Chapter 18

Process Costing
Process Costing
Process Job-order
Costing Costing


 Many
Manyunits
unitsof
ofaasingle,
single,homogeneous
homogeneousproduct
productflow
flowevenly
evenlythrough
throughaacontinuous
continuous
production
productionprocess.(các
process.(cácssảảnnph
phẩẩmmmang
mangtính
tínhđđạại itrà,
trà,ttươ
ương
ngttựựnh
nhưưnhau)
nhau)

 One
Oneunit
unitof
ofproduct
productisisindistinguishable
indistinguishablefrom
fromany
anyother
otherunit
unitof
ofproduct.
product.

 Each
Eachunit
unitof
ofproduct
productisisassigned
assignedthe
thesame
sameaverage
averagecost.
cost.

 Cost
Costobject
objectlàlàttừừng
ngphân
phânxxưở
ưởng,
ng,ttừừng
ngworkshop/
workshop/ttừừng
ngdepartment
department
 Uses of Process Cost Systems
Process Cost System Job - Order Cost System
Company Product Company Product
Jones Soda, Soft drinks Young & Rubicam, Advertising
PepsiCo J. Walter Thompson

ExxonMobil, Oil Disney, Movies

Royal Dutch Shell Warner Brothers

Intel, Computer chips Center Ice Ice rinks

Advanced Micro Consultants,
Devices Ice Pro

Dow Chemical, Chemicals Kaiser, Patient health care

DuPont Mayo Clinic

3
 Job – Order (dùng normal) vs Process Cost (dùng actual)

Similarities Differences

1. Manufacturing cost 1. Number of work in process

elements. accounts used.

2. Accumulation of the costs of 2. Documents used to track costs.

materials, labor, overhead. 3. Point at which costs are
3. Flow of costs. totaled.
4. Unit cost computations.

4
 Job - Order vs Process Cost
Feature Job Order Cost System Process Cost System

Work in process One work in process Multiple work in process

accounts account accounts

Documents used Job cost sheets Production cost reports

Determination of total Each job Each period

manufacturing costs

Unit-cost Cost of each job ÷ Total manufacturing costs ÷

computations Units produced for the job Equivalent units produced
during the period

LO 1
5
Job - Order Cost and Process Cost Flow

MOH của B= cp chuyển giao từ phân xưởng A + 3 chi phí phát sinh ở phân xưởng đó
( Lmaterials,
O1
labor, moh)
6
Job-Order vs Process Costing
Costs
Costs are
are traced
traced and
and
applied
applied to to individual
individual
jobs
jobs in
in aa job-order
job-order
Direct
DirectMaterials
Materials cost
cost system.
system.

Finished
Direct
DirectLabor
Labor Jobs
Jobs Finished
Goods
Goods

Manufacturing
Manufacturing
Cost
Costof
of
Overhead
Overhead Goods
Goods
Sold
Sold
Job-Order vs Process Costing
Costs
Costs are
are traced
traced and
and applied
applied
to
to departments
departments inin aa process
process
Direct cost
cost system.
system.
DirectMaterials
Materials

Direct
DirectLabor
Labor Processing
Processing Finished
Finished
Goods
Goods
Department
Department

Manufacturing
Manufacturing Cost
Costof
of
Overhead Goods
Goods
Overhead Sold
Sold
 Process Cost Flows
Work in Process
Raw Materials Department A
• Purchases • Direct • Direct
Material
s
• Indirect Material
s
Material
s

Work in Process
Manufacturing Overhead Department B
Actual Applied
• Other • Direct
Overhead
• Indirec WIP - Department A xxxx Material
t WIP – Department B xxxx s
Materia Manufacturing Overhead xxxx
ls Raw Materials xxxxxx
Process Cost Flows Work in Process
Department A
Wages Payable
• Direct
• Direct
Labor • Material
Direct
• Indirect s
Labor
Labor

