PROCESS COSTING
PREPARED BY:
JAYGEE YESSAMIN RAMIREZ, MM
LEARNING OBJECTIVE
Process Costing
• apply costs to similar products that are mass-produced in a
continuous fashion.
Job order cost vs. Process cost flow
Similarities
• The manufacturing cost elements. Both costing systems track three
manufacturing cost elements—direct materials, direct labor, and
manufacturing overhead.
• The accumulation of the costs of materials, labor, and overhead.
Both costing systems debit raw materials to Raw Materials
Inventory, factory labor to Factory Labor, and manufacturing
overhead costs to Manufacturing Overhead.
• The flow of costs. As noted above, both systems accumulate all
manufacturing costs by debits to Raw Materials Inventory, Factory
Labor, and Manufacturing Cost of Goods Sold Cost of Goods Sold.
Differences
• The number of work in process accounts used. A job order cost system uses only
one work in process account. A process cost system uses multiple work in process
accounts.
• Documents used to track costs. A job order cost system charges costs to individual
jobs and summarizes them in a job cost sheet. A process cost system summarizes
costs in a production cost report for each department.
• The point at which costs are totaled. A job order cost system totals costs when the
job is completed. A process cost system totals costs at the end of a period of time.
• Unit cost computations. In a job order cost system, the unit cost is the total cost
per job divided by the units produced. In a process cost system, the unit cost is total
manufacturing costs for the period divided by the units produced during the period.
Process Cost Flow
Assigning Manufacturing Cost – Journal Entries
Equivalent Units of Production
• measure the work done during the period, expressed in fully
completed units.
Weighted Average Method
• The formula to compute equivalent units of production is as follows:
Example
• In a specific period, the entire output of Sullivan Company’s Blending
Department consists of ending work in process of 4,000 units which
are 60% complete as to materials, labor, and overhead. The
equivalent units of production for the Blending Department are
therefore 2,400 units (4,000 x 60%).
• The output of Kori Company’s Packaging Department during the
period consists of 10,000 units completed and transferred out, and
5,000 units in ending work in process which are 70% completed. The
equivalent units of production are therefore 13,500 [10,000 + (5,000
x 70%)].
Formula for Material and Conversion Cost
EXAMPLE
PRODUCTION COST REPORT
• is the key document that management uses to understand the
activities in a department; it shows the production quantity and cost
data related to that department.
PRODUCTION COST REPORT
In order to complete a production cost report, the company must
perform four steps, which, as a whole, make up the process cost
system.
1. Compute the physical unit flow.
2. Compute the equivalent units of production.
3. Compute unit production costs.
4. Prepare a cost reconciliation schedule.
EXAMPLE
STEP 1 : COMPUTE THE PHYSICAL UNIT FLOW
STEP 2 : COMPUTE THE EUP
STEP 3 : COMPUTE THE UNIT PRODUCTION COST
STEP 3 : COMPUTE THE UNIT PRODUCTION COST
STEP 3 : COMPUTE THE UNIT PRODUCTION COST
STEP 4 : PREPARE A COST RECONCILATION SCHEDULE
Activity