Chapter 11

Process Costing

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Learning Objectives
Identify

the types of firms or operations for which a process costing system is most suitable Explain and calculate equivalent units Describe the five steps in process costing Demonstrate the weighted-average method of process costing
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Learning Objectives
Demonstrate

the FIFO method of process

costing Analyze process costing with multiple departments Prepare journal entries to record the flow of costs in a process costing system

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11-5

Learning Objectives
Explain

how process costing systems are implemented and enhanced in practice Account for spoilage in process costing

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Learning Objective One

Identify the types of firms or operations for which a process costing system is most suitable

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Types of Businesses Using Process Costing

Chemicals Chemicals Oil refining Oil refining Textiles Textiles Paints Paints Flour Flour Canneries Canneries Rubber Rubber Steel Steel Food processing Food processing

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Characteristics of Process Costing

Direct Materials Dollar Amount Factory Overhead Direct Labor Type of Product Cost Direct labor costs are usually small in comparison to other product costs in process cost systems.

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Characteristics of Process Costing

Direct Materials Conversion Direct labor costs are usually small in comparison to other product costs in process cost systems.

Dollar Amount
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Type of Product Cost So, direct labor and factory overhead are often combined into one product cost called conversion.
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Comparing Job Costing and Process Costing

Job costing Job costing
Costs accumulated by the Costs accumulated by the

Process costing Process costing

Costs accumulated by Costs accumulated by

job. job.

Work in process has a job Work in process has a job

cost record for each job. cost record for each job.

Many unique jobs. Many unique jobs. Jobs built to customer Jobs built to customer

department or process. department or process. Work in process has a Work in process has a production report for each production report for each batch of products. batch of products. Homogenous products. Homogenous products.
Units continuously Units continuously

order. order.

produced for inventory in produced for inventory in automated process. automated process.

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Comparing Job Costing and Process Costing

Work in process contains individual jobs in a job cost system. Work in Process Finished Goods

Direct Materials Direct Labor

Factory Overhead

Cost of Goods Sold

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Comparing Job Costing and Process Costing

Direct Materials Direct Labor & Overhead (Conversion) Work in process contains homogenous products in a process cost system.

Products

Finished Goods

Cost of Goods Sold

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Comparing Job Costing and Process Costing

Same objective: determine Same objective: determine the cost of products the cost of products

Same Inventory accounts: raw materials, Same Inventory accounts: raw materials, work in process, and finished goods work in process, and finished goods

Same overhead assignment method: Same overhead assignment method: predetermined rate times actual activity predetermined rate times actual activity
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Characteristics of Process Costing

Process costing accumulates costs by process or Process costing accumulates costs by process or department and then assigns them to a large number of department and then assigns them to a large number of nearly identical products. nearly identical products.

Continuous Continuous mass production mass production

Similar Similar processes processes

Homogeneous Homogeneous products products

Unit cost =
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Process costs Equivalent units produced

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Learning Objective Two

Explain and calculate equivalent units

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Equivalent Units
Same objective: determine We must now deal with the concept the cost of products of equivalent units.

Equivalent units is a concept expressing Same Inventory accounts: raw materials, partially complete units as a smaller number work in process, and finished goods of fully complete units. CostSame overhead assignment method: per Manufacturing costs for a period equivalent = predetermined rate times actual the period Equivalent units for activity unit
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11-17

Equivalent Units
Two one-half filled cups are equivalent to one full cup.

