Cost accumulation procedures used by manufacturing concerns are clas- sified as either (1) job order costing or (2) process costing. The preceding chapter discussed procedures applicable to job order costing. It is important to understand that, except for some modifications, the accumulation of mate- rials costs, labor costs, and factory overhead also applies to process costing. Process costing methods are used for industries producing chemicals, pe- troleum, textiles, steel, rubber, cement, flour, pharmaceuticals, shoes, plas- tics, sugar, and coal. This type of costing is also used by firms manufacturing items such as rivets, screws, bolts, and small electrical parts. A third type of industry using process costing methods is the assembly-type industry which manufactures such things as typewriters, automobiles, airplanes, and house- hold electric appliances (washing machines, refrigerators, toasters, irons, Tadios, television sets, etc.). Finally, certain service industries, such as gas, water, and heat, cost their products by using process costing methods. Thus, i process costing is used when products are manufactured under conditions of _ continuous processing or under mass production methods. In fact, process costing procedures are often termed ‘‘continuous or mass production” cost accounting procedures. 116 Scanned with CamScannerPROCESS COSTING: COST OF PRODUCTION REPORT The type of manufacturing operations performed determines the cost pro- _ sedures that must be used. For example, a company manufacturing custom ‘machinery will use job order costing, whereas a chemical company will use process costing. In the case of the machinery manufacturer, a job order cost __ sheet is prepated for each order, accumulating the costs of materials, labo and factory overhead. In contrast, the chemical company cannot identify m: terials, labor, and factory overhead with each order, since each order is part ‘ofa batch or a continuous process. The individual order identity is lost, and the cost of a completed unit must be computed by dividing total cost incurred during a period by total units completed. The summarization of the costs takes place via the cost of production report, which is an extremely efficient _ eeondmical, and timesaving device for the collection of large amounts of data ____ The entire process costing discussion is presented in this and the follow- ing two chapters. This chapter considers the (1) cost of production reports, (2) alculation of departmental unit costs, (3) costing of work in process, (4) com- _ potation of costs transferred to other departments or to the finished goods storeroom, and (5). effect of lost units on unit costs. Chapter 7 deals with (1) special problems involved in adding materials in departments other than the first, (2) problems conhected with the beginning work in process, and (3) the ibility of using cogting methods other than those previously discussed. CHARACTERISTICS AND PROCEDURES OF PROCESS COSTING The characteristics of process costing are: 1. A cost of productiog report is used to collect, summarize, and compute 4 total and unit cost: 2. Production is accufnulated and reported by departments. 3. Costs are posted tddepartmental work in process accounts. |; Production in proce’s at the end of a period is restated in terms of completed units. "5. Total cost charged to a department is divided by total computed pro- ~ duction of the department in order to determine a unit cost for a spe- period. ‘of completed units of a department are transferred to the next ssing department in order to arrive at the total costs of the fin- during a period. At the same time, costs are assigned to labor, and factory overhead costs by depart- 1 department. ‘ to the next and to finished goods. till in process.us ‘COST INFORMATION SYSTE@l: ACCUMULATION PROCEDURES Pam If accurate unit and inventory costs are to be established by process cos, ing procedures, costs of a period must be identified with units produced in the same period. COSTING BY DEPARTMENTS The nature of manufacturing operations in firms using process or Job order cost procedures is usually such that work on a product takes place in Several departments. With either procedure, departmentalization of materials, | labor, and factory overhead costs facilitates application of responsibility ac. | counting. Each department performs a specific operation or Process towards | the completion of the product. For example, after the Blending Department has completed the starting phase of work on the product, units are transferred to the Testing Department, after which they may go to the