Chapter 3 Process Costing
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Chapter 3Process Costing
Job-Order v. Process CostingJob-Order Costing
• Many jobs are worked on during each period, with each job having different production requirements.
• Costs are accumulated by job.
• The job cost sheet is the key document for accumulating costs.
• Units costs are computed by job on a job cost sheet.
Process Costing• A homogeneous product is
produced on a continuous basis or for long periods of time.
• Costs are accumulated by department.
• The departmental production report is the key document showing the accumulation and disposition of costs.
• Unit costs are computed by department on production reports.
Problem InformationMixing Packaging
Unit Information: Beginning Work in Process:
(Mixing) 10,000(Packaging) 15,000
Started into Production 70,000 N/A Transferred In N/A ?
Ending Work in Process:(Mixing 100% material, 50% conversion) 20,000
(Packaging 100% material, 40% conversion) 5,000
Problem Information (Continued)
Mixing PackagingCost information: Beginning Work in Process: Direct materials $18,000 $10,500 Transferred in N/A $92,250 Conversion $31,200 $13,500
Costs Added Currently: Direct materials $142,000 $49,500 Transferred in N/A ? Conversion $248,800 $83,700
Calculation of Equivalent Units
Beginning Work-in-Process Inventory:
Physical Units X = XXX100%
Started and Completed in Current Period:
Physical Units X 100% = XXX
Ending Work-in-Process Inventory:
Physical Units X Percent of work completed in the current period = XXX
XXXEquivalent Units of Production
Equivalent Units Illustration - Mixing
Beginning WIP:
10,000 x 100% = 10,000
Started & Completed:
50,000 x 100% = 50,000
Ending WIP:20,000 x 100% = 20,000
Equivalent Units 80,000
Materials Conversion CostsBeginning WIP:
10,000 x 100% = 10,000
Started & Completed:
50,000 x 100% = 50,000
Ending WIP:20,000 x 50% = 10,000
70,000
Equivalent Units Illustration –Mixing (alternative approach)
Units Completed:
60,000 x 100% = 60,000
Ending WIP:20,000 x 100% = 20,000
Equivalent Units 80,000
Materials Conversion Costs
Units Completed:
60,000 x 100% = 60,000
Ending WIP:20,000 x 50% = 10,000
70,000
Cost Per Equivalent Unit (EU) of Production
Production Cost for Component (include costs carried forward from beginning WIP)
Equivalent Units of Production for Component=
Equivalent Unit Cost for Component
Note:
Equivalent units and cost per equivalent unit are often computed for direct materials and conversion costs (direct labor & manufacturing overhead). Conversion costs may also be calculated separately.
Cost Per Equivalent Unit Illustration - Mixing
Materials
$18,000 + $142,000
80,000 EU= $2.00
Conversion
$31,200 + $248,800
70,000 EU
$4.00=
Total Equivalent Unit Cost:
Materials $2.00Conversion 4.00
$6.00Total EU CostSee Direct Material, DL, & MOH Journal Entries on Page 84
Costs Accounted ForTransferred Out:
Transferred Out EU x Cost Per EU = XXX
Cost in Ending Work-in-Process Inventory:Ending WIP EU x Cost Per EU = XXX
XXX
Note:
Total cost is computed for direct materials and conversion costs (direct labor & manufacturing overhead). Conversion costs may also be calculated separately.
Costs Accounted For Illustration - Mixing
Transferred Out:
60,000 EU x $6.00
Cost in Ending Work-in-Process Inventory:
$440,000
360,000
Materials: 20,000 EU x $2.00 $40,000Conversion: 10,000 EU x $4.00 40,000 80,000
Total Cost
See Transferred In Journal Entry on Page 84
Equivalent Units Illustration - Packaging
Beginning WIP:
15,000 x 100% = 15,000
Started & Completed:
55,000 x 100% = 55,000
Ending WIP:5,000 x 100% = 5,000
Equivalent Units 75,000
Materials Conversion CostsBeginning WIP:
15,000 x 100% = 15,000
Started & Completed:
55,000 x 100% = 55,000
Ending WIP:5,000 x 40% = 2,000
72,000
Equivalent Units Illustration – Packaging (alternative approach)
Units Completed (includes 60,000 transferred in from Mixing):70,000 x 100% = 70,000
Ending WIP:5,000 x 100% = 5,000
Equivalent Units 75,000
Materials and Transferred In Conversion Costs
Units Completed (includes 60,000 transferred in from Mixing):70,000 x 100% = 70,000
Ending WIP:5,000 x 40% = 2,000
72,000
Cost Per Equivalent Unit Illustration - Packaging
Materials
$10,500 + $49,50075,000 EU
= $0.80
Conversion
$13,500 + $83,700
72,000 EU
$1.35=
Total Equivalent Unit Cost:
Materials $0.80
Conversion 1.35
$8.18Total EU Cost
Transferred In
$92,250 + $360,00075,000 EU
$6.03=
Transferred In 6.03
Costs Accounted For Illustration - Packaging
Transferred Out:
70,000 EU x $8.18
Cost in Ending Work-in-Process Inventory:
$609,450
572,600
Materials: 5,000 EU x $6.83 $34,150Conversion: 2,000 EU x $1.35 2,700 36,850
Total Cost
Production Report FormatQuantity Schedule and Equivalent Units
Units to be accounted for:Beginning work in processStarted into production
Units accounted for: (compute equivalent units) Transferred out (from beginning WIP & started & completed)Ending work in process
Total and Unit CostCosts to account for:Beginning work in processStarted into production
Cost ReconciliationCosts accounted for:Transferred out (from beginning WIP & started & completed)Ending work in process
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