1. Discuss the effect of beginning work in process inventories in process costing.

The existence of beginning work in process inventories creates a problem in

process costing because of the following questions that must be considered.
a. Should a distinction be made between completed units from beginning work
in process inventory and completed units from the current period?
b. Should all the units completed during the current period be included at 100%
in equivalent production regardless of the stage of completion of beginning
work in process inventory?
c. Should the cost of the beginning work in process inventory be added to costs
which have been added to production during the current period to arrive at
Costs added during the period?
Moreover, the answers to these questions will depend on the method chosen to
account for beginning work in process inventory - weighted average costing or first-in,
first-out (FIFO) costing. Under the weighted average method, no distinction is made
between completed units from beginning work in process and completed units from the
current period. It is as if all completed units were started and completed during the
period. Under fifo method, units in the beginning work in process inventory are reported
separately from units of the current period.

2. Discuss the difference between the weighted average and FIFO methods used to
account for beginning work in process inventories. Give examples.

A. Computation of equivalent production:

 FIFO - work done last month on the units in process, beginning is -
considered. The work done needed to make the work in process 100% is
the work done assigned for the current month. (100% - work done last
month).
 AVERAGE - work done last month on the units in process, beginning is
ignored and not considered in the computation of the equivalent
production.

B. Computation of unit cost: 1.

 FIFO = Current period costs/ Equivalent units of current work done
 AVERAGE = Costs in beginning Inventory + Current period cost/
Equivalent units in beginning Inventory + Equivalent units of current
work done

C. Computation of the cost of goods transferred out and the cost of ending
inventory.
Using FIFO, the cost of goods transferred out equals the sum of the following
three items.
  The costs already in the beginning inventory at the beginning of the
period.
 The current period costs to complete beginning inventory, which equals
the equivalent units to complete beginning inventory times the current
period unit cost computed for FIFO.
 The costs to start and complete units, calculated by multiplying the
number times the current units cost computed.
Using FIFO, the cost of goods in ending inventory equals the equivalent units in
ending inventory times the unit current cost. While, using weighted average, the cost of
goods transferred out equals the total units transferred out times the weighted average
unit cost. Also, the cost of goods in ending inventory equals the equivalent units in
ending inventory times the weighted average unit cost.

EXAMPLE:
COMPUTATION OF EQUIVALENT PRODUCTION
Units in process, beg (40% complete) 5,000
Units started 20,000
Units completed 18,000
Units in process, end (80% complete) 7,000

Materials in this department are added 100% at the beginning of the process. Materials

Material Labor & OH

a) Average method Actual WD EP WD EP
Units completed 18,000 100% 18,000 100% 18,000
Units IP, end 7,000 100% 7, 000 80% 5,600
25,000 25,000 23,600

Take note that under average method, the work done on the work in process, beginning is
not considered in the computation of the equivalent production.
 Material Labor & OH
b) FIFO method Actual WD EP WD EP
Units completed
IP, beg. 5,000 60% 3,000
Started & comp. 13,000 100% 13,000 100% 13,000
Units IP, end 7,000 100% 7,000 80% 5,600
25,000 20,000 21,600

No material was added to the units in process, beginning during the month because as of the
end of last month, the units were already 100% complete as to materials.

3. Discuss how to deal with spoiled units in a process cost system.

Costing normal spoilage takes a little math. You add spoilage costs to cost of
goods manufactured. Now consider how costs are assigned using process costing. As
units move from one production department to another, the costs move along with them.
Process costing uses equivalent units to account for units that are partially complete. The
percentage of completion for material cost might be different from conversion costs, and
vice versa. Equivalent units even things out. The goal is for each equivalent unit to have
the same amount of costs attached to it. For an instance, some of your equivalent units
will be spoiled. Maybe you’re running production of 10,000 magazines. As you inspect
the magazines for defects, you notice that 10 magazines have pages that were printed
incorrectly. Those magazines aren’t sellable to customers. Because you expect some
spoilage (due to the limits of your machine’s capability), the ten magazines are
considered normal spoilage. Normal spoilage adds costs to your goods. Thus, you have a
choice when accounting for normal spoilage. You can include the spoiled units in your
calculation of physical units and equivalent units, or you can exclude them (Boyd, 2016).

4. Discuss how scrap and waste materials are handled in a process cost system.
In many manufacturing processes, waste and scrap result from:
1. The processing of materials.
2. Defective and broken parts.
3. Absolute stock.
4. Revisions or abandonment of experimental projects.
5. Worn out or absolute machinery.
 This scrap should be collected and placed in storage for sale to scrap dealers. At
the time of sale, the following entry may be made:
Cash / Accounts Receivable xxx
Scrap Sales / Factory Overhead Control xxx
The amount realized from the sale of scrap and waste can be treated in two ways
with respect to the income statement:
 The amount accumulated in scrap sales may be closed directly to income
summary and shown on the income statement under other income.
 The amount may be credited to factory overhead control, thus reducing the
total factory overhead expense and thereby the cost of goods
manufactured.
When the quantity and value of scrap materials is relatively high, it should be stored in
designated place under the supervision of a storekeeper. A scrap report is generally prepared in
duplicate to authorize transfer and receipt of the scrap. The original is forwarded to the materials
ledger clerk, and a copy remains on file in the department in which the scrape originated.
Proceeds from the sale of scrap in reality a reduction in production cost. As long as the amounts
are relatively small, the accounting treatment is not a major consideration. What is important is
an effective scrap control system based on periodic reporting to responsible supervisory
personnel. Timely scrap reports for each producing department call attention to unexpected items
and unusual amounts and should induce prompt corrective actions (Accounting Details, 2021).

REFERENCES:
Accounting Details. (2021). Cost Accounting Procedure for Scrap and Waste. Retrieved from
https://www.accountingdetails.com/scrap_and_waste.html on December 7, 2021.
Boyd, K. (2016). Cost Accounting: Spoilage and Process Costing. Retrieved from https://www.
dummies.com/article/business-careers-money/business/accounting/general-accounting/
cost-accounting-spoilage-and-process-costing-164762 on December 7, 2021.
De Leon, N., De Leon, E., & De Leon, G. (2019). Cost Accounting and Control- Accounting for
Materials. Manila, Philippines: GIC Enterprises & Co., Inc. Retrieved on December 7,
2021.