PROCESS COSTING: SAMPLE PROBLEM

To download Process Costing spreadsheet as an MS Excell file click HERE

  Units Stage of Completion of the Product Cost
Work-in-Process, January 1:      
Transferred in Costs 800 1.00 $ 1,000
Conversion Costs   0.70 5,600
Transferred in during period 10,000   11,000
Transferred out 9,000    
Ending Inventory 1,800 0.60  

Total Departmental Period Costs are: $90,800

Process Costing Problem

Part I

Material costs enter at the beginning of the process and conversion costs (labor and overhead) enter evenly throughout the process. Conversion costs are 33 1/3% complete for Beginning Inventory and 75% complete for Ending Inventory. Units are considered lost on inspection at the end of the process. Additional background information about Process I is given below.

  Gallons Stage of Completion of the Product Process I Cost
Work in Process, January 1:
Materials
Labor
Factory Overhead 		 
1.00
0.33
0.33
2,100
905
1,010
Total Work in Process, January 1
Started in Process in January
Work in Process, January 31		 1,500
5,400
800 		0.33

0.75
4,015
January materials
January labor
January factory overhead
Transferred to Process II
Lost Units


5,100
1,000 		  8,100
9,160
11,920



QUESTIONS:

  1. Calculate the Equivalent Units and value the Ending Inventory of Work-in-Process and Transfers-Out under FIFO. Hints: Determine started and completed units; conversion costs include Direct Labor and Overhead; Assign costs to spoiled units; Use fractions instead of decimals to avoid rounding errors.
  2. Repeat (1) under Weighted Average.

Part II

A description of Process II follows. Brown Manufacturing produces Napex in two processes. Process I, already presented, outputs Napan which enters Process II immediately. Raw material Pex also enters Process II at the beginning of the process. Pex and Napan when exposed to the atmosphere, increase the total joint quantity by 20%. Raw materials Mota, which is a catalyst and does not increase volume, is added at the outset subsequent to expansion. Labor I and FOH I enter the process at the outset, after raw materials are added. Labor II and FOH II enter evenly over the entire Process II. Shrinkage, due to evaporation, is accounted for at the end of Process II. Beginning inventory is at the point where just labor and overhead II is needed to complete it. Additional information about Process II is given below.


  Gallons Stage of Completion of the Product Process II Cost
Work in Process January 1: 1,000 0.25 4,000
Pex 7,000   17,000
Mota     3,000
Labor I     8,500
Factory Overhead I     11,000
Labor II     13,500
Factory Overhead II     10,500
Transferred to Process III 14,000    
Work in Process, January 31 600 0.83  



QUESTIONS:

  1. Calculate the Equivalent Units and value the Ending Inventory of Work-in-Process and Transfers-Out under FIFO. Hints: Spoilage costs are transferred in from Process I. These are "normal," that is spread over the remaining units. Include these in the Napan period cost. For Equivalent Units, spoilage is a plug figure.
  2. Repeat (1) under Weighted Average.

Return to the Cases Home Page