# Accounting Exercises and Problem Solving

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Schneider Brot is a bread-baking company located in Aachen, Germany, near the Dutch border. The company uses a process costing system for its single product—a popular pumpernickel bread. Schneider Brot has two processing departments—Mixing and Baking. The T-accounts below show the flow of costs through the two departments in April (all amounts are in the currency euros): Required: Prepare journal entries showing the flow of costs through the two processing departments during April.

EXERCISE 4–9 Cost Assignment; Cost Reconciliation—Weighted-Average Method [LO2, LO4, LO5] Kenton Industrial Corporation uses the weighted-average method in its process costing system. During April, the Baker Assembly Department completed its processing of 18,000 units and transferred them to the next department. The cost of beginning inventory and the costs added during April amounted to \$855,000 in total. The ending inventory in April consisted of 1,500 units, which were 90% complete with respect to materials and 40% complete with respect to labor and overhead.

The costs per equivalent unit for the month were as follows: | Materials| Labor| Overhead| Cost per equivalent unit| \$24. 00| \$7. 00| \$14. 00| Required: * 1. Compute the equivalent units of materials, labor, and overhead in the ending inventory for the month. * 2. Compute the cost of ending inventory and of the units transferred to the next department for April. * 3. Prepare a cost reconciliation for April. (Note: You will not be able to break the cost to be accounted for into the cost of beginning inventory and costs added during the month. EXERCISE 4–10 Equivalent Units—Weighted-Average Method [LO2] Societe Clemeau, a company located in Lyons, France, manufactures cement for the construction industry.

Data relating to the kilograms of cement processed through the Mixing Department, the first department in the production process, are provided below for May: | Kilograms of Cement| Percent Completed| | | Materials| Conversion| Work in process, May 1| 80,000| 80%| 20%| Work in process, May 31| 50,000| 40%| 10%| Started into production during May| 300,000| | | Required: * 1.

Compute the number of kilograms of cement completed and transferred out of the Mixing Department during May. * 2. Compute the equivalent units of production for materials and for conversion for May. EXERCISE 4–11 Equivalent Units and Cost per Equivalent Unit—Weighted-Average Method [LO2, LO3, LO4] Solex Company produces a high-quality insulation material that passes through two production processes. Data for June for the first process follow: Required: * 1. Assume that the company uses the weighted-average method of accounting for units and costs. Determine the equivalent units for June for the first process. * 2.

Compute the costs per equivalent unit for June for the first process. * 3. Determine the total cost of ending work in process inventory and the total cost of units transferred to the next process in June. EXERCISE 4–12 Equivalent Units—Weighted-Average Method [LO2] Gulf Fisheries, Inc. , processes tuna for various distributors. Two departments are involved—Cleaning and Packing. Data relating to pounds of tuna processed in the Cleaning Department during May are given below: | Pounds of Tuna| Percent Completed| | | Materials| Labor and Overhead| Work in process, May 1| 30,000| 100%| 55%| Work in process, May 31| 20,000| 100%| 90%| Labor and overhead only. | A total of 480,000 pounds of tuna were started into processing during May.

All materials are added at the beginning of processing in the Cleaning Department. Required: Compute the equivalent units for May for both materials and labor and overhead assuming that the company uses the weighted-average method of accounting for units. PROBLEM 4–13 Comprehensive Problem Weighted-Average Method [LO2, LO3, LO4, LO5] The PVC Company manufactures a high-quality plastic pipe that goes through three processing stages prior to completion. Information on work in the first department, Cooking, is given below for May:

The company uses the weighted-average method. Required: * 1. Compute the equivalent units of production. * 2. Compute the costs per equivalent unit for the month. * 3. Determine the cost of ending work in process inventory and of the units transferred out to the next department. * 4. Prepare a cost reconciliation report for the month. PROBLEM 4–14 Comprehensive Problem—Weighted-Average Method [LO2, LO3, LO4, LO5] Honeybutter, Inc. , manufactures a product that goes through two departments prior to completion—the Mixing Department followed by the Packaging Department.

The following information is available about work in the first department, the Mixing Department, during June. Required: Assume that the company uses the weighted-average method. * 1. Determine the equivalent units for June for the Mixing Department. * 2. Compute the costs per equivalent unit for June for the Mixing Department. * 3. Determine the total cost of ending work in process inventory and the total cost of units transferred to the Packaging Department. * 4. Prepare a cost reconciliation report for the Mixing Department for June. PROBLEM 4–15 Analysis of Work in Process T-account—Weighted-Average Method [LO1, LO2, LO3, LO4]

Brady Products manufactures a silicone paste wax that goes through three processing departments—Cracking, Blending, and Packing. All raw materials are introduced at the start of work in the Cracking Department. The Work in Process T-account for the Cracking Department for a recent month is given below: The May 1 work in process inventory consisted of 35,000 pounds with \$43,400 in materials cost and \$20,300 in conversion cost. The May 1 work in process inventory was 100% complete with respect to materials and 80% complete with respect to conversion. During May, 280,000 pounds were started into production.

