# 69 8. Exercises (Part 1) – Weighted average

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## Questions

1. Which types of companies use a process costing system to account for product costs? Provide at least three examples of products that would require the use of a process costing system.
2. Describe the similarities between a process costing system and a job costing system.
3. Describe the differences between a process costing system and a job costing system.
4. Review Note 8.4 “Business in Action 8.1” What are the three stages of production at Coca-Cola, and what account is used to track production costs for each stage?
5. What are transferred-in costs?
6. Review Note 8.9 “Business in Action 8.2” Why is it likely that Wrigley uses a process costing system rather than a job costing system?
7. Explain the difference between physical units and equivalent units.
8. Explain the concept of equivalent units assuming the weighted average method is used.
9. Explain why direct materials, direct labor, and overhead might be at different stages of completion at the end of a reporting period.
10. Review Note 8.14 “Business in Action 8.3” Why do colleges convert the actual number of students attending school to a full-time equivalent number of students?
11. Describe the four key steps shown in a production cost report assuming the weighted average method is used.
12. What two important amounts are determined in step 4 of the production cost report?
13. Describe the basic cost flow equation and explain how it is used to reconcile units to be accounted for with units accounted for.
14. Describe the basic cost flow equation and explain how it is used to reconcile costs to be accounted for with costs accounted for.
15. Review Note 8.22 “Business in Action 8.4” Describe the last two stages of the production process at Hershey.
16. How does a company determine the number of production cost reports to be prepared for each reporting period?
17. What is a production cost report, and how is it used by management?
18. Explain how the cost per equivalent unit might be misleading to managers, particularly when a significant change in production is anticipated.

## Brief Exercises

1. Product Costing at Desk Products, Inc. Refer to the dialogue presented at the beginning of the chapter.

Required:

1. Why was the owner of Desk Products, Inc., concerned about the Assembly department product cost of each desk?
2. What did the accountant, John Fuller, promise by the end of the week?
1. Job Costing Versus Process Costing. For each firm listed in the following, identify whether it would use job costing or process costing.
1. Chewing gum manufacturer
2. Custom automobile restorer
3. Facial tissue manufacturer
4. Accounting services provider
5. Electrical services provider
6. Pool builder
7. Cereal producer
8. Architectural design provider
2. Process Costing Journal Entries. Assume a company has two processing departments—Molding and Packaging. Transactions for the month are shown as follows.
1. The Molding department requisitioned direct materials totaling \$2,000 to be used in production.
2. Direct labor costs totaling \$3,500 were incurred in the Molding department, to be paid the next month.
3. Manufacturing overhead costs applied to products in the Molding department totaled \$2,500.
4. The cost of goods transferred from the Molding department to the Packaging department totaled \$10,000.
5. Manufacturing overhead costs applied to products in the Packaging department totaled \$1,800.

Required:

Prepare journal entries to record transactions 1 through 5.

1. Calculating Equivalent Units. Complete the requirements for each item in the following.
1. A university has 500 students enrolled in classes. Each student attends school on a part-time basis. On average, each student takes three-quarters of a full load of classes. Calculate the number of full-time equivalent students (i.e., calculate the number of equivalent units).
2. A total of 10,000 units of product remain in the Assembly department at the end of the year. Direct materials are 80 percent complete and direct labor is 40 percent complete. Calculate the equivalent units in the Assembly department for direct materials and direct labor.
3. A local hospital has 60 nurses working on a part-time basis. On average, each nurse works two-thirds of a full load. Calculate the number of full-time equivalent nurses (i.e., calculate the number of equivalent units).
4. A total of 6,000 units of product remain in the Quality Testing department at the end of the year. Direct materials are 75 percent complete and direct labor is 20 percent complete. Calculate the equivalent units in the Quality Testing department for direct materials and direct labor.
2. Calculating Cost per Equivalent Unit. The following information pertains to the Finishing department for the month of June.
Direct Materials
Direct Labor
Total costs to be accounted for \$100,000 \$200,000 \$300,000
Total equivalent units accounted for 10,000 units 8,000 units 8,000 units

Required:

Calculate the cost per equivalent unit for direct materials, direct labor, overhead, and in total. Show your calculations.

1. Assigning Costs to Completed Units and to Units in Ending WIP Inventory. The following information is for the Painting department for the month of January.
Direct Materials
Direct Labor
Cost per equivalent unit
\$2.10 \$1.50 \$3.80
Equivalent units completed and transferred out
3,000 units 3,000 units 3,000 units
Equivalent units in ending inventory
1,000 units 1,200 units 1,200 units

Required:

1. Calculate the costs assigned to units completed and transferred out of the Painting department for direct materials, direct labor, overhead, and in total.
2. Calculate the costs assigned to ending WIP inventory for the Painting department for direct materials, direct labor, overhead, and in total.

