PROCESS

COSTING
JOHN G. PAGADDUT, CPA, LPT, MSA
Learning Outcomes
1. define process costing,

2. identify the types of process costing

3. discuss how process costing works

4. differentiate weighted average from FIFO process costing

5. solve problems about process costing by applying concepts

applicable thereto
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PROCESS COSTING

the costing method by which costs are accumulated by

process and are allocated to resulting outputs

appropriately utilized by firms that manufacture hugely

volominous homogenous products
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PROCESS COSTING
examples: since the cements or the
sugars undergo similar
processes,
companies producing one bag of cement is
a. cement identical to another bag
b. paint of cement in terms of
c. sugar a. content
b. cost
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PROCESS COSTING

sequential
types
parallel
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PROCESS COSTING: Sequential
direct materials
direct labor Process 1
overhead WIP

Process 2
WIP

Process 3

*WIP :Work in process

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PROCESS COSTING: Parallel
WIP

Process 1
direct materials
Process 3
direct labor
overhead
Process 2
WIP

*WIP :Work in process

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T-Account
materials Work in Work in
Process Process
Process 1 Process 2

labor

finished
overhead Cost of
goods
goods Sold

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PROCESS COSTING
PRODUCTION REPORT

accounts for the units and costs that are

a. transferred into the process
b. transferred out from the process

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PROCESS COSTING
Steps in Preparing the PRODUCTION REPORT

1. analysing the flow of physical units

2. calculating the equivalent units
3. computing cost of the units
4. valuing the inventories
5. reconciling the cost
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PROCESS COSTING

units to account units accounted

for for
100 100
units units

Process
P10,000 P10,000

costs to account costs accounted

for for
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PROCESS COSTING
challenges
How to account for ending
inventories in process?

How to account for

beginning inventories
received from prior process?
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PROCESS COSTING

How to account for ending inventory in process?

Equivalent The number of outputs

that should have been
Units of produced had all units
Production are completely done.
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PROCESS COSTING

Equivalent =
Units of
Production 2 units completed 2 equivalent units

example

there are two units to be

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produced in one process.
PROCESS COSTING

Equivalent =
Units of
Production 2 units, 50% completed 1 equivalent unit

example

there are two units to be

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produced in one process.
PROCESS COSTING

How to account for beginning inventories received?

Weighted First In,

Average First Out
Method (FIFO) Pagaddut,2020
PROCESS COSTING

weighted
average mixes the costs of the
method beginning inventory
with the costs of the
current period units
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PROCESS COSTING

First In, units first received are

First Out firstly processed
(FIFO)
separates the costs of the
beginning inventory from the
costs of the current period units
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WEIGHTED AVERAGE METHOD

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 physical units = equivalent units
Weighted Average
Beginning Work in
BWIP, 50% June Process
complete Cost
2,500 22,500

100%
= 1

Units Started and

Finished

P 25,000
= 4

100%

Pagaddut,2020 5
Weighted Average
Cost Assignment

Cost per Unit = P25,000 / 5 units = P5,000

Transferred Out (P5,000 x 5 units) = P25,000

Ending Work in Process = P 0
Total Cost Assigned = P 25,000
Pagaddut,2020
 physical units = equivalent units
Weighted Average
Beginning Work in
BWIP, 50% June Process
complete Cost
2,500 22,500
100%
= 1
Units Started and
Finished

= 2
100%
P 25,000
Ending Work in
Process

= 1
50%
Pagaddut,2020 4
Weighted Average
Cost Assignment

Cost per Unit = P25,000 / 4 units = P6,250

Transferred Out (P6,250 x 3 units) = P18,750

Ending Work in Process ( P6,250 x 1 unit) = P 6,250
Total Cost Assigned = P 25,000
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 Weighted Average Physical Flow Schedule

Units to Account for

Units in beginning work in process 1
Units started during the period 4
Units to Account for 5

Units Accounted for

Units from beginning work in process 1
Units completed and transferred out 3
Units in ending work in process 1
Pagaddut,2020 Total Units Accounted for 5
FIRST IN, FIRST OUT METHOD
 physical units = equivalent units
FIFO
BWIP, 50% June Beginning Work in
complete 22,500 Cost
Process

2,500
= 0.5
100%
Units Started and
Finished

= 4
BWIP June
Units Units 100%

Pagaddut,2020 4.5
First In, First Out
Cost Assignment

Cost per Unit = P22,500 / 4.5 units = P5,000

Beginning WIP = P 2,500

Completed BWIP (5,000 x .5) = P 2,500
Transferred Out (P5,000 x 4 units) = P20,000
Ending Work in Process = P 0
Total Cost Assigned = P 25,000
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 physical units = equivalent units
First In, First Out
BWIP, 50% Beginning Work in
complete June Process
22,500
Cost
2,500
100%
= 0.5
Units Started and
Finished

= 2
100%

Ending Work in
Process
BWIP June
Units Units
50%
= 1
Pagaddut,2020 3.5
First In, First Out
Cost Assignment

Cost per Unit = P22,500 / 3.5 units = P6,429

Beginning WIP = P 2,500

Completed BWIP (6,429 x .5 unit) = P 3,215
Transferred Out (P6,429 x 2 units) = P12,858
Ending Work in Process (P6,429 x 1 unit) = P 6,429
Total Cost Assigned = P 25,000
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 Thank you.

Pagaddut,2020
Assessment Tasks
1. Define process costing.

2. Enumerate the two types of process costing.

3. Synthesize how process costing works.

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Assessment Tasks
4.a
In a certain process, the units totally completed are
100,000.

However, there are 50,000 units that 30% partially

completed.

How many equivalent units are there?

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Assessment Tasks
4.b
Requirements:
a. craft a physical flow schedule
b. create a schedule of equivalent units
c. calculate the cost per equivalent unit
d. calculate the cost of goods transferred out and the
cost of ending work in process
e. generate a cost reconciliation
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 Assessment Tasks
Given:
Units completed
beginning WIP, July 1 50,000 kilos
and transferred out: 185,000 kilos
conversion costs - 40% complete
materials P10,000
labor 5,000 costs added during the month
overhead 15,000 materials P105,500
labor 50,000
ending WIP, July 31 25,000 kilos
overhead 135,000
conversion costs - 60% complete
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