Cost accounting (1) 4 th Year Alaa Salama F.

R Part 2 page 1 of 67

Cost Accounting (1)

FCES – Damanhour 2024-2025 Part
4 th Year - 1st Term [2]
by : Alaa Salama

Cost Accounting (1)

Final Revision
Part [2]
Exercises

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Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 2 of 67
Exercises over Weighted average costing
First Process <<Process A>>
Exercise1: the following data for a department in manufacturing company during May:
• 2,500 Units in beginning inventory (35% complete for all cost elements)
• 6,000 units started in process during the current period.
• 7,000 units completed and transferred out.
• ??? Units in ending inventory (60% complete for all cost elements)
Required: Determine the flow of physical units.
Solution
1. The flow of physical units: (WA) ✓
Data Department (A)
Beginning WIP inventory 2,500 (35% Completion degree)
+ Units started 6,000
Total inputs 8,500
Units completed and transferred out 7,000
+ Ending WIP inventory 1,500 (60% Completion degree)
Total outputs 8,500

2- Equivalent Units: (WA)

(Units completed & transferred out × 100%) + (Ending inventory × Completion degree)
Equivalent units for Manufacturing = (7,000 × 100%) + (1,500 × 60%) = 7,900 Units

Exercise 2: The following is the flow of physical units for a manufacturing company:

Data Process (A) Process (B) Process (C)

Beginning WIP inventory 1,500 (25%) ??? (30%) 500 (25%)
+ Units started ??? ??? ???
Total inputs 6,200 ??? ???
Units completed and transferred out ??? ??? 4,600
+ Ending WIP inventory 400 (60%) 800 (40%) ??? (70%)
Total outputs ??? 6,800 ???
Required: Complete the missing blanks.
Solution
1. The flow of physical units: (WA) ✓
Data Process (A) Process (B) Process (C)
Beginning WIP inventory 1,500 (25%) 1,000 (30%) 500 (25%)
+ Units started 4,700 5,800 6,000
Total inputs 6,200 6,800 6,500
Units completed and transferred out 5,800 6,000 4,600
+ Ending WIP inventory 400 (60%) 800 (40%) 1,900 (70%)
Total outputs 6,200 6,800 6,500
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 3 of 67
Exercise 3: Consider the following data for a department in manufacturing company during
November:
• Weighted-average equivalent units are 5,250 units.
• The department costs during November are as follows:
Data Direct material Direct labor Conversion costs
Costs of beginning inventory 4,100 750 150
Current costs 54,000 22,000 3,000
Required: Determine cost per unit under weighted-average costing.

Solution
4. Cost per equivalent unit: (WA)
Costs of beginning inventory + Current costs
Cost per equivalent unit =
Equivalent units
(4,100 + 750 + 150) + (54,000 + 22,000 + 3,000)
Cost per equivalent unit = = $16 per unit ✓
5,250 units

Exercise 4: Consider the following data for a department in manufacturing company during
November:
• 800 Units in beginning inventory (40% complete for all cost elements)
• 1,200 units started in process during the current period.
• 1,800 units completed and transferred out.
• 200 units in ending inventory (20% complete for all cost elements)
The department costs during November are as follows:
Data Direct material Conversion costs
Costs of beginning inventory 1,036 520
Current costs 4,080 2,000
Required: Prepare the production cost report under weighted-average costing.

Solution
1. The flow of physical units:
Data Department (A)
Beginning WIP inventory 800 (40% Completion degree)
+ Units started 1,200
Total inputs 2,000
Units completed and transferred out 1,800
+ Ending WIP inventory 200 (20% Completion degree)
Total outputs 2,000

2. Equivalent Units: (WA)

(Units completed & transferred out × 100%) + (Ending inventory × Completion degree)

Equivalent Units = (1,800 × 100%) + (200 × 20%) = 1,840 units

3. Total costs (Given)
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 4 of 67
4. Cost per equivalent unit: (WA)
Costs of beginning inventory + Current costs
Cost per equivalent unit =
Equivalent units
(1,036 + 520) + (4,080 + 2,000)
Cost per equivalent unit = = $4.15 per unit
1,840 units

5. The Production cost report: (WA) ✓

Data Department (A)
1- Input Costs
* Costs of beginning inventory:
Direct material 1,036
Conversion costs 520
Total 1,556
* Current Costs:
Direct material 4,080
Conversion costs 2,000
Total 6,080
Total input Costs 7,636
2- Output Costs
* Costs of units completed and transferred out 7,470
(1,800 unit × 4.15 cost per unit)
* Costs of ending inventory 166
(200 unit × 4.15 cost per unit × 20% Completion degree)

Total output Costs 7,636

Exercise 5: Alex. Company uses a weighted average process costing system and started
30,000 units this month. Alex. had 12,000 units that were 20 percent complete as to
conversion costs in beginning Work in Process Inventory and 3,000 units that were 40
percent complete as to conversion costs in ending Work in Process Inventory. What are
equivalent units for conversion costs?

Solution
1. The flow of physical units: (WA)
Data Department (A)
Beginning WIP inventory 12,000 (20% Conversion)
+ Units started 30,000
Total inputs 42,000
Units completed and transferred out 39,000
+ Ending WIP inventory 3,000 (40% Conversion)
Total outputs 42,000
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 5 of 67
2. Equivalent Units: (WA)
(Units completed & transferred out × 100%) + (Ending inventory × Completion degree)

Conversion = (39,000 × 100%) + (3,000 × 40%) = 40,200 Units ✓

Exercise 6: Consider following data for a department in manufacturing company during April:
• 2,000 Units in beginning inventory (40% complete for DM & 80% complete for conversion
costs)
• 12,000 units started in process during the current period.
• 4,000 units in ending inventory (25% complete for DM & 60% complete for conversion
costs)
The department costs during April are as follows:
Data Direct material Conversion costs
Costs of beginning inventory 2,000 1,060
Current costs 20,000 7,000
After preparing the production cost report under weighted-average costing, What are the
costs of outputs respectively?
Solution

1. The flow of physical units: (WA)

Data Department (A)
Beginning WIP inventory 2,000 (40% DM, 80% Conversion)
+ Units started 12,000
Total inputs 14,000
Units completed and transferred out 10,000
+ Ending WIP inventory 4,000 (25% DM, 60% Conversion)
Total outputs 14,000

2. Equivalent Units: (WA)

(Units completed & transferred out × 100%) + (Ending inventory × Completion degree)
Direct material = (10,000 × 100%) + (4,000 × 25%) = 11,000 units
Conversion = (10,000 × 100%) + (4,000 × 60%) = 12,400 Units

3. Total costs (Given)

4. Cost per equivalent unit: (WA)
Cost of beginning inventory + Current cost
Cost per equivalent unit =
Equivalent units
2,000 + 20,000
Direct material = = $2 per unit
11,000
Conversion = 1,060 + 7,000 = $0.65 per unit
12,400
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 6 of 67
5. The Production cost report: (WA)
Data Department (A)
1- Input Costs
* Costs of beginning inventory:
Direct material 2,000
Conversion costs 1,060
Total 3,060
* Current Costs:
Direct material 20,000
Conversion costs 7,000
Total 27,000
Total Input Costs 30,060
2- Output Costs
* Costs of units completed and transferred out
DM (10,000 unit × 2 cost per unit) 20,000
Conversion (10,000 unit × 0.65 cost per unit) 6,500
Total 26,500 ✓
* Costs of ending inventory
DM (4,000 unit × 2 cost per unit × 25% completion degree) 2,000
Conversion (4,000 × 0.65 × 60% completion degree) 1,560
Total 3,560 ✓
Total Output Costs 30,060
The costs of outputs respectively = 26,500 & 3,560

Exercise 7: One company uses process costing system.

• All units go through four processes.
• Direct materials are added twice in the first process; 80% at the beginning of the
process and 20% at the end of the process.
• Conversion costs are added evenly throughout the process.
• The ending inventory in the first process is 55% completed.
Required: Determine the completion degree for direct materials of ending inventory.
Solution

Addition of materials

55%

DM Conversion
80% 55%

Completion degree for direct materials of ending inventory = 80% ✓

Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 7 of 67
Exercise 8: Alex. Company uses a weighted average process costing system. The company
had 5,000 units that were 60 percent complete as to conversion costs at the beginning of
the month. The company started 22,000 units this period and had 7,000 units in ending Work
in Process Inventory that were 35 percent complete as to conversion costs.
Required: What are equivalent units for material, if material is added at the beginning of
the process?
Solution

Addition of materials

35% 60%

Completion degrees of DM Conversion DM Conversion Completion degrees of

Ending inventory 100% 35% 100% 60% Beginning inventory

1. The flow of physical units:

Data Department (A)
Beginning WIP inventory 5,000 (100% DM, 60% Conversion)
+ Units started 22,000
Total inputs 27,000
Units completed and transferred out 20,000
+ Ending WIP inventory 7,000 (100% DM, 35% Conversion)
Total outputs 27,000

2. Equivalent Units: (WA)

(Units completed & transferred out × 100%) + (Ending inventory × Completion degree)
DM = (20,000 × 100%) + (7,000 × 100%) = 27,000 units ✓

Exercise 9: One company has three processes (A), (B) and (C).
- The company uses weighted-average process costing method.
- Consider the August 202X data for physical units in process (A):
• Beginning inventory 5,000 units (30% complete for conversion costs)
• Units started 25,000 units
• Ending inventory 8,000 units (40% complete for conversion costs)
- Direct materials are added twice in the process; 50% at the beginning of the process
and the remainder at the end of the process.
- Conversion costs are added evenly throughout the process.
- The following information is available:
Data Direct material Conversion costs
Costs of beginning inventory 26,000 17,000
Current costs 52,000 33,400

Required: What are the costs per unit respectively?

Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 8 of 67
Solution

Addition of materials

30% 40%

DM Conv. DM Conversion
50% 30% 50% 40%

Completion degrees of Completion degrees of

Beginning inventory Ending inventory

1. The flow of physical units:

Data Process (A)
Beginning WIP inventory 5,000 (50% DM, 30% Conversion)
+ Units started 25,000
Total inputs 30,000
Units completed and transferred out 22,000
+ Ending WIP inventory 8,000 (50% DM, 40% Conversion)
Total outputs 30,000

2. Equivalent Units: (WA)

(Units completed & transferred out × 100%) + (Ending inventory × Completion degree)
Direct material = (22,000 × 100%) + (8,000 × 50%) = 26,000 units
Conversion = (22,000 × 100%) + (8,000 × 40%) = 25,200 Units

3. Total costs (Given)

4. Cost per equivalent unit: (WA)

Cost of beginning inventory + Current cost
Cost per equivalent unit =
Equivalent units
26,000 + 52,000
Direct material = = $3 per unit ✓
26,000

17,000 + 33,400
Conversion = = $2 per unit ✓
25,200

"The costs per unit respectively = $3 & $2 per unit"

Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 9 of 67
5. The Production cost report: (WA)

Data Department (A)

1- Input Costs
* Costs of beginning inventory:
Direct material 26,000
Conversion costs 17,000
Total 43,000
* Current Costs:
Direct material 52,000
Conversion costs 33,400
Total 85,400
Total Input Costs 128,400
2- Output Costs
* Costs of units completed and transferred out
DM (22,000 unit × $3 cost per unit) 66,000
Conversion (22,000 unit × $2 cost per unit) 44,000
Total 110,000
* Costs of ending inventory
DM (8,000 unit × $3 cost per unit × 50% completion degree) 12,000
Conversion (8,000 × $2 × 40% completion degree) 6,400
Total 18,400
Total Output Costs 128,400
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 10 of 67
Next Process <<Process B>>
Exercise 1:
- One company has two processes (A) and (B).
- The company uses weighted-average process costing method.
- Consider the September 202X data for physical units in process (B):
• Beginning inventory, 3,500 units (55% complete for direct materials and 60% complete for
conversion costs).
• Units started during the month, 8,400 units.
• Units completed & transferred out, 9,700 units.
• Ending inventory, 2,200 units (40% complete for direct materials and 70% complete for
conversion costs).
- The process costs during September are as follows:
Data Transferred-in costs Direct material Conversion costs
Costs of beginning inventory 30,800 24,220 6,200
Current costs 112,000 71,000 50,000
Required: Prepare the production cost report under weighted-average costing for month
ending September 30, 202X.
Solution
1. The flow of physical units: (WA)

Data Department (B)

Beginning WIP inventory 3,500 (55% DM, 60% Conversion)
+ Units started 8,400
Total inputs 11,900
Units completed and transferred out 9,700
+ Ending WIP inventory 2,200 (40% DM, 70% Conversion)
Total outputs 11,900

2. Equivalent Units: (WA) (Transferred-in costs, DM, Conversion)

(Units completed & transferred out × 100%) + (Ending inventory × Completion degree)