Terminal Depart. ment for completion and transfer to the finished goods storeroom. Both units and costs are transferred from one manufacturing department to another. Sep. arate departmental work in process accounts are used to charge each depart. ‘ment for the materials, labor, and factory overhead used to complete its share of a manufacturing process. | Process costing involves averaging costs for a particular period in order to obtain departmental and cumulative unit costs. The cost of a completed unit ia determined by dividing the total cost of a Period by the total units produced | during the period. Determining departmental production for a period includes evaluating units still in process. The breakdown of costs for the computation of total unit costs and for costing units transferred and departmental work in | ' Process inventories is also desirable for cost control purposes, | Departmental total and unit costs are determined by the use of the cost of < Production report, which is described and illustrated in detail in later sections of this chapter. Most of the activity in Process costing involves the accumula- tion of data needed for the Preparation of these cost reports, f PRODUCT FLOW ke A product can flow through a factory in numerous ways. Three product flow formats associated with process costing — sequential, parallel, and se- lective — are illustrated here to indicate that basically the same costing pro- ‘cedures can be applied to all types of product flow situations. e ' In a sequential product flow, each item manufactured goes through the ‘Sane sot of operations, as illustrated at the top: af the went page, Matssiale are placed into production in the Blendit Department, and labor and factory overhead are added. When the work is finished in the | it7 Work iw Process — Testina Depanrwens Work iw Process — _Tenmivar Depart Labor Factory overhead Finssteo Goo0s _ oves to the Testing Department. The second process, and any succeeding esses, may add more materials or simply work on the partially completed (from the preceding process, adding only labor and factory overhead, as inthis example. After the product has been processed by the Terminal De uriment, it is a completed product and becomes a part of finished goods in- | | _ Ina parallel product flow, certain portions of the work are done simulta- Parallel ly and then brought together in.a final process or processes for comple- Product and transfer to finished goods inventory. As in the previous illustration, Flow fials may be added in subsequent processes. Pictorially, this might be as: IN PRocess— Wok In Process — 6 DEPARTMENT. PLANING AND Sano DEPARTMENT Work In Process — Assewaty DerAnTMeNT Wonk In PRocess — _Panting DEPARTMENT Materials Labor Factory overhead, Finise Goonsto different depary : a prucetive tna sleive product fw, the WOME predut: For exam Flow within the plant, depending upon the des! some of the product Meat processing, after the initial bul in finished goods inven directly to the Packaging Department er the Packaging Depating’ some goes to the Smoking Department and ie the. Grinding and finally to finished goods inventory eal ety 10 fi inished goods ine” | ment, then to the Packaging Department, Pa involves join tory. Transfer of costs from the Butchering Pe selective Product Roy a allocation, discussed and illustrated in Chapter ® for meat processing might be shown as follows: : Work In Process — i Same Perea _ Work m Paocess \aterials PARTMENT Labor “ortns a rhe: aie Materials Labor Factory ove Work Process — —Swoune Derarrwet_ ‘Work IN PROCESS — GRINDING DEPARTMENT CEDURES FOR MATERIALS, FACT WERHEAD COSTS121 (HAPTER 6 PROCESS COSTING: COST OF PRODUCTION REPORT are usually fewer than those in job order costing, where accumulation of costs for many orders can become unwieldy In job order costing, materials requisitions are used to charge jobs for Materials Costs | direct materials used. If requisitions are used in process costing, details are considerably reduced because materials are charged to departments rather than to jobs, and the number of departments using materials is usually less than the number of jobs a firm might handle ata given time. Fr equently mate- fials are issued only to the process-originating department; subsequent depart ments add labor and factory overhead. If materials are needed in a depart- ment other than the first, they are charged to that department performing the specific operation. For materials control purposes, materials need not always be priced indi- vidually on requisition forms. The cost of materials used can be determined at the end