ACCT 2102

Principles of Management Accounting

Semester 2, 2020
Lecture 7
Costing Systems: Process Costing

Reading: Horngren Ch. 17

CRICOS code 00025B

ACCT2102 COURSE STRUCTURE

Part 1: Introduction to
Managerial & Cost Part 2: Costing Part 3: Relevant Part 4: Planning and
Accounting Systems Costing Control

• Lecture 1: • Lecture 3: Job • Lecture 8: Decision • Lecture 9: Master

Introduction to Costing making and relevant Budget and
Management • Lecture 4: Cost costing Responsibility
Accounting including System Refinement Accounting
cost terms • Lecture 5: Activity • Lecture 10: Flexible
• Lecture 2: Cost Based Costing Budgets, Direct Cost
Behaviours and • Lecture 6: Case Variances &
CVP Analysis Study Lecture Management
Control
• Lecture 7: Process
Costing • Lecture 11: Flexible
Budgets, Indirect
Cost Variances &
Management
Control
• Lecture 12: Revision

CRICOS code 00025B 2

Lecture Objectives

By the end of this lecture you should be able to:

1. Explain differences between job costing and process costing.

2. Understand the features of process costing.

3. Understand the five-step approach to process costing.

4. Use and compare the Weighted Average and FIFO (first in first
out methods).

CRICOS code 00025B 3

1. Explain differences between job costing and process costing.

There is a ‘Continuum of Costing Systems’ used to determine product

costs…

• Many units of a single, homogeneous

product flow evenly through a continuous
production process.
• One unit of product is indistinguishable
Process Job
from any other unit of product. Costing Costing
• Each unit of product is assigned the
same average cost.

[Presentation Title] | [Date] CRICOS code 00025B 4

1. Explain differences between job costing and process costing.

The nature of a process cost environment:

Direct
Materials

Manufacturing
Overhead Due to the nature of the
process direct labour costs
may be small in comparison to
Direct other product costs in process
Labour cost systems.

Type of Product Cost

5
1. Explain differences between job costing and process costing.

So, direct labour and manufacturing overhead are often combined into one
product cost called conversion:

Direct
Materials

Conversion

Product costs of a single

department process will consist
of Direct Materials (one or
more) and Conversion costs

Type of Product Cost

6
1. Explain differences between job costing and process costing.

Job Costing
Costs are traced and applied to
individual jobs in a job cost system.
Cost Object = Job
Direct Each Job Cost sheet forms the
materials subsidiary ledger of WIP Control A/c

Direct
Jobs Finished Goods
labour

Manufacturing
overhead Cost of Goods Sold
1. Explain differences between job costing and process costing.

Process Costing Costs are traced and allocated to

departments in a process cost
system and averaged to unit costs.
Cost Object =
Direct Process/Department
materials

Direct Processing
Department Finished Goods
labour

Manufacturing
overhead Cost of Goods Sold

Each department has its own (separate) WIP A/c

1. Explain differences between job costing and process costing.

Similarities: Differences:
1. Cost Classification (DM, DL & OH; though 1. Cost Object (Processing Department not
DL+OH referred to as CC) Job)
2. System Objectives (Purpose? Product cost 2. Cost Accumulation Method (more
for inventory valuation) averaging than tracing)
3. Recording Cash Flows (WIP→ FG→ COGS)
4. Provide “useful information” for decision
making
2. Understand the features of process costing: process cost flows and average unit costs.

Process Costing is an average costing system

In its simplest form (for each process or department each month):

Cost/Unit = Mfg Costs for the period

# of units produced in the period
(If all units are started and completed in a period)

Complications:
— Partially processed units in WIP at end of period
Problem? No whole number of units.
Solution - the equivalent units concept

— Manufacturing costs may not be added uniformly (e.g., direct materials are usually added at discrete
points in time, but labour and overhead are assumed to be added uniformly across the process)
Problem? Not all costs are incurred in at the same time.
Solution - calculate an equivalent unit cost for each manufacturing cost element

CRICOS code 00025B

2. Understand the features of process costing: process cost flows and average unit costs.

Consider: What does the process look like? When are materials added? Is there more than one material?
Is conversion cost added uniformly?

