Key Points or Learnings:

 Process Costing is another system that manufacturing companies use to

accumulate costs, specifically when these entities produce homogenous
products. This costing system accumulates costs by product within each
department.
 Process costing assigns costs to both fully and partially completed units
by mathematically converting partially completed units to equivalent
whole units.
 To get the equivalent units of production, we add the beginning WIP
inventory at its 100% as of completion, the started and completed
inventories during the period, and the ending WIP inventory as to the
percentage of completion. (WA method)
 The equivalent units of production are considered as the number of
goods that could have been produced during a period from the actual
resources used also during that period.
 The equivalent units of production can be classified in terms of direct
materials, direct labors, and overhead or the conversion.
 If direct labor and overhead are added in a product at the same rate, we
can use a single percentage of completion to assign in the conversion
part.
 There are six (6) steps in process costing and these are the following:

1) Calculate the physical units to account for.

Formula:

Units to Account For = Units in Beginning WIP Inventory

+ Units started during the period

2) Calculate the physical units accounted for.

Formula:

Units Accounted For = Units completed and transferred

out + Units in ending WIP Inventory

3) Calculate the equivalent units of production.

 Formula:

EUP = Units in Beginning WIP Inventory + Units started

and completed during the period + Units in Ending WIP
Inventory

4) Calculate the total cost to account for

Formula:

Cost to Account For = Costs of Beginning WIP Inventory

+ Cost of current period

5) Calculate the cost per equivalent unit of production

Formula using WA:

Cost per EUP = Total cost to account for / Equivalent

units of production

Formula using FIFO:

Cost per EUP = Current period costs / Equivalent Units

of Production

6) Assign the costs to inventory accounts

- Transferred Out
- Ending WIP Inventory

Formula:

Total Cost to Account For = Total Cost of Units

Transferred Out + Total Cost of Ending WIP Inventory

 There are two methods used in Process Costing – the Weighted Average
Method and the First-in, First-out Method (FIFO).
 In using the Weighted Average method, a single average costs per unit of
both beginning WIP Inventory and current period production is
computed.
 On the other hand, the FIFO method ignores the beginning WIP
inventory in terms of the work done in the prior period and also with the
costs incurred in that period. Thus, using the FIFO method, we solely
focus on the current period costs.
 Note that the direct materials of the units in beginning WIP inventory is
zero out or multiplied to 0% in step 4 or in calculating the equivalent
units of production in FIFO method. Furthermore, the EUP in direct
labor and overhead or conversion is computed as to the percentage of
completion in the current period.
 FIFO method assumes that the units in beginning WIP inventory are the
first units completed during the period, thus they are the first units to be
transferred out.

NOTE: I used bullet form summary to easily understand the topic.