1) The Spangle Company uses the process cost system and average costing.

The following
prediction data are for the month of July: Production Costs Work in process, beginning of month
Materials $2,500 Labor 1,200 Factory Overhead 1,100 $4800 Costs incurred during the month
Materials $13,500 Labor 9,200 Factory overhead 8,500 31,200 $36,000 Production Report Units
In process, beginning of m onth 500 Finished and transferred during the month 3,800 Work in
process, end of month 400 Stage of completion 50% prepare a cost of production summary for
the month?

Production Cost Report – Average Cost Method

For the Month of
Quantity Schedule
Quantities Physical Units Equivalent Units
Material Labor
Units to be accounted for
Work in Process, Beginning 500
Started into Production 3,700
Total Units 4,200
Units Accounted for
Transferred Out 3,800 3,800 3,800
WIP, Ending 400 200 200
Total Units 4,200 4,000 4,000
Cost per Equivalent Unit
Unit Costs Material Labor Overhead
WIP 2,500 1,200 1,100
Costs in Month 13,500 9,200 8,500
Total Cost 16,000 10,400 9,600
Equivalent Units 4,000 4,000 4,000
Unit Costs 4.00 2.60 2.40
Cost Reconciliation Schedule
Costs to be accounted for
WIP, Beginning 4,800
Started into Production 31,200
Total Costs 36,000
Costs Accounted for
Transferred out 34,200
Work in process, Ending
Material 800
Labor 520
Overhead 480
Total WIP 1,800
Total costs 36,000

2) The Following data is for a production company: Beginning inventory 1,000 units, three-
fourths completed Finished and transferred 16,000 units Work in process, end of month 2,000
units, one half completed Assume that materials, labor, and factory overhead are added evenly
throughout the process. On a separate sheet of paper, complete the following problems. Label
each answer carefully and show all your work. a. Using the average cost method, compute the
equivalent production. b. Using the first-in, first-out method, compute the equivalent production.
c. During the month, Department B received 10,000 units from department a with a unit cost of
$10; 2,00 of these unit were lost during production in Department B. Determine the adjusted cost
of these units. d. During the month, Department 2 received 8,000 from department 1 with a unit
cost of $15. Department 2 added materials that increased the number of units by 50%. Determine
the adjusted cost of these units.

a)

Quantity Schedule
Physical
Quantities Units Equivalent Units
Overhea
Material Labor d
Units to be accounted for
1,00
Work in Process, Beginning 0
17,00
Started into Production 0
18,00
Total Units 0
Units Accounted for
16,00 16,00 16,00 16,0
Transferred Out 0 0 0 00
2,00 1,00 1,00 1,0
WIP, Ending 0 0 0 00
18,00 17,00 17,00 17,0
Total Units 0 0 0 00

b)

Quantity Schedule
Units to be Accounted for
1,00
Beginning Work in Process 0
17,00
Started into Production 0
18,00
Total Units in Production 0
Units Accounted for
Material Labor Overhead
Transferred Out
From Beginning WIP 1,00 25 25 25
 0 0 0 0
15,00 15,0 15,0 15,00
Started and Completed 0 00 00 0
2,00 1,00 1,00 1,00
Ending WIP 0 0 0 0
18,00 16,2 16,2 16,25
Equivalent Units 0 50 50 0

c)

Total cost = 10,000 units X $10 = $100,000

Units available = 10,000-2,000=8,000
Adjusted cost = 100,000/8,000 = $12.5 per unit

d)

Cost received = 8,000X15 = $120,000

Units in Department 2 = 8,000 X1.5 = 12,000
Adjusted cost = 120,000/12,000=$10 per unit

3) A Plant uses process costing has 8,000 units in beginning work in process, 15,000 more
started, and 5,000 units in the ending work in process. Using this information, answer the
following questions on a separate sheet of paper. Label each answer carefully and show all of
your work. a. How many units are there to account for? b. How many units are transferred using
the average cost method? c. How many units are transferred using the first-in, first-out method?
d. How many units were both started and completed during the period?

