Product Costing and Cost Accumulation

in a Batch Production Environment

1-1
 Aproduct-costing system
A system to accumulates the costs incurred in a production process
and assigns those costs to the organization’s final products.

Product costs are needed for variety purposes in:

1. Financial Accounting
2.Managerial account
3.Cost management

1-2
 Product and Service Costing

Managerial
Financial
Accounting and
Accounting
Cost Management
Product costs are used
to value inventory and Product costs are used
to compute cost of for planning, control,
goods sold. directing, and
management decision
making.
1-3
 PRODUCT COSTING
• MERCHANDISING COMPANY
• SERVICE COMPANY
• MANUFACTURING COMPANY

1-4
 Flow of Costs in Manufacturing
Firm

Work-in-Process Inventory Finished Goods Inventory

Direct material cost Product cost transferred
Direct labor cost
Manufacturing overhead when product is finished

Cost of Goods Sold Income Summary

Expense closed into

Income Summary at end

of accounting period

1-5
 Types of Product-Costing
Systems
Process Job-Order
Costing Costing

 Used for production of large, unique, high-cost items.

 Built to order rather than mass produced.
 Many costs can be directly traced to each job.
TWO TYPES:
Job-shop operations
Products manufactured in very low volumes or one at
a time.
 Batch-production operations
Multiple products in batches of relatively small quantity.
1-6
 Types of Product-Costing
Systems
Process Job-Order
Costing Costing

 Typical job-order cost applications:

 Special-order printing
 Building construction
 Also used in service industry
 Hospitals
 Law firms
1-7
 Types of Product-Costing
Systems
Process Job-Order
Costing Costing

 Used for production of small, identical, low cost

items.
 Mass produced in automated continuous
production process.
 Costs cannot be directly traced to each unit of
product.
Typical process cost applications:
Petrochemical refinery
Paint manufacturer
Paper mill 1-8
 Accumulating Costs in a
Job-Order Costing System
The primary document
for tracking the costs
associated with a
given job is the job-
cost record.

Let’s investigate using

the AFB Company

1-9
Job-Order Cost Accounting JOB-COST RECORD
Job Number F16 Description 80 deluxe alum. fishing boats
Date Started Nov. 1, 20x1 Date Completed Nov. 22, 20x1
Number of Units Completed 80
Direct Material
Date Requisition Number Quantity Unit Price Cost

Direct Labor
Date Requisition Number Quantity Unit Price Cost

Manufacturing Overhead
Date Requisition Number Quantity Unit Price Cost

Cost Summary
Cost Item Amount
Total direct material
Total direct labor
Total manufacturing overhead
Total cost
Unit cost

Shipping Summary
Units Remaining
Date Units Shipped in Inventory Cost Balance

1-10
Job-Order Cost Accounting JOB-COST RECORD
Job Number F16 Description 80 deluxe alum. fishing boats
Date Started Nov. 1, 20x1 Date Completed Nov. 22, 20x1
Number of Units Completed 80
Direct Material
Date Requisition Number Quantity Unit Price Cost

Direct Labor
Date Requisition Number Quantity Unit Price Cost

A materials requisition
Manufacturing Overhead
Date Requisition Number
form
Quantity
Unit Price
isCostused to
Cost Summary authorize the use of
Cost Item Amount
Total direct material
Total direct labor
materials on a job.
Total manufacturing overhead
Total cost
Unit cost

Shipping Summary
Let’s see one
Units Remaining
Date Units Shipped in Inventory Cost Balance

1-11
 Job-Order Cost Accounting
Requisition No. 352 Date 11/1/x1
Job Number to Be Charged F16 Dept. Painting
Department Supervisor Timothy Williams

Item Quantity Unit Cost Amount

Aluminum 7,200 sq ft $ 2.50 $ 18,000.00

Authorized
Signature
Timothy Williams

1-12
Job-Order Cost Accounting JOB-COST RECORD
Job Number F16 Description 80 deluxe alum. fishing boats
Date Started Nov. 1, 20x1 Date Completed Nov. 22, 20x1
Number of Units Completed 80
Direct Material
Date Requisition Number Quantity Unit Price Cost
11/1/x1 352 7,200 sq ft $2.50 $18,000

