Let us

pray….
“ Perseverance is Stubbornness
with a Purpose.” – John Shipp
 PROCESS
Chapter 10
COSTING
 Discuss the uses of a process cost system and
how it compares to a job order system.
Learning
Explain the flow of costs in a process cost
Objectives
system and the journal entries to assign
manufacturing costs.

Compute equivalent units.

• Complete the four steps to prepare a

production cost report
Uses of
Process
Cost
Systems
 Examples of companies that primarily use either a
process cost system or a job order cost system.

Uses of
Process
Cost
Systems
Example of
Production
[Link]
Process 0
 Which of the following items is not a characteristic of a
process cost system:

[Link] production begins, it continues until the

Question finished product emerges.
[Link] focus is on continually producing homogenous
products.
[Link] the finished product emerges, all units have
precisely the same amount of materials, labor, and
overhead.

[Link] products produced are heterogeneous in

nature.
 Service companies that provide individualized,
nonroutine services will probably benefit from using
a job order cost system.
Process Cost
for Service
Companies Those that perform routine, repetitive services will
probably be better off with a process cost system
 Job Order Cost Process Cost

◆Costs assigned to each ◆Costs tracked through a

Similarities and job. series of connected
Differences manufacturing processes or
departments.
Between Job ◆Products have unique
Order Cost and ◆Products are uniform or
characteristics.
relatively homogeneous and
Process Cost
produced in a large volume
Systems
Job Order
Cost and
Process Cost
Flow
Job Order
Cost and
Process Cost
Flow
Job Order
Cost and
Process Cost
Flow
 Indicate which of the following statements is not correct:
a. Both a job order and a process cost system track the
same three manufacturing cost elements – direct
materials, direct labor, and manufacturing overhead.
Question
b. In a job order cost system, only one work in process
account is used, whereas in a process cost system,
multiple work in process accounts are used.
c. Manufacturing costs are accumulated the same way
in a job order and in a process cost system.
d. Manufacturing costs are assigned the same way in a
job order and in a process cost system.
 Tyler Company manufactures roller blade and
skateboard wheels that it sells to manufactures and
retail outlets. Manufacturing consists of two
Process processes: machining and assembly. The Machining
Cost Flow Department shapes, hones, and drills the raw
materials. The Assembly Department assembles and
packages the parts.
 ◆Accumulation of the cost of materials, labor, and
overhead is the same as in job order costing.
► Debit Raw Materials Inventory for purchases of
Assigning raw materials.
Manufacturing ► Debit Factory Labor for factory labor incurred.
Costs ► Debit Manufacturing Overhead for overhead cost
incurred.
◆ Assignment of the three manufacturing cost elements to
Work in Process in a process cost system is different
from a job order cost system.
 ◆A process cost system requires fewer material requisition
slips than a job order cost system.
◆Materials are used for processes and not specific jobs.
Assigning ◆Requisitions are for larger quantities of materials.
Manufacturing ◆ Journal entry to record materials used:
Costs –
Material Cost Work in Process—Machining XXXXX
Work in Process—Assembly XXXXX
Raw Materials Inventory XXXXX
 ◆Time tickets may be used in both systems.
◆Alllabor costs incurred within a production department are a
cost of processing.
Assigning ◆ The journal entry to record factory labor costs:
Manufacturing
Costs – Labor
Cost Work in Process—Machining XXXXX
Work in Process—Assembly XXXXX
Factory Labor XXXXX
 ◆Objective of assigning overhead is to allocate overhead to
production departments on objective and equitable basis.
◆Use the activity that “drives” or causes the costs.
Assigning ◆Machine time used - primary driver.
Manufacturing ◆ Journal entry to allocate overhead:
Costs –
Overhead Cost Work in Process—Machining XXXXX
Work in Process—Assembly XXXXX
Manufacturing Overhead Applied XXXXX
 Monthly Entry to transfer goods to next department:
Work in Process—Assembly XXXXX
Work in Process—Machining XXXXX
Assigning
Manufacturing Entry to transfer completed goods to Finished Goods

Costs – Finished Goods Inventory XXXXX

Work in Process—Assembly XXXXX
Transfers

Entry to record Cost of Goods sold at the time of sale:

Cost of Goods Sold XXXXX
Finished Goods Inventory XXXXX
 In making the journal entry to assign raw materials
costs:
a. The debit is to Finished goods Inventory.
Question b. The debit is often to two or more work in process
accounts.
c. The credit is generally to two or more work in
process accounts.
d. The credit is to Finished Goods Inventory.
 Blue Diamond Company manufactures ZEBO through two
processes: blending and bottling. In June, raw materials used
were Blending P18,000 and Bottling P4,000. Factory labor
costs were Blending P12,000 and Bottling P5,000.
Let’s Do It! Manufacturing overhead costs were Blending P6,000 and
Bottling P2,500. The company transfers units completed at a
cost of P19,000 in the Blending Department to the Bottling
Department. The Bottling Department transfers units
completed at a cost of P11,000 to Finished Goods. Journalize
the assignment of these costs to the two processes and the
transfer of units as appropriate.
 Journalize the assignment of these costs to the two
processes.
To Record Materials Used:
Work in Process—Blending 18,000
Let’s Do It! Work in Process—Bottling 4,000
Raw Materials Inventory 22,000