+
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So, 10,000 units 70 percent complete are equivalent to 7,000 complete units.
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11-18

Equivalent Units
During its first month of business, Jones During its first month of business, Jones started 15,000 units and completed 10,000 started 15,000 units and completed 10,000 units, leaving 5,000 units in process 30 percent units, leaving 5,000 units in process 30 percent complete. How many equivalent units of complete. How many equivalent units of production did Jones have for the month? production did Jones have for the month? a. 10,000 a. 10,000 b. 11,500 b. 11,500 c. 13,500 c. 13,500 d. 15,000 d. 15,000
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Equivalent Units
During its first month of business, Jones During its first month of business, Jones started 15,000 units and completed 10,000 started 15,000 units and completed 10,000 units, leaving 5,000 units in process 30 percent units, leaving 5,000 units in process 30 percent complete. How many equivalent units of complete. How many equivalent units of production did Jones have for the month? production did Jones have for the month? a. 10,000 a. 10,000 10,000 units + (5,000 units .30) b. 11,500 b. 11,500 = 11,500 equivalent units c. 13,500 c. 13,500 d. 15,000 d. 15,000
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Cost per Equivalent Units

Now assume that Jones incurred $27,600 Now assume that Jones incurred $27,600 in production costs for the 11,500 in production costs for the 11,500 equivalent units. What was Jones cost equivalent units. What was Jones cost per equivalent unit for the period? per equivalent unit for the period? a. $1.84 a. $1.84 b. $2.40 b. $2.40 c. $2.76 c. $2.76 d. $2.90 d. $2.90
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Cost per Equivalent Units

Now assume that Jones incurred $27,600 Now assume that Jones incurred $27,600 in production costs for the 11,500 in production costs for the 11,500 equivalent units. What was Jones cost equivalent units. What was Jones cost per equivalent unit for the period? per equivalent unit for the period? a. $1.84 a. $1.84 $27,600 11,500 equivalent units b. $2.40 b. $2.40 = $2.40 per equivalent unit c. $2.76 c. $2.76 d. $2.90 d. $2.90
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Learning Objective Three

Describe the five steps in process costing

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Five Steps in Process Costs

Analyze the physical flow of physical units. Analyze the physical flow of physical units. Calculate equivalent units of production for all manufacturing cost Calculate equivalent units of production for all manufacturing cost elements. elements. Determine total cost for each manufacturing cost element. Determine total cost for each manufacturing cost element. Compute cost per equivalent unit for each manufacturing cost Compute cost per equivalent unit for each manufacturing cost element. element. Assign the total manufacturing costs to units completed and units of Assign the total manufacturing costs to units completed and units of work in process at the end of the period. work in process at the end of the period.
These five steps are the basis for the production cost report as we will see in the following examples.
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Learning Objective Four

Demonstrate the weighted-average method of process costing

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Weighted-Average Costing
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 in beginning inventory with units and costs in the current period.

Lets look at an example using data from the Molding Department of Hsu Toy Company for the month of June.

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Example for Weighted-Average Costing

Work-in-process inventory, June 1: Direct materials: 100 percent complete Direct labor: 30 percent complete Factory overhead: 40 percent complete Beginning work-in-process inventory Units started during June Units completed during June Work-in-process inventory, June 30: Direct materials: 100 percent complete Direct labor: 50 percent complete Factory overhead: 60 percent complete Costs added during June: Direct materials Direct labor Factory overhead Total costs incurred
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10,000 units $ 10,000 1,060 1,620 $ 12,680 40,000 units 44,000 units 6,000 units ? ? ? $ 44,000 22,440 43,600 $ 110,040

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Weighted-Average Costing

First lets look at a flow chart showing the blending of units in beginning work in process inventory with units started during the month.
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Step 1: Analyze the Physical Units Weighted-Average Costing

Beginning Inventory 10,000 units 40,000 units started Ending Inventory 6,000 units Now lets examine the five-step process.
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50,000 units in process

44,000 units completed

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Step 2: Calculate Equivalent Units Weighted-Average Costing

Flow of Units in June Units to account for Beginning work in process Units started in June Total units to account for Units accounted for Completed and transferred out Ending work in process Total units accounted for Step 1 Step 2 Physical Equivalent Units Units Material Labor Overhead 10,000 40,000 50,000 44,000 6,000 50,000 ? ? ? ? ? ? ? ? ?

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Step 2: Calculate Equivalent Units Weighted-Average Costing

Flow of Units in June Units to account for Beginning work in process Units started in June Total units to account for Units accounted for Completed and transferred out Ending work in process Total units accounted for Step 1 Step 2 Physical Equivalent Units Units Material Labor Overhead 10,000 40,000 50,000 44,000 6,000 50,000 44,000 ? ? 44,000 ? ? 44,000 ? ?

