Chapter 14

Process Costing
Process costing is a method of cost accumulation that accumulated production costs by
department. This system is commonly used by companies that manufactures on a continuous
basis only one product or standard products.

Problems in process costing are often given in the CPA examination. To pass Practical
Accounting 2, candidates must be thoroughly familiar with situations encountered in these
problems, typical of which are the following:

1. Preparation of Cost of Production Report using:

a. First-in, First out (FIFO) costing method

b. Average costing method

2. Accounting for spoilage (lost units)

a. Normal spoilage

b. Abnormal spoilage

COST OF PRODUCTION REPORT

At the end of each month the cost of production report is prepared for each department by the
cost accountant of the department. A production report has two sections:

1. Quantity schedule, which shows the follow of units.

2. cost analysis which shows the flow of cost.

Quantity Schedule

This section shows the number of units that were in process in the department at the start of
the month, the number of units begun during the month, the number of units transferred out
of the department during the month, the number of units still in work in process at the end of
the month.
The principal problem in the quantity schedule is the computation of the equivalents
production (measure of work done in terms of completed units) of units finished and units in
process for materials and conversion costs (labor and overhead). The computation of the
equivalent units of production (EUP) will depend on the inventory costing method used.

a. First in, First out (FIFO) Costing. Under this method, the stage of completion of the units of
Beginning Work in Process (BWIP) is determined separately from the units started and finished
this month. This means that the equivalent units of production are calculated only for work
actually performed during the month.

b. Average Costing. Under this method, the unit in process at the beginning is combined with
the units started and finished this month and presented in one batch of units. This means that
the work performed on the units in progress beginning (last month) is treated as if it were
performed this month.

Cost Analysis

This section summarized the costs incurred in the department, the cost per unit of the product,
the total costs of products completed and transferred out of department, and the costs related
to the ending inventory of work in process in each department. The principal problem in this
section is the computation of unit cost and the allocation of the total costs to units finished and
transferred out and to units in ending work in process.

Unit cost:

a. First in, first out (FIFO) Costing. Total costs incurred this month (current costs) divided by the
equivalent units of production.

b. Average Costing. Cost last month (cost incurred in BWIP) plus cost this month (current costs)
divided by the equivalent units production.

Allocation of total costs:

a. First in, first out (FIFO) Costing:

Finished and transferred out:

BWIP: Cost last month

Cost this month = EUP x UC

Started in process = Actual units UC

 EWIP = EUP x UC

b. Average Costing:

Finished and transferred out = Actual units x total UC

EWIP = EUP x UC

ACCOUNTING FOR SPOILAGE (LOST UNITS)

Spoilage units are units of product that have been damaged or improperly manufactured and
cannot be completed as salable products. Spoilage may be classified as normal spoilage,
because it is a common occurrence that is inherent in the manufacturing process and abnormal
spoilage that results from unusual and nonrecurring factors, such as fire or water damage.

Candidates should be familiar with the following procedures in presenting spoilage in the cost
of production report.

Quantity Schedule. Normal and abnormal spoilage are presented separately and the equivalent
units of production computed bases on the work done.

Cost Analysis. The costs of units lost through normal spoilage are absorbed by the remaining
god units produced during the month. Costs of abnormal spoilage are presented separately and
charged to a Loss Abnormal Spoilage account so that the completed units do not absorb the
costs related abnormal lost units.

Computation of the cost of normal spoilage:

Spoiled units may be discovered at the start of the process, during the process or at the end of
the process. The computation of the cost of lost units depends on the point of discovery as
follows:

a. if lost units are discovered at the start or during the process

In the first department = no cost

In the subsequent department = lost units x unit cost from preceding department

b. if lost units are discovered at the end of the process

In the first department = lost units x total unit costs in this department
In the subsequent department = lost units x total unit cost from preceding and in this
department

c. if lost units are discovered at inspection point-

 In the first department = EUP of lost units x unit cost
In the subsequent department = cost from preceding department plus cost in this
department (EUP x UC)

Allocation of cost of normal spoilage

Cost of normal spoilage is to be absorbed by the good units because good units cannot be made
without also making some units that are spoiled. Cost of normal spoilage should be alloxated
pro-rate among the good units on the bases of actual units or EUP. The allocations procedures
are:

a. If lost units are discovered at the start or during the process

First In, First Out Costing To all the goods units started finished this month and units in
process at the end.
Average costing To all the good units, finished and in process.

b. If lost units are discovered at the end of the process

First in, First out costing To all the units finished and transferred out.
Average costing to all the good units finished and in process.

c. if lost units are discovered at inspection point. To all the good units that passed the
inspection point.
 PROBLEMS

1. Department of Hope Manufacturing Company presents the following production data for the
month of May, 2013:

Opening inventory 3/8 completed 4,000 units

Started in process 13,000 units
Transferred 9,000 units
Closing inventory, 1/2 completed 4,000 units
3/4 completed 4,000 units

What are the equivalent units of production for the month of May, 2013.

FIFO AVERAGE
a.12,500 units 13,000 units
b.17,000 units 12,500 units
C. 12,500 units 14,000 units
d. 15,000 units 14,000 units

2. Rose Co, bad 3,000 units in work in process at April 1, 2013, which were 60% complete as to
conversion cost, During April, 10,000 units was completed. At April 30, 4,000 units remained in
work in process which were 40% complete as to conversion cost. Direct materials are added at
the beginning of the process.

How many units were started during April?

a. 9,000
b. 9,800
c. 10,000
d. 11,000

3. The Ilang-llang Corporation, engaged in a manufacturing business and using process costing,
gave the following production data for three different situations. Stages of completion of the
inventories apply to all cost elements.

(1) Started in process, 6,500 units; transferred, 5,500 units; in process, 400 units
50% completed and 600 units 25% completed.

(2 ) Beginning inventory, 6,250 units 40% completed; started in process, 25,000 units;
transferred, 26,250 units; in process at the end, 3,000 units 50% completed and 2,000 units
25% completed.

(3) Beginning inventory, 6,000 units 30% completed; started in process. I3,000
units; lost in processing, 500 units from production started this period (loss was normal and
occurred throughout the production process); transferred, 14,000 units; in process at the end,
3,000 units 50% completed and 1,500 units 75% completed.

What are the equivalent production of the three different situations under FIFO and average
costing?

FIFO AVERAGE
1 2 3 1 2 3
a.5,850 25,750 14,825 5,850 28,250 16,625
b. 5,850 27,550 18,425 5,580 22,850 15,662
c.8,550 20,575 15,428 5,508 28,025 16,265
d. 5,058 20,775 12,524 5,850 28,250 16,625

4. Orchids Company has a process cost system using the FIFO cost flow method. All materials
are introduced at the beginning of the process in Department One. The following information is
available for the month of January 2012:
Units
Work in process, 1/1/08 (40% complete as to conversion 500
costs)
Started in January 2,000
Transferred to Department Two during January 2,100
Work in process, 1/31/08 (25% complete as to 400
conversion costs)

What are the equivalent units of production for the month of January 2013?

