Department of Accounting Education

Mabini Street, Tagum City

Davao del Norte
Telefax: (084) 655-9591, Local 116

Week 6 & &: Unit Learning Outcomes (ULO): At the end of the unit, you are
expected to
a. Compute for the product cost using process costing system by preparing cost
of production report considering the effect of beginning work in process
inventory using FIFO and Average method of computing the product under
process costing system.
b. Apply the appropriate methods for costing joint and by products.

Big Picture in Focus: ULOa. Compute for the product cost using
process costing system by preparing cost of production report
considering the effect of beginning work in process inventory using FIFO
and Average method of computing the product under process costing
system;

Metalanguage

For you to demonstrate ULOa, you will need operational understanding of the terms
enumerated below.

FIFO Method is the method of first in, first out consideration

Average Method is the method of computing cost and units in average format and
not consider the concept of which is first in and which is first out.

Essential Knowledge

To perform the aforesaid big picture (unit learning outcomes), you need to fully
understand the following essential knowledge laid down in the succeeding pages.
Please note that you are not limited to exclusively refer to these resources. Thus, you
are expected to utilize other books, research articles and other resources that are
available in the university’s library e.g. ebrary, search.proquest.com etc., and even
online tutorial websites.

METHODS OF COSTING IN PROCESS COSTING SYSTEM

FIFO METHOD

The method that assumes the flow of production that the units first placed in the
process is presumed to be the completed first and those that are first completed are
those first transferred out.

Under this method, the work in process beginning will require a separate computation
of equivalent unit of production and the units started, completed and transferred is will
also have separate computations of equivalent units of production.
 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

The equivalent unit of production of this period shall consist only of those that
completed this period and the completed last period is recorded last period.

Example if the product is 70% completed last period. The 70% is recorded as work
done last period so, how many percentage do we need to complete the product? Yes,
30% then the 30% completion is recorded as work done this period.

The unit cost are computed by current period product cost divided by the equivalent
units of current work done.

The cost of goods transferred out is computed as the sum of the following:
a. The cost in beginning work in process inventory
b. The current period cost to complete beginning inventory, computed by the
equivalent unit of production of the beginning work in process multiplied by
the current period unit cost
c. The cost to start and complete units, calculated by number of units
multiplied by the current cost computed

The cost of work in process ending is computed by multiplying the equivalent units of
production by the current product cost per unit.

AVERAGE METHOD

The method the merges all the departmental costs by elements of the beginning work
in process and cost incurred for the period an getting the average units cost by dividing
the total cost by elements tot equivalent units of production.

Under this method, the computation of equivalent units of production from the
beginning work in process is ignored and the total units completed and transferred are
considered to be 100% completed.

The equivalent unit of production of this period does not consider or ignore the work
done last month in computing equivalent unit of production.

The unit cost are computed as follows cost of the beginning work in process added to
the current period product cost divided by the sum of equivalent units of production of
the beginning work in process and the equivalent units of the current work done.

The cost of goods transferred out and the cost of work in process ending is computed
as follows: total units transferred multiply by the weighted average unit cost.

The cost of work in process, ending is equal to the equivalent units of production
multiplied by the weighted average unit cost.
 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

COMPUTATION OF EQUIVALENT UNITS OF PRODUCTION

The following information pertains to Brill John Corporation for its May 2020
production.
Units in process, beg, 60% completed 10,000
Units Started 40,000
Units Completed 35,000
Units in process, End, 90% completed 15,000
Materials are added at the beginning of the process

Solution: FIFO
Materials Conversion Cost
Quantity Schedule Actual WD EP WD EP
Units in process, beg 10,000
Unit Started 40,000
Total 50,000
Units in Process, beg 10,000 - - 40% 4,000
Units Completed 25,000 100% 25,000 100% 25,000
Units in Process, end 15,000 100% 15,000 90% 13,500
50,000 40,000 42,500

Solution: Average
Materials Conversion Cost
Quantity Schedule Actual WD EP WD EP
Units in process, beg 10,000
Unit Started 40,000
Total 50,000
Units Completed 35,000 100% 35,000 100% 35,000
Units in Process, end 15,000 100% 15,000 90% 13,500
50,000 50,000 48,500

Illustration for Preparation of Cost of Production Report

The following information pertains to Brill John Corporation for its June 2020
production. Finishing department and the previous department is Molding Department
Units in process, beg, 60% completed 5,000
Units Started 30,000
Units Completed 30,000
Units in process, End, 90% completed 5,000
Materials are added at the beginning of the process

