PROCESS COSTING CHAPTER # 18

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PROCESS COSTING
Costs tracked through a series of connected manufacturing processes or
departments.

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DISTINGUSIH BETWEEN JOB
ORDER COSTING & PROCESS
COSTING
JOB ORDER COSTING PROCESS COSTING
Products Characteristics: Products Characteristics:
~Use different amount of direct labor ~Are high volume
~Use different amount of direct materials ~Are identical
~Tend to be unique ~Use identical amounts of direct
materials
~Are typically low volume
~Use identical amounts of direct labor
~Often custom order
~Are creative with repetitive operations

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PHYSICAL FLOWS AND COST
FLOWS FOR PROCESS
COSTING

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TYPES OF QUESTIONS
1. Journal entries
2. Computing and using unit costs
3. Equivalents units of production

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JOURNAL ENTRIES

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QUESTION 1:
Shamrock industries uses process costing. All the companies manufacturing activates
take place in a single processing costing. The following information is available for
the month of June.
Direct Materials………………………………………………….$89,750
Direct Labor……………………………………………………...$28,975
Manufacturing Overhead Applied………………………………$40,275
Total costs account for in the June……………………………….$159,000
The amount of W.I.P at the beginning and at the end of the month were immaterial
and signed to no dollar value. During June, 13,250 units were completed of which
10,000 were sold on account at $25 per unit.
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QUESTION 1 (CONT.)

Requirements:

A) prepare a journal entry to summarize the total manufacturing costs applied to

production in June.

B) prepare the journal entry to transfer completed units from W.I.P to the finished
goods warehouse in June.

C) prepare the journal entries to record the sale of 10,000 units manufactured during the
period and the related cost of goods sold.
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COMPUTING AND USING
UNIT COSTS

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QUESTION 2
One of sun Appliance’s products is a dishwasher. Two processing departments are
involved in the dishwasher’s manufacture. The tub is assembled in one department
and a second department assembles and installs the motor. There is no beginning or
ending work in process in either department. During March, the company incurred
the following costs in the manufacture of 4,000 dishwashers.

Tub Dept. Motor Dept.

Direct Materials $150,000 $96,000
Direct Labor $12,000 $18,000
Manufacturing Overhead $18,000 $6,000

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QUESTION 2 (CONT.)
Instructions:
Compute the following per unit costs for the month of March:
I. A tub assembly transferred to the motor department.
II. Assembling a motor and installing it.
III. A completed dishwasher.
IV. Materials used in assembling a tub.
V. Direct labor cost of assembling and installing a motor.

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EQUIVALENTS UNITS OF
PRODUCTION
Units of product in work-in-process inventory are assumed to be partially completed;
otherwise, the units would not be in work-in-process inventory. Process costing
requires partially completed units in ending work-in-process inventory to be converted
to the equivalent completed units (called equivalent units).
Equivalent units are calculated by multiplying the number of physical (or actual) units
on hand by the percentage of completion of the units. If the physical units are 100
percent complete, equivalent units will be the same as the physical units. However, if
the physical units are not 100 percent complete, , the equivalent units will be less than
the physical units.
For example, if four physical units of product are 50 percent complete at the end of the
period, an equivalent of two units has been completed (2 equivalent units = 4 physical
units × 50 percent). The formula used to calculate equivalent units is as follows:
Equivalent units = Number of physical units × Percentage of completion

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QUESTION 3:

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SOLUTION:

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QUESTION 4:
Given;
Total production cost (January 2018): $40,000
Units completed: 8,000 units
Units in process: 4,000 units (50% completed)

Calculate:
(1) Equivalents units of production
(2) Finished goods
(3) Closing W.I.P
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SOLUTION:
(1) Equivalent units of production:
Equivalent units of production = Units completed + units partially completed
Equivalent units of production = 8,000 + 2,000 (0.50 × 4,000)
Equivalent units of production = 10,000 units

(2) Finished goods:

Finished goods = × units completed
Finished goods = × 8,000 units
Finished goods =

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SOLUTION (CONT.):
(3) Closing W.I.P:
Closing W.I.P = × partially units completed
Closing W.I.P = × 2,000 units
Closing W.I.P =

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QUESTION 5:
Assembly Department Finishing Department
D.M D.L MOH D.M D.L MOH
Beginning W.I.P 0 0 0 0 0 0
Units started & 575 575 575 435 435 435
completed
Ending W.I.P 175 70 70 140 28 84
Total equivalent units 750 645 645 575 463 519
Direct Material $29,025 $7,760
Direct Labor $11,610 $15,580
MOH $14,190 $6,228

Instructions: For the above information provided compute total cost per chair.

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