The May 31 inventory consisted of 45,000 pounds that were 100% complete with respect to materials and 60% complete with respect to conversion. The company uses the weighted-average method to account for units and costs. Required: * 1. Determine the equivalent units of production for May. * 2. Determine the costs per equivalent unit for May. * 3. Determine the cost of the units completed and transferred to the Blending Department during May. PROBLEM 4–16 Cost Flows [LO1] Nature’s Way, Inc. , keeps one of its production facilities busy making a perfume called Essence de la Vache.

The perfume goes through two processing departments: Blending and Bottling. The following incomplete Work in Process account is provided for the Blending Department for March: The \$32,800 beginning inventory in the Blending Department consisted of the following elements: materials, \$8,000; direct labor, \$4,000; and overhead applied, \$20,800. Costs incurred during March in the Bottling Department were: materials used, \$45,000; direct labor, \$17,000; and overhead cost applied to production, \$108,000. Required: * 1. Prepare journal entries to record the costs incurred in both the Blending Department and Bottling Department during March.

Key your entries to items (a) through (g) below: * a. Raw materials were issued for use in production. * b. Direct labor costs were incurred. * c. Manufacturing overhead costs for the entire factory were incurred, \$596,000. (Credit Accounts Payable and use a single Manufacturing Overhead control account for the entire factory. ) * d. Manufacturing overhead was applied to production using a predetermined overhead rate. * e. Units that were complete with respect to processing in the Blending Department were transferred to the Bottling Department, \$722,000. f. Units that were complete with respect to processing in the Bottling Department were transferred to Finished Goods, \$920,000. * g. Completed units were sold on account for \$1,400,000. The cost of goods sold was \$890,000. * 2. Post the journal entries from (1) above to T-accounts. The following account balances existed at the beginning of March. (The beginning balance in the Blending Department’s Work in Process account is given above. ) Raw Materials| \$198,600| Work in Process—Bottling Department| \$49,000| Finished Goods| \$20,000|

After posting the entries to the T-accounts, find the ending balances in the inventory accounts and the manufacturing overhead account. PROBLEM 4–17 Comprehensive Problem; Second Production Department—Weighted-Average Method [LO2, LO3, LO4, LO5] Bohemian Links Inc. produces sausages in three production departments—Mixing, Casing and Curing, and Packaging. In the Mixing Department, meats are prepared and ground and then mixed with spices. The spiced meat mixture is then transferred to the Casing and Curing Department, where the mixture is force-fed into casings and then hung and cured in climate-controlled smoking chambers.

In the Packaging Department, the cured sausages are sorted, packed, and labeled. The company uses the weighted-average method in its process costing system. Data for April for the Casing and Curing Department follow: | Units| Percent Completed| | | Mixing| Materials| Conversion| Work in process inventory, April 1| 1| 100%| 60%| 50%| Work in process inventory, April 30| 1| 100%| 20%| 10%| | Mixing| Materials| Conversion| ————————————————- Work in process inventory, April 1 \$1,640 \$26 \$105 ————————————————-

Cost added during April \$94,740 \$8,402 \$61,197 Mixing cost represents the costs of the spiced meat mixture transferred in from the Mixing Department. The spiced meat mixture is processed in the Casing and Curing Department in batches; each unit in the above table is a batch, and one batch of spiced meat mixture produces a set amount of sausages that are passed on to the Packaging Department. During April, 60 batches (i. e. , units) were completed and transferred to the Packaging Department. Required: * 1. Determine the equivalent units for April for mixing, materials, and conversion.

Do not round off your computations. * 2. Compute the costs per equivalent unit for April for mixing, materials, and conversion. * 3. Determine the total cost of ending work in process inventory and the total cost of units transferred to the Packaging Department in April. * 4, Prepare a cost reconciliation report for the Casing and Curing Department for April. PROBLEM 4–18 Interpreting a Report—Weighted-Average Method [LO2, LO3, LO4 Bell Computers, Ltd. , located in Liverpool, England, assembles a standardized personal computer from parts it purchases from various suppliers.