Work in Process
Manufacturing Overhead Department B
Actual Applied
• Other • Direct
Overhe
ad
• Indirec •Material
Direct
s
Labor
t WIP - Department A xxxx
• Indirect
Materia
ls WIP – Department B xxxx
Labor
Manufacturing Overhead xxxx
Salaries and wages payable xxxxxx
Process Cost Flows
Work in Process
WIP - Department A xxxx Department A
• Direct
WIP – Department B xxxx
• Material
Direct
Manufacturing Overhead xxxx
s
Labor
• Applied
Overhea
d
Work in Process
Manufacturing Overhead Department B
Actual Applied
• Other • Overhead • Direct
Overhe Applied to
ad
• Indirec Work in •Material
Direct
Process s
Labor
t
• Indirect
Materia • Applied
ls
Labor Overhea
d
Process Cost Flows
Work in Process Work in Process
Department A Department B
• Direct Transferred • Direct
Materials to Dept. B Materials
• Direct • Direct
Labor Labor
• Applied • Applied
Overhea Overhea
d B
WIP - Department xxxx • Transferred
d
from Dept.
WIP – Department A xxxx A
Process Cost Flows
Work in Process
Department B Finished Goods
• Direct • Cost of • Cost of • Cost of
Materials Goods Goods Goods
• Direct Manufactur Manufacture Sold
Labor ed d
• Applied
Overhea
• Transferred
d
from Dept. Cost of Goods Sold
A
• Cost of
Goods
Sold
Finished Goods xxxx
WIP – Department B xxxx
COGS xxxx
Finished Goods xxxx
 Equivalent Units of Production
Equivalent units are partially complete and

are part of work in process inventory.

It is the concept of expressing partially completed products as a

smaller number of fully completed units.

+ =

+ completed units
Equivalent Units of Production
Two half completed products are
equivalent to one completed product.

+ = 1

So,
So, 10,000
10,000 units
units 70
70 percent
percent complete
complete
are
are equivalent
equivalent to
to 7,000
7,000 complete
complete units.
units.
Quick Check 
For
For the
the current
current period,
period, Jones
Jones started
started 15,000
15,000 units
units
and
and completed
completed 10,000
10,000 units,
units, leaving
leaving 5,0005,000 units
units in
in
process
process 3030 percent
percent complete.
complete. How How manymany
equivalent
equivalent units
units of
of production
production did did Jones
Jones have have for
for
the
the period?
period?
a.
a. 10,000
10,000
10,000 units + (5,000 units × 0.30)
b.
b. 11,500
11,500 = 11,500 equivalent units

c.
c. 13,500
13,500
d.
d. 15,000
15,000
Equivalent Units of Production
To calculate the cost per
equivalent unit for the period:
Cost per Production Costs
equivalent = Equivalent units of production

unit cost = dở dang đầu kì + phát sinh trong kì – dở dang cuối kì

Production
 Quick Check 
Now assume that Jones incurred $27,600 in
production costs for the 11,500 equivalent
units of production. What was Jones’ cost per
equivalent unit for the period?
a. $1.84
b. $2.40 $27,600
$27,600÷÷11,500
11,500equivalent
equivalentunits
units
c. $2.76 ==$2.40
$2.40per
perequivalent
equivalentunit
unit

d. $2.90
Equivalent Units of Production

Weighted Average Method

Makes no distinction between work done in prior

and current period.

Blends together units and costs from prior period

and current period.

 Weighted Average Method

Equivalent
Equivalent units
units of
of production
production always
always equals:
equals:
Units
Units completed
completed and
and transferred
transferred
++ Equivalent
Equivalent units
units remaining
remaining in
in ending
ending work
work in
in process
process

Let’s see how this works!

 Weighted Average Method
Matrix, Inc. reported the following activity in Mixing Department for the month of June:

Percent Completed
Units Materials Conversion
Work in process, June 1 300 40% 20%
Trong 300 sản phẩm này đầu tư 40% tiền vật liệu và 20% chế biến ( kì trước) ,
muốn hoàn thành phải bù thêm 60% vật liệu và 80% chi phí chế biến
Units started into production in June 6,000

Units completed and transferred out 5,400 100% 100%

of the Mixing Department during June

Work in process, June 30 900 60% 30%

Step 1: Summarize the Flow of Physical Units of Output.

