Download Chapter 4 Solution Manual for Managerial Accounting Garrison and more Exercises Management Accounting in PDF only on Docsity!
Solutions Manual, Chapter 4 141
Chapter 4
Systems Design: Process Costing
Solutions to Questions
4-1 A process costing system should be used in situations where a homogeneous prod- uct is produced on a continuous basis.
4-
- Job-order costing and process costing have the same basic purposes—to assign materi- als, labor, and overhead cost to products and to provide a mechanism for computing unit product costs.
- Both systems use the same basic manufac- turing accounts.
- Costs flow through the accounts in basically the same way in both systems.
4-3 Cost accumulation is simpler under pro- cess costing because costs only need to be as- signed to departments—not separate jobs. A company usually has a small number of pro- cessing departments, whereas a job-order cost- ing system often must keep track of the costs of hundreds or even thousands of jobs.
4-4 In a process costing system, a Work in Process account is maintained for each separate processing department.
4-5 The journal entry would be: Work in Process, Firing ........ (^) XXXX Work in Process, Mixing XXXX
4-6 The costs that might be added in the Firing Department include: (1) costs transferred in from the Mixing Department; (2) materials costs added in the Firing Department; (3) labor costs added in the Firing Department; and (4) overhead costs added in the Firing Department.
4-7 Under the weighted-average method, equivalent units of production consist of units transferred to the next department (or to fin-
ished goods) during the period plus the equiva- lent units in the department’s ending work in process inventory. 4-8 The company will want to distinguish between the costs of the metals used to make the medallions, but the medals are otherwise identical and go through the same production processes. Thus, operation costing is ideally suited for the company’s needs. 4-9 Under the weighted-average method, each unit transferred out of the department is counted as one equivalent unit—regardless of in what period the work was done to complete the units. Under the FIFO method, only the work done in the current period is counted. Units transferred out are divided into two parts. One part consists of the units in the beginning inven- tory. Only the work neededto complete these units is shown as part of the equivalent units for the current period. The other part of the units transferred out consists of the unitsstarted and completed during the current period. 4-10 The weighted-average method mixes costs from the current period with costs from the prior period. Thus, under the weighted- average method, the department’s apparent performance in the current period is influenced to some extent by what happened in a prior pe- riod. In contrast, the FIFO method cleanly sepa- rates the costs and work of the current period from those of the prior period. This makes the FIFO method superior to the weighted-average method for cost control because current perfor- mance should be measured in relation to costs of the current period only. 4-11 Operating departments are the units in an organization within which the central purpos- es of the organization are carried out; these de-
142 Managerial Accounting, 12th Edition
partments usually generate revenue. By con- trast, service departments provide support or assistance to the operating departments. Exam- ples of service departments include laundry ser- vices in a hotel or hospital, internal auditing, airport maintenance services (ground crews), cafeteria, personnel, cost accounting, and so on.
4-12 Service department costs are allocated to products and services in two stages. Service department costs are first allocated to the oper- ating departments. These allocated costs are then included in the operating departments’ overhead rates, which are used to cost products and services.
4-13 Interdepartmental services exist when- ever two service departments provide services to each other.
4-14 Under the direct method, interdepart- mental services are ignored; service department costs are allocated directly to operating depart- ments. 4-15 Under the step-down method, the costs of the service department performing the great- est amount of service for the other service de- partments are allocated first, the costs of the service department performing the next greatest amount of service are allocated next, and so forth through all the service departments. Once a service department’s costs have been allocat- ed, costs are not reallocated back to it under the step-down method.
144 Managerial Accounting, 12th Edition
Weighted-Average Method
Equivalent Units Materials Conversion Units transferred to the next department ....... 410,000 410, Ending work in process: Materials: 30,000 units × 70% complete ..... 21, Conversion: 30,000 units × 50% complete .. 15, Equivalent units of production ....................... 431,000 425,
Solutions Manual, Chapter 4 145
Weighted-Average Method
Materials Labor Overhead Total Work in process, May 1 ........ $ 14,550 $23,620 $118, Cost added during May ........ 88,350 14,330 71, Total cost (a) ...................... $102,900 $37,950 $189, Equivalent units of production (b)...................
Cost per equivalent unit (a) ÷ (b) ..........................
Solutions Manual, Chapter 4 147
FIFO Method
Materials Conversion To complete beginning work in process: Materials: 400 units x (100% – 75%) ................. 100 Conversion: 400 units x (100% – 25%) .............. 300 Units started and completed during the period (42,600 units started – 500 units in ending in- ventory) ............................................................ 42,100 42, Ending work in process Materials: 500 units x 80% complete .................. 400 Conversion: 500 units x 30% complete ............... 150 Equivalent units of production ................................ 42,600 42,
148 Managerial Accounting, 12th Edition
FIFO method
Materials Labor Overhead Total Cost added during May (a)..... $82,560 $52,920 $132, Equivalent units of production (b) .................... 16,000 14,000 14, Cost per equivalent unit (a) ÷ (b) ............................ $5.16 $3.78 $9.45 $18.
150 Managerial Accounting, 12th Edition
Service Departments Operating Departments
Admini- stration
Physical Plant Services
Undergraduate Programs
Graduate Programs Total Departmental costs before allocations ....................... $2,070,000 $720,000 $23,650,000 $2,980,000 $29,420, Allocations: Administration costs (40/45, 5/45) .............. (2,070,000) 1,840,000 230, Physical Plant costs (250/300, 50/300)* ..... (720,000) 600,000 120, Total costs after allocation.. $ 0 $ 0 $26,090,000 $3,330,000 $29,420,
*Based on the space occupied by the two operating departments, which is 300,000 square feet.
