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Cost ManagementMeasuring, Monitoring, and Motivating Performance
Prepared byGail KaciubaMidwestern State UniversityChapter 6Process Costing
Chapter 6: Process CostingLearning objectivesQ1: How are costs assigned to mass-produced products? Q2: What are equivalent units & how do they relate to the production process?Q3: How is the weighted average method used in process costing?Q4: How is the FIFO method used in process costing?Q5: What alternative methods are used for mass production?Q7: How are spoilage costs handled in process costing?Q8: What are the uses and limitations of process cost information?Q6: How is process costing performed for multiple production departments?
Q1: Job Order versus Process CostingPROCESS COSTING (if all materials are direct)JOB ORDER COSTING (if all materials are direct)
Q1: Introduction to Process CostingProcess costing is a method of averaging costs over the units of production. This is necessary to determine the cost of the units transferred out of a department, as well as the cost of the departments ending WIP inventory.
Q1: Process Costing with all Units CompletedRiker Co. had June costs for Department 1 as follows:DM$60,000CC 30,000$90,000There were no units in beginning or ending WIP inventory in June. During June Department 1 started 45,000 units, and all 45,000 were completed in June. What is the manufacturing cost/unit? The manufacturing cost/unit is $90,000/45,000 units = $2/unit.
Q1: Process Costing with Some Units CompletedSuppose instead that 30,000 units were completed in June. Can you compute the manufacturing cost/unit? If not, what information do you need?
Is the manufacturing cost/unit $90,000/45,000 units = $2/unit?Is the manufacturing cost/unit $90,000/30,000 units = $3/unit?Neither of these costs is correct; they both assign the same cost to completed units as to incomplete units. In order to compute the manufacturing cost/unit, we need to know stage of completion of the units in ending WIP inventory.
Q2: The Concept of Equivalent UnitsSuppose that 30,000 units were completed in June, and the units in ending WIP were 1/3 complete. What is the manufacturing cost/unit?
The 15,000 units taken to 1/3 completion are counted as 5,000 equivalent whole units, or 5,000 equivalent units of production (EUP).In order to value partially complete units of inventory, we measure units in equivalent whole units rather than actual units.The manufacturing cost/unit = $90,000/[30,000 + 5,000]EUP = $2.57143/EUP.
Q2: The Concept of Equivalent UnitsUsing the cost/EUP of $2.57143 from the prior slide, compute the costs attached to the 30,000 completed units and the costs attached to the 15,000 units in ending WIP inventory.
Q2-Q4: Equivalent Units &Process Costing MethodsThe prior slide simplified the computation of EUP.15,000 units taken to 1/3 completion is equivalent to 5,000 whole units only if costs are incurred evenly.We will return to this later.The prior slide ignored the different methods of computing EUP.The weighted average and FIFO methods compute EUP differently.
Q2-Q4: Three Categories of UnitsIn process costing we categorize units according to the time period(s) they were produced.
Q2-Q4: Three Categories of UnitsIn process costing we categorize units according to the time period(s) they were produced.
Q2-Q4: Summarizing thePhysical Flow of ProductionThe number of S&C units can be computed as the number of units transferred out less the number of BI units.For example, suppose a department had 5,000 units in beginning WIP and started 50,000 units this month. If 35,000 units were completed, what is the number of S&C units?BI units5,000S&C units30,000Completed units35,000
Q2-Q4: Two Process Costing MethodsThe weighted average and FIFO methods of process costing methods compute EUP differently.This means that under the WA method, the EUP for BI units and S&C units is the same as the physical number of units in each category.
Q2-Q4: Two Process Costing MethodsThe weighted average and FIFO methods of process costing methods compute EUP differently.The EUP for EI units and is based on the stage of completion of the EI units only the portion of the work done in the current month is included.
Q2-Q4: Two Process Costing MethodsThe weighted average and FIFO methods of process costing methods compute EUP differently.This means that the EUP for BI units is based on the completion of these units during the current month.
Q2-Q4: Two Process Costing MethodsThe weighted average and FIFO methods of process costing methods compute EUP differently.The EUP for EI units and is based on the stage of completion of the EI units only the portion of the work done in the current month is included.
Q2-Q4: Equivalent Units of Production ExampleIn July, Rita Corp. had 30,000 units in beginning WIP that were 60% complete and 20,000 units in ending WIP that were 80% complete. There were 100,000 units completed and transferred to FG inventory. Compute EUP for July using both the weighted average and FIFO methods.BI units30,000S&C units70,000Completed units100,00090,000First, summarize the physical flow of the units and compute S&C.
Q2-Q4: Equivalent Units of Production ExampleIn July, Rita Corp. had 30,000 units in beginning WIP that were 60% complete and 20,000 units in ending WIP that were 80% complete. There were 100,000 units completed and transferred to FG inventory. Compute EUP for July using both the weighted average and FIFO methods.Then, convert the physical units to EUP.18,00012,00070,00016,000116,00098,000
Sheet1
BIComp-lete BIS&CStart EIWA EUPFIFO EUPTotal Units
Physical units
Equiv units
DM
CC
Sheet2
Sheet3
Q2-Q4: Equivalent Units &Process Costing MethodsThe prior slides simplified the computation of EUP20,000 units started and taken to 80% completion is equivalent to 16,000 whole units only if costs are incurred evenly.We usually assume that conversion costs are incurred evenly throughout production, but direct materials costs may not be incurred evenly.Direct materials costs may be incurred at the beginning of processing or in some other uneven manner.Separate EUP computations are done for DM & CC.
