projected units. Lastly, use the COGM that was calculated to compute the unit costs:

Unit Costs = COGM/Number of Units Manufactured

Unit Costs = $449,634.72/327,140 Bottles of Liquid Bleach

Unit Costs = $1.37

1. Process Costing is the best choice for ShineBright as Shawn has predicted. When a company produces homogeneous products in a continuous process, this method produces the most accurate results. Since it would not be possible to distinguish the costs of one unit from another, it would make another method such as Job Costing an inappropriate choice. Job Order Costing is most appropriate when a company is producing its products in discrete jobs.
2. Kenneth is the controller for Little Gems, a factory that manufactures small identical red gemstones. Their first month of operation was March of this year, and management feels that they are off to a strong start with a lot of potential for growth. They have asked Kenneth to move forward with the preparation of their Process Costing information for April. Kenneth is still preparing the data for April but should be able to ascertain the information he needs from what is currently in the system for March and most of April. He has gathered and compiled the following data about the gemstones:

Before Kenneth can begin assigning costs to Ending Work-in-Progress (WIP) and Finished Goods (FG) Inventory, he must first focus his attention on determining the appropriate number of units to use moving forward. (Round your answer to the nearest whole unit.)

1. What are the equivalent units of production for Direct Materials (DM) and Conversion Costs (CC) using the First-In, First-Out (FIFO) method?
2. What are the equivalent units of production for DM and CC using the Weighted-Average method?
3. After Kenneth has completed these initial calculations, which method do you believe he will recommend between FIFO and Weighted-Average? What are some of the characteristics of each method?

Ans: NA, LO 3, Bloom: AN, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution:

1. Conversion Costs Equivalent Units of Production- 92,777 units, Direct Materials Equivalent Units of Production- 98,709 units

This question requires familiarity with the calculation of equivalent units while using FIFO, and that means that beginning inventory will be factored in separately. In addition, it will be necessary to solve for both units in the beginning and the ending inventories. To calculate the beginning inventory, along with the percentage of completion, look at what was remaining at the end of the previous month as this will become the beginning balance in April. March ended with 6,788 gems with 89% completion, so use these numbers for the beginning of April. To solve for ending inventory, determine how many units to account for by using the following formula: Beginning inventory plus units started minus units completed. 6,788 + 98,709 – 92,654 = 12,843 ending inventory. For the Equivalent Units of Conversion Costs, add the following: (6,788 × 11%) + (85,866 × 100%) + (12,843 × 48%) = 746.68 + 85,866.00 + 6,164.64 = 92,777 units. For the Equivalent Units of Direct Materials, add the following: (6,788 × 0%) + (85,866 × 100%) + (12,843 × 100%) = 0 + 85,866 + 12,843 = 98,709 units.

1. Conversion Costs Equivalent Units of Production: 98,819 units, and Direct Materials Equivalent Units of Production: 105,497 units

This question requires familiarity with the calculation of equivalent units while using Weighted-Average, and that means that beginning inventory will not be factored in separately. To solve for ending inventory, determine how many units to account for by using the following formula: Beginning inventory plus units started minus units completed. 6,788 + 98,709 – 92,654 = 12,843 ending inventory. For the Equivalent Units of Conversion Costs, add the following: (92,654 × 100%) + (12,843 × 48%) = 92,654 + 6,164.64 = 98,819 units. For the Equivalent Units of Direct Materials, add the following: (92,654 × 100%) + (12,843 × 100%) = 92,654 + 12,843 = 105,497 units.

1. After Kenneth has completed these initial calculations, Kenneth would most likely recommend Weighted-Average when comparing it to FIFO. Weighted-Average is the best fit when it is difficult to separately identify units. Since Little Gems produces large quantities of red gemstones with no way to differentiate one stone from another, Weighted-Average would be the appropriate selection. FIFO is best utilized when the product created can be separately identified, such as the assembly of a vehicle or a bicycle.
2. Crushed Inc. is a factory that manufactures and distributes gravel to local construction companies. Their sales have increased year-over-year, and management would like to ensure that all of their accounting information is set up for success. They utilize Process Costing and have been trying to determine whether they should use the First-In, First-Out (FIFO) method or the Weighted-Average method. Crushed has gathered the following information:

Direct Materials:

Beginning Work-in-Progress (WIP) Inventory: $1,765

Costs Added During the Year: $17,890

Conversion Costs:

Beginning WIP Inventory: $3,010

Costs Added During the Year: $22,777

Management believes that finalizing these decisions is the last piece to having their Process Costing streamlined and updated. Taking all of this information into consideration, please answer the following questions.

1. What are the total Conversion Costs to be accounted for under both the FIFO and Weighted-Average method?
2. What are the Conversion Costs that would be included in the calculation for Cost per Equivalent Units under both FIFO and Weighted-Average method?
3. Between FIFO and Weighted-Average, which method is the accountant likely to use? If Crushed decides that they prefer the use of the other method the following year, is this a switch that would be easy to make?

Ans: NA, LO 4, Bloom: AN, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution:

1. Under FIFO and Weighted-Average: $25,787

This question requires calculation of the total costs that must be accounted for as Conversion Costs under both FIFO and Weighted-Average.

Under FIFO: $3,010 + $22,777 = $25,787

Under Weighted-Average: $3,010 + $22,777 = $25,787

1. Under FIFO, $22,777; and Weighted-Average: $25,787

This question requires calculation of the costs that will be included in the estimation of cost per equivalent units for Conversion Costs under FIFO and Weighted-Average.

Under FIFO: $22,777, only accounts for costs added during the period

Under Weighted-Average: $3,010 + $22,777 = $25,787, accounts for all costs added

Once the costs that will be included in the calculation for equivalent units have been determined, the methods will diverge since FIFO does not include the beginning inventory costs.

