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Process Costing

Chapter 8

Copyright 2011 by The McGraw-Hill Companies, Inc. ll rights reser!e".McGraw-Hill#Irwin

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Using Product Costing

in a Process Industry

L.O. 2 Assign costs to products using a ve-step process.

Step 1: Measure the physical flow of resources.

Step : !ompute the equivalent units of production.

Step ": #dentify the product costs for which to account.

Step $: !ompute the costs per equivalent unit.

Step %: &ssi'n product cost to batches of work.

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Measure the Physical

lo! o" #esources $Step %&

(ork in process- March 1

/allons of adhesive started0otal 'allons to account for

0ransferred out to !oatin' 2epartment

(ork)in)process- March "10otal units accounted for

3-333a

4-33311-333

45-333

15-333b

11-333

Gallons ofCompound

a 25% complete with respect to conersion costs!3"% complete with respect to conersion costs

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Compute the Equivalent Units

o" Production $Step '&

0ransferred out(ork)in)process- March "1

0otal work

45-333 15-333

45-333 15-333a

11-333

45-333 $-633b

133-633

#h$sical

units aterials Conersion

&'uialent units

a 1()""" units * 1""% +all materials added in !e,innin,

!ompoundin' 2epartment- March: Equivalent 7nits

! 1()""" units * 3"%

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8 - (

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Identi"y the Product Costs "or

(hich to )ccount $Step *&

(ork in process- March 1!urrent costs- March0otal

8 $-65 46-9$8"-%53

8 15-153 6$-5$38133-633

8 6-15 1"-5"$81-953

otalcosts

aterialscosts

Conersioncosts

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Compute the Cost per

Equivalent Unit $Step 4&

0otal costs *Step "+0otal equivalent units *Step +!ost per equivalent unit

8"-%53 8133-633

11-3338 3.43

81-953

133-6338 .3

otalcosts

aterialscosts

Conersioncosts

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3

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)ssign Product Costs to

+atches o" (or, $Step 5&

0ransferred out:

Equivalent units!ost per equivalent unit!ost assi'ned

(ork)in)process- March "1Equivalent units!ost per equivalent unit!ost assi'ned

0otal cost assi'ned

849-533

$-4538"-%53

45-3338 3.438 65-$33

15-3338 3.43 1$-$338133-633

45-3338 .3811-33

$-6338 .3 13-%5381-953

otalaterials

costsConersion

costs

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-he Production Cost #eport

L.O. 4 Prepare and analyze a production cost report.

0he production cost report summaries theproduction and cost results for a period.

#t is used by mana'ers to monitor productionand cost flows

,ollowin' is 0;s !ompoundin' 2epartment

production cost report *wei'hted)avera'eprocessin' costin'+ for March.

8 - 1"

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Production Cost #eport.

(eighted/)verage Process Costing

#h$sicalunits aterials Conersion

&'uialent units

a 1"" % complete with respect to materials ! 3"% complete with respect to conersion

Flow of units

7nits to be accounted for:

#n work)in)process be'innin' inventory7nits started this period

0otal units to account for

3-333a

4-33311-333

7nits accounted for:!ompleted and transferred out

#n work)in)process endin' inventory0otal units accounted for

45-333

15-33311-333

45-333

15-333a11-333

45-333

$-633b133-633

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Production Cost #eport.

(eighted/)verage Process Costing

!osts to be accounted for:(ork)in)process be'innin' inventory

!urrent period costs0otal costs to be accounted for

8 $-65

46-9$8"-%53

8 15-153

6$-5$38133-633

8 6-15

1"-5"$81-953

otalaterials

CostsConersion

CostsFlow of costs

!ost per equivalent unit 8 3.43c 8 .3d

!osts accounted for:

!osts assi'ned to transferred)out units!osts assi'ned to (#< endin' inventory0otal costs accounted for

849-533 $-4538"-%53

8 65-$33e

1$-$33'

8133-633

811-33f

13-%53h

81-953

c 1"")""" 112)""" & d 221)/(" 1"")8"" & e 0()""" & * ".0" per &f0()""" & * 2.2" per & ,1()""" & * ".0" per & h4)8"" & * 2.2" per &

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)ssigning Costs Using I0

L.O. 5 Assign costs to products using rst-in, rst-out (!"# costi

Step 1: Measure the physical flow of resources.

Step : !ompute the equivalent units of production.

Step ": #dentify the product costs for which to account.

Step $: !ompute the costs per equivalent unit.

Step %: &ssi'n product cost to batches of work.

7se the same five)step process.

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Determining (hich is +etter.

I0 or (eighted/)verage1

L.O. ( Analyze the accounting choice $etween!" and weighted-average costing.

(ei'hted)avera'e:

2oes not separate prior period and currentperiod activities and costs.

,#,=:Separates prior period and current period

activities and traces the prior period andcurrent period costs to the respective units.

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0peration Costing

L.O. 8 'opare and contrast operation costingwith &o$ costing and process costing.

=peration costin' is a hybrid of ?ob and

process costin'.

#t is used in manufacturin' 'oods that havesome common characteristics plus someindividual characteristics.

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