Process Costing

ACCY918: Cost and Management Accounting

Week 3
 Learning Objectives
 Identify the situations in which process-costing
systems are appropriate
 Calculate equivalent units and understand how to
use them
 Describe the five steps in process costing
 Prepare accounting entries for process-costing
systems
 Use the weighted-average method of process
costing
 Use FIFO method of process costing
Lecture 3-Part 1:
Process Costing
• Identify the situations in which
process-costing systems are
appropriate
• Calculate equivalent units and
understand how to use them
• Describe the five steps in
process costing
• Prepare accounting entries
for process-costing systems
 Costing Systems in Organisations

Process Job-order
Costing Costing

Similarities
 Both assign material, labor and overhead costs to
products for computing unit product cost.
 Both systems use the same accounts, including
Manufacturing Overhead, Raw Materials, Work in
Process, and Finished Goods.
 The flow of costs through the manufacturing
accounts is basically the same in both systems.
 Flow of Costs-Job Costing
Raw Material Inventory Work in Process Finished Goods Cost of
Inventory-Job1 Inventory Goods Sold

Wages

Factory Overhead

Finished Goods Cost of

Work in Process
Inventory Goods Sold
Inventory-Job 2
 Flow of Costs-Process Costing
Raw Material Inventory Work in Process
Inventory-Process 1

Conversion costs

Work in Process Cost of

Process- 2 Finished Goods
Inventory Goods Sold
Types of Product-Costing Systems

Distinct units of a Masses of identical or similar

product or service units of a product or service
 Illustrating Process Costing
Direct Materials, Direct Labor
Indirect Manufacturing Costs

Process Process Completed production Finished

A B Goods
Consists of
stock of like
units valued at
average unit
cost of
production
 Differences Between Job-Order
and Process Costing
Job Order Costing Process Costing
different jobs are worked on each period. Identical units on continuous
flow
accumulate costs by individual jobs. accumulate costs by
department.
use job cost sheets to accumulate costs use department production
reports to accumulate costs.
compute unit costs by job. compute unit costs by
department.
The concept of Equivalent
units is used for calculating
unit cost.
 Equivalent Units
January February March

Product cost =$400

Product cost per unit =$400÷8=$50

January February March

Product cost =$400

Product cost per unit ??????
 Equivalent Units
Equivalent units are derived amount of output units
that:

(a) takes the quantity of each input (factor of

production) in units completed or in
incomplete units of work in process, and
(b) converts the quantity of input into the
amount of completed output units that could
be made with the quantity of input.
Horngren el al., 2023, p.604
 Equivalent Units

Two one-half completed products are

equivalent to one completed product.

+ =
So, 8,000 units 70 percent complete
are equivalent to 5,600 complete units.
 Example - 1

For the current period, Ames started 15,000

units and completed 10,000 units, leaving
5,000 units in process 30 percent complete.
How many equivalent units of production
did Ames have for the period?
a. 10,000
b. 11,500
c. 13,500
d. 15,000
Calculating cost per Equivalent Unit

Cost per
Costs for the period
equivalent = Equivalent units for the period
unit
 Example - 2
Now assume that Ames incurred $27,600
in production costs for the 11,500
equivalent units. What was Ames’
average cost per equivalent unit for the
period?
a. $1.84
b. $2.40
c. $2.76
d. $2.90
Process Costing and Direct Labor
Direct
Materials Direct labor costs
may be small
in comparison to
Dollar Amount

MOH other product

costs in process
Direct cost systems.
Labor

Type of Product Cost

Process Costing and Direct Labor
Direct
Materials Direct labor costs
Conversion
may be small
in comparison to
Dollar Amount

other product
costs in process
cost systems.

Type of Product Cost

Direct labor and manufacturing overhead may be
combined into one product cost called conversion.
 Five Steps in Process Costing

Step 1: Summarize the flow of physical units of output.

Step 2: Compute output in terms of equivalent units.
Step 3: Compute equivalent unit costs.
Step 4: Summarize total costs to account for.
Step 5: Assign total costs to units completed and to
units in ending work in process inventory.
 Case 1: Process Costing with zero beginning
inventory
Data for the Assembly department for January 2023:
Physical units
Work in process, beginning 0
Started during current period 35,000
Completed and transferred out
during current period 25,000
Work in process, ending (100%/20%) 10,000

Costs
Direct materials $ 119,000
Conversion costs $ 54,000
Total production $ 173,000
 PRODUCTION COST SHEET
STEP 1 STEP 2
Equivalent Units
Physical Direct Conversion
Flow of Production Units % Materials % Costs
Beginning Work in Process
Units Started in January
Total Units to Account For
Units Completed in Jan

Ending Work in Process

Units Accounted For

STEP 4 STEP 3
Total
Product Direct Conversion
Costs Materials Costs
Beginning Work in Process
Current Period Costs Added
Total Costs to Account For
Divide by Equivalent Units
Cost per Equivalent Unit