Materials Conversion
a.2,500 2,200
b.2,500 1,900
c.2,000 2,200
d.2,000 2,000

5. Anahaw Company's production cycle starts in the Mixing Department. The following
information is available for the month of April 2013?
Units
Work inprocess, April 1 (50% complete) 40,000
Started in April 240,000
work-in-process, April 30 (60% complete) 25,000

Materials are added in the beginning of the process in the Mixing Department. Using the
weighted average method, what are the equivalent units of production for the month of April
2013?
Materials Conversion
a.240,000 250,000
b.255,000 255,000
c.270,000 280,000
d.280,000 270,000

6. Materials are added at the start of the process in Jasmin company's cutting department, the
first stage of the production cycle. The following information is available for the month of
March 2013.
units
Work in process, March 1 (60% complete as to 60,000
conversion costs)
Started in March 150,000
Transferred to the next department 110,000
Lost in production 30,000
Work in process, March 31 (50% complete as to 70,000
conversion costs

Under Jasmin's cost accounting system, the costs incurred on the lost units are absorbed by the
remaining good units. Using the First in, First out method, what are the equivalent units for the
materials unit cost calculation?

a. 120,000
b.145,000
c. 180,000
d. 210,000

7. Bayani Manufacturing Company, using the FIFO process cost system, has the following data
for the month of April:
Percent Complete
Actual Units Materials Conversion cost
Beginning Inventory 15,000 * I 00% 40%
Transferred in 150,000
Transferred out 120,000
Ending Inventory 45,000 100% 30%

What are the equivalent units of production for the month of April?

Materials Conversion Costs

a.150,000 127,500
b.165,000 139,500
C. 135,000 124,500
d. 150,000 133,500
8. Eastern Products Inc., Input all materials at the start of operations in Process 1. The inventory
is process at the beginning of January consisted of 4,000 units with a total cost of materials of
P100,000 and labor and overhead of P20,000 . In January, 20,000 units were started in process
with material cost of P500,000. Labor and overhead in January cost P280,000. As of end of
January., the inventory was 100% complete in materials but only 60% in labor and overhead.
The ending inventory consisted of 10,000 units. The equivalent units of labor and overheard for
the month of January amounted to:

a.20,000
b.10,000
C. 26,000
d. 30,000

9. Yakal Company computed the flow of physical units completed for Department M for the
month, of March 2013 as follows:
Units completed:
From work-in process on March 1, 2008 15,000
From March production 45,000

No. 9 Continued

Materials are added at the beginning of the process. The 12,000 units of work in process at
March 31, 2013, were 80% complete as to conversion costs. The work in process at March 1,
2043 was 80% complete as to conversion costs. Using the FIFO method, the equivalent units for
March conversion costs were:

a. 55,200
b. 57,000
C. 60,600
d. 63,600

10. Mataba Company sells food processors and manufactures them in a single continuous
process. At the end of August there were 200 units valued at P30,095, which consists of
P25,200 in materials cost and P4,895 in conversion cost. These were 100% complete as to
materials and 25% complete as to conversion cost 1200 units were added to production during
September, and these had materials costs of P168,000. Processors which have not been
completed at the end of September total 200 units and were 100% complete as to materials
and 50% complete as to conversion cost. Conversion cost during September were P158,125.
There were no units lost in process.

What are the equivalent units of production for September?

Materials Conversion Cost

a.1,400 1,350
b.1,200 1,100
c.1,200 1,150
d.1,200 1,250

11. The Wiring Department is the second stage of Acacia Company's production cycle. On May
1, the beginning work-in process contained 25,000 units which were 60% complete as to
conversion costs. During May, 100,000 units were transferred-in from the first stage of Acacia's
production cycle. On May 31, the ending work in Process contained 20,000 units which were
80% complete as to conversion costs. Material costs are added at the end of the process, using
the weighted-average method, the equivalent units were:

Materials Conversion costs

a.125,000 100,000
b.105,000 105,000
c.105,000 121,000
d.125,000 121,000

12. Dhalia Company adds materials at the beginning of the process in Department A
Information concerning the materials used in April 2013 production is as follows:

Units
Work-in-process at April 10,000
Started during April 50,000
Completed and transferred to next 36,000
department during April
Normal spoilage incurred 3,000
Abnormal spoilage incurred 5,000
Work in process at April 30 16,000

Under Dhalia's cost accounting system, costs of normal spoilage are treated as part of the costs
of good units produced. However, the costs of abnormal spoilage are charged to factory
overhead. Using the weighted-average method, what are the equivalent units for the materials
unit cost calculation for the month of April?

a.47,000
b.52,000
C. 55,000
d. 57,000

13. The following information pertains Lanao's First Department for the month of
April:
 Number of units Cost of Materials
Beginning work-in-process 15,000 P 5,000
Started in April 40,000 18,000
Units completed 42,000
Ending work-in-process 12,000

All materials are added at the beginning of the process. Using the weighted average method,
the cost per equivalent unit for materials is:

a.P0.59
b.P0.55
C. P0.45
d. P0.43

14. Information concerning Dept. B of Simon Co. follovvs:

Units
Beg. work in process 5,000 P6,300 P2,90 P- P 3,400
Units transferred in 35,000 58,000 17,500 25,500 15,000
40,000 P64,300 P20,400 25,500 P18,400

Units completed 37,000

End. work in process 3,000

Conversion costs were 20% complete as to the beginning work in process and 40% complete as
to the ending work in process. All materials are added at the end of the process. Simon Co. uses
the weighted average method.

The unit cost for conversion costs and for transferred-in cost rounded to the nearest centavo
are:

a. P0.44 and P0.48

b. P0.46 and P0.51
c.P0.48 and P0.51
d. P0.50 and P0.53

15. Reyna Company manufactures product X in a two-stage production cycle in Departments A

and B, Materials are added at the beginning of the process in Department B. Roy uses the
weighted-average method. Conversion costs for department B were 50% complete as to the
6,000 units in the beginning work-in- process and 75% complete as to the 8,000 units in the
ending work-in-process,12,000 units were completed and transferred out of Department B
during February 2013. An analysis of the costs relating to work-in-process and production
activity in Department B for February 2013 is as follows:
 Transferred Cost
In Materials Conversion
Work-in-process,
February 1:
costs attached P12,000 P2,500 P1,000
February activity:
costs added 29,000 5,500 5,000

The total cost per equivalent unit transferred out for February 2013 of product X, rounded to
the nearest centavo, was:

a. P2.75
b. P2.78
c. P2.82
d. P2.85

16. On April 1,2013, the Hari Company had 6,000 units of WIP in Department B, the second and
last stage of their production cycle. The costs attached to these 6,000 units were P12,000 of
costs transferred in from Department A, P2,500 of material cost added in department B and
P2,000 of conversion cost added in Department B. Materials are added in the beginning of the
process in Department B. Conversion was 50% complete on April 1,2013. During April, 14,000
units were transferred in from Department A at a cost of P27,000; and a materials costs of
P3,500 and conversion costs of P3,000 were added in Department B. On April 30, 2011,
Department B had 5,000 units were added in Department B. On April 30,2011 Department B
had 5,000 units of WIP 60% complete as to conversion costs. The costs attached to these 5,000
units were P 1 0,500 of costs transferred in from Department A, P1,800 of material costs added
in Department B and P800 of conversion costs added in Department B.

Using the weighted-average method, what are the unit costs?

Transferred Materials Conversion
in cost
a.P1.95 P.25 P.27
b.P1.95 P.30 P.28
c.P1.80 P.30 P.27
d. P1.70 P.25 P.28

I 7. Department CC has the following April production information:

Beginning work in process 24,000 units

Units started during the month 780,000 units
Units transferred to next operation in April 744,000 units
Ending work in process (40% complete) 60,000 units
Beginning work in process cost P 120,000
April's production cost 5,256,000
No 17 Continued
The unit cost of production is:

a.P 7.00
b. P20.22
c. P 6.89
d. P 6.69

I 8. For the month of March, Payaso Inc. registered the following information:

Beginning work in process (70% complete) 40,000 units

Started in March 300,000 units
Ending work in process (80% complete) 60,000 units

The cost of beginning work in process was FP 140,000 while the production costs for the month
registered at P 1 ,172,000. Using the average method, what is the unit cost of production for
March?

a.P4.00
b.P3.86
C. P3.91
d. P4.69

I 9. The Masaya Corporation manufactures only one product, and the raw materials must pass
through Processes A, B, and C, in that order, before completion.