1. Since Crushed produces a homogeneous product where it may not be possible to differentiate between individual units, they are likely to utilize Weighted-Average. If Crushed also produced something like equipment that was not identical in nature, then they may be more likely to elect FIFO. It is not advisable to switch between methods once a method has been selected, so a company should spend time evaluating their choices before making their final selection.
2. Wooly Corp. produces wool scarves, and they are approaching their busy season that runs from October to March of the following year. Wooly has spent a lot of time re-targeting their advertising efforts and believes that they will begin to see an increase in sales during the next year of 10-15%. In an effort to improve their operations, they are refining their Process Costing methods and attempting to do a better job of determining equivalent units and their related costs. Geraldine, their Senior Cost accountant has been gathering data so that she can prepare some estimates to present to management at their upcoming meeting. Geraldine has compiled the following information for the most recent calendar year:

Geraldine would like to explore the potential use of both First-In, First-Out (FIFO) and Weighted-Average before making a recommendation to management.

1. What are the total costs to account for both Direct Materials and Conversion Costs under Weighted-Average? What are the costs to be included in the cost per equivalent unit calculation for both Direct Materials and Conversion Costs under Weighted-Average?
2. What are the total costs to account for both Direct Materials and Conversion Costs under FIFO? What are the costs to be included in the cost per equivalent unit calculation for both Direct Materials and Conversion Costs under FIFO?
3. Does the industry in which a company operates impact which method they are likely to select? Why or why not? Which method should Geraldine recommend to the management of Wooly? Please provide as much detail as possible in your response.

Ans: NA, LO 4, Bloom: AN, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution:

1. Total costs to account for as well as costs to include in cost per equivalent unit calculation: Direct Materials, $11,467; and Conversion Costs, $17,431.

This question requires understanding the difference between the total costs to account for under Weighted-Average (includes all costs) and costs to be included within the calculation for cost per equivalent unit.

Total costs to account can be calculated as follows:

Direct Materials = $989 + $10,478 = $11,467

Conversion Costs = $1,754 + $15,677 = $17,431

1. Total costs to account for: Direct Materials, $11,467; and Conversion Costs, $17,431. Costs to include in cost per equivalent unit calculation: Direct Materials, $10,478; and Conversion Costs, $15,677.

This question requires understanding the difference between the total costs to account for under FIFO and costs to be included within the calculation for cost per equivalent unit (no beginning inventory costs). Total costs to account for can be calculated as follows:

Direct Materials = $989 + $10,478 = $11,467

Conversion Costs = $1,754 + $15,677 = $17,431

Costs to include in cost per equivalent unit calculation:

Direct Materials = $10,478

Conversion Costs = $15,677

1. The industry in which a company operates may impact the method they ultimately select, but it is more likely that the product created is what would drive the method used. Since Wooly produces homogeneous items that are likely difficult to identify as separate units, Geraldine is likely to suggest the use of Weighted-Average.

In addition to including all costs to date, Weighted-Average is also likely to be easier to use in this case and take less time and cost less overall. If Geraldine were also calculating the equivalent cost per unit, she would likely see that unit costs of FIFO and Weighted-Average are similar.

1. Inky Pens Inc. is a factory that produces blue glitter ink and sells it to vendors in small glass vials. Inky has collected the following data for April, the most recent month of production:

They also compiled the following cost data for April:

The management of Inky is asking their accountant, Susan to provide information pertaining to both the First-In, First-Out (FIFO) method and the Weighted-Average method. Susan has worked for Inky for a few months, and she is looking forward to becoming involved in this process. With all of this information in mind, please answer the following questions. (Round units to whole number and cost to two decimal places.)

1. What is the equivalent cost per unit for Glass, Ink, and Conversion Costs under FIFO?
2. What is the equivalent cost per unit for Glass, Ink, and Conversion Costs under Weighted-Average?
3. Inky has debated adding a new line of pink glitter ink, and wants Susan to provide guidance as to which method would be best. Would this answer vary if Inky was producing another office supply product other than glitter ink such as paperclips?

Ans: NA, LO 3, 4, Bloom: AN, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution:

1. Glass, $1.41 per unit; Ink, $0.49 per unit; and Conversion Costs, $1.70 per unit

This question will require several steps before arriving at the final answer of the equivalent cost per unit for each cost using FIFO. First, calculate the equivalent units, then calculate the equivalent costs to account for, and then calculate the equivalent cost per unit.

Glass

Equivalent Units:

(2,948 × 0%) + (30,580 × 100%) + (4,200 × 100%) = 0 + 30,580 + 4,200 = 34,780 units

Equivalent Costs:

$48,903 (only account for costs added during the period)

Equivalent Cost per Unit:

$48,903/34,780 units = $1.41 per unit

Ink

Equivalent Units:

(2,948 × 0%) + (30,580 × 100%) + (4,200 × 96%) = 0 + 30,580 + 4,032 = 34,612 units

Equivalent Costs:

$16,904 (only account for costs added during the period)

Equivalent Cost per Unit:

$16,904/34,612 units = $0.49 per unit

Conversion Costs

Equivalent Units:

(2,948 × 37%) + (30,580 × 100%) + (4,200 × 24%) = 1,091 + 30,580 + 1,008 = 32,679 units

Equivalent Costs:

$55,674 (only account for costs added during the period)

Equivalent Cost per Unit:

$55,674/32,679 units = $1.70 per unit

1. Glass, $1.40 per unit; Ink, $0.48 per unit; and Conversion Costs, $1.67 per unit

This question will require several steps before arriving at the final answer of the equivalent cost per unit for each cost using Weighted-Average. First, calculate the equivalent units, then calculate the equivalent costs to account for, and then calculate the equivalent cost per unit.