STEP 5: Cost Assignment:

(a) Units Completed

(a) Ending work in process

Work in Process Account

Units Amount Units Amount
1 Physical units

STEP 1

Physical
Flow of Production Units
Beginning Work in Process 0
Units Started during January 35,000
Total Units to Account For 35,000
Units Completed in Jan 25,000

Ending WIP (100% / 20% ) 10,000

Units Accounted For 35,000
2 Compute equivalent units
STEP 1 STEP 2
Equivalent Units
Physical Direct Conversion
Flow of Production Units % Materials % Costs
Beginning Work in Process 0
Units Started during January 35,000
Total Units to Account For 35,000
Units Completed in Jan 25,000 100% 25,000 100% 25,000

Ending WIP (100% /20% ) 10,000 100% 10,000 20% 2,000

Units Accounted For 35,000
35,000 27,000
3 Compute equivalent unit costs
STEP 1 STEP 2
Equivalent Units
Physical Direct Conversion
Flow of Production Units % Materials % Costs
Beginning Work in Process 0
Units Started during January 35,000
Total Units to Account For 35,000
Units Completed in Jan 25,000 100% 25,000 100% 25,000

Ending Work in Process 10,000 100% 10,000 20% 2,000

Units Accounted For 35,000
35,000 27,000
STEP 3 :Equivalent unit cost

Direct Conversion
Materials Costs
Beginning Work in Process 0 0
Current Period Costs Added 119,000 54,000
Total Costs to Account For 119,000 54,000
Divide by Equivalent Units 35,000 27,000
Cost per Equivalent Unit $5.40 $ 3.40 $2.00
4 Summarize total costs
STEP 1 STEP 2
Equivalent Units
Physical Direct Conversion
Flow of Production Units % Materials % Costs
Beginning Work in Process 0
Units Started during January 35,000
Total Units to Account For 35,000
Units Completed in Jan 25,000 100% 25,000 100% 25,000