Units completed and transferred are 100% complete for material, labor, and overhead.
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Step 2: Calculate Equivalent Units Weighted-Average Costing

Flow of Units in June Units to account for Beginning work in process Units started in June Total units to account for Units accounted for Completed and transferred out Ending work in process Total units accounted for Step 1 Step 2 Physical Equivalent Units Units Material Labor Overhead 10,000 40,000 50,000 44,000 6,000 50,000 44,000 6,000 50,000 44,000 3,000 47,000 44,000 3,600 47,600

100% of 6,000 units

50% of 6,000 units 60% of 6,000 units

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Step 2: Calculate Equivalent Units Weighted-Average Costing

Flow of Units in June Units to account for Beginning work in process Units started in June Total units to account for Units accounted for Completed and transferred out Ending work in process Total units accounted for Step 1 Step 2 Physical Equivalent Units Units Material Labor Overhead 10,000 40,000 50,000 44,000 6,000 50,000 44,000 6,000 50,000 44,000 3,000 47,000 44,000 3,600 47,600

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Step 3: Determine Total Costs Weighted-Average Costing

Flow of Costs in June Costs to account for (Step 3) Costs in beginning work in process Current costs added during June Total costs to account for Costs per equivalent unit (Step 4) Costs accounted for (Step 5) Costs assigned to units transferred Cost of ending work in process Total costs accounted for Material $ 10,000 44,000 $ 54,000 ? ? ? ? Labor $ 1,060 22,440 $ 23,500 ? ? ? ? Overhead $ 1,620 43,600 $ 45,220 ? ? ? ? Total $ 12,680 110,040 $ 122,720 ? ? ? ?

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Step 4: Calculate Unit Costs Weighted-Average Costing

Flow of Costs in June Costs to account for (Step 3) Costs in beginning work in process Current costs added during June Total costs to account for Costs per equivalent unit (Step 4) Costs accounted for (Step 5) Costs assigned to units transferred Cost of ending work in process Total costs accounted for Material $ 10,000 44,000 $ 54,000 $ 1.08 ? ? ? Labor $ 1,060 22,440 $ 23,500 $ 0.50 ? ? ? Overhead $ 1,620 43,600 $ 45,220 $ 0.95 ? ? ? Total $ 12,680 110,040 $ 122,720 $ 2.53 ? ? ?

$54,000 50,000 equivalent units $23,500 47,000 equivalent units $45,220 47,600 equivalent units
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Step 5: Assign Total Costs Weighted-Average Costing

Flow of Costs in June Costs to account for (Step 3) Costs in beginning work in process Current costs added during June Total costs to account for Costs per equivalent unit (Step 4) Costs accounted for (Step 5) Costs assigned to units transferred Cost of ending work in process Total costs accounted for Material $ 10,000 44,000 $ 54,000 $ 1.08 Labor $ 1,060 22,440 $ 23,500 $ 0.50 Overhead $ 1,620 43,600 $ 45,220 $ 0.95 Total $ 12,680 110,040 $ 122,720 $ 2.53

$ 47,520 ? ?

$ 22,000 ? ?

$ 41,800 ? ?

$ 111,320 ? ?

44,000 equivalent units @ $1.08 44,000 equivalent units @ $0.50 44,000 equivalent units @ $0.95
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Step 5: Assign Total Costs Weighted-Average Costing

Flow of Costs in June Costs to account for (Step 3) Costs in beginning work in process Current costs added during June Total costs to account for Costs per equivalent unit (Step 4) Costs accounted for (Step 5) Costs assigned to units transferred Cost of ending work in process Total costs accounted for Material $ 10,000 44,000 $ 54,000 $ 1.08 Labor $ 1,060 22,440 $ 23,500 $ 0.50 Overhead $ 1,620 43,600 $ 45,220 $ 0.95 Total $ 12,680 110,040 $ 122,720 $ 2.53

