JPIA-HAU

STRATEGIC COST MANAGEMENT

Job order costing, process costing, losses, and
units due

Overview of the Handouts:

1. Job order costing and process costing
2. Production by department
3. Normal and Abnormal Losses
4. Units due

1 JOB ORDER COSTING VS PROCESS

COSTING 3. SELECTIVE
1.1 Job Order Costing
1. Unique jobs are worked on during a time
period.
2. Costs are accumulated by individual job
3. Unit costs are determined by dividing the
total costs on the job cost sheet by the
number of units on the job.
4. More detailed recordkeeping

1.2 Process Costing

1. Homogeneous units pass through a series
of similar processes.
2. Costs are accumulated by processing
department. 2.2 UNITS TO ACCOUNT FOR
3. Unit costs are computed by dividing the Beginning units in process
individual departments' costs by the + Units started in process or received from
equivalent production. previous department
4. Less detailed recordkeeping + Increase in units due to addition of materials

2 PRODUCTION BY DEPARTMENT UNITS ACCOUNTED FOR

When units are completed in one Units completed and transferred
department, they are transferred to the next + Units completed and on hand
processing department accompanied by their + Units in process, end
corresponding costs and become the raw
material of the latter until the units reach 2.3 PROCEDURES
finished goods. (Output of Department 1 Process costing is concerned with the
becomes the input of Department 2) assignment of product costs to the appropriate
Generally, cost per unit increases as departmental Work in Process Inventory
units flow through each department. account.

1. DIRECT MATERIALS: These are always

2.1 PRODUCT FLOW added in the first processing department but
they are also usually added in other
1. SEQUENTIAL departments.

Work in Process xxx

Materials xxx

2. DIRECT LABOR: The amounts charged to

each department are determined by the gross
earnings of the employees assigned to each
department.
2. PARALLEL
Work in Process - D1 xxx
Strategic Cost Management Handout #1 - Job order costing, process costing, losses, and units due

Work in Process - D2 xxx
Work in Process - D3 xxx
Payroll
3. FACTORY OVERHEAD:
(1) Apply factory overhead to Work in Process
Inventory at a predetermined application rate,
or
(2) Charge actual factory costs incurred to
Work in Process Inventory
Work in Process - D1
Work in Process - D2
Work in Process - D3
Factory Overhead Applied
2.4 COST OF PRODUCTION REPORT
It is an analysis of the activity in the
department or cost center for the period.
Step 1.Prepare the quantity schedule.
Step 2.Calculate equivalent units and unit cost.
(FIFO, Weighted Average)
Step 3.Determine the costs to be accounted
for.
Step 4.Account for all costs.
2.5 COSTING METHODS
1. FIFO Method: Units which are first placed
in the process are presumed to be the first
ones completed, and thus are the ones
transferred out.
2. Weighted Average Method: Secures a
representative average unit cost by
dividing the total element of costs by the
equivalent production based upon the
sum of the units in the initial work in
process inventory and the units placed
into production during the period.
2.6 METHODS OF APPLICATION OF
ELEMENTS OF COST TO PRODUCTION
1. EVEN: Only one computation of
equivalent production should be made.
2. UNEVEN: There should be as many
computations of equivalent as the
elements of cost that are unevenly
applied.
3 NORMAL VS ABNORMAL LOSSES
Normal losses are expected while abnormal
losses are those in excess of what have been
perceived.
Strategic Cost Management Handout #1 - Job order costing, process costing, losses, and units due
JPIA-HAU
A. The cost of normal lost units is
charged to (a) completed units and (b) units
xxx in process at the end when:
1. Discovered at the beginning of the
process.
2. Discovered during the process and no
quality control inspection is indicated
3. Discovered at the end of the process
B. The cost of abnormal lost units is charged
xxx to a loss account or factory overhead when:
xxx
1. Discovered at the beginning.
xxx
xxx 2. Discovered during the process with the
point of discovery stated in the problem.
3. Discovered at the end of the process.
4 INCREASE IN UNITS DUE TO ADDITION
OF MATERIALS
Adjusted Cost =
Total cost from preceding department
__________________________________________________________________________________
(Units received + Increase in units)
If lost units are discovered in the same
department where we had an increase in units,
the adjusted cost will be computed based on
the following assumptions:
a. Lost units normal, discovered at the
beginning of the process
Cost from preceding department
________________________________________________________________________________
(Total units received - lost units)
b. Lost units normal, discovered at the end
of the process
Cost from preceding department
_____________________________________________________________________________
Total Units received
c. Lost Units abnormal, discovered at the
beginning, during, or at the end
Cost from preceding department
________________________________________________________________________________
Total units received
 JPIA-HAU
EXERCISES
True or False
1. A utility such as the water company would
typically use a process costing.
2. In a process costing system, costs incurred
in one department remain there rather than
being transferred on to the next department.
3. An abnormal loss occurs when expected Make journal entries to show the flow of
output exceeds actual output. cost through mixing and baking department for
4. A normal loss in the process is allocated a the month of July.
cost in order to reconcile the costs of inputs
and outputs.
5. The inputs to a process less the normal loss
Problem 4. The finishing department had
is the expected output.
5,000 incomplete units in its beginning Work-
in-Process Inventory which were 100%
complete as to materials and 30% complete as
Problem Solving to conversion costs. 15,000 units were
received from the previous department. The
Problem 1. The Casper Corporation recorded ending Work-in-Process Inventory consisted of
costs for the month of P15,750 for materials, 2,000 units that were 50% complete as to
P40,950 for labor, P25,200 for overhead. materials and 30% complete as to conversion
There was no beginning work in process costs. The Finishing Department uses
inventory. 9,000 units were completed and weighted average process costing.
transferred and 2,000 were in process at the
end of the period, 3/4 completed. What is the Required:
equivalent production for the month?
a) How many units were completed and
transferred-out during the period?
Problem 2. Compute the equivalent production b) What are the equivalent units of production
for the month: for the materials costs during the period?
Received from the preceding c) What are the equivalent units of production
department 40,000 units for the conversion costs during the period?
Completed 34,000 units
Work in Process, end, 1/4
completed 6,000 units
All materials are added at the end of the
process.

Problem 3. The Veeta Baking Company has a

product known as Veeta bread. The company
uses process costing system. The bread is
processed through two departments - Mixing
Department and Baking Department. The flow
of cost through mixing and baking departments
for the month of July has been shown by the
following work in process T-accounts:

Strategic Cost Management Handout #1 - Job order costing, process costing, losses, and units due