On October 1, the inventories of Process C and Finished Goods were:

Process C -- 1,200 units, 2/3 completed, P4,200.

Finished Goods -- 1,000 units, at P3.00 per unit.

During October, 2,000 units valued at P5,000 were transferred in from Process B.
Direct labor cost in Process C was P3,100 and the overhead cost applied to Process C was
P3,200.

The inventories on October 31 were:

Process C -- 660 units, 1/2 completed.
Finished Goods -- 1,300 units
The conversion cost per equivalent unit for October is:

No. 19 --- continued

a.P1.50
b.P2.75
C. P3.00
d. P3.50

20. Materials are added at the start of the process in Arce Company's Blending Department, the
first stage of the production cycle. The following information is available for the month of July,
2013.
Work-in-process, July 1 (60% complete as to conversion 60,000 units
costs)
Started in July 150,000 units
Transferred to the next department 110,000 units
Lost in production 30,000 units
'Work-in-process, July 31 (50% complete as to 70,000 units
conversion costs)

Under Arce's cost accounting system, the costs incurred on the lost units are absorbed by the
remaining good units. Using the weighted-average method, what are the equivalent units for
the materials unit cost calculation?

a. 120,000
b. 145,000
c. 180,000
d. 210,000

21. Information for the month of May concerning Department A, the first stage of Pinay
Corporation's production cycle is as follows:

Conversion
Materials Costs
Work-in-process, beginning P 4,000 P 3,000
Current costs 20,000 16,000
Total costs P24,000 P19,000
Equivalent units based on
Weighted-average method 100,000 95,000
Average unit costs P 0.24 P 0.20
Goods completed 90,000 units
Work in process, end 10 000 units
No. 21 --- Continued

Material costs are added at the beginning of the process. The ending work-in process is 50%
complete as to conversion costs. How would the total costs accounted for be distributed, using
the weighted-averaged method?

Goods Completed Work-in Process, End

a P39,600 P3,400
b. P39,600 P4,400
C. P43,000 P0
dr. P44,000 P3,400

22. Samahan, Inc. manufactures a highly sensitive smoke alarm and uses the first-in, first-out
method for process costing and finished goods costing. In costing finished goods, the unit cost
for units completed from the work in process at the beginning of the period is kept separate
from the unit cost of those started and completed during the period.

The total manufacturing costs for the month of June is P264,000 and 2,750 units are completed
during the month.

The inventories at the beginning of

June area
Smoke alarms in process (8O% 1,250 units P128,000
complete)
Smoke alarms on hand (complete) 600 units 76,800
The inventories at the end of June are:
Smoke alarms in process (50% 500 units
complete)
Smoke alms on hand (complete) 700 units

How would the total costs accounted for be distributed?

Work-in Process Finished Goods

a. P33,000 P92,000
b. P33,000 P79,000
c. P32,000 P92,000
d. P66,000 P52

23. China, Inc. manufactures a product which goes through three consecutive Processes,
Process I , Process 2 and Process 3. Data for the month of September, 2013 are as follows:
Process 1 Process 2 Process 3
P8,000 P13,000 P2,000
Opening Work in Process 20,000 4,000 5,000
Materials added 10,000 10,000 16,000
Conversion Costs 6,000 9,000 4,000

What was the value of the output transferred from Process 3 to the finished goods warehouse
for the month of September?

a. P63,000
b. P65,000
c. P67,000
d. P69,000

24. Lucas Company adds materials in the beginning of the process in the 'Forming Department,
which is the first of two stages of its production cycle. Information concerning the materials
used in the Forming Department in October 2013 are as follows:

Units Material Costs

Work in process at October 1, 2013 6,000 P3,000
Units started during October 50,000 50,000
Units completed and transferred to
the next department during October 40,000

Using the weighted-average method, what was the materials cost of work in process at October
31, 2013?

a. P3,060
b. P5,520
C. P6,000
d. P6,120

25. During March 2013 Binata Co.'s Department Y equivalent unit product costs, computed
under the weighted-average method, were as follows:

Materials P1
Conversion 3
Transferred-In 5

Materials are introduced at the end of the process in Department There were 4,000 units (40%
complete as to conversion cost) in work-in-process at March 31, 2013, The total costs assigned
to the March 31, 2013, work-in-process inventory should be

a. P36,000
b. P28,800
c. P2 7,200
d. P24,800
26. The following data pertains to Finishing Department for the month of May, 2013:
I. Opening Inventory 4,000 units

Percentage of completion Value

Material 100% P1,992
Labor 50% 1,074
Overhead 50% 826

Put in process 20,000 units

Materials value - P 12,000
Labor --- P9,984
Overhead is 100% of labor cost.

2, Units completed and transferred to store a 21,000 units

3. In process at the end - 3,000 units
Materials - all
Labor and overhead - 60%

No. 26 Continued

What is the cost of the work-in process at the end for the month of May?

Average Method FIFO Method

a. P3,577 P3.500
b. P3,477 P3,228
c. P3,528 13,477
d. P3,500 P3,577

27. For the month of May, the Cutting Department of Damit Co had 80% complete as to the
beginning work in process and 50% complete as to the ending work in process. Related data
follow:
Units Conversion Costs
Work in process, 1 May 50,000 P88,000
Units started and costs incurred in May 270,000 572,000
Units completed and transferred to
the next department in May 200,000

If the company were using FIFO method, the conversion cost of the work in process in the
Cutting Department at the end of May would amount to

a.P156,000
b.P254,000
C. P132,000
d. P176,000

28. Matalino, Inc. instituted a new process in October 2013. During October, 10,000 units were
started in Department A. Of the units started, 1,000 were lost in the process, 7,000 were
transferred to Department B and 2,000 remained work-in-process at October 31, 2013. The
work-in-process at October 31, 2013 was 100% complete as to material costs and 50%
complete as to conversion costs. Material costs of P27,000 and conversion costs of P40,000
were charged to Department A in October. What were the total costs transferred to
Department B?

a. P46,900
b.P5.3,600
c. P56,000
d. P57,120

29. The following data for September were taken from the cost records of the Mixing
Department of Love Manufacturing Company, which uses average costing method:

Work in process, August 31:

(all materials, 50% converted) 1,000 units
Put into process during the month of September 10,000 units
Work in process, September 30:
(all materials, 60% converted) 1,400 units
Costs:
Work in process, August 31:
Materials P 24,000
Labor 15,000
Factory overhead 7,000
Put into process during September
Materials 251,000
Labor 193,000
Factory overhead 149,000

The total cost of the units completed and transferred was:

a. P576,000
b. P605,400
c. P640,400
d. P693,800`

30. The Forming Department is the first of a two stage production process. Spoilage is identified
when the units have completed the forming process. Cost of spoiled units are assigned to units
completed and transferred to the second department in the period spoilage is identified. The
following information concerns Forming 's conversion costs in May 2013.
 Units Conversion Cost
Beginning work-in-process (50% complete) 2,000 P10,000
Units started in May 8,000 75,000
Spoilage-Normal 500
Units completed and transferred 7,000
Ending work in process (80% complete) 2,500