Transferred-in costs = (9,700 × 100%) + (2,200 × 100%) = 11,900 units

DM = (9,700 × 100%) + (2,200 × 40%) = 10,580 units
Conversion = (9,700 × 100%) + (2,200 × 70%) = 11,240 units

3. Total costs (Given):

4- Cost per equivalent unit: (WA) (Transferred-in costs, DM, Conversion)

Cost of beginning inventory + Current cost
Cost per equivalent unit =
Equivalent units
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 11 of 67
30,800 + 112,000
Transferred-in costs = = $12 per unit
11,900 units
24,220 + 71,000
DM = = $9 per unit
10,580 units

6,200 + 50,000
Conversion = = $5 per unit
11,240 units

5. The Production cost report: (WA)

Data Department (B)

1- Input Costs
* Costs of beginning inventory:
Transferred-in costs 30,800
Direct material 24,220
Conversion costs 6,200
Total 61,220
* Current Costs:
Transferred-in costs 112,000
Direct material 71,000
Conversion costs 50,000
Total 233,000
Total Input Costs 294,220
2- Output Costs
* Costs of units completed and transferred out
Transferred-in costs (9,700 unit × $12 cost per unit) 116,400
DM costs (9,700 unit × $9 cost per unit) 87,300
Conversion costs (9,700 unit × $5 cost per unit) 48,500
Total 252,200
* Costs of ending inventory
Transferred-in costs 26,400
(2,200 unit × $12 cost per unit × 100% completion degree)
DM costs 7,920
(2,200 unit × $9 cost per unit × 40% completion degree)
Conversion costs 7,700
(2,200 unit × $5 cost per unit × 70% completion degree)
Total 42,020
Total Output Costs 294,220
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 12 of 67
Exercise 2:
- One company has two processes (A) and (B).
- The company uses weighted-average process costing method.
- Consider the September 202X data for physical units in process (B):
• Beginning inventory, 4,000 units (45% complete for all cost elements).
• Units started during the month, 19,500 units.
• Units completed & transferred out, 18,600 units.
• Ending inventory, 4,900 units (75% complete for all cost elements).
- The process costs during February are as follows:
Data Transferred-in costs Direct material Conversion costs
Costs of beginning inventory 5,900 15,000 7,190
Current costs 27,000 35,000 23,000
Required: Prepare the production cost report under weighted-average costing for month
ending February 30, 202X.
Solution
1. The flow of physical units: (WA)

Data Department (B)

Beginning WIP inventory 4,000 (45% Completion degree)
+ Units started 19,500
Total inputs 23,500
Units completed and transferred out 18,600
+ Ending WIP inventory 4,900 (75% Completion degree)
Total outputs 23,500

2. Equivalent Units: (WA) (Transferred-in costs & Manufacturing costs)

(Units completed & transferred out × 100%) + (Ending inventory × Completion degree)

Transferred-in costs = (18,600 × 100%) + (4,900 × 100%) = 23,500 units

Manufacturing costs = (18,600 × 100%) + (4,900 × 75%) = 22,275 units

3. Total costs (Given):

4- Cost per equivalent unit: (WA) (Transferred-in costs & Manufacturing costs)
Cost of beginning inventory + Current cost
Cost per equivalent unit =
Equivalent units

5,900 + 27,000
Transferred-in costs = = $1.4 per unit
23,500 units

(15,000 + 7,190) + (35,000 + 23,000)

Manufacturing costs = = $3.6 per unit
22,275 units
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 13 of 67
5. The Production cost report: (WA)

Data Department (B)

1- Input Costs
* Costs of beginning inventory:
Transferred-in costs 5,900
Direct material 15,000
Conversion costs 7,190
Total 28,090
* Current Costs:
Transferred-in costs 27,000
Direct material 35,000
Conversion costs 23,000
Total 85,000
Total Input Costs 113,090
2- Output Costs
* Costs of units completed and transferred out
Transferred-in costs (18,600 unit × $1.4 cost per unit) 26,040
Manufacturing costs (18,600 unit × $3.6 cost per unit) 66,960
Total 93,000
* Costs of ending inventory
Transferred-in costs 6,860
(4,900 unit × $1.4 cost per unit × 100% completion degree)
Manufacturing costs 13,230
(4,900 unit × $3.6 cost per unit × 75% completion degree)
Total 20,090
Total Output Costs 113,090

Exercise 3: The following is the flow of physical units for three processes in a
manufacturing company that uses process costing – weighted average method:

Data Process (A) Process (B) Process (C)

Beginning WIP inventory 900 (50%) ??? (30%) ???
+ Units started 2,100 2,500 ???
Total inputs ??? ??? ???
Units completed and transferred out ??? 2,600 3,800
+ Ending WIP inventory ??? (25%) 1,400 (40%) ???
Total outputs ??? ??? 5,000
Required: 1. Complete the missing blanks.

2. In Process (C), the completion degree for conversion costs is 50%. Conversion costs are
added evenly throughout the process. Direct materials are added twice during the process;
70% at the beginning of the process and 30% at the end of the process.
Required: Determine the equivalent units in the process (C).
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 14 of 67
Solution
1. The flow of physical units: (WA) ✓
Data Process (A) Process (B) Process (C)
Beginning WIP inventory 900 (50%) 1,500 (30%) 2,400
+ Units started 2,100 2,500 2,600
Total inputs 3,000 4,000 5,000
Units completed and transferred out 2,500 2,600 3,800
+ Ending WIP inventory 500 (25%) 1,400 (40%) 1,200
Total outputs 3,000 4,000 5,000

* The completion degrees for product (C):

Addition of materials

50%

DM Conversion
70% 50%

1. The flow of physical units: (WA)

Data Department (C)

Beginning WIP inventory 2,400 (70% DM, 50% Conversion)
+ Units started 2,600
Total inputs 5,000
Units completed and transferred out 3,800
+ Ending WIP inventory 1,200 (70% DM, 50% Conversion)
Total outputs 5,000

2. Equivalent Units: (WA) (Transferred-in costs & DM & Conversion)

(Units completed & transferred out × 100%) + (Ending inventory × Completion degree)

Transferred-in costs = (3,800 × 100%) + (1,200 × 100%) = 5,000 units

DM = (3,800 × 100%) + (1,200 × 70%) = 4,640 units
Conversion = (3,800 × 100%) + (1,200 × 50%) = 4,400 units
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 15 of 67
Exercises over FIFO costing
First Process <<Process A>>
Exercise 1:
The following is the flow of physical units for a manufacturing company; Department (A):
Data Department (A)
Beginning WIP inventory 1,500 (30%)
+ Units started 2,600
Total inputs 4,100
Units completed and transferred out 3,100
+ Ending WIP inventory 1,000 (50%)
Total outputs 4,100
Required: Determine FIFO equivalent units in department (A).

Solution
Equivalent Units: (FIFO)
Beginning inventory × (100% - completion degree)
+ (Units completed & transferred out - Beginning inventory) × 100%
+ (Ending inventory × Completion degree)
Equivalent Units = 1,500 × (100% - 30%)
+ [(3,100 – 1,500) × 100%]
+ (1,000 × 50%) = 3,150 units ✓

Exercise 2:
Alex. company uses a FIFO process costing system. The company had 5,000 units that were
60 percent complete as to conversion costs at the beginning of the month. The company
started 22,000 units this period and had 7,000 units in ending Work in Process Inventory
that were 35 percent complete as to conversion costs. What are equivalent units for
material, if material is added at the beginning of the process?
a. 18,000 b. 22,000 c. 25,000 d. 27,000

Solution

Addition of materials

35% 60%

Completion degrees of DM Conversion DM Conversion Completion degrees of

Ending inventory 100% 35% 100% 60% Beginning inventory
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 16 of 67
1. The flow of physical units:

Data Department (A)

Beginning WIP inventory 5,000 (100% DM, 60% Conversion)
+ Units started 22,000
Total inputs 27,000
Units completed and transferred out 20,000
+ Ending WIP inventory 7,000 (100% DM, 35% Conversion)
Total outputs 27,000

2. Equivalent Units: (FIFO)

Beginning inventory × (100% - completion degree)
+ (Units completed & transferred out - Beginning inventory) × 100%
+ (Ending inventory × Completion degree)
DM = 5,000 × (100% - 100%) + [(20,000 – 5,000) × 100%] + (7,000 × 100%)
= Zero + 15,000 + 7,000 = 22,000

Exercise 3:
Consider the following data for a department in a manufacturing company during November:
• FIFO equivalent units are 1,520 units for all cost elements.
• The department costs during November are as follows:
Data Direct material Conversion costs
Costs of beginning inventory 1,036 520
Current costs 4,080 2,000
Required: 1- How many completion degrees in this Exercise? Why?
2- Determine cost per unit under FIFO costing method.
Solution

1- One completion degree, because the FIFO equivalent units are 1,520 units for all cost
elements

Cost per equivalent unit: (FIFO)

Costs of beginning inventory + Current costs
Cost per equivalent unit =
Equivalent units
(4,080 + 2,000)
Cost per equivalent unit = = $4 per unit ✓
1,520 units
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 17 of 67
Exercise 4:
Consider the following data for a department (A) in a manufacturing company during April:
• 4,000 Units in beginning inventory (50% complete for all cost elements)
• 10,000 units started in process during the current period.
• 9,000 units completed and transferred out.
• 5,000 units in ending inventory (20% complete for all cost elements)
The department costs during April are as follows:
Data Direct material Conversion costs
Costs of beginning inventory 6,800 4,200
Current costs 81,000 31,000
Required: Prepare the production cost report under FIFO costing method.
Solution
1. The flow of physical units:
Data Department (A)
Beginning WIP inventory 4,000 (50% Completion degree)
+ Units started 10,000
Total inputs 14,000
Units completed and transferred out 9,000
+ Ending WIP inventory 5,000 (20% Completion degree)
Total outputs 14,000

2. Equivalent Units: (FIFO)

Beginning inventory × (100% - completion degree)
+ (Units completed & transferred out - Beginning inventory) × 100%
+ (Ending inventory × Completion degree)
Equivalent Units = 4,000 × (100% - 50%) + [(9,000 – 4,000) × 100%] + (5,000 × 20%) = 8,000 units

3. Total costs (Given)

4. Cost per equivalent unit: (FIFO)
Costs of beginning inventory + Current costs
Cost per equivalent unit =
Equivalent units

(81,000 + 31,000)
Cost per equivalent unit = = $14 per unit
8,000 units
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 18 of 67
5. The Production cost report: (FIFO)
Data Department (A)
1- Input Costs
* Costs of beginning inventory:
Direct material 6,800
Conversion costs 4,200
Total 11,000
* Current Costs:
Direct material 81,000
Conversion costs 31,000
Total 112,000
Total Input Costs 123,000
2- Output Costs
Costs of units completed and transferred out:
* Cost in beginning inventory:
Direct material 6,800
Conversion costs 4,200

* Cost to complete beginning inventory: (Remaining) 28,000

[4,000 unit × $14 per unit × (100% - 50% completion)]

* Cost of units started and completed: 70,000

[9,000 units completed – 4,000 beginning] × $14
Total 109,000
Costs of ending inventory 14,000
(5,000 unit × $14 per unit × 20% Completion degree)
Total Output Costs 123,000

Exercise 5:
Consider the following data for a department in a manufacturing company during December:
• 3,000 Units in beginning inventory (50% complete for DM & 10% complete for conversion
costs)
• 18,000 units started in process during the current period.
• 5,000 units in ending inventory (30% complete for DM & 80% complete for conversion
costs)
- The department costs during December are as follows:
Data Direct material Conversion costs
Costs of beginning inventory 40,000 13,000
Current costs 240,000 197,000

Required: Prepare the production cost report under FIFO costing method.
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 19 of 67
Solution
1- The flow of physical units:
Data Department (A)
Beginning WIP inventory 3,000 (50% DM, 10% Conversion)
+ Units started 18,000
Total inputs 21,000
Units completed and transferred out 16,000
+ Ending WIP inventory 5,000 (30% DM, 80% Conversion)
Total outputs 21,000

2. Equivalent Units: (FIFO)

Beginning inventory × (100% - completion degree)
+ (Units completed & transferred out - Beginning inventory) × 100%
+ (Ending inventory × Completion degree)

DM = 3,000 × (100% - 50%) + [(16,000 – 3,000) × 100%] + (5,000 × 30%) = 16,000 units
Conversion = 3,000 × (100% - 10%) + [(16,000 – 3,000) × 100%] + (5,000 × 80%) = 19,700 unit

3. Total costs (Given)

4. Cost per equivalent unit: (FIFO)
Costs of beginning inventory + Current costs
Cost per equivalent unit =
Equivalent units
240,000
DM = = $15 per unit
16,000
197,000
Conversion = = $10 per unit
19,700