Q2-Q4: Separate EUP for DM & CCYou are given the information below about the physical flow of the units in Department 1. The BI units were 25% complete and the EI units were 40% complete. Compute EUP for DM and CC if DM costs are incurred evenly throughout production.1,2503,75012,0003,20020,20018,950
Sheet1
BIComp-lete BIS&CStart EIWA EUPFIFO EUPTotal Units
Physical units
Equiv units
DM
CC
Sheet2
Sheet3
Q2-Q4: Separate EUP for DM & CCYou are given the information below about the physical flow of the units in Department 1. The BI units were 25% complete and the EI units were 40% complete. Compute EUP for DM and CC if DM costs are incurred at the beginning of production.5,000012,0008,00025,00020,000
Q2-Q4: Separate EUP for DM & CCUse the same information from the prior slide; recall that the BI units were 25% complete and the EI units were 40% complete. Compute EUP for DM and CC if 20% of DM costs are incurred at the beginning of processing and the rest of the DM costs are incurred when the units pass the 60% stage of completion.1,0004,00012,0001,60018,60017,600
Q2-Q4: Cost per Equivalent UnitThe EUP calculations provide the denominator in the cost/EUP computation.The numerator for the WA cost/EUP includes current costs plus the costs included in BI.The numerator for the FIFO cost/EUP includes only current costs.A cost/EUP is computed for each cost category.The WA and FIFO methods use different numerators in the cost/EUP computation.
Q3&4: Process Costing Example, no BIYou are given the information below about Mays production and costs for Slocik Co. The units in ending WIP were 1/3 complete. Direct materials are added at the beginning of processing. What is the manufacturing cost per EUP under both methods?
First, compute the EUP for DM & CC.
Q3&4: Process Costing Example, no BIWhen there is no BI, WA and FIFO have the same EUP, and hence the same costs/EUP.
Q3&4: Process Costing Example, no BINow, compute the costs/EUP for DM & CC.
Q3&4: Process Costing Example, no BIThe last step is a process cost report that breaks the total costs to account for into:$ assigned to completed units$ assigned to EI unitsthe portion that is assigned to the units in ending WIP inventorythe portion that is assigned to the completed units, and
Q3&4: Process Costing Example, no BIThe journal entry to record the costs transferred out is:FG inventory67,500WIP inventory67,500
EUP schedule
BIComp BIS&CStart EIWA EUPFIFO EUPTotal Units
Physical units
Equiv units
DM
CC
Acct for costs
FIFO & WA are the same when BI = 0Weighted Average
ComputationUnitsCostsComputationUnitsCosts
BI
Cost to complete BI
DM
CC
Total costs added
Total cost of BI
S&C
Total costs tr'd out
EI:
DM
CC
Total EI costs
Total acctd for
Sheet2
Sheet3
Q3&4: Process Costing Example, with BIColors R Us, Inc. uses a process costing system for its sole processing department. There were 6,200 units in beginning WIP inventory for February and 57,500 units were started in February. The beginning WIP units were 60% complete and the 5,000 units in ending WIP were 45% complete. All materials are added at the start of processing. Compute the EUP for DM and CC using both methods.58,700First, compute the # of units started & completed:BI units6,200S&C units52,500Completed units58,700
Q3&4: Process Costing Example, with BINow, compute the EUP for DM & CC (recall that BI & EI were 60% & 45% complete, respectively, and all DM are added at the start of processing).
Q3&4: Process Costing Example, with BIBeginning WIP inventory was valued at $42,896 [DM costs of $12,850 plus CC of $30,046]. During February Colors incurred DM costs of $178,250, and CC of $274,704. Compute the cost of the goods transferred out the the costs assigned to ending WIP inventory for February, using both methods. Under FIFO, the numerator includes only current costs:
Q3&4: Process Costing Example, with BIBeginning WIP inventory was valued at $42,896 [DM costs of $12,850 plus CC of $30,046]. During February Colors incurred DM costs of $178,250, and CC of $274,704. Compute the cost of the goods transferred out the the costs assigned to ending WIP inventory for February, using both methods. Under WA, the numerator includes BI and current costs:DM cost/EUP = $191,100/63,700 EUP = $3.00/EUPCC/EUP = $307,750/60,950 EUP = 5.00/EUP
Q3&4: Process Costing Example, with BIThe last step is a process cost report that breaks the total costs to account for into:$ assigned to completed units$ assigned to EI unitsthe portion that is assigned to the units in ending WIP inventorythe portion that is assigned to the completed units, and
Q3&4: Process Costing Example, with BIUnder the WA method, there is no distinction between the 6,200 BI units and the 52,500 S&C units.
EUP schedule
BIComp BIS&CStart EIWA EUPFIFO EUPTotal Units
Physical units
Equiv units
DM
CC
TI
EUP schedule with TI
BIComp BIS&CStart EIWA EUPFIFO EUPTotal Units
Physical units
Equiv units
DM
CC
TI
EUP schedule with spoilage
BIComp BIS&CStart EIWA EUPFIFO EUPTotal UnitsSpoiled Units
Physical units
Equiv units
DM
CC
Acct for costs no TI
FIFOWeighted Average
ComputationUnitsCostsComputationUnitsCosts
BI
Cost to compl BI
DM
CC
Total costs added
