ES 184 Managerial Accounting

Activity 4 Process Costing

Name: Montes, Eleazar Junior L. Date: October 2023

Section: BSIE-3A Score: _______________

Below data is the lists Sea View's Insertion Department data for October. The top portion of the
exhibit lists the unit information, while the lower portion lists the costs. Let's walk through this
information together.

Exhibit 11

Step 1: Summarize the Flow of Physical Units

Step 1 tracks the movement of swim masks into and out of the Insertion Department, just as we did
in the Shaping Department. The data in Exhibit 11 show that the Insertion Department had a
beginning work in process inventory of 5,000 masks. Then, during October, the Insertion
Department received 40,000 masks from the Shaping Department. Thus, exhibit 2 shows that the
Insertion Department has 45,000 masks to account for (5,000 + 40,000).

Step 2: Compute Output in Terms of Equivalent Units

As mentioned earlier, process costing in a second or later department separately calculates

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 ES 184 Managerial Accounting
Activity 4 Process Costing

Exhibit 2 shows three columns for the Insertion Department's three categories of equivalent units:
transferred-in, direct materials, and conversion costs.

Exhibit 2

Notes about calculating equivalent units in ending WIP:

Transferred-in = 7,000 units X 100% complete = 7,000

DM = 7,000 units X 0% complete = 0

Conversion = 7,000 units X 30% complete = 2,100

Steps 3 and 4: Summarize Total Costs to Account for and Compute the Cost per Equivalent Unit

Step 5: Assign Total Costs to Units Completed and to Units in Ending Work in Process Inventory

Sea View's managers can now compute the cost of manufacturing one swim mask, from start to
finish. Step 5 shows that $199,500 should be transferred to the Finished Goods Inventory account
for the 38,000 masks completed during the month. Therefore, Sea View's cost of making one
completed mask is $5.25 ($199,500 / 38,000 finished masks).

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 ES 184 Managerial Accounting
Activity 4 Process Costing

We see that each unit of the product picked up $4.40 of cost in the first department (Shaping), and
then picked up another $0.85 of cost in the second department (Insertion). Therefore, the cost of
making one mask, from start to finish, is $5.25 ($4.40 / $0.85).

SeaView's managers use this information to help control costs, set prices, and assess the profitability
of the swim masks. Let's assume SeaView is able to charge customers $10 for each mask. If so, the
gross profit on the sale of each of these masks will be as follows:

Production Cost Report

Journal Entries in a Second Processing Department

The Insertion Department's journal entries are similar to those of the Shaping Department. The
following summary entry records the manufacturing costs incurred in the Insertion Department
during the month of October (data from Exhibit 11):

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 ES 184 Managerial Accounting
Activity 4 Process Costing

In addition to this journal entry, which records the Insertion Department's October costs, recall that
a journal entry was made to transfer $176,000 of cost out of the Shaping Department and into the
Insertion Department. As a final step, the Insertion Department must now transfer cost out of its
department into Finished Goods Inventory. The fifth step of the process costing procedure showed
that $199,500 should be assigned to the completed masks, while $31,535 should be assigned to the
units still being worked on. Thus, the following journal entry is needed to transfer cost out of the
Insertion Department and into Finished Goods Inventory:

After posting, the key accounts appear as follows:

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 ES 184 Managerial Accounting
Activity 4 Process Costing

Problem 1

Florida Tile produces ceramic tiles using two sequential production departments: Tile-Forming and
Tile-Finishing. The following information was found for Florida Tile's first production process, the
Tile-Forming Department.

Requirement

Use the five steps of process costing to calculate the cost that should be assigned to (1) units
completed and transferred out and (2) units still in ending work in process inventory. Then prepare
the journal entry needed at month-end to transfer the costs associated with the formed tiles to the
next department, Tile-Finishing.

Problem 2

This problem extends the Problem 1 to a second department. During May, Florida Tile Industries
reports the following in its Tile-Finishing Department:

Requirements

1. Complete the five-step process costing procedure to assign the Tile-Finishing Department's total
costs to account for to units completed and to units in ending work in process inventory.

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 ES 184 Managerial Accounting
Activity 4 Process Costing

2. Make the journal entry to transfer the appropriate amount of cost to Finished Goods Inventory

3. What is the cost of making one unit of product from start to finish?

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