PROCESS COSTING

PROCESS COSTING

⊡ Process costing is used by companies manufacturing

homogeneous products, which result from a sequence of
continuous or repetitive operations or processes, as well
as by entities producing large quantities of identical units
in a mass production setting.
⊡ Process costing differs from job order costing as follows:
Distinctions as to Process Costing Job Order Costing
Cost accumulation Per process or department Per job or customer order

Key document used Cost of Production Report Job Order Cost Sheet

Type of product produced Homogenous products in a Heterogeneous products in

continuous process a non-continuous process

⊡ Two Methods: Weighted Average and First-in, First-Out

(FIFO)

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 EQUIVALENT UNIT
PRODUCTION
⊡ Equivalent unit production (EUP) is defined as the
measure of work done expressed in terms of finished
units.
50% 50% 100%

25% 25% 25% 25%

100% 75%
25% 25% 25%

75% 75% 75% 100% 100% 25%

25%

No. of units x % of completion = Equivalent unit production

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 WEIGHTED AVERAGE
METHOD

Dept. Dept.
A B

Total Costs Total Costs Costs in WIP

Beg. Inv.
Costs Added Costs in WIP Costs Added Transferred-
This Period Beg. Inv. This Period in Costs Trans.-In
DM DM DM DM DM
CC CC CC CC CC

>100% =100% =100% >100%

>100% =100%
=100% >100%
=100%

WIP, end Started and WIP, beg WIP, end Started and WIP, beg
completed completed

Transferred out Transferred out

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 FIRST-IN, FIRST-OUT
METHOD

Dept. Dept.
A B

Costs in
Beg. Inv.
Costs Added Costs in Beg. Costs Added Transferred-
This Period Inventory This Period in Costs Trans.-In
DM DM DM DM DM
CC CC CC CC CC

>100% =100% =100% >100%

>100% =100%
=100% >100%
=100%

WIP, end Started and WIP, beg WIP, end Started and WIP, beg
completed completed

Transferred out Transferred out

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 COST PRODUCTION REPORT
I. Quantity Schedule
No. of Units
Work in process, beg.
Units started
Total units to account for

⊡ The departmental cost No. of Units

Percentage of Completion
Transferred-In Materials Conversion Cost

production report (CPR) is Completed and transferred out:

Work in process, beg. 100%
Started and completed 100%
the key document in process Work in process, end.
Total units accounted for
100%

costing. Equivalent Unit Production (EUP)

Transferred-In Materials Conversion Cost
Completed and transferred out:
⊡ The CPR consists of the Work in process, beg.
Started and completed

following schedules: Add: Work in process, end.

Total EUP

⊡ Quantity Schedule II. Cost Schedule

Costs
Transferred-In Materials Conversion Cost

⊡ Cost Schedule WIP, beg. or Costs last Period

Costs from previous department
Costs Added this Month

⊡ Cost Assignment Schedule

Total costs to be accounted for
Divide by EUP
Unit Cost

III. Cost Assignment Schedule

Assigned Costs
Transferred-In Materials Conversion Cost Total Cost
Completed and transferred out:
Work in process, beg.
Started and completed

Add: Work in process, end.

Total costs accounted for

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 QUANTITY SCHEDULE

Weighted Average
Equivalent Unit Production (EUP)
Transferred-In Materials Conversion
Completed and transferred out:
No. of
Work in process, beg. 1,200 1,200 1,200
Units
Started and completed 1,800 1,800 1,800
Work in process, beg.
3,000 3,000 3,000
(40% of labor and overhead) 1,200
Units started 2,800 Add: Work in process, end. 1,000 1,000 800
Total units to be accounted for 4,000 Total EUP 4,000 4,000 3,800
No. of units in end. inv.* (% of completion)

No. of First-in, First Out

Units Equivalent Unit Production (EUP)
Completed and transferred out 3,000 Transferred-In Materials Conversion
Work in process, end. Completed and transferred out: No. of units in beg. inv.*(1  % of completion)
(80% of labor and overhead) 1,000 Work in process, beg. 0 0 720
Total units accounted for 4,000 Started and completed 1,800 1,800 1,800
1,800 1,800 2,520
Add: Work in process, end. 1,000 1,000 800
Total EUP 2,800 2,800 3,320

