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Chapter 4 - Costing Method - Process Costing
Chapter 4 - Costing Method - Process Costing
ACCOUNTING I
Chapter 4
Finished-Goods xxx
WIP: Production Dep’t ‘B’ xxx
Step 1 Step 2
Flow of Physical Equivalent Units
Production Units (PU) DM CC
Work in process, beginning 225
Started during current period 275
To account for 500
Completed & transferred out during the
current period……… 400 400 400
WIP, ending
(100*100%; 100*50%) 100 100 50
Accounted for 500
Work done in current period 500 450
©2003 Prentice Hall Business Publishing, 1 - 20
Saturday, December 24, 2022CostCost
Accounting
& Mgt.11/e,Acct-
Horngren/Datar/Foster
I Instructor: Kassaye Tuji
A) Weighted Average - Process Costing Method…
Calculation of Product Costs (Steps 3, 4, and 5)
T. Prod. DM CC
Costs
(Step 3)WIP, Beginning 26,100 18,000 8,100
Costs added during the current period 36,180 19,800 16,380
Costs incurred to date (costs to account for) 37,800/ Br. 24,480/
Divided by E.U of work done to date……… 500 450
Cost per EU of work done Br. 75.60 Br. 54.40
Saturday, December 24, 2022 Cost & Mgt. Acct- I Instructor: Kassaye Tuji
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B) First-In, First-Out - Process Costing Method…
Journal Entries
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Transferred-In Costs in Process Costing
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Transferred-In Costs in Process Costing…
Flow:
In our example as the Assembly Process is
completed, the department transfers the units to
its Testing Department.
Here, the units receive additional DMs, such
as packing materials for shipment, at the end
of the process.
Conversion costs are added evenly during the
Testing Department’s Process.
As units are completed in Testing, they are
immediately transferred to FG
Saturday, December 24, 2022 Cost & Mgt. Acct- I Instructor: Kassaye Tuji
Data for the Testing Dep’t for the month of March 2020
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Transferred-In Costs in Weighted Average Method
A. Transferred-In Costs & Equivalent
The Weighted Average Method Units
Flow of Physical Tran. In DM CC
Production Units Costs
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Transferred-in Costs in Weighted Average Method…
T. Prod. Tran. DMs CCs
Costs In costs
(Step 3) WIP, Beginning 51,600 33,600 00.00 18,000
Costs added in the current period 113,800 52,000 13,200 48,600
Costs incurred to date 85,600/ 13,200/ 66,600/
Divided by E.U of work done to date 640 440 600
Cost per equivalent unit of work done 133.75 30 111
Saturday, December 24, 2022 Cost & Mgt. Acct- I Instructor: Kassaye Tuji
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Transferred-in Costs in FIFO Costing Method
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Transferred-in Costs in FIFO Costing Method
T. Prod. Tran. DM CC
Costs In Cost
(Step 3)Work In Process, Beginning 51,600
Costs Added Current Period 114,280 52,480/ 13,200/ 48,600/
Divided By E.U of Work Done in Current Period 400 440 450
Costs Per E.U of Work Done in the Current Period 131.20 30 108
(Step 4) Total Costs To Account For 165,880
(Step 5) Assignment of Costs
Completed & Transferred Out (440 units)
Work In Process, Beginning (240 units) 51,600
Transferred-In Costs Added In Current Period 0 0*131.20
DM Added In Current Period (100% of 240= 240) 7,200 240*30
CC Added In Current Period (37.5% of 240 = 90) 9,720 90*108
Total From Beginning Inventory 68,520
Started and Completed (200 units) 53,840 200*131.20 200*30 200*108
Total Costs of Units Completed & Transferred 122,360
Work In Process, Ending (200 Units)
Transferred-In Costs (100% of 200= 200) 26,240 200*131.20
Direct Materials (0% of 200= 0) 0 0*30
Conversion Costs (80% of 200 = 160) 17,280 160*108
Total Work In Process, Ending 43,520
Total Costs Accounted For 165,880
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Transferred-in Costs in FIFO Costing Method
Journal Entries
Finished Goods Control 122,360
Work-In Process: Testing 122,360
(To record cost of goods completed and transferred from
Testing to finished goods)
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Operation Costing System
Operation Costing is a hybrid costing (of job order
and process) applied to batches of similar products.
An operation costing system uses work orders that
specify the needed D.M and Step-By-Step
Operations.
Work orders for each batch differ as to the
combinations of D.M and Operations to be
undergone.
Product costs are compiled for each distinct work
order which will be made up of two or more units
of a product.
Saturday, December 24, 2022 Cost & Mgt. Acct- I Instructor: Kassaye Tuji
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Operation Costing System …
For example,
Think of a furniture maker that makes;
a batch of non-reclining (unrolling) armchairs
followed by,
a batch of recliners (adjustable seat).
The recliners will require more materials (for the
reclining mechanism) and more assembly time, but
all of the non-reclining chairs will be alike, &
all of the recliners will be alike.
▓ Garment and shoe industries use a variety of styles
and qualities of fabric and leather, but
virtually (nearly) the same labor and overhead for
various products.
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Other Costing Systems
Contract costing- when a job is big and work is to be done at
site, it is known as contract.
▓ Contract costing is applicable in industries like:
Building Construction,
Bridge Construction,
Ship Building, etc.
Batch costing- In batch costing:
Productions of identical products are arranged in groups
or batches &
Costs are ascertained for each batch separately.
It shares some features of operation costing.
▓ This system is used in:
Toys,
Ready Made Garments,
Tyres & Tubes, etc.
Saturday, December 24, 2022 Cost & Mgt. Acct- I Instructor: Kassaye Tuji
End of Chapter 4