Beginning Work in Process Inventory: 300 units

Production started during June 6,000 units

Production completed during June 5,400 units

Ending Work in Process Inventory: 900 units

Step 2: Compute the Equivalent Units of Production

Materials Conversion
Units completed and transferred
out of Mixing in June 5,400 5,400
Step 2: Compute the Equivalent Units of Production

Materials Conversion
Units completed and transferred
out of Mixing in June 5,400 5,400
Work in process June 30
(900 units x 60% complete) 540
Step 2: Compute the Equivalent Units of Production
Equivalent units of production always equals:

Units completed and transferred

+ Equivalent units remaining in work in process

Materials Conversion
Units completed and transferred
out of Mixing in June 5,400 5,400
Work in process June 30
(900 units x 60% complete) 540
(900 units x 30% complete) 270
Equivalent units of production
in the Mixing Deparment 5,940 5,670
Step 2: Compute the Equivalent Units of Production

6,000 Units Started

Materials

Beginning Ending
Work in Process 5,100 Units Started Work in Process
300 Units and Completed 900 Units
40% Complete 60% Complete

5,400 Units Completed

540 Equivalent Units 900 × 60%
5,940 Equivalent units
of production
Step 2: Compute the Equivalent Units of Production
6,000 Units Started
Conversion
Beginning Ending
Work in Process 5,100 Units Started Work in Process
300 Units and Completed 900 Units
20% Complete 30% Complete

5,400 Units Completed

900 × 30%
270 Equivalent Units
5,670 Equivalent units
of production
Step 3:Summarize Total Costs to Account For
Beginning Work in Process Inventory: 300 units
Materials: 40% complete $ 6,119
Conversion: 20% complete $ 3,920
Production started during June 6,000 units
Production completed during June 5,400 units

Costs added to production in June

Materials cost $ 118,621
Conversion cost $ 81,130

Ending Work in Process Inventory: 900 units

Materials: 60% complete
Conversion: 30% complete
Step 3:Summarize Total Costs to Account For
Beginning Work in Process Inventory: 300 units
Materials: 40% complete $ 6,119
Conversion: 20% complete $ 3,920
Costs added to production in June
Materials cost $ 118,621
Conversion cost $ 81,130
Total
Cost Materials Conversion
Cost to be accounted for:
Work in process, June 1 $ 10,039 $ 6,119 $ 3,920
Cost added in Assembly 199,751 118,621 81,130
Total cost $ 209,790 $ 124,740 $ 85,050

Equivalent units 5,940 5,670

Step 4: Compute the Cost per Equivalent Unit
 Step 4: Compute the Cost per Equivalent Unit

$124,740 ÷ 5,940 units = $21.00 $85,050 ÷ 5,670 units = $15.00

Total
Cost Materials Conversion
Cost to be accounted for:
Work in process, June 1 $ 10,039 $ 6,119 $ 3,920
Cost added in Assembly 199,751 118,621 81,130
Total cost $ 209,790 $ 124,740 $ 85,050

Equivalent units 5,940 5,670

Cost per equivalent unit $ 21.00 $ 15.00

Cost per equivalent unit = $21.00 + $15.00 = $36.00

 Step 5: Assign Costs to Units Completed
Assembly Department
Cost of Ending WIP Inventory and Units Transferred Out
Materials Conversion Total
Ending WIP inventory:
Equivalent units 540 270
 Step 5: Assign Costs to Units Completed
Assembly Department
Cost of Ending WIP Inventory and Units Transferred Out
Materials Conversion Total
Ending WIP inventory:
Equivalent units 540 270
Cost per equivalent unit $ 21.00 $ 15.00
 Step 5: Assign Costs to Units Completed
Assembly Department
Cost of Ending WIP Inventory and Units Transferred Out
Materials Conversion Total
Ending WIP inventory:
Equivalent units 540 270
Cost per equivalent unit $ 21.00 $ 15.00
Cost of Ending WIP inventory $ 11,340 $ 4,050 $ 15,390
 Step 5: Assign Costs to Units Completed
Assembly Department
Cost of Ending WIP Inventory and Units Transferred Out
Materials Conversion Total
Ending WIP inventory:
Equivalent units 540 270
Cost per equivalent unit $ 21.00 $ 15.00
Cost of Ending WIP inventory $ 11,340 $ 4,050 $ 15,390
Units completed and transferred out:
Units transferred 5,400 5,400
 Step 5: Assign Costs to Units Completed
Assembly Department
Cost of Ending WIP Inventory and Units Transferred Out
Materials Conversion Total
Ending WIP inventory:
Equivalent units 540 270
Cost per equivalent unit $ 21.00 $ 15.00
Cost of Ending WIP inventory $ 11,340 $ 4,050 $ 15,390
Units completed and transferred out:
Units transferred 5,400 5,400
Cost per equivalent unit $ 21.00 $ 15.00
 Step 5: Assign Costs to Units Completed
Assembly Department
Cost of Ending WIP Inventory and Units Transferred Out
Materials Conversion Total
Ending WIP inventory:
Equivalent units 540 270
Cost per equivalent unit $ 21.00 $ 15.00
Cost of Ending WIP inventory $ 11,340 $ 4,050 $ 15,390
Units completed and transferred out:
Units transferred 5,400 5,400
Cost per equivalent unit $ 21.00 $ 15.00
Cost of units transferred out $ 113,400 $ 81,000 $ 194,400
Equivalent Units of Production