a)
Units to account for
Units in beginning inventory 8,000
Units started 15,000
Total units to account for 23,000

b)

Units transferred = units to account for – units in ending inventory

= 23,000-5,000 = 18,000 units

c)

Units transferred remain the same at 18,000 units

d)

Units transferred are 18,000

Units from beginning inventory = 8,000
Units started and completed = 18,000-8,000=10,000

4) Cost of production summary, three departments; change in unit

cost from prior department; department cost work sheet; journal
entries; manufacturing statement
Taguchi Manufacturing Co. uses the process cost system. The
following information for the month of December was obtained from
the company's book and from the production reports submitted by
the department heads:
Production Report &nbs p; Mixing Blending Bottling
Units in process, beginning of period &nbs p; 2,500 1,500 3,000
Started in process during the month 12,500
Received from prior department &nb sp; 13,000 10,000
Finished and transferred &nb sp; 13,000 10,000 11,000
Finished and on hand 500
Units in process, end of period 2,000 4,000 2,000
Stage of completion &n bsp; ¼ 4/5 ½
Production Costs
Work in process, beginning of period:
Cost in Mixing .......................................... &n bsp;
$3,075 $6150
Materials ............................................... $1470
Labor ....................................................... 650
Factory overhead ................................. 565
Cost in Blending .......................................... 3,660
Materials .......................................... &n bsp; 240
Labor .......................................... &nb sp; 905
Factory overhead ..................... & nbsp; 750
Cost in Bottling
Materials ................................. &nbs p; 900
Labor .......................................... &n bsp; 3,100
Factory overhead..................... &n bsp; 3,080
Cost incurred during the month:
Materials .......................................... 15,000 2,500
1,500
Labor .......................................... 4,750 &nb sp;
8,000 6,500
Factory overhead ..................... 5,240 & nbsp; 6,100 7,000
TOTAL ................................................. $27,675
$21,570 $31,890
Required:
1. Prepare Costs of production summaries for the mixing,
blending, and Bottling departments.
2. Prepare a departmental cost work sheet.
3. Draft the journal entries required to record the month's
operations.
4. Prepare a statement of cost of goods manufactured for
December.
1.
Taguchi Manufacturing Co.
Cost of Production Summary—Mixing
For the Month Ended December 31, 20--

Cost of work in process, beginning of month:

Materials................................................................................... $ 1,470
Labor......................................................................................... 650
Factory overhead..................................................................... 565 $ 2,685
Cost of production for month:
Materials................................................................................... $ 15,000
Labor......................................................................................... 4,750
Factory overhead..................................................................... 5,240 24,990
Total costs to be accounted for........................................ $ 27,675

Unit output for month:

Finished and transferred to Blending during month............ 13,000
Equivalent units of work in process, end of month
(2,000 units, one-fourth completed)................................. 500
Total equivalent production............................................. 13,500

Unit cost for month:

Materials ($1,470 + $15,000)  13,500.................................... $ 1.22
Labor ($650 + $4,750)  13,500............................................... .40
Factory overhead ($565 + $5,240)  13,500........................... .43
Total................................................................................... $ 2.05

Inventory costs:
Costs of goods finished and transferred to Blending
during month (13,000 × $2.05)......................................... $ 26,650
Cost of work in process, end of month:
Materials (2,000 × 1/4 × $1.22)......................................... $ 610
Labor (2,000 × 1/4 × $0.40)............................................... 200
Factory overhead (2,000 × 1/4 × $0.43)........................... 215 1,025
Total production costs accounted for............................................. $ 27,675

Taguchi Manufacturing Co.