Production output and cost is determined by Dep’t (Process)

For this we need:

- Periodic (monthly) production statistics including the:
- Units ‘in process’ at the start of the period & their degree of completion
- Units started in the period
- Units completed in the period,
- Units remaining ‘in process’ at end of period & their degree of completion

- Costs of the process for the period: Direct Material(s), Labour and Manufacturing OH (conversion costs)

-This data is used to calculate: Equivalent units and Equivalent unit costs
2. Understand the features of process costing: process cost flows and average unit costs.

EQUIVALENT UNITS

Definition: Equivalent Units (EU) are the number of (whole) units which could have been
completed if all production effort had been used to produce fully complete units.

Concept:

If it is assumed that all units produced receive equal amounts of materials & conversion (DL +
Overhead) effort, it’s possible to treat as equivalent the amount of effort used to:

1. Start & Complete 10 units (10*100%), or

2. Produce 100 units, each to the 10% stage of completion (100*10%)
 Quick check 1 - Equivalent Units

For the current period, Bearings Ltd started the

manufacture of 15,000 units and completed 10,000
units, leaving 5,000 units in process 30 percent
complete. How many equivalent units of production
did Bearings have for the period?
a. 10,000
b. 11,500
c. 13,500
d. 15,000

CRICOS code 00025B

 Quick check 1 - Equivalent Units

For the current period, Bearings Ltd started the

manufacture of 15,000 units and completed 10,000
units, leaving 5,000 units in process 30 percent
complete. How many equivalent units of production
did Bearings have for the period?
a. 10,000
b. 11,500
c. 13,500
d. 15,000

CRICOS code 00025B

2. Understand the features of process costing: process cost flows and average unit costs.

How Many EU Calculations?

For each different cost in the process. At least - DM & Conversion Costs (CC)

To calculate the cost per equivalent unit for the period for each different cost flow:

Cost per Costs of the item (e.g.DM) for the period

equivalent = Equivalent units of the item used in production
unit for the period
2. Understand the features of process costing: process cost flows and average unit costs.

Assumptions about cost incurrence:

- DM are added at a particular point in time

(if not specified, assume the beginning of the process)

- CC added uniformly throughout the process

2. Understand the features of process costing: process cost flows and average unit costs.
Materials are typically added at discrete points in a process if added at:

0% 100%
DM
• Beginning of the process
- all units started in a period receive an EU of that material

• Completion of the process

- only units completed during the period will receive the EU of that material DM
(e.g., a wrapper)

• During the process

- assess whether the units have passed the point of addition
DM
e.g., if material is added at the 50% stage and WIP is 40% complete, then no materials
will be added;

BUT - if units in WIP are 55% complete, each unit will receive a full unit of that material
2. Understand the features of process costing: process cost flows and average unit costs.

• Unless indicated otherwise, Conversion Costs (CC) are assumed to be added uniformly
throughout the production process

If WIP is 10% complete = 10% costs added;

If WIP is 40% complete = 40% costs added…

• Labour and Overhead can be allocated to production separately

e.g., where OH is driven by machine hours used, rather than direct labour hours.
(Overhead is always assumed to be added uniformly)
2. Understand the features of process costing: process cost flows and average unit costs.

Illustration: EU calculation
For a process at 30 June, you identify the following:
1,000 units finished
500 units partially complete (3/5) ie., WIP1

1500 units 100%

started
DM1 DM2 DM3
60|%

1000 units
500 units

1. DM1 added at beginning

2. DM2 added half way
3. DM3 added at the end of the process
4. CC added uniformly.
2. Understand the features of process costing: process cost flows and average unit costs.