No. 30 Continued

Using the weighted-average method, what was Forming's conversion cost transferred to the
second production department?

a. P59,850
b. P64,125
C. P67,500
d. P71,250

31. Manuel Company uses process cost system with average costing to account for the
production of its only product The product is manufactured in two departments. Units are
started in Assembling Department, and then transferred to the Finishing Department, where
they are completed. Units are inspected at the end of the production process in the Assembling
Department, and the cost of abnormal lost is charged to Factory Overhead Control account.
Data related to June operations in the Assembling Department are:

Quantity:
Units in beginning inventory (60% materials,
35% labor, and 25% overhead) 1,000
Units started in process this period 59,000
Units transferred to the Finishing Department this 8,000
period
Units in ending inventory (100% materials, 75% labor,
Aand 50% overhead) 1,500
Cost data:
Beginning Inventory Added This Period
Costs charged to the Department:
Materials P 1 ,260 P36,240
Direct labor 770 10,780
Factory overhead 1,400 21,725
What is the total cost transferred to the Finishing Department?

a. P56, 752
b. P59,600
C. P59,452
d. P58,000 or less

32. Datu Chemical Industries, Inc. produces a product through a continuous process in different
departments. Each department has an independent cost accountant who prepares cost of
production report. You have been assigned as cost accountant for Department A.

Production data of Department A for the month of July, 2013 were as follows:

Work in process, July 1 (70% completed) 14,000 units

Started in process 70,000 units
Work in process, July 31 (60% completed) 12,000 units
Lost units (normal) at end of process 2,000 units
In this department, costs are applied as follows:
Materials --- added at the start.
Labor and overhead --- evenly applied
Department costs incurred in July were:
Materials P56,000
Labor 17,000
Overhead 13,000
Work in process, July 1 8,000

What is the cost of?

Units transferred Work in process-July 31

a. P82,390 P 9,600
b. P81,890 P 9,600
c. P72,000 P12,840
d. P82,3 90 P12,840

33. The Classmate Company manufactures a single product in a continuous process in two
departments. Cost and production data for the finishing department, the last department for
the month of April, 2013 are shown below:

Costs:
Cost from preceding department P135,000
Work in process, April 1 18,000
Materials -
Labor 85,800
Factory overhead 47,200
No. 33 Continued
Quantity:
Units in process, April 1
(All materials, 50% converted) 4,000
Units received from preceding department 30,000
Units in process, April 30
(All materials, 60% converted) 6,000
Loss during the process 3,000

In the Finishing Department, what is the total cost transferred to finished goods?

a. P250,000
b. P286,000
C. P238,000
d. P210,000

34. Adonis Manufacturing Company makes a single product in two departments. The
production data for Department 2 for May 2013 follows:
Quantities:
In process, May I, (40% completed) 4,000 units
Received from Department 1 30,000 units
Completed and transferred 25,000 units
In process, May 31, (60% completed) 6,000 units
Production Costs:
May 1 May 31
Received from Department 1 P16,300 P89,100
Materials 3,800 67,500
Conversion cost 1,940 81,000

Materials are added at the start of the process, and losses normally occur during the early stage
of the operation.

Using the Average Costing Method, what is the inventory cost of the ending work in process?

a. P44,640
b. P45,460
c. P45,600
d. P46,000

Numbers 35 to 37 are based on the following information

Air Force Inc. manufactures their product in two departments in a continuous process.
Production data for the month of October 2013 are as follows:
Beginning work in process, 40% completed 500 units
Received from preceding department 2,000 units
Normal spoilage 200 units
Abnormal spoilage 300 units
Units completed and transferred out 1,700 units
Ending work in process, 1/3 completed 300 units
Conversion costs in beginning inventory P610
Current period conversion costs P3,990

All spoilage occurs at the end of the process.

35. What is the conversion cost per equivalent unit?

FIFO Method Average Method

a. P1.90 P1.73
b. P2.19 P2.00
c. P2.00 P1.90
d. P1.90 P2.00

36. What is the conversion cost of normal spoilage?

FIFO Method Average Method

a. P438 P400
b. P380 P346
c. P400 P380
d. P380 P400

37. What is the conversion cost of abnormal spoilage?

FIFO Method Average Method

a. P570 P519
b. P657 P600
c. P570 P600
d. P600 P570

Use the following data in answering Numbers 38 to 41

The Cooking Department of Red Crab, Inc., uses process system Direct materials are added at
the beginning of the cooking process. Conversion costs are added evenly during the cooking
process. Consider the following data for the Cooking Department for January:
Physical Units Direct Materials Conversion
costs
Work in process, January 1:
25% conversion costs
Started in January 74,000 250,000 30,000
Good units completed and
transferred
out during January 61,000
Spoiled units 8,000
Work in process, January 31 15,000
Costs added during January P1,480,000 P942,000
Cost per equivalent unit of
work
done in January P20 P12

Red Crab uses the FIFO method of process costing. Inspection occurs when production is 100%
complete, normal spoilage is 11% of good units completed during the period.

38. What is the total cost of the units completed and transferred-out?

a. P1,632,000
b. P1,972,000
c. P2,186,720
d. P2,228,000

39. What is the total cost of the units in ending work in process?

a. P444,000
b. P685,280
C. P658,720
d. P300,000

40. What is the cost of abnormal spoilage?

a. P256,000
b. P214,720
c. P 41,280
d. 41,000

Questions 41 and 42 are based on the following information:

A sporting goods manufacturer buys wood as a direct material for baseball bats. The Fanning
Department processes the baseball bats, and the bats are then transferred to the Finishing
Department where a sealant is applied. The Forming Department began manufacturing 10,000
"Casey sluggers" during the month of May. There was no beginning inventory.

Costs for the Forming Department for the month of May were as follows:
Direct materials P33,000
Conversion costs 17,000
Total P50,000

A total of 8,000 bats were completed and transferred to the Finishing Department; the
remaining 2,000 bats were still in the forming process at the end of the month. All of the
Forming Department's direct materials were placed in process, but, on average, only 25% of the
conversion cost was applied to the ending work-in- process inventory.

41. The cost of the units transferred to the Finishing Department is:

a. P50,000
b. P40,000
C. P53,000
d. P42,400

42. The cost of the work-in-process inventory in the Forming Department at the end of May is:

a. P10,000
b. P 2,500
c. P20,000
d. P 7,600

Question 43 and 44 are based on the following information:

A manufacturer began operations on October 1. It buys wood as a direct material for the
production of floor lamps. The companys Forming Department processes the lamp frames, and
the frames are then transferred to the Finishing Department where a sealant is applied. The
Forming Department began manufacturing 10,000 lamps during the month of October. Costs
for the Forming Department for the month of October were as follows:

Direct materials P66,000

Conversion cost 34,000

43. The cost of the units transferred to the Finishing Department (after rounding each
calculation to the nearest cent) is:

a. P68,760
b. P60,000
c. P39,600
d. P29,160

44. The cost (after rounding each calculation to the nearest cent) of the work-in-process
inventory in the Forming Department of October is:
a. P11,460
 b. P26,400
c. P31,260
d. P45,840

Question 45 and 44 are based on the following information:

A company employs a process costing system for its two-department manufacturing operation
using the first-in, first-out (FIFO) inventory method. When units are completed in Department
1, they are transferred to Department 2 for completion. Inspection takes place in Department
2 immediately before the direct materials are added, when the process is 70% complete with
respect to conversion. The specific identification method is used to account for lost units.