 Cost of Production Summary—Blending
For the Month Ended December 31, 20--

Cost of work in process, beginning of month:

Cost in Mixing.......................................................................... $ 3,075
Cost in Blending:
Materials................................................................ $ 240
Labor...................................................................... 905
Factory overhead.................................................. 750 1,895 $ 4,970
Cost of goods received from Mixing during month...................... 26,650

Cost of production for month:

Materials................................................................................... $ 2,500
Labor ....................................................................................... 8,000
Factory overhead..................................................................... 6,100 16,600

Total costs to be accounted for....................................................... $ 48,220

Unit output for month:

Finished and transferred to Bottling during month............. 10,000
Finished and on hand............................................................... 500
Equivalent units of work in process, end of month
(4,000 units, four-fifths completed)................................. 3,200
Total equivalent production............................................................ 13,700

Unit cost for month:

Materials ($240 + $2,500)  13,700......................................... $ 0.20
Labor ($905 + $8,000)  13,700............................................... .65
Factory overhead ($750 + $6,100)  13,700........................... .50

Total................................................................................... $ 1.35

Inventory costs:
Costs of goods finished and transferred to Bottling
during month:
Cost in Mixing (10,000 × $2.05).......................... $ 20,500
Cost in Blending (10,000 × 1.35).......................... 13,500
(10,000 × $3.40).......................... $ 34,000
Cost of goods finished and on hand:
Cost in Mixing (500 × $2.05)..................................... $ 1,025
Cost in Blending (500 × 1.35)..................................... 675
(500 × $3.40)..................................... 1,700
Cost of work in process, end of month:
 Cost in Mixing (4,000 × $2.05)......................................... $ 8,200
Cost in Blending:
Materials (4,000 × 4/5 × $0.20)....................... $ 640
Labor (4,000 × 4/5 × $0.65)............................. 2,080
Factory overhead (4,000 × 4/5 × $0.50)......... 1,600 4,320 12,520
Total production costs accounted for............................................. $ 48,220
Taguchi Manufacturing Co.
Cost of Production Summary—Bottling
For the Month Ended December 31, 20--
Cost of work in process, beginning of month:
Cost in Mixing.......................................................................... $ 6,150
Cost in Blending....................................................................... 3,660
$ 9,810
Cost in Bottling:
Materials....................................................................... $ 900
Labor ........................................................................... 3,100
Factory overhead......................................................... 3,080 7,080 $ 16,890
Cost of goods received from Blending............................................ 34,000
Cost of production for month:
Materials................................................................................... $ 1,500
Labor ....................................................................................... 6,500
Factory overhead..................................................................... 7,000 15,000
Total costs to be accounted for....................................................... $ 65,890
Unit output for month:
Finished and transferred to finished goods........................... 11,000
Equivalent units of work in process, end of month
(2,000 units, one-half completed)..................................... 1,000
Total equivalent production............................................. 12,000

Unit cost for month:

Cost from preceding department:*
Beginning inventory (3,000)...................... $ 9,810
Goods received during month (10,000)...................... 34,000
Average unit cost for goods (13,000)...................... $ 43,810 $ 3.37

Cost in Bottling:
Materials ($900 + $1,500)  12,000.................................. $ 0.20
Labor ($3,100 + $6,500)  12,000..................................... .80
Factory overhead ($3,080 + $7,000) 12,000.................. .84
Total................................................................................... $ 1.84
Inventory costs:
Costs of goods finished and transferred:
Cost in Mixing and Blending (11,000 × $3.37)........... $ 37,070
Cost in Bottling (11,000 × 1.84)........... 20,240
(11,000 × $5.21)........... $ 57,310
Cost in work in process, end of month:
Cost in Mixing and Blending (2,000 × $3.37)................. $ 6,740
Cost in Bottling:
Materials (2,000 × 1/2 × $0.20)....................... $ 200
Labor (2,000 × 1/2 × $0.80)............................. 800
Factory overhead (2,000 × 1/2 × $0.84)......... 840 1,840 8,580

Total production costs accounted for..................................... $ 65,890

*Alternative calculation.

