## Practice As You Learn

### Cost Accounting

#### Hard Practice Test

Memorize the following formats.
All problems will give you all the information.
You need to know where to put it and how to do the calculations.

Use the same format as for regular process costing – add two more lines for spoilage

Equivalent Units Schedule (all quantity, no dollars)

 Quantity Went in during the period: Beginning Inventory # +Started In Production # =Total Units to be accounted for: (1) #
 Equivalent Units Quantity Material Conversion Came out during the period: Beginning Inventory # # # + Started and Completed : + Ending Inventory # # # + Normal Spoilage # # # + Abnormal Spoilage # # # =Total units accounted for (1) # # #

Total for (1) above = (1) below

Follow the rules for computing equivalent units for spoilage:

Normal Spoilage – Continuous:
Always 0 for equivalent units

Normal Spoilage – Discrete:
Total units x % added at inspection point

Abnormal spoilage (continuous or discrete):
Total units x % added at inspection point.

Use 100% for equivalent units if continuous or inspection is at the end:

Calculate total production costs (same as before)

 (labor + O/H) Costs: Materials Conversion Beginning Inventory \$ \$ Current Period \$ \$ Total Product Costs \$ \$

Calculate cost per equivalent unit (same as before):

Average Cost per Equivalent Unit =

Product cost \$
Equivalent units

After you have memorized the things above, follow these steps in this order.

You are doing three things:
1&2) Calculate equivalent units for each product type you have info for

2&4) Compute cost per equivalent unit
5) Value work in process and finished goods at the end of the period
6) Value spoilage – add normal spoilage to finished goods and expense abnormal spoilage

1) Fill out the quantity column (1st column) in the equivalent unit schedule

Beginning inventory and started will be given – total and also put the total below.

Beginning inventory and total are the same numbers as above

Fill in the S/C and Ending WIP from info given (remember that completed/transferred means S/C + Beginning)

Plug to get the other quantity numbers after you write in what you know

Compute normal spoilage by doing exactly as the problem says
Total spoilage – normal spoilage = abnormal spoilage (can’t be negative)

2) Using the information given in the problem, fill out the equivalent unit columns

For W.A – beginning is always 100%, same number as total
For FIFO – beginning is the total x the % done this period only

Started/Completed is always 100%, same number as total

Ending – take the total x the % added so far this period

Spoilage – follow the rules noted above

3) Use the cost information given in the problem for each type of product cost

For W.A. – add the beginning \$ + Added this period \$ and get total \$ to use
For FIFO – only use the \$ added this period (ignore B.I \$)

4) Calculate a cost per unit for each equivalent unit column: material, labor, O/H, Conv.

Costs \$ / total equivalent units in the column = \$ Cost per E.U

5) Use the cost per equivalent unit and value the WIP and FG

Value of inventory is always:
cost per EU x EUs in the row on the schedule

6) Value spoilage:

Normal spoilage EU x cost per unit for each & add them up
Add this cost to finished goods

Abnormal spoilage EU x cost per unit for each & add them up
Expense in the current period

Process Costing – Learn as You Practice – Problem 1. Weighted Average

Gemini, Inc. makes noodles and uses process costing. The company began the month with 10,000 EU of noodles in process that were 40% complete as to material and 25% complete as to conversion. During the month, 232,000 EU of noodles were started. At the end of the month, 6,000 EU noodles were still in process (80% complete as to material and 70% complete as to conversion). Total spoiled units were 12,000. Normal spoilage is 4% of units started. The process is considered continuous.

Cost information for the month is as follows:

 Material Conversion Beginning Inventory \$ 11,800 \$ 16,750 Added this period \$247,000 \$ 352,000

A. Calculate equivalent units using weighted average
B. Calculate cost per equivalent unit for material and conversion using weighted average
C. Prepare a cost reconciliation report using weighted average

A. Calculate equivalent units for each cost type

 Quantity Went in during the period: Beginning Inventory 10,000 +Started In to Production 232,000 =Total Units to be accounted for: 242,000
 Equivalent Units Quantity Material Conversion Came out during the period: Beginning Inventory 10,000 10,000 10,000 +Started and Completed : 214,000 214,000 214,000 +Ending – 80% complete for material and 70% conversion 6,000 4,800 4,200 Normal spoilage 9,280 0 0 Abnormal spoilage 2,720 2,720 2,720 =Total units accounted for 242,000 231,520 230,920

Normal spoilage = 232,000 x 4% = 9,280

Total spoilage of 12,000 less normal spoilage 9,280 = 2,720 abnormal spoilage

Started and completed is a plug: the amount required for the total to be 242,000

Equivalent units:
Normal spoilage: continuous is always 0
Abnormal spoilage: continuous is always 100%

Beginning Inventory is always considered 100% when using weighted average
Started/Completed is always at 100%
Ending is 6,000 total x the % complete-80% for material and 70% for conversion.