$ 47,520 6,480 $ 54,000

$ 22,000 1,500 $ 23,500

$ 41,800 3,420 $ 45,220

$ 111,320 11,400 $ 122,720

6,000 equivalent units @ $1.08 3,000 equivalent units @ $0.50 3,600 equivalent units @ $0.95
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Step 5: Assign Total Costs Weighted-Average Costing

Flow of Costs in June Costs to account for (Step 3) Costs in beginning work in process Current costs added during June Total costs to account for Costs per equivalent unit (Step 4) Costs accounted for (Step 5) Costs assigned to units transferred Cost of ending work in process Total costs accounted for Material $ 10,000 44,000 $ 54,000 $ 1.08 Labor $ 1,060 22,440 $ 23,500 $ 0.50 Overhead $ 1,620 43,600 $ 45,220 $ 0.95 Total $ 12,680 110,040 $ 122,720 $ 2.53

$ 47,520 6,480 $ 54,000

$ 22,000 1,500 $ 23,500

$ 41,800 3,420 $ 45,220

$ 111,320 11,400 $ 122,720

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Learning Objective Five

Demonstrate the FIFO method of process costing

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First-In, First-Out (FIFO) Costing

FIFO costing

Distinguishes between work done in the prior period and work done in the current period.

Assumes units in beginning work in process inventory are completed and transferred first.

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FIFO Costing
Advantages of FIFO costing Inventory costs are more current as current period costs are assigned to units in process and units completed.

Managers can better identify and manage current period costs.

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FIFO Costing

Lets revisit the Molding Department of Hsu Toy company for the month of June. We will use the same data as before, but now we will use FIFO costing.
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Example for FIFO Costing

Work-in-process inventory, June 1: Direct materials: 100 percent complete Direct labor: 30 percent complete Factory overhead: 40 percent complete Beginning work-in-process inventory Units started during June Units completed during June Work-in-process inventory, June 30: Direct materials: 100 percent complete Direct labor: 50 percent complete Factory overhead: 60 percent complete Costs added during June: Direct materials Direct labor Factory overhead Total costs incurred
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10,000 units $ 10,000 1,060 1,620 $ 12,680 40,000 units 44,000 units 6,000 units ? ? ? $ 44,000 22,440 43,600 $ 110,040

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FIFO Costing (continued)

First lets look at a flow chart showing the flow of units in beginning work in process inventory and the flow of units started during the month.
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Step 1: Analyze the Physical Units FIFO Costing

Beginning Inventory 10,000 units 40,000 units started 10,000 units completed 44,000 units completed 34,000 units completed

Ending Inventory 6,000 units

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Now lets examine the five-step process.

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Step 2: Calculate Equivalent Units FIFO Costing

Flow of Units in June Units to account for Beginning work in process Units started in June Total units to account for Units accounted for Completed and transferred: From beginning WIP Started and completed in June Total Ending work in process Total units accounted for
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Step 1 Step 2 Physical Equivalent Units Units Material Labor Overhead 10,000 40,000 50,000

10,000 ? ? From current production 34,000 ? ? 44,000 ? ? 6,000 ? ? 50,000 ? ?

? ? ? ? ?

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Step 2: Calculate Equivalent Units FIFO Costing

Flow of Units in June Units to account for Beginning work in process All material added in prior period 10,000 Units started in June 40,000 for units in beginning WIP Total units to account for 50,000 Units accounted for Completed and transferred: From beginning WIP Started and completed in June Total Ending work in process Total units accounted for
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Step 1 Step 2 Physical Equivalent Units Units Material Labor Overhead

70% of 10,000 units

10,000 0 7,000 From current production 34,000 ? ? 44,000 ? ? 6,000 ? ? 50,000 ? ? 6,000 ? ? ? ?