Detailed calculation of the average unit costs from other departments as follows:

Cost from
Units Mixing Blending
Units in process, beginning of month................................. 3,000 $ 6,150 $ 3,660
Units received during month............................................... 10,000 20,500 13,500
Total...................................................................................... 13,000 $ 26,650 $ 17,160
Unit cost................................................................................ $ 2.05 $ 1.32

2.

Taguchi Manufacturing Co.

Departmental Cost Work Sheet
For the Month Ended December 31, 20--
Cost Units Units Amount Amount
per Unit Received Transf. or Charged Credited
Analysis Transf. in Dept. on Hand to Dept. to Dept.
Mixing:
Opening inventory in
process................. 2,500 $ 2,685
Started in process...... 12,500
Costs for month:
Materials............... $1.22 15,000
Labor.................... .40 4,750
Factory Overhead .43 5,240
Finished and trans-
ferred to Blending $2.05 13,000 $ 26,650
Closing work in
 process.................. 2,000 1,025
Total...................... 15,000 15,000 $ 27,675 $ 27,675

Blending:
Opening inventory in
process.................. 1,500 $ 4,970
Received during
month from 13,000 26,650
Mixing…
Costs added during
month:
Materials............... 0.20 2,500
Labor.................... 0.65 8,000
Factory overhead 0.50 6,100
Finished and trans-
ferred to Bottling. $3.40 10,000 $ 34,000
Completed and on
hand...................... 500 1,700
Closing work in
process.................. 4,000 12,520
Total...................... 14,500 14,500 $ 48,220 $ 48,220

  
Cost Units Units Amount Amount
per Unit Received Transf. or Charged Credited
Analysis Transf. in Dept. on Hand to Dept. to Dept.

Bottling:
Opening inventory in
process.................. 3,000 $ 16,890
Received during
month from Blending 10,000 34,000
Costs added during
month:
Materials............... 0.20 1,500
Labor.................... 0.80 6,500
Factory overhead 0.84 7,000
Finished and trans-
ferred to stock...... $ 5.24 11,000 $ 57,310
Closing work in
process.................. 2,000 8,580
Adjusting due to
averaging costs
from prior
 department........... (.03)
Total...................... $ 5.21 13,000 13,000 $ 65,890 $ 65,890

  Summary:
Materials:
Mixing................................................................................ $ 15,000
Blending............................................................................. 2,500
Bottling............................................................................... 1,500 $ 19,000

Labor:
Mixing................................................................................ $ 4,750
Blending............................................................................. 8,000
Bottling............................................................................... 6,500 19,250

Factory overhead:
Mixing................................................................................ $ 5,240
Blending............................................................................. 6,100
Bottling............................................................................... 7,000 18,340

Total production costs for December............................................ $ 56,590

Add work in process, beginning of month:
Mixing....................................................................................... $ 2,685
Blending.................................................................................... 4,970
Bottling...................................................................................... 16,890 24,545
Total................................................................................................. $ 81,135
Deduct work in process, end of month:
Mixing ....................................................................................... $ 1,025
Blending.................................................................................... 14,220
Bottling...................................................................................... 8,580 23,825
Cost of production, goods fully manufactured during
December......................................................................................... $ 57,310

3. Work in Process—Mixing....................................................... 15,000

Work in Process—Blending.................................................... 2,500
Work in Process—Bottling...................................................... 1,500
Materials............................................................................ 19,000
Work in Process—Mixing....................................................... 4,750
Work in Process—Blending.................................................... 8,000
Work in Process—Bottling...................................................... 6,500
Payroll................................................................................ 19,250
Work in Process—Mixing....................................................... 5,240
Work in Process—Blending.................................................... 6,100
Work in Process—Bottling...................................................... 7,000
Factory Overhead............................................................. 18,340
 Work in Process—Blending.................................................... 26,650
Work in Process—Mixing................................................ 26,650

Work in Process—Bottling.............................................................. 34,000

Work in Process—Blending............................................. 34,000
Finished Goods......................................................................... 57,310
Work in Process—Bottling............................................... 57,310