Ending Work in Process 10,000 100% 10,000 20% 2,000

Units Accounted For 35,000
35,000 27,000
STEP 4 STEP 3 :Equivalent unit cost
Total
Product Direct Conversion
Costs Materials Costs
Beginning Work in Process 0 0 0
Current Period Costs Added $173,000 119,000 54,000
Total Costs to Account For $173,000 119,000 54,000
Divide by Equivalent Units 35,000 27,000
Cost per Equivalent Unit $3.40 $2.00
5 Assign total costs
Equivalent Units
Physical Direct Conversion
Flow of Production Units % Materials % Costs
Beginning Work in Process 0
Units Started during January 35,000
Total Units to Account For 35,000
Units Completed in Jan 25,000 100% 25,000 100% 25,000
Ending Work in Process 10,000 100% 10,000 20% 2,000
Units Accounted For 35,000
35,000 27,000
Total Product Direct Conversion
Costs Materials Costs
Beginning Work in Process $ - $0 $0
Current Period Costs Added 173,000 $119,000 $54,000
Total Costs to Account For $ 173,000 $119,000 $54,000
Divide by Equivalent Units 35,000 27,000
Cost per Equivalent Unit $ 5.4000 $ 3.40 $ 2.00
STEP 5: Cost Assignment:
(a) Units Completed
(b) Ending work in process
Total cost accounted for
5 Assign total costs
Equivalent Units
Physical Direct Conversion
Flow of Production Units % Materials % Costs
Beginning Work in Process 0
Units Started during January 35,000
Total Units to Account For 35,000
Units Completed in Jan 25,000 100% 25,000 100% 25,000
Ending Work in Process 10,000 100% 10,000 20% 2,000
Units Accounted For 35,000
35,000 27,000
Total Product Direct Conversion
Costs Materials Costs
Beginning Work in Process $ - $0 $0
Current Period Costs Added 173,000 $119,000 $54,000
Total Costs to Account For $ 173,000 $119,000 $54,000
Divide by Equivalent Units 35,000 27,000
Cost per Equivalent Unit $ 5.4000 $ 3.40 $ 2.00
STEP 5: Cost Assignment:
(a) Units Completed 25,000 x $3.40 25,000 x $2.00
(b) Ending work in process
Total cost accounted for
5 Assign total costs
Equivalent Units
Physical Direct Conversion
Flow of Production Units % Materials % Costs
Beginning Work in Process 0
Units Started during January 35,000
Total Units to Account For 35,000
Units Completed in Jan 25,000 100% 25,000 100% 25,000
Ending Work in Process 10,000 100% 10,000 20% 2,000
Units Accounted For 35,000
35,000 27,000
Total Product Direct Conversion
Costs Materials Costs
Beginning Work in Process $ - $0 $0
Current Period Costs Added 173,000 $119,000 $54,000
Total Costs to Account For $ 173,000 $119,000 $54,000
Divide by Equivalent Units 35,000 27,000
Cost per Equivalent Unit $ 5.4000 $ 3.40 $ 2.00
STEP 5: Cost Assignment:
(a) Units Completed $135,000 85,000 50,000
(b) Ending work in process
Total cost accounted for
5 Assign total costs
Equivalent Units
Physical Direct Conversion
Flow of Production Units % Materials % Costs
Beginning Work in Process 0
Units Started during January 35,000
Total Units to Account For 35,000
Units Completed in Jan 25,000 100% 25,000 100% 25,000
Ending Work in Process 10,000 100% 10,000 20% 2,000
Units Accounted For 35,000
35,000 27,000
Total Product Direct Conversion
Costs Materials Costs
Beginning Work in Process $ - $0 $0
Current Period Costs Added 173,000 $119,000 $54,000
Total Costs to Account For $ 173,000 $119,000 $54,000
Divide by Equivalent Units 35,000 27,000
Cost per Equivalent Unit $ 5.4000 $ 3.40 $ 2.00
STEP 5: Cost Assignment:
(a) Units Completed $135,000 85,000 50,000
(b) Ending work in process 10,000 x $3.40 2,000 x $2.00
Total cost accounted for
5 Assign total costs
Equivalent Units
Physical Direct Conversion
Flow of Production Units % Materials % Costs
Beginning Work in Process 0
Units Started during January 35,000
Total Units to Account For 35,000
Units Completed in Jan 25,000 100% 25,000 100% 25,000
Ending Work in Process 10,000 100% 10,000 20% 2,000
Units Accounted For 35,000
35,000 27,000
Total Product Direct Conversion
Costs Materials Costs
Beginning Work in Process $ - $0 $0
Current Period Costs Added 173,000 $119,000 $54,000
Total Costs to Account For $ 173,000 $119,000 $54,000
Divide by Equivalent Units 35,000 27,000
Cost per Equivalent Unit $ 5.4000 $ 3.40 $ 2.00
STEP 5: Cost Assignment:
(a) Units Completed $135,000 85,000 50,000
(b) Ending work in process $38,000 34,000 4,000
Total cost accounted for $173,000
5 Assign total costs
Equivalent Units
Physical Direct Conversion
Flow of Production Units % Materials % Costs
Beginning Work in Process 0
Units Started during January 35,000
Total Units to Account For 35,000
Units Completed in Jan 25,000 100% 25,000 100% 25,000
Ending Work in Process 10,000 100% 10,000 20% 2,000
Units Accounted For 35,000
35,000 27,000
Total Product Direct Conversion
Costs Materials Costs
Beginning Work in Process $ - $0 $0
Current Period Costs Added 173,000 $119,000 $54,000
Total Costs to Account For $ 173,000 $119,000 $54,000
Divide by Equivalent Units 35,000 27,000
Cost per Equivalent Unit $ 5.4000 $ 3.40 $ 2.00
STEP 5: Cost Assignment:
(a) Units Completed $135,000 85,000 50,000
(b) Ending work in process $38,000 All costs
34,000 4,000
Total cost accounted for $173,000 accounted for
STEP 5: Cost Assignment:
(a) Units Completed 135,000 85,000 50,000
(b) Ending work in process 38,000 34,000 4,000
Total costs accounted for 173,000

WIP Account
Units Amount Units Amount
WIP- beginning 0 Completed and transferred
Started in Jan. 35,000 out during current period 25,000 $135,000
Direct Materials $119,000 WIP- ending (100%/20%) 10,000 $38,000
Conversion costs $ 54,000

35,000 $173,000. 35,000 $173,000

Accounting
Entries for
process
costing
system
 Flow of Costs-Process Costing
Raw Material Inventory Work in Process
Inventory-Process 1

Conversion costs

Work in Process Cost of

Process- 2 Finished Goods
Inventory Goods Sold
Omaha Company has two processing departments
:Assembly and Finishing.

Transactions
(1) Omaha, Inc., purchases direct materials for $119,000.

Accounts Payable WIP Assembly

119,000 119,000

WIP Finishing
Omaha Company has two processing departments
:Assembly and Finishing.
Transactions
(2). Conversion costs are $54,000

Accounts Payable WIP Assembly

119,000 119,000
54,000

Various Accounts WIP Finishing

54,000
Omaha Company has two processing departments
:Assembly and Finishing.
Transactions
(3). Costs of goods completed and transferred are $135,000

Accounts Payable WIP Assembly

119,000 119,000 135,000
54,000
38,000
Various Accounts WIP Finishing
54,000 135,000
Lecture 3-Part 2:
Process Costing
• Use the inventory cost flow
methods: Weighted Average
Methods
Weighted average process costing method

Calculates the equivalent unit cost of all

the work done to date (regardless of the
accounting period in which it is done)
and assign this cost
(a) to equivalent units completed and
transferred out of the process and
(b) to equivalent units in ending work in
process inventory
 Weighted Average February
BWIP Process Costing Cost
Cost