Glass

Equivalent Units:

(33,528 × 100%) + (4,200 × 100%) = 33,528 + 4,200 = 37,728 units

Equivalent Costs:

$3,900 + $48,903 = $52,803

Equivalent Cost per Unit:

$52,803/37,728 units = $1.40 per unit

Ink

Equivalent Units:

(33,528 × 100%) + (4,200 × 96%) = 33,528 + 4,032 = 37,560 units

Equivalent Costs:

$1,003 + $16,904 = $17,907

Equivalent Cost per Unit:

$17,907/37,560 units = $0.48 per unit

Conversion Costs

Equivalent Units:

(33,528 × 100%) + (4,200 × 24%) = 33,528 + 1,008 = 34,536 units

Equivalent Costs:

$2,001 + $55,674 = $57,675

Equivalent Cost per Unit:

$57,675/34,536 units = $1.67 per unit

1. Although the results of each item’s equivalent cost per unit are similar when you compare the same item under FIFO and Weighted-Average, Susan is likely to suggest the Weighted-Average method. When companies produce items that are homogeneous and difficult to differentiate, the Weighted-Average method is a good choice. Susan could also explain that the addition of the new ink would not change the decision as it is an item nearly identical to the current ink they are producing. Susan’s answer would likely be the same even if Inky produced a product such as paperclips as they are also homogeneous items that are difficult to differentiate between one paperclip and another.
2. Hot Cakes Co. manufactures dry pancake mix, and their accountant Tom has collected the following cost information for the current year:

Beginning Work-in-Progress (WIP) Inventory:

Pancake Mix, $425

Conversion Costs, $877

Costs added during this year:

Pancake Mix, $18,994

Conversion Costs, $21,805

In addition to the aforementioned data, Tom has gathered the following production information for the year:

Tom has collected the following cost information for last year:

Beginning WIP Inventory:

Pancake Mix, $399

Conversion Costs, $654

Costs added during last year:

Pancake Mix, $14,673

Conversion Costs, $17,662

Tom has also gathered the following production information for last year:

Hot Cakes uses the Weighted-Average method for its Process Costing. Please use the information above to answer the following questions:

(Round units to whole number and cost to two decimal places.)

1. What is the equivalent cost per unit for Direct Materials and Conversion Costs, respectively for the current year?
2. What is the equivalent cost per unit for Direct Materials and Conversion Costs, respectively for last year?
3. What is the increase or decrease for Direct Materials between last year and the current year? What is the increase or decrease in Conversion Costs between last year and the current year? If Hot Cakes would like to switch to the First-In, First-Out (FIFO) method, then would this be an acceptable transition?

Ans: NA, LO 3, 4, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution:

• 1. Pancake Mix, $0.40 per unit; and Conversion Costs, $0.47 per unit

Using the Weighted-Average method, calculate the equivalent cost per unit for the current year through multiple steps:

Pancake Mix

Equivalent Units

(44,808 × 100%) + (3,888 × 100%) = 48,696 units

Equivalent Costs

$425 + $18,994 = $19,419

Equivalent Cost per unit

$19,419/48,696 units = $0.40 per unit

Conversion Costs

Equivalent Units

(44,808 × 100%) + (3,888 × 81%)

44,808 + 3,149 = 47,957 units

Equivalent Costs

$877 + $21,805 = $22,682

Equivalent Cost per unit

$22,682/47,957 units = $0.47 per unit

• 1. Pancake Mix, $0.37 per unit; and Conversion Costs, $0.50 per unit

Using the Weighted-Average method, calculate the equivalent cost per unit for last year through multiple steps:

Pancake Mix

Equivalent Units

(35,015 × 100%) + (5,806 × 100%) = 40,821 units

Equivalent Costs

$399 + $14,673 = $15,072

Equivalent Cost per unit

$15,072/40,821 units = $0.37 per unit

Conversion Costs

Equivalent Units

(35,015 × 100%) + (5,806 × 34%)

35,015 + 1,974 = 36,989 units

Equivalent Costs

$654 + $17,662 = $18,316

Equivalent Cost per unit

$18,316/36,989 units = $0.50 per unit

• 1. Direct Materials:

Pancake Mix, 8.11% increase

Conversion Costs, 6.00% decrease

Once a company chooses either FIFO or Weighted-Average, transitioning to the other is not easy, nor is it advisable. Hot Cakes should take their time and ensure that they are comfortable with the selection they ultimately make.

To solve for the year-over-year increase, use horizontal analysis and the following formula:

(Current Year – Last Year)/Last Year

Direct Materials:

($0.40 – $0.37)/$0.37 = 0.0811 or 8.11% increase

Conversion Costs:

($0.47 – $0.50)/$0.50 = 0.0600 or 6% decrease

1. Simply Charmed produces silver lockets that it then sells through an online platform. Simply Charmed is determined to add more jewelry options in the future and would like to have a better understanding of the current performance of their original product, the locket. They are currently about to enter their fourth year of operations, and management would like to see at least a 10% increase in sales. During the most recent year, their production department reported the following information related to the production of lockets for the year:

Simply Charmed uses the Weighted-Average method for its Process Costing. Their accountant will be performing some analysis with the recent year’s number for an upcoming strategy session. (Round units to whole number and cost to two decimal places.)

1. What is the cost per equivalent unit for both Direct Materials (DM) and Conversion Costs (CC) for the year?
2. How much cost will be assigned to the units completed and the units in ending WIP Inventory?
3. What is the total cost of units completed and how many units were completed during the year? What is the actual cost per unit for completed units and is it the same as the cost per equivalent unit?

Ans: NA, LO 2, 3, 4, 5, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution:

Note: In this exercise, silver lockets are the direct materials.

1. This will be a multi-step process. Before solving for each equivalent cost per unit, solve for the equivalent costs and equivalent units.