1. DM added at the beginning

WIP1 100%
DM1 60%

Started 1500
1000 units
units
500 units

Equivalent Unit Calculations

(1) (2) (3) (4)

FG 1000
WIP1 500
1500

Note: no EU adjustment for materials unless told added uniformly

2. Understand the features of process costing: process cost flows and average unit costs.

2. DM added at halfway (50% stage)

DM2 WIP1
100%
60%
50%
Started 1500
units 1000 units
500 units

Equivalent Unit Calculations

(1) (2) (3) (4)

FG 1000 1000
WIP1 500 500
1500 1500

Note: no EU adjustment for materials unless told added uniformly

2. Understand the features of process costing: process cost flows and average unit costs.

DM3

3. DM added at the end

60%
100%
WIP1

Started 1500
units 1000 units
500 units

Equivalent Unit Calculations

(1) (2) (3) (4)

FG 1000 1000 1000

WIP1 500 500 0
1500 1500 1000

Note: no EU adjustment for materials unless told added uniformly

2. Understand the features of process costing: process cost flows and average unit costs.

4. CC added uniformly
WIP1

60% 100%
Started 1500
units 1000 units
500 units

Equivalent Unit Calculations

(1) (2) (3) (4)

FG 1000 1000 1000 1000

WIP1 500 500 0 300 500* .6
1500 1500 1000 1300

Note: EU adjustment for partially complete units with respect to their CC – not needed for
complete units.
2. Understand the features of process costing: process cost flows and average unit costs.

How is this information accumulated and unit cost calculated?

Shows the flow Provides cost

of units and costs information for
through work in financial
process statements

Cost of
Production
Report

Becomes the
Helps managers
job cost sheet
control their
in process
departments
costing
3. Understand the five step approach to process costing.

Use Horngren’s 5 step approach:

(Section 1)

1. Understand the physical process -

- when are materials added?
- is conversion uniform?
- what are the production statistics for the period?

SECTION
1
2. Convert production to Equivalent Units
- how many separate EU calculations are needed?
- whole units need no conversion to EU
- incomplete (partially processed) units require EU adjustment

CRICOS code 00025B

3. Understand the five step approach to process costing.

3. What costs have been charged to the process for each of the inputs?
What debits have been made to the (Process) WIP A/c for the period?

SECTION
2 4. Calculate the EU cost for each of the inputs and then the EU cost per
whole unit
(At least 2 calculations: DM + CC)

5. Apply/allocate the EU costs to:

SECTION
3 - Units Completed & transferred out
- Units in closing WIP

26
 Lecture example 1 – No opening WIP

A chemical process incurred $37,600 of production costs during its first month of
operations. Materials costing $22,000 were introduced at the start of
processing, and conversion costs of $15,600 were incurred uniformly throughout
the production cycle.

Of the 40,000 units of product started, 38,000 were completed, and 2,000 were
still in process at the end of the month, averaging one-half complete.

Required:
1. In step-by-step fashion, prepare a Cost of Production Report showing the
cost of goods completed and transferred out and cost of ending Work in
Process.
2. Prepare the journal entries necessary to record the costs incurred and the
transfer of the completed units.

27
 Journal Entries - Lecture example 1

} WIP - Chem Process (Dr) 37600

Materials Control (Cr) 22000
Wages Payable & O/H Alloc (Cr) 15600
(Costs placed into the process this period)

} Finished Goods (Dr) 36100

WIP - Chem Process (Cr) 36100
(Transfer the COGM to FG)

Note: In this example there were no WIP opening inventories.

28
4. Use and compare the Weighted Average and FIFO (first in first out methods) of process
costing for single departments and sequential departments.

Inventory cost flow assumptions - Weighted average or FIFO

- Weighted Average calculates the cost per unit of work done to date in the process (regardless of the
accounting period in which the work was started or when the costs were incurred)

- FIFO separates any work started in a prior period and the related costs from work done on units in this
period (last periods costs are attached to opening WIP of this period and these are assumed to be the first
units to be completed)

Only an issue when opening WIP exists. Why?

- Only WIP0 has prior period costs and prior period work done But requires current period work and
costs to complete

CRICOS code 00025B 29

A slightly more complicated Example –
with both opening and closing WIP

Double Diamond Ski’s (DDS) uses

process costing to determine unit costs
in its Shaping and Milling Department.
DDS uses the weighted average
inventory method.
Using the following information for
the month of May, prepare a Cost of
Production Report for Shaping and
Milling.