5. The Production cost report: (FIFO)

Data Department (A)
1- Input Costs
Costs of beginning inventory:
Direct material 40,000
Conversion costs 13,000
Total 53,000
Current Costs:
Direct material 240,000
Conversion costs 197,000
Total 437,000
Total Input Costs 490,000
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 20 of 67
2- Output Costs
Costs of units completed and transferred out:
* Cost in beginning inventory:
Direct material 40,000
Conversion costs 13,000

* Cost to complete beginning inventory: (Remaining)

DM [3,000 unit × $15 × (100% - 50% DM)] 22,500
Conversion [3,000 unit × $10 × (100% - 10% Conversion)] 27,000

* Cost of units started and completed:

DM [16,000 completed – 3,000 beginning] × $15 195,000
Conversion [16,000 completed – 3,000 beginning] × $10 130,000
Total 427,500
Costs of ending inventory
DM (5,000 unit × $15 cost per unit × 30% DM) 22,500
Conversion (5,000 unit × $10 per unit × 80% Conversion) 40,000
Total Output Costs 490,000

Exercise 6:
Consider the following data of process (A) in a drug company:
• 800 units on January 1, 202X; 100% completed for DM, and 40% completed for conversion
costs.
• 20,000 units completed and transferred out.
• 1,000 units on January 31, 202X; 100% completed for DM, and 60% completed for
conversion cost.
Under FIFO method, the equivalent units of production of process (A) for January are:
(A) 21,800 units for materials and 20,920 units for conversion costs
(B) 21,000 units for materials and 20,600 units for conversion costs
(C) 20,000 units for materials and 20,000 units for conversion costs
(D) 20,200 units for materials and 20,280 units for conversion costs
Solution
1. The flow of physical units:
Data Department (A)
Beginning WIP inventory 800 (100% DM, 40% Conversion)
+ Units started 20,200
Total inputs 21,000
Units completed and transferred out 20,000
+ Ending WIP inventory 1,000 (100% DM, 60% Conversion)
Total outputs 21,000
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 21 of 67
2. Equivalent Units: (FIFO)
Beginning inventory × (100% - completion degree)
+ (Units completed & transferred out - Beginning inventory) × 100%
+ (Ending inventory × Completion degree)

DM = 800 × (100% - 100%) + [(20,000 – 800) × 100%] + (1000 × 100%) = 20,200 units ✓
Conversion = 800 × (100% - 40%) + [(20,000 – 800) × 100%] + (1000 × 60%) = 20,280 units ✓

Exercises over FIFO costing

Next Process <<Process B>>

Exercise 1: Consider following data for a Process (B) in manufacturing company during June:
• 300 Units in beginning inventory (70% complete for DM & 20% complete for conversion
costs)
• 9,700 units started in process during the current period.
• 9,800 units completed and transferred out to Process (C).
• 200 units in ending inventory (65% complete for DM & 25% complete for conversion costs)
The Process costs during October are as follows:
Data Transferred-in costs DM Conversion
Costs of beginning inventory 100,000 114,000 109,450
Current costs 873,000 486,000 440,550

Required: Prepare the production cost report under FIFO costing method.

Solution
1- The flow of physical units: (FIFO)
Data Department (B)
Beginning WIP inventory 300 (70% DM, 20% Conversion)
+ Units started 9,700
Total inputs 10,000
Units completed and transferred out 9,800
+ Ending WIP inventory 200 (65% DM, 25% Conversion)
Total outputs 10,000
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 22 of 67
2- Equivalent Units: FIFO (Transferred-in costs, DM, Conversion)
Beginning inventory × (100% - completion degree)
+ (Units completed & transferred out - Beginning inventory) × 100%
+ (Ending inventory × Completion degree)

Transferred-in = 300 × (100% - 100%) + [(9,800 – 300) × 100%] + (200 × 100%)

= Zero + 9,500 + 200 = 9,700 units
DM = 300 × (100% - 70%) + [(9,800 – 300) × 100%] + (200 × 65%) = 9,720 units
Conversion = 300 × (100% - 20%) + [(9,800 – 300) × 100%] + (200 × 25%) = 9,790 units

3- Total costs (Given)

4- Cost per equivalent unit: FIFO (Transferred-in costs, DM, Conversion costs)
Costs of beginning inventory + Current costs
Cost per equivalent unit =
Equivalent units

197,000
Transferred in = = $10 per unit
19,700
240,000
DM = = $15 per unit
16,000
197,000
Conversion = = $10 per unit
19,700

5- The Production cost report: (FIFO)

Data Department (B)
1- Input Costs
Costs of beginning inventory:
Transferred-in costs 100,000
Direct material 114,000
Conversion costs 109,450
Total 323,450
Current Costs:
Transferred-in costs 873,000
Direct material 486,000
Conversion costs 440,550
Total 1,799,550
Total Input Costs 2,123,000
2- Output Costs
Costs of units completed and transferred out:
* Cost in beginning inventory:
Transferred in 100,000
Direct material 114,000
Conversion costs 109,450
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 23 of 67
* Cost to complete beginning inventory: (Remaining)
Transferred in [300 × $90 × (100% - 100% completion)] Zero
DM [300 × $50 × (100% - 70% completion)] 4,500
Conversion [300 × $45 × (100% - 20% completion)] 10,800

* Cost of units started and completed:

Transferred in [9,800 completed – 300 beginning] × $90 855,000
DM [9,800 completed – 300 beginning] × $50 475,000
Conversion [9,800 completed – 300 beginning] × $45 427,500
Total 2,096,250
Costs of ending inventory
Transferred in (200 unit × $90 × 100% Completion) 18,000
DM (200 unit × $50 × 65% Completion) 6,500
Conversion (200 unit × $45 × 25% Completion) 2,250
Total Output Costs 2,123,000

Exercise 2:
The following is the flow of physical units for a manufacturing company:
Data Process (A) Process (B) Process (C)
Beginning WIP inventory 1,500 (20%) ??? (30%) 500 (25%)
+ Units started ??? ??? ???
Total inputs 6,200 ??? ???
Units completed and transferred out ??? ??? 4,600
+ Ending WIP inventory 400 (60%) 800 (40%) ??? (70%)
Total outputs ??? 6,800 ???

Required: 1- Complete the missing blanks.

2- Determine FIFO equivalent units in the Process (B).
3- Determine FIFO equivalent units in the Process (C).
Solution
1. The flow of physical units:
Data Process (A) Process (B) Process (C)
Beginning WIP inventory 1,500 (20%) 1,000 (30%) 500 (25%)
+ Units started 4,700 5,800 6,000
Total inputs 6,200 6,800 6,500
Units completed and transferred out 5,800 6,000 4,600
+ Ending WIP inventory 400 (60%) 800 (40%) 1,900 (70%)
Total outputs 6,200 6,800 6,500

2- Equivalent Units: (FIFO) in process B

Beginning inventory × (100% - completion degree)
+ (Units completed & transferred out - Beginning inventory) × 100%
+ (Ending inventory × Completion degree)
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 24 of 67
Transferred-in costs = 1,000 × (100% - 100%) + [(6,000 – 1,000) × 100%] + (800 × 100%)
= Zero + 5,000 + 800 = 5,800 units
Manufacturing costs = 1,000 × (100% - 30%) + [(6,000 – 1,000) × 100%] + (800 × 40%)
= 6,020 units

2- Equivalent Units: (FIFO) in process C

Transferred-in costs = 500 × (100% - 100%) + [(4,600 – 500) × 100%] + (1,900 × 100%)
= Zero + 4,100 + 1,900 = 6,000 units
Manufacturing costs = 500 × (100% - 25%) + [(4,600 – 500) × 100%] + (1,900 × 70%)
= 5,805 units

Exercise 3: The following is the flow of physical units for a manufacturing company:
Data Process (A) Process (B) Process (C)
Beginning WIP inventory 700 (30%) ??? (45%) 300 (35%)
+ Units started ??? ??? ???
Total inputs 4,200 ??? ???
Units completed and transferred out ??? ??? 3,600
+ Ending WIP inventory 400 (50%) 700 (20%) ??? (90%)
Total outputs ??? 5,000 ???

Required: 1- Complete the missing blanks.

2- Determine FIFO equivalent units in the Process (C).
Solution
1- The flow of physical units:
Data Process (A) Process (B) Process (C)
Beginning WIP inventory 700 (30%) 1,200 (45%) 300 (35%)
+ Units started 3,500 3,800 4,300
Total inputs 4,200 5,000 4,600
Units completed and transferred out 3,800 4,300 3,600
+ Ending WIP inventory 400 (50%) 700 (20%) 1,000 (90%)
Total outputs 4,200 5,000 4,600

2- Equivalent Units: (FIFO) in process C

Beginning inventory × (100% - completion degree)
+ (Units completed & transferred out - Beginning inventory) × 100%
+ (Ending inventory × Completion degree)

Transferred-in costs = 300 × (100% - 100%) + [(3,600 – 300) × 100%] + (1,000 × 100%)
= Zero + 3,300 + 1,000 = 4,300 units

Manufacturing costs = 300 × (100% - 35%) + [(3,600 – 300) × 100%] + (1,000 × 90%)
= 4,395 units
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 25 of 67
Exercise 4:
Consider the following data for a process (A) in a manufacturing company during November:
• FIFO equivalent units are 1,200 units.
• Cost per unit under FIFO costing method is LE 50.
• Cost per unit under Weighted-average costing method is LE 25.
• Costs of beginning inventory are LE 20,000.

Required: 1- Determine current costs.

2- Determine Weighted-average equivalent units.
Solution
Cost per equivalent unit: (FIFO)
Costs of beginning inventory + Current costs
Cost per equivalent unit =
Equivalent units

???
Cost per equivalent unit = = $50 per unit
1,200 units

Current costs = 1,200 × $50 = $60,000 ✓

Cost per equivalent unit: (Weighted-average)

Cost per equivalent unit = Costs of beginning inventory + Current costs
Equivalent units

20,000 + 60,000
Cost per equivalent unit = = $25 per unit
??? units
Weighted-average equivalent units = 80,000 / 25 = 3,200 units ✓

Exercise 5:
Consider the following data for a process (A) in a manufacturing company during November:
• Weighted-average equivalent units are 21,000 units.
• Equivalent units of ending inventory are 1,000 units.
• Units in beginning inventory are 3,000 units (60% complete for all cost elements)
• Units in ending inventory are 5,000 units.
• Cost per unit under weighted-average costing method is LE 14.
• Costs of beginning inventory are LE 54,000.

Required: 1- Determine units completed and transferred out.

2- Determine FIFO equivalent units.
3- Determine the completion degree of ending inventory.
4- Determine current costs.
5- Determine cost per unit under FIFO costing method.
Solution
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 26 of 67
1- The flow of physical units:
Data Department (A)
Beginning WIP inventory 3,000 (60% Completion degree)
+ Units started ???
Total inputs ???
Units completed and transferred out ???
+ Ending WIP inventory 5,000 (??? Completion degree)
Total outputs ???

