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Chapter 4 .Doc Process Costing
Chapter 4 .Doc Process Costing
Chapter 4 .Doc Process Costing
The process cost system accumulates costs with out attempting to allocate them during
the accounting period to specific units of goods being manufactured. At the end of the
fiscal period, the average cost per unit is determined by dividing the total cost
accumulated to the total number of units produced.
Because of these techniques, process costing is often referred to as average costing. If the
process costing system is used, the goods manufactured must be similar in nature so that
an average cost will be meaningful. The process cost system is commonly used in such
manufacturing operations as cement plants and flour mills, in which the production
process is standardized and continuous and the product remains essentially the same from
day to day.
In many types of business use process costing, manufacturing consists of a progressive
series of distinct operations or processes. Usually each process is carried out in different
department. A unit cost may be computed for each process or department. This
departmental unit cost may be a useful to in measuring and controlling efficiency. The
total cost of production determined by adding up the departmental costs.
1 Transferred-in costs are assigned to partially completed products that are transferred into one
production department from a prior department.
Manufacturing overhead applied xxx
2. Goods are completed in production department B and transferred to the finished
goods warehouse.
Finished-Goods xxx
Work-in Process: Production Department B xxx
3. Goods are sold
Cost of Goods Sold xxx
Finished-Goods xxxx
Case 1: Process costing with zero beginning and zero ending work in
process inventory that is all units are started and fully completed by the
end of the accounting period.
Solution:
Direct Material costs per unit (32,000/400) Br. 80
Conversion costs per unit (24000/400) 60
Assembly Department costs per unit 140
Case 2: Process Costing with zero beginning but some ending work in
process inventory
Data for the Assembly Department for February 2001
Physical Units for February 2001
Work in Process, beginning inventory (February 1) 0 units
Started during February 400 units
Completed and transferred out during February 175 units
Work in Process, ending inventory (February 28) 225 units
Total Costs for February 2001
Direct materials costs added during February Br.32,000
Conversion costs added during February 18,600
Total Assembly Department costs added during February 50,600
In addition, the Assembly Department estimates that the partially assembled units are on
averages 60% complete as to conversion costs.
How should the co. calculate the cost of fully assembled units in February 2001 and
the cost of partially assembled units still in process at the end of February 2001?
Steps:
Summarize the flow of physical units of output.
Compute output in terms of equivalent units.
Compute equivalent unit costs.
Summarize total costs to account for.
Assign total costs to unit's completed and to units in
ending work in process.
Equivalent Units
Flow of Production Physical Direct Conversion
Units Materials costs
Work in process, beginning 0
Started during current period 400
To account for 400
Completed and transferred out during current
period 175 175 175
Work in process, ending 225
225*100%; 225*60% 225 225135
Accounted for 400
Work done in current period 400 310
Calculation of Product Costs (Steps 3, 4, and 5)
Total Direct Conversion
Production Materials Costs
Costs
(Step 3) Costs added during February divided by50,600 Br.32,000/ Br.18,000/
equivalent units of work done incurrent period 400 310
Cost per equivalent unit Br. 80 Br. 60
(Step 4) Total costs to account for Br. 50,600
(Step 5) Assignment of costs:
Completed & transferred out (175 units) Br. 24,500 (175*800) (175*60)
Work in process, ending (225 units)
Direct Materials 18,000 225*80
Conversion costs 8,100 135*60
Total work in process 26,100
Total costs accounted for Br.50,600
Journal Entries
Work in Process- Assembly 32,000
Account Payable Control 32,000
(To record direct materials purchased and used in production)
Work in Process- Assembly 18,600
Various accounts 18,600
(To record Assembly department conversion costs)
Work in Process- Testing 24,500
Work in Process- Assembly 24,500
(To record cost of goods completed and transferred from Assembly to
Testing Department)
Case 3: Process costing with some beginning and some ending work in
process inventory.
Data for the Assembly Department for March 2001
Physical Units for March 2001
Work in Process, beginning inventory (March 1) 225 units
Direct Materials (100% complete)
Conversion costs (60% complete)
Started during March 275 units
Completed and transferred out during March 400 units
Work in Process, ending inventory (March 31) 100 units
Direct Materials (100% complete)
Conversion costs (50% complete)
Total Costs for March 2001
Work in process, beginning inventory
Direct materials (225 equivalent units * Br. 80/unit) Br. 18,000
Conversion costs (135 equivalent units * Br.60/unit) 8,100 Br. 26,100
Direct materials costs added during March 19,800
Conversion costs added during March 16,380
Total costs to account for Br.62, 280
Journal Entries
Work in Process- Assembly 19,800
Account Payable Control 19,800
(To record direct materials purchased and used in production)
Work in Process- Assembly 16,380
Various accounts 16,380
(To record Assembly department conversion costs)
Work in Process- Testing 52,000
Work in Process- Assembly 52,000
(To record cost of goods completed and transferred from Assembly to
Testing Department)
Data for the Testing Department for the month of March 2001 are:
Physical Units for March 2001
Work in Process, beginning inventory (March 1) 240 units
Transferred-in costs (100% complete)
Direct Materials (0% complete)
Conversion costs (62.5% complete)
Transferred in during March 400 units
Completed during March 440 units
Work in Process, ending inventory (March 31) 200 units
Transferred-in costs (100% complete)
Direct Materials (0% complete)
Conversion costs (80% complete)
Costs of Testing Department for March 2001
Work in process, beginning inventory
Transferred-in costs (240 equivalent units*140/ equ. Un) Br. 33,600
Direct materials 0
Conversion costs (150 equivalent units * Br.120/unit) 18,000 Br. 51,600
Transferred-in costs during March
Weighted-average 52,000
FIFO 52,480
Direct materials costs added during March 13,200
Conversion costs added during March 48,600
A. Transferred-in costs and the Weighted-Average Method
Equivalent Units
Flow of Production Physical Transferred DM CC
Units in costs
To record cost of goods completed and transferred from Testing to finished goods.
Equivalent Units
Flow of Production Physical Transferred-in Direct Conversion
Units costs Materials costs
Work in process, beginning 240
Transferred-in current period 400
To account for 640
Completed and transferred out during
current period
From beginning work in process 240
240*0%; 240*(100%-0%); 200*
(100%-62.5%) 0 240 90
Started and Completed
200*100%; for the three 200
Work in process, ending 200 200 200
200*100%; 200*0%;200*80% 200
Accounted for 200 0 160
Work done in current period 640
400 440 450