Study Guide Solutions -- Chapter 7



CHAPTER 6 SOLUTIONS

Part I Part II

1. T 6. T 11. T 1. i 6. m 10. c

2. T 7. F 12. F 2. a 7. b 11. d

3. T 8. T 13. T 3. j 8. k 12. l

4. F 9. F 14. T 4. e 9. g 13. f

5. F 10. F 15. T 5. h

Part III

1. (a) The equivalent unit computation would include only the marketable units transferred out plus the work done on the units still in process at the end of the period.

2. (d) The cost of normal shrinkage and scrap is a product cost that attaches to the inventory rather than a period cost that is expensed when it occurs.

3. (d) The computation for this normal loss is:

Units completed and transferred 90,000

Ending work in process with 60% materials  30,000

120,000

4. (c) Unit output—Materials:

Finished and transferred out 210,000

Ending work in process

(40,000 × 100%)  40,000

250,000 units equivalent production

Unit output—Conversion Costs:

Transferred out 210,000

Ending work in process

(40,000 × 20%)   8,000

218,000 units equivalent production

5. (a) Under the FIFO method, the degree of completion of the beginning work in process must be stated in order to compute completed unit costs; average costing does not require the degree of completion of the beginning work in process.

6. (c) Equivalent units of production under FIFO = percent of work required to complete beginning inventory + units started and completed during period + percent of work performed on ending inventory.

7. (b) Since the cost of the beginning inventory is kept separate from the cost of the goods started and completed during the period under FIFO but not under average costing, the cost of goods manufactured would be the same under both methods when there is no beginning inventory.

8. (a) All manufacturing costs (materials, labor, and overhead) should be allocable as joint costs.

9. (a) Joint costs should be allocated in a manner that assigns a proportionate amount of the total cost to each product by means of a quantitative basis such as the market or sales value method, the quantitative or physical unit method, the average unit cost method, or the weighted average method.

10. (b) Using the adjusted sales value method the assigned joint costs are:

Gasoline: [pic]

Kerosene: [pic]

Part IV

Tejas Manufacturing, Inc.

Cost of Production Summary—Assembly

For the Month of June 2008

Cost of work in process, beginning of month:

Cost in Machining $ 25,000

Cost in Assembly:

Materials –0–

Labor $2,720

Factory overhead  1,360   4,080 $ 29,080

Cost of goods received from Machining during month 225,000

Cost of production for month:

Materials $ 10,000

Labor 25,000

Factory overhead   12,500   47,500

Total costs to be accounted for $301,580

Unit output for month:

Materials:

Finished and transferred to Painting during month 38,000

Equivalent units of work in process, end of month –0–

Finished and on hand  2,000

Total equivalent production 40,000

Labor and factory overhead:

Finished and transferred to Painting during month 38,000

Equivalent units of work in process, end of month (10,000 units, one-half completed) 5,000

Finished and on hand  2,000

Total equivalent production 45,000

Unit cost for month:

Materials [($0 + $10,000) ÷ 40,000] $ .250

Labor [($2,720 + $25,000) ÷ 45,000] .616

Factory overhead [($1,360 + $12,500) ÷ 45,000}   .308

Total $1.174

Inventory costs:

Cost of goods finished and transferred to Painting during month:

Cost in Machining (38,000 × $5.00*) $190,000

Cost in Assembly (38,000 × $1.174)   44,612 $234,612

Cost of work in process, end of month:

Finished and on hand:

Cost in Machining (2,000 × $5.00) $ 10,000

Cost in Assembly (2,000 × $1.174)    2,348 12,348

Still in process:

Cost in Machining (10,000 × $5.00) $ 50,000

Cost in Assembly:

Materials –0–

Labor (10,000 × 1/2 × $.616) $3,080

Factory overhead (10,000 × 1/2 × $.308)  1,540    4,620   54,620

Total production cost accounted for $301,580

*Total cost from preceding dept.:

Work in process—beginning inventory $ 25,000

Transferred in during period  225,000

Total $250,000

*Total units from preceding dept.:

Work in process—beginning inventory 5,000

Transferred in during period 45,000

Total 50,000

*$250,000 ÷ 50,000 = $5 per unit

Part V

Jedi Chemical Company

Cost of Production Summary—Refining Department

For the Month of May 2008

Cost of work in process, beginning of month $ 10,000

Cost of goods received from prior department during month 120,050

Cost of production for month:

Materials –0–

Labor $50,375

Factory overhead  40,300   90,675

Total costs to be accounted for $220,725***

Labor and

Factory Overhead

Unit output for month:

To complete beginning units in process (10,000 × 50%) 5,000*

Units started and finished during month 30,000*

Ending units in process (7,000 × 75%)  5,250*

Total equivalent production 40,250*

Unit cost for month:

Labor ($50,375 ÷ 40,250) $1.252*

Factory overhead ($40,300 ÷ 40,250)  1.001*

Total $2.253*

Inventory costs:

Cost of goods finished and transferred to Finishing Department during month:

Beginning units in process:

Prior month’s cost $10,000

Current cost to complete:

Labor (10,000 × 1/2 × $1.252) 6,260

Factory overhead (10,000 × 1/2 × $1.001)   5,005 $ 21,265***

Units started and finished during month:

Cost in prior department (30,000 × $3.245**) $97,350

Cost in Refining Department (30,000 × $2.253)  67,590

Total cost transferred 164,940***

Cost of work in process, end of month:

Cost in prior department (7,000 × $3.245) $22,715

Cost in Refining Department:

Labor (7,000 × 3/4 × $1.252) 6,573

Factory overhead (7,000 × 3/4 × $1.001)   5,255   34,543***

Total production costs accounted for $220,748***

* Transferred to the finishing department 40,000

Less units in beginning inventory 10,000

Units started and completed during month 30,000

** Cost transferred from prior department: $120,050 ÷ 37,000 = $3.245 adjusted unit cost

*** Rounding difference

Part VI

| 1. | | |Unit |Total |Percent |Assignment of |

| |Product |Units |Sales Price |Sales Value |of Total |Joint Costs |

| |Vertical |15,000 |$10 |$150,000 | 75% |$56,250 |

| |Leap |10,000 |$5 |  50,000 | 25% |  18,750 |

| | Total |25,000 | |$200,000 |100% |$75,000 |

| 2. | | |Unit |Ultimate |Cost |Sales Value |Percent |Assignment |

| | | |Sales |Sales |After |at |of |of |

| |Product |Units |Price |Value |Split-off |Split-off |Total |Joint Costs |

| |Vertical |15,000 |$10 |$150,000 |$45,000 |$105,000 |72.41% |$ 54,308 |

| |Leap |10,000 |$5 |  50,000 | 10,000 |  40,000 | 27.59% | 20,692 |

| | Total |25,000 | |$200,000 |$55,000 |$145,000 |100.00% |$ 75,000 |

| 3. |Total costs to split-off point | $75,000 |

| |Less market value of by-product |  10,000 |

| |Joint costs to be assigned to main products | $65,000 |

| |Product | | |

| |Vertical: $65,000 x 72.41%................ |= |$ 47,067 |

| |Leap:  65,000 × 27.59% |= | 17,933 |

| |Dunk |= | 10,000 |

| |Total joint costs assigned | |$ 75,000 |

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