Direct Labor
Date Requisition Number Quantity Unit Price Cost

Manufacturing Overhead
Date Requisition Number Quantity Unit Price Cost

Cost Summary
Cost Item Amount
Total direct material $18,000
Total direct labor
Total manufacturing overhead
Total cost
Unit cost

Shipping Summary
Units Remaining
Date Units Shipped in Inventory Cost Balance

1-13
Job-Order Cost Accounting JOB-COST RECORD
Job Number F16 Description 80 deluxe alum. fishing boats
Date Started Nov. 1, 20x1 Date Completed Nov. 22, 20x1
Number of Units Completed 80
Direct Material
Date Requisition Number Quantity Unit Price Cost
11/1 803 7,200 sq ft $2.50 $18,000 Accumulate
Direct Labor direct labor
Date Requisition Number Quantity Unit Price Cost
costs by
means of a
Manufacturing Overhead
Date Requisition Number Quantity Unit Price Cost work record,
such as a time
Cost Summary
Cost Item Amount ticket, for each
Total direct material $18,000
Total direct labor employee.
Total manufacturing overhead
Total cost
Unit cost

Shipping Summary Let’s see one

Units Remaining
Date Units Shipped in Inventory Cost Balance

1-14
 Employee Time Ticket
Employee Ron Bradley Date 11/5/20x1
Employee Number 12 Department
Station Painting

Time Started Time Stopped Job Number

8:00 11:30 F16
11:30 12:00 Shop cleanup
1:00 5:00 A26

1-15
Job-Order Cost Accounting JOB-COST RECORD
Job Number F16 Description 80 deluxe alum. fishing boats
Date Started Nov. 1, 20x1 Date Completed Nov. 22, 20x1
Number of Units Completed 80
Direct Material
Date Requisition Number Quantity Unit Price Cost
11/1 803 7,200 sq ft $2.50 $18,000

Direct Labor
Date Time Cards Quantity Unit Price Cost
Various
dates Various time cards 600 $20 $12,000

Manufacturing Overhead
Date Requisition Number Quantity Unit Price Cost

Cost Summary
Cost Item Amount
Total direct material $18,000
Total direct labor 12,000
Total manufacturing overhead
Total cost
Unit cost

Shipping Summary
Units Remaining
Date Units Shipped in Inventory Cost Balance

1-16
 Job-Order Cost Accounting JOB-COST RECORD
Job Number F16 Description 80 deluxe alum. fishing boats
Date Started Nov. 1, 20x1 Date Completed Nov. 22, 20x1
Number of Units Completed 80
Direct Material
Date Requisition Number Quantity Unit Price Cost
11/1 803 7,200 sq ft $2.50 $18,000

Direct Labor
Date Requisition Number Quantity Unit Price Cost
Various
dates Various time cards 600 $20 $12,000

Manufacturing Overhead
Date Requisition Number Quantity Unit Price Cost

Cost Summary
Cost Item Amount
Total direct material $18,000
Apply manufacturing overhead to jobs using a
Total direct labor
Total manufacturing overhead
12,000

predetermined overhead rate based on direct

Total cost
Unit cost
labor hours (DLH).
Shipping Summary
Units Remaining Let’s do it
Date Units Shipped in Inventory Cost Balance

1-17
Job-Order Cost Accounting JOB-COST RECORD
Job Number F16 Description 80 deluxe alum. fishing boats
Date Started Nov. 1, 20x1 Date Completed Nov. 22, 20x1
Number of Units Completed 80
Direct Material
Date Requisition Number Quantity Unit Price Cost
11/1 803 7,200 sq ft $2.50 $18,000

Direct Labor
Date Requisition Number Quantity Unit Price Cost
Various
dates Various time cards 600 $20 $12,000