Total cost of BI
S&C
Total costs tr'd out
EI:
DM
CC
Total EI costs
Total acctd for
summarize costs
BIComp BIS&CStart EIWA EUPFIFO EUPTotal Units
Physical units
Equiv units
DM
CC
Cost/EUP:
Acct for costs w TI
FIFOWeighted Average
ComputationUnitsCostsComputationUnitsCosts
BI
Cost to compl BI
DM
CC
TI
Total costs added
Total cost of BI
S&C
Total costs tr'd out
EI:
DM
CC
TI
Total EI costs
Total acctd for
Acct for spoilage
FIFOWeighted Average
ComputationUnitsCostsComputationUnitsCosts
BI
Cost to compl BI
DM
CC
Total costs added
Total cost of BI
Normal spoilage
S&C
Total costs tr'd out
Abnormal spoilage
EI:
DM
CC
Total EI costs
Total acctd for
Partial EUP colors demo
Equiv unitsWA EUPFIFO EUP
DM63,70057,500
CC60,95057,230
Cost/EUP:
Sheet3
Q3&4: Process Costing Example, with BIUnder the FIFO method, the cost assigned to the 6,200 BI units is computed separately from the cost of the 52,500 S&C units.11,90454,800469,55058,700
EUP schedule
BIComp BIS&CStart EIWA EUPFIFO EUPTotal Units
Physical units
Equiv units
DM
CC
TI
EUP schedule with TI
BIComp BIS&CStart EIWA EUPFIFO EUPTotal Units
Physical units
Equiv units
DM
CC
TI
EUP schedule with spoilage
BIComp BIS&CStart EIWA EUPFIFO EUPTotal UnitsSpoiled Units
Physical units
Equiv units
DM
CC
Acct for costs no TI
FIFOWeighted Average
ComputationUnitsCostsComputationUnitsCosts
BI
Cost to compl BI
DM
CC
Total costs added
Total cost of BI
S&C
Total costs tr'd out
EI:
DM
CC
Total EI costs
Total acctd for
summarize costs
BIComp BIS&CStart EIWA EUPFIFO EUPTotal Units
Physical units
Equiv units
DM
CC
Cost/EUP:
Acct for costs w TI
FIFOWeighted Average
ComputationUnitsCostsComputationUnitsCosts
BI
Cost to compl BI
DM
CC
TI
Total costs added
Total cost of BI
S&C
Total costs tr'd out
EI:
DM
CC
TI
Total EI costs
Total acctd for
Acct for spoilage
FIFOWeighted Average
ComputationUnitsCostsComputationUnitsCosts
BI
Cost to compl BI
DM
CC
Total costs added
Total cost of BI
Normal spoilage
S&C
Total costs tr'd out
Abnormal spoilage
EI:
DM
CC
Total EI costs
Total acctd for
Partial EUP colors demo
Equiv unitsWA EUPFIFO EUP
DM63,70057,500
CC60,95057,230
Cost/EUP:
Sheet3
Q6: Accounting for Transferred-in CostsTransferred-in costs (TI) is merely another cost category like DM or CCWhen preparing a process cost report for a department with TI costs: All processing departments except the first will account for TI costsCompute EUP for TI costs; all TI costs are incurred at the start of processingCompute cost/EUP for TI costsAssign TI costs to EI units
Q6: Process Costing Example, with TI CostsCrusher Drugs manufactures a pain medication in a two-process cycle. In Department 2, direct materials are added as follows: 20% are added at the beginning of processing, and the rest at the 60% stage. There were 5,000 units in Dept 2s beginning WIP inventory that were 40% complete, and 20,000 units were transferred in to Dept 2 in May. The Dept 2 ending WIP inventory of 6,000 units was 55% complete. Compute the May EUP for all cost categories for Department 2 using both methods.First, compute the # of units started & completed:BI units5,000S&C units14,000Completed units19,00019,000
Q6: Process Costing Example, with TI CostsNow, compute the EUP for DM & CC (recall that BI & EI were 40% & 55% complete, respectively; 20% of DM costs are incurred at the start of processing, and the rest are incurred at the 60% stage).
Q6: Process Costing Example, with TI CostsYou are given the cost information below. Compute the cost per EUP under both methods. Under WA, the numerator includes BI and current costs:
EUP schedule
BIComp BIS&CStart EIWA EUPFIFO EUPTotal Units
Physical units
Equiv units
DM
CC
TI
EUP schedule with TI
BIComp-lete BIS&CStart EIWA EUPFIFO EUPTotal Units
Physical units
Equiv units
DM
CC
TI
EUP schedule with spoilage
BIComp BIS&CStart EIWA EUPFIFO EUPTotal UnitsSpoiled Units
Physical units
Equiv units
DM
CC
Acct for costs no TI
FIFOWeighted Average
ComputationUnitsCostsComputationUnitsCosts
BI
Cost to compl BI
DM
CC
TI
Total costs added
Total cost of BI
S&C
Total costs tr'd out
EI:
DM
CC
TI
Total EI costs
Total acctd for
summarize costs
BIComp BIS&CStart EIWA EUPFIFO EUPTotal Units
Physical units
Equiv units
DM
CC
Cost/EUP:
Acct for costs w TI
FIFOWeighted Average
ComputationUnitsCostsComputationUnitsCosts
BI
Cost to compl BI
DM
CC
TI
Total costs added
Total cost of BI
S&C
Total costs tr'd out
EI:
DM
CC
TI
Total EI costs
Total acctd for
Acct for spoilage
FIFOWeighted Average
ComputationUnitsCostsComputationUnitsCosts
BI
Cost to compl BI
DM
CC
Total costs added
Total cost of BI
Normal spoilage
S&C
Total costs tr'd out
Abnormal spoilage
EI:
DM
CC
Total EI costs
Total acctd for
Partial EUP colors demo
Equiv unitsWA EUPFIFO EUP
DM63,70057,500
CC60,95057,230
Cost/EUP:
Sheet3
DMCCTITotal
Work in process, May 1$7,297.50$3,860.50$19,250.00$30,408.00
Costs added in May72,240.0031,262.00112,000.00215,502.00
Total$79,537.50$35,122.50$131,250.00$245,910.00
Q6: Process Costing Example, with TI CostsYou are given the cost information below. Compute the cost per EUP under both methods. Under FIFO, the numerator includes only current costs:Next, complete the process cost report using both methods.
