Chapter 3 Process Costing

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Chapter 3Process Costing
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Job-Order v. Process Costing

• Job-Order Costing
• Many jobs are worked on during each period, with
  each job having different production
  requirements.
• Costs are accumulated by job.
• The job cost sheet is the key document for
  accumulating costs.
• Units costs are computed by job on a job cost
  sheet.

• Process Costing
• A homogeneous product is produced on a continuous
  basis or for long periods of time.
• Costs are accumulated by department.
• The departmental production report is the key
  document showing the accumulation and disposition
  of costs.
• Unit costs are computed by department on
  production reports.

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Problem Information
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Problem Information (Continued)
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Calculation of Equivalent Units
Beginning Work-in-Process Inventory

XXX
Physical Units
X
100
Started and Completed in Current Period
Physical Units X 100
XXX
Ending Work-in-Process Inventory
Percent of work completed in the current period
Physical Units X
XXX

XXX
Equivalent Units of Production
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Equivalent Units Illustration - Mixing
Materials
Conversion Costs
Beginning WIP
Beginning WIP
10,000 x
100 10,000
10,000 x
100 10,000
Started Completed
Started Completed
50,000 x
100 50,000
50,000 x
100 50,000
Ending WIP
Ending WIP
20,000 x
100 20,000
20,000 x
50 10,000
Equivalent Units
80,000
70,000
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Equivalent Units Illustration Mixing
(alternative approach)
Materials
Conversion Costs
Units Completed
Units Completed
60,000 x
100 60,000
60,000 x
100 60,000
Ending WIP
Ending WIP
20,000 x
100 20,000
20,000 x
50 10,000
Equivalent Units
80,000
70,000
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Cost Per Equivalent Unit (EU) of Production
Production Cost for Component (include costs
carried forward from beginning WIP)
Equivalent Units of Production for Component

Equivalent Unit Cost for Component
Note Equivalent units and cost per equivalent
unit are often computed for direct materials and
conversion costs (direct labor manufacturing
overhead). Conversion costs may also be
calculated separately.
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Cost Per Equivalent Unit Illustration - Mixing
Materials
Conversion
18,000 142,000
31,200 248,800
4.00


2.00
80,000 EU
70,000 EU
Total Equivalent Unit Cost
Materials 2.00
Conversion 4.00
6.00
Total EU Cost
See Direct Material, DL, MOH Journal Entries on
Page 84
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Costs Accounted For
Transferred Out
Transferred Out EU x Cost Per EU
XXX
Cost in Ending Work-in-Process Inventory
Ending WIP EU x Cost Per EU
XXX
XXX
Note Total cost is computed for direct materials
and conversion costs (direct labor
manufacturing overhead). Conversion costs may
also be calculated separately.
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Costs Accounted For Illustration - Mixing
Transferred Out
360,000
60,000 EU x 6.00
Cost in Ending Work-in-Process Inventory
40,000
Materials 20,000 EU x 2.00
Conversion 10,000 EU x 4.00
40,000
80,000
440,000
Total Cost
See Transferred In Journal Entry on Page 84
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Equivalent Units Illustration - Packaging
Materials
Conversion Costs
Beginning WIP
Beginning WIP
15,000 x
100 15,000
15,000 x
100 15,000
Started Completed
Started Completed
55,000 x
100 55,000
55,000 x
100 55,000
Ending WIP
Ending WIP
5,000 x
100 5,000
5,000 x
40 2,000
Equivalent Units
75,000
72,000
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Equivalent Units Illustration Packaging
(alternative approach)
Materials and Transferred In
Conversion Costs
Units Completed (includes 60,000 transferred in
from Mixing)
Units Completed (includes 60,000 transferred in
from Mixing)
70,000 x
100 70,000
70,000 x
100 70,000
Ending WIP
Ending WIP
5,000 x
100 5,000
5,000 x
40 2,000
Equivalent Units
75,000
72,000
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Cost Per Equivalent Unit Illustration - Packaging
Materials
Conversion
10,500 49,500

0.80
75,000 EU
13,500 83,700
1.35

Transferred In
72,000 EU
92,250 360,000

6.03
75,000 EU
Total Equivalent Unit Cost
Materials 0.80
Transferred In 6.03
Conversion 1.35
8.18
Total EU Cost
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Costs Accounted For Illustration - Packaging
Transferred Out
572,600
70,000 EU x 8.18
Cost in Ending Work-in-Process Inventory
34,150
Materials 5,000 EU x 6.83
Conversion 2,000 EU x 1.35
2,700
36,850
609,450
Total Cost
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Production Report Format
Quantity Schedule and Equivalent Units
Units to be accounted for
Beginning work in process
Started into production
Units accounted for (compute equivalent units)
Transferred out (from beginning WIP started
completed)
Ending work in process
Total and Unit Cost
Costs to account for
Beginning work in process
Started into production
Cost Reconciliation
Costs accounted for
Transferred out (from beginning WIP started
completed)
Ending work in process