of the production period through inventory difference procedures, ie., adding purchases to beginning inventory and then deducting ending in- ventory. Or consumption reports which state the cost of materials or quantity of materials put into process by various departments can be quantities charged to departments by consumption reports may be based on formulas or prorations. Formulas specify the type and quantity of materials required in the various products and are applied to finished production in trier to calculate the materials consumed. Chemical and pharmaceutical in~ fstries use such procedures, particularly when more than one product is manufactured by a department. Frequently the cost of materials used bya department must be prorated to different products on various estimated bases. This proration is described in Chapter 8 as joint costing For any of the materials cost computation methods discussed, a typical journal entry charging direct manufacturing materials used during @ period is: ! used. Costs or Work in Process — Blending Department 24,500 Materials .. The source of the cost figures for thi labor and factory overhead is the cost of beginning on page 123. Labor costs are identified by thus eliminating the detailed ¢! Daily time tickets or weekly ti ‘tickets. Summary labor charge’ 24,500 1e above entry as well as the entries for production report which is discussed ‘and charged to departments in process cost- Labor Costs Jerical work of accumulating labor costs by ime clock cards are used instead of job 5 are made to departments through an 29,140 37,310 32,400me Pere ee Te ee a 2 RES PART 2 he 822 ‘AgCUMULATION 4 COST INFORMATION SYSTEM: in job order cost- F II as in job or EF ing as WE" © for pro- f ven, a Factory overhead incurred in process oe subsidiary aed ie Betosts ing should be accumulated in the factory OVER” onsistent wil Be ducing and service departments. This prey reporting. " ments for responsibility accounting and respon"! smmend the use of pre- i The factory overhead-chapters emphasize a to jobs and products. How. determined overhead rates for charging overheat tual overhead rather ever, in various process and job order cost procedures, 3c This practice is than applied overhead is sometimes used for product e from period to period, feasible when production remains comparatively stabl ee adimonth to the Since factory overhead will then remain about the ad Bey overhead next. The use of actual overhead can also be justified when Tet Ot is not an important part of total cost. However, predetermine for producing departments should be used if: E t k f i e 1. Production is not stable. jen ost. be 2. Factory overhead, especially fixed overhead, is a significant cost. Fluctuations in production can lead to the unequal incurrence of actual factory overhead from month to month. In such cases, factory overhead : should be applied to production using predetermined rates, so that units pro- duced receive proper charges for factory overhead. Similarly, if factory over- 5. head — especially fixed factory overhead — is significant, it is desirable to allocate factory overhead on the basis of normal or uniform production using Predetermined rates. Indeed, the use of predetermined rates is highly recom- mended for improving cost control and facilitating cost analysis. Prior to charging factory overhead to departments via their respective ‘ work in process accounts, expenses must be accumulated in a factory over- ¥ head control account. As expenses are incurred, the entry is: Factory Overhead Control Accounts Payable... XXXXX, XXXXX . Accumulated Depreciation — Machinery AXXXX Prepaid Insurance. XXXXX Materials XXXX Payroll XXXXX The use of a factory overhead control account Tequires a subsidiary ledger for factory overhead, with departmental expense analysis sheets to which all enses are posted (see Chapter 10). Service department expenses are kept in like manner and buted later to producing departments. At the end of period, departmental expense analysis sheets are totaled. These totals, also include distributed service department costs, represent factory overhead for each department. By debiting the actual cost incurred or by the predetermined rates multiplied by the respective actual activity base hours) for each producing department, the entry charging o work in process is as follows: eee ss 5%jin Process — Blending Department ...... in Process — Vesting Department in Process — Terminal Department 28,200 32,800 19,800 80,800 THE COST OF PRODUCTION REPORT A departmental cost of production report shows all costs chargeable to a gartment. It is not