EUP schedule
BIComp BIS&CStart EIWA EUPFIFO EUPTotal Units
Physical units
Equiv units
DM
CC
TI
EUP schedule with TI
BIComp-lete BIS&CStart EIWA EUPFIFO EUPTotal Units
Physical units
Equiv units
DM
CC
TI
EUP schedule with spoilage
BIComp BIS&CStart EIWA EUPFIFO EUPTotal UnitsSpoiled Units
Physical units
Equiv units
DM
CC
Acct for costs no TI
FIFOWeighted Average
ComputationUnitsCostsComputationUnitsCosts
BI
Cost to compl BI
DM
CC
TI
Total costs added
Total cost of BI
S&C
Total costs tr'd out
EI:
DM
CC
TI
Total EI costs
Total acctd for
summarize costs
BIComp BIS&CStart EIWA EUPFIFO EUPTotal Units
Physical units
Equiv units
DM
CC
Cost/EUP:
Acct for costs w TI
FIFOWeighted Average
ComputationUnitsCostsComputationUnitsCosts
BI
Cost to compl BI
DM
CC
TI
Total costs added
Total cost of BI
S&C
Total costs tr'd out
EI:
DM
CC
TI
Total EI costs
Total acctd for
Acct for spoilage
FIFOWeighted Average
ComputationUnitsCostsComputationUnitsCosts
BI
Cost to compl BI
DM
CC
Total costs added
Total cost of BI
Normal spoilage
S&C
Total costs tr'd out
Abnormal spoilage
EI:
DM
CC
Total EI costs
Total acctd for
Partial EUP colors demo
Equiv unitsWA EUPFIFO EUP
DM63,70057,500
CC60,95057,230
Cost/EUP:
Sheet3
DMCCTITotal
Work in process, May 1$7,297.50$3,860.50$19,250.00$30,408.00
Costs added in May72,240.0031,262.00112,000.00215,502.00
Total$79,537.50$35,122.50$131,250.00$245,910.00
Q6: Process Costing Example, with TI Costs19,670.00
EUP schedule
BIComp BIS&CStart EIWA EUPFIFO EUPTotal Units
Physical units
Equiv units
DM
CC
TI
EUP schedule with TI
BIComp-lete BIS&CStart EIWA EUPFIFO EUPTotal Units
Physical units
Equiv units
DM
CC
TI
EUP schedule with spoilage
BIComp BIS&CStart EIWA EUPFIFO EUPTotal UnitsSpoiled Units
Physical units
Equiv units
DM
CC
Acct for costs no TI
FIFOWeighted Average
ComputationUnitsCostsComputationUnitsCosts
BI
Cost to compl BI
DM
CC
TI
Total costs added
Total cost of BI
S&C
Total costs tr'd out
EI:
DM
CC
TI
Total EI costs
Total acctd for
summarize costs
BIComp BIS&CStart EIWA EUPFIFO EUPTotal Units
Physical units
Equiv units
DM
CC
Cost/EUP:
Acct for costs w TI
FIFOWeighted Average
ComputationUnitsCostsComputationUnitsCosts
BI
Cost to compl BI
DM
CC
TI
Total costs added
Total cost of BI
S&C
Total costs tr'd out
EI:
DM
CC
TI
Total EI costs
Total acctd for
Acct for spoilage
FIFOWeighted Average
ComputationUnitsCostsComputationUnitsCosts
BI
Cost to compl BI
DM
CC
Total costs added
Total cost of BI
Normal spoilage
S&C
Total costs tr'd out
Abnormal spoilage
EI:
DM
CC
Total EI costs
Total acctd for
Partial EUP colors demo
Equiv unitsWA EUPFIFO EUP
DM63,70057,500
CC60,95057,230
Cost/EUP:
Crusher given $ info
DMCCTITotal
Work in process, May 1$7,297.50$3,860.50$19,250.00$30,408.00
Costs added in May72,240.0031,262.00112,000.00215,502.00
Total$79,537.50$35,122.50$131,250.00$245,910.00
Q5: What Alternative Methods are Used for Mass Production?Standard costs simplify the accounting
Just-in-time production
Hybrid costing, or operation costing
Q7: Accounting for Spoilage in Process CostingCosts of normal spoilage are absorbed by the good units transferred out.
Costs of abnormal spoilage are charged to a Loss from abnormal spoilage account.
Costs attach to spoilage depending on when spoilage is detected.
Q7: Process Costing & Spoilage ExampleHollidaze makes molded plastic party decorations. In June, there were 800 units in beginning WIP inventory that were 40% complete and the 500 units in ending WIP were 30% complete. The company completed 3,000 units in June, but 200 of these were defective and were discarded. The defective units are located upon inspection before transfer to finished goods. It was determined that 50 of these defective units should be considered normal spoilage. The remaining spoilage occurred because of a rare machine malfunction and should be considered abnormal spoilage. All direct materials are added at the beginning of processing. Compute the June EUP for DM and CC using both methods.First, compute the # of units started & completed:2,700
Q7: Process Costing & Spoilage ExampleNotice that there is now a column for spoiled units in the schedule.Now, compute the EUP for DM & CC (recall that BI & EI were 40% & 30% complete, respectively; DM costs are incurred at the start of processing).
Q7: Process Costing & Spoilage ExampleYou are given the cost information below. Compute the cost per EUP under both methods. Under WA, the numerator includes BI and current costs:DM cost/EUP = $11,375/3,500 EUP =$3.25/EUPCC/EUP = $7,245/3,150 EUP = 2.30/EUP
EUP schedule
BIComp BIS&CStart EIWA EUPFIFO EUPTotal Units
Physical units
Equiv units
DM
CC
TI
EUP schedule with TI
BIComp-lete BIS&CStart EIWA EUPFIFO EUPTotal Units
Physical units
Equiv units
DM
CC
TI
EUP schedule with spoilage
BIComp BIS&CStart EIWA EUPFIFO EUPTotal UnitsSpoiled Units
Physical units
Equiv units
DM
CC
Acct for costs no TI
FIFOWeighted Average
ComputationUnitsCostsComputationUnitsCosts
BI
Cost to compl BI
DM
CC
TI
Total costs added
Total cost of BI
S&C
Total costs tr'd out
EI:
DM
CC
TI
Total EI costs
Total acctd for
summarize costs
BIComp BIS&CStart EIWA EUPFIFO EUPTotal Units
Physical units
Equiv units
DM
CC
Cost/EUP:
Acct for costs w TI
FIFOWeighted Average
ComputationUnitsCostsComputationUnitsCosts
BI
Cost to compl BI
DM
CC
TI
Total costs added
Total cost of BI
S&C
Total costs tr'd out
EI:
DM
CC
TI
Total EI costs
Total acctd for
Acct for spoilage
FIFOWeighted Average
ComputationUnitsCostsComputationUnitsCosts
BI
Cost to compl BI
