Chapter 16: Q11DQ (page 743)
Question: Is it possible to have under or overapplied overhead costs in a process costing system? Explain.
Yes, the overheads might be over or underapplied in the process costing system.
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Question: During May, the production department of a process manufacturing system completed a number of units of a product and transferred them to finished goods. Of these transferred units, 62,500 were in process in the production department at the beginning of May and 175,000 were started and completed in May. May’s beginning inventory units were 40% complete with respect to materials and 80% complete with respect to conversion. At the end of May, 76,250 additional units were in process in the production department and were 80% complete with respect to materials and 20% complete with respect to conversion. The production department had \(683,750 of direct materials and \)446,050 of conversion cost charged to it during May. Its beginning inventory included \(99,075 of direct materials cost and \)53,493 of conversion cost.
You hire a new assistant production manager whose prior experience is with a company that produced goods to order. Your company engages in continuous production of homogeneous products that go through various production processes. Your new assistant e-mails you questioning some cost classifications on an internal report—specifically why the costs of some materials that do not actually become part of the finished product, including some labor costs not directly associated with producing the product, are classified as direct costs. Respond to this concern via memorandum.
The computer workstation furniture manufacturing that Santana Rey started for Business Solutions is progressing well. Santana uses a job order costing system to account for the production costs of this product line. Santana is wondering whether process costing might be a better method for her to keep track of and monitor her production costs.
Required
Oslo Company produces large quantities of a standardized product. The following information is available for its production activities for May.
Units | Costs | |||
Beginning work in process inventory | 4,000 | Beginning work-in-process inventory | ||
Started | 12,000 | Direct material | 2,880 | |
Ending work-in-process inventory | 3,000 | Conversion | 5,358 | \(8,238 |
Status of ending work-in-process inventory | Direct material added | 197,120 | ||
Material – percent complete | 100% | Direct labor added | 123,680 | |
Conversion – percent complete | 25% | Overhead applied (90% of direct labor) | 111,312 | |
Total cost to account for | \)440,350 | |||
Ending work in process inventory | $50,610 |
Prepare a process cost summary report for this company showing costs charged to production, unit cost information, equivalent units of production, cost per EUP, and its cost assignment and reconciliation. Use the weighted-average method.
Elliott Company produces large quantities of a standardized product. The following information is available for its production activities for March.
Units | Cost | |||
Beginning work-in-process inventory | 2,000 | Beginning work-in-process inventory | ||
Started | 20,000 | Direct material | \(2,500 | |
Ending work-in-process inventory | 5,000 | Conversion | 6,360 | \)8,860 |
Direct material added | 168,000 | |||
Status of ending work-in-process inventory | Direct labor added | 199,850 | ||
Material-percent complete | 100% | Overhead applied (140% of direct labor) | 279,790 | |
Conversion – percent complete | 35% | Total cost to account for | \(656,500 | |
Ending work-in-process inventory | \)84,110 |
Prepare a process cost summary report for this company showing costs charged to production, unit cost information, equivalent units of production, cost per EUP, and its cost assignment and reconciliation. Use the weighted-average method.
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