Site Search                  

Process Costing System - Exercises and Problems:

Learning Objective:

• Prepare the format of cost of production report.
• Calculate equivalent units of production.
• What is the treatment of normal and abnormal loss in process costing system?
• How the timing of normal and abnormal loss is considered in a cost of production report?

1. Cost of Production Report
2. Cost of Production Report; Normal Loss
3. Cost of Production Report
4. Equivalent Units of Production
5. Costing of Units Transferred Out; Abnormal Loss
6. Cost of Production Report; Normal and Abnormal Loss
7. Cost of Production Report; Spoiled Units - Normal and Abnormal
8. Computation of Equivalent Production

1. Cost of Production Report:

A company's Department 2 costs for June were:

The quantity schedule shows 12,000 units were received during the month from Department 1; 7,000 units were transferred to finished goods; and 5,000 units in process at the end of June were 50% complete as to materials cost and 25% complete as to conversion cost.

Required: Prepare Cost of production report.
 

Solution:

Department 2
Cost of Production Report
For the Month of June, 19___

Additional computations:

Equivalent production:

Materials = 7,000 + (5,000 × 50%) = 9,500 units

Labor and factory overhead = 7,000 + (5,000 × 25%) = 8,250 units

2. Cost of Production Report - Normal Loss:

For December, the Production Control Department of Carola Chemical, Inc., reported the following production data for Department 2:
 

Transferred in from Department 1	55,000 liters
Transferred out to Department 3	39,500liters
In process at the end of December (with 1/2 labor and factory overhead)	10,500 liters

All materials were put into process in Department 1. The cost department collected following figures for department 2:
 

Unit cost for units transferred in from department 1	$1.80
Labor cost in department 2	$27,520
Applied factory overhead	$15480

Required: A cost of production report for department 2 for December.
 

Solution:

Carola Chemical Inc.
Department 2
Cost of Production Report
For the Month of December. 19____
 

Quantity Schedule:
Units received from preceding department		55,000
		======
Units transferred to next department	39,500
Units still in process (1/3 labor and overhead)	10,500
Units lost in process	5,000	55,000
	-------	======
Cost Charged to the Department:	Total Cost	Unit Cost
Cost from preceding department:
Transferred in during the month	$99,000	$1.80
	--------	------
Cost added by the department:
Labor [39,500 + (1/3 × 10,500) = 43,000 units]	$27,520	$0.64
Factory overhead	$15,480	$0.36
	--------	------
Total cost added	$43,000	$1.00
Adjustment for lost units		$0.18*
	--------	------
Total cost to be accounted for	$142,000	$2.98
	=======	=====
Cost Accounted for as Follows:
Transferred to next department (39,500 × $2.98)		$117,710
Work in process - ending inventory:
Cost from preceding department (10,500 × $1.98)	$20,790
Labor (10,500 × 1/3 × $0.64)	2,240
Factory overhead (10,500 × 1/3 × $0.36)	1,260	24,290
	--------	-------
Total cost accounted for		$142,000
		======

*Adjustment for lost units:

Formula for Calculation:

(Cost from preceding departments / Units from preceding departments - Lost units) - Unit cost from preceding department

(99,000 / 50,000) - 1.80 = $0.18

OR

(5,000 × 1.80) = $9,000 / 50,000 = $0.18
 

3. Cost of Production Report:

Brooks Inc. uses process costing. The costs for Department 2 for April were:
 

Cost from preceding department		$20,000
Cost added by department:
Materials	$21,816
Labor	7,776
Factory overhead (FOH)	4,104	33,696
	--------
The following information was obtained from the department's quantity schedule:
Units received	5,000
Units transferred out	4,000
Units still in process	1,000

The degree of completion of the work in process as to costs originating in department 2 was: 50% of units were 40% complete; 20% were 30% complete; and the balance were 20% complete.

Required: The cost of production report for Department 2 for April.

Solution:

Brooks Inc.
Department 2
Cost of Production Report
For the month of April, 19|____
 

Quantity Schedule:
Units received from preceding department		5,000
		======
Units transferred to next department	4,000
Units still in process (32 labor and overhead)	1,000	5,000
	-------	======
Cost Charged to the Department:	Total Cost	Unit Cost
Cost from preceding department:
Transferred in during the month	$20,000	$4.00
	--------	------
Cost added by the department:
Materials	$21,816	$5.05
Labor [39,500 + (1/3 × 10,500) = 43,000 units]	$7,776	$1.80
Factory overhead	$4,104	$0.95
	--------	------
Total cost added	$33,696	$7.80
	--------	------
Total cost to be accounted for	$53,696	$11.80
	=======	=====
Cost Accounted for as Follows:
Transferred to next department (4,000 × $11.80)		$47,200
Work in process - ending inventory:
Cost from preceding department (1000 × $4.00)	$4,000
Materials (1,000 × 0.32 × $5.05)	1,616
Labor (1,000 × 0.32 × $1.80)	576
Factory overhead (10,500 × 0.32 × $0.95)	304	6,496
	--------	-------
Total cost accounted for		$53,696
		======

Additional Computations

Equivalent units of production:

Materials, labor, and factory overhead = 4,000 + (1,000  32%) = 4,320 units
 

	Units in Process	Equivalent
	50% were 40% complete	0.20
	20% were 30% complete	0.06
	30% were 20% complete	0.06
		--------
	Total	0.32
		=====
	OR
	50% of 1,000 units × 40% = 200 units
	20% of 1,000 units × 30% = 60 units
	30% of 1,000 units × 20% = 60 units
	Total                   =320 units

4. Equivalent Units of Production:

During April, 20,000 units were transferred in from department A at a cost of $39,000. Materials cost of $6,500 and conversion cost of $9,000 were added in department B. On April 30, department B had 5,000 units of work in process 60% complete as to conversion as costs. Materials are added in the beginning of the process in department B.