Manufacturing Overhead
Date Requisition Number Quantity Unit Price Cost
11/30 Direct Labor Hours 600 $30.00 $18,000

Cost Summary
Cost Item Amount
Total direct material $18,000
Total direct labor 12,000
Total manufacturing overhead 18,000
Total cost
Unit cost

Shipping Summary
Units Remaining
Date Units Shipped in Inventory Cost Balance

1-18
Job-Order Cost Accounting
JOB-COST RECORD
Job Number F16 Description 80 deluxe alum. fishing boats
Date Started Nov. 1, 20x1 Date Completed Nov. 22, 20x1
Number of Units Completed 80
Direct Material
Date Requisition Number Quantity Unit Price Cost
11/1 803 7,200 sq ft $2.50 $18,000

Direct Labor
Date Requisition Number Quantity Unit Price Cost
Various
dates Various time cards 600 $20 $12,000

Manufacturing Overhead
Date Requisition Number Quantity Unit Price Cost
11/30 Direct Labor Hours 600 $30.00 $18,000

Cost Summary
Cost Item Amount
Total direct material $18,000
Total direct labor 12,000
Total manufacturing overhead 18,000
Total cost $48,000
Unit cost $600

Shipping Summary
Units Remaining
Date Units Shipped in Inventory Cost Balance
11/30 60 20 $12,000
1-19
Job-Order Cost Accounting
JOB-COST RECORD
Job Number F16 Description 80 deluxe alum. fishing boats
Date Started Nov. 1, 20x1 Date Completed Nov. 22, 20x1
Number of Units Completed 80
Direct Material
Date Requisition Number Quantity Unit Price Cost
11/1 803 7,200 sq ft $2.50 $18,000

Direct Labor
Date Requisition Number Quantity Unit Price Cost
Various
dates Various time cards 600 $20 $12,000

Manufacturing Overhead
Date Requisition Number Quantity Unit Price Cost
11/30 Direct Labor Hours 600 $30.00 $18,000

Cost Summary
Cost Item Amount
Total direct material $18,000
Total direct labor 12,000
Total manufacturing overhead 18,000
Total cost $48,000
Unit cost $600

Shipping Summary
Units Remaining
Date Units Shipped in Inventory Cost Balance
11/30 60 20 $12,000
1-20
 Manufacturing Overhead Costs
Overhead is applied to jobs using a predetermined
overhead rate (POHR) based on estimates made at
the beginning of the accounting period.
1
Budgeted manufacturing overhead cost
POHR =
2 Budgeted amount of cost driver (or activity base)

Overhead applied = POHR × Actual activity

Based on estimates, and Actual amount of the allocation

determined before the base, such as direct labor hours,
period begins incurred during the period
1-21
 Manufacturing Overhead Costs
Overhead is applied to jobs using a
predetermined overhead rate (POHR) based on
estimates made at the beginning of the
accounting period.

Budgeted manufacturing overhead cost

POHR =
Budgeted amount of cost driver (or activity base)

Overhead applied = POHR × Actual activity

Recall the Aluminum Boat example where:

Overhead applied = $30 per DLH × 600 DLH = $18,000

1-22
 Job-Order Costing
Document Flow Summary

Let’s summarize
the document
flow we have
been discussing
in a job-order
costing system.

1-23
 Job-Order Costing
Document Flow Summary
Production The production order for the job authorizes the start
Order for Job of the production process.

The materials requisition indicates the cost of

Material direct material to charge to jobs and the cost of
indirect material to charge to overhead.
Requisition
Employee time tickets indicate the cost of direct
labor to charge to jobs and the cost of indirect
Labor Time Records labor to charge to overhead.

Actual Cost Driver (or Activity Base)

Apply Manufacturing Overhead X
Predetermined Overhead Rate

1-24
Job-Order System Cost Flows

Let’s examine the

cost flows in a
job-order costing
system. We will
use T-accounts
and start with
materials.