only the source for summary journal entries at the end of but also a most convenient vehicle for presenting and disposing of accumulated during the month. “Accost of production report shows (1) total and unit costs transferred to it a preceding department; (2) materials, labor, and factory overhead by the department; (3) unit costs added by the department; (4) total and ts accumulated to the end of operations in the department; (5) the cost beginning and ending work in process inventories; and (6) cost trans- ed toa succeeding department \. toa finished goods storeroom. Itis customary to divide the cost section of the report into two parts: one costs for which the department is accountable, including departmen- and cumulative total and unit costs, the other showing the disposition of costs. A quantity schedule showing the total number of units for which gpartment is accountable and the disposition made of these units is also of each department's cost of production report. Information in this , adjusted for equivalent production, is used to determine the unit dded by a department, the costing of the ending work in process inven- the cost to be transferred out of the department. A cost of production report determines periodic total and unit costs. er, a report that would merely summarize the total costs of materials, and factory overhead and show only the unit cost for the period would satisfactory for controlling costs. Total figures mean very little; cost equires detailed data. Therefore, in most instances, the total cost is Furthermore, detailed departmental figures are needed be- e various completion stages of the work in process inventories. “in the cost of production report itself or in the supporting sched- material used by a department is listed; every labor opera- rately; factory overhead components are noted individu- the illustrated cost rts, only total materials, labor, and factory overhead ents are considered; and unit costs are computed only for for each item. , Which manufactures one product , Testing, and Terminal), are used tocost IFoRMATION SYSTEM; ACCUMULATION PROCEDURES PART 2 Blending Department, the originating is shown below. It illustrates the de. cost of production report. Blending ‘The cost of production report of the Department department of The Clonex Corporation, i tailed computations needed to complete a C | ‘The Clonex Corporation E Blending Department Cost of Production Report For the Month of January, 19-~ Quantity Schedule Units started in process. 000 = Units transferred to next department .......cc.ssreser ser 5S 4000 Units stl in process (ll materials — labor and factory overhead). 41 Units lost in process. 5 Cost Charged to the Department Tora = UN Cost added by department oor Materials. $24,500 Labor 29,140 Factory overh« . - Total cost to be accounted for Cost Accounted for as Follows Transferred to next department (45,000 x $1.72) .nninnaninnrnne $77,400 Work in process — ending inventory Materials (4,000 * $.50) 1.0. Labor (4,000 x ¥ x $62)... Factory overhead (4,000 x ¥2 x §.60)..... Total cost accounted for. E ‘ADpITionAL, COMPUTATIONS: Equivalent production: Materials = 45,000 + 4,000 = 49,000 units 4,00 Labor and factory overhead = 45,000 + = 47,000 units * $24,500 Unit costs: Materials = “== iad $29,140 : Labor = Ss Factory overhead = = $.50 per unit = $.62 per unit $28,200 47,000 = $.60 per unit ‘The quantity schedule of the cost report shows jing Depart- ment put 50,000 units in process, sik aa oral aia na finished Z ae Could be stated in pounds, feet, gallons, barrels, etc. 1 dto a department are stated in pounds and the finished prod- units in the quantity schedule will be in terms of the Product conversion table would be used to deter-SE ee ae eee PROCESS COSTING: COST OF PRODUCTION REPORT ba the next department (Testing), 4,000 units are still in process, and 1,000 were lost in processing. ent Production. Costs charged to a department come from an analysis ‘materials used, payroll distribution sheets, and departmental expense analy is sheets. The Blending Department's unit cost amounts to $1.72: $.50 for _gaterials, $.62 for labor, and $.60 for factory overhead Computation of individual unit costs requires an analysis of the ending | work in process to determine its stage of completion. This analysis is usually _ made by a supervisor or is the result of using predetermined formulas. Materi as, labor, and factory overhead have been used on the 4,000 units in process "jut not in an amount sufficient for completion. To assign costs equitably to jnprocess inventory and transferred units, units still in process