Cost15EChapter17Solutions.docx
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Cost15EChapter17Solutions.docx
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Cost15EChapter17Solutions
CHAPTER17
PROCESSCOSTING
17-1Industriesusingprocesscostingintheirmanufacturingareasincludechemicalprocessing,oilrefining,pharmaceuticals,plastics,brickandtilemanufacturing,semiconductorchips,beverages,andbreakfastcereals.
17-2Processcostingsystemsseparatecostsintocostcategoriesaccordingtothetimingofwhencostsareintroducedintotheprocess.Often,onlytwocostclassifications,directmaterialsandconversioncosts,arenecessary.Directmaterialsarefrequentlyaddedatonepointintime,oftenthestartortheendoftheprocess.Allconversioncostsareaddedataboutthesametimebutinapatterndifferentfromdirectmaterialscosts.Conversioncostsareoftenaddedthroughouttheprocess,whichcanofanylengthoftime,lastingfromsecondstoseveralmonths.
17-3Equivalentunitsisaderivedamountofoutputunitsthattakesthequantityofeachinput(factorofproduction)inunitscompletedorinincompleteunitsinworkinprocessandconvertsthequantityofinputintotheamountofcompletedoutputunitsthatcouldbemadewiththatquantityofinput.Eachequivalentunitiscomprisedofthephysicalquantitiesofdirectmaterialsorconversioncostsinputsnecessarytoproduceoutputofonefullycompletedunit.Equivalentunitmeasuresarenecessarybecauseallphysicalunitsarenotcompletedtothesameextentatthesametime.
17-4Theaccuracyoftheestimatesofcompletiondependsonthecareandskilloftheestimatorandthenatureoftheprocess.Semiconductorchipsmaydiffersubstantiallyinthefinishingnecessarytoobtainafinalproduct.Theamountofworknecessarytofinishaproductmaynotalwaysbeeasytoascertaininadvance.
17-5Thefivekeystepsinprocesscostingfollow:
Step1:
Summarizetheflowofphysicalunitsofoutput.
Step2:
Computeoutputintermsofequivalentunits.
Step3:
Summarizetotalcoststoaccountfor.
Step4:
Computecostperequivalentunit.
Step5:
Assigntotalcoststounitscompletedandtounitsinendingworkinprocess.
17-6Threeinventorymethodsassociatedwithprocesscostingare
∙weightedaverage.
∙first-in,first-out.
∙standardcosting.
17-7Theweighted-averageprocess-costingmethodcalculatestheequivalent-unitcostofalltheworkdonetodate(regardlessoftheaccountingperiodinwhichitwasdone),assignsthiscosttoequivalentunitscompletedandtransferredoutoftheprocess,andtoequivalentunitsinendingwork-in-processinventory.
17-8FIFOcomputationsaredistinctivebecausetheyassignthecostofthepreviousaccountingperiod’sequivalentunitsinbeginningwork-in-processinventorytothefirstunitscompletedandtransferredoutoftheprocessandassignthecostofequivalentunitsworkedonduringthecurrentperiodfirsttocompletebeginninginventory,nexttostartandcompletenewunits,andfinallytounitsinendingwork-in-processinventory.Incontrast,theweighted-averagemethodcostsunitscompletedandtransferredoutandinendingworkinprocessatthesameaveragecost.
17-9FIFOshouldbecalledamodifiedordepartmentalFIFOmethodbecausethegoodstransferredinduringagivenperiodusuallybearasingleaverageunitcost(ratherthanadistinctFIFOcostforeachunittransferredin)asamatterofconvenience.
17-10AmajoradvantageofFIFOisthatmanagerscanjudgetheperformanceinthecurrentperiodindependentlyfromtheperformanceintheprecedingperiod.
17-11Thejournalentriesinprocesscostingarebasicallysimilartothosemadeinjob-costingsystems.Themaindifferenceisthat,inprocesscosting,thereisoftenmorethanonework-in-processaccount––oneforeachprocess.
17-12Standard-costproceduresareparticularlyappropriatetoprocess-costingsystemswheretherearevariouscombinationsofmaterialsandoperationsusedtomakeawidevarietyofsimilarproductsasinthetextiles,paints,andceramicsindustries.Standard-costproceduresalsoavoidtheintricaciesinvolvedindetailedtrackingwithweighted-averageorFIFOmethodswhentherearefrequentpricevariationsovertime.
17-13Therearetworeasonswhytheaccountantshoulddistinguishbetweentransferred-incostsandadditionaldirectmaterialscostsforaparticulardepartment:
(a)Alldirectmaterialsmaynotbeaddedatthebeginningofthedepartmentprocess.
(b)Thecontrolmethodsandresponsibilitiesmaybedifferentfortransferred-initemsandmaterialsaddedinthedepartment.
17-14No.Transferred-incostsorpreviousdepartmentcostsarecostsincurredinapreviousdepartmentthathavebeenchargedtoasubsequentdepartment.Thesecostsmaybecostsincurredinthatpreviousdepartmentduringthisaccountingperiodoraprecedingaccountingperiod.
17-15Materialsareonlyonecostitem.Otheritems(oftenincludedinaconversioncostspool)includelabor,energy,andmaintenance.Ifthecostsoftheseitemsvaryovertime,thisvariabilitycancauseadifferenceincostofgoodssoldandinventoryamountswhentheweighted-averageorFIFOmethodsareused.