DM

Equivalent Units:

(11,576 × 100%) + (493 × 100%) = 12,069 units

Equivalent Costs:

$2,622 + $37,895 = $40,517

Equivalent Cost per Unit:

$40,517/12,069 units = $3.36 per unit

CC

Equivalent Units:

(11,576 × 100%) + (493 × 40%)

11,576 + 197 = 11,773 units

Equivalent Costs:

$3,476 + $44,672 = $48,148

Equivalent Cost per Unit:

$48,148/11,773 units = $4.09 per unit

1. Costs assigned to: Completed and removed- $86,241.20, Ending WIP Inventory- $2,462.21

Following the template outlined in the text gives the following results:

1. Total cost of units completed, $86,241.20; Units completed, 11,576; so actual cost per unit completed $7.45; and equivalent cost per unit $7.45 (yes, these are the same)

The total cost of units completed was calculated in part (b) and is $86,241.20.

The total number of units completed for the year will be calculated as follows:

Beginning WIP Inventory + Units Started and Completed

600 + 10,976 = 11,576 units completed

The actual cost per completed unit will equal:

$86,241.20/11,576 units = $7.45

The Equivalent Cost per unit = $3.36 + $4.09 = $7.45

1. Pearl’s is a high-end skincare line that has been created by dermatologists for people who have very dry skin. Pearl’s is very selective about who carries their line and therefore is considered a boutique label. Their best-selling product is a lightweight moisturizer that also contains a high level of SPF that their customers have come to appreciate. Pearl’s produces their products in limited quantities to best ensure that each container receives the time and attention that it deserves to ensure high quality. As of December 31 of last year, a batch in process contained 237 units that were 67% complete for Conversion Costs (CC) and 100% complete for direct materials (DM) because all DM is added at the front-end of processing. During the current year, Pearl’s started 17,456 units and completed 16,879 units by the close of the year. Units remaining in ending inventory are 72% complete for CC and 100% complete for DM in the current year. Pearl’s had the following costs for the year that are associated with all of the units described above:

Currently, each unit is in a small, recyclable plastic container. Pearl’s uses the First-In, First-Out (FIFO) method of Process Costing. Using the information above, please answer the following questions.

(Round units to whole number and cost to two decimal places.)

1. What is the equivalent cost per unit for Direct Materials? What is the equivalent cost per unit for Conversion Costs?
2. Using the Process Costing steps, assign Direct Materials and Conversion Costs to the physical units for the year.
3. What is the total amount of cost transferred out of the production process and what would the journal entry look like?

Ans: NA, LO 2, 3, 4, 5, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution:

• 1. Direct Materials are $1.66 per unit, and Conversion Costs are $2.11 per unit

Before solving for each equivalent cost per unit, solve for the equivalent costs and equivalent units. Additionally, ending units are not given, so they must be calculated:

Beginning + Started – Completed = Ending

237 + 17,456 – 16,879 = 814

DM

Equivalent Units:

(237 × 0%) + (16,642 × 100%) + (814 × 100%) = 0 + 16,642 + 814 = 17,456 units

Equivalent Costs:

$28,954 (only account for costs added during the period)

Equivalent Cost per Unit:

$28,954/17,456 units = $1.66 per unit

CC

Equivalent Units:

(237 × 33%) + (16,642 × 100%) + (814 × 72%)

78 + 16,642 + 586 = 17,306 units

Equivalent Costs:

$36,555 (only account for costs added during the period)

Equivalent Cost per Unit:

$36,555/17,306 units = $2.11 per unit

• 1. Total cost assigned to:

DM, $29,428.96

CC, $37,408.66

(Total cost calculated in steps 3 and 5 of process costing may vary due to rounding.)

When looking at the initial problem, the overall costs that must be accounted for are $1,345 + $65,509 = $66,854. Once the template (as outlined in the text) is completed, the numbers should look like the following:

• 1. The total cost removed and transferred will equal what was completed and removed, or $64,249.92. The journal entry would look like the following:

1. Tiny Packs produces leather backpack purses that it markets to working professionals looking for an alternative to a briefcase or standard purse. Tiny Packs’ products originate in the Cutting department, and they are then put together in the Assembly department. At the conclusion of the assembly process, each backpack is subject to a short inspection before being packaged for sale. The following unit information was compiled to reflect activity in the Assembly department for the most recent month of August:

The costs associated with the aforementioned units for the month of August is as follows:

Tiny Packs has not yet made a final decision regarding the use of First-In, First-Out (FIFO) or Weighted-Average. They sell each backpack for $98.50 per backpack. (Round units to whole number and cost to two decimal places.)

• 1. What is the equivalent cost per unit for each category of cost using the FIFO method?
  2. What is the equivalent cost per unit for each category of cost using the Weighted-Average method?
  3. What is the gross margin percentage under both FIFO and Weighted-Average? Which method should Tiny consider implementing?

Ans: NA, LO 6, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution:

Before solving for any of the equivalent unit costs, it is best to determine the number of units started and completed during the period. This can be accomplished by first determining the number of units to account for:

Units in beginning WIP Inventory- 1,980 (given)

+ Units Transferred-In- 5,496 (given)

= Total Units to Account for- 7,476

Units in beginning WIP Inventory completed this period (1,980) 

+ Units started and completed this period (?) 