2- Equivalent Units: (WA)

(Units completed & transferred out × 100%) + (Ending inventory × Completion degree)

21,000 = (??? × 100%) + (5,000 × ??%)

21,000 = (??? × 100%) + 1,000

Units completed = 21,000 – 1,000 = 20,000 ✓ Completion degree = 1,000 / 5,000 = 20% ✓

2- Equivalent Units: (FIFO)

Beginning inventory × (100% - completion degree)
+ (Units completed & transferred out - Beginning inventory) × 100%
+ (Ending inventory × Completion degree)
= 3,000 × (100% - 60%) + [(20,000 – 3,000) × 100%] + (5,000 × 20%) = 19,200 units

4- Cost per equivalent unit: (Weighted Average)

Costs of beginning inventory + Current costs
Cost per equivalent unit =
Equivalent units

54,000 + ???
Cost per equivalent unit = = $14 per unit
21,000 units

294,000 = 54,000 + Current costs

Current costs = 294,000 – 54,000 = $240,000 ✓

4- Cost per equivalent unit: (FIFO)

Costs of beginning inventory + Current costs
Cost per equivalent unit =
Equivalent units

240,000
Cost per equivalent unit = = $12.5 per unit ✓
19,200 units
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 27 of 67
Exercises over Addition of materials
Exercise 1:
The following is the flow of physical units for a process B in a manufacturing company:
Data Process (B)
Beginning WIP inventory (one-fifth material, one tenth conversion costs) 500
+ Units started 6,500
+ Additional units put in the process 1,000
Total inputs 8,000
Units completed and transferred out 7,400
+ Ending WIP inventory (one-third material, three fourths conversion costs) 600
Total outputs 8,000

The Process costs during current period are as follows:

Data Transferred-in costs DM Conversion
Costs of beginning inventory 2,060 80 43
Current costs 32,500 6,380 6,865
Required: 1. Prepare the production cost report under Weighted-average costing method.
2. Prepare the production cost report under FIFO costing method.
Solution

Weighted average
2- Equivalent Units: (WA)
(Units completed & transferred out × 100%) + (Ending inventory × Completion degree)

Transferred-in costs = (7,400 × 100%) + (600 × 100%) = 8,000 units

DM = (7,400 × 100%) + (600 × 1/3) = 7,600 units
Conversion = (7,400 × 100%) + (600 × 3/4) = 7,850 units
3- Total cost (given)
4- Cost per equivalent unit: (WA)
Costs of beginning inventory + Current costs
Cost per equivalent unit =
Equivalent units
2,060 + 32,500
Transferred-in costs = = $4.32 per unit
8,000 units
80 + 6,380
DM = = $0.85 per unit
7,600 units
43 + 6,865
Conversion = = $0.88 per unit
7,850 units
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 28 of 67
5- The Production cost report: (WA)
Data Department (B)
1- Input Costs
Costs of beginning inventory:
Transferred-in costs 2,060
Direct material 80
Conversion costs 43
Total 2,183
Current Costs:
Transferred-in costs 32,500
Direct material 6,380
Conversion costs 6,865
Total 45,745
Total Input Costs 47,928
2- Output Costs
Costs of units completed and transferred out
Transferred-in costs (7,400 unit × 4.32 cost per unit) 31,968
Direct material (7,400 unit × 0.85 cost per unit) 6,290
Conversion costs (7,400 unit × 0.88 cost per unit) 6,512
Total 44,770
Costs of ending inventory
Transferred-in costs 2,592
(600 unit × 4.32 cost per unit × 100% completion degree)
Direct material 170
(600 unit × 0.85 cost per unit × 1/3 completion degree)
Conversion costs 396
(600 unit × 0.88 cost per unit × 3/4 completion degree)
Total 3,158
Total Output Costs 47,928

FIFO
2- Equivalent Units: (FIFO)
Beginning inventory × (100% - completion degree)
+ (Units completed & transferred out - Beginning inventory) × 100%
+ (Ending inventory × Completion degree)
Transferred-in costs = 500 × (100% - 100%) + [(7,400 – 500) × 100%] + (600 × 100%)
= Zero + 6,900 + 600 = 7,500 units

Direct material = 500 × (5/5 - 1/5) + [(7,400 – 500) × 100%] + (600 × 1/3)
= 400 + 6,900 + 200 = 7,500 units

Conversion = 500 × (10/10 - 1/10) + [(7,400 – 500) × 100%] + (600 × 3/4)

= 450 + 6,900 + 450 = 7,800 units
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 29 of 67
3- Total cost (given)
4- Cost per equivalent unit: (FIFO)
Cost per equivalent unit = Costs of beginning inventory + Current costs
Equivalent units

32,500
Transferred-in costs = = $4.3333 per unit
7,500 units

6,380
DM = = $0.851 per unit
7,500 units

6,865
Conversion = = $0.88 per unit
7,800 units

5- The Production cost report: (FIFO)

Data Department (B)
1- Input Costs
Costs of beginning inventory:
Transferred-in costs 2,060
Direct material 80
Conversion costs 43
Total 2,183
Current Costs:
Transferred-in costs 32,500
Direct material 6,380
Conversion costs 6,865
Total 45,745
Total Input Costs 47,928
2- Output Costs
Costs of units completed and transferred out:
* Cost in beginning inventory:
Transferred in 2,060
Direct material 80
Conversion costs 43

* Cost to complete beginning inventory: (Remaining)

Transferred in [500 × $4.3333 × (100% - 100% completion)] Zero
DM [500 × $0.851 × (5/5 – 1/5 completion)] 340
Conversion [500 × $0.88 × (10/10 – 1/10 completion)] 396

* Cost of units started and completed:

Transferred in [7,400 completed – 500 beginning] × $4.3333 29,899.77
DM [7,400 completed – 500 beginning] × $0.851 5,871.9
Conversion [7,400 completed – 500 beginning] × $0.88 6,072
Total 44,762.67
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 30 of 67
Costs of ending inventory
Transferred in (600 unit × $4.3333 × 100% Completion) 2,599.98
DM (600 unit × $0.851 × 1/3 Completion) 170.2
Conversion (600 unit × $0.88 × 3/4 Completion) 396
Total 3,166.18
Total Output Costs 47,928 .85

Exercise 2:
The following is the flow of physical units for a manufacturing company uses process costing
system:

Data Process (A) Process (B) Process (C)

Beginning WIP inventory 950 (25%) 2,200 (70%) ??? (30%)
+ Units started 5,000 ??? 5,200
+ Additional units ??? Zero 200
Total inputs ??? ??? ???
Units completed and transferred out ??? ??? ???
+ Ending WIP inventory 1,800 (60%) ??? (40%) 400 (10%)
Total outputs 6,100 ??? 6,400
Required: Complete the missing blanks.
Solution

Data Process (A) Process (B) Process (C)

Beginning WIP inventory 950 (25%) 2,200 (70%) 1,000 (30%)
+ Units started 5,000 4,300 5,200
+ Additional units 150 Zero 200
Total inputs 6,100 6,500 6,400
Units completed and transferred out 4,300 5,200 6,000
+ Ending WIP inventory 1,800 (60%) 1,300 (40%) 400 (10%)
Total outputs 6,100 6,500 6,400

Exercise 3: (the flow of physical units)

The following is the flow of physical units for a manufacturing company uses process costing
system:
Data Process (A) Process (B) Process (C)
Beginning WIP inventory 1,700 (25%) 3,000 (60%) 1,200 (70%)
+ Units started ??? ??? 11,000
+ Additional units 1,300 ??? Zero
Total inputs 12,000 ??? ???
Units completed and transferred out 10,000 ??? 9,200
+ Ending WIP inventory ??? (10%) ??? (30%) ??? (20%)
Total outputs ??? 13,500 ???
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 31 of 67
Required: 1- Complete the missing blanks.
2- Determine Weighted-average equivalent units in process (B).
3- Determine FIFO equivalent units in the Process (C).
Solution
1- The flow of physical units:
Data Process (A) Process (B) Process (C)
Beginning WIP inventory 1,700 (25%) 3,000 (60%) 1,200 (70%)
+ Units started 9,000 10,000 11,000
+ Additional units 1,300 500 Zero
Total inputs 12,000 13,500 12,200
Units completed and transferred out 10,000 11,000 9,200
+ Ending WIP inventory 2,000 (10%) 2,500 (30%) 3,000 (20%)
Total outputs 12,000 13,500 12,200

2- Equivalent Units: (WA) in process (B)

(Units completed & transferred out × 100%) + (Ending inventory × Completion degree)
Transferred-in costs = (11,000 × 100%) + (2,500 × 100%) = 13,500 units
Manufacturing costs = (11,000 × 100%) + (2,500 × 30%) = 11,750 units

2- Equivalent Units: (FIFO) in process (C)

Beginning inventory × (100% - completion degree)
+ (Units completed & transferred out - Beginning inventory) × 100%
+ (Ending inventory × Completion degree)

Transferred-in costs = 1,200 × (100% - 100%) + [(9,200 – 1,200) × 100%] + 3,000 × 100%)
= Zero + 8,000 + 2,000 = 11,000 units

Manufacturing costs= 1,200 × (100% - 70%) + [(9,200 – 1,200) × 100%] + (3,000 × 20%)
= 8,960 units

Exercise 4:
The following is the flow of physical units for three processes in a manufacturing company
that uses process costing – weighted average method:

Data Process (A) Process (B) Process (C)

Beginning WIP inventory 900 (50%) 1,350 ??? (80%)
+ Units started 2,000 2,500 ???
+ Additional units 100 ??? Zero
Total inputs ??? ??? ???
Units completed and transferred out ??? 2,600 3,800
+ Ending WIP inventory ??? (25%) 1,400 ??? (50%)
Total outputs ??? ??? 5,000
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 32 of 67
In Process (B), the completion degree for conversion costs is 40%. Conversion costs are
added evenly throughout the process. The company adds two kinds of direct materials
(X and Y). Direct material (X) is added in the middle of the process. Direct material (y) is
added twice during the process; 70% at the beginning of the process and 30% at the end of
the process.
Required: 1. Complete the missing blanks.
2. Determine the equivalent units in the process (B).
Solution
1- The flow of physical units:
Data Process (A) Process (B) Process (C)
Beginning WIP inventory 900 (50%) 1,350 2,400 (80%)
+ Units started 2,000 2,500 2,600
+ Additional units 100 150 Zero
Total inputs 3,000 4,000 5,000
Units completed and transferred out 2,500 2,600 3,800
+ Ending WIP inventory 500 (25%) 1,400 1,200 (50%)
Total outputs 3,000 4,000 5,000

Process B
Addition of material (X)

40% 50%

DM Conversion
0% 40%

Addition of material (Y)

40%

DM Conversion
70% 40%

Direct material (X) completion degree = 0% Direct material (Y) completion degree = 70%

2- Equivalent Units: (WA) in process B

(Units completed & transferred out × 100%) + (Ending inventory × Completion degree)

Transferred-in costs = (2,600 × 100%) + (1,400 × 100%) = 4,000 units

Direct material (X) = (2,600 × 100%) + (1,400 × 0%) = 2,600 units

Direct material (Y) = (2,600 × 100%) + (1,400 × 70%) = 3,580 units

Conversion costs = (2,600 × 100%) + (1,400 × 40%) = 3,160 units

Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 33 of 67
Exercise 5: One company has two processes (A) and (B).
Consider the December 202X data for physical units in process (A):
• Beginning inventory 2,000 units (60% complete for conversion costs)
• Units started 15,000 units
• Additional units put in the process 500
• Ending inventory 1,500 units (30% complete for conversion costs)
• Direct materials are added when 50% of the process is completed.
• Conversion costs are added evenly throughout the process.
The company uses FIFO costing method.
Required:
1. Determine the completion degree for direct materials of beginning and ending inventory.
2. Determine the equivalent units for December 202X.
Solution

Addition of material

30% 50% 60%

Completion degrees of DM Conversion DM Conversion Completion degree of

Ending inventory 0% 30% 100% 60% Beginning inventory

1- The flow of physical units:

Data Department (A)

Beginning WIP inventory 2,000 (100% DM, 60% Conversion)
+ Units started 15,000
+ Additional units 500
Total inputs 17,500
Units completed and transferred out 16,000
+ Ending WIP inventory 1,500 (0% DM, 30% Conversion)
Total outputs 17,500

2- Equivalent Units: (FIFO)

Beginning inventory × (100% - completion degree)

+ (Units completed & transferred out - Beginning inventory) × 100%
+ (Ending inventory × Completion degree)

Direct material = 2,000 × (100% - 100%) + [(16,000 – 2,000) × 100%] + (1,500 × 0%)
= 14,000 units

Conversion = 2,000 × (100% - 60%) + [(16,000 – 2,000) × 100%] + (1,500 × 30%)

= 15,250 units
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 34 of 67
Exercise 6: Consider the following data for a department (B) in a manufacturing company
during November:
• 630 gallons of chemicals that were two-thirds complete for all cost elements in beginning
inventory.
• 6,100 gallons started in the manufacturing process during the current period.
• 3,600 gallons of another chemical were added to thin the solution.
• 250 gallons of mixture were in ending inventory at the end of current period, four-fifths
complete for all cost elements.
Required: Determine equivalent units in this department during November using:
1- Weighted-average costing.
2- FIFO costing.
Solution
1- The flow of physical units:
Data Department (B)
Beginning WIP inventory 630 (2/3 Completion degree)
+ Units started 6,100
+ Additional units 3,600
Total inputs 10,330
Units completed and transferred out 10,080
+ Ending WIP inventory 250 (4/5 Completion degree)
Total outputs 10,330

2- Equivalent Units: (WA)

(Units completed & transferred out × 100%) + (Ending inventory × Completion degree)

Transferred-in costs = (10,080 × 100%) + (250 × 100%) = 10,330 units

Manufacturing costs = (10,080 × 100%) + (250 × 4/5) = 10,280 units

2- Equivalent Units: (FIFO)

Beginning inventory × (100% - completion degree)
+ (Units completed & transferred out − Beginning inventory) × 100%
+ (Ending inventory × Completion degree)

Transferred-in costs = 630 × (100% – 100%) + (10,080 – 630) × 100% + (250 × 100%)
= 9,700 units

