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CPAPrepChapter17

# CPAPrepChapter17 - CHAPTER 17 PROCESS COSTING 17-15...

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CHAPTER 17 PROCESS COSTING 17-15 Materials are only one cost item. Other items (often included in a conversion costs pool) include labor, energy, and maintenance. If the costs of these items vary over time, this variability can cause a difference in cost of goods sold and inventory amounts when the weighted-average or FIFO methods are used. A second factor is the amount of inventory on hand at the beginning or end of an accounting period. The smaller the amount of production held in beginning or ending inventory relative to the total number of units transferred out, the smaller the effect on operating income, cost of goods sold, or inventory amounts from the use of weighted- average or FIFO methods. 17-18 (25 min.) Zero beginning inventory, materials introduced in middle of process. 1. Solution Exhibit 17-18A shows equivalent units of work done in the current period of Chemical P, 50,000; Chemical Q, 35,000; Conversion costs, 45,000. 2. Solution Exhibit 17-18B summarizes the total Mixing Department costs for July 2009, calculates cost per equivalent unit of work done in the current period for Chemical P, Chemical Q, and Conversion costs, and assigns these costs to units completed (and transferred out) and to units in ending work in process. SOLUTION EXHIBIT 17-18A Steps 1 and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units; Mixing Department of Roary Chemicals for July 2009. (Step 1) (Step 2) Equivalent Units Physical Conversion Flow of Production Units Chemical P Chemical Q Costs Work in process, beginning (given) 0 Started during current period (given) 50,000 To account for 50,000 Completed and transferred out during current period 35,000 35,000 35,000 35,000 Work in process, ending * (given) 15,000 15,000 × 100%; 15,000 × 0%; 15,000 × 66 2/3% 15,000 0 10,000 Accounted for 50,000 Work done in current period only 50,000 35,000 45,000 * Degree of completion in this department: Chemical P, 100%; Chemical Q, 0%; conversion costs, 66 2/3%. 1

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SOLUTION EXHIBIT 17-18B Steps 3, 4, and 5: Summarize Total Costs to Account For, Compute Cost per Equivalent Unit, and Assign Total Costs to Units Completed and to Units in Ending Work in Process; Mixing Department of Roary Chemicals for July 2009. Total Production Costs Chemical P Chemical Q Conversion Costs ( Step 3 ) Costs added during July \$455,000 \$250,000 \$70,000 \$135,000 Total costs to account for \$455,000 \$250,000 \$70,000 \$135,000 (Step 4) Costs added in current period \$250,000 \$70,000 \$135,000 Divide by equivalent units of work done in current period (Solution Exhibit 17-l8A) ÷ 50,000 ÷ 35,000 ÷ 45,000 Cost per equivalent unit \$ 5 \$         2       \$ 3 (Step 5) Assignment of costs: Completed and transferred out (35,000 units) \$350,000 (35,000* × \$5) + (35,000* × \$2) + (35,000* × \$3) Work in process, ending (15,000 units) 105,000 (15,000 × \$5) + (0 × \$2) + (10,000 × \$3) Total costs accounted for \$455,000 \$250,000 + \$70,000 + \$135,000 *Equivalent units completed and transferred out from Solution Exhibit 17-18A, Step 2.
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