The number of defective units (that is, those failing inspection) is usually below the normal
tolerance limit of 4% of units inspected. Defective units have minimal value, and the company
sells them without any further processing for whatever it can.

Generally, the amount collected equals, or slightly exceeds, the transportation cost. A summary
of the manufacturing activity for Department 2, in units for the current month, is presented
below:

Physical Flow(output units)

Beginning inventory (60% complete with respect to conversion) 20,000
Units transferred from Department 1 180,000
Total units to account for 200,000
Units completed in Department 2 during the month 170,000
Units found to be defective at inspection 5,000
Ending inventory (80% complete with respect to conversion) 25,000
Total units accounted for 200,000

45. The equivalent units for direct materials for the current month would be:

a. 175,000 units
b. 181,500 units
c. 193,000 units
d. P200,000 units

46. The units that failed inspection during the current month would be classified as:

a. abnormal spoilage
b. normal scrap
c. normal rework units
d. normal waste

47 to 50 are based on the following data:

DXR Compamy employs process cost system. A unit of product passes through two department.
Assembly and Finishing before it is complete. Information regarding Assembly Department
follow:

BWIP, Aug. 1 4,000 units

Spoiled units 3,000
Suited in Production 26,000
Transffered out 24,000

Raw materials are added at the beginning of processing in the Assembly Department without
changing the number of units being processed. Work-in-process on August 1 was 90% complete
as to conversion while 80% converted on August 31. In the Assembly Department, inspection
takes place when the units are 75% converted. The company usually experienced a 5% loss
based on the completed units,

Cost data for the month of August follow:

Materials Labor Overhead

BWIP P32,400 P26,400 P28,500
Current cost 111,600 88,200 114,750

Using Weighted Average Costing: Assuming that the allocation of cost of normal lost units is
based on EUP.

47. What the cost of units transferred-out?

a. P331,200
b. P331,400
c. P343,684
d. P343,860

48. What is the cost of units of ending work-in-process?

a. P37,376
b. P37,500
c.P36,200
d. P37,400

Using FIFO Costing: Assuming that the allocation of the cost of normal lost units is based on
actual units.

49. What is the cost of units transferred out?

a. P349,136
b. P258,067
c. P339,267
d. P368,069

50. What is the cost of units of ending work-in-process?

a. P33,850
b. P32,310
c. P31,580
d. P33,580

ANSWERS

1.C 11.c 21.a 31.b 41.d

2.d 12.d 22.a 32.d 42.d
3.a 13.d 23.d 33.c 43.a
4.d 14.c 24.d 34.a 44.C
5.d 15.b 25.d 35.d 4S. C
6.a 16.b 26.b 36.d 46.b
7.a 17.a 27.a 37.c 47.a
8.a 18.a 28.c 38.c 48.a
9.c 19.c 29.a 39.a 49.a
10.d 20.c 30.c 40.C 5O. a

SOLUTIONS AND EXPLANATIONS

1. Under FIFO method the work done this month on the opening inventory should be
determined. The equivalent production is computed as follows:

Transferred:
Opening inventory (3/8 x 4,000) 2,000
Started (9,000- 4,000) 5,000
Closing Inventory:
1/2 x 4,000 2,000
3/4 x 4,000 3,000 5,000
Equivalent production 12,000

Under the average cost method, to compute the equivalent production, the work done on the
opening inventory is not determined.
Transferred
Closing Inventory: 9,000
1/2 x 4,000 2,000
3/4 x4, 3,000 5,000
Equivalent production 14,000

2. This is computed by using the equation, units in process beginning and units started is equal
to units completed and units in process at the end, therefore the with units started is 11,000
units as computed below:

Units completed 10,000

Units in process-end 4,000
Units as accepted for 14,000
Less: Units in process, beg. 3,000
Units started 11,000

3. FIFO:
Case 1 Case 2 Case 3
Units completed and 5,500 26,250 14,000
transferred
Add: Units in process, ending:
1. (400 x 50%) + (600 x 350
25%)
2. (3,000 x 50%) + (2,000 x 2,000
25%)
3. (3,000 x 50%) + (1,500 x ____ ____ 2,625
75%)
Equivalent production figures,
Average Costing 5,850 28,250 16,625
Less: Units in process,
beginning:
2. (6,250 x 40%) 2,500
3. (6,000 x 30%) ____ _____ 1,800
Equivalent production figures, 5,850 25,750 14,825
FIFO Costing

Case .1 Case 2 Case 3

Units completed and transferred 5,500 26,250 14,000
Add: Units in process, ending:
1. (400 x 50%) + (600 x 25%) 350
2. (3,000 x 50%) + (2,000 x 2,000
25%)
3. (3,000 x 50%) + (1,500 x _____ ____ 2,625
75%)
Equivalent production figures,
Average Costing (see also FIFO) 5,850 28,250 16,625
4. The computation is:
Materials Conversion
Work to complete WIP-Beg. 0 300
Units started and transferred 1,600 1,600
Work to date on WIP-end 400 100
EUP 2,000 2,000

Since materials are introduced at the beginning of the process, WIP Beg. is already complete as
to materials. All materials were added this month for any units started this month, whether
those units were transferred or remain in W1P End, since WIP Beg. is 40% complete on 1/1/08
as to conversion costs, 60% of the work (60% x 500, or 300) must have been done in January.
WIP End is 25% complete at 1/31/08, which means 25% of the conversion work (25% x 400, or
100) was done in January. Remember, under the FIFO assumption, equivalent production
measures only the work done in the current period.

5. Equivalent units, under the weighted-average method, is equal to units completed

plus equivalent units in ending work-in-process.

Beginning work-in-process 40,000

Units started 240,000
Units to be accounted for 80,000
Less ending work-in-process 25,000
Units completed 255,000

Computation of equivalent units of production is then computed as follows:

Materials Conversion
Units completed 255,000 255,000
Equivalent units 25,000 15,000
Equivalent units 280,000 270,000

Materials added at beginning of process; 100% complete

(25,000) (60% complete)

6. Since the materials are added at the beginning of the process, all units are 100%
complete with respect to materials.
Actual Work Done Materials
Actual Work Done Materials
Finished and transferred:
Work in process, March 1 60,000 -
Started in March (110,000- 50,000 100% 50,000
60,000)
Work in process, March 31 70,000 100% 70,000
Equivalent units of 120,000
production

As stated in the problem, the cost of the 30,000 spoiled units will be spread over the 180,000
equivalent units. Hence, the spoiled units are not considered in the equivalent unit
computation.

7. The computation is shown below:

Materials Conversion Cost

Transferred out:
Beginning inventory 9,000
Transferred in (120,000-15,000) 105,000 105,000
Ending inventory 45,000 13,000
Equivalent production 150,000 127,000

8. Units finished [(R4,000 20,000 10,000) x 100% =] 14,000

Units in process-end (10,000 x 60%) 6,000
Equivalent units of labor and overhead 20,000

Note: The average method was used because the percentage of completion as to conversion
cost on the units in process beginning is not given.

9. Equivalent units for conversion costs can be computed under the FIFO method as follows:

Units completed:
Work in process, March 1 (15,000 x 40%)* 6,000
From March production 45,000
Work in process, March 31 (12,000 x 80%) 9,600
Equivalent units 60,600

* Work done this month.

Another computation is:

Units completed 60,000
Work in process, March 31 9,600
Total 69,600
Less: Work in process, March 1 (15,000 x 9,000
60%)*
Equivalent units 60,600

* Work done this month.