FIFO Method
Makes distinction
between work done
in prior and
current period.
Assumes that the units in
beginning inventory are
finished and transferred
out first.
 FIFO Method
Equivalent
Equivalent units
units of
of production
production always
always equals:
equals:
Units
Units completed
completed and
and transferred
transferred
++ Equivalent
Equivalent units
units remaining
remaining in
in ending
ending work
work in
in process
process
-- Equivalent
Equivalent units
units remaining
remaining in
in beginning
beginning work
work in
in process
process

Let’s see how this works!

FIFO Method Compute the Equivalent Units

Materials
Materials
6,000 Units Started

Beginning Ending
Work in Process 5,100 Units Started Work in Process
300 Units and Completed 900 Units
40% Complete 60% Complete

5,400 Units Completed

900 × 60%
540 Equivalent Units
300 x 40%
(120 equivalent units)
5,820 equivalent units of production
=5400x100%+900x60%-300x40%= 5100x100%+900x60%+300x60%
FIFO Method Compute the Equivalent Units

Conversion
Conversion 6,000 Units Started

Beginning Ending
Work in Process 5,100 Units Started Work in Process
300 Units and Completed 900 Units
20% Complete 30% Complete

5,400 Units Completed

900 × 30%
270 Equivalent Units
300 x 20%
(60 equivalent units)

5,610 equivalent units of production

 FIFO Method
Compute the Cost per Equivalent Unit

Cost per Equivalent Unit

 FIFO Method Compute the Cost per Equivalent Unit

$118,621 ÷ 5,820 units = $20.38 $81,130 ÷ 5,610 units = $14.46

Cost Materials Conversion

Cost added in Assembly 199,751 118,621 81,130

Total cost $ 199,751 $ 118,621 $ 81,130

Equivalent units 5,820 5,610

Cost per equivalent unit $ 20.38 $ 14.46

Cost per equivalent unit = $20.38 + $14.46 = $34.84

Production Report
Shows the flow Provides cost
of units and costs information for
through work in financial
process statements

Production
Report

Becomes the Helps managers

job cost sheet control their
in process departments
costing
Production Report
Production
Report

 Quantity
Quantity schedule
schedule with
with
Section 1 computation
computation of
of equivalent
equivalent
units
units

 AA computation
computation of
of cost
cost per
per
Section 2 equivalent
equivalent unit.
unit.

Section 3 
 AA reconciliation
reconciliation of
of cost
cost flows
flows
for
for the
the period.
period.
 Prepare a Cost Reconciliation part
Total
Cost Materials Conversion
Cost to be accounted for:
Work in process, June 1 $ 10,039 $ 6,119 $ 3,920
Cost added in Assembly 199,751 118,621 81,130
Total cost $ 209,790 $ 124,740 $ 85,050

Equivalent units 5,940 5,670

Assembly Department
Cost Reconciliation
Costs to be accounted for:
Cost of beginning Work in Process Inventory $ 10,039
Costs added to production during the period 199,751
Total cost to be accounted for $ 209,790
Prepare a Cost Reconciliation Part
Assembly Department
Assembly Department
Cost of Ending WIP Inventory and Units Transferred Out
Materials Conversion Total
Ending WIP inventory: Cost Reconciliation
Equivalent units 540 270
Costs to be accounted for:
Cost per equivalent unit $ 21.00 $ 15.00
Cost of beginning Work in Process Inventory
Cost of Ending WIP inventory
Units completed and transferred out:
$ 11,340 $ $
4,050 10,039
$ 15,390

