Chomp Pet Foods manufactures canned dog food. The firm employs a process costing system
for its manufacturing operations. All direct materials are added at the beginning of the process
and conversion costs are incurred uniformly throughout the process. The company’s production
quantity schedule for June follows:
Units
Work in process on 1 June (65% complete as to
conversion) 2,200
Units started during June 3,800
Total units to account for 6,000
Units completed and transferred out during June 4,000
Work in process on 30 June (20% complete as to
conversion) 2,000
Total units accounted for 6,000
A review of the system indicates:
Cost relevant to the Work in progress 1 June:
o Direct material $440
o Conversion cost $550
Costs were added during the month:
o Direct material $1,216
o Conversion cost $1,785
1. Calculate the total equivalent units of direct material and conversion cost during June. Use
the weighted average method.
2. Calculate the total equivalent units and costs per equivalent unit for direct material and
conversion costs. Use the FIFO method.
3. Calculate the cost of the ending work in process and the cost of the goods completed and
transferred out. Use the FIFO method.
4. Explain the difference between Job Costing and Process Costing. What are some examples?
To calculate the total equivalent units of direct material and conversion costs using the weighted average method, you need to consider the units in beginning work in process, units started and completed during the month, and units in ending work in process. Then, you’ll apply the percentage of completion to calculate the equivalent units.
Direct Material: Equivalent units = (Units started and completed) + (Ending work in process * Percentage of completion) Equivalent units = (4,000) + (2,000 * 20%) = 4,400 equivalent units
Conversion Cost: Equivalent units = (Units started and completed) + (Ending work in process * Percentage of completion) Equivalent units = (4,000) + (2,000 * 20%) = 4,400 equivalent units
Total Equivalent Units and Costs per Equivalent Unit using FIFO Method
Direct Material: Equivalent units = (Units completed) + (Ending work in process * Percentage of completion) Equivalent units = (4,000) + (2,000 * 20%) = 4,400 equivalent units Cost per equivalent unit = Total direct material cost / Total equivalent units Cost per equivalent unit = ($1,216 + $440) / 4,400 = $0.37
Conversion Cost: Equivalent units = (Units completed) + (Ending work in process * Percentage of completion) Equivalent units = (4,000) + (2,000 * 20%) = 4,400 equivalent units Cost per equivalent unit = Total conversion cost / Total equivalent units Cost per equivalent unit = ($1,785 + $550) / 4,400 = $0.48
Cost of Ending Work in Process and Goods Completed using FIFO Method
Cost of Ending Work in Process: Cost of ending work in process = Ending work in process * Percentage of completion * Cost per equivalent unit Cost of ending work in process = 2,000 * 20% * $0.37 = $148
Cost of Goods Completed and Transferred Out: Cost of goods completed = Units completed * Cost per equivalent unit Cost of goods completed = 4,000 * $0.37 = $1,480
Difference between Job Costing and Process Costing
Job Costing: Job costing is a cost allocation method used when products or services are unique and customized. It tracks costs for each individual job, project, or order. This method is common in industries like construction, consulting, and custom manufacturing. Costs are assigned to specific jobs based on their characteristics, such as materials, labor, and overhead, allowing for accurate cost estimation and billing.
Process Costing: Process costing is used when companies produce large quantities of identical or similar products in a continuous flow. It involves averaging costs across all units produced during a specific period. This method is suitable for industries like food processing, chemicals, and oil refining. Costs are spread out over the total production, making it easier to calculate costs per unit for mass-produced items.
In summary, job costing is suited for custom products with distinct costs, while process costing is suitable for standardized products with relatively uniform costs. Examples of job costing include building a custom house or creating a personalized software solution. Examples of process costing include producing canned goods, refining petroleum, or manufacturing electronic components. Each method has its strengths and is chosen based on the nature of the business and the products or services it offers.
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