60% of 10,000 units

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Step 2: Calculate Equivalent Units FIFO Costing

Flow of Units in June Units to account for Beginning work in processof material, labor, and overhead is incurred 10,000 100% Units started in June in June for units started and completed in June. 40,000 Total units to account for 50,000 Units accounted for Completed and transferred: From beginning WIP Started and completed in June Total Ending work in process Total units accounted for
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Step 1 Step 2 Physical Equivalent Units Units Material Labor Overhead

10,000 0 7,000 From current production 34,000 34,000 34,000 44,000 34,000 41,000 6,000 ? ? 50,000 ? ?

6,000 34,000 40,000 ? ?

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Step 2: Calculate Equivalent Units FIFO Costing

Flow of Units in June Units to account for Beginning work in process Units started in June Total units to account for Step 1 Step 2 Physical Equivalent Units Units Material Labor Overhead 10,000 40,000 50,000

50% of 6,000 units

Units accounted for 60% of 6,000 units 100% of 6,000 units Completed and transferred: From beginning WIP 10,000 0 7,000 6,000 Started and completed in June From current production 34,000 34,000 34,000 34,000 Total 44,000 34,000 41,000 40,000 Ending work in process 6,000 6,000 3,000 3,600 Total units accounted for 50,000 40,000 44,000 43,600
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Step 2: Calculate Equivalent Units FIFO Costing

Flow of Units in June Units to account for Beginning work in process Units started in June Total units to account for Units accounted for Completed and transferred: From beginning WIP Started and completed in June Total Ending work in process Total units accounted for
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Step 1 Step 2 Physical Equivalent Units Units Material Labor Overhead 10,000 40,000 50,000

10,000 0 7,000 From current production 34,000 34,000 34,000 44,000 34,000 41,000 6,000 6,000 3,000 50,000 40,000 44,000

6,000 34,000 40,000 3,600 43,600

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Step 3: Determine Total Costs FIFO Costing

Flow of Costs in June Material Labor Overhead Total Costs to account for (Step 3) Costs in beginning WIP inventory $ 10,000 $ 1,060 $ 1,620 $ 12,680 Costs added in June 44,000 22,440 43,600 110,040 Total costs to account for $ 54,000 $ 23,500 $ 45,220 $ 122,720 Costs per equivalent unit (Step 4) ? ? ? ?

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Step 4: Calculate Unit Costs FIFO Costing

$43,600 43,600 equivalent units
Flow of Costs in June Material Labor Overhead Total Costs to account for (Step 3) Costs in beginning WIP inventory $ 10,000 $ 1,060 $ 1,620 $ 12,680 Costs added in June 44,000 22,440 43,600 110,040 Total costs to account for $ 54,000 $ 23,500 $ 45,220 $ 122,720 Costs per equivalent unit (Step 4) $ 1.10 $ 0.51 $ 1.00 $ 2.61

$44,000 40,000 equivalent units $22,440 44,000 equivalent units

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Step 5: Assign Total Costs FIFO Costing

Flow of Costs in June Costs accounted for (Step 5) Costs assigned to units transferred: Costs from beginning WIP inventory June costs added to complete beginning WIP inventory Total costs of beginning WIP inventory June costs of units started and completed Total costs transferred out Cost of endingWIP inventory Total costs accounted for Material Labor Overhead Total

$ 10,000 $ 1,060 $ ? ? ? ? ? ? ? ? ? ? ? ?

1,620 $ 12,680 ? ? ? ? ? ? ? ? ? ? ? ?

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Step 5: Assign Total Costs FIFO Costing

Flow of Costs in June Costs accounted for (Step 5) Costs assigned to units transferred: Costs from beginning WIP inventory June costs added to complete beginning WIP inventory Total costs of beginning WIP inventory June costs of units started and completed Total costs transferred out Cost of endingWIP inventory Total costs accounted for Material Labor Overhead Total

$ 10,000 $ 1,060 $ 0 10,000 ? ? ? ? 3,570 4,630 ? ? ? ?

1,620 $ 12,680 6,000 7,620 ? ? ? ? 9,570 22,250 ? ? ? ?