## Exercises: Set A

1. Assigning Costs to Products: Weighted Average Method. Sydney, Inc., uses the weighted average method for its process costing system. The Assembly department at Sydney, Inc., began April with 6,000 units in work-in-process inventory, all of which were completed and transferred out during April. An additional 8,000 units were started during the month, 3,000 of which were completed and transferred out during April. A total of 5,000 units remained in work-in-process inventory at the end of April and were at varying levels of completion, as shown in the following.
 Direct materials 40 percent complete Direct labor 30 percent complete Overhead 50 percent complete

The following cost information is for the Assembly department at Sydney, Inc., for the month of April.

Direct Materials
Direct Labor
Beginning WIP inventory \$300,000 \$350,000 \$250,000 \$900,000
Incurred during the month \$180,000 \$200,000 \$170,000 \$550,000

Required:

1. Determine the units to be accounted for and units accounted for; then calculate the equivalent units for direct materials, direct labor, and overhead. (Hint: This requires performing step 1 of the four-step process.)
2. Calculate the cost per equivalent unit for direct materials, direct labor, and overhead. (Hint: This requires performing step 2 and step 3 of the four-step process.)
3. Assign costs to units transferred out and to units in ending WIP inventory. (Hint: This requires performing step 4 of the four-step process.)
4. Confirm that total costs to be accounted for (from step 2) equals total costs accounted for (from step 4). Note that minor differences may occur due to rounding the cost per equivalent unit in step 3.
5. Explain the meaning of equivalent units.
1. Production Cost Report: Weighted Average Method. Refer to Exercise 25. Prepare a production cost report for Sydney, Inc., for the month of April using the format shown in Figure 8.9.
2. Process Costing Journal Entries. Silva Piping Company produces PVC piping in two processing departments—Fabrication and Packaging. Transactions for the month of July are shown as follows.
1. Direct materials totaling \$15,000 are requisitioned and placed into production—\$7,000 for the Fabrication department and \$8,000 for the Packaging department.
2. Direct labor costs (wages payable) are incurred by each department as follows:
 Fabrication \$4,500 Packaging \$6,700
3. Manufacturing overhead costs are applied to each department as follows:
 Fabrication \$20,000 Packaging \$14,000
4. Products with a cost of \$22,000 are transferred from the Fabrication department to the Packaging department.
5. Products with a cost of \$35,000 are completed and transferred from the Packaging department to the finished goods warehouse.
6. Products with a cost of \$31,000 are sold to customers.

Required:

1. Prepare journal entries to record each of the previous transactions.
2. In general, how does the process costing system used here differ from a job costing system?

## Exercises: Set B

1. Assigning Costs to Products: Weighted Average Method. Varian Company uses the weighted average method for its process costing system. The Molding department at Varian began the month of January with 80,000 units in work-in-process inventory, all of which were completed and transferred out during January. An additional 90,000 units were started during the month, 30,000 of which were completed and transferred out during January. A total of 60,000 units remained in work-in-process inventory at the end of January and were at varying levels of completion, as shown in the following.
 Direct materials 80 percent complete Direct labor 90 percent complete Overhead 90 percent complete

The following cost information is for the Molding department at Varian Company for the month of January.

Direct Materials
Direct Labor
Beginning WIP inventory \$1,400,000 \$1,100,000 \$1,700,000 \$4,200,000
Incurred during the month \$1,210,000 \$ 980,000 \$1,450,000 \$3,640,000

Required:

1. Determine the units to be accounted for and units accounted for; then calculate the equivalent units for direct materials, direct labor, and overhead. (Hint: This requires performing step 1 of the four-step process.)
2. Calculate the cost per equivalent unit for direct materials, direct labor, and overhead. (Hint: This requires performing step 2 and step 3 of the four-step process.)
3. Assign costs to units transferred out and to units in ending WIP inventory. (Hint: This requires performing step 4 of the four-step process.)
4. Confirm that total costs to be accounted for (from step 2) equals total costs accounted for (from step 4). Note that minor differences may occur due to rounding the cost per equivalent unit in step 3.
5. Explain the meaning of equivalent units.
1. Production Cost Report: Weighted Average Method. Refer to Exercise 28. Prepare a production cost report for Varian Company for the month of January using the format shown in Figure 8.9.
2. Process Costing Journal Entries. Westside Chemicals produces paint thinner in three processing departments—Mixing, Testing, and Packaging. Transactions for the month of September are shown as follows.
1. Direct materials totaling \$80,000 are requisitioned and placed into production—\$60,000 for the Mixing department, \$11,000 for the Testing department, and \$9,000 for the Packaging department.
2. Direct labor costs (wages payable) incurred by each department are as follows:
 Mixing \$35,000 Testing \$25,000 Packaging \$18,000
3. Manufacturing overhead costs are applied to each department as follows:
 Mixing \$17,500 Testing \$12,500 Packaging \$ 6,000
4. Products with a cost of \$55,000 are transferred from the Mixing department to the Testing department.
5. Products with a cost of \$86,000 are transferred from the Testing department to the Packaging department.
6. Products with a cost of \$100,000 are completed and transferred from the Packaging department to the finished goods warehouse.
7. Products with a cost of \$81,000 are sold to customers.

Required:

1. Prepare journal entries to record each of the previous transactions.
2. In general, how does the process costing system used here differ from a job costing system?