Chapter 3 – Process Costing

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Exercise 3-3 Changing Direct Material Inputs to Reduce Costs and Energy Exercise 3-3
Consumption
Exercise 3-4 Computing Unknown Manufacturing Costs for Process Costing Exercise 3-4
Exercise 3-9 Calculating Equivalent Units, Cost per Equivalent Unit, Reconciling Exercise 3-9
the Cost of Work in Process (Weighted-Average Method)

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Exercise 3-3
In Year 1, Miller Vineyards redesigned its bottling process to use a more lightweight bottle by reducing
the thickness of the glass and removing the “punt” or indentation at the base of the bottle. The result
was to reduce the weight of each wine bottle from a little over 25 ounces to 20 ounces, for a 20%
reduction in the amount of glass used per bottle. This reduced the overall glass usage by 3,250 tons in a
year in which the company produced about 23 million bottles of wine.
Reducing the weight of each bottle also reduced the amount of energy needed to produce
it, the amount of fuel required to transport it throughout the supply chain, and the energy needed to
landfill or recycle the bottle after consumption. The result was a 17% reduction in annual greenhouse
gas emissions, or 3,765 tons of CO2 equivalents in the supply chain.
Dr. Ben, Miller’s sustainability manager in Year 1, was quoted as saying: “Lightweighting our
bottle is a double-bottom line innovation good for the environment and for efficient operations that
supports our goal of being a sustainable business.”

Required:
1. Compute the annual savings in direct materials costs (glass) assuming a price of $40 per ton of glass.
2. In addition to the direct materials cost savings, would Miller realize any other economic benefits
from this initiative? Explain.
3. What did Dr. Ben mean by “double bottom line”? What would make it a “triple bottom line”?
In Year 1, Miller Vineyards redesigned its bottling process to use a more lightweight bottle by reducing
the thickness of the glass and removing the “punt” or indentation at the base of the bottle. The result
was to reduce the weight of each wine bottle from a little over 25 ounces to 20 ounces, for a 20%
reduction in the amount of glass used per bottle. This reduced the overall glass usage by 3,250 tons in a
year in which the company produced about 23 million bottles of wine.
Reducing the weight of each bottle also reduced the amount of energy needed to produce
it, the amount of fuel required to transport it throughout the supply chain, and the energy needed to
landfill or recycle the bottle after consumption. The result was a 17% reduction in annual greenhouse
gas emissions, or 3,765 tons of CO2 equivalents in the supply chain.
Dr. Ben, Miller’s sustainability manager in Year 1, was quoted as saying: “Lightweighting our
bottle is a double-bottom line innovation good for the environment and for efficient operations that
supports our goal of being a sustainable business.”

Annual Savings in Direct Materials Costs = Overall Reduction in Usage × Rate per Ton of Glass

= 3,250 tons × $40

= $130,000
In Year 1, Miller Vineyards redesigned its bottling process to use a more lightweight bottle by reducing
the thickness of the glass and removing the “punt” or indentation at the base of the bottle. The result
was to reduce the weight of each wine bottle from a little over 25 ounces to 20 ounces, for a 20%
reduction in the amount of glass used per bottle. This reduced the overall glass usage by 3,250 tons in a
year in which the company produced about 23 million bottles of wine.
Reducing the weight of each bottle also reduced the amount of energy needed to produce
it, the amount of fuel required to transport it throughout the supply chain, and the energy needed to
landfill or recycle the bottle after consumption. The result was a 17% reduction in annual greenhouse
gas emissions, or 3,765 tons of CO2 equivalents in the supply chain.
Dr. Ben, Miller’s sustainability manager in Year 1, was quoted as saying: “Lightweighting our
bottle is a double-bottom line innovation good for the environment and for efficient operations that
supports our goal of being a sustainable business.”

 Miller can realize other economic benefits.

 Miller also has the opportunity to generate additional sales by promoting the
environmental benefits of the wine and its redesigned bottle to consumers.
In Year 1, Miller Vineyards redesigned its bottling process to use a more lightweight bottle by reducing
the thickness of the glass and removing the “punt” or indentation at the base of the bottle. The result
was to reduce the weight of each wine bottle from a little over 25 ounces to 20 ounces, for a 20%
reduction in the amount of glass used per bottle. This reduced the overall glass usage by 3,250 tons in a
year in which the company produced about 23 million bottles of wine.
Reducing the weight of each bottle also reduced the amount of energy needed to produce
it, the amount of fuel required to transport it throughout the supply chain, and the energy needed to
landfill or recycle the bottle after consumption. The result was a 17% reduction in annual greenhouse
gas emissions, or 3,765 tons of CO2 equivalents in the supply chain.
Dr. Ben, Miller’s sustainability manager in Year 1, was quoted as saying: “Lightweighting our
bottle is a double-bottom line innovation good for the environment and for efficient operations that
supports our goal of being a sustainable business.”