All material added in prior period for beginning WIP

7,000 equivalent units @ $0.51 6,000 equivalent units @ $1.00

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Step 5: Assign Total Costs FIFO Costing

Flow of Costs in June Costs accounted for (Step 5) Costs assigned to units transferred: Costs from beginning WIP inventory June costs added to complete beginning WIP inventory Total costs of beginning WIP inventory June costs of units started and completed Total costs transferred out Cost of endingWIP inventory Total costs accounted for Material Labor Overhead Total

$ 10,000 $ 1,060 $ 0 10,000 37,400 47,400 ? ? 3,570 4,630 17,340 21,970 ? ?

1,620 $ 12,680 6,000 7,620 34,000 41,620 ? ? 9,570 22,250 88,740 110,990 ? ?

34,000 equivalent units @ $1.10 34,000 equivalent units @ $0.51 34,000 equivalent units @ $1.00
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Step 5: Assign Total Costs FIFO Costing

Flow of Costs in June Costs accounted for (Step 5) Costs assigned to units transferred: Costs from beginning WIP inventory June costs added to complete beginning WIP inventory Total costs of beginning WIP inventory June costs of units started and completed Total costs transferred out Cost of endingWIP inventory Total costs accounted for Material Labor Overhead Total

$ 10,000 $ 1,060 $ 0 3,570 10,000 4,630 37,400 17,340 47,400 21,970 6,600 1,530 $ 54,000 $ 23,500

1,620 $ 12,680 9,570 22,250 88,740 110,990 11,730 $ 122,720

6,000 7,620 34,000 41,620 3,600 $ 45,220

6,000 equivalent units @ $1.10 3,000 equivalent units @ $0.51 3,600 equivalent units @ $1.00
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Step 5: Assign Total Costs FIFO Costing

Flow of Costs in June Costs accounted for (Step 5) Costs assigned to units transferred: Costs from beginning WIP inventory June costs added to complete beginning WIP inventory Total costs of beginning WIP inventory June costs of units started and completed Total costs transferred out Cost of endingWIP inventory Total costs accounted for Material Labor Overhead Total

$ 10,000 $ 1,060 $ 0 3,570 10,000 4,630 37,400 17,340 47,400 21,970 6,600 1,530 $ 54,000 $ 23,500

1,620 $ 12,680 9,570 22,250 88,740 110,990 11,730 $ 122,720

6,000 7,620 34,000 41,620 3,600 $ 45,220

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Which is Better: FIFO or Weighted-Average

FIFO costing results in a current period cost that can be used for performance evaluation. If there is no beginning inventory (JIT) or if beginning inventory is small, FIFO and weighted-average produce the same results.
Unit cost and cost assignment comparison from Hsu Toy Co. Equivalent unit costs: Materials Labor Overhead Cost of goods transferred Ending Inventory Weighted Average $ 1.08 0.50 0.95 $ 111,320 11,400 $ FIFO 1.10 0.51 1.00 $ 110,990 11,730

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Learning Objective Six

Analyze process costing with multiple departments

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Costs Transferred in from Prior Departments

Multiple departments in a process result in units and Multiple departments in a process result in units and

costs that are transferred from a prior department to the costs that are transferred from a prior department to the current department. current department. These transferred-in costs are treated exactly like a direct These transferred-in costs are treated exactly like a direct material that is added at the beginning of a production material that is added at the beginning of a production process. process.

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Costs Transferred in from Prior Departments

Lets revisit Hsu Toy Company with the addition of Lets revisit Hsu Toy Company with the addition of

transferred-in units and costs. We will transfer units transferred-in units and costs. We will transfer units from the Molding Department to the Finishing from the Molding Department to the Finishing Department. Department. The Finishing Department uses: The Finishing Department uses:
Conversion cost (a combination of labor and Conversion cost (a combination of labor and

overhead). overhead). The weighted-average method. The weighted-average method.

