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Chapter 18: Q2RQ (page 1005)
Question: What types of companies use process costing systems?
Answer:
The companies that produce the goods in large quantity or are engaged in producing similar products, use the process costing system.
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PepsiCo, Inc. is a global food and beverage company that manufactures brands such as Frito-Lay, Gatorade, Pepsi-Cola, Quaker, and Tropicana. One of the products PepsiCo, Inc. manufactures is Mountain Dew. The first process in manufacturing Mountain Dew consists of clarifying the water to remove impurities such as organic materials and bacteria. The clarification process involves mixing the water with aluminum sulfate (an indirect material) to remove the impurities.
Assume PepsiCo uses the weightedaverage method of process costing.
Requirements
1. During the month of June, the Clarification Department incurred the following costs in processing 100,000 liters:
Wages of workers operating the clarification equipment | $20,000 |
Manufacturing overhead allocated to clarification | 24,000 |
Water | 160,000 |
PepsiCo had no beginning Work-In-Process Inventory in the Clarification Department in June. Compute the June conversion costs in the Clarification Department.
2. Assume that water is added at the beginning of the clarification process and conversion costs are added evenly throughout the process. The Clarification Department completed and transferred out 60,000 liters during June. The 40,000 liters remaining in Clarification’s ending Work-in-Process Inventory were 100% complete for direct materials and 60% complete for conversion costs. Compute the equivalent units of production for direct materials and conversion costs for the Clarification Department.
3. Compute the cost per equivalent unit for direct materials and conversion costs for the Clarification Department.
Match each costing system characteristic to job order costing, process costing, or both.
1. Used by companies that manufacture identical items through a series of uniform production steps or processes
2. Transfers costs from Work-in-Process Inventory to Finished Goods Inventory to Cost of Goods Sold
3. Used by companies that manufacture unique products or provide specialized services
4. Has multiple Work-in-Process Inventory accounts
5. Tracks direct materials, direct labor, and manufacturing overhead costs
What are transferred in costs? When do they occur?
Carla Carpet manufactures broadloom carpet in seven processes: spinning, dyeing, plying, spooling, tufting, latexing, and shearing. In the Dyeing Department, direct materials (dye) are added at the beginning of the process. Conversion costs are incurred evenly throughout the process. Information for November 2018 follows:
UNITS | |
Beginning work-in-process inventory | 70 rolls |
Transferred in from spinning department during November | 550 rolls |
Completed during November | 480 rolls |
Ending work in process inventory (80% complete for conversion work) | 140 rolls |
COSTS | |
Beginning work in process inventory (transferred in costs, \(4,000, Materials costs, \)1,400 conversion costs, \(5,300) | \)10,700 |
Transferred in from the spinning department | 23,280 |
Material costs added during November | 14,100 |
Coversion cost added during November (manufacturing wages, \(8,725; manufacturing overhead allocated, \)43,991) | 52,716 |
Requirements
1. Prepare the November production cost report for Carla’s Dyeing Department.
The company uses the weighted-average method.
2. Journalize all transactions affecting Carla’s Dyeing Department during November, including the entries that have already been posted. Assume labor costs are accrued and not yet paid.
Bergeron’s Exteriors produces exterior siding for homes. The Preparation Department begins with wood, which is chopped into small bits. At the end of the process, an adhesive is added. Then the wood/adhesive mixture goes on to the Compression Department, where the wood is compressed into sheets. Conversion costs are added evenly throughout the preparation process. January data for the Preparation Department are as follows:
UNITS | |
Beginning work-in-process inventory | 0 sheets |
Started in production | 3,900 sheets |
Completed and transferred out to compression in January | 2,700 sheets |
Ending work-in-process inventory (25% of the way through the preparation process) | 1,200 sheets |
COSTS | |
Beginning work-in-process inventory | \(0 |
Costs added during January | |
Wood | 3,120 |
Adhesive | 1,836 |
Direct labor | 990 |
Manufacturing overhead allocated | 2,100 |
Total costs | \)8,046 |
Requirements
1. Prepare a production cost report for the Preparation Department for January. The company uses the weighted-average method. (Hint: Each direct material added at a different point in the production process requires its own equivalent unit of production computation.)
2. Prepare the journal entry to record the cost of the sheets completed and
transferred out to the Compression Department.
3. Post the journal entries to the Work-in-Process Inventory—Preparation T-account. What is the ending balance?
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