PROCESS COSTING CHAP 32. What is Process Costing? an accounting methodology that traces and accumulates direct costs, and allocates indirect costs of.

PROCESS COSTING

CHAP 32

What is Process Costing?

an accounting methodology that traces and accumulates direct costs, and allocates indirect costs of a manufacturing process.

When is process costing applicable

-where goods or services result from a sequence of continuous or repetitive operations or processes

When is process costing applicable

- suitable for industries producing homogeneous products and where production is a continuous flow

When is process costing applicable

petroleum, coal mining, chemicals, textiles, paper, plastic, glass, and food

The importance of process costing

to keep track of where their money is being spent in the production and distribution processes

----Understanding these costs is the first step in being able to control them

Example:10 units of a product passed through 3 processes for which the following information is available

Process 1$

Direct Materials 1.00 Direct Labor 1.50 Overhead 2.50

5.00

Process 2$

From Process 1 5.00 Direct Materials 1.50 Direct Labor 3.50 Overhead 5.00

15.00

Process 3$

From Process 2 15.00 Direct Materials 2.00 Direct Labor 1.50 Overhead 1.50

20.00

Requirement:a. Prepare the cost accounts for processes 1, 2, and 3

Process 1$

Direct Materials 1.00 Direct Labor 1.50 Overhead 2.50

5.00

PROCESS 1

Direct materials$ 1.0

Direct labor 1.5

Overhead 2.5

Transferred to process 2

$ 5.0

⏋⏋⏋⏋

5.0 5.0

Requirement:a. Prepare the cost accounts for processes 1, 2, and 3

PROCESS 2

Direct materials 1.5

Direct labor 3.5

Overhead 5.0

Transferred to process 3

$ 15.0

⏋⏋⏋⏋

15.0 15.0

Transferred from process 1

$ 5.0

Process 3$

From Process 2 15.00 Direct Materials 2.00 Direct Labor 1.50 Overhead 1.50

20.00

Requirement:a. Prepare the cost accounts for processes 1, 2, and 3

PROCESS 3

Direct materials 2.0

Direct labor 1.5

Overhead 1.5

Finished Goods

$ 20.0

⏋⏋⏋⏋

20.0 20.0

Transferred from process 2

$ 15.0

b. Calculate the cost of

i. One completed unit of production in process 1 __________ ii. One completed unit of production in process 2 __________ iii. One completed unit of production in process 3 __________

Unit cost

=Total cost

Units produced

= $510 units

= $0.50

$0.50

b. Calculate the cost of i. One completed unit of production in process 1 __________ ii. One completed unit of production in process 2 __________ iii. One completed unit of production in process 3 __________

$1.5

i. One completed unit of production in process 1 __________ ii. One completed unit of production in process 2 __________ iii. One completed unit of production in process 3 __________ $2.0

EXER 1

The Alutech Processing Company which passes its product through three refining processes provides the following information for one month, for 10,000 units:

Process 1 Process 2 Process 3 $000 $000 $000 Direct material 10,000 4,000 7,000 Direct labour 400 350 275 Overhead 900 864 423 All the material which was input to process 1 completed process 2 and 3

Requirement:1. Prepare the cost

accounts for processes 1, 2, 3

2. Compute for the cost of completed units for process 1, 2 and 3

ANSWER: (1)

$ $Direct materials 10,000 Transferred to P2 11,300 Direct Labor 400 Overhead 900

11,300 11,300

PROCESS 1

ANSWER: (1)

$ $Transferred from P2 16,514 Finished Goods 24,212 Direct materials 7,000 Direct Labor 275 Overhead 423

24,212 24,212

PROCESS 3

ANSWER: (1)

$ $Transferred from P1 11,300 Transferred to P3 16,514 Direct materials 4,000 Direct Labor 350 Overhead 864

16,514 16,514

PROCESS 2

ANSWER: (2)11,300$

10,000 units

$1.13

P1 =

=

16,514$ 10,000 units

P2 =

= $1.65

24,212$ 10,000 units

= $2.42

P3 =

E N D

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