CRICOS code 00025B 30

 Double Diamond Ski’s Example

Work in process, May 1: 200 units

Materials: 100% complete $ 3,000
Conversion: 30% complete $ 1,000

Units started into production in May: 5,000

Units completed and transferred out in May: 4,800

Costs added to production in May

Materials cost $74,000
Conversion cost $70,000

Work in process, May 31: ?? units

Materials: 100% complete $?
Conversion: 25% complete $?
CRICOS code 00025B
 Double Diamond Ski’s Example

Section 1: Quantity Schedule with Equivalent Units

Physical Flow

Work in process, May 1 200

Started into production 5,000
Units to account for 5,200

Equivalent units
Materials Conversion
Units accounted for as follows:
Completed and transferred 4,800 4,800 4,800
Work in process, May 31 400

5,200
CRICOS code 00025B
 Double Diamond Ski’s Example cont.

Section 1: Quantity Schedule with Equivalent Units

Units to be accounted for:

Work in process, May 1 200
Started into production 5,000
Total units 5,200

Equivalent units
Materials Conversion
Units accounted for as follows:
Completed and transferred 4,800 4,800 4,800
Work in process, May 31 400
Materials 100% complete 400

5,200 5,200
CRICOS code 00025B
 Double Diamond Ski’s Example cont.

Section 1: Quantity Schedule with Equivalent Units

Units to be accounted for:

Work in process, May 1 200
Units started 5,000
Total units 5,200

Equivalent units
Materials Conversion
Units accounted for as follows:
Completed & transferred out 4,800 4,800 4,800
Work in process, May 31 400
Materials 100% complete 400
Conversion 25% complete 100
5,200 5,200 4,900
CRICOS code 00025B
 Double Diamond Ski’s Example cont.

Section 2: Compute cost per equivalent unit

Total
Cost Materials Conversion

Work in process, May 1 $ 4,000 $ 3,000 $ 1,000

Costs added in the Shipping
and Milling Department 144,000 74,000 70,000
Total cost to account for $ 148,000 $ 77,000 $ 71,000

Equivalent units 5,200 4,900

CRICOS code 00025B

 Double Diamond Ski’s Example cont.

Section 2: Compute cost per equivalent unit

Total
Cost Materials Conversion
Cost to be accounted for:
Work in process, May 1 $ 4,000 $ 3,000 $ 1,000
Costs added in the Shipping
and Milling Department 144,000 74,000 70,000
Total cost $ 148,000 $ 77,000 $ 71,000

Equivalent units 5,200 4,900

Cost per equivalent unit $ 14.808

$77,000 ÷ 5,200 units =CRICOS

$14.808
code 00025B (rounded)
 Double Diamond Ski’s Example cont.

Section 2: Compute cost per equivalent unit

Total
Cost Materials Conversion
Cost to be accounted for:
Work in process, May 1 $ 4,000 $ 3,000 $ 1,000
Costs added in the Shipping
and Milling Department 144,000 74,000 70,000
Total cost $ 148,000 $ 77,000 $ 71,000

Equivalent units 5,200 4,900

Cost per equivalent unit $29.298 $ 14.808 $ 14.490
Total cost per equivalent unit = $14.808 + $14.490 = $29.298

$71,000 ÷ 4,900 units = CRICOS

$14.490
code 00025B (rounded)
 Double Diamond Ski’s Example cont.

Section 3: Cost allocation/assignment

Total EU and EU Costs

4,800 units @ $29.298 Cost Mat - $14.808 CC - $14.49
Cost accounted for as follows:
Transferred out during May $ 140,630 4800*(14.808+14.49)
Work in process, May 31:
Materials
Conversion
Total work in process, May 31
Total cost accounted for

CRICOS code 00025B

 Double Diamond Ski’s Example cont.