+ Units in ending WIP Inventory (959) 

= Total units accounted for (7,476) (calculated in previous step) 

*Rearrange and solve for Units started and completed: 

7,476 – 1,980 – 959 = 4,537 (to be used in equivalent unit calculations) 

1. FIFO:

Transferred-In, $1.63 per unit

Direct Materials, $0.18 per unit

Conversion Costs, $0.56 per unit

First, calculate the equivalent units:

Transferred-In

(1,980 × 0%) + (4,537 × 100%) + (959 × 100%) =

0 + 4,537 + 959 = 5,496 units

Direct Materials

(1,980 × 0%) + (4,537 × 100%) + (959 × 100%) =

0 + 4,537 + 959 = 5,496 units

Conversion Costs

(1,980 × 28%) + (4,537 × 100%) + (959 × 47%) =

554 + 4,537 + 451 = 5,542 units

Next, calculate the equivalent costs (FIFO includes only accounts for costs added during the period):

Transferred-In

$8,944

Direct Materials

$981

Conversion Costs

$3,110

Lastly, calculate the equivalent cost per unit using the numbers calculated in the previous two steps:

Transferred-In

$8,944/5,496 units = $1.63 per unit

Direct Materials

$981/5,496 units = $0.18 per unit

Conversion Costs

$3,110/5,542 units = $0.56 per unit

1. Weighted-Average:

Transferred-In, $1.51 per unit

Direct Materials, $0.22 per unit

Conversion Costs, $0.56 per unit

First, calculate the equivalent units:

Transferred-In

(6,517 × 100%) + (959 × 100%) =

6,517 + 959 = 7,476 units

Direct Materials

(6,517 × 100%) + (959 × 100%) =

6,517 + 959 = 7,476 units

Conversion Costs

(6,517 × 100%) + (959 × 47%) =

6,517 + 451 = 6,968 units

Next, calculate the equivalent costs:

Transferred-In

$2,342 + $8,944 = $11,286

Direct Materials

$688 + $981 = $1,669

Conversion Costs

$802 + $3,110 = $3,912

Lastly, calculate the equivalent cost per unit using the numbers calculated in the previous two steps:

Transferred-In

$11,286/7,476 units = $1.51 per unit

Direct Materials

$1,669/7,476 units = $0.22 per unit

Conversion Costs

$3,912/6,968 units = $0.56 per unit

(Total cost calculated in steps 3 and 5 of process costing may vary due to rounding.)

1. FIFO, 97.68%; and Weighted-Average, 97.68%

Tiny Packs could consider the use of either method as they yield very similar results overall. Since the products created by Tiny Packs are homogeneous and go through various identifiable steps, they may consider Weighted-Average. Other considerations could include the additional cost associated with using FIFO as Weighted-Average tends to be less expensive although less accurate. All of these decisions should be weighed carefully before committing.

To calculate the Gross Margin Percentage, calculate Gross Margin and divide it by Sales Price. This can be done on a per-unit basis.

FIFO

= Total costs of units completed and removed from WIP Inventory/(Units in beginning WIP Inventory completed + Units started and completed)

= $14,894.93/6,517 units

= $2.29

Sales $98.50 per backpack

– Cost $2.29 per backpack

= Gross Margin = $96.21

Gross Margin Percentage = $96.21/$98.50 = 97.68%

Weighted-Average

= Total costs of units completed and removed from WIP Inventory/Units completed this period

= 14,923.93/6,517 units

= $2.29

Sales $98.50 per backpack

– Cost $2.29 per backpack

= Gross Margin = $96.21

Gross Margin Percentage = $96.21/$98.50 = 97.68%

1. Retro Minis is a company that specializes in designing and manufacturing retro-inspired miniature refrigerators. Retro has seen an increase in sales over the past year and finds that many people are buying their products for home offices. Their initial offering was a shiny red fridge, and they have been contemplating adding a matte teal version within the next year. The two fridges would require different processes, and they have determined the following rates to apply to their key processes:

Retro has made the following predictions for the upcoming year:

Retro will be completing a batch of each fridge that matches the budgeted amounts above. Both refrigerators will require production, assembly, and inspection, with the red fridge using shiny paint and the teal fridge using matte paint. Please use this information to answer the following questions.

• 1. What are the total cost and cost per unit for the production of the red fridge batch?
  2. What are the total cost and cost per unit for the production of the teal fridge batch?
  3. What is the gross margin percentage for each fridge? Should Retro proceed with the production of the teal fridge or consider increasing its already popular red fridge?

Ans: NA, LO 6, 7, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution:

1. Total production cost of red fridge batch, $1,662,874.72; and cost per unit, $27.88

Per Unit Cost = Process Costs + Direct Materials Costs

= $4.04 + $5.83 + $3.52 + $4.49 + $10.00

= $27.88

Total Production Costs of batch = 59,644 × $27.88 per unit = $1,662,874.72

1. Total production cost of teal fridge batch, $1,322,970.57; and cost per unit = $27.73

Per Unit Cost = Process Costs + Direct Materials Costs

= $4.04 + $5.83 + $3.37 + $4.49 + $10.00

= $27.73

Total Production Costs of batch = 47,709 × $27.73 per unit = $1,322,970.57

1. Red Fridge, 82.35%; Teal Fridge, 84.15%

Retro should proceed with the production of the new teal fridge as it has a higher gross margin percentage than the red fridge. As sales increase for the teal fridge, it is also likely to produce a higher gross margin over time as well.

Gross Margin Percentage is calculated by dividing Gross Profit by Sales Price.

Problems

1. Ethan is the owner of Refresher Corp., a factory that produces white paint that is sold to hardware stores in 1-gallon containers. Their paint has been called revolutionary in that it produces almost no fumes and is very environmental friendly. Ethan would like to continue expanding his operation but knows that Refresher will have to make some decisions about his accounting and the Process Costing procedures they use. His accountant, Arthur, would like to generate some figures for Ethan to review before a decision is made. Arthur has compiled the following information:

Beginning Work-in-Progress (WIP) Inventory, 9,850 gallons; Direct Materials (DM), 100% Complete; and Conversion Costs, 30% complete

Started: 85,600 gallons

Completed: 73,422 gallons

Ending WIP Inventory: Direct Materials, 100% Complete; and Conversion Costs, 82% complete

Refresher adds Conversion Costs evenly throughout the process. Arthur has also pulled together the following cost information from the most recent year:

Beginning WIP Inventory: Direct Materials, $3,456; and Conversion Costs, $5,997

Costs added during the period: Direct Materials, $42,677; and Conversion Costs, $56,980

Ethan knows that Arthur also provided solid guidance in the past and would like to see how each method of Process Costing turns out with respect to their operations. Taking all of this information into consideration, please answer the following questions.