Asecondfactoristheamountofinventoryonhandatthebeginningorendofanaccountingperiod.Thesmallertheamountofproductionheldinbeginningorendinginventoryrelativetothetotalnumberofunitstransferredout,thesmallertheeffectonoperatingincome,costofgoodssold,orinventoryamountsfromtheuseofweighted-averageorFIFOmethods.
17-16(25min.)Equivalentunits,zerobeginninginventory.
1.Directmaterialscostperunit($800,000÷5,000)$160.00
Conversioncostperunit($805,000÷5,000)161.00
AssemblyDepartmentcostperunit$321.00
2a.SolutionExhibit17-16AcalculatestheequivalentunitsofdirectmaterialsandconversioncostsintheAssemblyDepartmentofCandid,Inc.inFebruary2014.
SolutionExhibit17-16Bcomputesequivalentunitcosts.
2b.Directmaterialscostperunit$160
Conversioncostperunit175
AssemblyDepartmentcostperunit$335
3.ThedifferenceintheAssemblyDepartmentcostperunitcalculatedinrequirements1and2arisesbecausethecostsincurredinJanuaryandFebruaryarethesamebutfewerequivalentunitsofworkaredoneinFebruaryrelativetoJanuary.InJanuary,all5,000unitsintroducedarefullycompletedresultingin5,000equivalentunitsofworkdonewithrespecttodirectmaterialsandconversioncosts.InFebruary,ofthe5,000unitsintroduced,5,000equivalentunitsofworkisdonewithrespecttodirectmaterialsbutonly4,600equivalentunitsofworkisdonewithrespecttoconversioncosts.TheAssemblyDepartmentcostperunitis,therefore,higher.
SOLUTIONEXHIBIT17-16A
SummarizetheFlowofPhysicalUnitsandComputeOutputinEquivalentUnits;
AssemblyDepartmentofCandid,Inc.,forFebruary2014.
(Step2)
(Step1)
EquivalentUnits
Physical
Direct
Conversion
FlowofProduction
Units
Materials
Costs
Workinprocess,beginning(given)0
Startedduringcurrentperiod(given)5,000
Toaccountfor5,000
Completedandtransferredout
duringcurrentperiod4,0004,0004,000
Workinprocess,ending*(given)1,000
1,000100%;1,00060%1,000600
Accountedfor5,000
Equivalentunitsofworkdoneincurrentperiod5,0004,600
*Degreeofcompletioninthisdepartment:
directmaterials,100%;conversioncosts,60%.
SOLUTIONEXHIBIT17-16B
ComputetheCostperEquivalentUnit,
AssemblyDepartmentofCandid,Inc.,forFebruary2014.
Total
Production
Costs
Direct
Materials
Conversion
Costs
(Step3)CostsaddedduringFebruary
$1,605,000
$800,000
$805,000
Dividebyequivalentunitsofworkdone
incurrentperiod(SolutionExhibit17-l6A)
5,000
4,600
Costperequivalentunit
$160
$175
17-17(20min.)Journalentries(continuationof17-16).
1.WorkinProcess––Assembly800,000
AccountsPayable800,000
Torecord$800,000ofdirectmaterials
purchasedandusedinproductionduring
February2014
2.WorkinProcess––Assembly805,000
Variousaccounts805,000
Torecord$805,000ofconversioncosts
forFebruary2014;examplesincludeenergy,
manufacturingsupplies,allmanufacturing
labor,andplantdepreciation
3.WorkinProcess––Testing1,340,000
WorkinProcess––Assembly1,340,000
Torecord4,000unitscompletedand
transferredfromAssemblytoTesting
duringFebruary2014at
$3354,000units=$1,340,000
PostingstotheWorkinProcess––Assemblyaccountfollow.
WorkinProcess––AssemblyDepartment
Beginninginventory,Feb.103.Transferredoutto
1.Directmaterials800,000WorkinProcess––Testing1,340,000
2.Conversioncosts805,000
Endinginventory,Feb.28265,000
17-18(25min.)Zerobeginninginventory,materialsintroducedinmiddleofprocess.
1.SolutionExhibit17-18AshowsequivalentunitsofworkdoneinthecurrentperiodofChemicalP,100,000;ChemicalQ,70,000;Conversioncosts,90,000.
2.SolutionExhibit17-18BsummarizesthetotalMixingDepartmentcostsforJuly2014,calculatescostperequivalentunitofworkdoneinthecurrentperiodforChemicalP,ChemicalQ,andconversioncosts,andassignsthesecoststounitscompleted(andtransferredout)andtounitsinendingworkinprocess.
SOLUTIONEXHIBIT17-18A
SummarizetheFlowofPhysicalUnitsandComputeOutputinEquivalentUnits;
MixingDepartmentofPilarChemicalsforJuly2014.
(Step1)
(Step2)EquivalentUnits
Physical
Conversion
FlowofProduction
Units
ChemicalP
ChemicalQ
Costs
Workinprocess,beginning(given)0
Startedduringcurrentperiod(given)100,000
Toaccountfor100,000
Completedandtransferredout
duringcurrentperiod70,00070,00070,00070,000
Workinprocess,ending*(given)30,000
30,000100%;30,0000%;
30,000
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