Cost Accounting

Process Costing System

Lecture-20
Mian Ahmad Farhan
 Example

Mini Soap Manufactures Co. started to incur cost in first

department for 1000 soaps. At the end of the week, 600
soaps were completed and 400 incomplete. 100% of direct
material had been incurred. But 75% conversion cost was
yet incurred on the incomplete work.

Following in the detail of cost incurred:

Direct material Rs. 500
Direct labor 225
Factory Overhead 135
Required: Prepare cost of production report
 Solution
I-Quantity Schedule:
Units started in process 1000
Units completed in this process 600
Units still in process 400
1,000
II-Cost Accumulated in the Dept / Process:
Total
Direct Material Rs 500
Direct Labor 225
F.O.H 135
860
 Cost Of Production Report
III-Calculation of Equivalent Units Produced:
Direct material : 600+(400x100%) = 1000
Direct labor : 600+(300x75%) = 900
F.O.H : 600+(300x75%) = 900

IV- Unit Cost:

Direct material : 500/1,000 = 0 .50
Direct labor : 225/900 = 0.25
F.O.H : 135/900 = 0.15
0.90
 Cost Of Production Report
V- Apportionment Of the Accumulated Cost to
Finished Goods:
Cost of units transferred to the next department
No of completed units x Total cost per unit:
600 x 0.90 = 540
Closing W.I.P Inventory:
Direct Material 400 x 0.50 = 200
Direct Labor 300 x .25 = 75
F.O.H 300 x .15 = 45 320
860
 Cost Of Production Report
W.I.P A/C

Material 500 Transfer to Dept# 2 540

Payroll 225
FOH 135 Balance C/F 320
860 860
 Accounting Entries
Particulars Debit Credit

W.I.P (Dept-I) 500

To Material a/c 500
W.I.P (Dept-I) 225
To Payroll a/c 225
W.I.P (Dept-II) 135
To FOH applied 135
W.I.P (Dept-2) a/c 540
To W.I.P (Dept-I) 540
Finish Goods 540
To W.I.P Dept-I 540