1-25
 Job-Order System Cost Flows
Work in Process
Raw Materials (Job-Cost Record)
•Material •Direct •Direct
Purchases Material Material
•Indirect
Material

Mfg. Overhead
•Indirect
Material

1-26
Job-Order System Cost Flows

Next let’s add

labor costs and
applied
manufacturing
overhead to the
job-order cost
flows. Are you
with me?

1-27
 Job-Order System Cost Flows
Work in Process
Wages Payable (Job-Cost Record)
•Direct •Direct
Labor Material
•Indirect •Direct
Labor Labor

Mfg. Overhead
•Indirect
Material
•Indirect
Labor

1-28
 Job-Order System Cost Flows
Work in Process
Wages Payable (Job-Cost Record)
•Direct •Direct
Labor Material
•Indirect •Direct
Labor Labor
•Overhead
Applied
Mfg. Overhead If actual and applied
•Indirect •Overhead manufacturing overhead are
Material Applied to not equal, a year-end
•Indirect Work in adjustment is required. We
Labor Process will look at the procedure to
accomplish this later.

1-29
Job-Order System Cost Flows

Now let’s
complete the
goods and sell
them. Still with
me?

1-30
 Job-Order System Cost Flows
Work in Process
(Job-Cost Record) Finished Goods
•Direct
Material •Cost of •Cost of •Cost of
•Direct Goods Goods Goods
Mfd. Mfd. Sold
Labor
•Overhead
Applied
Cost of Goods Sold
•Cost of
Goods
Sold

1-31
Job-Order System Cost Flows

Let’s return to
AFB Company
and see what we
will do if actual
and applied
overhead are not
equal.

1-32
 Overhead Application Example

Actual Overhead costs for the year: $5,050,000

Actual direct labor hours worked for the year: 170,000

Applied Overhead = POHR × Actual Direct Labor Hours

Applied Overhead = $30.00 per DLH × 170,000 DLH = $5,100,000

Applied overhead exceeds actual overhead by

$50,000
This difference is called overapplied overhead.

1-33
 Overapplied and Underapplied
Manufacturing Overhead

$50,000 $50,000 may be

may be allocated closed directly to
to these accounts. cost of goods sold.
OR
Work in Finished
Process Goods Cost of
Goods Sold
Cost of
Goods Sold AFB Company’s
Method
1-34
 Overapplied and Underapplied
Manufacturing Overhead

AFB’s Cost AFB’s

of Goods Sold Mfg. Overhead
for the year for the year
Unadjusted Actual Overhead
Balance overhead Applied
costs to jobs
$50,000
$5,050,000 $5,100,000
Adjusted $50,000 $50,000
Balance overapplied

1-35
 Overapplied and Underapplied
Manufacturing Overhead - Summary

Alternative 1 Alternative 2
If Manufacturing Close to Cost
Overhead is . . . Allocation of Goods Sold

UNDERAPPLIED INCREASE INCREASE

Work in Process Cost of Goods Sold
(Applied OH is less Finished Goods
than actual OH) Cost of Goods Sold

OVERAPPLIED DECREASE DECREASE

Work in Process Cost of Goods Sold
(Applied OH is greater Finished Goods
than actual OH) Cost of Goods Sold

1-36
Schedule of Cost of Goods
Manufactured
Schedule of Cost of Goods Manufactured

Direct material:
Raw material inventory, beginning $xxx
Add: Raw material purchases xxx
Raw material available for use $xxx
Deduct: Raw material, ending xxx
Raw material used $xxx

Direct labor xxx

Manufacturing overhead
Indirect material $xxx
Indirect labor xxx
Other actual overhead charges xxx
Total actual manufacturing overhead $xxx
Add: Overapplied overhead
or Deduct: Underapplied overhead xxx
Overhead applied to work-in-process xxx

Total manufacturing costs $xxx

Add: Work-in-process inventory, beginning xxx
Subtotal $xxx
Deduct: Work-in-process inventory, ending xxx
Cost of goods manufactured $xxx
1-37
Schedule of Cost of Goods Sold