DM
CC
Total costs added
Total cost of BI
Normal spoilage
S&C
Total costs tr'd out
Abnormal spoilage
EI:
DM
CC
Total EI costs
Total acctd for
Partial EUP colors demo
Equiv unitsWA EUPFIFO EUP
DM63,70057,500
CC60,95057,230
Cost/EUP:
Crusher given $ info
DMCCTITotal
Work in process, May 1$7,297.50$3,860.50$19,250.00$30,408.00
Costs added in May72,240.0031,262.00112,000.00215,502.00
Total$79,537.50$35,122.50$131,250.00$245,910.00
spoilage EUP template
BIComp-lete BIS&CStart EIWA EUPFIFO EUPTotal UnitsSp'd Units
Phys units
Equiv units
DM
CC
spoilage
Assumptions
Beginning WIP - units800Costs:DMCCTotal
% complete DM100%Beg WIP$2,735$1,302$4,037
% complete CC40%Current8,6405,943$14,583
Units started2,700Total$11,375$7,245$18,620
Good units completed and transferred out2,800
Spoiled units200
NS-% of good units2%
Ending WIP - units500Units to account for:
% complete DM100%Beginning WIP800
% complete CC30%Units started2,700
3,500
Summarize Physical and Equivalent Units:
Beginning WIPWork This PeriodTotal Work Performed this PeriodTotal Units to Account ForSpoiled Units
Complete BIStart and CompleteStart Ending WIP
Account for Physical Units8002,2005002,7003,500(200)
Equivalent Units:Total FIFO EUPTotal Wtd Avg EUP
DM80002,2005002,7003,500(200)
CC3204802,2001502,8303,150(200)
Total spoilage200
Less: Normal Spoilage50
Abnormal Spoilage150
Calculate Cost per EUP:
CostEUPCost/EUP
FIFO:
DM$8,6402,700$3.2000
CC$5,9432,8302.1000
$5.3000
Weighted average:
DM$11,3753,500$3.2500
CC$7,2453,1502.3000
$5.5500
Process Cost Report Cost Assignment:
FIFOWeighted Average
ComputationUnitsCostsComputationUnitsCosts
Beginning WIP800$4,037
Cost to complete beginning WIP:
DM(0 x $7.0367)0
CC(7,200 x $3.0753)1,008
Total costs added this period1,008
Total cost of beginning WIP5,045
Normal spoilage(1,240 x $10.112)5026550$278
Good units started, completed, & tr'd out(50,000 x $10.112)2,00010,600
Good Units Completed & tr'd out(62,000 x $9.8125)2,80015,540
Total completed & transferred out (incl spoilage)2,85015,9102,85015,818
Abnormal spoilage(760 x $10.112)150795(760 x $9.8125)150833
Ending WIP:500500
DM(8,000 x $7.0367))1,600(8,000 x $6.4444)1,625
CC(2,400 x $3.0753))315(2,400 x $3.3681)345
Total ending WIP cost1,9151,970
Total accounted for3,500$18,6203,500$18,620
spoilage cost given info
DMCCTotal
Work in process, June 1$2,735$1,302$4,037
Costs added in June$8,640$5,943$14,583
Total$11,375$7,245$18,620
Q7: Process Costing & Spoilage ExampleYou are given the cost information below. Compute the cost per EUP under both methods. DM cost/EUP = $8,640/2,700 EUP =$3.20/EUPCC/EUP = $5,943/2,830 EUP = 2.10/EUPUnder FIFO, the numerator includes only current costs:Next, complete the process cost report using both methods.
EUP schedule
BIComp BIS&CStart EIWA EUPFIFO EUPTotal Units
Physical units
Equiv units
DM
CC
TI
EUP schedule with TI
BIComp-lete BIS&CStart EIWA EUPFIFO EUPTotal Units
Physical units
Equiv units
DM
CC
TI
EUP schedule with spoilage
BIComp BIS&CStart EIWA EUPFIFO EUPTotal UnitsSpoiled Units
Physical units
Equiv units
DM
CC
Acct for costs no TI
FIFOWeighted Average
ComputationUnitsCostsComputationUnitsCosts
BI
Cost to compl BI
DM
CC
TI
Total costs added
Total cost of BI
S&C
Total costs tr'd out
EI:
DM
CC
TI
Total EI costs
Total acctd for
summarize costs
BIComp BIS&CStart EIWA EUPFIFO EUPTotal Units
Physical units
Equiv units
DM
CC
Cost/EUP:
Acct for costs w TI
FIFOWeighted Average
ComputationUnitsCostsComputationUnitsCosts
BI
Cost to compl BI
DM
CC
TI
Total costs added
Total cost of BI
S&C
Total costs tr'd out
EI:
DM
CC
TI
Total EI costs
Total acctd for
Acct for spoilage
FIFOWeighted Average
ComputationUnitsCostsComputationUnitsCosts
BI
Cost to compl BI
DM
CC
Total costs added
Total cost of BI
Normal spoilage
S&C
Total costs tr'd out
Abnormal spoilage
EI:
DM
CC
Total EI costs
Total acctd for
Partial EUP colors demo
Equiv unitsWA EUPFIFO EUP
DM63,70057,500
CC60,95057,230
Cost/EUP:
Crusher given $ info
DMCCTITotal
Work in process, May 1$7,297.50$3,860.50$19,250.00$30,408.00
Costs added in May72,240.0031,262.00112,000.00215,502.00
Total$79,537.50$35,122.50$131,250.00$245,910.00
spoilage EUP template
BIComp-lete BIS&CStart EIWA EUPFIFO EUPTotal UnitsSp'd Units
Phys units
Equiv units
DM
CC
spoilage
Assumptions
Beginning WIP - units800Costs:DMCCTotal
% complete DM100%Beg WIP$2,735$1,302$4,037
% complete CC40%Current8,6405,943$14,583
Units started2,700Total$11,375$7,245$18,620
Good units completed and transferred out2,800
Spoiled units200
NS-% of good units2%
Ending WIP - units500Units to account for:
% complete DM100%Beginning WIP800
% complete CC30%Units started2,700
3,500
Summarize Physical and Equivalent Units:
Beginning WIPWork This PeriodTotal Work Performed this PeriodTotal Units to Account ForSpoiled Units
Complete BIStart and CompleteStart Ending WIP
Account for Physical Units8002,2005002,7003,500(200)
Equivalent Units:Total FIFO EUPTotal Wtd Avg EUP
DM80002,2005002,7003,500(200)
CC3204802,2001502,8303,150(200)
Total spoilage200
Less: Normal Spoilage50
Abnormal Spoilage150
Calculate Cost per EUP:
CostEUPCost/EUP
FIFO:
DM$8,6402,700$3.2000
CC$5,9432,8302.1000
$5.3000
Weighted average:
DM$11,3753,500$3.2500
CC$7,2453,1502.3000
$5.5500
Process Cost Report Cost Assignment:
FIFOWeighted Average
ComputationUnitsCostsComputationUnitsCosts
Beginning WIP800$4,037
Cost to complete beginning WIP:
DM(0 x $7.0367)0
CC(7,200 x $3.0753)1,008
Total costs added this period1,008
Total cost of beginning WIP5,045
