Process Costing Problem.

Problem 1. The Mexico Company manufactures a single product that goes through two departments. The data relating to
activity performed in first department during the month of June is given below:

Percentage of Completion

Units Materials Conversion

Work in Process, June 1 25,000 90% 60%

Units started in production 195,000

Units completed during June and 205,000

transferred to next department

Work in process, June 30 15,000 70% 50%

Required: Compute the equivalent units of production assuming the company uses:

 Weighted Average Method

 FIFO method

SOLUTION:

A) Weighted Average method

Materials Conversion

Units transferred to next department 205,000 205,000

Work in process, June 30

15,000 units x 70% 10,500

15,000 units x 50% 7,500

Equivalents units of production 215,500 212,500

B) FIFO method

Materials Conversion

Unit transferred to next department 205,000 205,000

Less: Beginning Inventory (all units) 25,000 25,000

Units started and completed during the month 180,000 180,000

Work in process, June 1

(worked during the month)

25,000 units x (100%-90%) 2,500

25,000 units x (100%-60%) 10,000

 Work in process, June 31
(worked during the month)

15,000 units x 70% 10,500

15,000 units x 50% 7,500

Equivalents units of production 193,000 197,500

Problem 2. The following data has been collected from three different situations. Units transferred out
are 100% complete with respect to all cost elements. Stages of completion of beginning and ending
inventories are applicable to all cost elements.

 Started in process: 26,000 units

Transferred out: 22,000 units

Work in process ending inventory: 1,600 units 1/2 completed and 2,400 units 1/4 completed

 Work in process beginning inventory: 25,000 units, 2/5 completed

Started in process: 100,000 units

Transferred out: 105,000 units

Work in process ending inventory: 12,000 units 1/2 completed and 8,000 units 1/4 completed

 Work in process beginning inventory: 18,000 units 1/3 completed and 12,000 units 1/2
completed

Started in process: 75,000 units

Transferred out: 90,000 units

Work in process ending inventory: 6,000 units 1/2 completed and 9,000 units 1/3 completed

Required: Compute equivalent production in each of the above situations using:

 weighted average costing method

 FIFO costing method
SOLUTION:

A. Weighted average costing method

*Equivalent units in ending inventory:

The equivalent units in work in process ending inventory consist of the percentage of work done in
current period. The computations of equivalent units in work in process ending inventory for all three
situations are given below:

Situation 1:

= (1600 units × 1/2) + (2400 units × 1/4)

= 800 units + 600 units

= 1,400 units

Situation 2:

= (12,000 units × 1/2) + (8,000 units × 1/4)

= 6,000 units + 2,000 units

= 8,000 units

Situation 3:

= (6,000 units × 1/2) + (9000 units × 1/3)

= 3,000 units + 3,000 units

= 6,000 units
B. FIFO method

*Equivalent units in beginning inventory:

The equivalent units in work in process beginning inventory consist of the percentage of work done in
current period. The computations of equivalent units in work in process beginning inventory for all three
situations are given below:

Situation 1:

There is no beginning inventory in situation 1.

Situation 2:

= 25,000 units × 3/5

= 15,000 units

Situation 3:

= (18,000 units × 2/3) + (12,000 units × 1/2)

= 12,000 units + 6,000 units

= 18,000 units

**Equivalent units in ending inventory:

The equivalent units in work in process ending inventory consist of the percentage of work done in
current period. The computations of equivalent units in work in process ending inventory for FIFO
method are the same as under weighted average method.

Situation 1:

= (1600 units × 1/2) + (2400 units × 1/4)

= 800 units + 600 units

= 1,400 units
Situation 2:

= (12,000 units × 1/2) + (8,000 units × 1/4)

= 6,000 units + 2,000 units

= 8,000 units

Situation 3:

= (6,000 units × 1/2) + (9000 units × 1/3)

= 3,000 units + 3,000 units

= 6,000 units

Problem 3. Alfred, a US based company, produces chemical K-5 which has many industrial uses. The
chemical K-5 is processed through four different departments. The production starts in the mixing
department which is the first processing department of the company. The selected data from mixing
department for the month of April is given below:

Required:

 Compute the quantity of chemical K-5 finished and transferred to the next department during
April.
 Prepare a quantity schedule for the mixing department assuming the Alfred uses a weighted
average method of process costing.
 Prepare a quantity schedule for the mixing department assuming the Alfred uses a FIFO method
of process costing.

