BACOSTMX_Cost Accounting and Control

Instructional Materials 4-Process Costing

LECTURE NOTES
Process Costing- a system applicable to a continuous completed and those that are first completed are the
process of production of the same or similar goods. It is ones transferred cost.
used in those industries such as bricks, flour, and cement.
2. AVERAGE METHOD- under this method there is no
The method is also employed in assembly-type operations,
assumed flow of manufacturing operations. It involves
as well as in utilities producing gas, water, and electricity.
the merging of departmental costs, by elements of the
Process costing is similar to job order costing in initial work in process inventory with the costs incurred
three ways. in the current month and securing a representative
1. The same basic purposes exist in both systems, which average unit cost by dividing the total element of costs
are: by the equivalent production based upon the sum of
a. to assign material, labor and overhead costs to units in the initial work in process inventory and the
products; units placed into production during the period.
b. to provide a mechanism for computing unit costs;
Cost of Production Report
c. to provide data essential for planning, control, and
The cost of production report is used to summarize the
decision making.
total cost charged to a department and the distribution of
2. Both systems maintain and use the same basic
the total cost between the ending work in process
manufacturing accounts including Manufacturing
inventory and the units completed and transferred to the
Overhead, Raw Materials, Work in Process, and
next department or the finished goods inventory.
Finished Goods.
3. Cost flows through the manufacturing accounts in (2) Steps in preparing the cost of production report:
move in basically the same way in both systems. 1. Compute the physical flow to determine the stage of
Process costing differs from job-order costing in completion of all units.
four ways. 2. Compute the equivalent units of production separately
1. A single product is produced on a continuous basis, for beginning work in process, raw materials and
and each unit is identical. conversion cost.
2. Costs are accumulated by department, rather than by 3. Determine the total costs for materials and conversion
job. cost.
3. The cost of production report (rather than the job cost 4. Compute the unit cost depending on the method used
sheet) is the key document showing the accumulation in accounting for the beginning inventory.
and disposition cost. a. FIFO method- current period cost only divide by
4. Unit costs are computed by department (rather than the equivalent production
by job). This computation is made on the cost of b. WEIGHTED AVERAGE method- costs in the
production report. beginning inventory plus costs of the current
period divided by the equivalent production.
Methods of costing under process costing 5. Account for the cost of the units completed and
1. FIFO METHOD- under this method there is an transferred and the units remaining in process at the
assumed flow of manufacturing operations and as such end of the period.
it is considered that those units which are first placed
into process are presumed to be the first ones

STRAIGHT PROBLEMS

EQUIVALENT PRODUCTION Materials in this department are added 100% at the

Problem 1 beginning of the process.
In process, beginning (60% 6,000 units
incomplete) Required: Equivalent production for materials and
Received from preceding department 44,000 units conversation costs using (a) Weighted Average method
Completed and transferred 40,000 units and (b) FIFO method.
In process, end (30% complete) 5,000 units
Materials in this department are added at the end of the COST OF PRODUCTION REPORT
process after quality control inspection. I – FIFO COSTING
Problem 2
In process, beginning (30% complete) 10,000 units Beyond Borders Corporation operates two departments in
Received from preceding department 30,000 units its operations, namely Department I and Department II.
Completed and transferred 32,000 units Inventories, cost, and production data for the month of
In process, end (40% complete) 6,000 units March, 2021 are as follows:
Lost units (normal-discovered at the 2,000 units QUANTITY: Dept I Dept II
beginning) Units in-process, 6,000 5,000
Materials in this department are added 100% at the beginning
beginning. Stage of completion 2/3 3/5
Started in process 44,000 -
In process, beginning (50% complete) 5,000 units Units transferred out 40,000 37,000
Received from preceding department 25,000 units Units in-process, ending ? ?
Completed and transferred 22,000 units Stage of completion 3/5 7/8
In process, end (80% complete) 5,000 units
Lost units (abnormal-discovered when 3,000 units COST:
60% completed) In process, beginning P5,200 P10,000
Added this month:
Materials 19,800 34,799