(Round units to whole number and cost to two decimal places.)

1. What are the equivalent units for both Direct Materials and Conversion Costs under the First-In, First-Out (FIFO) method?
2. What is the cost per equivalent unit for both Direct Materials and Conversion Costs under the FIFO method?
3. What are the equivalent units for both Direct Materials and Conversion Costs under the Weighted-Average method?
4. What is the cost per equivalent unit for both Direct Materials and Conversion Costs under the Weighted-Average method?
5. Why do the two methods, FIFO and Weighted-Average, produce different results? Which method would be the appropriate selection for the company? Please make sure to include as many specifics as possible in your response.

Ans: NA, LO 2, 3, 4, Bloom: E, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution:

1. Conversion Costs, Equivalent Units of Production: 88,530 units, and Direct Materials, Equivalent Units of Production: 85,600 units

First, determine how many units to account for, so that includes adding the beginning WIP Inventory of 9,850 to the units started during the period of 85,600 for a total of 95,450. Next, subtract the number of units completed and removed, 73,422, to arrive at an ending WIP Inventory of 22,028 units. The equivalent units for Conversion Costs under the FIFO method will be equal to beginning WIP units multiplied by the percent completed (9,850 × 70%) plus units started and completed multiplied by the percent completed ((85,600 – 22,028) × 100%) plus the units in ending WIP Inventory multiplied by the percent completed (22,028 × 82%). 6,895 + 63,572 + 18,063 = 88,530 units. For the Equivalent Units of Direct Materials, add the following values: (9,850 × 0%) + (63,572 × 100%) + (22,028 × 100%) = 0 + 63,572 + 22,028 = 85,600 units.

1. Conversion Cost, cost per equivalent unit: $0.64, and Direct Materials, cost per equivalent unit: $0.50

Conversion Costs:

The total costs to account for the Conversion Costs under FIFO are

$5,997 + $56,980 = $62,977

Now, determine what costs will be included in the calculation for equivalent units:

Under FIFO: $56,980, only accounts for costs added during the period

Now, calculate the cost per equivalent unit (uses the units from part (a))

$56,980/88,530 units = $0.64 per unit

Direct Materials:

The total costs to account for DM under FIFO are

$3,456 + $42,677 = $46,133

Now, determine what costs will be included in the calculation for equivalent units:

Under FIFO: $42,677, only accounts for costs added during the period

Now, calculate the cost per equivalent unit (uses the units from part (a))

$42,677/85,600 units = $0.50 per unit

1. Conversion Costs, Equivalent Units of Production: 91,485 units, and Direct Materials, Equivalent Units of Production: 95,450 units

This question requires familiarity with the calculation of equivalent units while using Weighted-Average method, and that means that beginning WIP Inventory will not be factored in separately. To solve for ending WIP inventory, determine how many units to account for using the following formula: Beginning WIP Inventory plus units started minus units completed. 9,850 + 85,600 – 73,422 = 22,028 ending WIP Inventory. For the Equivalent Units of Conversion Costs, add the following: (73,422 × 100%) + (22,028 × 82%) = 73,422 + 18,063 = 91,485 units. For the Equivalent Units of Direct Materials, add the following: (73,422 × 100%) + (22,028 × 100%) = 73,422 + 22,028 = 95,450 units.

1. Conversion Costs, Cost per equivalent unit: $0.69; and Direct Materials, Cost per equivalent unit: $0.48

Conversion Costs:

This question requires the calculation of total costs to account for Conversion Costs under Weighted-Average.

Under Weighted-Average: $5,997 + $56,980 = $62,977 (also used in the calculation for equivalent units)

Now, calculate the cost per equivalent unit (uses the previous number and the units from part c):

$62,977/91,485 units = $0.69 per unit

Direct Materials:

This question requires calculation of the total costs that must be accounted for DM under Weighted-Average.

Under Weighted-Average: $3,456 + $42,677 = $46,133 (also used in the calculation for equivalent units)

Now, calculate the cost per equivalent unit (uses the units from part c):

$46,133/95,450 units = $0.48 per unit

1. FIFO and Weighted-Average produce different results because of what each includes in its calculation of equivalent units and cost per equivalent unit. FIFO focuses on what has been added during a period, and the Weighted-Average focuses on costs accumulated until that time. Refresher is likely to employ the use of Weighted-Average since the product that is being created is a homogeneous product where it would be impractical or impossible to distinguish individual units of the product from one another. Refresher may also appreciate the fact that Weighted-Average is likely to be less costly and take less time while also being a bit simpler. They will have to acknowledge that it may be a bit less accurate than FIFO but still an appropriate selection. The cost per equivalent unit will remain similar between the conversion cost comparisons (FIFO vs. Weighted-Average) and the direct materials (FIFO vs. Weighted-Average) because direct materials and direct labor remain consistent on a per unit basis even if they vary on the overall cost.
2. Chocolate Innovations is a factory that currently produces gourmet chocolate truffles that they sell in boxes of 50 truffles. They also produce chocolate turtles that are sold in boxes of 25 candies. Their accountant, Melissa, is gathering information about their performance over the two most recent years so that they can make an official decision as to whether they will use the First-In, First-Out (FIFO) or Weighted-Average method for their Process Costing. Melissa has been keeping general records for two years before making a strong suggestion one way or another. She has collected the following cost information regarding the truffles:

Melissa also compiled production information for both years for the truffles:

She has collected the following cost information regarding the turtles:

Melissa also compiled production information for both years for the turtles:

Chocolate Innovations plans on selling each box of truffles for $75.00 and each box of turtles for $48.00.

