EXAMPLE OF PROCESS COSTING WITH TWO DEPTS.

Charlie Oats makes instant oatmeal. It has two production departments, processing followed by packaging. The following
data are for the Jan 1999. In the processing departments all materials are added at the very beginning of production.
Processing department lbs Materials Conversion
Work in process, beginning: 0
lbs started into production 20,000
during the current period
Costs added in the department $30,000 $9,900
during the current period
lbs completed and transferred 19,000
Work in process, ending:
lbs in process  1,000
Percentage completion  100% 80%
Packaging department lbs Transferred in costs Materials Conversion
Work in process, beginning: 0
lbs transferred in into production  19,000
during the current period
Costs added in the department  $38,000 $3,760 $5,520
during the current period
lbs completed and transferred 17,000
Work in process, ending:
lbs in process  2,000
Percentage completion  100% 90% 70%
 W-I-P (processing department)

Beg. Inv. 0 lbs

Cost of Beg. Inv. $0 (19,000 lbs transferred out)
(20,000 lbs started in period)
Material added: $30,000 Cost transferred out
Conversion: $9,900 = Total costs to be accounted for  Cost of End. Inv.
Costs added in current period $39,900 = 39,900  1,900 = $38,000
Total costs to be accounted for $39,900 [also computable as 19,000(1.50+0.50) = $38,000]
End. Inv.
(1,000 lbs) cost/eq.lb  # eq.lbs
Material (100% complete): 1.50  1,000 = $1,500
Conversion (80% complete): 0.50  800 = $400
Cost of End. Inv. $1,900

Cost/eq. lb for materials:

= Total material content of production
Eq. lbs of production as regards material
= $30,000 = $30,000 = $1.50
19,000 + 1,000  1 20,000
Cost/eq. lb for conversion:
= Total conversion content of production
Eq. lbs of production as regards conversion
= $9,900 = $9,900 = $0.50
19,000 + 1,000  0.80 19,800
 W-I-P (packaging department)

Beg. Inv. 0 lbs (17,000 lbs transferred out)

Cost of Beg. Inv. $0 COGM
(19,000 lbs trans. in from processing) = Total costs to be accounted for  Cost of End. Inv.
Cost transf. in $38,000 = 47,280  4,780 = $42,500
Material added: $3,760 [We can also calculate COGM as
Conversion: $5,520 = (2.00+0.20+0.30)17,000 = $42,500]
Costs added in current period $47,280
Total costs to be accounted for $47,280
End. Inv.
(2,000 lbs) cost/eq.lb  # eq.lbs
Cost transf. in $ 2.00  2,000 = $4,000
Material (90% complete): 0.20  1,800 = $360
Conversion (70% complete): 0.30  1,400 = $420
Cost of End. Inv. $4,780

Cost/eq. lb for materials:

= Total material content of production = $3,760 = $3,760 = $0.20
Eq. lbs of production as regards material 17,000 + 2,000  0.9 18,800
Cost/eq. lb for conversion:
= Total conversion content of production = $5,520 = $5,520 = $0.30
Eq. lbs of production as regards conversion 17,000 + 2,000  0.7 18,400

So the per lb cost of finished production (packaged oatmeal) for Jan 99 = 2.50
and the Balance sheet will show WIP Inventory (the total of both depts.) as $0 on 1/1/99 and $6,680 on 1/31/99.