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Costs Transferred in from Prior Departments

Work-in-process inventory, June 1: Direct materials: 0 percent complete Transferred-in: 100 percent complete Conversion: 50 percent complete Beginning work-in-process inventory Units transferred-in during June Units complete during June Work-in-process inventory, June 30: Transferred-in: 100 percent complete Conversion: 50 percent complete Costs added during June: Direct materials Conversion Costs transferred-in during June: Weighted-average method Fifo Method
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14,000 units $ 34,250 7,000 $ 41,250 44,000 units 50,000 units 8,000 units ? ? $ 25,000 47,000

$ 111,320 110,990
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Costs Transferred in from Prior Departments (Step 1)

Flow of Units in June Units to account for Beginning WIP inventory Units transferred in during June Total units to account for Units accounted for Completed and transferred out Ending WIP inventory Total units accounted for Step 1 Step 2 Physical Equivalent Units Units Material Conversion Trans-in 14,000 44,000 58,000 50,000 8,000 58,000 ? ? ? ? ? ? ? ? ?

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Costs Transferred in from Prior Departments (Step 2)

Flow of Units in June Units to account for Beginning WIP inventory Units transferred in during June Total units to account for Units accounted for Completed and transferred out Ending WIP inventory Total units accounted for Step 1 Step 2 Physical Equivalent Units Units Material Conversion Trans-in 14,000 44,000 58,000 50,000 8,000 58,000 50,000 ? ? 50,000 ? ? 50,000 ? ?

100% complete for material, conversion, and transferred-in units.

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Costs Transferred in from Prior Departments (Step 2)

Flow of Units in June Units to account for Beginning WIP inventory Units transferred in during June Total units to account for Units accounted for Completed and transferred out Ending WIP inventory Total units accounted for Step 1 Step 2 Physical Equivalent Units Units Material Conversion Trans-in 14,000 44,000 58,000 50,000 8,000 58,000 50,000 0 50,000 50,000 4,000 54,000 50,000 8,000 58,000

50% of 8,000 units Transferred-in units are 100% complete

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11-65

Costs Transferred in from Prior Departments (Step 2)

Flow of Units in June Units to account for Beginning WIP inventory Units transferred in during June Total units to account for Units accounted for Completed and transferred out Ending WIP inventory Total units accounted for Step 1 Step 2 Physical Equivalent Units Units Material Conversion Trans-in 20,000 14,000 60,000 44,000 80,000 58,000 65,000 50,000 15,000 8,000 80,000 58,000 65,000 50,000 6,000 0 71,000 50,000 65,000 50,000 4,000 9,000 74,000 54,000 65,000 50,000 15,000 8,000 80,000 58,000

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Costs Transferred in from Prior Departments (Step 3)

Flow of Costs in June Costs to account for (Step 3) Costs in beginning WIP inventory Current period costs Total costs to account for Costs per equivalent unit (Step 4) Costs accounted for (Step 5) Costs assigned to units transferred Cost of ending WIP inventory Total costs accounted for Material Conversion Trans-in 0 $ 25,000 $ 25,000 $ ? ? ? ? Total 7,000 $ 34,250 $ 41,250 47,000 111,320 183,320 54,000 $ 145,570 $ 224,570 ? ? ? ? ? ? ? ? ? ? ? ?

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11-67

Costs Transferred in from Prior Departments (Step 4)

Flow of Costs in June Costs to account for (Step 3) Costs in beginning WIP inventory Current period costs Total costs to account for Costs per equivalent unit (Step 4) Costs accounted for (Step 5) Costs assigned to units transferred Cost of ending WIP inventory Total costs accounted for Material Conversion Trans-in 0 $ 25,000 $ 25,000 $ $ 0.50 ? ? ? $ ? ? ? Total 7,000 $ 34,250 $ 41,250 47,000 111,320 183,320 54,000 $ 145,570 $ 224,570 1.00 $ 2.5099 $ 4.0099 ? ? ? ? ? ?