4.
Taguchi Manufacturing Co.
Statement of Cost of Goods Manufactured
For the Month Ended December 31, 20--

Materials........................................................................................... $ 19,000
Labor................................................................................................. 19,250
Factory overhead............................................................................. 18,340
Total.................................................................................................. $ 56,590
Add work in process inventories, December 1...................... 24,545
Total................................................................................... $ 81,135
Less work in process inventories, December 31.................... 23,825
Cost of goods manufactured during the month............................ $ 57,310

5) Average and FIFO cost methods; losses at the beginning and end of processing Similar to
Self-Study problem 1
Mt. Orab Manufacturing Company uses a process cost system. Its manufacturing operation is
carried on in two departments: Machining and finishing. The Machining Department uses the
average cost method and the finishing department uses the FIFO cost method. Materials are
added in both departments at the beginning of operations, but the added materials do not increase
the number of units being processed. Units are lost in the Machining Department throughout the
production process, and inspection occurs at the end of the process. The lost units have no scrap
value and are considered to be a normal loss. Production statistics for July Show the following
data:
& nbsp; Machining Finishing
Units In process,July 1 (all Material,
40% of labor and overhead).................................. 20,000
Units in Process, July 1 (all material,
80% of labor and overhead)................................... 40,000
Units started in production ................................... 140,000
Units Completed and transferred ............................. 100,000
Units transferred from machining........................... 100,000
Units completed and transferred to
Finished goods ....................................................... & nbsp; 100,000
Units in process, July 31(all material,
60% of labor and overhead) .................................. 40,000
Units in process, July 31 (all material,
40% of labor and overhead).................................... ; 40,000
Units lost in production ............................................... 20,000

Production Cost Machining Finishing

Work in process, July 1:

Materials ................................................................ &nb sp; $40,000 $110,000

Labor ....................................... ................................ 24,000 60,000
Factory Overhead.................................................. 8,000 40,000
Costs in Machining Department......................... &n bsp; 240,000
Costs incurred during month:
Materials ................................................................ $280,000 240,000
Labor ....................................................................... &n bsp; 180,000 160,000
Factory Overhead.................................................. 60,000 80,000

Required:
Prepare a cost of production summary for each department. (Round to three decimal places.)

Mt. Orab Manufacturing Company

Cost of Production Summary—Finishing Department
For the Month Ended July 31, 20--

Cost of work in process, beginning of month:

Cost in Machining Department.............................................. $240,000
Cost in Finishing Department:
Materials........................................................$ 110,000
Labor................................................................ 60,000
Factory overhead............................................ 40,000 210,000 $ 450,000
Cost of goods received from Machining during month................ 447,900
Cost of production for month:
Materials............................................................................ $ 240,000
Labor.................................................................................. 160,000
Factory overhead.............................................................. 80,000 480,000
Total costs to be accounted for............................................... $
1,377,900*
Unit output for month:
Materials:
To complete beginning units in process.......................... –0–
Units started and fully manufactured
 during month (100,000 - 40,000)................................ 60,000
Ending units in process (40,000, all material)................ 40,000
Total equivalent production....................................... 100,000
Labor and factory overhead:
To complete beginning units in process
(40,000, 20% to complete).......................................... 8,000
Units started and fully manufactured during month.... 60,000
Ending units in process (40,000, 40% completed)......... 16,000
Total equivalent production....................................... 84,000
Unit cost for month:
Materials ($240,000  100,000)............................................... $ 2.400
Labor ($160,000  84,000)....................................................... 1.905
Factory overhead ($80,000  84,000)...................................... 0.952
Total................................................................................... $ 5.257