The production process consists of several steps, starting with assembly of the “mother” circuit board, which contains the central processing unit. This assembly takes place in the CPU Assembly Department. The company recently hired a new accountant who prepared the following report for the department for May using the weighted-average method: The company’s management would like some additional information about May’s operation in the CPU Assembly Department. (The currency in England is the pound, which is denoted by the symbol £. ) Required:

* 1. How many units were started and completed during May? 2. What were the equivalent units for May for materials and conversion costs? * 3. What were the costs per equivalent unit for May? The following additional data are available concerning the department’s costs: Materials Conversion Total Work in process, May 1 £9,000 £4,400 £13,400 Costs added during May £57,000 £30,800 £87,800 * 4. Verify the accountant’s ending work in process inventory figure (£8,200) given in the report. * 5. The new manager of the CPU Assembly Department was asked to estimate the incremental cost of processing an additional 1,000 units through the department.

He took the unit cost for an equivalent whole unit you computed in (3) above and multiplied this figure by 1,000. Will this method yield a valid estimate of incremental cost? Explain. CASE 4–19 Ethics and the Manager; Understanding the Impact of Percentage Completion on Profit [LO2, LO3, LO4] Thad Kostowski and Carol Lee are production managers in the Appliances Division of Mesger Corporation, which has several dozen plants scattered in locations throughout the world. Carol manages the plant located in Kansas City, Missouri, while Thad manages the plant in Roseville, Oregon.

Production managers are paid a salary and get an additional bonus equal to 10% of their base salary if the entire division meets or exceeds its target profits for the year. The bonus is determined in March after the company’s annual report has been prepared and issued to stockholders. Late in February, Carol received a phone call from Thad that went like this: Thad: How’s it going, Carol? Carol: Fine, Thad. How’s it going with you? Thad: Great! I just got the preliminary profit figures for the division for last year and we are within \$62,500 of making the year’s target profits.

All we have to do is to pull a few strings, and we’ll be over the top! Carol: What do you mean? Thad: Well, one thing that would be easy to change is your estimate of the percentage completion of your ending work in process inventories. Carol: I don’t know if I should do that, Thad. Those percentage completion numbers are supplied by Jean Jackson, my lead supervisor. I have always trusted her to provide us with good estimates. Besides, I have already sent the percentage completion figures to the corporate headquarters. Thad: You can always tell them there was a mistake. Think about it, Carol.

All of us managers are doing as much as we can to pull this bonus out of the hat. You may not want the bonus check, but the rest of us sure could use it. The final processing department in Carol’s production facility began the year with no work in process inventories. During the year, 270,000 units were transferred in from the prior processing department and 250,000 units were completed and sold. Costs transferred in from the prior department totaled \$49,221,000. No materials are added in the final processing department. A total of \$16,320,000 of conversion cost was incurred in the final processing department during the year.

Required: * 1. Jean Jackson estimated that the units in ending inventory in the final processing department were 25% complete with respect to the conversion costs of the final processing department. If this estimate of the percentage completion is used, what would be the cost of goods sold for the year? * 2. Does Thad Kostowski want the estimated percentage completion to be increased or decreased? Explain why. * 3. What percentage completion figure would result in increasing the reported net operating income by \$62,500 over the net operating income that would be reported if the 25% figure were used? * 4.

Do you think Carol Lee should go along with the request to alter estimates of the percentage completion? Why or why not? CASE 4–20 Second Department—Weighted-Average Method [LO2, LO3, LO4] Durall Company manufactures a plastic gasket that is used in automobile engines. The gaskets go through three processing departments: Mixing, Forming, and Stamping. The company’s accountant (who is very inexperienced) has prepared a summary of production and costs for the Forming Department for October as follows: After mulling over the data above, Durall’s president commented, “I can’t understand what’s happening here.

Despite a concentrated effort at cost reduction, our unit cost actually went up in the Forming Department last month. With that kind of performance, year-end bonuses are out of the question for the people in that department. ” The company uses the weighted-average method in its process costing. Required: * 1. Prepare a report for the Forming Department for October showing how much cost should have been assigned to the units completed and transferred to the Stamping Department and to the ending work in process inventory. * 2.

Explain to the president why the unit cost appearing on the report prepared by the accountant is so high. Appendix 4A: FIFO Method The FIFO method of process costing differs from the weighted-average method in two ways: (1) the computation of equivalent units, and (2) the way in which costs of beginning inventory are treated. The FIFO method is generally considered more accurate than the weighted-average method, but it is more complex. The complexity is not a problem for computers, but the FIFO method is a little more difficult to understand and to learn than the weighted-average method.

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