Costs Beg
Cost from preceding department 85,000 450,000
Materials 21,000 360,000
Labor and Overhead(Conversion cost) 38,000 425,250
 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

Solution for FIFO Method

Brill John Corporation
Cost of Production Report
For the month of June 2020
(Finishing Department)

Materials Conversion Cost

Quantity Schedule Actual WD EP WD EP
Units in process, beg 5,000
Unit Started 30,000
Total 35,000
Units in Process, beg 5,000 - - 40% 2,000
Units Completed 25,000 100% 25,000 100% 25,000
Units in Process, end 5,000 100% 5,000 90% 4,500
35,000 30,000 31,500

Cost Charge to the department

In Process, beg 144,000
Cost from Preceding department 450,000 15.00
Cost added in the department
Materials 360,000 12.00
Conversion cost 425,250 13.50
Total cost to be accounted for 1,379,250 40.50
Cost accounted for as follows:
Completed and transferred
From IP, beginning
Cost last month 144,000
Cost added this month:
Materials -
Conversion cost 27,000 27,000 171,000
This month completed and transferred 1,012,500 1,183,500

In Process, end

Cost from preceding department 75,000

Materials 60,000
Conversion Costs 60,750 195,750
Total cost as accounted for 1,379,250

Journal entries:

Work in process – Finishing Department 450,000

Work in Process – Molding Department 450,000

Work in Process – Finishing Department 785,250

Materials 360,000
Payroll/Factory Overhead Applied 425,250
 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

Finished Goods 1,183,500

Work in process – Forming Department 1,183,500

Solution for Average

Brill John Corporation
Cost of Production Report
For the month of June 2020
(Finishing Department)

Materials Conversion Cost

Quantity Schedule Actual WD EP WD EP
Units in process, beg 5,000
Unit Started 30,000
Total 35,000
Units Completed 30,000 100% 30,000 100% 30,000
Units in Process, end 5,000 100% 5,000 90% 4,500
35,000 35,000 34,500

Cost Charge to the department

Cost from Preceding department (85,000+450,000) 535,000
15.28571429
Cost added in the department
Materials (21,000+360,000) 381,000
10.88571429
Conversion cost (38,000+425,250) 463,250
13.42753623
Total cost to be accounted for 1,379,250
39.59896481

Cost accounted for as follows:

Completed and transferred (30,000*39.59896481) 1,187,969
In Process, end
Cost from preceding department (5,000*15.28571429) 76,429
Materials (5,000*10.88571429) 54,429
Conversion Costs (4,500*13.42753623) 60,423 191,281
Total cost as accounted for 1,379,250

Journal entries:

Work in process – Finishing Department 450,000

Work in Process – Molding Department 450,000

Work in Process – Finishing Department 785,250

Materials 360,000
Payroll/Factory Overhead Applied 425,250

Finished Goods 1,187,969

Work in process – Forming Department 1,187,969
 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

Let’s Check!
I. Questions:

1. What is FIFO costing?

________________________________________________________
________________________________________________________
________________________________________________________

2. What is Weighted Average costing?

________________________________________________________
________________________________________________________
________________________________________________________

3. What are distinguishing characteristics of FIFO and Weighted average

costing?
________________________________________________________
________________________________________________________
________________________________________________________

II. True or False

1. To calculate weighted-average equivalent production you do not need to

know the number of units in the beginning inventory.
2. Equivalent production calculated using FIFO is higher than equivalent
production calculated using weighted average.
3. If a company has no inventories, the weighted-average approach and the
FIFO approach will result in the same income.
4. Although weighted average and FIFO may give different values for
inventory, the resulting income will always be the same.
5. When the beginning work in process inventory is zero, the peso amounts
assigned to units transferred out under FIFO and weighted-average method
is equal.

