Question

Process costing can be found in which of the following companies (industries)?

		Coca-Cola.
		Royal Dutch Shell Group (petroleum).
		Kimberly-Clark (paper products).
		Reichhold Chemical (chemicals).
		All of these answer choices are correct.

East Bay Fisheries Inc. processes king salmon for various distributors. Two departments are involved — processing and packaging. Data relating to tons of king salmon processed in the processing department during June 2016 are provided below:

	Tons of King Salmon	Percent Completed
		Materials	Conversion
Work-in-process inventory —June 1	1,500	90	80
Work-in-process inventory —June 30	2,800	60	40
Started processing during June	7,800

Total equivalent units for conversion under the FIFO method are calculated to be:

		6,560 equivalent units.
		8,180 equivalent units.
		6,420 equivalent units.
		7,140 equivalent units.
		7,320 equivalent units.

Giddings Pharmaceutical Company is a maker of drugs for high blood pressure and uses a process costing system. The following information pertains to the final department of Giddings's blockbuster drug called Solcax.

Beginning work-in-process (40% completed)	800	units
Transferred-in	4,000	units
Normal spoilage	400	units
Abnormal spoilage	200	units
Good units transferred out	3,600	units
Ending work-in-process (1/3 completed)	600	units
Conversion costs in beginning inventory	$2,560
Current conversion costs	$6,900

Giddings calculates separate costs of spoilage by computing both normal and abnormal spoiled units. Normal spoilage costs are reallocated to good units and abnormal spoilage costs are charged as a loss. The units of Solcax that are spoiled are the result of defects not discovered before inspection of finished units. Materials are added at the beginning of the process. Using the weighted-average method, answer the following question:

What are the total conversion costs in ending inventory?

		$430.
		$500.
		$850.
		$1,150.

Answer 1

Hi,

I have answered all parts of the question along with the explanation and formula. Hope this helps!

Q1)	All of these answer choices are correct
Reason: Process costing is used when there is a bulk or batch production of similar products (products which cannot be differentiated from one another). The costs which are associated with such products cannot be differentiated. Here, in all the companies mentioned above, the products are manufactured in batches and the output of units are all identical and hence process costing can be used for all of them.
Q2)	Total equivalent units for conversion under the FIFO method for East Bay Fisheries Inc.
		Tons of	Percent Completed
		King Salmon	Materials	Conversion
	Work-in-process inventory —June 1	1,500	90	80
	Work-in-process inventory —June 30	2,800	60	40
	Started processing during June	7,800
	For considering cost of conversion, we will use the percentage completed wrt conversion
		Tons (a)	% Completed (b)	Equivalent units (a)*(b)
	Beginning WIP (considering the opening WIP has been completed in the current month and 80% conversion was as at June 01)	1,500	20%	300
	Closing WIP	2,800	40%	1,120
	Products started and completed (refer below)	5,000	100%	5,000
	(Total processed (7,800) - Closing WIP (2,800)		Total	6,420
	Therefore, answer is 6,420 equivalent units
Q3)	Total conversion costs in ending inventory
	Calculation of equivalent units produced and part of closing WIP
	Opening WIP	800
	Transferred in	4,000
	Total units which could be produced	4,800
	Less: Normal spoilage	400
	Less: Abnormal spoilage	200
	Units which could be produced	4,200
	Out of 4,200 units - 3,600 completed and 600 is work in progres
	Calculation of cost which is to be treated as abnormal loss and hence charged as loss
	Conversion costs in beginning inventory	$                2,560
	Current conversion costs	$                6,900
	Total costs	$                9,460
	Abnormal spoilage (units)	200
	Total units produced till date
	Completed units	3,600
	Normal spoilage	400
	Abnormal spoilage	200
	Equivalent closing WIP units (1/3 of 600)	200
	Total production units	4,400
	Cost of abnormal spoilage	430
	(Total cost * abnormal spoilage/total production)
	Conversion cost of closing inventory
	Total costs	$                9,460
	Less: Abnormal spoilage	$                    430
	Costs to be allocated to closing inventory	$                9,030
	Total units:
	Completed units	3,600
	Normal spoilage (as the cost is to be reallocated to good units)	400
	Equivalent closing WIP units (1/3 of 600)	200
	Total units (sum of all items)	4,200
	Conversion cost in ending inventory	$                    430
	(Cost to be allocated*Equivalent closing WIP units/Total units)
	i.e. (9,030*200units/4,200 units)
	Therefore, answer is $430 equivalent units

Please do rate my answer. Thanks in advance.

Regards

D