CHAPTER 5 DISCUSSION QUESTIONS

1. There are two main cost accounting systems namely, the job order costing and
the process costing. The first accounting system which is the Job order costing is
a cost accounting system that accumulates manufacturing costs separately for
each job while the second is a system that accumulates manufacturing costs
separately for each process. The job order cost system may be used favorably
when goods are produced in lots of predetermined quantity usually based on
customers’ specifications. The process cost system may be used advantageously
when goods are produced continuously as in the case of mass production
industries.

2. Job Order Cost System- Buildings, Airplanes, textbooks

Process Cost System items Lumber, Gasoline, Cereal, Paint, Jeans

3. Fashion or Apparel Industry (Guess), Beverages or Food Industry (Del Monte),

Health or Pharmacheutical (Takeda Healthcare Philippines Inc.)

4. The difference of job order cost system and Process cost systems is that in a job
order cost system, (a) costs are accumulated by specific jobs or orders, and (b)
unit costs are calculated at the time the job or order is finished.

On the other hand, in a process cost system, (a) costs are accumulated by
processes or departments, and (b) unit costs are calculated at the end of a given
period, usually a month, for each process or department.

5. The difference between the two terms is that, the term “unit cost” refers to the
average cost of producing each unit manufactured during a given period; the term
“job cost” on the contrary refers to the cost of producing each job completed or fully
manufactured during a given period. A job may consist of any number of units.

6. A. In accounting for materials under a job order cost system, the costs, as
determined from materials requisitions, are charged to specific jobs (direct
materials) or to factory overhead (indirect materials). Under a process cost system,
these costs are charged to the departments to which the materials were issued.

B. The cost of labor under a job order cost system is charged to specific jobs
worked on (direct labor) or to factory overhead (indirect labor). The cost of labor
under a process cost system is charged to the departments in which the work was
done.

C. The factory overhead charged to jobs is usually based on a predetermined rate

under a job order cost system. Under a process cost system, these costs are
gathered and distributed to departments, and a predetermined rate for each
department is used to apply overhead to Work in Process.

7. The primary objective in accumulating costs by departments is to determine the

amount of manufacturing expenses to be borne by the product as it passes through
each department or process. This facilitates better control by making available unit
costs of production for each department, which can then be compared to unit costs
in prior periods and to budgeted costs for the current period.
8. “Equivalent production” represents the number of whole units that could have been
completed during the period, given the amount of work that was performed. For example,
if 1,000 units are completed during the period and there are 500 units in process estimated
to be one-half completed at the end of the period, equivalent production in whole units is
1,250 units [ 1,000 + (500 x .50) ].

9. It is necessary to estimate the stage of completion of work in process at the end of the
accounting period so that the costs incurred during the period may be properly allocated
between the goods finished during the period and those in process at the end of the period.

10. If the estimate of the stage of completion of work in process is too high, the figure
representing equivalent production would be overstated and, therefore, the unit cost for
the month would be too low. As a result, the uncompleted units would absorb more than
their appropriate share of total costs and the goods finished would be charged for less than
the correct amount of costs. The unit cost of finished goods would be understated.

Conversely, if the estimate of the stage of completion of work in process was too low, the
figure representing equivalent production would be understated and, therefore, the unit
cost for the month would be too high. As a result, the uncompleted units would absorb less
than their appropriate share of total costs and the good finished would be charged more
than the correct amount of costs.

11. The production report shows the number of units (1) in process at the beginning of the
period, as well as the stage of completion, (2) placed in process or received from a prior
department during the period, (3) completed or transferred to a subsequent department
during the period, and (4) in process at the end of the period, as well as the stage of
completion.

12. The four main sections of a cost of production summary are (1) the costs to be accounted
for, (2) the equivalent production (unit output) for the period, (3) the computation of unit
costs for the period, and (4) the summary of production costs accounted for (inventory
costs).

13. In a single-department factory, units transferred out are moved to the stockroom as
finished goods. In a multiple-department factory, the units transferred out of the first
department are considered to be raw materials that will be added at the beginning of a
second department’s processing operations.

14. No. The calculation of unit cost in a department subsequent to the first considers only those
costs incurred for materials, labor, and factory overhead added during the month in that
department and the equivalent units produced in that department. However, a separate
computation is made for the transferred-in costs and it is added to the cost of the goods
transferred out.

15. Yes. In determining the costs transferred from a second department to a third, all prior
departments’ costs must be considered. The costs from the first department would also be
included in the computation of the ending work in process in the second department.

