Chapter 3

Process Costing
 Job-Order v. Process Costing
Job-Order Costing Process Costing
Many jobs are worked on A homogeneous product is
during each period, with produced on a continuous
each job having different basis or for long periods of
production requirements. time.
Costs are accumulated by Costs are accumulated by
job. department.
The job cost sheet is the key The departmental production
document for accumulating report is the key document
costs. showing the accumulation and
disposition of costs.
Units costs are computed by Unit costs are computed by
job on a job cost sheet. department on production
reports.
 Problem Information
Mixing Packaging
Unit Information:
Beginning Work in Process:
(Mixing) 10,000
(Packaging) 15,000

Started into Production 70,000 N/A

Transferred In N/A ?

Ending Work in Process:

(Mixing 100% material,
50% conversion) 20,000

(Packaging 100% material,

40% conversion) 5,000
 Problem Information (Continued)
Mixing Packaging
Cost information:
Beginning Work in Process:
Direct materials $18,000 $10,500
Transferred in N/A $92,250
Conversion $31,200 $13,500

Costs Added Currently:

Direct materials $142,000 $49,500
Transferred in N/A ?
Conversion $248,800 $83,700
 Calculation of Equivalent Units
Beginning Work-in-Process Inventory:

Physical Units X 100% = XXX

Started and Completed in Current Period:

Physical Units X 100% = XXX
Ending Work-in-Process Inventory:
Percent of work completed in
Physical Units X = XXX
the current period

Equivalent Units of Production XXX

 Equivalent Units Illustration - Mixing
Materials Conversion Costs
Beginning WIP: Beginning WIP:

10,000 x 100% = 10,000 10,000 x 100% = 10,000

Started & Completed: Started & Completed:

50,000 x 100% = 50,000 50,000 x 100% = 50,000

Ending WIP: Ending WIP:
20,000 x 100% = 20,000 20,000 x 50% = 10,000

Equivalent Units 80,000 70,000

 Equivalent Units Illustration Mixing (alternative approach)
Materials Conversion Costs

Units Completed: Units Completed:

60,000 x 100% = 60,000 60,000 x 100% = 60,000

Ending WIP: Ending WIP:
20,000 x 100% = 20,000 20,000 x 50% = 10,000

Equivalent Units 80,000 70,000

 Cost Per Equivalent Unit (EU) of
Production

Production Cost for Component (include costs

carried forward from beginning WIP)
Equivalent Units of Production for Component
=
Equivalent Unit Cost for Component

Note:
Equivalent units and cost per equivalent unit are often computed for
direct materials and conversion costs (direct labor & manufacturing
overhead). Conversion costs may also be calculated separately.
 Cost Per Equivalent Unit Illustration -
Mixing
Materials Conversion

$18,000 + $142,000 = $2.00 $31,200 + $248,800 = $4.00

80,000 EU 70,000 EU

Total Equivalent Unit Cost:

Materials $2.00
Conversion 4.00
Total EU Cost $6.00
See Direct Material, DL, & MOH Journal Entries on Page 84
 Costs Accounted For
Transferred Out:
Transferred Out EU x Cost Per EU = XXX

Cost in Ending Work-in-Process Inventory:

Ending WIP EU x Cost Per EU = XXX

XXX

Note:
Total cost is computed for direct materials and conversion costs
(direct labor & manufacturing overhead). Conversion costs may
also be calculated separately.
 Costs Accounted For Illustration - Mixing

Transferred Out:

60,000 EU x $6.00 360,000

Cost in Ending Work-in-Process Inventory:

Materials: 20,000 EU x $2.00 $40,000
Conversion: 10,000 EU x $4.00 40,000 80,000

Total Cost $440,000

See Transferred In Journal Entry on Page 84

 Equivalent Units Illustration - Packaging
Materials Conversion Costs
Beginning WIP: Beginning WIP:

15,000 x 100% = 15,000 15,000 x 100% = 15,000

Started & Completed: Started & Completed:

55,000 x 100% = 55,000 55,000 x 100% = 55,000

Ending WIP: Ending WIP:
5,000 x 100% = 5,000 5,000 x 40% = 2,000

Equivalent Units 75,000 72,000

 Equivalent Units Illustration Packaging (alternative
approach)
Materials and Transferred In Conversion Costs

Units Completed (includes 60,000 Units Completed (includes 60,000

transferred in from Mixing): transferred in from Mixing):
70,000 x 100% = 70,000 70,000 x 100% = 70,000
Ending WIP: Ending WIP:
5,000 x 100% = 5,000 5,000 x 40% = 2,000

Equivalent Units 75,000 72,000

 Cost Per Equivalent Unit Illustration -
Packaging
Materials
Conversion
$10,500 + $49,500
= $0.80
75,000 EU
$13,500 + $83,700 = $1.35
Transferred In
72,000 EU
$92,250 + $360,000 = $6.03
75,000 EU
Total Equivalent Unit Cost:

Materials $0.80
Transferred In 6.03
Conversion 1.35
Total EU Cost $8.18
 Costs Accounted For Illustration - Packaging

Transferred Out:

70,000 EU x $8.18 572,600

Cost in Ending Work-in-Process Inventory:

Materials: 5,000 EU x $6.83 $34,150
Conversion: 2,000 EU x $1.35 2,700 36,850

Total Cost $609,450

 Production Report Format
Quantity Schedule and Equivalent Units

Units to be accounted for:

Beginning work in process
Started into production
Units accounted for: (compute equivalent units)
Transferred out (from beginning WIP & started & completed)
Ending work in process
Total and Unit Cost
Costs to account for:
Beginning work in process
Started into production
Cost Reconciliation
Costs accounted for:
Transferred out (from beginning WIP & started & completed)
Ending work in process