Total Manufacturing costs

Completed units Ending WIP

 Case 1: Process Costing with zero beginning
inventory
Data for the Assembly department for January 2023:
Physical units
Work in process, beginning 0
Started during current period 35,000
Completed and transferred out
during current period 25,000
Work in process, ending (100%/20%) 10,000

Costs
Direct materials $ 119,000
Conversion costs $ 54,000
Total production $ 173,000
 Data for the Assembly department for January 2023:
WIP Account
Units Amount Units Amount
WIP- beginning 0 Completed and transferred
Started in Jan 35,000 out during current period 25,000
WIP- ending (100%/20%) 10,000
35,000 35,000
 Data for the Assembly department for January 2023:
WIP Account
Units Amount Units Amount
WIP- beginning 0 Completed and transferred
Started in Jan 35,000 $119,000 out during current period 25,000 $135,000
$ 54,000 WIP- ending (100%/20%) 10,000 $38,000

35,000 $173,000. 35,000 $173,000

 Case 2: Process Costing with some beginning
inventory
Data for the Assembly department for February 2023:
Physical units
Work in process, beginning (100%/20%) 10,000
Started during current period 35,000
Completed and transferred out
during current period 40,000
Work in process, ending (100%/30%) 5,000

Costs Beginning WIP In February

Direct materials $34,000 $ 134,750
Conversion costs $ 4,000 $ 87,300
Total production $38,000 $222,050
1 Physical units
STEP 1

Physical
Flow of Production Units
Beginning Work in Process 10,000
Units Started in February 35,000
Total Units to Account For 45,000
Units Completed in February 40,000

Ending WIP (100% / 30% ) 5,000

Units Accounted For 45,000
2 Compute equivalent units
STEP 1 STEP 2
Equivalent Units
Physical Direct Conversion
Flow of Production Units % Materials % Costs
Beginning Work in Process 10,000
Units Started in February 35,000
Total Units to Account For 45,000
Units Completed in February 40,000 100% 40,000 100% 40,000

Ending WIP (100% /30% ) 5,000 100% 5,000 30% 1,500

Units Accounted For 15,000
45,000 45,000 41,500
3 Compute equivalent unit costs
STEP 1 STEP 2
Equivalent Units
Physical Direct Conversion
Flow of Production Units % Materials % Costs
Beginning Work in Process 10,000
Units Started in February 35,000
Total Units to Account For 45,000
Units Completed in February 40,000 100% 40,000 100% 40,000