(Round units to whole number and dollar amount to two decimal places.)

• 1. What is the equivalent cost per unit for both Direct Materials and Conversion Cost for truffles for Year 1 under both FIFO and Weighted-Average?
  2. What is the equivalent cost per unit for both Direct Materials and Conversion Cost for truffles for Year 2 under both FIFO and Weighted-Average?
  3. What is the equivalent cost per unit for both Direct Materials and Conversion Cost for turtles for Year 1 under both FIFO and Weighted-Average?
  4. What is the equivalent cost per unit for both Direct Materials and Conversion Cost for turtles for Year 2 under both FIFO and Weighted-Average?
  5. Using horizontal analysis, what is the increase year-to-year for all costs under both FIFO and Weighted-Average? What is the gross profit percentage for each box of truffles and each box of turtles for year 2?

Ans: NA, LO 2, 3, 4, 6, Bloom: E, Difficulty: Hard, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution:

• 1. Truffles Year 1 - FIFO: Direct Materials, $0.44 per unit; Conversion Costs, $0.66; and Weighted-Average: Direct Materials, $0.44 per unit; Conversion Costs, $0.67 per unit

FIFO

Direct Materials:

Equivalent Units

(2,056 × 0%) + (39,342 × 100%) + (3,444 × 100%) = 42,786 units

Equivalent Costs

$18,934 (only account for costs added during the period)

Equivalent Cost per Unit

$18,934/42,786 unit = $0.44 per unit

Conversion Costs:

Equivalent Units

(2,056 × 38%) + (39,342 × 100%) + (3,444 × 58%)

781 + 39,342 + 1,998 = 42,121 units

Equivalent Costs

$27,653 (only account for costs added during the period)

Equivalent Cost per Unit

$27,653/42,121 units = $0.66 per unit

Weighted-Average

Direct Materials:

Equivalent Units

((2,056 + 39,342) × 100%) + (3,444 × 100%) = 44,842 units

Equivalent Costs

$929 + $18,934 = $19,863

Equivalent Cost per Unit

$19,863/44,842 units = $0.44 per unit

Conversion Costs:

Equivalent Units

((2,056 + 39,342) × 100%) + (3,444 × 58%)

41,398 + 1,998 = 43,396 units

Equivalent Costs

$1,347 + $27,653 = $29,000

Equivalent Cost per Unit

$29,000/43,396 units = $0.67 per unit

• 1. Truffles Year 2 - FIFO: Direct Materials, $0.44 per unit; Conversion Costs, $0.65 per unit; and Weighted-Average: Direct Materials, $0.43 per unit; Conversion Costs, $0.66 per unit

FIFO

Direct Materials:

Equivalent Units

(3,444 × 0%) + (42,781 × 100%) + (2,630 × 100%) = 45,411 units

Equivalent Costs

$19,980 (only account for costs added during the period)

Equivalent Cost per Unit

$19,980/45,411 units = $0.44 per unit

Conversion Costs:

Equivalent Units

(3,444 × 42%) + (42,781 × 100%) + (2,630 × 44%)

1,446 + 42,781 + 1,157 = 45,384 units

Equivalent Costs

$29,901 (only account for costs added during the period)

Equivalent Cost per Unit

$29,901/45,384 units = $0.66 per unit

Weighted-Average

Direct Materials

Equivalent Units

((3,444 + 42,781) × 100%) + (2,630 × 100%) = 48,855 units

Equivalent Costs

$1,003 + $19,980 = $20,983

Equivalent Cost per Unit

$20,983/48,855 units = $0.43 per unit

Conversion Costs

Equivalent Units

((3,444 + 42,781) × 100%) + (2,630 × 44%)

46,225 + 1,157 = 47,382 units

Equivalent Costs

$1,578 + $29,901 = $31,479

Equivalent Cost per Unit

$31,479/47,382 units = $0.66 per unit

• 1. Turtles Year 1 - FIFO: Direct Materials, $0.39 per unit; Conversion Costs, $0.52 per unit; and Weighted-Average: Direct Materials, $0.40 per unit; Conversion Costs, $0.56 per unit

FIFO

Direct Materials

Equivalent units

(1,345 × 0%) + (29,888 × 100%) + (2,896 × 100%) = 32,784 units

Equivalent Costs

$12,899 (only account for costs added during the period)

Equivalent cost per unit

$12,899/32,784 units = $0.39 per unit

Conversion Costs

Equivalent Units

(1,345 × 67%) + (29,888 × 100%) + (2,896 × 68%)

901 + 29,888 + 1,969 = 32,758 units

Equivalent Costs

$17,004 (only account for costs added during the period)

Equivalent Cost per Unit

$17,004/32,758 units = $0.52 per unit

Weighted-Average

Direct Materials

Equivalent Units

((1,345 + 29,888) × 100%) + (2,896 × 100%)

31,233 + 2,896 = 34,129 units

Equivalent Costs

$726 + $12,899 = $13,625

Equivalent Cost per Unit

$13,625/34,129 units = $0.40 per unit

Conversion Costs

Equivalent Units

((1,345 + 29,888) × 100%) + (2,896 × 68%)

31,233 + 1,969 = 33,202 units

Equivalent Costs

$1,567 + $17,004 = $18,571

Equivalent Cost per Unit

$18,571/33,202 units = $0.56 per unit

• 1. Turtles Year 2 - FIFO: Direct Materials, $0.41 per unit; Conversion Costs, $0.52 per unit; and Weighted-Average: Direct Materials, $0.41 per unit; Conversion Costs, $0.55 per unit

FIFO

Direct Materials

Equivalent Units

(2,896 × 0%) + (34,569 × 100%) + (3,220 × 100%) = 37,789 units

Equivalent Costs

$15,607 (only account for costs added during the period)