16. Goods that are finished but still on hand in a department at the end of the month are
accounted for as “goods completed and on hand” on the cost of production report, and as
finished goods for financial statement purposes.
 17. If the prior department’s transfers from two different periods have different unit costs each
month, these previous department costs must be averaged as a separate grouping so that
these transferred-in costs can be properly allocated to the products being produced in the
department to which they were transferred.

P5 - 1

Geneva Products Co.

Cost of Production Summary
For the Month Ended February 28, 20—

Cost of production for month:

Materials $ 30,000
Labor 20,000
Factory overhead 40,000
Total costs to be accounted for $ 90,000
Unit output for month:
Finished and transferred to finished goods during month 60,000
Equivalent units of work in process, end of month
(10,000 units, one-fourth completed) 2,500
Total equivalent production 62,500
Unit cost for month:
Materials ($30,000/62,500) $ .48
Labor ($20,000/62,500) .32
Factory overhead ($40,000/62,500) .64
Total $ 1.44
Inventory costs:
Costs of goods finished and transferred to finished goods
during month (60,000 × $1.44) $86,400
Cost of work in process, end of month:
Materials (10,000 × 1/4 × $0.48) $ 1,200
Labor (10,000 × 1/4 × $0.32) 800
Factory overhead (10,000 × 1/4 × $0.64) 1,600 3,600
Total production costs accounted for $ 90,000
P5 - 3

Komoko Kayak Inc.

Cost of Production Summary
For the Month Ended March 31, 20—

Cost of work in process, beginning of month:

Materials $ 5,200
Labor 4,600
Factory overhead 2,000 $ 11,800
Cost of production for month:
Materials $ 20,000
Labor 15,000
Factory overhead 12,000 47,000
Total costs to be accounted for $ 58,800
Unit output for month:
Finished and transferred to finished goods during month 18,000
Equivalent units of work in process, end of month
(3,000 units, two-thirds completed) 2,000
Total equivalent production 20,000

Unit cost for month:

$ 1.26
.98
.70
Total $ 2.94
Inventory costs:
Costs of goods finished and transferred to finished goods
during month (18,000 × $2.94) $ 52,920
Material (3,000 × 2/3 x $1.26) $ 2,520
Labor (3,000 × 2/3 × $0.98) 1,960
Factory overhead (3,000 × 2/3 × $0.70) 1,400 5,880
Total production costs accounted for $ 58,800
P5 – 7

Premier Products Inc.

Cost of Production Summary—Cutting
For the Month Ended July 31, 20—

Cost of production for month:

Materials ................................................................................... $30,000
Labor ....................................................................................... 16,000
Factory overhead ..................................................................... 14,000

Total costs to be accounted for ........................................ $ 60,000

Unit output for month:

Started in process and transferred to Shaping
during month ............................................................................ 5,400
Equivalent units of work in process, end of month
(1,200 units, one-half completed) ............................................ 600

Total equivalent production .............................................. 6,000

Unit cost for month:

Materials ($30,000 + 6,000)..................................................... $5
Labor ($16,000 + 6,000) .......................................................... 2.667
Factory overhead ($14,000 + 6,000) ....................................... 2.333

Total .................................................................................. $ 10.000

Inventory costs:
Costs of goods finished and transferred to Shaping
during month (5,400 x $10) ..................................................... .. $ 54,000
Cost of work in process, end of month:
Materials (1,200 x 1/2 x $5.000) ....................................... $ 3,000
Labor (1,200 x 1/2 x $2.667) ............................................ 1,600
Factory overhead (1,200 x 1/2 x $2.333) ......................... 1,400 6,000

Total production costs accounted for $ 60,000

 Premier Products Inc.
Cost of Production Summary—Shaping
For the Month Ended July 31, 20—

Cost of goods received from Cutting during the month

(5,400 units x $10) .................................................................... $ 54,000
Cost of production for the month:
Materials .................................................................................... $ 1,200
Labor ........................................................................................ 6,000
Factory overhead ...................................................................... 4,800

Total ................................................................................... 12,000

Total costs to be accounted for ......................................................... $ 66,000

Unit output for month:

Finished and transferred to Finishing during month................. 4,400
Equivalent units of work in process, end of month
(1,000 units, two-fifths completed) 400

Total equivalent production 4,800

Unit cost for the month:

Materials ($1,200 + 4,800 $0.25
Labor ($6,000+ 4,800) 1.25
Factory overhead ($4,800 + 4,800) 1.00