Manufacturing costs = 630 × (1 – 2/3) + (10,080 – 630) × 100% + (250 × 4/5) = 9,860
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 35 of 67
Exercises over Loss of materials
Exercise 1:
Consider the following data for a Process (B) in manufacturing company (The following data
is available for one period):
• 200 Units in beginning inventory (20% complete for all cost elements) Completion degree = 100%,
• 4,000 units started in process during the current period. Cost of normal loss is
charged only to units
• 2,200 units completed and transferred out to Process (C). completed & transferred
• 500 units in ending inventory (40% complete for all cost elements) out

A total of 20% of the lost units were due to abnormal conditions. Inspection occurs at the
end of the process.
The Process costs during June are as follows:
Data Transferred-in cost Direct material Conversion costs
Costs of beginning inventory 8,000 5,000 6,200
Current costs 17,200 13,850 12,000
Required: Determine cost per unit using Weighted-average costing method.
Solution

1- The flow of physical units:

Data Department (B)

Beginning WIP inventory 200 (20% Completion degree)
+ Units started 4,000
Total inputs 4,200
Units completed and transferred out 2,200
2,700
+ Ending WIP inventory 500 (40% Completion degree)
+ Normal loss × 80% = 1,200 (100%)
1,500
+ Abnormal loss × 20% = 300 (100%)
Total outputs 4,200

2- Equivalent Units: (WA)

(Units completed & transferred out × 100%) + (Ending inventory × Completion degree)
+ (Normal loss × Completion degree) + (Abnormal loss × Completion degree)

Transferred-in costs = (2,200 × 100%) + (500 × 100%) + (1,200 × 100%) + (300 × 100%)
= 4,200 units

Manufacturing costs = (2,200 × 100%) + (500 × 40%) + (1,200 × 100%) + (300 × 100%) =
3,900 units

3- Total cost (given)

Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 36 of 67
4- Cost per equivalent unit: (WA)
Costs of beginning inventory + Current costs
Cost per equivalent unit =
Equivalent units
8,000 + 17,200
Transferred-in costs = = $6 per unit
4,200 units

(5,000 + 6,200) + (13,850 + 12,000)

Manufacturing costs = = $9.5 per unit
3,900 units

Exercise 2: Consider following data for a Process (A) in manufacturing company during June:
• 1,000 Units in beginning inventory (35% complete for all cost elements)
• 4,000 units started in process during the current period.
• 3,200 units completed and transferred out to Process (B).
• 300 normal loss of units.
• 700 abnormal loss of units.
• 800 units in ending inventory (50% complete for all cost elements)
The Process costs during June are as follows:
• Costs of beginning inventory $4,000
• Current costs $19,000
Inspection occurs at the Beginning of the processing; units in ending inventory are
inspected. Completion degree = Zero%, Cost of
normal loss is charged to units completed
& transferred out and Ending inventory

Required: Prepare the production cost report under weighted-average costing method.
Solution
1- The flow of physical units:
Data Department (A)
Beginning WIP inventory 1,000 (35% Completion degree)
+ Units started 4,000
Total inputs 5,000
Units completed and transferred out 3,200
+ Ending WIP inventory 800 (50% Completion degree)
+ Normal loss 300 (0%)
+ Abnormal loss 700 (0%)
Total outputs 5,000

2- Equivalent Units: (WA)

(Units completed & transferred out × 100%) + (Ending inventory × Completion degree)
+ (Normal loss × Completion degree) + (Abnormal loss × Completion degree)

Equivalent Units = (3,200 × 100%) + (800 × 50%) + (300 × 0%) + (700 × 0%) = 3,600 units
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 37 of 67
3- Total cost (given)
4- Cost per equivalent unit: (WA)
Costs of beginning inventory + Current costs
Cost per equivalent unit =
Equivalent units
4,000 + 19,000
Cost per equivalent unit = = $6.39 per unit
3,600 units

5- The Production cost report: (WA)

Data Department (A)
1- Input Costs
Costs of beginning inventory 4,000
Current Costs 19,000
Total input Costs 23,000
2- Output Costs
Costs of units completed and transferred out before normal loss 20,448
(3,200 unit × 6.39 cost per unit × 100%)
Costs of Normal loss (300 × 6.39 × 0%) × (3,200 completed /4,000) Zero
Total 20,448
Costs of ending inventory 2,552
(800 unit × 6.39 cost per unit × 50% Completion degree)
Costs of Normal loss (300 × 6.39 × 0%) × (800 ending /4,000) Zero
Total 2,552
Costs of Abnormal loss (700 × 6.39 × 0%) Zero
Total output Costs 23,000

Exercise 3: Consider the following data for a Process (A) in manufacturing company:
Direct materials are added at the beginning of the process.
At 50%, inspection occurs after
Conversion costs are added evenly throughout the process. stop points, so this case
considered as at the end of
The following data is available for one period:
process.
• 600 Units in beginning inventory (20% complete for Conversion) Completion degree = 50%, Cost
• 9,000 units started in process during the current period. of normal loss is charged only to
units completed & transferred
• 7,500 units completed and transferred out to Process (B).
out.
• 700 units in ending inventory (40% complete for Conversion)

A total of 30% of the lost units were due to abnormal conditions. Inspection occurs when
50% of the process is completed.
The Process costs during current period are as follows:
Data Direct material Conversion costs
Costs of beginning inventory 300 2,880
Current costs 18,900 13,232
Required: Determine equivalent units and cost per unit using: (Weighted average, FIFO)
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 38 of 67
Solution

Addition of materials

Completion degrees of 20% 40%

Beginning inventory
DM Conversion DM Conversion Completion degrees of
100% 20% 100% 40% Ending inventory

1- The flow of physical units:

Data Process (A)
Beginning WIP inventory 600 (100% DM, Conversion 20%)
+ Units started 9,000
Total inputs 9,600
Units completed and transferred out 7,500
8,200
+ Ending WIP inventory 700 (100% DM, Conversion 40%)
+ Normal loss × 70% = 980 (100% DM, Conv. 50%)
1,400
+ Abnormal loss × 30% = 420 (100% DM, Conv. 50%)
Total outputs 9,600

Weighted average

2- Equivalent Units: (WA)

(Units completed & transferred out × 100%) + (Ending inventory × Completion degree)
+ (Normal loss × Completion degree) + (Abnormal loss × Completion degree)

Direct material = (7,500 × 100%) + (700 × 100%) + (980 × 100%) + (420 × 100%)
= 9,600 units

Conversion = (7,500 × 100%) + (700 × 40%) + (980 × 50%) + (420 × 50%) = 8,480 units

3- Total cost (given)

4- Cost per equivalent unit (WA)

Costs of beginning inventory + Current costs
Cost per equivalent unit =
Equivalent units
300 + 18,900
Direct material = = $2 per unit
9,600 units
2,880 + 13,232
Conversion = = $1.9 per unit
8,480 units
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 39 of 67
FIFO

2- Equivalent Units: (FIFO)

Beginning inventory × (100% - completion degree)
+ (Units completed & transferred out - Beginning inventory) × 100%
+ (Ending inventory × Completion degree)
+ (Normal loss of units × completion degree) + (Abnormal loss of units × completion degree)

DM = 600 × (100% - 100%) + (7,500 – 600) × 100% + (700 × 100%) + (980 × 100%)
+ (420 × 100%) = 9,000 units

Conversion = 600 × (100% - 20%) + (7,500 – 600) × 100% + (700 × 40%) + (980 × 50%) + (420
× 50%) = 8,360 units
3- Total cost (given)
4- Cost per equivalent unit: (FIFO)
Costs of beginning inventory + Current costs
Cost per equivalent unit =
Equivalent units

18,900
Direct material = = $2.1 per unit
9,000 units
13,232
Conversion = = $1.58 per unit
8,360 units

Exercise 4:
Consider the following data for a process (B) in manufacturing company during May:
• 200 Units in beginning inventory (70% complete for Conversion costs).
• 1,700 units started in process during the current period.
• 100 additional units put in the process.
• 1,600 units completed and transferred out.
• 320 units in ending inventory (50% complete for Conversion costs).

Conversion costs are added evenly throughout the process.

Direct materials are added twice in the process; 70% at the beginning of the process and
30% when 60% of process completed. At 40%, inspection occurs
Inspection occurs when 40% of the process is completed. before stop points, so this case
considered as at the beginning
The loss of units is 5% of units completed & transferred out.
Completion degree = 40%, Cost
A total of 75% of the lost units were due to abnormal conditions. of normal loss is charged to units
completed & transferred out.
and ending inventory
Cost per unit under weighted average is as follows:
$30 transferred-in costs $20 direct material $10 conversion costs

Required: 1. Summarize the flow of physical units.

2. Prepare the production cost report: output costs under weighted average costing method.
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 40 of 67
Solution

Addition of material

50% 60% 70%

Completion
degrees of
Completion degrees of DM Conversion DM Conversion Beginning
Ending inventory 70% 50% 100% 70% inventory

1- The flow of physical units:

Data Department (B)
Beginning WIP inventory 200 (100% DM, 70% Conversion)
+ Units started 1,700
+ Additional units 100
Total inputs 2,000
Units completed and transferred out 1,600
+ Ending WIP inventory 320 (70% DM, 50% Conversion)
+ Normal loss ×25% = 20 or remaining
20 (70%DM, 40% Conversion)
80
+ Abnormal loss (5% × 1,600) ×75% = 60 2,000 - (1,600+320) 60 (70%DM, 40% Conversion)

Total outputs 2,000

2- Equivalent Units: (WA)

(Units completed & transferred out × 100%) + (Ending inventory × Completion degree)
+ (Normal loss × Completion degree) + (Abnormal loss × Completion degree)

Transferred-in = (1,600 × 100%) + (320 × 100%) + (20 × 100%) + (60 × 100%) = 2,000 units

DM = (1,600 × 100%) + (320 × 70%) + (20 × 70%) + (60 × 70%) = 1,880 units

Conversion = (1,600 × 100%) + (320 × 50%) + (20 × 40%) + (60 × 40%) = 1,792 units

4- Cost per equivalent unit: (WA)

Costs of beginning inventory + Current costs
Cost per equivalent unit =
Equivalent units
?? + ??
Transferred-in = = $30 per unit
2,000 units
Total Costs of Transferred-in = 2,000 units × $30 = $60,000

?? + ??
Direct material = = $20 per unit
1,880 units

Total Costs of Direct material = 1,880 units × $20 = $37,600

?? + ??
Conversion = = $10 per unit
1,792 units
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 41 of 67
Total Costs of Conversion = 1,792 units × $10 = $17,920

5- The Production cost report: (WA)

Costs of Normal loss: (Normal cost is allocated between units completed and ending inventory)

Transferred-in (20 units × 30 per unit × 100%) = $600

Direct material (20 units × 20 per unit × 70%) = $280 $960
Conversion (20 units × 10 per unit × 40%) = $80

• Units completed & transferred out = 960 × (1,600 completed / (1,600 + 320)) = $800
• Ending inventory = 960 × (320 ending / (1,600 + 320)) = $160

Data Department (B)

1- Input Costs
Costs of beginning inventory
Transferred-in costs ---
Direct Material costs ---
Conversion costs
Total ---
Current Costs
Transferred-in costs ---
Direct Material costs ---
Conversion costs
Total ---
Total input Costs 115,520
2- Output Costs
Costs of units completed and transferred out
Transferred-in (1,600 unit × 30 cost per unit × 100%) 48,000
DM (1,600 unit × 20 cost per unit × 100%) 32,000
Conversion (1,600 unit × 10 cost per unit × 100%) 16,000

Costs of Normal loss 800

Total 96,800
Costs of ending inventory
Transferred-in (320 unit × 30 cost per unit × 100%) 9,600
DM (320 unit × 20 cost per unit × 70%) 4,480
Conversion (320 unit × 10 cost per unit × 50%) 1,600

Costs of Normal loss 160

Total 15,840
Costs of Abnormal loss
Transferred-in (60 units × 30 per unit × 100%) 1,800
Direct material (60 units × 20 per unit × 70%) 840
Conversion (60 units × 10 per unit × 40%) 240

Total output Costs 115,520

Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 42 of 67
Exercise 6:
Consider the following data for a process (B) in manufacturing company during May:
• 200 Units in beginning inventory (70% complete for Conversion costs).
• 1,700 units started in process during the current period.
• ??? additional units put in the process.
• 1,600 units completed and transferred out.
• 320 units in ending inventory (50% complete for Conversion costs).

Conversion costs are added evenly throughout the process.

Direct materials are added twice in the process; 70% at the beginning of the process and
30% when 60% of process completed. At 40%, inspection occurs before
stop points, so this case
Inspection occurs when 40% of process completed. considered as at the beginning
The loss of units is 5% of units completed & transferred out. Completion degree = 40%, Cost of
A total of 75% of the lost units were due to abnormal conditions. normal loss is charged to units
completed & transferred out.
and ending inventory
Cost per unit under weighted average is as follows:
$25 transferred-in costs $15 direct material $6 conversion costs
The costs of beginning inventory are as follows:
$10,000 transferred-in costs $9,400 direct material $7,168 conversion costs
Required: 1. Summarize the flow of physical units.
2. Prepare the production cost report: output costs under FIFO costing method.