Required:

1. Equivalent units of production calculation.
2. The cost per equivalent unit for conversion costs.
    

Solution:

(2) cost per equivalent unit for conversion costs:

      $9,000 / 18,000 = $0.50 per unit
 

5. Costing of Units Transferred Out; Abnormal Loss

During February, the Assembly department received 60,000 units from Cutting department at a unit cost of $3.54. Costs added in the Assembly department were: materials, $41,650; labor, $101,700; and factory overhead. $56,500. There was no beginning inventory. Of the 60,000 units received, 50,000 were transferred out; 9,000 units were in process at the end of the month (all materials, 2/3 converted); 1,000 lost units were 1/2 complete as to materials and conversion costs. The entire loss is considered abnormal and is to be charged to factory overhead.

Required: Cost of production report.
 

Solution:

Assembly Department
Cost of Production Report
For the month of April, 19|____
 

Additional Computations

Equivalent Production:

Materials = 50,000 + 9,000 + 1,000/2 lost units = 59,500 units

Labor and factory overhead = 50,000 + (9,000 × 2/3) + 1,000/2 lost units = 56,500

Unit Cost:

Materials = $41,650 / 59,500 = $0.70 per unit

Labor = $101,700 / 56,500 = $1.80 per unit

Factory overhead = $56,500 / 56,500 = $1.00 per unit
 

6. Cost of Production Report; Normal and Abnormal Loss:

The Sterling Company uses process costing. In department B, conversion costs are incurred uniformly throughout the process. Materials are added at the end of the process, following inspection. Normal spoilage is expected to be 5% of good output.

The following information related to department B for January:
 

	Units	Dollars
Received from department A	12,000	$84,000
Transferred to finished goods	9,000
Ending inventory (70% complete)	2,000
Cost incurred:
Materials		18,000
Labor and factory overhead		45,600

Required: Cost of Production report for department B.

Solution:

The Sterling Company
Department B
Cost of Production Report
For the month of January

*Normal spoilage
**Abnormal spoilage

Additional Computations

Equivalent Production:

Materials = 9,000 units

Labor and factory overhead = 9,000 + (2,000 × 70%) + 450 + 550

Unit Costs:

Materials = $18,000 / 9,000 = $2.00 per unit

Labor and factory overhead = $45,600 / 11,400 = $4.00 per unit
 

7. Cost of Production Report; Spoiled Units - Normal and Abnormal:

Hettinger Inc., uses process costing system in its two producing departments. In department 2, inspection takes place at the 96% stage of completion, after which materials are added to good units. A spoilage rate of 3% of good  output is considered normal.

Department 2 records for April shows:
 

Received from department 1	30,000 units
cost	$135,000
Materials	$12,500
Conversion cost (labor + factory overhead)	$139,340
Transferred to finished goods	25,000 units
Ending work in process inventory (50% complete)	4,200 units

Required: Cost of production report.

Solution:

The Sterling Company
Department B
Cost of Production Report
For the month of January

Additional Computations

Equivalent Production:

Materials = 25,000 units

Labor and factory overhead = 25,000 + (42,00 × 50%) + (750 × 96%)  + (50 ×  96%)

= 27,888 units

Unit Costs:

Materials = $12,500 / 25,000 = $.50 per unit

Labor and factory overhead = $139,340 / 27,888 = $5.00 per unit
 

8.Computation of Equivalent Production:

Pietra - Gonatas, Inc. uses process costing to account for the costs of its only product, product D. Production takes place in three departments; Fabrication, Assembly, and Packaging.

At the end of the fiscal year, June 30, the following inventory of product D is on hand:

• No unused raw materials or packaging materials.
• Fabrication department: 300 units, 1/3 complete as to raw materials and 1/2 complete as to direct labor
• Assembly department: 1,000 units, 2/5 complete as to direct labor.
• Packaging department: 100 units, 3/4 complete as to packaging materials and 1/4 complete as to direct labor.
• Shipping for finished goods are: 400 units.

Required:

1. The number of equivalent units of raw materials in all inventories at June 30.
2. The number of equivalent units of the fabrication department's direct labor in all inventories at June 30
3. The number of equivalent units of packaging materials in all inventories at June 30.

Solution:

You may also be interested in other useful articles from "process costing system" chapter:

1. Definition and explanation of process costing system
2. Characteristics  and Procedures of Process Costing System
3. Costing By Departments
4. Product Flow
5. Procedure for Materials, Labor and Factory Overhead Costs in a Process Costing System
6. Cost of Production Report (CPR)
7. General Questions and Answers About Process Costing
8. Exercises and Problems
9. Process Costing System - Case Study

Back to Home Page | Back to Process costing system Page

Managerial Accounting

Financial Accounting