10. Using the FIFO, the computation is:
Actual Materials Conversion Cost
Units completed:
In process, beginning 200 150
Started & completed 1,000 1,000 1,000
Units in process, end 200 200 100
Equivalent units 1,200 1,250

11. Under the weighted-average method, the computation is as follows:

Actual Material Conversion Cost
Units in process, beg. 25,000
Units transferred in 100,000
Total units to account for 125 000
Units completed (Squeeze) 105,000 105,000 105,000
Units in process, end 20,000 ______ 16,000
Units as accounted for 125,000 105,000 121,000

No. 11 - Continued
Under the average method the equivalent production &the total units transferred-in would be
the total units in process, beginning and the unit transferred-in of
100,000.

12. No equivalent production is to be computed on normal spoilage since the cost is to be

allocated to all the good units. However abnormal spoilage is to be given a
100% e equivalent production since its costs are charged to factory overhead. Therefore, the
equivalent production under the average method is 57,000 units, Computed as follows:

Completed and transferred (100%) 36,000

Work in process, end (100%) 16,000
Abnormal spoilage (100%) 5,000
Equivalent production of materials 57,000

13. Under the weighted average method, equivalent units of production and cost per unit are
based on all work (this period's and last period's) done on units completed plus all work done to
date on the units in ending work in process. Since materials are added at the beginning of the
production process, both the units completed in the ending work-in-process are 100 percent
complete with respect to materials.
The cost per equivalent unit can be computed as follows:
Units completed 42,500
Ending work in process 12,500
Total equivalent units 55 000
Cost of materials:
Beginning work in process P 5,500
Units started 18,000
Total costs incurred P23,00
Divided by Equivalent Production 55,000
Cost pa equivalent unit P.43

14. Unit cost for conversion cost

Units completed
Units in process, end (3,000 x 40%) 37,000
Equivalent production for conversion cost 1,200
Unit cost, rounded to the nearest centavo is: 38,200
P18,400 + 38,200 P0.48

Unit cost for transferred-in cost is P0.51, completed by dividing transferred in

cost (P20,400) by the total units of in Process beginning and units transferred-in (40,000 units).

15. Since Reyna Company is using the weighted-average method, the solutions approach is to
combine the transferred-in cost, material costs and conversion costs in the beginning inventory
with their counterparts for costs added in February The next step is to compute the equivalent
units for the transferred-in, materials and conversion elements. Finally, dividing the total costs
of the beginning inventory and costs added in the period for each element by the equivalent
units for the corresponding element gives the unit cost for each of the elements.
Department B
Beginning work-in Completed and
process (conv. 50%) 6,000 12,000 transferred
Transferred in Ending work-in-
(not needed) ? 8,000 process (conv. 75%)

Department B Product X Equivalent Units:

Transferred in
Units completed and transferred 12,000 12,000 12,000
Ending work-in process (conv. 75%) 8,000 8,000 6,000
Equivalent units production 20,000 20,000 18,000
Cost per Equivalent Unit:
Beginning work-in process P12,000 P 2,000 P 1,000
Costs added in February 29,000 5,000 5,000
P41,000 P 8,000 P 6,000
Cost per EUP P 2.05 P 0.40 P- 033
Total P 2.78

16. First compute equivalent units of production as shown below:

Physical Stage of Transferred- Materials Conversion
Flow Completion in
M CC
Beginning work-in-
process, 4/1/08 6000 100% 50%
Transferred in 14,000
Available 20,000
Units completed 15,000 15000 15,000 15,000
Ending work-in-
process,
4/30/08 5,000 100% 60% 5,000 5,000 5,000
Weighted average
equivalent units 20,000 20,000 18,000

No. 16 -- continued
Under the weighted average method, unit costs (rounded) as follows:

Transferred in (P12,000 + P27,000) + 20,000 =P1.95

Materials (P2,500 + P3,500) + 20,000 = P0.30

Conversion cost (P2,000 + P3,000) t 18,000 = P0.28

17.
Total cost to account for (P120,000 + P5,376,000
P5,256,000)
Divided by the equivalent production:
Units finished and transferred 744,000
Work in process, end (60,000 x 40%) 24 000 768,000
Unit cost of production P 7.00

18.
Total cost of units in process beginning and cost for
the month
(P140,000 + P1,172,000) P1,312,000
Divided by the equivalent production:
Units finished and transferred (340,000-60,000) 280,000
Work in process, end (60,000 x 80%) 48,000 328,000
Unit cost of production P 4.00
19. Since no materials are added in process C, then only unit cost for conversion Cost is to be
computed:

Units in process, Oct. 1 (1,200 x 1/3) 400

Units started and completed this October:
Total units completed R1,200 + 2,000- 600] 2,600
Less: In process, Oct. 1 1,200 1,400
Units in process, Oct. 31 (600 x 1/2) 300
Equivalent units of production 2,100
Unit cost of labor and overhead (116,300 p 3.00
2,100)

Unit cost of labor and overhead (116,300 2,100)

20. Since the materials are added at the beginning of the process, all units are 100% complete
with respect to materials.
Units % Complete Equivalent units
completed units 110000 x 100% = 110000
Units in ending
inventory 70,000 x 100% = 70,000
Total equivalent units 180,000

As stated in the problem, the cost of the 30,000 spoiled units will be spread over the
180,000 equivalent units. Hence, the spoiled units are not considered in the equivalent unit
computation.

21. The total cost of P43,000 (P24,000 for materials and P19,000 for Conversion cost) is
distributed as follows:
Goods completed (90,000 x P.44) P39,600
Work in process, end:
Materials (10,000 x P0.24) P2,400
Conversion cost (5,000 x P0.20) 1,000 3,400
Total P43,000

22. Cost assigned to work in process inventory, end:

Units completed:
Units in process, June 1 (1,250 x 20%) 250
Units started and completed (2,750 1,250) 1,500 1,750
Units in process, June 30 (500 x 50%) 250
Equivalent production 2,000
Unit cost, FIFO (P264,000 2,000) P 132
Cost of work in process inventory (250 x P132) p33,000
Cost assigned to the finished inventory
at the end of June: 700 x P132 P92,400

Note: On a "first-in, first-out" basis, all units in the finished goods inventory at the end of June
would have come from units that were started and completed during the month of June.

23.
Total cost of opening work in process (8,000 +13,000 P23,000
+ 2,000)
Add: Materials cost P29,000
Conversion cost 36,000 65,000
Total cost 88,000
Less: Cost of closing work ,in process 19 000
Cost of units transferred to finished goods P69,000

24. The major point to remember is that both the equivalent units and equivalent units cost
computations combine the beginning inventory with the current Production.