must be re- "gated in terms of completed units, which is 4,000 units for materials cost but | fess than 4,000 for labor and overhead costs. The figure for partially com- pleted units in process is added to units actually completed in order to arrive } at cae equivalent production figure for the period. This equivalent production figure represents the number of units for which sufficient materials, labor, and “overhead were issued or used during a period. Materials, labor, and overhead costs are divided by the appropriate equivalent production figure to compute nit costs by elements. Should a cost element be at a different stage of com- pletion with respect to units in process, then a separate equivalent production | figure must be computed. | In many manufacturing processes, all materials are issued at the start of production. Unless stated otherwise, the illustrations in this discussion as- ‘aime such a procedure. Therefore, the 4,000 units still in process have all the erials needed for their completion but not all labor and factory overhead. | Only 50 percent of the labor and factory overhead needed to complete the nits has been used. In terms of equivalent production, labor and factory head in process are sufficient to complete 2,000 units. The illustrations in is chapter do not include the beginning work in process, a consideration é ed to the next chapter. ‘osts. Departmental cost of production reports indicate the cost of units 4 eave each department. These individual departmental unit costs are ited into a completed unit cost for the period. The report for the ‘Department shows a materials cost of $24,500, labor cost of $29,140, ry overhead of $28,200. The materials cost of $24,500 is sufficient to 49,000 units (the 45,000 units transferred out of the department as work in process for which enough materials are in process to units). The unit materials cost is, therefore, $.50 ($24,500 = ‘computation determines the number of units actually and eted with the labor cost of $29,140 and the factory overhead ) ec n units ‘in process are added to the 45,000 units n & total equivalent production figure of te126 COST INFORMATION SYSTEM; ACCUMULATION PROCEDURES PART 2 47,000 units for both labor and factory overhead. When the equivalent pr, duction figure of 47,000 units is divided into the monthly labor cost of $29,149, Plt cost for labor of $.62 ($29,140 = 47,000) is computed. The unit cost for factory overhead is §.60 ($28,200 + 47,000). The unit cost added by the de. Partment is $1.72, which is the sum of the materials, labor, and overhead unit Costs — §.50, §. 62, and $.60. This departmental unit cost figure cannot be dletermined by dividing the total departmental cost of $81,840 by a singie ©duivalent production figure, because no such figure exists; units in process FTE at different stages of completion as to materials, labor, and factory over. head Ss Disposition of Departmental Costs. In the departmental cost report, the section titled “Cost Charged to the Department’’ shows a total departmental cost of $81,840. The section titled “Cost Accounted for as Follows” shows the dispo- sition of this cost. The 45,000 units transferred to the next department hav Cost of $77,400 (45,000 units x $1.72). The balance of the cost to be Counted for, $4,440 ($81,840 — $77,400), is the cost of work in process. The inventory figure must be broken down into its component parts: ma- als, labor, and factory overhead. These individual costs are easily deter. mined. The cost of materials in process is obtained by multiplying total units in process by the materials unit cost (4,000 x $.50 = $2,000). The costs of labor and factory overhead in process are similarly calculated, The amount of labor and overhead in process is sufficient to complete only 50 percent, or 2,000, of the units in process. ‘Therefore, the cost of labor in Process is $1,240 (2,000 x $.62) and factory overhead in Process is $1,200 (2,000 x $.60). Lost Units. Continuous processing leads to the possibility of waste, seepage, shrinkage, and other factors which cause loss or spoilage of production units. Management is interested not only in the quantities reported as completed production, units in process, and lost units but also in a comparison of planned and actual results. In verifying reported figures, the accountant must reconcile quantities put into process with quantities reported as completed and lost. One method of making such reconciliations is to establish the pro- cess yield, i.c., the finished production that should result from processing various materials. This yield is computed as follows: teri x Weight of finished set Percent yield “We ofameras Gases x 100 The yield figure is useful to management for controlling materials consump- tion and ties in closely with a firm’s quality control procedures. Various yields are established as normal. Yields below normal are measures of inefficiencies and are sometimes used to compute lost units. Frequently quality control dat are used to since the use of incorrect quantities Scanned with CamScannerPROCESS COSTING: COST OF PRODUCTION REPORT "its lost in the Blending Department increase the unit costs of materials, "labor, and factory overhead. Had these units not been lost, the equivalent production figure would be 50,000 units for materials and 48,000 for labor and "factory overhead. The unit cost for materials would be 8.49 instead of $.50; labor, $.607 instead of $.62; and factory overh , $.588 instead of $.60. In the first department, the only effect of losing units is an increase in the unit cost of the remaining good units. In this situation, the loss is assumed to apply to all good units and to be within normal tolerance limits. The treatment of excess or abnormal loss i8 discussed on pages 131-132 The Blending Department transferred 45,000 units to the Testing Depart- ment, where labor and factory overhead were added before the units were transferred to the Terminal Department. Costs incurred by the Testing De- partment resulted in additional departmental as well as cumulative unit costs, | The cost of production report of the Testing Department, shown on page 108, differs from that of the Blending Department in several respects. Several additional calculations are made, for which space has been provided on the report. The additional information deals with (1) cost received from the pre- ceding department, (2) an adjustment of the preceding department's unit cost ecause of lost units, and (3) cost received from the preceding department to be included in the cost of the ending work in process inventory. . The quantity schedule for the Testing Department shows that the 45,000 its received from the Blending Department were accounted for as follows: ‘40,000 units sent to the Terminal Department, 3,000 units still in process, and ,000 units lost. An analysis of the work in process indicates that units in s are but one-third complete as to labor and factory overhead. Unit , $.91 for labor and $.80 for factory overhead, were calculated as fol- equivalent production of the Testing Department is 41,000 units [40,000 ,000)], the labor unit cost is $.91 ($37,310 = 41,000), and the factory ad unit cost $.80 ($32,800 = 41,000). There is no materials unit cost, ‘no materials were added by the department. The departmental unit cost of the labor unit cost of $.91 and the factory overhead unit S Testing Department is responsible for labor and factory overhead vell as for the cost of units received from the Blending Department. cost charged to the department under the title ding department,"” which is immediately above the section 1g with cost added by the department. The cost transferred ¥y shown in the cost report of the Blending Depart- ‘out of that department by this entry: Testing DepartmentCOST INFORMATION SYSTEM; ACCUMULATION PROC Be The Clonex (las cona1 Production Report For the Month of January, 19-~ Quantity Schedule Units received from preceding department Units transferred to next department Units still in process (Ys labor and factory ovement) Units fost in process Cost Charged to the Department Cost from preceding department Transtorred in during the month (45,000 units) Cost added by department. Labor Factory overhead Total cost added Adjustment for lost units. Total cost to be accounted for Cost Accounted for as Follows Transferred to next department (40,000 x $3.51) Work in process — ending Inventory: Adjusted cost from piscang spots {3,000 x ($1.72 + $.08)). Labor (3,000 * ¥4 x $91)... Factory overhead (3,000 * Total cost accounted for. 210 $147,510 ‘Appirionat. COMPUTATIONS: 3. Equivalent production: Labor and factory overhead = 40,000 + 7.310 Unit costs: Labor = $2732. 