SOLUTION:
A. Quantity finished and transferred to next department

B. Quantity schedule –
weighted average method:

C. Quantity schedule – FIFO method:

Under FIFO method we must divide the units transferred out figure into two parts – units completed and
transferred out from beginning inventory and units completed and transferred out from production
started during current period.
*Kilograms started and completed during April:

= Kilograms completed and transferred out during April – Kilograms in beginning inventory

= 165000 – 40,000

= 125,000

Problem 4. The Southern Company produces a cleaning product known as Detergent-DK. The product is
processed through two departments – department X and Department Y. The materials are added at the
beginning of the process in department X. The information relating to Detergent-DK processed in
department X during the month of August is given below:

 Work in process, August 1: 15,000 liters (55% complete)

 Started into processing during August: 240,000 liters
 Work in process, August 31: 10,000 liters (90% complete)

The percentages of completion of beginning and ending work in process inventories given above are
related to conversion cost only.

Required: Prepare a quantity schedule and compute equivalent units of production for department X
using:

 weighted average method

 FIFO method
SOLUTION:

A. Quantity schedule and equivalent units – weighted average method:

*15,000 liters + 240,000 liters – 10,000 liters

= 245,000 liters

B. Quantity schedule and equivalent units – FIFO method:

*Work required to complete liters in work in process beginning inventory:

100% – 55% = 45%

15,000 liters × 45% = 6,750 liters

**240,000 liters started – 10,000 liters in ending work in process

= 230,000 liters started and completed during August

or

245,000 liters completed and transferred out – 15,000 liters in beginning inventory

= 230,000 liters started and completed during August

Problem 5. The Fedex Company uses a weighted average method to account for units and costs. The
following information belongs to the company’s first processing department.

Quantity schedule and equivalent units

Computation of cost per equivalent unit

The cost per equivalent for the month of May for first department has been computed below:

Required: Using above data, complete the following cost reconciliation of the first processing
department of Fedex Company:

SOLUTION:
Problem 6. The Fedex Company produces a car care product known as Shine-9 which is a high quality
vehicle cleaning liquid. The processing of Shine-9 is completed through three separate departments. The
following data pertains to the company’s first processing department:

The information about the cost in work in process beginning inventory and the total cost added during
the month of May is given below:

Work in process inventory on May 1:

 Materials: $28,300
 Conversion cost: $7,450

Cost added during May:

 Materials: $192,500
 Conversion cost: $107,250

Required:

 Determine the missing figures in the above schedule

(Hint: Compute equivalent units of production for May for the first department).

 Compute cost per equivalent unit for May for the first department of Fedex Company.

SOLUTION:

A. Missing figures (i.e., equivalent units of production):

Units transferred to next department are considered 100% complete with respect to materials and
conversion cost. The equivalent units in ending work in process inventory have been determined as
follows:

Equivalents units in work in process ending inventory:

Materials: 20,000 units × 50% = 10,000 units

Conversion: 20,000 units × 25% = 5,000 units

2. Cost per equivalent unit:

Problem 7. The Sunshine Company uses process costing system. During May, 5,250 units were put into
process in first department. 3,500 units were transferred to next department, 250 units were lost in
process and 1,500 units were in process at the end of the month.

For the month of May, the materials cost was $105,000, labor cost was $79,540 and manufacturing
overhead cost was $63,050.

The materials were added at the start of production process in first department. All units in ending
inventory were 90% complete as to labor and manufacturing overhead costs. Any spoilage occurred
during the month was considered a normal loss.

Required: Prepare a cost of production report for May for the first department of Sunshine Company.

SOLUTION:
Equivalent units and unit cost

Equivalent units:

Materials: 3,500 + 1,500 = 5,000 units

labor and manufacturing overhead: 3,500 + (1,500 × 90%) = 4,850 units

Unit cost:

Materials: $105,000/5,000 units = $21.00

Labor: $79,540/4,850 units = $16.40

Manufacturing overhead: $63,050/4,850 units = $13.00

Note: The normal loss of 250 units in first department has been ignored because no adjustment is
required for the normal loss in first department. In first department, the normal loss is absorbed by
remaining good units which causes an increase in the per unit cost.