Ending Work in Process 5,000 100% 5,000 30% 1,500

Units Accounted For 45,000
45,000 41,500
STEP 3 :Equivalent unit cost

Direct Conversion
Materials Costs
Beginning Work in Process 34,000 4,000
Current Period Costs Added 134,750 87,300
Total Costs to Account For 168,750 91,300
Divide by Equivalent Units 45,000 41,500
Cost per Equivalent Unit $5.95 $ 3.75 $2.20
4 Summarize total costs
Equivalent Units
Physical Direct Conversion
Flow of Production Units % Materials % Costs
Beginning Work in Process 10,000
Units Started in February 35,000
Total Units to Account For 45,000
Units Completed in February 40,000 100% 40,000 100% 40,000
Ending Work in Process 5,000 100% 5,000 30% 1,500
Units Accounted For 45,000
45,000 41,500
Total Product Direct Conversion
Costs Materials Costs
Beginning Work in Process $34,000 $4,000
Current Period Costs Added $134,750 $87,300
Total Costs to Account For $168,750 $91,300
Divide by Equivalent Units 45,000 41,500
Cost per Equivalent Unit $ 5.95 $ 3.75 $ 2.20
4 Summarize total costs
Equivalent Units
Physical Direct Conversion
Flow of Production Units % Materials % Costs
Beginning Work in Process 10,000
Units Started in February 35,000
Total Units to Account For 45,000
Units Completed in February 40,000 100% 40,000 100% 40,000
Ending Work in Process 5,000 100% 5,000 30% 1,500
Units Accounted For 45,000
45,000 41,500
Total Product Direct Conversion
Costs Materials Costs
Beginning Work in Process $ 38,000 $34,000 $4,000
Current Period Costs Added 222,050 $134,750 $87,300
Total Costs to Account For $ 260,050 $168,750 $91,300
Divide by Equivalent Units 45,000 41,500
Cost per Equivalent Unit $ 5.95 $ 3.75 $ 2.20
5 Assign total costs
Equivalent Units
Physical Direct Conversion
Flow of Production Units % Materials % Costs
Beginning Work in Process 10,000
Units Started in February 35,000
Total Units to Account For 45,000
Units Completed in Feb 40,000 100% 40,000 100% 40,000
Ending Work in Process 5,000 100% 5,000 30% 1,500
Units Accounted For 45,000
45,000 41,500
Total Product Direct Conversion
Costs Materials Costs
Beginning Work in Process $ 38,000 $34,000 $4,000
Current Period Costs Added 222,050 $134,750 $87,300
Total Costs to Account For $ 260,050 $168,750 $91,300
Divide by Equivalent Units 45,000 41,500
Cost per Equivalent Unit $ 5.9500 $ 3.75 $ 2.20
STEP 5: Cost Assignment:
(a) Units Completed 40,000 x $3.75 40,000 x $2.20
(b) Ending work in process
Total cost accounted for $2.1014 $2.00
5 Assign total costs
Equivalent Units
Physical Direct Conversion
Flow of Production Units % Materials % Costs
Beginning Work in Process 10,000
Units Started in February 35,000
Total Units to Account For 45,000
Units Completed in Feb 40,000 100% 40,000 100% 40,000
Ending Work in Process 5,000 100% 5,000 30% 1,500
Units Accounted For 45,000
45,000 41,500
Total Product Direct Conversion
Costs Materials Costs
Beginning Work in Process $ 38,000 $34,000 $4,000
Current Period Costs Added 222,050 $134,750 $87,300
Total Costs to Account For $ 260,050 $168,750 $91,300
Divide by Equivalent Units 45,000 41,500
Cost per Equivalent Unit $ 5.9500 $ 3.75 $ 2.20
STEP 5: Cost Assignment:
(a) Units Completed $238,000 150,000 $88,000
(b) Ending work in process
Total cost accounted for $2.1014 $2.00
5 Assign total costs
Equivalent Units
Physical Direct Conversion
Flow of Production Units % Materials % Costs
Beginning Work in Process 10,000
Units Started in February 35,000
Total Units to Account For 45,000
Units Completed in Feb 40,000 100% 40,000 100% 40,000
Ending Work in Process 5,000 100% 5,000 30% 1,500
Units Accounted For 45,000
45,000 41,500
Total Product Direct Conversion
Costs Materials Costs
Beginning Work in Process $ 38,000 $34,000 $4,000
Current Period Costs Added 222,050 $134,750 $87,300
Total Costs to Account For $ 260,050 $168,750 $91,300
Divide by Equivalent Units 45,000 41,500
Cost per Equivalent Unit $ 5.9500 $ 3.75 $ 2.20
STEP 5: Cost Assignment:
(a) Units Completed $238,000 150,000 $88,000
(b) Ending work in process 5,000 x $3.75 1,500 x $2.2
Total cost accounted for $2.1014 $2.00
5 Assign total costs
Physical Direct Conversion
Flow of Production Units % Materials % Costs
Beginning Work in Process 10,000
Units Started in February 35,000
Total Units to Account For 45,000
Units Completed in Feb 40,000 100% 40,000 100% 40,000
Ending Work in Process 5,000 100% 5,000 30% 1,500
Units Accounted For 45,000
45,000 41,500
Total Product Direct Conversion
Costs Materials Costs
Beginning Work in Process $ 38,000 $34,000 $4,000
Current Period Costs Added 222,050 $134,750 $87,300
Total Costs to Account For $ 260,050 $168,750 $91,300
Divide by Equivalent Units 45,000 41,500
Cost per Equivalent Unit $ 5.9500 $ 3.75 $ 2.20
STEP 5: Cost Assignment:
(a) Units Completed $238,000 150,000 $88,000
(b) Ending work in process 22,050 18,750 3,300
Total cost accounted for $260,050
$2.1014 $2.00
STEP 5: Cost Assignment:
(a) Units Completed $238,000 150,000 $88,000
(b) Ending work in process 22,050 18,750 3,300
Total cost accounted for $260,050
WIP Account
Units Amount Units Amount
WIP- beginning 10,000 38,000 Completed and transferred
Started in Jan. 35,000 out during current period 40,000 $238,000

Direct Materials $134,750 WIP- ending (100%/30%) 5,000 $22,050

Conversion costs $ 87,300

45,000 $260,050 45,000 $260,050

Lecture3-Part 3:
Process Costing
• Use the inventory cost flow
methods: First In First Out
(FIFO) method
BWIP Weighted Average Process Costing
February
Cost Cost

$38,000 $222,050

$260,050
Total Manufacturing costs

Completed units Ending WIP

$238,000 $22,050
BWIP FIFO Process Costing
February
Cost Cost

$222,050
$38,000

BWIP units
Units started in February

Completed units Ending WIP

 First in first out (FIFO) process
costing method
(a) Assign the costs of the previous accounting
period’s equivalent units in beginning WIP
inventory to the first units completed and
transferred out of the process, and
(b) Assigns the cost of equivalent units worked on
during the current period first to complete
beginning inventory, next to start and complete
new units, and finally to units in ending WIP
inventory
 Case 3: Process Costing with some beginning
inventory (Data is same as case 2)
Data for the Assembly department for February 2023:
Physical units
Work in process, beginning (100%/20%) 10,000
Started during current period 35,000
Completed and transferred out
during current period 40,000
Work in process, ending (100%/30%) 5,000