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 EUP RECONCILIATION

Equivalent Unit Production

Transferred-In Materials Conversion
EUP – Weighted Average 4,000 4,000 3,800
Work in process, beg. (1,200) (1,200) (480)
(40% of labor and overhead) 1,200*100% 1,200*100% 1,200*40%

EUP – First-In, First-Out 2,800 2,800 3,320

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 COST SCHEDULE

Costs WIP – Dept. B 40,600

WIP, beg. Costs added WIP – Dept. A 40,600
this period
Costs transferred in P17,280 P40,600 WIP – Dept. B 67,718
Materials 5,600 22,400 Materials 22,400
Labor 980 19,920 Payroll 19,920
Factory Overhead 3,102 25,398 Applied Factory OH 25,398

Costs
Weighted Average Transferred-In Materials Conversion
WIP, beg. or Costs last period P17,280 P 5,600 P 4,082
Costs added this period 40,600 22,400 45,318
Total costs to be accounted for P57,880 P28,000 P49,400
Divide by EUP – Weighted ave. 4,000 4,000 3,800
Unit cost P 14.47 P 7.00 P 13.00

Costs
First-in, First Out Transferred-In Materials Conversion
Costs added this period P40,600 P22,400 P45,318
Divide by EUP – FIFO 2,800 2,800 3,320
Unit cost P 14.50 P 8.00 P 13.65

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 COST ASSIGNMENT
SCHEDULE
Equivalent Unit Production (EUP)
Transferred-In Materials Conversion
Completed and transferred out:
1 Work in process, beg. 1,200 1,200 1,200
2 Started and completed 1,800 1,800 1,800
3,000 3,000 3,000
3 Add: Work in process, end. 1,000 800 800
Total EUP 4,000 3,800 3,800
Costs
Transferred-In Materials Conversion Weighted Average
WIP, beg. or Costs last period P17,280 P 5,600 P 4,082
Costs added this period 40,600 22,400 45,318
Finished Goods 103,410
Total costs to be accounted for P57,880 P28,000 P49,400 WIP – Dept. B 103,410
Divide by EUP 4,000 4,000 3,800
4 Unit cost P 14.47 P 7.00 P 13.00
Assigned Costs
Transferred-In Materials Conversion Total Cost
Completed and transferred out:
1 x 4 Work in process, beg. P17,364 P 8,400 P15,600 P 41,364
2 x 4 Started and completed 26,046 12,600 23,400 62,046
43,410 21,000 39,000 103,410 Finished Goods
3 x4 Add: Work in process, end. 14,470 7,000 10,400 31,870 WIP, end.
Total costs accounted for P57,880 P28,000 P49,400 P135,280

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 COST ASSIGNMENT
SCHEDULE

Equivalent Unit Production (EUP)

Transferred-In Materials Conversion
Completed and transferred out:
1 Work in process, beg. 0 0 1,200
2 Started and completed 1,800 1,800 1,800
1,800 1,800 3,000
3 Add: Work in process, end. 1,000 1,000 800
Total EUP 2,800
Costs
2,800 3,800
First-In, First-Out
Transferred-In Materials Conversion Finished Goods 101,860
Costs added this period P 40,600 P 22,400 P 45,318 WIP – Dept. B 101,860
Divide by EUP 2,800 2,800 3,320
4 Unit cost P 14.50 P 8.00 P 13.65
Assigned Costs
Transferred-In Materials Conversion WIP, beg. Total Cost
Completed and transferred out:
1 x 4 Work in process, beg. P - P - P 9,828 26,962 P 36,790
2 x 4
Started and completed 26,100 14,400 24,570 26,962 65,070 FG
3 x4 26,100 14,400 34,398 101,860
Add: Work in process, end. 14,500 8,000 10,920 WIP, end.
26,962 33,420
Total costs accounted for P 40,600 P22,400 P 45,318 P135,280

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