Process Costing and Hybrid Product-Costing Systems
1) Problem 1: Straightforward Weighted-Average Process Costing, Step-by-Step Approach(LO 3, 4, 5)2. Total equivalent units,conversion: 226,000
Question:
Piscataway Plastics Company manufactures a highly specialized plastic that is used extensively in theautomobile industry. The following data have been compiled for the month of June. Conversion activityoccurs uniformly throughout the production process.
Work in process, June 1-50,000 units:
Direct material: 100% complete cost of.. ………………………………………… $120,000
Conversion: 40% complete, Cost of …………………………………………………… 34,400
Balance in work in process, June 1 ………………………………………………….. $154,400
Units started during June ……………………………………………………………………200,000
Units completed during June and transferred out to
finished-goods inventory ……………………………………………… ………………190,000
Work in process, June 30:
Direct material: 100% complete
Conversion: 60% complete
Costs incurred during June:
Direct material …………………………………………………………………………………$492,500
Conversion costs:
Direct labor ……………………………………………………………………………………….$ 87,450
Applied manufacturing overhead ………………………………………………………….262,350
Total conversion costs …………………………………………………………………………$349,800
Required:
Prepare schedules to accomplish each of the following process-costing steps for the monthof June. Use the weighted-average method of process costing.
1. Analysis of physical flow of units.
2. Calculation of equivalent units.
3. Computation of unit costs.
4. Analysis of total costs.
2) Problem
Missing Data; Production Report; Weighted-Average(LO 4, 5, 6)
Cost remaining in ending work-in-process inventory,direct material: $123,750
Total cost of July 31 work in process: $202,950
The following data pertain to the Vesuvius Tile Company for July.
Work in process, July 1 (in units) ……………………………………………………. 20,000
Units started during July ………………………………………………………………………?
Total units to account for ………………………………………………………………….65,000
Units completed and transferred out during July ……………………………………..?
Work in process, July 31 (in units) ……………………………………………………..15,000
Total equivalent units: direct material …………………………………………………65,000
Total equivalent units: conversion ………………………………………………………….?
Work in process, July 1: direct material ……………………………………………..$164,400
Work in process, July 1: conversion ……………………………………………………….?
Costs incurred during July: direct material ………………………………………………?
Costs incurred during July: conversion ………………………………………………..659,400
Work in process, July 1: total cost ……………………………………………………….244,200
Total costs incurred during July ………………………………………………………..1,031,250
Total costs to account for ………………………………………………………………….1,275,450
Cost per equivalent unit: direct material …………………………………………………..8.25
Cost per equivalent unit: conversion …………………………………………………………?
Total cost per equivalent unit ………………………………………………………………..21.45
Cost of goods completed and transferred out during July ……………………………..?
Cost remaining in ending work-in-process inventory: direct material …………….?
Cost remaining in ending work-in-process inventory: conversion …………….79,200
Total cost of July 31 work in process …………………………………………………202,950
Additional Information:
a. Direct material is added at the beginning of the production process, and conversion activity occurs uniformly throughout the process.
b. The company uses weighted-average process costing.
c. The July 1 work in process was 30 percent complete as to conversion.
d. The July 31 work in process was 40 percent complete as to conversion.
Required: Compute the missing amounts, and prepare the firm’s July production report.
3)Problem
Activity-Based Costing (LO 1, 2, 4, 5, 7) 2. New product cost, under ABC: $7.46 per pound of Kona
World Gourmet Coffee Company (WGCC) is a distributor and processor of different blends of coffee. The company buys coffee beans from around the world and roasts, blends, and packages them for resale.WGCC currently has 15 different coffees that it offers to gourmet shops in one-pound bags. The majorcost is raw materials; however, there is a substantial amount of manufacturing overhead in the predominantlyautomated roasting and packing process. The company uses relatively little direct labor.Some of the coffees are very popular and sell in large volumes, while a few of the newer blends have very low volumes. WGCC prices its coffee at full product cost, including allocated overhead, plus a markup of 30 percent. If prices for certain coffees are significantly higher than market, adjustmentsare made. The company competes primarily on the quality of its products, but customers are priceconsciousas well.
Data for the 20×1 budget include manufacturing overhead of $3,000,000, which has been allocated on the basis of each product’s direct-labor cost. The budgeted direct-labor cost for 20×1 totals $600,000.Based on the sales budget and raw-material budget, purchases and use of raw materials (mostly coffeebeans) will total $6,000,000.
The expected prime costs for one-pound bags of two of the company’s products are as follows:
Kona Malaysian
Direct material ………………………………………….. $3.20 $4.20
Direct labor ………………………………………………. .30 .30
WGCC’s controller believes the traditional product-costing system may be providing misleading cost information. She has developed an analysis of the 20×1 budgeted manufacturing-overhead costsshown in the following chart.
Activity Cost Driver Budgeted Activity Budgeted Cost
Purchasing ……….. Purchase orders ……1,158 …………………….. $ 579,000
Material handling … Setups ………………. 1,800 ………………… 720,000
Quality control……… Batches ……………………….720 ………………… 144,000
Roasting ……………….Roasting hours …………..96,100 …………………. 961,000
Blending ………………Blending hours……………33,600 …………………. 336,000
Packaging …………….Packaging hours …………26,000 …………………. 260,000
Total manufacturing-overhead cost…………………………………………………….$3,000,000
Data regarding the 20×1 production of Kona and Malaysian coffee are shown in the followingtable. There will be no raw-material inventory for either of these coffees at the beginning of the year.
Kona Malaysian
Budgeted sales …………………………………………………….. 2,000 lb. 100,000 lb.
Batch size ……………………………………………………………..500 lb. 10,000 lb.
Setups ………………………………………………………………..3 per batch 3 per batch
Purchase order size …………………………………………………500 lb. 25,000 lb.
Roasting time ……………………………………………………..1 hr. per 100 lb. 1 hr. per 100 lb.
Blending time ……………………………………………………..5 hr. per 100 lb. .5 hr. per 100 lb.
Packaging time ………………………………………………….1 hr. per 100 lb. .1 hr. per 100 lb.
Required:
1. Using WGCC’s current product-costing system:
a. Determine the company’s predetermined overhead rate using direct-labor cost as the single cost driver.
b. Determine the full product costs and selling prices of one pound of Kona coffee and onepound of Malaysian coffee.
2. Develop a new product cost, using an activity-based costing approach, for one pound of Kona coffee and one pound of Malaysian coffee.
3. What are the implications of the activity-based costing system with respect to
a. The use of direct labor as a basis for applying overhead to products?
b. The use of the existing product-costing system as the basis for pricing?
Reference: For 1-3 problem
Managerial Accounting ,Mcgraw-hill, 2010, ebook, 9 edition
4)
Economic Order Quantity
All applicable Exercises are available with McGraw-Hill’s Connect AccountingTM.
Accounting
Exercise:For each of the following independent cases, use the equation method to compute the economic orderquantity.
Case A Case B Case C
Annual requirement (in units) …………………..13,230 1,681 560
Cost per order ………………………………………………..$250 $40 $10
Annual holding cost per unit …………………………6 20 7
Reference:
Appendix I ,The Sarbanes-Oxley Act,Internal Controls, andManagement Accounting
Prepare the responses in Excel with each problem on a separate tab.