Equivalent Units
Physical Flow
Physical Raw Material Stage Equivalent units
Flow of Completion Raw Materials
Beginning inventory 6,000 100%
Started 50,000
Available 56,000
Completed 44,000 100% 44,000
Ending inventory 12,000 100% 12,000
Weighted average
equivalent units 56,000

Unit cost of material [(P3,000 P25,560) 56,000] = P.51

Material cost of work in process, Oct 31 (12,000 x .51) P6,120

25. Cost of work-in process at March 31, 2011.

Materials 0
Conversion cost (4,000 x 40%) x P3 P 4,800
Transferred in cost (4,000 x P5) 20,000
Total P24, 8000

26. Equivalent productions:

Average method:
Material Conversion Cost
Units completed 21,000 21,000
In process, end 3,000 1,800
Equivalent production 24,000 22,800

FIFO Method:

Unit in process 4,000 2,000

Units started (21,000-4,000) 17,000 17,000
In process, end 3,000 1,800
Equivalent production 24,000 20,800

Unit Cost:
Average method:
Material (P1,992 + P12,000) + 24,000 = P0.583
Conversion cost (P1,920 + P19,968) 4- 22,800 = 0.96
Total units cost P1.543

FIFO method:
Materials (P12,000 24,000) P 0.50
Conversion cost (P19,968 20,800) 0.96
Total unit cost P 1.46

Cost of work in process, end:

Average:
Materials (3,000 x P0,583) P1,749
Conversion cost (3,000 x 60%) x P0.96) 1,728
Total P3,477

FIFO method:
Materials (3,000 x P0.50) P1,500
Conversion cost (3,000 x 60%) x P.96 1,728
Total p3,228

27. Equivalent Production of Conversion cost:

Work in process, May I (50,000 x 20%) 10,000
Units started and completed (200,000 -- 50,000) 150,000
Work inprocess, May 30 (320,000 200,000) X 50%) 60,000
Total 220,000
Unit cost (P572,000 220,000) P 2.60
Conversion cost (60,000 x P2.60) P156,000

28. Equivalent production;

 Materials Conversion Cost
Unit completed 7,000 7,000
Units lost
in process, end 2,000 1,000
Equivalent production 9,000 8,000

Unit cost:
Material (P27,000 9,000) P3
Conversion cost (P40,000 8,000) 5
Total unit cost P8

Total cost of units transferred to Dept. B:

7,000 units x P8 = P56,000

Note - This situation allocates all the material and conversion costs incurred to "units lost".
Assuming a conceptually sound cost system, the following implications can be drawn:

1. the loss was "normal", and

2. the loss was reported before work-win-process reached the current stage
Of completion.

29. The total unit cost is computed first as follows:

Equivalent production Materials Conversion cost

units
(Labor & Overhead)
In process, Aug. 31 1,000
Put into process 10,000
In process, Sept. 30 ( 1 400)
Completed 9,600 9,600 9,600
In process, Sept. 30
(all M; 60% L&OH) 1,400 1,400 840

Equiv. production units 11,000 10,440

Average unit costs:

Materials: (P24,000 + P251,000)/11,000 = P25

Direct Labor: (P15,000 + P193,800)/10,440 = 20

Overhead (P 7,600 + P149,000)/10,440 = 15

Total P60

Total cost of units completed and transferred:

9,600 x P60 P576,000

30. The computation is as follows:

Actual Conversion
Units Costs
Units completed 7,000 7,000
Spoilage --- normal 500 500
Work in process, end (80%) 2,500 2,000
10,000 9,500
Unit Cost (P85,500/9,500) P9

Conversion Costs transfered:

Good units completed (7,000 x P63,000
P9)
Spoiled units (500 x P9) 4 500
Conversion costs transferred P67,500

31. The computations are as follows:

Work EP Work EP Work EP

Actual Done Mat. Done Lab. Done CC
Quantity 1000
Schedule:
In process, 9000
beginning
Started in 10000
process
Accounted for as follows:
Finished and 8,000 100% 8,000 100% 8,000 100% 8,000
transferred
In process, end 1,500 100% 1,500 75% 1,125 50% 750
Abnormal lost 500 100% 500 100% 500 100% 500
10,000 10,000 9,625 9250

Total cost transferred:

Materials: (P1,260 + P36,240) 10,000 P 3.75

Direct Labor: (P770 + P10,780) 9,625 1.20

Overhead: (P1,400 + P21,725) 9,250 2.50

Cost per equivalent unit P 7.45

Multiplied by: No. of units transferred 8,000

Total cost transferred P59,600

32. Since the details of the costs of Work in Process, beginning is not given, FIFO method is
to be used.

Equivalent productions:

Actual Materials: Conversion Costs

WIP, beginning, F/T 14,000 4,200 ( 30%)
Started, F/T (squeeze) 56,000 56,000 (100%) 56,000 (100%)
In process, ending 12,000 12,000 (100%) 7200( 60%)
Normal lost units 2,000 2000 (100%) 2000 (100%)
Total 84,000 70,000 69,400

Unit costs:

Materials (P56,000 / 70,000) P0.80

Conversion costs (P31,230/69,400) P0.45

Adjustment for lost units:

Cost of lost units (2,000 x P1.25) P2,500

Divided by absorbing good units (F/T) 70,000

Adjusted unit cost P0.35714

No. 32 -- continued
Cost of units finished and transferred:
Beginning MP, F/T:
Cost last month P8,000
Cost this month:
Conversion costs (4,200 x 1,890
P0.45)
Adjustment for lost units ( 500 P10,390
14,000 x P0.35714)
started, F/T [56,000 x (P1.25 + 72,000
P0.35714)]
Total P82,390
Cost of units in process
Materials (12,000 x P.80) P9,600
Conversion costs (7,200 x 3,240 P12,840
P.45)

33. The computations are shown below:

Actual Work EP
Quantity Schedule: 4,000 Done CC
In process, beginning 30,000
Received from Preceding Dept. 34,000
Accounted for as follows:
In process, beg., F&T 4,000 1/2 2
Started F&T (25,000 - 4,000) 21,000 100% 21
In process, ending 6,000 60% 3
Normal lost 3,000
34,000 26,000
Cost per equivalent unit:
From preceding dept.: (P135,000 /30,000) P4.50
From this dept: -
Materials 5.00
Conv. cost: (P85,800 + P47,200) 26,600 50
Adjustment for lost units: (3,000 x P4.5) + P10,000
27,000*
Total cost transferred:
In process, beg., F&T
Cost last month P18,000
Cost this month:
Materials 0
Conv. Costs: (PS x 2,000) 10,000 28,000
Started F&T: (P 1 0.00 x 21,000) 210,000
Total cost transferred to FG P238,000
*21,000+ 6,000, remaining good units.

34. To compute the cost of the ending work in process, the following are the First: Compute the
equivalent units of production as follows:

Actual Materials Conversion cost

Completed and transferred 25,000 25 25
In process, end 6,000 6 3
Lost units (34,000 -31,000) 3,000 - -
Total equivalent production 31,000 28,000

Second: Compute the unit cost using the average method as follows:
Total EUP Unit
Cost Cost
Cost from preceding department:
May 1 P 16,300 4,000
May 31 89,100 30,000
Total P105,400 34,000 P3,10
Cost added this department:
Materials:
May I P 3,800
May 31 67 500
Total P 71,300 31,000 2.30
Conversion Costs:
May 1 P 1,940
May 31 81,000
Total P 82,830 28,600 2.90
Adjustment for lost units:
Cost from preceding department:
(3,000 x P3.10) P 9,300 31,000 30
Total adjusted unit cost P8.60
Finally: Compute the cost of ending work in
process (6,0(0 units):
Cost from preceding department(6,000 x P3.10 P18,600
cost added this department EUP x unit cost)
Materials (6,000 x P2.30) P13,800
Conversion costs (3,600 x P2.90) 10,440 24,240
Adjustment fat lost units (6,000 x .30) 1,800
Total p44 640

35.
Actual Work EP
Quantity schedule, 500 Done CC
In process, beginning 2,000
Received from preceding 2,500
department
Accounted for as follows ask
FIFO:
in process, beg., F&T 500 3/5 500
Received, F&T (1,7004- 500) 1,200 100% 1,200
In process, ending 300 1/3 300
Normal lost 200 100% 200
Abnormal lost 300 100% 300
2,500 2,100
Accounted for as follows Average
Finished and transferred. 1,700 100% 1,700
In process, ending 300 1/3 100
Normal lost 200 100% 200
Abnormal lost 300 100% 300
2,500 2,300
Conversion cost per equivalent FIFO Average
unit:
In-process, beginning P P 610
Added Conversion Costs 3,990 3,990
P3,990 P4,600
Divided by Equivalent Units 2,100 2,300
EUP P1.90 P2.00