Inventory costs:
Cost of goods finished and transferred to finished goods during month:
Beginning units in process:
Prior month's cost....................................................... $ 450,000
Current cost to complete:
Labor (40,000 × 20% × $1.905)............................ 15,240
Overhead (40,000 × 20% × $0.952)..................... 7,616 $
472,856
Units started and finished during month:
Cost in prior dept. (60,000 × $4.479)......................... $ 268,740
Cost in Finishing Dept. (60,000 × $5.257)................. 315,420
Total cost transferred (60,000 × $9.736)............. 584,160
Cost of work in process, end of month:
Cost in prior dept. (40,000 units × $4.479)...................... $ 179,160
Materials (40,000 units × $2.400)..................................... 96,000
Labor (40,000 units × 40% × $1.905).............................. 30,480
Factory overhead (40,000 units × 40% × $0.952)........... 15,232 320,872
Total production costs accounted for $1,377,888*
*Rounding Difference

6) MINI-CASE
Allocation of Joint costs
Lark Manufacturing Company buys crypton for $0.80 a gallon. At the end of processing in
Department 1, Crypton splits off into products A.B and C. Product A is sold at the split-off point
with no further processing. Products B and C require Further processing before they can be sold.
Product B is processed in Department 2, and Product C is processed in Department 3. Following
is a summary of costs and other related data for the year ended December 31:
&n bsp; & nbsp; Dept. 1 Dept. 2 Dept. 3
Cost of crypton ........................................... $ 76,000
Direct Labor................................................. 14,000 $51,000 $ 65,000
Factory Overhead....................................... 10,000 &nbs p; 26,500 49,000
Total.............................................................. $100,000 $77,500 $114,000

& nbsp; Product A Product B Product C

Gallons sold ...................................... 2 0,000 30,000 45,000
Gallons on hand at December 31 ....... 10,000 15,000
Sales in Dollars ................................... $30,000 $96,000 $141,750
No inventories were on hand at the beginning of the year, and no crypton was on hand at the end
of the year. All gallons on hand at the end of the year were complete as to processing. Clark uses
the relative sales value method of allocating joint costs.
Required:
1. Calculate the allocation of joint costs.
2. Calculate the total cost per unit for each product.
3. In examinaning, the product cost reports, Lois Lane, Vice-President-Marketing, notes that the
per unit cost of Product B is greater than the selling price of $3.20 that can be received in the
competitive marketplace. Lane wonders if they should stop selling Product B. How did Lane
determine that the product was being sold at a loss? What per unit cost should be used in
determining if product B should Be sold?

1.
Unit Ultimate Less Sales Percent Allocatio
Cost n
Units Selling Sales After Value at of Sales Of Joint
Produc Produced(a Price(b) Value Split-Off Split-Off Value Costs
t )

A 30,000 $1.50* $ 45,000 –0– $ 45,000 32.5% $ 32,500

B 30,000 3.20** 96,000 $ 77,500 18,500 13.4 13,400
C 60,000 3.15*** 189,000 114,000 75,000 54.1 54,100
Total $ $ $138,500 100.0% $ 100,000
330,000 191,500

* $30,000/20,000 gals.
** $96,000/30,000 gals.
***$141,750/45,000 gals.

A B C
Beginning inventory................................... –0– –0– –0–
 Sold during year......................................... 20,000 30,000 45,000
On-hand, end-of-year................................. 10,000 –0– 15,000
Produced during year................................ 30,000 30,000 60,000

2. Unit cost of Product A = $32,500 / 30,000 gals. = $1.08 gal.

Unit Cost of Product B =$51,000 Direct labor + $26,500 Factory overhead + $13,400
Joint costs = $90,900 / 30,000 gals. = $3.03 / gal.

Unit cost of Product C = $65,000 Direct labor + 49,000 Factory overhead + 54,100
Joint costs = $168,100 / 60,000 gals. = $2.80 / gal.

3. The joint cost of $13,400 that is allocated to Product B should be ignored in deciding
whether or not it should be sold. The joint cost is a past cost that had to be incurred
just to get all three products to split-off. It will still be $100,000, even if Product B is
not marketed. The comparison should be made between the selling price per unit of
$3.20 and the separable costs incurred after split-off of $2.58 ($77,500/30,000 gals.).
Therefore, Product B provides incremental income of $.62 per unit and it should be
processed beyond split-off and then sold.