Costs added to production during the period

Units transferred 5,400 5,400 199,751
Cost per equivalent unit $ 21.00 $ 15.00
Total cost to be accounted for
Cost of units transferred out $ 113,400 $
$ 81,000 209,790
$ 194,400

Cost accounted for as follows:

Cost of ending Work in Process Inventory $ 15,390
Cost of units transferred out 194,400
Total cost accounted for $ 209,790
Prepare a Cost Reconciliation Part
Assembly Department
Cost Reconciliation
Costs to be accounted for:
Cost of beginning Work in Process Inventory $ 10,039
Costs added to production during the period 199,751
Total cost to be accounted for $ 209,790

Cost accounted for as follows:

Cost of ending Work in Process Inventory $ 15,390
Cost of units transferred out Finished goods hoàn thành ở bước đó chuyển sang
bước tiếp theo 194,400
Total cost accounted for $ 209,790
Production Report Example

Double
Double Diamond
Diamond Skis
Skis uses
uses process
process costing
costing to
to
determine
determine unit
unit costs
costs in
in its
its Shaping
Shaping and
and Milling
Milling
Department.
Department.

Using
Using the
the following
following information
information for
for the
the month
month of
of
May,
May, let’s
let’s prepare
prepare aa production
production report
report for
for Shaping
Shaping
and
and Milling.
Milling.
Production Report – Weighted Average Example
Work
Work in
inprocess,
process, May
May1:1: 200
200 units
units
Materials:
Materials: 55%
55%complete.
complete. $$ 9,600
9,600
Conversion:
Conversion: 30%
30%complete.
complete. $$ 5,575
5,575

Production
Productionstarted
startedduring
during May:
May: 5,000
5,000 units
units
Production
Productioncompleted
completedduring
during May:
May: 4,800
4,800 units
units

Costs
Costsadded
added to
toproduction
production in
in May
May
Materials
Materialscost
cost $$ 368,600
368,600
Conversion
Conversioncost
cost $$ 350,900
350,900

Work
Work in
inprocess,
process, May
May31:
31: 400
400 units
units
Materials
Materials 40%
40%complete.
complete.
Conversion
Conversion 25%
25%complete.
complete.
Production Report – Weighted Average Example
Section 1: Quantity Schedule with Equivalent Units

Work in process, May 1

Started into production
To account for:

Equivalent units
Materials Conversion

Completed and transferred

Work in process, May 31
Materials 40% complete
Conversion 25% complete
Accounted for:
Production Report – Weighted Average Example
Section 2: Compute cost per equivalent unit

Total
Cost Materials Conversion

Work in process, May 1

Costs added in the Shipping
and Milling Department
Total costs to account for:
Cost incurred to date
Equivalent units of work done to date
Cost per equivalent unit
Production Report – Weighted Average Example
Section 3: Cost Reconciliation

Total
Cost Materials Conversion

Transferred out during May

Work in process, May 31:
Materials
Conversion
Total work in process, May 31
Total cost accounted for:
Production Report - FIFO Example
Section 1: Quantity Schedule with Equivalent Units

Work in process, May 1

Started into production
To account for:

Equivalent units
Materials Conversion

Completed and transferred

From beg. WIP
Materials 45% uncomplete
Conversion 70% uncomplete
Started & completed
Work in process, May 31
Materials 40% complete
Conversion 25% complete
Accounted for:
 Production Report – FIFO Example
Section 2: Compute cost per equivalent unit

Total
Cost Materials Conversion

Work in process, May 1

Costs added in the Shipping
and Milling Department
Total cost to account for:
Cost added in the current period
Equivalent units of work done in current period
Cost per equivalent unit
Production Report – FIFO Example
Section 3: Cost Reconciliation
Cost Materials Conversion

Transferred out during May

WIP, beginning
Costs added to beginning WIP in current period
Total from beginning inventory
Started & completed
Total costs of units completed & transferred out
Work in process, May 31:
Materials
Conversion
Total work in process, May 31
Total cost accounted for
 Operation Costing
Operation costing is a hybrid-costing system that
blends characteristics from both job-costing (for direct
materials) and process costing systems (for conversion
costs).
Operation costing is commonly used when batches of
many different products pass through the same
processing department.
End of Chapter 18