BSA 2202 Strategic Cost Management Procedure in Process Costing

Procedure in PROCESS COSTING

(Assignment of costs to Inventories using FIFO and Weighted Average)

1. Determine the Physical Flow (units):

FIFO WEIGHTED AVERAGE
Beginning Beginning Transferred Out
Started and Completed
Units Started Ending Ending
Units to Account for Units Accounted for
should be equal

2. Determine the Equivalent Units of Production (EUP)

(if Weighted Average)
Direct Materials Conversion Costs
Beginning (whole units) xx xx
Started and Completed (*100%) x x xx
End (* GIVEN% completed) xx xx
EUP xx xx

(if FIFO)
Direct Materials Conversion Costs
Beginning 0 xx (% completed during the period)
Started and Completed (100%) x x xx
End (% completed) xx xx
EUP xx xx

3. Determine the Total Cost to Account for

Beginning inventory costs + Current period costs = Total Cost to Account for

4. Calculate the Cost per EUP (step3/step2)

(if Weighted Average)
Direct Materials + Conversion Costs = Total
Beginning inventory costs xx xx xx
Current costs xx xx xx
Total Costs xx xx xx
Divided by EUP (step 2) xx xx xx
Cost per EUP xx xx xx

(if FIFO)
Direct Materials + Conversion Costs = Total
Current costs xx xx xx
Divided by EUP (step 2) xx xx xx
Cost per EUP xx xx xx

5. Assign costs to Transferred out (Cost of Goods Manufactured) and Ending Inventory
(if Weighted Average)
Assign costs using cost per EUP to Transferred out and Inventories
(if FIFO)
Assign costs first to beginning inventory (together with the costs incurred during the period attributable to the
beginning inventory) then add the Started and Completed (direct manufacturing costs) to get the balance of
Transferred Out (cost of goods manufactured). Assign costs to ending inventory using cost per EUP.
Step5 should be equal to step 3
BSA 2202 Strategic Cost Management Procedure in Process Costing

SAMPLE PROBLEMS
1. The following data were extracted from the production report of an entity:
Direct Conversion
Materials Costs
Units Started and Completed 40,000 40,000
Add: Units in beginning work in process
Percentage complete:
5,000*0% direct materials 0
5,000*50% conversion costs 2,500
Add: Units in ending work in process
Percentage complete:
10,000*100% direct materials 10,000
10,000*35% conversion costs 3,500
Equivalent units of output 50,000 46,000

Costs:
Work in process, December 1:
Direct materials 35,000
Conversion costs 10,000
Total work in process 45,000
Current costs:
Direct materials 400,000
Conversion costs 184,000
Total current costs 584,000
Required: Compute for the work in process inventory and cost of transferred-out at the end of the process using:
a. Weighted average
b. FIFO

2. Fordman Company has a product that passes through two processes: Grinding and Polishing. During December, the
Grinding Department transferred 20,000 units to the Polishing Department. The cost of the units transferred into the
second department was P40,000. Direct materials are added uniformly in the second process. Units are measured the
same way in both departments.

The second department (Polishing) had the following physical flow schedule for December:
Units to account for:
Units, beginning work in process 4,000 (40% complete)
Units started ?
Units to account for ?
Units accounted for:
Units, ending work in process 8,000 (50% complete)

Costs in beginning work in process for the Polishing Department were direct materials, P5,000; conversion costs, P6,000;
and transferred in, P8,000. Costs added during the month: direct materials, P32,000; conversion costs, P50,000; and
transferred in, P40,000.

Required: Compute the EUP and unit cost for the month using:
a. Weighted average
b. FIFO