Normal spoilage(1,240 x $10.112)5026550$278
Good units started, completed, & tr'd out(50,000 x $10.112)2,00010,600
Good Units Completed & tr'd out(62,000 x $9.8125)2,80015,540
Total completed & transferred out (incl spoilage)2,85015,9102,85015,818
Abnormal spoilage(760 x $10.112)150795(760 x $9.8125)150833
Ending WIP:500500
DM(8,000 x $7.0367))1,600(8,000 x $6.4444)1,625
CC(2,400 x $3.0753))315(2,400 x $3.3681)345
Total ending WIP cost1,9151,970
Total accounted for3,500$18,6203,500$18,620
spoilage cost given info
DMCCTotal
Work in process, June 1$2,735$1,302$4,037
Costs added in June$8,640$5,943$14,583
Total$11,375$7,245$18,620
Q7: Process Costing & Spoilage ExampleThe WA journal entry to record the costs transferred out is:FG inventory15,817.50Loss from abnormal spoilage832.50WIP inventory16,650.00
EUP schedule
BIComp BIS&CStart EIWA EUPFIFO EUPTotal Units
Physical units
Equiv units
DM
CC
TI
EUP schedule with TI
BIComp-lete BIS&CStart EIWA EUPFIFO EUPTotal Units
Physical units
Equiv units
DM
CC
TI
EUP schedule with spoilage
BIComp BIS&CStart EIWA EUPFIFO EUPTotal UnitsSpoiled Units
Physical units
Equiv units
DM
CC
Acct for costs no TI
FIFOWeighted Average
ComputationUnitsCostsComputationUnitsCosts
BI
Cost to compl BI
DM
CC
TI
Total costs added
Total cost of BI
S&C
Total costs tr'd out
EI:
DM
CC
TI
Total EI costs
Total acctd for
summarize costs
BIComp BIS&CStart EIWA EUPFIFO EUPTotal Units
Physical units
Equiv units
DM
CC
Cost/EUP:
Acct for costs w TI
FIFOWeighted Average
ComputationUnitsCostsComputationUnitsCosts
BI
Cost to compl BI
DM
CC
TI
Total costs added
Total cost of BI
S&C
Total costs tr'd out
EI:
DM
CC
TI
Total EI costs
Total acctd for
Partial EUP colors demo
Equiv unitsWA EUPFIFO EUP
DM63,70057,500
CC60,95057,230
Cost/EUP:
Crusher given $ info
DMCCTITotal
Work in process, May 1$7,297.50$3,860.50$19,250.00$30,408.00
Costs added in May72,240.0031,262.00112,000.00215,502.00
Total$79,537.50$35,122.50$131,250.00$245,910.00
spoilage EUP template
BIComp-lete BIS&CStart EIWA EUPFIFO EUPTotal UnitsSp'd Units
Phys units
Equiv units
DM
CC
spoilage
Assumptions
Beginning WIP - units800Costs:DMCCTotal
% complete DM100%Beg WIP$2,735$1,302$4,037
% complete CC40%Current8,6405,943$14,583
Units started2,700Total$11,375$7,245$18,620
Good units completed and transferred out2,800
Spoiled units200
NS-% of good units2%
Ending WIP - units500Units to account for:
% complete DM100%Beginning WIP800
% complete CC30%Units started2,700
3,500
Summarize Physical and Equivalent Units:
Beginning WIPWork This PeriodTotal Work Performed this PeriodTotal Units to Account ForSpoiled Units
Complete BIStart and CompleteStart Ending WIP
Account for Physical Units8002,2005002,7003,500(200)
Equivalent Units:Total FIFO EUPTotal Wtd Avg EUP
DM80002,2005002,7003,500(200)
CC3204802,2001502,8303,150(200)
Total spoilage200
Less: Normal Spoilage50
Abnormal Spoilage150
Calculate Cost per EUP:
CostEUPCost/EUP
FIFO:
DM$8,6402,700$3.2000
CC$5,9432,8302.1000
$5.3000
Weighted average:
DM$11,3753,500$3.2500
CC$7,2453,1502.3000
$5.5500
Process Cost Report Cost Assignment:
FIFOWeighted Average
ComputationUnitsCostsComputationUnitsCosts
Beginning WIP800$4,037
Cost to complete beginning WIP:
DM(0 x $7.0367)0
CC(7,200 x $3.0753)1,008
Total costs added this period1,008
Total cost of beginning WIP5,045
Normal spoilage(1,240 x $10.112)5026550$278
Good units started, completed, & tr'd out(50,000 x $10.112)2,00010,600
Good Units Completed & tr'd out(62,000 x $9.8125)2,80015,540
Total completed & transferred out (incl spoilage)2,85015,9102,85015,818
Abnormal spoilage(760 x $10.112)150795(760 x $9.8125)150833
Ending WIP:500500
DM(8,000 x $7.0367))1,600(8,000 x $6.4444)1,625
CC(2,400 x $3.0753))315(2,400 x $3.3681)345
Total ending WIP cost1,9151,970
Total accounted for3,500$18,6203,500$18,620
spoilage cost given info
DMCCTotal
Work in process, June 1$2,735$1,302$4,037
Costs added in June$8,640$5,943$14,583
Total$11,375$7,245$18,620
Acct for spoilage
FIFOWeighted Average
ComputationUnitsCostsComputationUnitsCosts
BI
Cost to compl BI
DM
CC
Total costs added
Total cost of BI
Normal spoilage
Good units S&C
Total costs tr'd out
Abnormal spoilage
EI:
DM
CC
Total EI costs
Total acctd for
Q7: Process Costing & Spoilage ExampleThe FIFO journal entry to record the costs transferred out is:FG inventory15,910Loss from ab- normal spoilage795WIP inventory16,705
EUP schedule
BIComp BIS&CStart EIWA EUPFIFO EUPTotal Units
Physical units
Equiv units
DM
CC
TI
EUP schedule with TI
BIComp-lete BIS&CStart EIWA EUPFIFO EUPTotal Units
Physical units
Equiv units
DM
CC
TI
EUP schedule with spoilage
BIComp BIS&CStart EIWA EUPFIFO EUPTotal UnitsSpoiled Units
Physical units
Equiv units
DM
CC
Acct for costs no TI
FIFOWeighted Average
ComputationUnitsCostsComputationUnitsCosts
BI
Cost to compl BI
DM
CC
TI
Total costs added
Total cost of BI
S&C
Total costs tr'd out
EI:
DM
CC
TI
Total EI costs
Total acctd for
summarize costs
BIComp BIS&CStart EIWA EUPFIFO EUPTotal Units
Physical units
Equiv units
DM
CC
Cost/EUP:
Acct for costs w TI
FIFOWeighted Average
ComputationUnitsCostsComputationUnitsCosts
BI
Cost to compl BI
DM
CC
TI
Total costs added
Total cost of BI
S&C
Total costs tr'd out
EI:
DM
CC
TI
Total EI costs
Total acctd for
Partial EUP colors demo
Equiv unitsWA EUPFIFO EUP
DM63,70057,500
CC60,95057,230
Cost/EUP:
Crusher given $ info
DMCCTITotal
Work in process, May 1$7,297.50$3,860.50$19,250.00$30,408.00
Costs added in May72,240.0031,262.00112,000.00215,502.00
Total$79,537.50$35,122.50$131,250.00$245,910.00