Schedule of Cost of Goods Sold

Finished goods inventory, beginning $xxx

Add: Cost of goods manufactured* xxx
Cost of goods available for sale $xxx
Deduct: Finished goods inventory, ending xxx
Cost of goods sold $xxx
Add: Underapplied overhead
or Deduct: Overapplied overhead xxx
Cost of goods sold (adjusted) $xxx

* From Cost of Goods Manufactured Schedule

1-38
 Actual and Normal Costing

Actual direct material Actual direct material

and direct labor and direct labor
combined with combined with
actual overhead. predetermined overhead.

Using a predetermined rate makes it

possible to estimate total job costs sooner.
Actual overhead for the period is not
known until the end of the period.
1-39
 Two-Stage Cost Allocation
Indirect Indirect Other
Stage One: Labor Materials Overhead
Costs assigned
to pools

Department Department Department

Cost pools
1 2 3

1-40
 Departmental Overhead Rates
Indirect Indirect Other
Stage One: Labor Materials Overhead
Costs assigned
to pools
Department Department Department
Cost pools
1 2 3
Direct Machine Raw
Stage Two: Labor Hours Materials
Costs applied Hours Cost
to products
Products
Departmental Allocation Bases

1-41
 Job-Order Costing in
Nonmanufacturing Organizations

THE JOB

Cases Missions

Programs Contracts

1-42
 Changing Technology in
Manufacturing Operations
• Computerized data
interchange has eliminated
much of the paperwork
associated with job-order
cost systems.

• Scanning devices have

simplified data entry to
record material and labor
use.
1-43
 Comparison of Job-Order
Costing and Process Costing
Process
Process Job-order
Costing
Costing Costing

 Used for production of small,

identical, low cost items.
 Mass produced in automated
continuous production process.
 Costs cannot be directly traced to
each unit of product.
1-44
 Comparison of Job-Order
Costing and Process Costing
Process
Process Job-order
Costing
Costing Costing

Typical process cost applications:

 Petrochemical refinery
 Paint manufacturer
 Paper mill

1-45
 Comparison of Job-Order
Costing and Process Costing
Job-order costing Process costing
– Costs accumulated by – Costs accumulated by
the job. department or process.
– Work in process has a – Work in process has a
job-cost sheet for each production report for
job. each batch of products.
– Many unique, high cost – A few identical, low cost
jobs. products.
– Jobs built to customer – Units continuously
order. produced for inventory
in automated process.
1-46
 Differences Between Job-Order
and Process Costing
The work-in-process
account consists of
individual jobs in a
Direct Material
job-order cost system.

Direct Labor Finished

Jobs Goods

Manufacturing Cost of
Overhead Goods
Sold
1-47
 Differences Between Job-Order
and Process Costing
The work-in-process
account consists of
individual products in a
Direct Material
process cost system.

Direct Labor Finished

& Overhead Products Goods
(Conversion)

When direct labor is a relatively small amount Cost of

compared to material and overhead, it is often Goods
combined with overhead. Sold
1-48
 Process Cost Flows
One Production Department
Work-in-Process Finished Goods
Inventory Inventory Cost of Goods Sold
Direct material
Cost of goods completed Cost of goods sold
Direct labor
Applied manufacturing and transferred to during current
overhead finished goods period

1-49
 Process Cost Flows
Two Sequential Production Departments
Work-in-Process Inventory Work-in-Process Inventory
Production Department A Production Department B
Direct material Cost of goods completed
Direct labor in department A and Cost of goods completed
Applied manufacturing transferred to and transferred to
overhead department B finished goods

Direct material
Direct labor
Applied manufacturing
overhead

Finished Goods Inventory Cost of Goods Sold

Cost of goods sold
during current period

1-50
Equivalent Units: A Key Concept

• Costs are accumulated for a period of time for

products in work-in-process inventory.
• Products in work-in-process inventory at the
beginning and end of the period are only
partially complete.
• Equivalent units is a concept expressing these
partially completed products as a smaller
number of fully completed products.