Solutions Manual, Chapter 4 151
Service Departments
Operating Departments Admini- stration
Building Services Groceries
Coffee Shop Total Departmental costs before allocations .. $200,000 $60,000 $3,860,000 $340,000 $4,460, Allocations: Administration costs (320/3,200, 2,720/3,200, 160/3,200)* ............. (200,000) 20,000 170,000 10, Building Services costs (9,500/10,000, 500/10,000)† ........ (80,000) 76,000 4, Total costs after allocation................... $ 0 $ 0 $4,106,000 $354,000 $4,460,
*Based on employee hours in the other three departments, 320 + 2,720 + 160 = 3,200. †Based on space occupied by the two operating departments, 9,500 + 500 = 10,000. Both the Building Services Department costs of $60,000 and the Administration costs of $20,000 that have been allocated to the Building Services Department are allocated to the two operating depart- ments.
Solutions Manual, Chapter 4 153
Weighted-Average Method
- Materials Labor Overhead Units transferred to the next de- partment ........................................ 790,000 790,000 790, Ending work in process: Materials: 50,000 units × 60% complete...................................... 30, Labor: 50,000 units × 20% com- plete ............................................ 10, Overhead: 50,000 units × 20% complete...................................... 10, Equivalent units of production ............ 820,000 800,000 800,
- Materials Labor Overhead
Cost of beginning work in process ....... $ 68,600 $ 30,000 $ 48, Costs added during the period ............ 907,200 370,000 592, Total cost (a) ..................................... $975,800 $400,000 $640, Equivalent units of production (b) ....... 820,000 800,000 800, Cost per equivalent unit (a) ÷ (b)........ $1.19 $0.50 $0.
154 Managerial Accounting, 12th Edition
FIFO Method
- Materials Labor Overhead To complete beginning work in process: Materials: 80,000 gallons × (100% − 80%) ................................ 16, Labor: 80,000 gallons × (100% − 75%) ................................ 20, Overhead: 80,000 gallons × (100% − 75%) ................................ 20, Units started and completed during the period................................................. 710,000 710,000 710, Ending work in process: Materials: 50,000 gallons × 60%.......... 30, Labor: 50,000 gallons × 20% .............. 10, Overhead: 50,000 gallons × 20% ........ 10, Equivalent units of production ................ 756,000 740,000 740,
- Materials Labor Overhead Cost added during the period (a) ............ $907,200 $370,000 $592, Equivalent units of production (b) ........... 756,000 740,000 740, Cost per equivalent unit (a) ÷ (b) ......... ` $1.20 $0.50 $0.
156 Managerial Accounting, 12th Edition
Exercise 4-13 (continued)
- Materials Conversion Total Ending work in process inventory: Equivalent units of production ................................................... 240 120 Cost per equivalent unit ............................................................ $18.20 $23. Cost of ending work in process inventory ................................... $4,368 $2,790 $7, Units transferred out: Cost from the beginning work in process inventory..................... $4,897 $2,989 $7, Cost to complete the units in beginning work in process inventory: Equivalent units of production required to complete the units in beginning inventory....................................................... 120 280 Cost per equivalent unit ....................................................... $18.20 $23. Cost to complete the units in beginning inventory .................. $2,184 $6,510 $8, Cost of units started and completed this period: Units started and completed this period................................. 4,000 4, Cost per equivalent unit ....................................................... $18.20 $23. Cost of units started and completed this period...................... $72,800 $93,000 $165, Total cost of units transferred out ............................................. $182,
Solutions Manual, Chapter 4 157
Weighted-Average Method
Materials
Labor & Overhead Pounds transferred to the Packing Department during May ......................................................... 490,000 490, Work in process, May 31: Materials: 20,000 pounds × 100% complete ......... 20, Labor and overhead: 20,000 pounds × 90% complete .......................................................... 18, Equivalent units of production ................................ 510,000 508,
Solutions Manual, Chapter 4 159
Service Departments
Operating Departments Admini- strative
Jani- torial
Mainte- nance Prep Finishing Total Costs before allocation .......................... $84,000 $67,800 $36,000 $256,100 $498,600 $942, Allocation: Administrative: (60/1,200; 240/1,200; 600/1,200; 300/1,200)..................... (84,000) 4,200 16,800 42,000 21, Janitorial: (10,000/100,000; 20,000/100,000; 70,000/100,000) .... (72,000) 7,200 14,400 50, Maintenance: (10,000/40,000; 30,000/40,000) ............................... (60,000) 15,000 45, Total cost after allocations ..................... $ 0 $ 0 $ 0 $327,500 $615,000 $942,
160 Managerial Accounting, 12th Edition
Service Departments
Operating Departments
Admini- strative
Jani- torial
Equip- ment Mainte- nance Prep Finishing Total Costs before allocation ..................... $84,000 $67,800 $36,000 $256,100 $498,600 $942, Allocation: Administrative: (600/900; 300/900) (84,000) 56,000 28, Janitorial: (20,000/90,000; 70,000/90,000). (67,800) 15,067 52, Equipment Maintenance: (10,000/40,000; 30,000/40,000). (36,000) 9,000 27, Total cost after allocations ................ $ 0 $ 0 $ 0 $336,167 $606,333 $942,