spoilage EUP template
BIComp-lete BIS&CStart EIWA EUPFIFO EUPTotal UnitsSp'd Units
Phys units
Equiv units
DM
CC
spoilage
Assumptions
Beginning WIP - units800Costs:DMCCTotal
% complete DM100%Beg WIP$2,735$1,302$4,037
% complete CC40%Current8,6405,943$14,583
Units started2,700Total$11,375$7,245$18,620
Good units completed and transferred out2,800
Spoiled units200
NS-% of good units2%
Ending WIP - units500Units to account for:
% complete DM100%Beginning WIP800
% complete CC30%Units started2,700
3,500
Summarize Physical and Equivalent Units:
Beginning WIPWork This PeriodTotal Work Performed this PeriodTotal Units to Account ForSpoiled Units
Complete BIStart and CompleteStart Ending WIP
Account for Physical Units8002,2005002,7003,500(200)
Equivalent Units:Total FIFO EUPTotal Wtd Avg EUP
DM80002,2005002,7003,500(200)
CC3204802,2001502,8303,150(200)
Total spoilage200
Less: Normal Spoilage50
Abnormal Spoilage150
Calculate Cost per EUP:
CostEUPCost/EUP
FIFO:
DM$8,6402,700$3.2000
CC$5,9432,8302.1000
$5.3000
Weighted average:
DM$11,3753,500$3.2500
CC$7,2453,1502.3000
$5.5500
Process Cost Report Cost Assignment:
FIFOWeighted Average
ComputationUnitsCostsComputationUnitsCosts
Beginning WIP800$4,037
Cost to complete beginning WIP:
DM(0 x $7.0367)0
CC(7,200 x $3.0753)1,008
Total costs added this period1,008
Total cost of beginning WIP5,045
Normal spoilage(1,240 x $10.112)5026550$278
Good units started, completed, & tr'd out(50,000 x $10.112)2,00010,600
Good Units Completed & tr'd out(62,000 x $9.8125)2,80015,540
Total completed & transferred out (incl spoilage)2,85015,9102,85015,818
Abnormal spoilage(760 x $10.112)150795(760 x $9.8125)150833
Ending WIP:500500
DM(8,000 x $7.0367))1,600(8,000 x $6.4444)1,625
CC(2,400 x $3.0753))315(2,400 x $3.3681)345
Total ending WIP cost1,9151,970
Total accounted for3,500$18,6203,500$18,620
spoilage cost given info
DMCCTotal
Work in process, June 1$2,735$1,302$4,037
Costs added in June$8,640$5,943$14,583
Total$11,375$7,245$18,620
Acct for spoilage
FIFOWeighted Average
ComputationUnitsCostsComputationUnitsCosts
BI
Cost to compl BI
DM
CC
Total costs added
Total cost of BI
N.Sp
Good S&C
Total costs tr'd out
Ab.Sp
EI:
DM
CC
Total EI costs
Total acctd for
Q8: What are the Uses and Limitations of Process Cost Information?Process cost information is generally not useful for many short-term decisions because unavoidable fixed costs are allocated to the products.
Estimates as to the stage of processing when DM costs or CC are incurred may be inaccurate.
All units in beginning and ending WIP inventories are most likely not at the same stages of completion at the beginning and end of the periods; the percentage of completion used in the calculation of EUP is just an estimate.
This slide is entirely automated no clicks required.The t-accounts for job costing are animated.One click is required for each of the two arrows in the job costing section.The t-accounts for process costing are automated.One click is required for each of the four arrows in the process costing section.
This slide is automated, except for the red and blue text.The first click brings in the red text and the second click brings in the blue text.Everything on this slide is automated except the text box computing the manufacturing cost/unit.The given information and the t-accounts is automated.The first click brings in the first computation for mfg cost/unit (which disappears on the next mouse click).The second click brings in the second computation for mfg cost/unit (which disappears on the next mouse click).The third click brings in the bottom text box.The top text box, the given information in the blue outlined text box and the t-accounts are automated.The first click brings in the text box about EUPThe second click brings in the computation of the cost/EUP.The top text box, the given information in the blue outlined text box and the t-accounts are automated.The first click brings in the red text and arrows.The second click brings in the blue text and arrows.The first primary bullet and its 2 secondary bullets are automated.The first click brings in the second primary bullet and its secondary bullet.The top portion of the slide is automated.The text about BI units, is also automated, but it disappears on the next mouse click.The first click brings in the text about EI units.This slide is totally automated.The top portion of this slide is automated.The first click brings in the computation for S&C units.This slide is automated except for the text box on the bottom right corner, which requires one click.This slide is not animated no clicks are required.This slide is entirely automated.This slide is not animated no clicks are required.The given info is automated.The first click brings in the First summarize text.The second click brings in the t-account.The third click brings in the computation of S&C units.Most of this slide is automated. The first click brings in the numbers in the physical units row and blue arrows that disappear on the next click.The 2nd click brings in the 18,000 EUP for BI its yellow supporting computation disappears on the next click.The 3rd click brings in the 12,000 EUP for BI its yellow supporting computation disappears on the next click.The 4th click brings in the 70,000 for S&C.The 5th click brings in the 16,000 EUP for EI its yellow supporting computation disappears on the next click.The 6th click brings in the 116,000 for WA EUP.The 7th click brings in the 98,000 for FIFO EUP.