 Double bottom line means that the initiative has both economic and
environmental benefits.
 The third factor in the triple bottom line relates to social issues, such as
education, consumer health, employee well-being, and the like.
Exercise 3-4
The following four companies use a process cost system:

Forill Co. Kimm Co. Bay Inc. Tacy Company

Conversion cost a. $353,400 $85,125 h.

Direct labor $ 64,800 c. $38,250 $20,250

Depreciation $ 3,750 $ 26,400 f. $ 2,400

Manufacturing overhead $ 38,550 $215,700 e. g.

Rent $ 24,300 d. $15,450 $ 1,275

Direct materials $133,950 $543,375 $59,700 $25,875

Supervisor’s salary $ 8,100 $ 29,475 $ 4,350 $ 3,150

Utilities b. $ 36,600 $13,575 $ 975

Required:
Treating each case independently, find the missing amounts for letters a through h. You should do them
in the order listed.
 Forill Co. Kimm Co. Bay Inc. Tacy Company

Conversion cost $103,350

a. $353,400 $85,125 h.

Direct labor $ 64,800 c. $38,250 $20,250

Depreciation $ 3,750 $ 26,400 f. $ 2,400

Manufacturing overhead $ 38,550 $215,700 e. g.

Rent $ 24,300 d. $15,450 $ 1,275

Direct materials $133,950 $543,375 $59,700 $25,875

Supervisor’s salary $ 8,100 $ 29,475 $ 4,350 $ 3,150

Utilities $ b.
2,400 $ 36,600 $13,575 $ 975

Conversion Cost = Direct Labor + Manufacturing Overhead

= $64,800 + $38,550
= $103,350

Manufacturing Overhead = Depreciation + Rent + Supervisor’s Salary + Utilities

Utilities = Manufacturing Overhead − Rent − Supervisor’s Salary − Depreciation
= $38,550 − $24,300 − $8,100 − $3,750
= $2,400
 Forill Co. Kimm Co. Bay Inc. Tacy Company

Conversion cost $103,350 $353,400 $85,125 h.

Direct labor $ 64,800 c.

$137,700 $38,250 $20,250

Depreciation $ 3,750 $ 26,400 f. $ 2,400

Manufacturing overhead $ 38,550 $215,700 e. g.

Rent $ 24,300 d. $15,450 $ 1,275

Direct materials $133,950 $543,375 $59,700 $25,875

Supervisor’s salary $ 8,100 $ 29,475 $ 4,350 $ 3,150

Utilities $ 2,400 $ 36,600 $13,575 $ 975

Conversion Cost = Direct Labor + Manufacturing Overhead

Direct Labor = Conversion Cost − Manufacturing Overhead
= $353,400 − $215,700
= $137,700
 Forill Co. Kimm Co. Bay Inc. Tacy Company

Conversion cost $103,350 $353,400 $85,125 h.

Direct labor $ 64,800 $137,700 $38,250 $20,250

Depreciation $ 3,750 $ 26,400 f. $ 2,400

Manufacturing overhead $ 38,550 $215,700 e. g.

Rent $ 24,300 d.
$123,225 $15,450 $ 1,275

Direct materials $133,950 $543,375 $59,700 $25,875

Supervisor’s salary $ 8,100 $ 29,475 $ 4,350 $ 3,150

Utilities $ 2,400 $ 36,600 $13,575 $ 975

Manufacturing Overhead = Depreciation + Rent + Supervisor’s Salary + Utilities

Rent = Manufacturing Overhead − Utilities − Supervisor’s Salary − Depreciation
= $215,700 − $36,600 − $29,475 − $26,400
= $123,225
 Forill Co. Kimm Co. Bay Inc. Tacy Company

Conversion cost $103,350 $353,400 $85,125 h.

Direct labor $ 64,800 $137,700 $38,250 $20,250

Depreciation $ 3,750 $ 26,400 f. $ 2,400

Manufacturing overhead $ 38,550 $215,700 e.

$46,875 g.

Rent $ 24,300 $123,225 $15,450 $ 1,275

Direct materials $133,950 $543,375 $59,700 $25,875

Supervisor’s salary $ 8,100 $ 29,475 $ 4,350 $ 3,150

Utilities $ 2,400 $ 36,600 $13,575 $ 975

Conversion Cost = Direct Labor + Manufacturing Overhead

Manufacturing Overhead = Conversion Cost − Direct Labor
= $85,125 − $38,250
= $46,875
 Forill Co. Kimm Co. Bay Inc. Tacy Company

Conversion cost $103,350 $353,400 $85,125 h.

Direct labor $ 64,800 $137,700 $38,250 $20,250

Depreciation $ 3,750 $ 26,400 f.