5.91 per unit 47,000 $92,800 ‘e Factory overhead = “555 ‘Adjustment for lost units: nt S7eBy ~ $100; $1.80- $1.72 = $8.08 perunit | Matiod No, 2— 2000 units» $1.72 = $3440; S249 $08 por unit = $.80 per unit Scanned with CamScannerPROCES i ‘SS COSTING: COST OF PRODUCTION REPORT be adjusted. The total cost of the units transfe 43,000 Units must now absorb this total coe nny : per unit due to the loss of 2,000 units in che Testing Depart ieee The lost unit cost can be computed by one of eed ie ermines a new unit cost for work done in the read oe Mee a Gets tiference betwee tne vwo figures ig ueruddiional cox to the lost units. The $1.80 new adjusted unit cost for aie ione in the ceding department is obtained by dividing the remaining good units, 43,000 ( Beni ied into the cost transferred in, $77,400, The od unit cost figure .72 is subtracted from the revised unit cost to arrive at the adjustment of nains at $77,400, artment Method No. 2 determines the lost units’ share of total cost and allocates cost to the remaining good units. Total cost previously absorbed by the “units lost is $3,440, which is the result of multiplying the 2,000 lost units by their unit cost of $1.72. The $3,440 cost must now be absorbed by the remain, good units. The additional cost to be picked up by each remaining good nit is $.08 ($3,440 + 43,000 units). ~The lost unit cost adjustment must be entered in the cost of production _ The $.08 is entered on the “Adjustment for lost units” line. The de= ntal unit cost of $1.71 does not have to be adjusted for units lost. In the Testing Department, the cost of any work done on lost units has automatically absorbed in the departmental unit cost by g the equivalent produc- figure of 41,000 instead of 43,000 units, The $1.72 unadjusted unit cost for done in the preceding department, the $1.71 departmental unit cost, and $.08 adjustment for lost units are totaled in order to obtain the $3.51 cu- ative unit cost for work done up to the end of operations in the Testing iment. of Lost Units. Lost units may occur at the begin , during, or at the id of a process. For purposes of practicality and simplicity, it is ordinarily fai ‘ur st at the beginning or during a process were never putin nits lost is spread over the units completed and units “units are lost or are identified as lost at the end of a process, the Jost units is charged to completed units only. No part of the loss is units still in process. Assume that the 2,000 units lost by the Test- in were the result of spoilage found at final inspection by the | Department; their cost would be charged only to the 40,000 ‘illust ‘on page 130 in the cost of production report for 129Quantity Schedule Units received {rom preceding department Units transferred to next de partment ead)... Units stil in process (¥4 labor and factory ov Units lost in process {at end of process) Cost cI 'ged to the Department Cost from preceding department: Transferred in during the month (45,000 units) Cost added by department: Labor. Factory overhead Total cost added Total cost to be accounted for. $147,510 $335 Cost Accounted for as Follows: Transferred to next department (40,000 units x ($3.95 + $.1675))" “ Work in prox ing inventor » From preceding department (3,000 x $1.72) Labor (3,000 x 1% x $.67).. ‘actory overhead (3,000 x ¥5 x $.76). Total cost accounted for... $ 5,160 ADDITIONAL COMPUTATIONS: Equivalent production: Labor and factory overhead = 40,000 + 50 o 2,000 lost units = 43,000 units Unit costs: Labor = 7210 _ 67, ‘ nit costs: Labor = $87.310 _ er unit 40,000 units x $3.5175 = $140,709 2 computed: 187 10 gyPRODUCTION REPORT 131 ‘ PROCESS COSTING: COS on checks prior to the e1 nd of the pr 5, Bers not complete when eF en Such a procedure uncovers eye the loss may pert loss is incurred or the spoilage dis- Effin: such a case cs only to units completed and not to units of complet ¢ lost units should be adjusted for their ; gir conversion would ae ance 2,000 units lost at the 90 percent as aia and factory overhead costs, 800 equivalent units with regard to : en onthe Lest of Units. Units are lost through evapora oe in at s, spoiled work, poor workmanship, Of ineffici jpment. instances the nature of operations makes cert losses unavoida 2 or unavoidable, because they are considered within normal tolerance The cost of these normally lost units he remaining tion, shrink- ient its for human and machine errors. not appear as a separate item of cost but is spread over # od units. : A different situation is created by abnormal or avoidable spoilage OF ipses that are not expected to arise under normal, efficient operating condi- "The cost of such abnormal spoilage or losses is charged either to Fac as an additional unfavor- ory Overhead, as shown below, thereby appearing or directly to @ current period expense le factory overhead variance, ‘account and reported as a separate item in the cost of goods sold statement. ‘SuBSIDIARY Record | DR rs 6,700 6,700 6,700 5 Testing Departmen oilage or loss Work in Proces st of production repo! . The co’ transferred to next departmer (40,000 units * $3.39). $134,020" ferred to factory overhead {140,000 units * $1675) oF . 