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Labor 14,200 27,470 The following data for the Finishing department for May,
overhead 2,600 18,450 2021 have been made available.
Quantity Data:
Conversion costs are applied evenly in all the
In process, May 1 (labor and 10,000 units
departments. Materials are applied as follows:
overhead, ¾ complete)
Dept I – all at the START of the process; DEPT II – 30%
Received from the preceding
at the START, 40% at MID-POINT, and 30% at the END of
department 40,000 units
the process.
Finished and transferred to
storage 35,000 units
Required: Prepare a Cost of Production Report for Dept I
In process, May 31 (labor and
and Dept II for March of 2021.
overhead, ½ complete) 10,000 units
II – AVERAGE COSTING
Cost Data:
Problem 3
Inventory work-in-process –
Doha Q, Incorporated has the following production data
May 1:
for the month of April 2021.
Cost from preceding
department P 38,000
QUALITY SCHEDULE Dept I Dept II
Cost from this
In process, beginning –
2/3 complete: 15,000 1/3 complete: 9,000
department:
Transferred to next Materials 21,500
department 30,000 ? Labor 39,000
In process, ending 2/5 Overhead 42,000
complete: 5,000 7/8 complete: 8,000 Total Inventory work-in-
process, May 1 P 140,500
COST ANALYSIS Received from the preceding
Units in process, beginning: department during May 140,000
Cost from preceding Costs added in this
department - P9,000 department this month:
Costs from this department: Materials P 70,000
Materials P8,145 P3,996 Labor 162,500
Labor 3,315 1,998 Overhead 130,000 362,500
Overhead 1,050 1,332 Total cost to be accounted for P 643,000
Costs added this month:
Required: Prepare a Cost of Production Report for May,
Materials P10,860 P30,636
2021 using (a) FIFO Costing, and
Labor 7,309 23,310
Overhead 2,534 15,540
COST OF PRODUCTION REPORT WITH NORMAL AND
In Dept I, all materials are added at the START of the ABNORMAL LOST UNITS
process, while labor and overhead are applied evenly FIFO COSTING
throughout the process. In Dept II, 50% of materials are Problem 5
added at the START of the process and the balance is Hispanic Manufacturers, Inc. uses process costing in its
added when the process is ¾ completed. Conversion costs manufacturing operations. In Dept 2, conversion costs are
are applied uniformly to the process. incurred uniformly throughout the process. Materials are
added following inspection, which occurs at the 90% stage
Required: Prepare a Cost of Production Report for Dept I of completion. Normal spoilage is expected to be 5% of
and Dept II for April, 2021. good output.
The following information relates to Department 2 for
COST OF PRODUCTION REPORT (WITH NORMAL June, 2021.
LOST UNITS) Units Pesos
FIFO COSTING AND AVERAGE COSTING Received from Department 1 12,000 P84,000
Problem 4 Transferred to finished product 9,000
Mesmerized, Inc. uses three departments to produce a Ending inventory (70%
hair tonic. The Finishing department is the third and last complete) 2,000
step before the product is transferred to finished goods
storage. Costs incurred during the current month:
Materials 18,000
All materials needed to give the hair tonic its final Labor and overhead 45,200
composition are added at the beginning of the process in
the Finishing department. Quality control inspection is Required: Prepare a Cost of Production Report for Dept
done at the end of the process in this department, and lost 2 for June, 2021.
units, if any, are discovered only at this point.