1-51
Equivalent Units Example
Two one-half completed products are
equivalent to one completed product.

+ = l

So, 10,000 units 70 percent complete

are equivalent to 7,000 complete units.

1-52
 Equivalent Units Question 1
For the current period, Jones 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 Jones have for the period?
a. 10,000
b. 11,500
c. 13,500
d. 15,000

1-53
 Equivalent Units Question 1
For the current period, Jones 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 Jones have for the period?
a. 10,000
b. 11,500 10,000 units + (5,000 units × .30)
= 11,500 equivalent units
c. 13,500
d. 15,000

1-54
 Equivalent Units Question 2
If Jones incurred $27,600 in
production costs for the 11,500
equivalent units. What was Jones’s
cost per equivalent unit for the period?
a. $1.84
b. $2.40
c. $2.76
d. $2.90

1-55
 Equivalent Units Question 2
If Jones incurred $27,600 in
production costs for the 11,500
equivalent units. What was Jones’s
cost per equivalent unit for the period?
a. $1.84
b. $2.40 $27,600 ÷ 11,500 equivalent units
c. $2.76 = $2.40 per equivalent unit
d. $2.90

1-56
 Calculating and Using Equivalent
Units of Production
To calculate the direct materials and conversion
costs per equivalent unit for the period:

Materials
cost per Materials cost for the period
= Materials equivalent units for
equivalent
the period
unit
Conversion
cost per Conversion cost for the period
equivalent =
Conversion equivalent units for
the period
unit
1-57
Departmental Production Report

 Analysis of  Calculation
physical flow of equivalent
of units. units.

Production
Report

 Computation  Analysis of
of unit costs. total costs.

1-58
 Equivalent Units of Production –
Weighted-Average Method
The weighted-average method . . .
– Makes no distinction between work done in the
prior period and work done in the current period.
– Blends together units and costs from the prior
period and the current period.

The FIFO method is a more

complex method and is
rarely used in practice.

1-59
 Production Report Example
• MVP Sports Equipment Company makes baseball gloves
in two departments, Cutting and Stitching.
• MVP uses the weighted-average cost procedure.
• Material is added at the beginning of the Cutting
Department, and conversion is incurred uniformly
throughout the process.
• Using the following information for the month of March,
let’s prepare a production report for the Cutting
Department.

1-60
 Production Report Example
Work in process, March 1: 20,000 units Cost
Materials: 100% complete. $ 50,000
Conversion: 10% complete. 7,200

Units started into production in March: 30,000 units

Units completed and transferred out in March: 40,000 units

Work in process, March 31: 10,000 units

Materials 100% complete.
Conversion 50% complete.

Costs incurred during March

Materials cost 90,000
Conversion costs:
Direct labor $ 86,000
Applied manufacturing overhead 107,500
Total conversion costs 193,500
Total costs to account for $ 340,700

1-61
 Production Report Example
 Analysis of Physical Flow of Units

Physical
Units
Work in process, March 1 20,000
Units started during March 30,000
Total units to account for 50,000

Units completed and transferred out during March 40,000

Work in process, March 31 10,000
Total units accounted for 50,000

1-62
 Production Report Example
 Calculation of Equivalent Units

Conversion Equivalent Units

Physical Percentage Direct
Units Complete Material Conversion

Work in process, March 1 20,000 10%

Units started during March 30,000
Total units to account for 50,000
50% of 10,000 units

Units completed and transferred 40,000 100% 40,000 40,000

Work in process, March 31 10,000 50% 10,000 5,000
Total units accounted for 50,000
Total equivalent units 50,000 45,000

Beginning inventory % is not used in weighted-average method.