6,700 ypanicy + $6,700 = $134,020. (2,000 lost unil its x $3.35 = $134,000 aes uimtmputed: $147,510 — '$6,790 ending inventory ~ *® vt would show the abnormal SP its x $3.35)] «- “To avoid decimal diserepancy (he cost trans mplete, equivalent production cal- Jletion when lost or spoiled, and be weighted accordingly. If one part abnormal, each portion must be treated |. The critical factor in distinguishing Joss is the degree of controllability. ii ed by the process under ntrollable. Abnormal or , because the conditions thin the limits set by Scanned with CamScannerIe COST INFORMATION SYSTEM; ACCUMULATION PROCEDURES Parr 9 (Re State of the ait of production, the difference is a short-run condition; iq ihc Tong ran, management should adjust and control all £4ctors of prextucton 86d eliminate all abnormal conditions, Disposition 128 shows ment @f Testing Department Costs, The cast of production POrt ON page & (otal cost of $147,510 to be accounted for by the Testing Depart The department completed and transferred 40,000 units to the Terminay Rent at a cost of $140,400 (40,000 X $3.51). The remaining cost is ‘ed to the work in process inventory, This b is t © Various costs in process, When computing the cost of the “SS taventory of any department subsequent {0 the first, costs received YOM preceding departments must be included The 3,000 units still in proc “ompleted by the Blending De ANE SOSCOF $1.72, were later adjusted by $.08 (to $1.80) because of the loss of some of the units transferred, Therefore, the Blending Department's cost of the 3.000 units still in process is $5,400, the result of multiplying the 3,000 ‘Units by the $1.80 adjusted unit cost, The $5,400 figure is not broken. down further, since such information is not pertinent to the Testing Department's pesritions, However, the amount is listed separately in the cost of production jcPort, Because it is part of the Testing Department's ending work in process to the Terminal Department, $140,400, a charged to the Testing Department. The cost of production report of the trated on page 133. Total and unit cost figu third or Terminal Department is illus- res were derived by using pro- shed goods storeroom; }oods storeroom'’ is used in place of lent.” thus, the title “Transferred to finished g the title “Transferred to next departm Scanned with CamScanner133 PROCESS COSTING: COST OF PRODUCTION REPORT The Clonex Corporation Terminal Department Cost of Production Report For the Month of January, 19— received from preceding department sme transferred to finished goods storeroom, 35,000 is stil in process ("4 labor and factory overhead), 4,000 fost in process 1000 __ 40,000 ged to the Department Torn. Unit {rom preceding department Cost Cost erred In during the month (40,000 units) $140,400 __ $3.51 aaded by department POF rn . - so2400 $90 Factory overhead . 19,800 Ey Total cost added $52,200 $1.45 justment for lost units, : : 09 Total cost to be accounted for 92,600 $5.05 ; , 0 \ecounted for as Follows fansterred to finished goods storeroom (35,000 » $6.05) $176,750 in process — ending inventory justed cost trom preceding department (4,000 » ($3.51 + $.09)). 2 $ 14,400 (4,000 ~ % « §.90) : 900 tory overhead (4,000 » Vs » §.55) samen 880 Total cost accounted for. aL COMPUTATIONS: = 32400 5 90 per unit _ $19,800 pe siete = 736,000 = $.55 per unit ‘= $3.60; $3.60 ~ $3.51 = $.09 per unit 3,51 = $.09 per unit Scanned with CamScannera pcoumuisrion PROCEDURES Pee Clonex Corporation » for iM Combined The three cost of prosuetion EAT, meas reposts WOU! mos likgy ‘ost of goes computed separated manufacturing Operations o¢ Production _¢° discussed and c rt summarize ated below, shoulg Reports Consolidated in a single rep’ report, as ill various depan, = i od. Such @ FePOTL O° Or the Partneng, sours el ooo : reports. 134 CcosT INFORMATION SYSTE tion ‘The Glonex Corporat Cost of Production Reeart All Producing Departments For the Month of January, Terma Units received from preceding 40,000 department. ern — Units transferred to next department... 1» 45,000 Units transferred to finished goods 34 storeroo1 Units still in process Units lost in process Tora. Use Cost Charged to the Department Cost ‘Cost Cost from preceding department: Transferred in during the month... $a5t Cost added by department: Materials... é arg $0 Factory overhead, 28,200 5 Total cost added .. $81,840 $1 $145 Adjustment for lost units. 4 Total cost to be accounted for, Gost Accounted for as Follows ‘Gost Accounted for as Follows _ Transferred to next department... Transferred to finished goods ‘storeroom... Bess scanned with CamScanner