This slide is entirely automated.Most of this slide is automated. The first click brings in the numbers in the physical units row.The 2nd click brings in the 1,250 EUP for DM BI its yellow supporting computation disappears on the next click.The 3rd click brings in the 3,750 EUP for DM BI its yellow supporting computation disappears on the next click.The 4th click brings in the 12,000 for DM S&C.The 5th click brings in the 3,200 EUP for DM EI its yellow supporting computation disappears on the next click.The 6th click brings in the 20,200 for DM WA EUP.The 7th click brings in the 18,950 for DM FIFO EUP.The 8th click brings in the CC row.
Most of this slide is automated, including the physical unit row and the CC row.The first click brings in 5,000 EUP for DM BI its yellow supporting comment disappears on the next click.The 2nd click brings in the 0 EUP for DM BI its yellow supporting comment disappears on the next click.The 3rd click brings in the 12,000 for DM S&C and the 8,000 EUP for DM EI its yellow supporting comment disappears on the next click.The 4th click brings in the 25,000 for DM WA EUP.The 5th click brings in the 20,000 for DM FIFO EUP.
Most of this slide is automated, including the physical unit row and the CC row.The first click brings in 1,000 EUP for DM BI its yellow supporting comment disappears on the next click.The 2nd click brings in the 4,000 EUP for DM BI its yellow supporting comment disappears on the next click.The 3rd click brings in the 12,000 for DM S&C and the 1,600 EUP for DM EI its yellow supporting comment disappears on the next click.The 4th click brings in the 18,600 for DM WA EUP.The 5th click brings in the 17,600 for DM FIFO EUP.
This slide is entirely automated.This slide is entirely automated no clicks are required.The given info and the solution template are automated.The first click brings in physical units row.The second click brings in the DM EUP row.The third click brings in the CC EUP row.The fourth click brings in the comment about WA and FIFO having the same EUP.
This slide is mostly automated.One click brings in the cost/EUP calculations.This slide is mostly automated.The first click brings in the green text about $ assigned to completed units.The second click brings in the burgundy text about $ assigned to EI units.The first click brings in the BI row.The second click brings in the S&C row and the total costs trd out row.The third click brings in all 4 rows for the EI computations, and the total accounted for row.The fourth click brings in the journal entry text box.The the given information in the blue outlined text box is automated.The first click brings in the first compute text and the t-account.The second click brings in 58,700 completed units.The third click brings in the computation for S&C units.The top portion of the slide is automated.The first click brings in the now compute text and the EUP template.The second click brings in the physical units row.The third click brings in the DM EUP row.The fourth click brings in the CC EUP row.The slide is totally automated, except the computation for cost/EUP, which requires one click.The slide is totally automated, except the computation for cost/EUP.The first click brings in the DM cost/EUP computation, and the red arrows (which disappear on the next click).The second click brings in the CC/EUP computation, and the blue arrows (which disappear on the next click).The third click brings in the total cost/EUP.
This slide has no animation no clicks are required.The first click brings in the costs trd out row, the top text box & the arrow.The second click brings in all 4 rows for the EI computations, and the total accounted for row.The under FIFO text and the red arrow is automated.The first click brings in the computations for BI.The second click brings in the computations for S&C and total costs trd out.The third click completed the FIFO calculations.The first bullet is automated.The first click brings in the second primary bullet.The second click brings in the third primary bullet and its sub-bullets.The given info is automated, and the First, compute text is on a 3 second delay.The first mouse click brings in the t-account.The second mouse click brings in the 19,000.The 3rd click brings in the computation of S&C.The top portion of the slide is automated.The first click brings in the physical units row.The 2nd click brings in the DM EUP row.The 3rd click brings in the CC EUP row.The 4th click brings in the TI EUP row.No supporting computations are shown on this slide, but students will ask, especially about the DM row!The slide is totally automated, except the computation for cost/EUP, which all comes in on the first click.The slide is totally automated, except the computation for cost/EUP, which all comes in on the first click.The first click brings in the WA total costs trd out row.The 2nd click brings in all 4 rows for the WA EI computations, and the WA total accounted for row.The 3rd click brings in the FIFO BI cost row.The 4th click brings in the FIFO cost to complete BI rows.The 5th click brings in the FIFO S&C and the total costs trd out rows.The 6th click completes the FIFO computations.
This slide has no animation no clicks required.This slide has no animation no clicks required.
The given info is automated, and the First, compute text is on a 3 second delay.The first mouse click brings in the rest of the elements on the slide.The top portion of the slide is automated.The first click brings in the blue text. The 2nd click brings in the physical units row. The 3rd click brings in the DM EUP row.The 4th click brings in the CC EUP row & the red text & arrow.The slide is totally automated, except the computation for cost/EUP, which all comes in on the first click.The slide is totally automated, except the computation for cost/EUP, which all comes in on the first click.The first click brings in the WA normal spoilage row.The 2nd click brings in the WA good units S&C row and the blue subtotal. all 4 rows for the WA EI computations, and the WA total accounted for row.The 3rd click brings in the WA abnormal spoilage row.The 4th click brings in all 4 rows for the WA EI computations, the WA total accounted for row, and the blue outlined text box about good units accounted for (which disappears on the next mouse click).The 5th click brings in the journal entry.The first click brings in all of the FIFO BI rows.The 2nd click brings in the FIFO normal spoilage rows.The 3rd click brings in the FIFO good S&C row and the blue subtotal for total costs trd out.The 4th click brings in the FIFO abnormal spoilage row.The 5th click completes the FIFO computations.The 6th click displays the journal entry under FIFO.
This slide is not animated no clicks are required.