Army Institute of Business Administration, Sylhet

Cost Accounting

Assignment
on

Process Costing

Submitted by, Submitted to,

Anik Mitra Asif Haider Chowdhury
ID: 10417041 Course Instructor
Batch: BBA-4

Date: 04 May, 2020

  What is transferred in cost in process costing?

Transferred-in costs are costs accumulated during the production processes within a company.
Transferred-in costs are the costs accumulated by the product at any given point in production.
They are "transferred-in" to the new business department that receives the partially finished
product and is responsible for continuing the production process. Transferred-in costs combine
manufacturing costs by the various departments and production processes.

If department “A” is responsible for starting a widget, and department “B” is responsible for
finishing the widget, the costs incurred during production in department A would be
"transferred-in costs" for department B who is responsible for continuing the production process.

 Process Costing (Weighted Average)

The Computation of Equivalent unit of Production on the basis of the Weighted Average method
with transferred-in costs, we several steps. This method consists of the following steps –

Steps1: Physical flow of units

Steps2: Equivalent Units of Production

Steps3: The total costs to account for.

Steps4: The cost per equivalent unit.

Steps5: Assignment of the total costs to the units completed and to the units in ending work-in-
process.

In the weighted average method of process costing, the costs are averaged out and evenly applied
to both units transferred out and units in closing work in process. Unlike FIFO method, which
assumes costs introduced first into a department are transferred out first, weighted average
method does not assume any specific order.
  Process Costing (FIFO)

The weighted average method blends the cost and work of the current period with the cost and
work of the previous period. On the other hand, the FIFO method, clearly spares the work done
in current period and the work done in prior period. The equivalent units of production under
FIFO method include work done in the current period only.

Unlike the weighted average method, the FIFO method does not involve any averaging out of the
total costs incurred during a period. It moves the cost of beginning work in process straight to
cost of units transferred out and distributes the costs added during the period first to the cost of
units transferred out and the rest to the cost of units in the ending work in process.

The following steps should follow when compute transferred in cost under FIFO method –

i) Be sure to include the transferred-in costs from previous departments in your

calculation.
ii) When calculating the costs to be transferred using the FIFO method, do not overlook
costs assigned in the previous period to units that were in process at the beginning of
the current period but are now included in the units transferred.
iii) Unit costs may fluctuate between periods. Therefore, transferred unit may contain
batches accumulated at different unit costs
iv) Units may be measured in different denominations in different departments. Consider
each department separately.
v) Allocating the cost between units transferred out and ending WIP.

Conclusion

The main difference between the FIFO and weighted average method is in the treatment of
beginning work-in-process or unfinished goods inventory. The weighted average method
includes this inventory in computing process costs, while the FIFO method keeps it separate.