Chapter 17: Process Costing · PDF fileChapter 6: Process Costing system Page 1 of 12 Ehab Abdou (+965 97672930) Introduction: As we learn from chapter 5, There are two types of product

Chapter 6: Process Costing system

Page 1 of 12 Ehab Abdou (+965 97672930)

Introduction: As we learn from chapter 5, There are two types of product costing systems

which used in accumulating product cost in manufacturing firms. 1- Job Costing System نظام تكاليف األوامر االنتاجية

2- Process Costing System (المراحل)نظام تكاليف العمليات

The type of industry determining which system is used

Job Costing System Process Costing System

Is a product costing system in which costs are assigned to batches or job

orders of production

Accumulates the costs of a production process and assigns them to the products that comprise يشكل the

organization's output.

Assign costs to Distinct units of

product or service

assign costs to masses ( Similar units)

and compute unit cost on an Average

base

Used when the firm produce distinct

bath of production called job order

Used by companies that produce large

number of identical units

Like:

Film Production , Building House

Aircraft Manufacture

Like:

Chemicals, Microchips, Gasoline

Beer, Textiles

In This chapter we will use process costing system in determining:

1- Product cost [ cost per unit produced] 2- Cost of goods sold [ units sold * cost per unit]

3- Cost of ending inventory [ units in ending inventory * cost per unit]

Nature of process costing system: 1- there are many stages to produce the product

Cost of goods sold



Determining Product cost [Cost per unit]

The determination of product cost [total product cost] and then the cost per unit

produced depending in three cases:

Case 1: Zero beginning and Ending work in process inventory

At this case the unit cost can be averaged by dividing total cost in a given accounting

period by total units produced in that period.

Cost per unit = Total department cost .

Number of units completed and transferred out

Exercise 1

The following data extracted from Nour Co. which has a two manufacturing

departments ( Assembly and Testing ), books for the month of January 2011, show

the followings:

Physical units for January 2011

Work in process beginning inventory (Jan 1) 0 Units

Started during January 400 Units

Completed and transferred out during January 400 Units

Work in process, Ending inventory (Jan 31) 0 Units

Total Costs For January 2011

Direct material $32,000

Conversion costs $24,000

Total assembly department costs added during Jan $56,000

Requirement

1- Compute the cost per unit completed and transferred to the Testing

Department during January 2004?

Answer:

Cost per unit = Total assembly department cost .

Number of units completed and transferred

= 56,000 / 400 = $140 per unit

This case shows that: in a process costing system , unit costs can be

averaged by dividing total cost in a given accounting period by total units

produced in that period.

Because each unit is identical



Case 2: Zero Beginning But some ending work in process inventory : وفي هذه الحالة يجب إتباع خمسة خطوات وهي

1- Units to be accounts for ( Summarize the flow of physical Units )

2- Equivalent units ( Compute output in term of equivalent unit )

3- Total cost

4- Cost per equivalent unit

5- Assignments of costs

Meaning of Equivalent units: ( الوحدات المعادلة ) or ( الوحدات المتجانسة )

للوحدات غير التامة المدخالتوهي كمية المخرجات التامة التي تأخذ نفس القدر من

وحدة تامة 01يمثلها % ( 01تامة بنسبة ) وحدة غير تامة 011 : مثلا

وحدة تامة 01= 1200*.011يمثلها % ( 00تامة بنسبة ) وحدة غير تامة 011

: ومن الملحظ ( DM , C C) يجب حسابها لكل نوع من المدخالت حيث قد تختلف نسب االستفادة من Equivalent Unitsأن

مدن تكداليف % 01بينمدا تحلدل فقدل نلدب حيث قدد تحلدل الوحددات المنتجدة نلدب نلديبها كدامالم مدن المدواد

. التحويل

Exercise 2

The following data extracted from Nour Co. which has a two manufacturing

departments ( Assembly and Testing ), books for the month of February 2004, show

the followings:

Physical units for February 2004

Work in process beginning inventory (Jan 1) 0 Units

Started during January 400 Units

Completed and transferred out during January 175 Units

Work in process, Ending inventory (Jan 31) 225 Units

The 225 partially assembled units are fully processed with respect to direct

materials, an assembly department supervisor estimates that the partially assembled

units are on average 60% complete from the respective of conversion costs.

Total Costs For February 2004

Direct material $32,000

Conversion costs $18,600

Total assembly department costs added during Jan $50,600

Requirement

1- Compute the cost of goods completed and transferred to the refining

Department during February.

