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Managerial Accounting Chapter 5

Process costing is used for continuous production of similar products, with costs accumulated by department. Each processing department, such as preparation, cooking, and packing, maintains its own Work-in-Process accounts for direct materials, direct labor, and manufacturing overhead. The document also discusses the weighted-average method for calculating equivalent units and cost per unit of production.

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2 views2 pages

Managerial Accounting Chapter 5

Process costing is used for continuous production of similar products, with costs accumulated by department. Each processing department, such as preparation, cooking, and packing, maintains its own Work-in-Process accounts for direct materials, direct labor, and manufacturing overhead. The document also discusses the weighted-average method for calculating equivalent units and cost per unit of production.

Uploaded by

skye63050
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Process costing

●​ similar to job order costing


●​ used when a company produces the same type of product continuously
○​ ex: potato chips
●​ If different kinds of products are produced simultaneously → better use
job-order costing
●​ DM, DL, and MOH are accumulated by department

Processing Departments
●​ EX: factory making potato chips → the departments have their own working
process accounts
a.​ Preparation Dept.: has its own DM, DL, MOH
b.​ Cooking Dept.: has its own DM, DL, MOH
c.​ Packing Dept.: has its own DM, DL, MOH
●​ The output of a processing department must be homogeneous

Concept Check I
1.​ Different and produced continuously → X
2.​ Similar and produced continuously → Process Costing
3.​ Individual units produced to customer specifications → Job Order Costing
4.​ Purchased from vendors. → X

Page 11: DM, DL, MOH will be in their own Work-in Process Account in the
Processing Department

Page 13: Debit: Work in Process (Dept A) $50


Credit Raw Materials (Dept A) $50
Debit: Work in Process (Dept A) $50
Credit Raw Materials (Dept A) $50

Page 17: Debit: Work in Process (Dept A) $50


Credit MOH (Dept A) $50
Debit: Work in Process (Dept B) $50
Credit MOH (Dept B) $50
When work in process in department A → will be transferred to department B (in
debit section)
●​ Debit) Work in Process (Dept. B) $60
○​ Credit) Work in Process (Dept. A) $60

If Dept. B finishes its product → transferred to Finished Goods account; under the
name of Cost of Goods Manufactured (turns from Asset to Expense)
●​ Debit) Finished Goods (Dept. B) $60
○​ Credit) Work in Process (Dept. B) $60
●​ Debit) Cost of Goods Sold (Dept. B) $60
○​ Credit) Finished Goods (Dept. B) $60

We still have to report for cost of incomplete items which is Work In Process item
●​ two methods: weighted-average method and the FIFO method
○​ We’re going to focus only on the weighted-average method
●​ Weighted-average method: # of units transferred + # of equivalent units
ending Work in process inventory
●​ Conversion cost: Direct Labor + Manufacturing Overhead
●​ Equivalent Units = # of partially completed units × Percentage completion
○​ to convert the # of incomplete units into equivalent # of completed unit
○​ ex: 2 of 50% completed products = 1 completed product
○​ ex 2: 10,000 units 70% complete are equivalent to 7,000 complete
units

How to compute the cost per equivalent units of production


●​ to get the cost per unit = total cost / # of units produced
○​ total cost = cost of beginning WIP + cost added udring the period
○​ # of units produced = # of units transferred + equivalent units in ending
WIP
●​ to do so, need to calculate for equivalent units of production first (for Materials
& Conversion cost separately)

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