PROCESS COSTING

Cost of Production Report

Lost Unit Calculations

Chapter 6
Characteristics of Process Costing
1. A cost of production report is used to collect ,
summarize, and compute total and unit costs.
2. Production is accumulated and reported by departments.
3. Costs are posted to departmental work in process
accounts.
4. Production in process at the end of the period is restated
in terms of completed units.
5. Total cost charged to a department is divided by total
computed production of the department in order to
determine a unit cost for a specific period.
6. Costs of completed units of a department are transferred
to the next processing department in order to arrive at
the total costs of the finished products during a period.
At the same time, costs are assigned to units still in
process.
Procedures of Process Costing
1. Accumulate materials, labor and factory
overhead costs by departments.
2. Determine a unit cost for each department.
3. Transfer costs from one department to the
next and to finished goods.
4. Assign costs to the inventory of work still in
process.
Product flow
 Sequential Product Flow

 Parallel Product Flow

 Selective Product Flow

Procedures for Materials Costs
Work in process – dept. 1 24,500
Materials 24,500

Work in process – dept. 2 10,500

Materials 10,500
Procedures for Labor Costs
Work in process – dept. 1 29,140
Work in process – dept. 2 37,310
Work in process – dept. 3 32,400
Payroll payable 98,850
Procedures for Factory Overhead Costs
Work in process – dept. 1 28,200
Work in process – dept. 2 32,800
Work in process – dept. 3 19,800
Applied Factory Overhead 80,800
Cost of Production Report
 Departmental cost of production report shows all
costs chargeable to a department.
 A cost of production report shows:
1. Total and unit costs transferred to it from a preceding
department;
2. Materials, labor and factory overhead added by the
department;
3. Unit costs added by the department;
4. Total and unit costs accumulated to the end of
operations in the department;
5. The cost of beginning and ending work in process
inventories; and
6. Cost transferred to a succeeding department or to a
finished goods storeroom.
Cost of Production Report
Department 1
Work in process – testing dept. 77,400
Work in process – blending dept. 77,400
Cost of Production Report
Department 2
Work in process – terminal dept. 140,400
Work in process – testing dept. 140,400
Cost of Production Report
Department 3
Finished Goods 176,750
Work in process – terminal dept. 176,750