Note:

Degree of completion in this department

(Direct material 100% , Conversion cost 60%)



Answer:

Physical

Units

Direct

Material

Conversion

costs

1- Physical Units to account for:

Work In process, Beginning 0

+ Started During the Year 400

= Units To account for 400

2- Equivalent Units :

* Started And Completed 175 175 175

* Work In process, Ending 225 225 225*100%

135 225*60%

= Total Equivalent Unit 500 400 310

3- Total Costs:

* For Work In process, Beginning 0 0 0

* Costs Added in Current Period 50,600 32,000 18,600

= Total Cost To account for 50,600 32,000 18,600

4- cost per Equivalent unit

32,000/400= 18,600/310=

80 60

5- Assignment costs

* Started and completed (175 U)

24,500

175*80

14,000

175*60

10,500

Total cost of units completed 24,500

* Work In process, ending (225 u)

225*$80 135*$60

Total Work in process, end 26,100 18,000 8,100

= Total cost to account for 50,600

Student Notes:

1- Very important formula:

W.I.P beg

+ Started = Completed + W.I.P end



Case 3: Some beginning and some ending Work in process inventory

أو( Average Method) وفي هذه الحالة يجب اختيار طريقة من طرق تدفق التكاليف المعروفة وهي

(FIFO )

Average method costطريقة متوسط التكلفة : أوالا

جود مخزون انتاج تحت التشغيل آخر الفترة فقل نتبع نفس خطوات الحل كما في حالة و

Exercise 3-1:

At the beginning of march 2004, Nour Co. had 225 partially assembled DG-19

units in the assembly department, it started production of another 275 units in

march,2004 , data for assembly department for march are:

Physical units for march:

Work in process, beginning inventory ( March 1 ) 225 units

Direct material ( 100% completed )

Conversion costs ( 60% completed )

Started during March: 275 Units

Completed and transferred out during March 400 Units Work in process, ending inventory ( March 31 ) 100 Units

Direct material ( 100% completed )

Conversion costs ( 50% completed )

Total costs for March 2004

Work In process, beginning inventory

Direct materials ( 225 equivalent units * $80 per unit ) $18,000

Conversion costs ( 135 equivalent units * $60 per unit ) $ 8,100 $26,100

Direct material cost added during march $19,800

Conversion cost added during march $16,380

Total costs to account for $62,280



Physical

Units

Direct

Material

Conversion

costs






* Started And Completed 400 400 400

* Work In process, Ending 100 100 100*100%

50 100*50%


3- Total Costs:

* For Work In process, Beginning 26,100 18,000 8,100




37,800/500= 24,480/450=

$75.60 $54.40

5- Assignment costs

* Started and completed (225 U)

52,000

400*$75.60

30,240

400*$54.40

21,760


* Work In process, ending (225 u)

100*$75.60 50*$54.40

Total Work in process, end 10.280 7,560 2,720

= Total cost to account for 62.280



First In First Out ( FIFO)طريقة الوارد أوالَ صادر أوالا : ثانياَ

ولكن االختالف يكون في الخطوة الثانية وهي الخاصة نتبع نفس خطوات الحل كما في طريقة متوسل التكلفة

حيث يتم حسابها بالتفليل نلب حسب األول فداألول وكدذلع نندد إجدرال نمليدة Equivalent unitsبتحديد

Assignments of costربل التكلفة

Physical

Units

Direct

Material

Conversion

costs






* Started And Completed (400 Units)

■ From Beginning WIP 225 0 225*0%

90

225*40% ■ Started and Completed 175 175

175*100% 175

175*100% * Work In process, Ending 100 100

100*100% 50


3- Total Costs:

* For Work In process, Beginning 26,100 0 0




19,800/275= 16,380/315=

$72 $52

5- Assignment costs

* Started And Completed (400 Units)

Cost forwarded 26,100

■ From Beginning WIP (225 units) 4,680 0 0*$72

4,680 90*$52

■ Started and Completed (175 units) 21,700 12,600 175*$72

9,100

175*$52 52,480

* Work In process, Ending 9,800 7,200 100*$72

2600

50*$52

= Total cost of units completed 62,280



Use the following information for the next 3 questions. Salmon Manufacturing Company uses a process costing system. Direct materials are added at the beginning

of the process. During January, Department Q had a beginning inventory of 2,000 units, 25% complete for

conversion costs. During the month 14,000 units were started and there were 1,000 units in ending inventory,

60% complete for conversion costs.