Solution

Addition of material

50% 60% 70%

Completion
degrees of
Completion degrees of DM Conversion DM Conversion Beginning
Ending inventory 70% 50% 100% 70% inventory

1- The flow of physical units:

Data Department (B)
Beginning WIP inventory 200 (100% DM, 70% Conversion)
+ Units started 1,700
+ Additional units 100
Total inputs 2,000
Units completed and transferred out 1,600
+ Ending WIP inventory 320 (70% DM, 50% Conversion)
+ Normal loss ×25% = 20 or remaining
20 (70%DM, 40% Conversion)
80
+ Abnormal loss (5% × 1,600) ×75% = 60 2,000 - (1,600+320) 60 (70%DM, 40% Conversion)

Total outputs 2,000

Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 43 of 67
2- Equivalent Units: (FIFO)
Beginning inventory × (100% - completion degree)
+ (Units completed & transferred out - Beginning inventory) × 100%
+ (Ending inventory × Completion degree)
+ (Normal loss of units × completion degree)
+ (Abnormal loss of units × completion degree)

Transferred-in costs = 200 × (100% - 100%) + (1,600 – 200) × 100% + (320 × 100%)
+ (20 × 100%) + (60 × 100%) = 1,800 units

Direct material = 200 × (100% - 100%) + (1,600 – 200) × 100% + (320 × 70%)
+ (20 × 70%) + (60 × 70%) = 1,680 units

Conversion = 200 × (100% - 70%) + (1,600 – 200) × 100% + (320 × 50%)

+ (20 × 40%) + (60 × 40%) = 1,652 units

4- Cost per equivalent unit (FIFO)

Costs of beginning inventory + Current costs
Cost per equivalent unit =
Equivalent units

???
Transferred-in = = $25 per unit
1,800 units

Current costs of Transferred-in = 1,800 units × $25 = $45,000

???
Direct material = = $15 per unit
1,680 units
Current costs of Direct material = 1,680 units × $15 = $25,200

???
Conversion = = $6 per unit
1,652 units
Current costs of Conversion = 1,652 units × $6 = $9,912

5- The Production cost report: (FIFO)

Costs of Normal loss: (Normal cost is allocated between units completed and ending inventory)

Transferred-in (20 units × 25 per unit × 100%) = $500

Direct material (20 units × 15 per unit × 70%) = $210 $758
Conversion (20 units × 6 per unit × 40%) = $48

• Units completed & transferred out = 758 × (1,600 completed / (1,600 + 320)) = $631.67
• Ending inventory = 758 × (320 ending / (1,600 + 320)) = $126.33
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 44 of 67
Data Department (B)
1- Input Costs
Costs of beginning inventory
Transferred-in costs 10,000
Direct material 9,400
Conversion costs 7,168
Total 26,568
Current Costs
Transferred-in costs 45,000
Direct material 25,200
Conversion costs 9,912
Total 80,112
Total input Costs 106,680
2- Output Costs
Costs of units completed and transferred out:
Cost in beginning inventory:
Transferred in 10,000
Direct material 9,400
Conversion costs 7,168

Cost to complete beginning inventory: (Remaining)

Transferred in [200 unit × $25 × (100% - 100%)] zero
Direct material [200 unit × $15 × (100% - 100%)] zero
Conversion [200 unit × $6 × (100% - 70%)] 360

Cost of units started and completed:

Transferred in [1,600 units completed – 200 beginning] × $25 35,000
Direct material [1,600 units completed – 200 beginning] × $15 21,000
Direct material [1,600 units completed – 200 beginning] × $6 8,400
Total before normal loss 91,328
Costs of Normal loss 631.67
Total after normal loss 91,959.67
Costs of ending inventory
Transferred in (320 unit × $25 cost per unit × 100%) 8,000
Direct material (320 unit × $15 cost per unit × 70%) 3,360
Conversion (320 unit × $6 cost per unit × 50%) 960
Total before normal loss 12,320
Costs of Normal loss 126.33
Total after normal loss 12,446.33
Costs of Abnormal loss
Transferred-in (60 units × 25 per unit × 100%) 1,500
Direct material (60 units × 15 per unit × 70%) 630
Conversion (60 units × 6 per unit × 40%) 144
Total output Costs 106,680
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 45 of 67
Exercises over Contract Costing
1- Which of the following entries record the direct labor cost in the accounting books of a
construction company?

(A) Debit the contract account, credit the accounts payable account
(B) Debit the contract account, credit the cash account
(C) Debit the owner's capital account, credit the contract account
(D) Debit the cash account, credit the contract account

2- The following data are available for the year ending 31st December 2022 relating to
Contract No. 8, commenced on 1st January, 2022. Direct Wages paid $142,000, and wages
accrued on 31st December 2022 $53,000. Which of the following entries record the
direct labor cost in the accounting books of Contract No. 8 ?

(A) Debit the contract account, credit the cash and wages payable accounts
(B) Debit the contract account, credit the cash account
(C) Debit the cash account, credit the contract account
(D) Debit the wages payable and cash accounts, credit the contract account

3- Winner Company undertook a Contract No. 7 for the construction of a building consists of
6 floors. Winner purchased material for the contract at a cost of $95,000. Issues from
stores were $60,000. Materials valued $5,300 were returned to stores while materials
costing $1,400 were destroyed by fire. Materials costing $6,800 were sold for $4,900.
Materials worth $15,000 were received from Contract No. 5 which was completed. Materials
worth $2,000 were transferred to Contract No. 10. Materials on hand at the end of the
accounting period were valued at $17,000. How much the materials used during the
accounting period would be?

(A) $170,000 (B) $120,500 (C) $137,500 (D) $139,500

Solution
Beginning materials on site ---
+ Materials received from the suppliers 95,000
+ Materials received from the stores 60,000
+ Materials transfer from other contracts 15,000
+ The normal loss of material ---
(-) Materials returned to suppliers (6,800)
(-) Materials returned to stores (5,300)
(-) Materials transfer to another contract (2,000)
(-) Ending materials on site (17,000)
(-) The abnormal loss of material (1,400)
Materials used during the accounting period 137,500
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 46 of 67
4- Winner Company undertook Contract No. 5 for the construction of a building consists of 6
floors. Winner purchased material for the contract at a cost of $80,000. Issues from stores
were $45,000. Materials valued $3,000 were returned to stores while materials costing
$2,000 were stolen and materials costing $500 were destroyed by fire. Materials costing
$5,000 were sold for $4,200. Materials worth $25,000 were received from Contract No. 3
which was completed. Materials worth $1,000 were transferred to Contract No. 15.
Materials on hand at the end of the accounting period were valued at $10,000. How much
the materials used during the accounting period would be?

(A) $118,000 (B) $128,500 (C) $141,000 (D) $150,000

Solution
Beginning materials on site ---
+ Materials received from the suppliers 80,000
+ Materials received from the stores 45,000
+ Materials transfer from other contracts 25,000
+ The normal loss of material ---
(-) Materials returned to suppliers (5,000)
(-) Materials returned to stores (3,000)
(-) Materials transfer to another contract (1,000)
(-) Ending materials on site (10,000)
(-) The abnormal loss of material (2,500)
Materials used during the accounting period 128,500

5- The following costs were incurred on contract No. 30 for the year ending December 31,
202X. Contract price $ 3,000,000, Direct materials 130,000, Direct labor 90,000,
Depreciation expenses 30,000, Indirect costs 50,000, General and administrative expenses
14,000, Material at the end of accounting period was $35,000. The value of abnormal loss of
material was $5,000. Required: Prepare cost statement of Contract No. 30, then determine
the total contract cost.

(A) $274,000 (B) $279,000 (C) $309,000 (D) $2,726,000

Solution
Cost statement of Contract No. 30
Direct materials 130,000
abnormal loss of material (5,000)
Material on hand at site on 31-12-202X (35,000)
Direct material used 90,000
Direct labor 90,000
Depreciation 30,000
Indirect costs 50,000
General and administrative expenses 14,000
Total contract Cost 274,000
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 47 of 67
Exercise 1:The following were the expenses on contract No. 24, which started on January 1,
202X.
Materials purchased $900,000
Material at the end 320,000
Direct wages 320,000
Depreciation 50,000
Other direct expenses 35,000
Indirect costs 12,000
80% of work completed had been certified on 31st December 202X. Cost of work completed
but not certified was 20%.
The value of certified work was $1,000,000 of which 90% had been received in Cash.

Required: 1. Prepare Contract Account.

2. Prepare Work Completed & Certified Account.
3. Illustrate the effect on the contractor’s balance sheet.

Solution
Dr Contract No. 24 account Cr
Direct materials 900,000 Cost of work certified 797,600
Material at the end (320,000) (997,000 × 80%)
Direct wages 320,000
Cost of work Uncertified
Depreciation 50,000 199,400
(997,000 × 20%)
Other direct expenses 35,000
Indirect costs 12,000

Total 997,000 Contract costs 997,000

Work Completed & Certified account

Dr Contract No. 24 Cr
Cost of work certified 797,600 Value of work certified 1,000,000
Profit (1,000,000 – 797,600) 202,400
Total 1,000,000 1,000,000

Balance Sheet
Cash (1,000,000 × 90%) 900,000
Accounts Receivable 100,000
(1,000,000 × 10%)
Cost of Work Uncertified 199,400
Materials on hand (end inv.) 320,000
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 48 of 67
Exercise 2: The following costs were incurred on a contract No. 30 for the year ending
December 31, 202X.
Contract price $12,000,000
Materials received from the suppliers 2,000,000
Materials received from the stores 400,000
Materials at the end 20,000
Wages 3,280,000
Depreciation expenses 40,000
Overheads 17,200

80% of work completed had been certified on 31st December 202X. Cost of work completed
but not certified was 20%. The value of certified work was $4,800,000 of which 90%
had been received in Cash.

Required: 1. Prepare cost statement of Contract No. 30.

2. Prepare Contract Account.
3. Prepare Work Completed & Certified Account.
4. Illustrate the effect on the contractor’s balance sheet.
Solution
Cost statement of Contract No. 30
Materials received from the suppliers 2,000,000
Materials received from stores 400,000
Materials on hand (ending inventory) (20,000)
Direct material used 2,380,000
Direct labor (Wages) 3,280,000
Depreciation expense 40,000
Overhead charges 17,200
Total contract Cost 5,717,200

Dr Contract No. 30 account Cr

Materials received from the 2,000,000 Cost of work certified 4,573,760
suppliers (5,717,200 × 80%)
Materials received from stores 400,000
Materials on hand at site (20,000) Cost of work Uncertified 1,143,440
(5,717,200 × 20%)
Direct wages 3,280,000
Depreciation expense 40,000
Overhead charges 17,200

Total 5,717,200 Contract costs 5,717,200

Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 49 of 67
Work Completed & Certified account
Dr Contract No. 30 Cr
Cost of work certified 4,573,760 Value of work certified $4,800,000
Profit ($4,800,000 – 4,573,760) 226,240

Total $4,800,000 $4,800,000

Balance Sheet
Cash ($4,800,000 × 90%) 4,320,000
Accounts Receivable 480,000
($4,800,000 × 10%)
Cost of Work Uncertified 1,143,440
Materials on hand (end inv.) 20,000

Exercise 3: The following costs were incurred on contract No. 20 for the year ending
December 31, 202X.
Contract price $250,000
Materials sent to site 85,350
Labor engaged on site 74,375
Equipment installed on site on January 1, 202X 15,000
Subcontractors 3,170
Wages accrued on 31st December 2,400 Depreciation expense
Direct expenses accrued on 31st December 240 = Equipment at the beginning
– Equipment at the end
Overhead 4,125
Materials returned to store 550
Materials on hand, 31st December 1,880
Equipment on site on 31st December 11,000
Cost of work completed but not certified 4,500
Value of work certified 195,000

Cash received from the owner was $180,000.

Required: 1. Prepare cost statement of Contract No. 20.
2. Prepare Contract Account.
3. Prepare Work Completed & Certified Account.
4. Illustrate the effect on the contractor’s balance sheet.