Equivalent Cost per Unit

$15,607/37,789 units = $0.41 per unit

Conversion Costs

Equivalent Units

(2,896 × 32%) + (34,569 × 100%) + (3,220 × 71%)

927 + 34,569 + 2,286 = 37,782 units

Equivalent Costs

$20,120 (only account for costs added during the period)

Equivalent Cost per Unit

$20,120/37,782 units = $0.53 per unit

Weighted-Average

Direct Materials

Equivalent Units

((2,896 + 34,569) × 100%) + (3,220 × 100%)

37,465 + 3,220 = 40,685 units

Equivalent Costs

$908 + $15,607 = $16,515

Equivalent Cost per Unit

$16,515/40,685 units = $0.41 per unit

Conversion Costs

Equivalent Units

((2,896 + 34,569) × 100%) + (3,220 × 71%)

37,465 + 2,286 = 39,751 units

Equivalent Costs

$1,903 + $20,120 = $22,023

Equivalent Cost per Unit

$22,023/39,751 units = $0.55 per unit

• 1. Horizontal Analysis

Truffles: FIFO, 0.91% decrease; and WA, 1.80% decrease;

Turtles: FIFO, 2.20% increase; and WA, No change

Gross Profit Percentages

Truffles: FIFO, 27.33%; and WA, 27.33%;

Turtles: FIFO, 51.56%; and WA, 50.00%

Use horizontal analysis to solve for increases or decreases year to year, use the following formula: (New Year – Old Year)/Old Year

Truffles

FIFO

Year 1: $0.44 + $0.66 = $1.10

Year 2: $0.44 + $0.66 = $1.10

No change

Weighted-Average

Year 1: $0.44 + $0.67 = $1.11

Year 2: $0.43 + $0.66 = $1.09

($1.09 – $1.11)/$1.11 = 0.0180 or 1.80% decrease

Turtles

FIFO

Year 1: $0.39 + $0.52 = $0.91

Year 2: $0.41 + $0.53 = $0.94

($0.94 – $0.91)/$0.91 = 0.0330 or 3.30% increase

Weighted-Average

Year 1: $0.40 + $0.56 = $0.96

Year 2: $0.41 + $0.55 = $0.96

No change

Gross Profit Percentage

Assuming that there are no additional costs added, the gross profit percentage on a per unit basis can be calculated using the sale price given in the problem and the Year 2 per unit cost calculated in the first step of part (e) times the number of each item in a box that is sold. The formula needed to calculate gross profit is sales minus cost. Then, divide the gross profit by sales to arrive at the gross profit percentage.

Truffles: Sell at $75.00 per box

FIFO

Cost: ($1.10 × 50) = $55.00

$75.00 – $55.00 = $20.00 Gross Profit

$20.00/$75.00 = 26.67%

Weighted-Average

Cost: ($1.09 × 50) = $54.50

$75.00 – $54.50 = $20.50 Gross Profit

$20.50/$75.00 = 27.33%

Turtles: Sell at $48.00 per box

FIFO

Cost: ($0.94 × 25) = $23.50

$48.00 – $23.50 = $24.50 Gross Profit

$24.50/$48.00 = 51.04%

Weighted-Average

Cost: ($0.96 × 25) = $24.00

$48.00 – $24.00 = $24.00 Gross Profit

$24.00/$48.00 = 50.00%

1. MCM Revisit manufactures mid-century modern inspired bookcases that are offered in a variety of wood and finishes. Trina, one of their accountants, is looking over the various key processes used for conversion work. All units require most of the processes while units will require either staining or painting, but not both. Since the units have varying process needs to arrive at completion, MCM has chosen an operation costing approach. Trina has compiled the following information about their budgeted costs and production volume for this year:

MCM has collected the following cost information to accompany the budgeted numbers for the year:

Trina has also put together a breakdown of what each type of bookcase needs in order to be completed:

Following list represents the prices of each type of bookcase set by MCM:

Use the above information to answer the following questions.

1. What is the budgeted cost per unit for each of the key processes?
2. What is the total unit cost assigned to each type of bookcase?
3. What is the gross margin percentage for each type of bookcase? Which bookcase is the strongest performer for MCM and which is the weakest? What can be recommended to the management of the company?
4. Could MCM have used a purely Process Costing system instead of operation costing to track the costs of producing each type of bookcase?

Ans: NA, LO 7, Bloom: AN, Difficulty: Medium, AACSB: Analytic, AICPA: AC: Measurement, Analysis, and Interpretation, IMA: Strategy, Planning & Performance: Strategic Cost Management. Solution:

1. Cutting, $7.04; Sanding, $4.09; Assembly, $1.47; Staining, $2.03; Painting, $1.28; Finishing, $1.55; and Quality Inspection, $0.92

In order to calculate the budgeted cost per unit, divide the budgeted cost by the budgeted volume in units:

1. Walnut, $29.90; Oak, $23.70; Pine, $23.20; and Cherry, $28.40

1. Walnut, 91.46%; Oak, 86.26%; Pine, 88.03%; and Cherry, 90.53%

The strongest performer that MCM has are the walnut bookcases with a gross margin percentage of 91.46%, and the weakest performer are the oak bookcases with a gross margin percentage of 86.26%. A recommendation for management would be to consider increasing the sales price of the oak bookcases to increase the gross margin and the gross margin percentage.

To calculate the gross margin percentage, first calculate the gross margin by subtracting the cost per unit calculated in part (b) from the sale price each unique unit.

1. MCM Revisit could not have used a purely Process Costing system as there are components of their bookcase offerings that vary, and therefore leave their products not entirely homogeneous. The operation costing system allows MCM to have the freedom to utilize aspects of Process Costing to account for their key processes while also integrating aspects of Job Costing that will accurately track their production by jobs or batches that reflect the unique differences that the production of different items have.