2. Using FIFO process costing, the equivalent units for direct materials for the month were

a. 13,600

b. 14,000

c. 16,000

d. 15,600

3. Using weighted average process costing, the equivalent units for direct material for the month were

a. 13,600

b. 14,000

c. 16,000

d. 15,600

4. Using weighted average process costing, the equivalent units for conversion costs for the month

were

a. 14,100

b. 14,000

c. 16,000

d. 15,600

Physical

Units

Direct

Material

Conversion

costs


Work In process, Beginning 2,000

+ Started During the month 14,000

= Units To account for 16,000


* Started And Completed (15,000)

From Beginning WIP 2,000 0 1,500

2,000*0% 2,000*75%

From Started During Month 13,000 13,000 13,000

13,000*100% 13,000*100%

* Work In process, Ending 1,000 1,000 600

1,000*100% 1,000*60%

= Total Equivalent Unit 16,000 14,000 15,100



Use the following information for the next 3 questions. Salmon Manufacturing Company uses a process costing system. Direct materials are added at the beginning

of the process. During January, Department Q had a beginning inventory of 2,000 units, 25% complete for

conversion costs. During the month 14,000 units were started and there were 1,000 units in ending inventory,

60% complete for conversion costs.

2. Using FIFO process costing, the equivalent units for direct materials for the month were

a. 13,600

b. 14,000

c. 16,000

d. 15,600

3. Using weighted average process costing, the equivalent units for direct material for the month were

a. 13,600

b. 14,000

c. 16,000

d. 15,600

4. Using weighted average process costing, the equivalent units for conversion costs for the month

were

a. 14,100

b. 14,000

c. 16,000

d. 15,600

Physical

Units

Direct

Material

Conversion

costs


Work In process, Beginning 2,000




* Started And Completed 15,000 15,000 15,000

15,000*100% 15,000*100%


1,000*100% 1,000*60%




Use the following information for the next 8 questions.

Hendrix, Inc. employs a process costing system. Direct materials are added at the beginning of the process.

Here is information about July’s activities:

On July 1: Beginning inventories = 750 units, 60% complete

Direct materials cost = $5,925

Conversion costs = $4,095

During July: 15,000 units started

Direct materials added = $150,000

Conversion costs added = $83,520

On July 31: Ending inventories = 1,500 units, 40% complete

7. Using the FIFO method, the number of units started and completed in July was

a. 14,250

b. 15,000

c. 13,500

d. 15,750

8. Using the FIFO method, the number of equivalent units of conversion costs was

a. 14,400

b. 14,550

c. 14,850

d. 14,700

9. Using the FIFO method, the cost per equivalent unit for materials used during July was

a. $9.90

b. $9.80

c. $11.11

d. $10.00

10. Using the FIFO method, the cost of goods completed and transferred out during July was

a. $225,150

b. $225,060

c. $213,300

d. $213,000

11. Using the weighted average method, the number of equivalent units of material was

a. 15,750

b. 14,250

c. 15,000

d. 13,500

12. Using the weighted average method, the cost per equivalent unit for conversion costs was

a. $5.80

b. $5.90

c. $6.00

d. $6.10

13. Using the weighted average method, the cost of the goods completed and transferred out was

a. $225,150

b. $225,060

c. $213,300

d. $213,000



14. Using the weighted average method, the cost of the ending work in process inventory for July was

a. $18,480

b. $18,540

c. $18,330

d. $18,390

15. On September 1, Kelita Company had 20,000 units in process, which were 30% completed.

Materials are added at the beginning of the process. During the month 160,000 units were started and

170,000 completed. Ending work in process was 50% complete. By what amount would the

equivalent units of materials differ if weighted average were used instead of FIFO?

a. 20,000 more

b. -0-

c. 6,000 more

d. 14,000 less

16. Assume that ending work in process is 8,000 units, 20% complete, and that 20,000 units were started

during the month. The beginning work in process was 75% complete. Materials are added at the

beginning of the process, and the cost of materials are added during the month was $61,500. Using

the weighted average method, materials are allocated at $4.00 per equivalent unit. The cost of

material included in the beginning work in process from last month was

a. $18,500

b. $20,000

c. $34,500

d. None of the above



Physical

Units

Direct

Material

Conversion

costs






* Started And Completed (14,250)

From Beginning WIP 750 0 300

750*0% 750*40%

From Started During Month 13,500 13,500 13,500

13,500*100% 13,500*100%


1,500*100% 1,500*40%


3- Total Costs:

* For Work In process, Beginning 10,020 0 0



4- Cost per Equivalent unit

150,000 83,520

15,000 14,400

10.00 5.80

5- Assignment costs

* Completed 10,020

From Beginning 1,740 0 1,740

0×$10.34 300×$5.80

Fron Started 213,300 135,000 78,300

13500×$10 13500×$5.80


* Work In process, ending 18,480 15,000 3,480

1500×$10 600×$5.80

Total Work in process, end 18,480

243,540

Documents

Chapter 17: Process Costing · PDF fileChapter 6: Process Costing system Page 1 of 12 Ehab Abdou (+965 97672930) Introduction: As we learn from chapter 5, There are two types of product