Equivalent units is the number of whole units that could have been completed
given the amount of material that was put in and given the amount of conversion

B. Compute cost per equivalent unit

 Costs: Materials (labor + O/H) Conversion Beginning Inventory \$ 11,800 \$ 16,750 Current Period \$247,000 \$352,000 Total Costs \$258,800 \$368,750 / Equivalent Units above 231,520 230,920 = Cost per Eq. Unit \$1.12 \$1.60

C. Value work in process and finished goods at the end of the period
Also called preparing a cost reconciliation report

Eq. units from the row x Cost per Eq. Unit above

Value WIP:

 Material: 4,800 x \$1.12   =   \$ 5,376 Conversion: 4,200 x \$1.60   =   \$ 6,720 Total value \$12,096 WIP value

Value FG:
Equivalent units are from the beginning and started/comp rows

Material + Conversion E.U. x total cost per unit

10,000 + 214,000 = 224,000 x (\$1.12 + \$1.60) = \$609,280

When using W. Ave. – include all the units in finished goods at 100%

Normal spoilage is \$0; nothing added to finished goods

Value Spoilage and add normal spoilage costs to finished goods and expense abnormal spoilage costs.

Normal Spoilage: 0 equivalent units = \$0

Abnormal Spoilage: Expensed in current period

 Material:         2,720 x \$1.12   =   \$ 3,046 Conversion:    2,720 x \$1.60   =   \$ 4,352      Total value                                 \$7,398
 Loss from abnormal spoilage            \$7,398             Work in Process                                \$7,398

Total inventory (FG + WIP) + abnormal spoilage expensed = \$628,774

Total Costs: Beginning + Added this period = \$627,550

Double check: the two should be the same except for rounding

Process Costing – Learn as You Practice – Problem 2. FIFO

Gemini, Inc. makes noodles and uses process costing. The company began the month with 10,000 EU of noodles in process that were 40% complete as to material and 25% complete as to conversion. During the month, 232,000 EU of noodles were started. At the end of the month, 6,000 EU noodles were still in process (80% complete as to material and 70% complete as to conversion). Total spoiled units were 12,000. Normal spoilage is 4% of units started. Materials are added at the beginning of the process. Inspection occurs at 55% of conversion.

Cost information for the month is as follows:

 Material Conversion Beginning Inventory \$ 11,800 \$ 16,750 Added this period \$247,000 \$ 352,000

A. Calculate equivalent units using the FIFO method
B. Calculate cost per equivalent unit for material and conversion using the FIFO method
C. Prepare a cost reconciliation report using the FIFO method

Follow the 5 steps noted above:

A. Calculate equivalent units for each product type

 Quantity Went in during the period: Beginning Inventory 10,000 +Started In to Production 232,000 =Total Units to be accounted for: 242,000
 Equivalent Units Quantity Material Conversion Came out during the period: Beginning Inventory 10,000 6,000 7,500 +Started and Completed : 214,000 214,000 214,000 +Ending – 80% complete for material and 70% conversion 6,000 4,800 4,200 Normal spoilage 9,280 9,280 5,104 Abnormal spoilage 2,720 2,720 1,496 =Total units accounted for 242,000 236,800 232,300

Normal spoilage = 232,000 x 4% = 9,280

Total spoilage of 12,000 less normal spoilage 9,280 = 2,720 abnormal spoilage

Beginning is the % that was done this period only (1 less the % done in the prior
period; only this period’s work).

Material is all added at the beginning: 100%

Started/Completed is always at 100%

Ending is 6,000 total x the % complete, 70% for material and 80% for conversion.

Equivalent units for spoilage:

Material is added all at the beginning so 100% is in at inspection
Conversion is 55% at inspection, so 55% x units is equivalent units

Equivalent units is the number of whole units that could have been completed given the amount of material that was put in and the amount of conversion that was added.

B. Compute cost per equivalent unit

 Costs: Materials (labor + O/H) Conversion Beginning Inventory \$            0 \$            0 Current Period \$247,000 \$ 352,000 Total Costs \$247,000 \$ 352,000 / Equivalent Units above 236,800 232,300 = Cost per Eq. Unit \$1.04 \$1.52

C. Value work in process and finished goods at the end of the period

Also called preparing a cost reconciliation report

Value WIP:
Eq. units from WIP row x Cost per Eq. Unit above

 Material:              4,800 x \$1.04 = \$ 4,992 Conversion:         4,200 x \$1.52 = \$ 6,384      Total value                                 \$11,376

Value FG and include normal spoilage:

 Beginning Inventory \$ (11,800+16,750) \$28,850 Beginning Inventory done this period Material 6,000 x \$1.04 \$ 6,240 Conversion 7,500 x \$1.52 \$11,400 Started/Completed this period Material 214,000 x \$1.04 \$222,560 Conversion 214,000 x \$1.52 \$325,280 (or together 214,000 x \$2.56) Normal Spoilage: Material 9,280 x \$1.04 \$ 9,651 Conversion 5,104 x \$1.52 \$ 7,758 Total value of Finished Goods this period \$611,739

Abnormal Spoilage:

 Material:              2,720 x \$1.04 = \$ 2,829 Conversion:         1,496 x \$1.52 = \$ 2,274 Total value                                      \$ 5,103 Expensed this period
 Loss from abnormal spoilage          \$5,103                Work in Process                           \$5,103

Total Value of Inventory (WIP + FG) + Abnormal spoilage = \$628,218

Total Costs – Beginning + Added this period = \$627,550

Double check: The two should be the same except for rounding