Section 3: Cost allocation/assignment

Total EU and EU Costs

400 units @ $14.808 Cost Mat - $14.808 CC - $14.49
Cost accounted for as follows:
Transferred out during May $ 140,630 4800*(14.808+ 14.49)
Work in process, May 31:
Materials 5,923 400*14.808
Conversion 1,449 100*14.49
Total work in process, May 31 7,372
Total cost accounted for $ 148,002

100 units @ $14.49

CRICOS code 00025B
 Quick check 2 - Wtd Avg EU
Under the weighted average method of process costing, the
stage of completion of beginning WIP:

a. is relevant in determining the equivalent units used to calculate

EU cost
b. must be combined with the work done during the current
period to determine the equivalent units used to calculate EU
cost
c. is irrelevant in determining the equivalent unit calculation used
to calculate EU cost
d. can almost always be determined with a high degree of
precision

CRICOS code 00025B

 Quick check 2 - Wtd Avg EU
Under the weighted average method of process costing, the
stage of completion of beginning WIP:

a. is relevant in determining the equivalent units used to calculate

EU cost
b. must be combined with the work done during the current
period to determine the equivalent units used to calculate EU
cost
c. is irrelevant in determining the equivalent unit calculation used
to calculate EU cost
d. can almost always be determined with a high degree of
precision

CRICOS code 00025B

 … think of how the materials are used at DDS under weighted average….

5,000 Units started end up

Materials
as:

Beginning
Work in Process Ending Work in Process
200 Units 4,600 Units Started 400 Units
100% Complete as to Materials and Completed 100% Complete as to
Materials
Completed units
Wtd Avg
Approach 4,800 Units Completed 400 × 100%
400 Equivalent Units
5,200 Equivalent units
of production
 … and…

5,000 Units started end up

Conversion
as:

Beginning
Work in Process Ending Work in Process
200 Units 4,600 Units Started 400 Units
30% Complete as to CC and Completed 25% Complete as to
Materials
Completed units
Wtd Avg Weighted avg ignores the opening WIP
Approach 4,800 Units Completed
400 × 25%
100 Equivalent Units
4,900 Equivalent units
of production
4. Use and compare the Weighted Average and FIFO (first in first out methods) of
process costing for single departments and sequential departments.

FIFO Inventory Method

FIFO assumes costs in opening WIP are the first units to be transferred out as
completed units in the period
BUT
Work done & related costs from the prior period are kept separate from that done in the
current period.

To calculate EU and EU costs:

Cost / EU of each input = Current Period Costs

Current Period EU
4. Use and compare the Weighted Average and FIFO (first in first out methods) of
process costing for single departments and sequential departments.

FIFO - The 5 Steps

Step 1 Understand the process - Same

Step 2 Convert to EU - Different - Only consider current period work done on

DM & CC

Step 3 Costs - Different - Only consider current period costs

Step 4 EU Cost - Different - Current Costs / Current EU

Step 5 Application Of Costs - Different - Opening WIP is first to be transferred out

+ costs to complete these units, then units started & completed are costed, and
finally Closing WIP is costed based on the amount of work that has been done.
 FIFO Approach
… think of how the materials are used at DDS….

5,000 Units started end up

Materials
as:

Beginning
Work in Process 4,600 Units Started Ending Work in Process
200 Units 400 Units
100% Complete as to Materials and Completed
100% Complete as to
(last month)
Materials
Requires no DM Completed units

0 to complete WIP0
4,600 Started & Completed 400 × 100%
400 Equivalent Units in WIP1
5,000 Equivalent units of production
 FIFO Approach
and..

Conversion 5,000 Units started end up as:

Beginning
Work in Process 4,600 Units Started Ending Work in Process
200 Units 400 Units
30% Complete as to CC and Completed
25% Complete as to CC

Requires 200 x 70% Completed units

140 to complete WIP0

4,600 Started & Completed
400 × 25%
100 Equivalent Units in WIP1
4,840 Equivalent units of production
 Double Diamond Ski’s Example using FIFO

Section 1: Quantity Schedule with Equivalent Units

Physical Flow

Work in process, May 1 200

Units started 5,000
Units to account for 5,200

Equivalent units
Materials Conversion
Units accounted for as follows:
Completed & transferred out
- from WIP 0 200 140
- from Units started 4,600 4,600 4,600
Work in process, May 31 400 400 100

5,200 5,000 4,840

CRICOS code 00025B
 Double Diamond Ski’s Example using FIFO cont.