1-63
 Production Report Example
 Calculation of Equivalent Units

Conversion Equivalent Units

Physical Percentage Direct
Units Complete Material Conversion

Work in process, March 1 20,000 10%

Units started during March 30,000
100% of 10,000 units, all
Total units to account for 50,000
material added at beginning
Units completed and transferred 40,000 100% 40,000 40,000
Work in process, March 31 10,000 50% 10,000 5,000
Total units accounted for 50,000
Total equivalent units 50,000 45,000

1-64
 Production Report Example
 Computation of unit costs
Direct
Material Conversion Total
Work in Process, March 1 $ 50,000 $ 7,200 $ 57,200
Costs incurred during March 90,000 193,500 283,500
Total costs to account for $ 140,000 $ 200,700 $ 340,700
Equivalent units 50,000 45,000
Cost per equivalent unit $ 2.80 $ 4.46 $ 7.26

$140,000 ÷ 50,000 equivalent units

$2.80 + $4.46
$200,700 ÷ 45,000 equivalent units
1-65
Production Report Example
 Analysis of total costs

1-66
 Production Report Example
 Analysis of total costs
Cost of goods completed and transferred during March
40,000 units x $7.26 per equivalent unit $ 290,400

Costs remaining in work-in-process on March 31

Direct Material:
10,000 equivalent units x $2.80 per equivalent unit $ 28,000
Convserion:
5,000 equivalent units x $4.46 per equivalent unit 22,300

Total cost of March 31 work-in-process 50,300

Total costs accounted for $ 340,700

1-67
 Production Report Example
 Analysis of total costs
Cost of goods completed and transferred during March
40,000 units x $7.26 per equivalent unit $ 290,400

Costs remaining in work-in-process on March 31

Direct Material:
10,000 equivalent units x $2.80 per equivalent unit $ 28,000
Convserion:
5,000 equivalent units x $4.46 per equivalent unit 22,300

Total cost of March 31 work-in-process 50,300

All costs
Total costs accounted for accounted for $ 340,700

1-68
 MVP SPORTS EQUIPMENT COMPANY
Production Report: Cutting Department
Percentage of
Completion Equivalent Units
Physical with Respect to Direct
Units Conversion Material Conversion

Work in process, March 1 20,000 10%

Units started during March 30,000
Total units to account for 50,000

Units completed and transferred 40,000 100% 40,000 40,000

Work in process, March 31 10,000 50% 10,000 5,000
Total units accounted for 50,000
Total equivalent units 50,000 45,000

Direct
Material Conversion Total

Work in Process, March 1 $ 50,000 $ 7,200 $ 57,200

Costs incurred during March 90,000 193,500 283,500
Total costs to account for $ 140,000 $ 200,700 $ 340,700

Equivalent units 50,000 45,000

Cost per equivalent unit $ 2.80 $ 4.46 $ 7.26

Cost of goods completed and transferred during March

40,000 units x $7.26 per equivalent unit $ 290,400

Costs remaining in work-in-process on March 31

Direct Material:
10,000 equivalent units x $2.80 per equivalent unit $ 28,000

Conversion:
5,000 equivalent units x $4.46 per equivalent unit 22,300

Total cost of March 31 work-in-process 50,300

Total costs accounted for $ 340,700

1-69
Actual Costing vs. Normal Costing

Manufacturing
Actual costs of overhead is applied
manufacturing overhead to Work-in-Process
are entered in Work-in- Inventory using a
Process Inventory predetermined
overhead rate

1-70
 Departmental Production Report
 Analysis of
physical flow
of units.
 Calculation
of equivalent
units.
 Computation
of unit costs.

 Analysis of
total costs.

1-71
 Operation Costing
Operation costing employs some aspects
of both job-order and process costing.

Job-order Operation Costing Process

Costing (Products produced in batches) Costing

1-72
 Operation Costing
Operation costing employs some aspects
of both job-order and process costing.

Job-order Operation Costing Process

Costing (Products produced in batches) Costing

Material Costs charged Conversion costs

to batches as in assigned to batches
job-order costing. as in process costing.

1-73
End of Chapter 4
I’m ready to process
some leisure time.

1-74
1-75