PROCESS COSTING

Brian Christian S. Villaluz, CPA

ADVANCED FINANCIAL ACCOUNTING & REPORTING
REVIEW HANDOUT NO. 8: PROCESS COSTING

PROCESS COSTING WITHOUT SPOILAGE

Problem 1: (Computation of FIFO and WA EUPs; case-to-case)

For each of the following independent cases, compute for the equivalent units of direct materials and
conversion assuming the company uses
1. Weighted-average (WA) process costing system
2. First-in first-out (FIFO) process costing system

Case 1:
Hampton Textile Co., manufactures a variety of fabrics. All materials are introduced at the beginning of
production; conversion cost is incurred evenly through manufacturing. The Weaving Department had
2,000 units of work in process on April 1 that were 30% complete as to conversion costs. During April,
11,000 units were started. On April 30, 4,000 units remained in production, 40% complete with respect to
conversion costs.

Case 2:
Hampton Textile Co., manufactures a variety of fabrics. All materials are introduced at the end of
production; conversion cost is incurred evenly through manufacturing. The Weaving Department had
2,000 units of work in process on April 1 that were 70% incomplete as to conversion costs. During April,
9,000 units were completed and on April 30, 4,000 units remained in production, 40% complete with
respect to conversion costs.

Case 3:
Hampton Textile Co., manufactures a variety of fabrics. Materials are added as follows: 50% is added at
the beginning of production, 25% is added when production is at 60%, and 25% is added when production
is at 90%. Conversion cost is incurred evenly through manufacturing. The Weaving Department had 2,000
units of work in process on April 1 that were 40% complete as to conversion costs. During April, 9,000
units were completed and on April 30, 4,000 units remained in production, 20% incomplete with respect
to conversion costs.

Problem 2: (Drill exercises- EUP Computation)

1. Cheatem has a weighted-average EUP of 30,000 units. Beginning inventory was 4,000 units 40%
complete; ending inventory was 5,000 units 60% complete. FIFO EUP is?

2. Howe has a FIFO EUP of 46,580 units. Beginning inventory of 6,500 units was 80% complete; the
ending inventory of 2,800 units was 60% complete. Weighted-average EUP is?

Problem 3: (Cost of Production Report; WA and FIFO)

South River Chemical manufactures a product called Zbek. Direct materials are added at the beginning of
the process, and conversion activity occurs uniformly throughout production. The beginning work-in-
process inventory is 60% complete with respect to conversion; the ending work-in-process inventory is
20% complete. The following data pertain to May:

Units
Work in process, May 1 15,000
Units started during May 60,000
Units completed and transferred out 68,000
Work in process, May 31 7,000
 PROCESS COSTING
Brian Christian S. Villaluz, CPA

Direct Conversion
Total Materials Costs
Costs:
Work in process, May 1 P 41,250 P16,500 P 24,750
Costs incurred during May 234,630 72,000 162,630
Totals P275,880 P88,500 P187,380

Using the weighted-average method of process costing…

1. The equivalent units of direct materials total?
2. The equivalent units of conversion activity total?
3. The cost per unit of direct materials is?
4. The cost per unit of conversion activity is?
5. The cost of goods completed and transferred during May is?
6. The total costs remaining in work in process on May 31?

Using the FIFO method of process costing…

1. The equivalent units of direct materials total?
2. The equivalent units of conversion activity total?
3. The cost per unit of direct materials is?
4. The cost per unit of conversion activity is?
5. The cost of goods completed and transferred during May is?
6. The total costs remaining in work in process on May 31?

Problem 4: (COMPREHENSIVE- Cost of Production Report; Multi-departments)

[WITH PARTIAL ANSWERS]
The Holiday Company makes wreaths in two departments: Forming and Decorating. Forming began the
month with 500 wreaths in process that were 100 percent complete as to material and 40 percent
complete as to conversion. During the month, 6,500 wreaths were started. At month end, Forming had
2,100 wreaths that were still in process that were 100 percent complete as to material and 50 percent
complete as to conversion. Assume Forming uses the weighted average method of process costing. Costs
in the Forming Department are as follows:

Beginning Work in Process Costs:

Material P1,000
Conversion 1,500
Current Costs:
Material P3,200
Conversion 5,045

The Decorating Department had 600 wreaths in process at the beginning of the month that were 80
percent complete as to material but 10 percent incomplete as to conversion. The department had 300
units in ending Work in Process that were 50 percent complete as to material but 25 percent incomplete
as to conversion. Decorating uses the FIFO method of process costing, and costs associated with
Decorating are:

Beginning WIP Inventory:

Transferred In P1,170
Material 4,320
Conversion 6,210
Current Period:
 PROCESS COSTING
Brian Christian S. Villaluz, CPA
Transferred In ?
Material P67,745
Conversion 95,820

1. How many units were transferred to Decorating during the month?

2. What was the cost transferred out of Forming during the month?
3. Determine the total costs remaining in Forming department’s work in process at the end of
month.
Forming - WA
DM CC
TO 4,900.00 4,900.00 4,900.00 Cost of UTO (4,900 x 1.70) 8,330.00
EI 2,100.00 2,100.00 1,050.00 Cost of UEI
7,000.00 5,950.00 DM (2,100 x 0.60) 1,260.00
CC (1,050 x 1.10) 1,155.00 2,415.00
BWIP 1,000.00 1,500.00
Curr Prod'n Cost 3,200.00 5,045.00
4,200.00 6,545.00

WA Cost/EUP 1.70 0.60 1.10

4. What was the cost transferred out of Decorating during the month?
5. Determine the total costs remaining in Decorating department’s work in process at the end of
month.

PROCESS COSTING WITH SPOILAGE

Problem 1: (Cost of Production Report; w/ spoilage)

The following information is available for Talmidge Company for the current year:

Beginning Work in Process Costs of Beginning Work in Process:

(75% complete) 14,500 units Material P25,100
Started 75,000 units Conversion 50,000
Ending Work in Process Current Costs:
(60% complete) 16,000 units Material P120,000
Abnormal spoilage 2,500 units Conversion 300,000
Normal spoilage 5,000 units
(Continuous)

All materials are added at the start of production.

1. Using weighted average, what are equivalent units for material?

2. Using weighted average, what are equivalent units for conversion costs?
3. What is the cost per equivalent unit for material using weighted average?
4. Using FIFO, what are equivalent units for conversion costs?
5. Using FIFO what is the total cost assigned to the units transferred out?
 PROCESS COSTING
Brian Christian S. Villaluz, CPA
Problem 2: (Cost of Production Report; w/spoilage)
Bowman Company has the following information for July:

Units started 100,000 units

Beginning Work in Process: (35% complete) 20,000 units
Normal spoilage 3,500 units
Abnormal spoilage 5,000 units
Ending Work in Process: (70% complete) 14,500 units
Beginning Work in Process Costs:
Material P15,000
Conversion 10,000

All materials are added at the start of the production process. Bowman Company inspects goods at 75
percent completion as to conversion.

1. Assume that the costs per EUP for material and conversion are P1.00 and P1.50, respectively.
What is the amount of the period cost for July using FIFO?
2. Assume that the costs per EUP for material and conversion are P1.00 and P1.50, respectively.
Using FIFO, what is the total cost assigned to the transferred-out units (rounded to the nearest
dollar)?
3. Assume that the costs per EUP for material and conversion are P1.00 and P1.50, respectively.
What is the cost assigned to normal spoilage, using weighted average?

END OF HANDOUT