Section 2: Compute cost per equivalent unit

Total
Cost Materials Conversion
Cost to be accounted for:
Work in process, May 1 $ 4,000
Costs added in the Shipping
and Milling Department 144,000 74,000 70,000
Total cost $ 148,000 $ 74,000 $ 70,000

Equivalent units 5,000 4,840

Cost per equivalent unit $ 14.800

$74,000 ÷ 5,000 units =CRICOS

$14.80
code 00025B
 Double Diamond Ski’s Example using FIFO cont.

Section 2: Compute cost per equivalent unit

Total
Cost Materials Conversion
Cost to be accounted for:
Work in process, May 1 $ 4,000
Costs added in the Shipping
and Milling Department 144,000 74,000 70,000
Total cost $ 148,000 $ 74,000 $ 70,000

Equivalent units 5,000 4,840

Cost per equivalent unit $29.263 $ 14.800 $ 14.463
Total cost per equivalent unit = $14.80 + $14.463 = $29.263

$71,000 ÷ 4,900 units = CRICOS

$14.490
code 00025B (rounded)
 Double Diamond Ski’s Example using FIFO cont.

Section 3: Cost allocation/assignment

Total EU and EU Costs

Cost Mat - $14.80 CC - $14.463
Cost accounted for as follows:
Transferred out during May:
From WIP 0 $ 4,000
Add costs to complete $ 2,025 140 x $14.463
From units started $ 134,160 4600 x $29.263
Total transferred out $ 140,635
Work in process, May 31 $ 7,366 400 x $14.80 100 x $14.463

Total cost accounted for $ 148,001 Small rounding error

CRICOS code 00025B

4. Use and compare the Weighted Average and FIFO (first in first out methods) of
process costing for single departments and sequential departments.

Which inventory costing method should be used?

Weighted Average or FIFO?

Depends on cost and output fluctuation….

Why is this choice necessary under Process Costing, but not Job Costing?
 Quick check 3 - Wtd Avg EU
Top That manufactures baseball style hats. Material is introduced at the beginning of the
process in the Cutting Department. Conversion Costs are incurred uniformly. As the cutting is
completed, the pieces are immediately transferred to the Sewing Department.

Data for the Cutting Department for February follow:

WIP (Jan 31) 50,000 units (40% complete);
Costs of WIP0: DM $70,500; CC $34,050
Units started 225,000
Units completed 200,000
WIP (Feb 28) ? (20% complete)
Costs added DM $342,000; CC $352,950
Assume the weighted average method is used to account for inventories, the EU
calculations for February are:
DM CC
a. 225,000 225,000
b. 200,000 200,000
c. 275,000 215,000
d. 225,000 200,000

CRICOS code 00025B

 Quick check 3 - Wtd Avg EU
Top That manufactures baseball style hats. Material is introduced at the beginning of the
process in the Cutting Department. Conversion Costs are incurred uniformly. As the cutting is
completed, the pieces are immediately transferred to the Sewing Department.

Data for the Cutting Department for February follow:

WIP (Jan 31) 50,000 units (40% complete);
Costs of WIP0: DM $70,500; CC $34,050
Units started 225,000
Units completed 200,000
WIP (Feb 28) ? (20% complete)
Costs added DM $342,000; CC $352,950
Assume the weighted average method is used to account for inventories, the EU
calculations for February are:
DM CC
a. 225,000 225,000
b. 200,000 200,000
c. 275,000 215,000
d. 225,000 200,000

CRICOS code 00025B

 Quick check 4 - Wtd Avg EU Cost

Top That manufactures baseball style hats. Material is introduced at the beginning of the process
in the Cutting Department. Conversion Costs are incurred uniformly. As the cutting is completed,
the pieces are immediately transferred to the Sewing Department.
Data for the Cutting Department for February follow:

WIP (Jan 31) 50,000 units (40% complete);