36.FIF 0: Conversion Costs component of normal lost: 200 x P1.90 = P380

Average; Conv, Costs component of normal lost: 200 x P2.00 = P400

37. FIFO: Conv. Costs component of abnormal lost: 300 x P1.90 = P570
Average: Conv. Costs component of abnormal lost: 300 x P2,00 = P600
38. To compute cost of good units completed and transferred out, the following steps are to be
used

Step I: Compute the total equivalent units of production for Materials and conversion Costs as
follows:

Direct Conversion
Materials Costs
Cost added in January (Current cost) P1,480,000 P942,000
Divided by cost per equivalent unit of
production for January P 20 P 12
Equivalent units of production in January 74,000 78,500

Step 2: Compute the equivalent units of production of units in process, ending by working
backward in the quantity schedule as follows:

Equivalent production
Actual Direct Conversion
Units Materials Costs
Work in process, beginning 10,000
Started during January 74,000
To account for 84,000
Completed and transferred (61,000)
From beginning work in process 10,000 - 7
Started and completed, 100% 51,000 51,000 51,000
Normal spoilage (61,000 x 11%), 100% 6,710 6,710 6,710
Abnormal spoilage (8,000 6 710), 100% 1,290 1,290 1,290
Work in process ending 15,000 15,000(a) 12,000(b)
Total 84,000 74,000 78,000
(a) , Total equivalent units ofproductton 74, ,000 78,500
(step I)
Less equivalent twits of production:
Completed and transferred: -
From beginning WIP ( 7,500)
From started and completed (51,000) (51,000)
Normal spoilage (6 (6,710)
Abnormal spoilage 1,290 ( 1,290)
Equivalent production of WIP 15,000 12,000

No 38 Continued

step 3: The cost of the units completed and transferred out can now be computed
as follows:

Completed and transferred out (61,000) units

From beginning WIP:
Cost last month P 250k000
Cost this month:
Conversion costs (7,500 x P12) 90,000
Total P 340,000
From started (5 1 ,000 x P32) 1,632,000
Normal spoilage (6,710 x P32) 214,720
Total cost of units transferred out P2,186,720

39. The cost of units in ending work in process is computed as follows:

Direct materials (15,000 x P20) P300,000
Conversion costs (12,000 x P 2) 144,000
Total cost of work in process, ending P444,000

40. The computation of abnormal spoilage is shown below:

Abnormal spoilage (1,290 x P32) P41,280

41. The correct answer is (d). The total equivalent units for raw materials equal I 0,000 because
all materials for the ending work-inn-process had already been added to production. Hence, the
materials cost per unit was P330 (P33,000 4. 10,000). For conversion costs, the total equivalent
units equals 8,500 [8,000 completed + (25%x 2,000 in EWIP)}. Thus, the conversion cost was
P2.00 per unit (P17,000 /8,500). The total cost transferred was therefore P42,400 [8,000 units
x. (133.30+P2.00)),

42. The correct answer is (d). As calculated in the preceding question, P42,400 ofcosts were
transferred out. Consequently, the cost of ending work-in-process must have been P7,600
(P50,000 total costs incurred --- P42,400).

43. The correct answer 00. The total equivalent units for raw materials equal i10,000 units (the
total units placed into production) because all direct materials were added to production. The
materials cost per equivalent unit is therefore P6 60 (P66,000 total DM costs 10,000 equivalent
units). The total equivalent units for conversion costs equal 7,000 units [6,000 finished units
/(25% x 4,000 units in EWIP)] Hence conversion cost per equivalent unit is P4.86 (P34,000 total
CC 7,000 equivalent units). Total product cost per equivalent unit is P,11.46 (P6.60 + P4.86),
so total transferred-out cost is P68,760 (P11.46 x 6,000 units transferred).

44.The correct answer is (c). As determined in the preceding question, direct materials cost and
conversion cost per equivalent unit are P6.60 and P4.86, respectively.Because the ending work
in-process contains 4,0 equivalent units of direct materials costs (4,000 physical units x 100%)
and 1,000 equivalent units of conversion costs (4,000 physical units x 25%). its recorded balance
is P31,260 (4,000 x P6.60) + (1,000 x P4.86).

45. The correct answer is (c). The equivalent unit for direct materials equals 195,000 units
(20,000 BWIP + 150,000 units started and completed + 25,000 EWIP). This calculation
recognizes that direct materials had not been added to beginning inventory (60% complete)
and spoiled units (70% complete), but that ending inventory (80% complete) includes direct
materials.

46. The correct answer is (b). The units that failed inspection are classified as normal scrap
because they have minimal value and can be sold without further reworking. The defective
units are less than 4% tolerance limit for normal spoilage. Scrap can be sold, disposed of, or
reused.

47.The answer is (c), computed as follows:

First, compute the EIJP and the unit cost as follows:

EUP Actual Materials Conversion Cost

Transferred-out 24,000 24,000 24,000
Ending WIP 3,000 3,000 2,400
Normal lost units 1200 1,200 900
Abnormal lost units 1,800 1,800 1,350
30,000 30,000 28,650

N0.47 continued
Unit Cost.

Materials (P1 44,000 30,000) P4.80

Conversion cost (P257,850 28,650) 9.00
Total units cost P13.80

The cost of units transferred-out can now be computed as follows:

Transferred out (24,000 x P331 ,200
P13.80)
Add: Cost of normal lost units
M (1,200 x 4.80) 5,760
CC (900 x 9.00) 8,100
Total 13,860
Allocation:
M (24/27 x 5.760) 5,120
CC (24/26.4 x 8,100) 7,364 12,484
Total cost of units transferred- P343,684
out

48. The answer is (a). The computation is:

Ending work-in-process:
M (3,000 x 4.80) 14,400
CC (2,400 x 9.00) 21,60 P36,000
Normal lost units:
M (3127 x 5,760) 640
CC (2.4/26.4 x 8,100) 736 1,376
Total cost of ending work-in- P37,376
process

49. The answer is (a) as computed below:

EUP Actual Materials Conversion Cost
Transferred-out
Beginning WIP 4,000 - 4,000
SIP 20,000 20,000 20,000
Ending WIP 3,000 3,000 2,400
Normal lost units 1 ,200 1,200 900
Abnormal lost units 1,800 1,800 1,350
30,000 26,000 25,050

No. 49 -.Continued

Schedule I - Allocation of normal lost units based on actual units:

Transferred-out
Beginning WIP(4/27 x P13,860) P 2,053
SIP (20/27 x P13,860) 10,267
Ending W1P ( 3/27 x P13,860) 1,540
Total P13,1860
Unit Cost (Rounded):
Materials (11,600 +26,000) P 4.29
CC (202,950 25,050) 8.10
Total unit cost P12.39

Transferred-out:
BWIP: Cost last month P 87,300
Cost this month 1,716
Normal lost units (Sch. 1) 2,053 P 91,069
SIP: Completed (20,000 x P12.39) P247,800
Normal lost units (Sch. 1) 10,267 258,067
Total cost of units transferred-out P349,136
50. The answer is (a) as computed below:

EWIP:
M (3,000 x P4.29) P 12,870
CC (2,400 x P8.10) 19,440
Normal lost unit (Sch. 1) 1,540
Total cost of EWIP P33,850