Process Costing

Chapter5
Job Costing
Process Costing
 Building Blocks of Process Costing
• Conversion costs
–

• Equivalent units

• Inventory flow assumptions

–
–
 Building Blocks of Process Costing
• Equivalent units
Colleges and Universities use the EU concept to describe the
number of faculty as well as the number of students. The
University of GA has about 2,000 full-time faculty and 400 part-
time faculty. Assume the following:
1) A full-time faculty member teaches six courses per year
2) 100 part-time faculty teach three courses per year
3) 300 part-time faculty teach two courses per year.

What is the “full-time equivalent” faculty — the number of EU of

faculty?
Shaping Department Time Line
 Step 1: Summarize the Flow of Physical
Units
• Total physical units to account for?
– How many individual (physical) units were worked on (completed or not)
• Total physical units accounted for?
– What happened to those products ? (Finished or still in process)
Step 2: Compute Output in Terms of EU
What if DM were added at the end of the shaping process
rather than at the beginning of the shaping process?

?
 Step 2
Equivalent Units

Direct Conversion
Materials Cost

Units accounted for:

Completed and transferred out 1,200,000

Ending work in process 110,000

Total physical units accounted for 1,310,000

Total equivalent units

Step 3: Summarize Total Costs to Account For

Shaping Department costs incurred while working on 50,000 masks in October:

Step 4: Compute the Cost per Equivalent Unit
 Step 5: Assign Total Costs to Units Completed
and to Units in Ending Work in Process Inventory
 Journal Entries Used in
a Process Costing System
• Similar to job order system except:
– The manufacturing costs (direct materials, direct labor, and
manufacturing overhead) are assigned to _______________,
___________________ rather than _______.
– At the end of the month a journal entry must be made to
transfer cost to the ________________________________.
Example:
Direct materials of $140,000 were requisitioned for use by department 1.
 Journal Entries Used
Labor time records show that $21,250 of direct labor was used in
department 1 during October, resulting in this journal entry:

Manufacturing overhead is allocated to the department using the

company’s predetermined overhead rate. Department’s overhead
rate is $50 per machine hour and the department used 935 machine
hours .
Insertion Department Time Line
 Output in Terms of Equivalent Units

___________________: Masks were 100% completed as to transferred-in costs at

the beginning of the process

All physical units, whether completed and transferred out or still in ending work in
process, are considered 100% complete with respect to ________________ work and
costs.