To Assign Factory Labor to Production:

Work in Process—Blending 12,000
Work in Process—Bottling 5,000
Factory Labor 17,000
 Journalize the assignment of these costs to the two processes.
To Assign Overhead to Production :
Work in Process—Blending 6,000
Work in Process—Bottling 2,500
Manufacturing Overhead 8,500
Let’s Do It!
Journalize the transfer of units as appropriate.
To Record Transfer of Units to the Bottling Department:
Work in Process—Bottling 19,000
Work in Process—Blending 19,000

To Record Transfer of Units to Finished Goods

Finished Goods Inventory 11,000
Work in Process—Bottling 11,000
 Illustration: Suppose you have a work-study job in
the office of your college’s president, and she asks
you to compute the cost of instruction per full-time
equivalent student at your college. The college’s vice
president for finance provides the following
Compute
information.
Equivalent Costs:
Units. Total cost of instruction P9,000,000
Student population:
Full-time students 900
Part-time students 1,000
 Illustration: Part-time students take 60% of the
classes of a full-time student during the year. To
compute the number of full-time equivalent students
per year, you would make the following computation.
Compute
Equivalent
Units.
900 1,000* 60% = 600 1,500

Cost of instruction per full-time equivalent

student =

Total cost of instruction P9,000,000

Number of full-time equivalent students ÷
1,500
 Equivalent Units
The fabricating department Outdoor Essentials has the
following production and cost data for the current month.
Beginning Units Ending
Work in Process Transferred Out Work in Process
Let’s Do It! –0– 15,000 10,000

Materials are entered at the beginning of the process. The

ending work in process units are 30% complete as to
conversion costs. Compute the equivalent units of production
for (a) materials and (b) conversion costs.
 Equivalent Units
The fabricating department Outdoor Essentials has the
following production and cost data for the current month.
Beginning Units Ending
Work in Process Transferred Out Work in Process
Let’s Do It! –0– 15,000 10,000

Compute the equivalent units of production for (a) materials

and (b) conversion costs.
Units transferred out 15,000
Ending work in process units 10,000
25,000
 Equivalent Units
The fabricating department Outdoor Essentials has the
following production and cost data for the current month.
Beginning Units Ending
Work in Process Transferred Out Work in Process
Let’s Do It! –0– 15,000 10,000

Compute the equivalent units of production for (a) materials

and (b) conversion costs.
Units transferred out 15,000
Equivalent unit in ending WIP (10,000 x 30%) 3,000
18,000
 Problem 10-2 page 390
Let’s Do It! Problem 10-3 page 391
 Flow of costs to make an Eggo® Waffle and the
related production cost reports for each department.
Cost of
Production
Report
 Cost of
Production
COSTS
Report Work in Process , June 1
Direct materials: 100% Complete P50,000
Conversion Cost: 70% complete 35,000
Cost of Work in Process, June 1 P85,000

Cost incurred during production, June

Direct materials 400,000
Conversion Cost 170,000
Cost incurred In June P570,000
 Compute the Physical Unit Flow (Step 1)

◆ Physical units - actual units to be accounted for during

a period, regardless of work performed.

◆ Total units to be accounted for - units started (or

Cost of transferred) into production during the period + units in
Production production at beginning of period.

Report ◆ Total units accounted for - units transferred out

during period + units in process at end of period.
 Compute the Physical Unit Flow (Step 1)

Cost of
Production
Report
 Compute Equivalent Units of Production (Step 2)

Mixing Department
◆Department adds materials at beginning of process and

Cost of ◆Incurs conversion costs uniformly during the process

Production
Report
 Compute Unit Production Costs (Step 3)

◆Costs expressed in terms of equivalent units of production.

◆When equivalent units of production are different for materials
Cost of and for conversion costs, three unit costs are computed:
[Link]
Production
[Link]
Report
[Link] Manufacturing
 Compute Unit Production Costs (Step 3)

◆Compute total materials cost related to Eggo® Waffles:

Cost of P50,000

Production
400,000
Report P450,000

P450,000 900,000 P0.50

 Compute Unit Production Costs (Step 3)

◆Compute total conversion cost related to Eggo® Waffles:

Cost of P35,000

Production
170,000
Report P205,000

P205,000 820,000 P0.25

 Compute Unit Production Costs (Step 3)

Cost of P450,000 900,000 P0.50

Production
Report
P205,000 820,000 P0.25

P0.75
 • Problem 10-7 page 393
Let’s Do It!
• MCQ 25 page 386
 • MCQ 1-10 pp 377-379
Offline
Activity
OPEN FORUM
Thank you and have a nice
day!

See you next meeting.