Total ................................................................................... $ 2.50

Inventory costs:
Costs of goods finished and transferred to Finishing:
Cost in Cutting (4,400 x $10.00) ........................................ $ 44,000
Cost in Shaping (4,400 x 2.50) .......................................... 11,000
(4,400 x $12.50) .................................. $ 55,000

Cost of work in process, end of month:

Cost in Cutting (1,000 x $10.00) ........................................ $10,000
Cost in Shaping (1,000 x 2/5 x $2.50) ............................... 1,000 11,000

Total production costs accounted for ................................................ $ 66,000

 Premier Products Inc.
Cost of Production Summary—Finishing
For the Month Ended July 31, 20__

Cost of goods received from Shaping during month

(4,400 units x $12.50) .............................................................. $ 55,000
Cost of production for month:
Materials ................................................................................... $ 6,300
Labor ....................................................................................... 4,200
Factory overhead ..................................................................... 6,300
Total .................................................................................. 16,800
Total costs to be accounted for ....................................................... $ 71,800

Unit output for month:

Finished and transferred to finished goods during month 4,000
Equivalent units of work in process, end of month
(400 units, one-half completed) ........................................ 200
Total equivalent production ........................................................................... 4,200
Unit cost for month:
Materials ($6,300 + 4,200)....................................................... $1.50
Labor ($4,200 + 4,200) ........................................................................................... 1.00
Factory overhead ($6,300 + 4,200) ........................................................................ 1.50
Total $4.00

Inventory costs:
Costs of goods finished and transferred to finished goods:
Cost in Cutting (4,000 x $10.00) ....................................... $ 40,000
Cost in Shaping (4,000 x2.50) 10,000
Cost in Finishing (4,000 x4.00) 16,000
(4,000 x $16.50) ................................. $ 66,000

Cost of work in process, end of month:

Cost in Cutting (400 x $10.00) .......................................... $ 4,000
Cost in Shaping (400 x $2.50) .......................................... 1,000
Cost in Finishing (400 x 1/2 x $4.00) ................................ 800 5,800

Total production costs accounted for ................................................ $ 71,800

P5 - 13R

Tanaka 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 x $2.05) $ 26,650
Cost of work in process, end of month:
Materials (2,000 x 1/4 x $1.22) $ 610
Labor (2,000 x 1/4 x $0.40) 200
Factory overhead (2,000 x 1/4 x $0.43 215 1,025
Total production costs accounted for $ 27,675
 Tanaka 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) + 13,70 .50

Total $ 1.35

Inventory costs:
Costs of goods finished and transferred to Bottling
during the month:
Cost of mixing (10,000x$2.05) $20,500
Cost of blending ( 10,000x1.35) 13,500
( 10,000x3.40) $34,000

Cost of goods finished and on hand:

Cost in Mixing (500 x $2.05) $ 1,025
Cost in Blending (500 x 1.35) 675
(500 x $3.40) 1,700
Cost of work in process, end of month:
Cost in Mixing (4,000 x $2.05) $ 8,200
Cost in Blending:
Materials (4,000 x 4/5 x $0.20) $640
Labor (4,000 x 4/5 x $0.65) 2,080
Factory overhead (4,000 x 4/5 x $0.50) 1,600 4,320 12,520
Total Production cost accounted for $48,220
 Tanaka 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
.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 x $3.37) $37,070
Cost in Bottling (11,000 x 1.84) 20,240
(11,000 x $5.21) 57,310
Cost in work in process, end of month:
Cost in Mixing and Blending (2,000 x $3.37) $ 6,740
Cost in Bottling:
Materials (2,000 x 1/2 x $0.20) $ 200
Labor (2,000 x 1/2 x $0.80) 800
Factory overhead (2,000 x 1/2 x $0.84) 840 1,840 8,580
$ 65,890
Total production costs accounted for
 Tanaka 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
Mixing Costs added during 13,000 26,650
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 $ 34,000
10,000
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 Credite
Analysis Transf. in Dept. on Hand to Dept. d
to Dept.

Bottling:
Opening inventory in 3,000 $ 16,890
process 1 0,000 34,000
Received during Month
from
Costs added during month:
Materials ...... 0.20 1.500
Labor ........... 0.80 6,500
Factory overhead 0.84 7,000
Finished and
transferred to stock $5.24 $ 57,310
11,000
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 $ 7,310

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
 Tanaka 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