Solution
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 50 of 67
Cost statement of Contract No. 20
Materials sent to site 85,350
Materials returned to store (550)
Materials on hand, 31st December (1,880)
Direct material used 82,920
Labor engaged on site 74,375
Wages accrued on 31st December 2,400
Depreciation expense (15,000 – 11,000) 4,000
Subcontractors 3,170
Direct expenses accrued on 31st December 240
Overhead charges 4,125
Total contract Cost 171,230

Dr Contract No. 20 account Cr

Materials sent to site 85,350 Cost of work certified 166,730
Materials returned to store (550) (171,230 – 4,500)
Materials on hand, 31st December (1,880) Cost of work Uncertified 4,500
Labor engaged on site 74,375
Wages accrued on 31st December 2,400
Depreciation expense 4,000
Subcontractors 3,170
Direct accrued expenses on 31 Dec 240
Overhead charges 4,125
Total 171,230 Contract costs 171,230

Work Completed & Certified account

Dr Contract No. 30 Cr
Cost of work certified 166,730 Value of work certified 195,000
Profit ($195,000 – 166,730) 28,270

Total 195,000 195,000

Balance Sheet
Cash $180,000 Wages payable 2,400
Accounts Receivable 15,000 Accrued expenses 240
(195,000 – 180,000)
Cost of Work Uncertified 4,500
Materials on hand (end inv.) 2,430
(550 + 1,880)
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 51 of 67
Exercise 4: The following information applies to questions (1) to (5)
The following costs were incurred on the contract No. 28 for the year ending December 31,
202X.
Contract price $10,000,000
Direct materials 3,000,000
Abnormal loss of material on site 2,300
Direct labor 1,500,000
Subcontracts 350,000
Equipment (20% Depreciation rate) 300,000
Indirect costs 10,300

• 85% of work completed had been certified on 31st December 202X.

• Cost of work completed but not certified was 15%.
• The value of certified work was $5,000,000 of which 90% had been received in Cash.
Required: Choose the correct answer:

12) The contract costs are: …

(A) $737,700 (B) $4,180,300 (C) $4,918,000 (D) $10,000,000

13) The cost of work certified is: …

(A) $737,700 (B) $1,500,000 (C) $4,180,300 (D) $4,918,000

14) The cost of work uncertified is: …

(A) $737,700 (B) $1,500,000 (C) $4,180,300 (D) $4,918,000

15) The profit of contract No. 28 for the year ended on 31st December 202X is: ……
(A) $500,000 (B) $819,700 (C) $4,500,000 (D) $5,000,000

16) The value of accounts receivable that appears on the company's December 31, 202X
balance sheet is: ………
(A) $4,500,000 (B) $500,000 (C) $737,700 (D) Zero

Solution
Dr Contract No. 28 account Cr
Direct materials 3,000,000 Cost of work certified 4,180,300 ✓
Abnormal loss of material (2,300) (4,918,000 × 85%)
Direct labor 1,500,000 737,700 ✓
Cost of work Uncertified
Subcontracts 350,000
(4,918,000 × 15%)
Depreciation expense 60,000
(20% × 300,000)
Indirect costs 10,300

Total 4,918,000 Contract costs 4,918,000 ✓

Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 52 of 67
Work Completed & Certified account
Dr Contract No. 28 Cr
Cost of work certified 4,180,300 Value of work certified $5,000,000
Profit ($5,000,000 – 4,180,000) 819,700 ✓

Total $4,800,000 $5,000,000

Balance Sheet
Cash ($5,000,000 × 90%) 4,500,000
Accounts Receivable 500,000 ✓
($5,000,000 × 10%)
Cost of Work Uncertified 737,700
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 53 of 67
Exercises over Joint Costs
Exercise 1: Consider the following data for a company with one process and many products:
• Joint costs are $200,000.
• The company produces two joint products (A) and (B), and a by products (C).
• The total production units of each product are as follows:

(A) (B) (C)

Physical Quantities (Production Units) 40,000 60,000 5,000

Required: Allocate joint costs using the Physical Quantities method.

Solution
Product Physical quantities Weighting Joint cost allocation Cost per unit
A 40,000 units 40% 200,000 × 40% = 80,000 80,000 / 40,000 = $2 ✓

B 60,000 units 60% 200,000 × 60% = 120,000 120,000 / 60,000 = $2 ✓

Total 100,000 units 100% 200,000 ---

Exercise 2:
Consider the following data for a company with one process and many products:
• Joint costs are $150,000.
• The company produces two joint products (A) and (B), and three by products (C), (D), and (E).
• The total production units of each product and its price are as follows:
A B C D E
Physical Quantities 500 K.G. 300 K.G. 50 K.G. 25 K.G. 20 K.G.
(Production)
Selling price at split-off point $294 $210 $25 $13 ---
Required: Allocate joint costs using the sales value at split-off point method.

Solution

Product Quantities Price Sales value Weighting Joint cost allocation Cost per unit
A 500 K.G $294 147,000 70% 150,000 × 70% = 105,000 105,000 / 500 =
$210
B 300 K.G $210 63,000 30% 150,000 × 30% = 45,000 45,000 / 300
= $150
Total --- --- 210,000 100% 150,000 ---
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 54 of 67
Exercise 3: Consider the following data for a company with one process and many products:
• Joint costs are $75,000.
• The company produces two joint products (A) and (B).
• The total production units of each product and its price are as follows:

A B
Production units 1,200 units 800 units
Units sold 1,000 500
Price per unit $30.8 $58.8
Required: Allocate joint costs using the sales value at split-off point method.

Solution

Product Quantities Price Sales value Weighting Joint cost allocation Cost per unit
A 1,200 units $30.8 36,960 44% 75,000 × 44% = 33,000 33,000 / 1,200 =
$27.5
B 800 units $58.8 47,040 56% 75,000 × 56% = 42,000 42,000 / 800 =
$52.5
Total --- --- 84,000 100% 75,000 ---

Exercise 4: Consider the following data for a company with one process and many products:
• Joint costs are $26,000.
• The company produces two joint products (A) and (B) their data are as follows:

A B
Physical Quantities 1,500 units 2,500 units
Units sold 1,000 units 2,000 units
Selling price per unit $13 $16
Separable costs to complete and sell $5,500 $19,000
Required: Allocate joint costs using the estimated net market value method; determine cost per
unit, gross margin, and the cost of ending inventory

Solution

P. Price Sales Separable Net Market Weighting Joint cost Total cost Cost per
Quantities value costs value allocation unit
A 1,500 $13 19,500 5,500 14,000 40% 26,000 × 40% 15,900 15,900 /
= 10,400 1,500 =
10.6
B 2,500 $16 40,000 19,000 21,000 60% 26,000 × 60% 34,600 34,600 /
= 15,600 2,500 =
13.84
Total --- --- --- --- 35,000 100% 26,000 --- ---
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 55 of 67
Cost of goods sold:
Product A: 1,000 units sold × $10.6 cost per unit = 10,600
Product B: 2,000 units sold × $13.84 = 27,680

Gross margin:
A B Total
Revenue 1,000 units sold × $13 S.P = 13,000 2,000 × $16 = 32,000 45,000
- Cost of goods sold (10,600) (27,680) (38,280)
Gross Margin 6,720

Costs of ending inventory:

Product A: (1,500 Physical "production units" – 1,000 units sold) × $10.6 cost per unit = $5,300
Product B: (2,500 Physical "production units" – 2,000 units sold) × $13.84 cost per unit = $6,920

Exercise 5: Consider the following data for a company with one process and many products:
• Joint costs are $160,000.
• The company produces two joint products (A) and (B), and one by product (C). Their data
are as follows:
A B C
Physical Quantities 9,500 units 7,300 units 350
Units sold 8,000 units 6,000 units 200
Selling price per unit $60 $85 4
Separable costs to complete and sell $90,000 $140,500 ------
Required: Allocate joint costs using the estimated net market value method; determine
cost per unit.
Solution

P. Price Sales Separable Net Market Weighting Joint cost Total Cost per
Quantities value costs value allocation cost unit
A 9,500 $60 570,000 90,000 480,000 50% 160,000 × 170,000 170,000 /
50% 9,500 =
= 80,000 17.89
B 7,300 $85 620,500 140,500 480,000 50% 160,000 × 220,500 220,500 /
50% 7,300 =
= 80,000 30.21
Total --- --- --- --- 960,000 100% 160,000 --- ---
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 56 of 67
Exercises over By- Products
Exercise 1: (Accounting for by-products: Method 1)
Consider the following data for a company with one process and many products:
• Joint costs are $300,000.
• The company produces main product (A), and one by-product (B). Their data during current
period are as follows:

A B
Physical Quantities 50,000 units 20,000 units
Units sold 48,000 units 19,000 units
Selling price per unit $10 $1.10
Separable costs to complete and sell $ --- $0.10 per unit
The company uses the following methods:
• The estimated net market value of by-product as deduction of joint cost. "‫"يمكن تخزينه‬
• Sales value at split-off point method to allocate joint costs.
Required: Determine costs of goods sold, costs of ending inventory, and gross margin.

Solution

a) Market Value of by-product (B) = Production units of by product × Selling price per unit
= 20,000 units × $1.10 = $22,000

b) Net market value of by-product (B) = Market value – Separable costs of by product
= 22,000 – ($0.10 × 20,000 production units) = $20,000

"Net market value per unit = $20,000 / 20,000 units = $1 per unit"

c) Net joint costs = Joint costs – Net market value of by product

= 300,000 – 20,000 = $280,000

d) Allocate net joint costs:

Product Quantities Price Sales value Weighting Joint cost allocation Cost per unit
A 50,000 $10 500,000 100% 280,000 × 100% = 280,000 280,000 /
units 50,000 = $5.6
Total --- --- 500,000 100% 280,0000 ---

Costs of goods sold:

product (A) = 48,000 × $5.6 = $268,800
by product (B) = there is no cost
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 57 of 67
Gross margin:
A B Total
Revenue 48,000 × $10 = 480,000 --- 480,000
Cost of goods sold (268,800) --- (268,800)
Gross Margin 211,200

Costs of ending inventory:

Product A: (50,000 production units – 48,000 units sold) × $5.6 cost per unit = $11,200
Product B: (20,000 production units – 19,000 units sold) × $1 net market value = $1,000

Exercise 2: (Accounting for by-products: Method 1)

Consider the following data for a company with one process and many products:
• Joint costs are $91,000.
• The company produces two joint products (A) and (B), and one by product (C), Their data
during current period is as follows:
A B C
Physical Quantities 3,000 1,500 200
Units sold 2,500 1,200 ---
Selling price per unit $24.5 21 5
Separable costs to complete and sell --- --- ---
The company uses the following methods:
• The estimated net market value of by-product as deduction of joint cost. "‫"يمكن تخزينه‬
• Sales value at split-off point method to allocate joint costs.
Required:
1. Determine costs of goods sold, costs of ending inventory, and gross margin.
2. If the company wants to make additional processing to Product (A) by separable costs
$20,000. Then the company expects to sell all units in product (A) by $84,000. Do you agree
for making additional processing to this product? Why or why not?

Solution

a) Market Value of by-product (C) = Production units of by product × Selling price per unit
= 200 × 5 = $1,000

b) Net market value of by-product (C) = Market value – Separable costs of by product
= 1,000 – (zero) = $1,000
"Net market value per unit = $1,000 / 200 units = $5 per unit"

c) Net joint costs = Joint costs – Net market value of by product

= 91,000 – 1,000 = $90,000
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 58 of 67
d) Allocate net joint costs:
Product Quantities Price Sales value Weighting Joint cost allocation Cost per unit

A 3,000 units $24.5 73,500 73,500/ 105,000 = 70% 90,000 × 70% = 63,000 63,000 /
3,000 = $21
B 1,500 21 31,500 31,500/ 105,000 = 30% 90,000 × 30% = 27,000 27,000 /
1,500 = $18
Total --- --- 105,000 100% 90,000 ---

Costs of goods sold:

product (A) = 2,500 × $21 = $52,500
product (B) = 1,200 × $18 = $21,600
by product (C) = there is no cost

Gross margin:
A B C Total
Revenue 2,500 × $24.5 = 61,250 1,200 × $21 = 25,200 --- 86,450
- Cost of goods sold (52,500) (21,600) --- (74,100)
Gross Margin 12,350

Costs of ending inventory:

Product A: (3,000 production units – 2,500 units sold) × $21 cost per unit = $10,500
Product B: (1,500 production units – 1,200 units sold) × $18 cost per unit = $5,400
By product C: (200 production units – 0 units sold) × $5 net market value = $1,000

2) We must compare between additional revenue and additional cost of processing further as
follows:
Product Additional revenue Additional (separable) costs Additional income
A 84,000 – (3,000 × $24.5) = 10,500 20,000 (9,500) ×

The company must refuse the additional processing for product (A),
because it will make a loss by $9,500.
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 59 of 67
Exercise 3: (Accounting for by-products: Method 1)
Consider the following data for a company with one process and many products:
• Joint costs are $ 1,400,000.
• The company produces main product (A) and one by-product (B).
• The production of (A) needs 200,000 units started. It lost 25% during the processing.
Two third of the remaining units becomes main product and the other one third
becomes by-product.
• The selling price of main product (A) is $20 and $5 for by-product (B).
• The separable costs of main product (A) are $ 100,000.
• The marketing costs of by-product (B) are 20% of its selling price.
• During the period, the company sold 80% of the main product (A), and 50% of the by-
product (B).
The company uses the estimated net market value of by-product as deduction of joint
cost. "‫"يمكن تخزينه‬
Required: Determine costs of goods sold, costs of ending inventory, and gross margin.
Solution