Costs of WIP0 : DM $70,500; CC $34,050
Units started 225,000
Units completed 200,000
WIP (Feb 28) ? (20% complete)
Costs added DM $342,000; CC $352,950
Assume the weighted average method is used to account for inventories, the cost per EU for
February is:

a. $3.30
b. $3.55
c. $3.77
d. $4.00
CRICOS code 00025B
 Quick check 4 - Wtd Avg EU Cost

Top That manufactures baseball style hats. Material is introduced at the beginning of the process
in the Cutting Department. Conversion Costs are incurred uniformly. As the cutting is completed,
the pieces are immediately transferred to the Sewing Department.
Data for the Cutting Department for February follow:

WIP (Jan 31) 50,000 units (40% complete);

Costs of WIP0 : DM $70,500; CC $34,050
Units started 225,000
Units completed 200,000
WIP (Feb 28) ? (20% complete)
Costs added DM $342,000; CC $352,950
Assume the weighted average method is used to account for inventories, the cost per EU for
February is:

a. $3.30
b. $3.55
c. $3.77
d. $4.00
CRICOS code 00025B
 Quick check 5- Wtd Avg Cost of Ending WIP

Top That manufactures baseball style hats. Material is introduced at the beginning of the process
in the Cutting Department. Conversion Costs are incurred uniformly. As the cutting is completed,
the pieces are immediately transferred to the Sewing Department.
Data for the Cutting Department for February follow:

WIP (Jan 31) 50,000 units (40% complete);

Costs of WIP0: DM $70,500; CC $34,050
Units started 225,000
Units completed 200,000
WIP (Feb 28) ? (20% complete)
Costs added DM $342,000; CC $352,950
Assume the weighted average method is used to account for inventories, the cost of ending
WIP for February is:

a. $300,000
b. $266,250
c. $166,525
d. $139,500
CRICOS code 00025B
 Quick check 5- Wtd Avg Cost of Ending WIP

Top That manufactures baseball style hats. Material is introduced at the beginning of the process
in the Cutting Department. Conversion Costs are incurred uniformly. As the cutting is completed,
the pieces are immediately transferred to the Sewing Department.
Data for the Cutting Department for February follow:

WIP (Jan 31) 50,000 units (40% complete);

Costs of WIP0: DM $70,500; CC $34,050
Units started 225,000
Units completed 200,000
WIP (Feb 28) ? (20% complete)
Costs added DM $342,000; CC $352,950
Assume the weighted average method is used to account for inventories, the cost of ending
WIP for February is:

a. $300,000
b. $266,250
c. $166,525
d. $139,500
CRICOS code 00025B
 Quick check 6 - FIFO EU

Top Hat manufactures baseball style hats. Material is introduced at the beginning of the process
in the Cutting Department. Conversion Costs are incurred uniformly. As the cutting is completed,
the pieces are immediately transferred to the Sewing Department.
Data for the Cutting Department for February follow:

WIP (Jan 31) 50,000 units (40% complete);

Costs: DM $70,500; CC $34,050
Units started 225,000
Units completed 200,000
WIP (Feb 28) ? (20% complete)
Costs added DM $342,000; CC $352,950

Assuming the FIFO method is used to account for inventories, the EU of work done for
February are:
DM CC
a. 225,000 225,000
b. 200,000 195,000
c. 275,000 200,000
d. 225,000 195,000 CRICOS code 00025B
 Quick check 6 - FIFO EU

Top Hat manufactures baseball style hats. Material is introduced at the beginning of the process
in the Cutting Department. Conversion Costs are incurred uniformly. As the cutting is completed,
the pieces are immediately transferred to the Sewing Department.
Data for the Cutting Department for February follow:

WIP (Jan 31) 50,000 units (40% complete);

Costs: DM $70,500; CC $34,050
Units started 225,000
Units completed 200,000
WIP (Feb 28) ? (20% complete)
Costs added DM $342,000; CC $352,950

Assuming the FIFO method is used to account for inventories, the EU of work done for
February are:
DM CC
a. 225,000 225,000
b. 200,000 195,000
c. 275,000 200,000
d. 225,000 195,000 CRICOS code 00025B
Next lecture
Lecture 8: Decision Making – Relevant Costs

Reading: Chapter 11

CRICOS code 00025B