$13,500 $ 2,400

Manufacturing overhead $ 38,550 $215,700 $46,875 g.

Rent $ 24,300 $123,225 $15,450 $ 1,275

Direct materials $133,950 $543,375 $59,700 $25,875

Supervisor’s salary $ 8,100 $ 29,475 $ 4,350 $ 3,150

Utilities $ 2,400 $ 36,600 $13,575 $ 975

Manufacturing Overhead = Depreciation + Rent + Supervisor’s Salary + Utilities

Depreciation = Manufacturing Overhead − Utilities − Supervisor’s Salary − Rent
= $46,875 − $13,575 − $4,350 − $15,450
= $13,500
 Forill Co. Kimm Co. Bay Inc. Tacy Company

Conversion cost $103,350 $353,400 $85,125 $28,050

h.

Direct labor $ 64,800 $137,700 $38,250 $20,250

Depreciation $ 3,750 $ 26,400 $13,500 $ 2,400

Manufacturing overhead $ 38,550 $215,700 $46,875 $ 7,800

g.

Rent $ 24,300 $123,225 $15,450 $ 1,275

Direct materials $133,950 $543,375 $59,700 $25,875

Supervisor’s salary $ 8,100 $ 29,475 $ 4,350 $ 3,150

Utilities $ 2,400 $ 36,600 $13,575 $ 975

Manufacturing Overhead = Depreciation + Rent + Supervisor’s Salary + Utilities

= $2,400 + $1,275 + $3,150 + $975
= $7,800

Conversion Cost = Direct Labor + Manufacturing Overhead

= $20,250 + $7,800
= $28,050
Exercise 3-9
Romeo Company manufactures plastic storage crates and has the following information available for the
month of April:
Work in process, April 1 32,500 units
(100% complete for materials, 20% for conversion)
Direct materials $52,500
Conversion cost $70,000

Number of units started 98,600 units

April costs
Direct materials $142,500
Conversion cost $205,800

Work in process, April 30

(100% complete for materials, 40% for conversion) 52,000 units

Required:
Using the weighted-average method of process costing, complete each of the following steps:
1. Reconcile the number of physical units worked on during the period.
2. Calculate the number of equivalent units.
3. Calculate the cost per equivalent unit rounded to five decimal places.
4. Reconcile the total cost of work in process.
 Work in process, April 1 32,500 units
(100% complete for materials, 20% for conversion)
Direct materials $52,500
Conversion cost $70,000

Number of units started 98,600 units

April costs
Direct materials $142,500
Conversion cost $205,800

Work in process, April 30

(100% complete for materials, 40% for conversion) 52,000 units

Physical Units Physical Units

Beginning Units 32,500 Units Completed 79,100

Units Started 98,600 Ending Units 52,000
Total Units 131,100 Total Units 131,100

Units in Beginning Inventory + Units Started = Units Completed + Units in Ending Inventory

32,500 + 98,600 − 52,000 = 79,100

Work in process, April 1 32,500 units
(100% complete for materials, 20% for conversion)
Direct materials $52,500
Conversion cost $70,000

Number of units started 98,600 units

April costs
Direct materials $142,500
Conversion cost $205,800

Work in process, April 30

(100% complete for materials, 40% for conversion) 52,000 units

Equivalent Units
Physical Units Direct Materials Conversion
Units Completed 79,100 79,100 79,100
Ending Inventory 52,000 52,000 20,800
Total 131,100 131,100 99,900
Work in process, April 1 32,500 units
(100% complete for materials, 20% for conversion)
Direct materials $52,500
Conversion cost $70,000

Number of units started 98,600 units

April costs
Direct materials $142,500
Conversion cost $205,800

Work in process, April 30

(100% complete for materials, 40% for conversion) 52,000 units

Equivalent units for direct materials = 131,100 Equivalent units for Conversion = 99,900

Direct Materials Conversion

Beginning Inventory Costs $ 52,500 $ 70,000
Current Period Cost 142,500 205,800
Total Cost $195,000 $275,800
Equivalent Units ÷131,100 ÷ 99,900
Cost per Equivalent Unit $1.48741 $2.76076
 Equivalent Units
Physical Units Direct Materials Conversion
Units Completed 79,100 79,100 79,100
Ending Inventory 52,000 52,000 20,800
Total 131,100 131,100 99,900

Direct Materials Conversion

Cost per Equivalent Unit $1.48741 $2.76076

Direct Materials Conversion Total Cost

Units Completed $117,654 $218,376 $336,030
Ending Inventory 77,346 57,424 134,770
Total Cost Accounted for $195,000 $275,800 $470,800

79,100 × $1.48741 = $117,654 79,100 × $2.76076 = $218,376

52,000 × $1.48741 = $77,346 20,800 × $2.76076 = $57,424