Paper Airplanes, Inc.: Utilizing an In-Class Case to Demystify Process Costing

Article excerpt

CASE DESCRIPTION

The primary subject matter of this case is the preparation of a basic process costing report using the weighted-average method. Secondary issues examined include understanding the physical flow of units in a processing environment, the notion of partially completed units, and the understanding of and accounting for equivalent units. The case has a difficulty level of two and is targeted at business students in a sophomore level managerial accounting course and/or MBA students in a graduate managerial accounting course. The case is designed to be taught in 1-2 class hours and is expected to require 1-2 hours of outside review by students following the class. This case is best administered in a class of 10 or more students.

CASE SYNOPSIS

Paper Airplanes, Inc. is a fictitious company organized to produce high-quality paper airplanes using aerodynamically superior paper and highly skilled labor. The company relies exclusively on college students for its labor and management pool. During a one hour class, students will be given an opportunity to "work" for the company by actually producing paper airplanes. Specifically, student volunteers are asked to assume roles as direct laborers, production supervisors, a materials (paper) manager, and, of course, cost accountants (all students). The basic production process is then explained to the class, and student volunteers are given quick training on their roles. Students will also see a few partially completed airplanes from the prior period and will be told that these need to be completed during the upcoming production period. After the training, student laborers will be given just two minutes to actually produce as many airplanes as they can and send (fly) them to the next department. When a production supervisor states that the time is up, the laborers will stop their production immediately. Production supervisors will count completed airplanes (those flown into the classroom), and then all students will assume the role of cost accountants to prepare a weighted-average process costing report. They will need to consider actual production during class and take into account such issues as partially completed airplanes and cost per equivalent unit. This hands-on, visual case is very instructive in its simplicity and ability to actively engage students in learning a challenging topic. Within a short class period, students will have actually participated in a production process and learned all the complexities and difficulties in preparing a basic process costing report.

CASE: PAPER AIRPLANES, INC

To better understand how process costing works, the classroom will be transformed today into a small-scale paper airplane factory. There will be direct materials (paper) and direct labor (student volunteers). …