Costs Beginning WIP In February

Direct materials $34,000 $ 134,750
Conversion costs $ 4,000 $ 87,300
Total production $38,000 $222,050
1 Physical units
STEP 1

Physical
Flow of Production Units
Beginning Work in Process 10,000
Units Started in February 35,000
Total Units to Account For 45,000
Units Completed in Feb
From beginning WIP 10,000
Started and completed in Feb 30,000
Ending WIP (100% / 30% ) 5,000
Units Accounted For 45,000
2 Compute equivalent units
STEP 2
Equivalent Units
Physical Direct Conversion
Flow of Production Units % Materials % Costs
Beginning WIP (100% /20% ) 10,000
Units Started in February 35,000
Total Units to Account For 45,000
Units Completed in Feb
Beginning WIP 10,000 0% 80%
Started in February 30,000
Ending WIP (100% /30% ) 5,000
Units Accounted For 45,000
2 Compute equivalent units
STEP 2
Equivalent Units
Physical Direct Conversion
Flow of Production Units % Materials % Costs
Beginning WIP (100% /20% ) 10,000
Units Started in February 35,000
Total Units to Account For 45,000
Units Completed in Feb
Beginning WIP 10,000 0% 0 80% 8,000
Started in February 30,000
Ending WIP (100% /30% ) 5,000
Units Accounted For 45,000
2 Compute equivalent units
STEP 2
Equivalent Units
Physical Direct Conversion
Flow of Production Units % Materials % Costs
Beginning WIP (100% /20% ) 10,000
Units Started in February 35,000
Total Units to Account For 45,000
Units Completed in Feb
Beginning WIP 10,000 0% 0 80% 8,000
Started in February 30,000 100% 100%
Ending WIP (100% /30% ) 5,000
Units Accounted For 45,000
2 Compute equivalent units
STEP 2
Equivalent Units
Physical Direct Conversion
Flow of Production Units % Materials % Costs
Beginning WIP (100% /20% ) 10,000
Units Started in February 35,000
Total Units to Account For 45,000
Units Completed in Feb
Beginning WIP 10,000 0% 0 80% 8,000
Started in February 30,000 100% 30,000 100% 30,000
Ending WIP (100% /30% ) 5,000
Units Accounted For 45,000
2 Compute equivalent units
STEP 2
Equivalent Units
Physical Direct Conversion
Flow of Production Units % Materials % Costs
Beginning WIP (100% /20% ) 10,000
Units Started in February 35,000
Total Units to Account For 45,000
Units Completed in Feb
Beginning WIP 10,000 0% 0 80% 8,000
Started in February 30,000 100% 30,000 100% 30,000
Ending WIP (100% /30% ) 5,000 100% 30%
Units Accounted For 45,000
2 Compute equivalent units
STEP 2
Equivalent Units
Physical Direct Conversion
Flow of Production Units % Materials % Costs
Beginning WIP (100% /20% ) 10,000
Units Started in February 35,000
Total Units to Account For 45,000
Units Completed in Feb
Beginning WIP 10,000 0% 0 80% 8,000
Started in February 30,000 100% 30,000 100% 30,000
Ending WIP (100% /30% ) 5,000 100% 5,000 30% 1,500
Units Accounted For 45,000
2 Compute equivalent units
STEP 2
Equivalent Units
Physical Direct Conversion
Flow of Production Units % Materials % Costs
Beginning WIP (100% /20% ) 10,000
Units Started in February 35,000
Total Units to Account For 45,000
Units Completed in Feb
Beginning WIP 10,000 0% 0 80% 8,000
Started in February 30,000 100% 30,000 100% 30,000
Ending WIP (100% /30% ) 5,000 100% 5,000 30% 1,500
Units Accounted For 45,000
35,000 39,500
3 Compute equivalent unit costs
STEP 2
Units Completed in Feb
Beginning WIP 10,000 0% 0 80% 8,000
Started in February 30,000 100% 30,000 100% 30,000
Ending WIP (100% /30% ) 5,000 100% 5,000 30% 1,500
Units Accounted For 45,000
35,000 39,500

STEP 3

Direct Conversion
Materials Costs
Beginning WIP
Production costs in February $134,750 $87,300
Total Costs to Account For
Divide by Equivalent Units
Cost per Equivalent Unit
3 Compute equivalent unit costs
STEP 2
Units Completed in Feb
Beginning WIP 10,000 0% 0 80% 8,000
Started in February 30,000 100% 30,000 100% 30,000
Ending WIP (100% /30% ) 5,000 100% 5,000 30% 1,500
Units Accounted For 45,000
35,000 39,500