$25,000 50,000 equivalent units

$145,570 58,000 equivalent units

$54,000 54,000 equivalent units

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11-68

Costs Transferred in from Prior Departments (Step 5)

Flow of Costs in June Material Conversion Trans-in Total Costs to account for (Step 3) Costs in beginning WIP inventory 0 $ 7,000 $ 34,250 $ 41,250 Current period costs 25,000 47,000 111,320 183,320 Total costs to account for $ 25,000 $ 54,000 $ 145,570 $ 224,570 Costs per equivalent unit (Step 4) $ 0.50 $ 1.00 $ 2.5099 $ 4.0099

Costs accounted for (Step 5) Costs assigned to units transferred $ 25,000 $ Cost of ending WIP inventory ? Total costs accounted for ?

50,000 $ 125,495 $ 200,495 ? ? ? ? ? ?

50,000 equivalent units @ $0.50

50,000 equivalent units @ $2.5099

50,000 equivalent units @ $1.00

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11-69

Costs Transferred in from Prior Departments (Step 5)

Rounding Error
Flow of Costs in June Material Conversion Trans-in Total Costs to account for (Step 3) Costs in beginning WIP inventory 0 $ 7,000 $ 34,250 $ 41,250 Current period costs 25,000 47,000 111,320 183,320 Total costs to account for $ 25,000 $ 54,000 $ 145,570 $ 224,570 Costs per equivalent unit (Step 4) $ 0.50 $ 1.00 $ 2.5099 $ 4.0099

Costs accounted for (Step 5) Costs assigned to units transferred $ 25,000 $ Cost of ending WIP inventory 0 Total costs accounted for $ 25,000 $

50,000 $ 125,495 $ 200,495 4,000 20,079 24,079 54,000 $ 145,574 $ 224,574

0 equivalent units @ $0.50

8,000 equivalent units @ $2.5099

4,000 equivalent units @ $1.00

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11-70

Costs Transferred in from Prior Departments (Step 5)

Flow of Costs in June Material Conversion Trans-in Total Costs to account for (Step 3) Costs in beginning WIP inventory 0 $ 7,000 $ 34,250 $ 41,250 Current period costs 25,000 47,000 111,320 183,320 Total costs to account for $ 25,000 $ 54,000 $ 145,570 $ 224,570 Costs per equivalent unit (Step 4) $ 0.50 $ 1.00 $ 2.5099 $ 4.0099

Costs accounted for (Step 5) Costs assigned to units transferred $ 25,000 $ Cost of ending WIP inventory 0 Total costs accounted for $ 25,000 $

50,000 $ 125,495 $ 200,495 4,000 20,079 24,079 54,000 $ 145,574 $ 224,574

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Learning Objective Seven

Prepare

journal entries to record the flow of costs in a process costing system

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Direct Materials were Requisitioned and Used

Work-in-Process InventoryMolding Dept. 44,000 Work-in-Process InventoryFinishing Dept. 25,000 Materials Inventory 69,000 To record direct materials costs added during June.

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Direct Labor Incurred

Work-in-Process InventoryMolding Dept. 27,440 Work-in-Process InventoryFinishing Dept. 23,500 Accrued Payroll 45,940 To record direct labor costs incurred during June.

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11-74

Factory Overhead Applied

Work-in-Process InventoryMolding Dept. 43,600 Work-in-Process InventoryFinishing Dept. 23,500 Factory Overhead Applied 67,100 To record the application of factory overhead to departments.

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11-75

Transferred-in Costs from the Molding Department

Work-in-Process InventoryFinishing Dept. 111,320 Work-in-Process InventoryMolding Dept. 111,320 To record the weighted-average method of the cost of goods completed in the molding department and transferred out to the finishing department.

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Units Completed

Finished Goods Inventory 200,490 Work-in-Process InventoryFinishing Dept. 200,490

To record the weighted-average method of the cost of goods completed in the finishing department.

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11-77

Learning Objective Nine

Account for spoilage in process costing

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11-78

Spoilage in Process Costing

Normal Spoilage occurs under efficient operating conditions. These costs are absorbed by the good units produced. Abnormal spoilage exceed expected losses under efficient operating conditions and is charged as a loss to operations in the period detected.

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End of Chapter Eleven

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