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MULTIPLE CHOICE

The following data for the month of September were taken from Started in April 240,000
the cost records of Department A of NLP which uses average Work in process, April 30 (60%
costing: converted) 25,000
Opening inventory of work in process
Units- (all materials and 50% 500 Materials are added in the beginning of the process in the
converted) Mixing Department.
Cost-Materials P2,400 6. Using the weighted-average method, what are the equivalent
Labor 1,500 units of production for the month of April?
Factory overhead 760 Materials Conversion
a. 240,000 250,000
Put into production: b. 255,000 255,000
Units- 5,000 c. 270,000 280,000
Cost- Materials 25,100 d. 280,000 270,000
Labor 19,380
Factor Overhead 14,900 Roy Co. manufactures product X in a two-stage production
Completed and transferred 4,800 units cycle in Dept. A and B. Materials are added at the beginning of
Ending inventory of work in process: the process in Dept. B. Roy uses the weighted average method.
Units- (all materials and 60% Conversion costs for Dept. B were 50% complete as to the
converted) 700 6,000 units in the beginning WP and 75% complete as to the
8,000 units in the ending work in process. 12,000 units were
1. The equivalent production for labor is: completed and transferred out of Dept. B during February. An
a. 5,000 c. 5,220 analysis of the costs relating to work in process and production
b. 4,970 d. None of the given activity in Dept. B for February is as follows:
Trans-in Materials Conversion
2. The unit cost of material for the month is: WP, Feb.1 P12,000 P2,500 P1,000
a. P5.00 c. P5.50 Feb- costs added 29,000 5,500 5,000
b. P4.00 d. None of the given
7. The total cost per equivalent unit transferred out for
Cost and statistics for Dept. B of a company manufacturing a February of Product X, rounded to the nearest centavo
single product in three departments follow: a. P2.75 c. P2.78
Work in process, Oct. 1 b. P2.82 d. P2.85
Cost in Dept. A P11,380
Cost in Dept. B The Wiring Dept. is the second stage of Fern Company’s
Materials None production cycle. On May 1, the beginning work in process
Labor P 500 contained 25,000 units which were 60% complete as to
Factory overhead 50 conversion costs. During May, 100,000 units were transferred
Cost added in Department B in October: in from the first stage of Fern’s production cycle. On May 31,
Labor 13,000 the ending work in process contained 20,000 units which were
Factory overhead 450 80% complete as to conversion costs. Material costs are added
Units in process, Oct. 1 (60% converted) 500 at the end of the process.
Units received from Dept. A at P2.60/unit 6,700 8. Using the weighted-average method, equivalent units
Units completed and transferred 6,800 were:
Units in process, Oct. 31 (50% converted) 400 Transf.-in Materials Conversion
The company uses average costing method. costs cost
3. The equivalent production for labor was: a. 100,000 125,000 100,000
a. 7,200 c. 7,000 b. 125,000 105,000 105,000
b. 6,800 d. None of the given c. 125,000 105,000 121,000
d. 125,000 125,000 121,000
4. The conversion costs per unit in Dept. B was:
a. P2.00 c. P6.00 Information concerning Dept. B of the Abbey Co. is as follows:
b. P5.00 d. None of the given Units Costs
Beg. work in process 5,000 P 6,300
Materials are added at the start of the process in Cedar Units transferred in 35,000 58,000
Company’s blending department, the first stage of the Units completed 37,000
production cycle. The following information is available for the
July Costs
Work in process, July 1 (60% converted) 60,000 units Transf. Materials Conversio Total
Started in July 150,000 In n
Transferred to next department 110,000 Beg. WP P2,900 P- P3,400 P 6,300
Lost at the end 30,000 Units transf. In
Work in process, July 31 (50% converted) 70,000 17,500 25,500 15,000 58,000
Under Cedar Company’s cost accounting system, the costs
incurred on the lost units are absorbed by the completed units Conversion costs were 20% complete as to the beginning work
only. in process and 40% complete as to the ending work in process.
5. Using the weighted average method, what are the equivalent All materials are added at the end of the process. Toby uses
units for the materials? average method.
a. 120,000 c. 145,000 9. The cost per equivalent unit for conversion costs, is
b. 180,000 d. 210,000 a. P0.44 c. P0.46
b. P0.48 d. P0.50
SSS Corporation’s production cycle starts in the Mixing
Department. The following information is available for the 10. The portion of the total cost of ending WP attributable to
month of April: transferred-in costs is
Work in process, April (50% a. P0 c. P1,580
converted) 40,000 units b. P1,530 d. P1,650

- now do the drill -

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