Correct units = 200,000 × (100% - 25% Loss) = 150,000

Production of units (A) Production of units (B)

2/3 1/3
100,000 50,000

a) Market Value of by-product (B) = Production units of by product × Selling price per unit
= 50,000 × 5 = $250,000

b) Net market value of by-product (B) = Market value – Separable costs of by product
= 250,000 – [(5 × 20%) × 50,000] = $200,000
"Net market value per unit = $200,000 / 50,000 units = $4 per unit"

c) Net joint costs = Joint costs – Net market value of by product

= 1,400,000 – 200,000 = $1,200,000
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 60 of 67
d) Allocate net joint costs:

Physical Price Sales Separable Net Weighting Joint cost Total cost Cost per
Quantities value costs Market allocation unit
value
A 100,000 $20 200,000 100,000 100,000 100% 1,200,000 × 1,300,000 1,300,000
100% / 100,000
= 1,200,000 = 13
Total --- --- --- --- 100,000 100% 1,200,000 --- ---

Or (1,200,000 + 100,000 Separable costs) / 100,000 units = $13 per unit "because joint costs
allocated to one main product"

Costs of goods sold:

Product (A) = (100,000 × 80%) × $13 = $1,040,000
By product (B) = there is no cost

Gross margin:
A B Total
Revenue 80,000 × $20 = 1,600,000 --- 1,600,000
- Cost of goods sold (1,040,000) --- (1,040,000)
Gross Margin 560,000

Costs of ending inventory:

Product A: (100,000 production units – 80,000 units sold) × $13 cost per unit = $260,000
By product B: (50,000 – [50,000 × 50%]) × $4 net market value = $100,000

Exercise 4: (Accounting for by-products: Method 1)

Consider the following data for a company with one process and many products:
• Joint costs are $320,000.
• The company uses one raw material to produce three products (A, B, and C). It considers
(A) and (B) joint products.
• (C) is by-product which made from leftover (or surplus) of main product (B).
The following data is available:
A B C
Physical Quantities 100,000 50,000 10,000
Units sold 90,000 40,000 5,000
Selling price per unit $3.5 $2.64 $1.2
Separable costs to complete and sell $50,000 32,000 0
The company uses The Net Market Value method to allocate joint costs.
The company uses the estimated net market value of by-product (C) as deduction of the
joint costs.

Required: Determine costs of goods sold, costs of ending inventory, and gross margin.
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 61 of 67
Solution
a) Market Value of by-product (C) = Production units of by product × Selling price per unit
= 10,000 × 1.2 = $12,000

b) Net market value of by-product (C) = Market value – Separable costs of by product
= 12,000 – (0) = $12,000
"Net market value per unit = $12,000 / 10,000 units = $1.2 per unit"

c) Net joint costs = Joint costs – Net market value of by product

= 320,000 – 12,000 ✘
Note: By-product (C) is produced from product (B) only, so that we must deduct its net
market value from product (B) only as follows:

d) Allocate net joint costs:

Production Price Sales value Separable Net Market Weight Joint cost Total Cost per unit
Quantities costs value allocation cost
A 100,000 $3.5 350,000 50,000 300,000 75% 320,000 × 75% 290,000 290,000 /
= 240,000 100,000 = $2.9

B 50,000 $2.64 132,000 32,000 100,000 25% 320,000 × 25% 100,000 100,000 /
= 80,000 50,000 = $2
Total --- --- --- --- 400,000 100% 320,000 --- ---

Cost of goods sold: 112,000 – 12,000

Product A: 90,000 units sold × $2.9 cost per unit = $261,000

Product B: 40,000 units sold × $2 cost per unit = $80,000
By product C: There is no cost

Gross margin:
A B C Total
Revenue 90,000 × $3.5 = 315,000 40,000 × $2.64 = 105,600 --- 420,600
Cost of goods sold (261,000) (80,000) --- (341,000)
Gross Margin 79,600

Costs of ending inventory:

Product A: (100,000 production units – 90,000 units sold) × $2.9 cost per unit = $29,000
Product B: (50,000 – 40,000) × $2 cost per unit = $20,000
By Product C: (10,000 – 5,000) × $1.2 net market value = $6,000
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 62 of 67
Exercise 5: Consider the following data for a company with one process and many products:
• Joint costs are $165,000.
• The company produces two joint products (A) and (B), and one by product (C). Their data
are as follows:
A B C
Physical Quantities 4,500 5,000 200
Units sold 3,500 4,200 200
Selling price per unit $50 35 4
Separable costs to complete and $60,000 40,000 -----
sell

• Required: Allocate joint costs using the estimated net market value method; determine
cost per unit, gross margin (considering the revenue of by product as other income), and
the cost of ending inventory. "‫"ال يمكن تخزينه‬

Solution
a) Actual revenue of by product = Units sold × selling price per unit = 200 × $4 = $800
b) Net Actual revenue of (B) = Actual revenue – Separable costs of By-product
= 800 – (zero) = $800 [Revenue/ other income]
c) Net joint costs = joint costs = $165,000
d) Allocate joint costs:

Production Price Sales value Separable Net Market Weight Joint cost Total Cost per unit
Quantities costs value allocation cost
A 4,500 $50 225,000 60,000 165,000 55% 165,000 × 55% 150,750 150,750 / 4,500
= 90,750 = $33.5

B 5,000 $35 175,000 40,000 135,000 45% 165,000 × 45% 114,250 114,250 / 5,000
= 74,250 = $22.85
Total --- --- --- --- 300,000 100% 165,000 --- ---

Cost of goods sold:

Product A: 3,500 units sold × $33.5 cost per unit = $117,250
Product B: 4,200 units sold × $22.85 cost per unit = $95,970
By product C: There is no cost

Gross margin:
A B C Total
Revenue 3,500 × $50 = 175,000 4,200 × $35 = 147,000 800 322,800
Cost of goods sold (117,250) (95,970) --- (213,220)
Gross Margin 109,580
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 63 of 67
Costs of ending inventory:
Product A: (4,500 production units – 3,500 units sold) × $33.5 cost per unit = $33,500
Product B: (5,000 – 4,200) × $22.85 cost per unit = $18,280
By Product C: there is no cost

Exercise 6: Consider the following data for a company with one process and many products:
• Joint costs are $60,000.
• The company produces two joint products (A) and (B), and one by product (C). Their data
are as follows:
A B C
Physical Quantities 1,000 500 300
Units sold 800 400 100
Selling price per unit $54 72 10.5
Separable costs to complete and sell $3,600 2,400 0.5 per unit

The company uses the following methods:

• Net Actual Revenue of by-products as other income
• Net market value method to allocate joint costs.
Required: Determine costs of goods sold, costs of ending inventory and gross margin.
Solution

a) Actual revenue of by product = Units sold × selling price per unit = 100 × $10.5 = $1,050
b) Net Actual revenue of (B) = Actual revenue – Separable costs of By-product
= 1,050 – (0.5 × 100 units sold) = $1,000 [Revenue/ other income]
c) Net joint costs = joint costs = $60,000
d) Allocate joint costs:

Production Price Sales Separable Net Market Weight Joint cost Total Cost per unit
Quantities value costs value allocation cost
A 1,000 $54 54,000 3,600 50,400 60% 60,000 × 60% 39,600 39,600 / 1,000
= 36,000 = $39.6

B 500 $72 36,000 2,400 33,600 40% 60,000 × 40% 26,400 26,400 / 500 =
= 24,000 $52.8
Total --- --- --- --- 84,000 100% 60,000 --- ---

Cost of goods sold:

Product A: 800 units sold × $39.6 cost per unit = $31,680
Product B: 400 units sold × $52.8 cost per unit = $21,120
By product C: There is no cost
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 64 of 67
Gross margin:
A B C Total
Revenue 800 × $54 = 43,200 400 × $72 = 28,800 1,000 73,000
Cost of goods sold (31,680) (21,120) --- (52,800)
Gross Margin 20,200

Costs of ending inventory:

Product A: (1,000 production units – 800 units sold) × $39.6 cost per unit = $7,920
Product B: (500 – 400) × $52.8 cost per unit = $5,280
By Product C: there is no cost

Exercise 7: (Accounting for by-products: Method 2)

Consider the following data for a company with one process and many products:
• Joint costs are $1,400,000.
• The company produces main product (A) and one by-product (B).
• The production of (A) needs 200,000 units started. It lost 25% during the processing.
Two third of the remaining units becomes main product and the other one third
becomes by-product.
• The selling price of main product (A) is $20 and $5 for by-product (B).
• The separable costs of main product (A) are $ 100,000.
• The marketing costs of by-product (B) are 20% of its selling price.
• During the period, the company sold 80% of the main product (A), and 50% of the by-
product (B).
The company uses the net actual revenue of by-product as other income. "‫"ال يمكن تخزينه‬
Required: Determine costs of goods sold, costs of ending inventory, and gross margin.

Solution

Correct units = 200,000 × (100% - 25% Loss) = 150,000

Production of units (A) Production of units (B)

2/3 1/3
100,000 50,000
a) Actual revenue of by product = Units sold × selling price per unit
= [50,000 × 50%] × $5 = $125,000

b) Net Actual revenue of (B) = Actual revenue – Separable costs of By-product

= 125,000 – [(5 × 20%) × 25,000] = $100,000 [Revenue/ other income]

c) Net joint costs = joint costs = $1,400,000

Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 65 of 67
d) Allocate joint costs for main product A:
(1,400,000 + 100,000 Separable costs) / 100,000 production units = $15 per unit
"because joint costs allocated to one main product"

Costs of goods sold:

Product A = (100,000 × 80%) × $15 = $1,200,000
By product B = there is no cost

Gross margin:
A B Total
Revenue 80,000 × $20 = 1,600,000 $100,000 1,700,000
Cost of goods sold (1,200,000) --- (1,200,000)
Gross Margin 500,000

Costs of ending inventory:

Product A: (100,000 production units – 80,000 units sold) × $15 cost per unit = $300,000
By product B: there is no cost
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 66 of 67
Service Costing
Example 1:
Considering the following data for a cleaning service company, to calculate the cost for
cleaning a 2,000 sq. ft. office, given that:
1. Direct Costs:
- Two cleaners working 4 hours at $15/hour
- Cleaning supplies: $30
2. Indirect Costs:
- Transportation (shared vehicle cost): $10
- Insurance and equipment maintenance (allocated per job): $15
3. Overheads:
- Office rent, software subscriptions, and admin salaries (allocated per job): $20
Required: Calculate the total cost of cleaning a 2,000 sq. ft. office.

Solution
1- Direct Costs:
• Wages for two cleaners working 4 hours at $15/hour: = 2 × 4 × 15 = $120
• Cleaning supplies for the job: $30
2- Indirect Costs (Allocated Per Job):
• Transportation (shared vehicle cost for the day): $10
• Insurance and equipment maintenance allocated to this job: $15
3- Overheads:
• Office rent, software subscriptions, and admin salaries allocated per job: $20
Total Cost = 120 + 30 + 10 + 15 + 20 = $195

If, the company wants a 30% profit margin:

Price to Client = 195 × 1.3= $253.5

Example 2:
Considering the following data for a law firm charges a client for legal services.
• Lawyer’s Hourly Rate: $200/hour
• Time Spent on Case: 5 hours
• Printing materials: $10/case
• Office Rent: $5,000 monthly
• Utilities: $1,000 monthly
• Software Licenses: $500 monthly
• The firm handles 50 cases a month.
• Hospitality ‫ضيافة‬: $15/person, usually two persons attend for one case.
• The firm has fixed costs $3,000 monthly.
Required:
1. Calculate the cost of the legal service provided to a client.
2. Calculate total cost of the law firm during the month.
Cost accounting (1) 4 th Year Alaa Salama F.R Part 2 page 67 of 67
Solution
Data Cost per case Total Cost
Direct costs $200 × 5 hours per case = $1,000 ($1,000 + $10) × 50 = $50,500
$10 Printing materials

Indirect ($5,000 + $1,000 + $500) ÷ 50 = $130 ($5,000 + $1,000 + $500) = $6,500

costs Or "$130 × 50"
Overheads $15 × 2 person = $30 $30 × 50 = $1,500
Fixed costs $3,000 ÷ 50 number of cases = $60 $3,000

Total $1,230 $61,500

End of Final Revision part 2 by Alaa Salama 010 27 383 483