STEP 3

Direct Conversion
Materials Costs
Beginning WIP
Production costs in February $134,750 $87,300
Total Costs to Account For $134,750 $87,300
Divide by Equivalent Units
Cost per Equivalent Unit
3 Compute equivalent unit costs
STEP 2
Units Completed in Feb
Beginning WIP 10,000 0% 0 80% 8,000
Started in February 30,000 100% 30,000 100% 30,000
Ending WIP (100% /30% ) 5,000 100% 5,000 30% 1,500
Units Accounted For 45,000
35,000 39,500

STEP 3

Direct Conversion
Materials Costs
Beginning WIP
Production costs in February $134,750 $87,300
Total Costs to Account For $134,750 $87,300
Divide by Equivalent Units 35,000 39,500
Cost per Equivalent Unit
3 Compute equivalent unit costs
STEP 2
Units Completed in Feb
Beginning WIP 10,000 0% 0 80% 8,000
Started in February 30,000 100% 30,000 100% 30,000
Ending WIP (100% /30% ) 5,000 100% 5,000 30% 1,500
Units Accounted For 45,000
35,000 39,500

STEP 3

Direct Conversion
Materials Costs
Beginning WIP
Production costs in February $134,750 $87,300
Total Costs to Account For $134,750 $87,300
Divide by Equivalent Units 35,000 39,500
Cost per Equivalent Unit $6.06 $3.85 $2.21
4 Summarize total costs
STEP 2
Units Completed in Feb
Beginning WIP 10,000 0% 0 80% 8,000
Started in February 30,000 100% 30,000 100% 30,000
Ending WIP (100% /30% ) 5,000 100% 5,000 30% 1,500
Units Accounted For 45,000
35,000 39,500

STEP 4 STEP 3
Total
Product Direct Conversion
Costs Materials Costs
Beginning WIP $38,000
Production costs in February $222,050 $134,750 $87,300
Total Costs to Account For $260,050 $134,750 $87,300
Divide by Equivalent Units 35,000 39,500
Cost per Equivalent Unit 6.06 $3.85 $2.21
5 Assign total costs
STEP Units Completed in Feb
2 Beginning WIP 10,000 0% 080% 8,000
Started in February 30,000 100% 30,000 100% 30,000
Ending WIP (100% /30% ) 5,000 100% 5,000 30% 1,500
Units Accounted For 45,000 35,000 39,500

STEP
3 Cost per Equivalent Unit 6.06 $3.85 $2.21

STEP 5: Cost Assignment

(a) Completed & Transferred out
(I) Beginning WIP (10,000units) $38,000
Costs added in February
Total from beginning WIP
(II) Started and Completed (30k)
Total
(b) Ending work in process
Total costs accounted for
$2.1014 $2.00
5 Assign total costs
STEP Units Completed in Feb
2 Beginning WIP 10,000 0% 080% 8,000
Started in February 30,000 100% 30,000 100% 30,000
Ending WIP (100% /30% ) 5,000 100% 5,000 30% 1,500
Units Accounted For 45,000 35,000 39,500

STEP
3 Cost per Equivalent Unit 6.06 $3.85 $2.21

STEP 5: Cost Assignment

(a) Completed & Transferred out
(I) Beginning WIP (10,000units) $38,000
Costs added in February $17,680 (0 x $3.85) (8,000 x $2.21)
Total from beginning WIP
(II) Started and Completed (30k)
Total
(b) Ending work in process
Total costs accounted for
$2.1014 $2.00
5 Assign total costs
STEP Units Completed in Feb
2 Beginning WIP 10,000 0% 080% 8,000
Started in February 30,000 100% 30,000 100% 30,000
Ending WIP (100% /30% ) 5,000 100% 5,000 30% 1,500
Units Accounted For 45,000 35,000 39,500

STEP
3 Cost per Equivalent Unit 6.06 $3.85 $2.21

STEP 5: Cost Assignment

(a) Completed & Transferred out
(I) Beginning WIP (10,000units) $38,000
Costs added in February $17,680 (0 x $3.85) (8,000 x $2.21)
Total from beginning WIP $55,680
(II) Started and Completed (30k)
Total
(b) Ending work in process
Total costs accounted for
$2.1014 $2.00
5 Assign total costs
STEP Units Completed in Feb
2 Beginning WIP 10,000 0% 080% 8,000
Started in February 30,000 100% 30,000 100% 30,000
Ending WIP (100% /30% ) 5,000 100% 5,000 30% 1,500
Units Accounted For 45,000 35,000 39,500

STEP
3 Cost per Equivalent Unit 6.06 $3.85 $2.21

STEP 5: Cost Assignment

(a) Completed & Transferred out
(I) Beginning WIP (10,000units) $38,000
Costs added in February $17,680 (0 x $3.85) (8,000 x $2.21)
Total from beginning WIP $55,680
(II) Started and Completed (30k) $181,800 (30,000 x $3.85) (30,000 x $2.21)
Total
(b) Ending work in process
Total costs accounted for
$2.1014 $2.00
5 Assign total costs
STEP Units Completed in Feb
2 Beginning WIP 10,000 0% 080% 8,000
Started in February 30,000 100% 30,000 100% 30,000
Ending WIP (100% /30% ) 5,000 100% 5,000 30% 1,500
Units Accounted For 45,000 35,000 39,500