III. Multiple choice

1. Which of the following is NOT relevant in determining weighted-average

unit cost in process costing?
a. Cost of beginning inventory.
b. Equivalent unit production in beginning inventory.
c. Equivalent unit production in ending inventory.
d. Units completed.
2. Which company is most likely to use process costing?
a. A manufacturer of nuclear reactors. c. A construction contractor.
b. A cannery. d. A textbook publisher.
 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

3. The numerator of weighted-average unit cost calculations is

a. current period cost.
b. cost of beginning inventory.
c. cost of goods sold.
d. current period cost plus cost of beginning inventory.
4. Which item is NOT relevant in determining FIFO unit cost?
a. Cost of beginning inventory.
b. Equivalent unit production in beginning inventory.
c. Equivalent unit production in ending inventory.
d. Units completed.
5. The FIFO method of calculating equivalent production and unit costs
a. is less likely to be accurate than the weighted-average method.
b. is more useful for control purposes than the weighted-average
method.
c. cannot be used unless a company also uses standard costing.
d. eliminates the need to calculate separate equivalent-production
numbers for each element of manufacturing cost.
6. Falgoma Corporation completed 10,000 units, had beginning inventory of
2,500 units 40% complete, and ending inventory of 1,000 units 20%
complete. Weighted-average EUP was
a. 9,200. b. 10,000. c. 10,200. d. 11,000.
7. Dwendwey Company had a beginning inventory of 3,000 units 35%
complete, and an ending inventory of 2,500 units 20% complete. If 17,500
units were completed and transferred, under FIFO costing what is the EUP
is conversion cost
a. 17,500. b. 16,950. c. 16,050. d. 15,050.
8. Cheating Corporation has a weighted-average EUP of conversion cost
30,000 units. Beginning inventory was 4,000 units 40% complete; ending
inventory was 5,000 units 60% complete. The number of units completed
for the period is
a. 27,000. b. 29,000. c. 30,000. d. 31,000.
9. Susasa Inc. had P 3,000 cost of beginning work in process and incurred an
additional for the period P 28,500 during the period. If weighted-average
EUP was 10,000 units, unit cost would be
a. P 2.85. b. P 3.15. c. P 9.50. d. P 3.00.
10. Woods Run has a weighted-average EUP of 49,750 units. Beginning
inventory of 4,500 units was 60% complete; the ending inventory of 4,800
units was 60% complete. Conversion costs in beginning inventory were P
1,960; conversion costs added during the period were P 40,825.
Conversion costs per unit are
a. P 0.82. b. P 0.86. c. P 0.70. d. P 1.00.
 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

Let’s Analyze!
Senikel Company uses FIFO process costing. Data are as follows:

Beginning inventory 40% complete 5,000 units

Units completed during period 100,000 units
Ending inventory 70% complete 9,000 units

The cost of the beginning inventory was P 2,900 and current period production
costs were P 166,880.
Required:
a. Compute equivalent production.
b. Compute the unit cost.
c. Compute the cost of the ending inventory of work in process.
d. Compute the cost of goods completed and transferred to finished goods
inventory.

In a Nutshell
The following data are available for 2020 for Hunter Y Field, Inc., which uses
weighted-average process costing.

Beginning inventory (30% complete) 4,000 units

Units transferred in during 2020 56,000 units
Units completed during 2020 55,000 units
Ending inventory (60% complete) 4,500 units
Lost-normal (discovered at the end) 500 units

Materials are added at the beginning of the process

Costs of inventory at beginning of 2020
Cost from preceding department P 6,600
Materials 12,000
Conversion Cost 6,750
Production costs incurred during 2020
Cost from preceding department P 660,000
Materials 405,000
Conversion Cost 458,850
Required:
a. Prepare Cost of Production Report for 2020.
b. Compute equivalent production fo-33r 2020.
b. Compute the unit cost for 2020 to the nearest cent.
c. Compute the cost of the ending inventory of work in process.
d. Compute the cost of goods completed and transferred to finished
goods.
 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

Q&A List
Do you have any question for clarification?
Questions/Issues Answers
1.
2.
3.
4.
5.

Keywords index
FIFO Costing Weighted Average Costing
Work in Process Beginning

Self-Help: You can also refer to the sources below to help you
further understand the lesson.
You can also refer to the sources below to help you further understand the
lesson:
De Leon, N. D., De Leon, E. D. and De Leon, G. Jr. M. (2019). Cost accounting and
control. Manila: GIC Enterprise & Co., Inc.
Garrison, R.H., & Noreen, E.W. (2003). Managerial accounting (10th ed.). McGraw-
Hill Company, Inc.
Cabrera, E. B. (2014). Management accounting: concepts and application. Manila:
GIC Enterprise & Co., Inc.
 Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116

Big Picture in Focus: ULOb. Apply the appropriate methods for costing joint
and by products.

Metalanguage

For you to demonstrate ULOb, you will need operational understanding of the terms
enumerated below.

• Joint products – are individual. Products each with significant sales values