STEP
3 Cost per Equivalent Unit 6.06 $3.85 $2.21

STEP 5: Cost Assignment

(a) Completed & Transferred out
(I) Beginning WIP (10,000units) $38,000
Costs added in February $17,680 (0 x $3.85) (8,000 x $2.21)
Total from beginning WIP $55,680
(II) Started and Completed (30k) $181,800 (30,000 x $3.85) (30,000 x $2.21)
Total $237,480
(b) Ending work in process
Total costs accounted for
$2.1014 $2.00
5 Assign total costs
STEP Units Completed in Feb
2 Beginning WIP 10,000 0% 080% 8,000
Started in February 30,000 100% 30,000 100% 30,000
Ending WIP (100% /30% ) 5,000 100% 5,000 30% 1,500
Units Accounted For 45,000 35,000 39,500

STEP
3 Cost per Equivalent Unit 6.06 $3.85 $2.21

STEP 5: Cost Assignment

(a) Completed & Transferred out
(I) Beginning WIP (10,000units) $38,000
Costs added in February $17,680 (0 x $3.85) (8,000 x $2.21)
Total from beginning WIP $55,680
(II) Started and Completed (30k) $181,800 (30,000 x $3.85) (30,000 x $2.21)
Total $237,480
(b) Ending work in process $22,565 5000 x $3.85 1,500 x $2.21
Total costs accounted for
$2.1014 $2.00
5 Assign total costs
STEP Units Completed in Feb
2 Beginning WIP 10,000 0% 080% 8,000
Started in February 30,000 100% 30,000 100% 30,000
Ending WIP (100% /30% ) 5,000 100% 5,000 30% 1,500
Units Accounted For 45,000 35,000 39,500

STEP
3 Cost per Equivalent Unit 6.06 $3.85 $2.21

STEP 5: Cost Assignment

(a) Completed & Transferred out
(I) Beginning WIP (10,000units) $38,000
Costs added in February $17,680 (0 x $3.85) (8,000 x $2.21)
Total from beginning WIP $55,680
(II) Started and Completed (30k) $181,800 (30,000 x $3.85) (30,000 x $2.21)
Total $237,480
(b) Ending work in process $22,565 5000 x $3.85 1,500 x $2.21
Total costs accounted for $260,045
$2.1014 $2.00
5 Assign total costs
STEP 2
Units Completed in Feb
Beginning WIP 10,000 0% 0 80% 8,000
Started in February 30,000 100% 30,000 100% 30,000
Ending WIP (100% /30% ) 5,000 100% 5,000 30% 1,500
Units Accounted For 45,000 35,000 39,500

STEP 3 Cost per Equivalent Unit 6.06 $3.85 $2.21

Total product costs
STEP 4 Beginning WIP $38,000
Production costs in February $222,050
Total Costs to Account For $260,050

STEP 5: Cost Assignment

(a) Completed & Transferred out
(I) Beginning WIP (10,000units) $38,000
Costs added in February $17,680 (0 x $3.85) (8,000 x $2.21)
Total from beginning WIP $55,680
(II) Started and Completed (30k) $181,800 (30,000 x $3.85) (30,000 x $2.21)
Total $237,480
(b) Ending work in process $22,565 5000 x $3.85 1,500 x $2.21
Total costs accounted for $260,045
* Rounding error = $260,050 - $260,045= $5
* Adjusted completed and transferred out cost = $237,480$2.1014
+ $5 = $237,485 $2.00
(a) Completed & Transferred out
(I) Beginning WIP (10,000units) $38,000
Costs added in February $17,680 (0 x $3.85) (8,000 x $2.21)
Total from beginning WIP $55,680
(II) Started and Completed (30k) $181,800 (30,000 x $3.85) (30,000 x $2.21)
Total $237,480
(b) Ending work in process $22,565 5000 x $3.85 1,500 x $2.21
Total costs accounted for $260,045
* Rounding error = $260,050 - $260,045= $5
* Adjusted completed and transferred out cost = $237,480 + $5 = $237,485

WIP Account
Units Amount Units Amount
WIP- beginning 10,000 38,000 Completed and transferred
Started in Jan. 35,000 out during current period 40,000 $237,485

Direct Materials $134,750 WIP- ending (100%/30%) 5,000 $22,565

Conversion costs $ 87,300

45,000 $260,050 45,000 $260,050

 Comparison of Weighted-
Average and FIFO Methods
Weighted
Average FIFO Difference
Costs of units
completed and
transferred out $238,000 $237,485 +$515
Work in process,
ending 22,050 22,565 - $515
Total costs
accounted for $260,050 $260,050 0
Lecture 3-Part 3: Process Costing

Next : Lecture 4: Activity Based Costing