Chapter 3 - Process Cost Systems (ACCT 2025)

What are the 3 groups of units that are assigned costs in FIFO method?

Group 1: Units in beginning work in process inventory Group 2: Units started and completed during July Group 3: Units in ending work in process inventory

Journal: Incurred direct labor in the Mixing & Packaging Dept.'s of $10,500 and $12,000, respectively.

(debit) work in process-mixing 10,500 work in process-packaging 12,000 (credit) wages payable 22,500

How to compute the cost per equivalent unit under average cost method?

total production costs/total equivalent units

Process Manufacturer

Produces products that are indistinguishable from each other using a continuous production process

Service Activities

Activities supporting the manufacturing process

Journal: Transferred costs of $86,475 from the Mixing Dept. to the Packaging Dept. per the cost of production report

(d)Work in process - packaging 86,475 (c) work in process - mixing 86,475

What are the four steps of preparing a cost of production report?

(1) Determine units to be assigned costs (2) Compute equivalent units of production (3) Determine cost per equivalent unit (4) Allocate cost to units transferred out and partially completed units

Ex: Bottling Co. had 2,000 liters in the beginning work in process (30% complete). During the month, 28,500 liters were started and 29,000 liters were completed. The ending work in process was 1,500 liters (60% complete). Materials are added at beginning of process, while conversion costs are added evenly throughout process. (A) How many units were started and completed during the month? (B) What are the total equivalent units for: (1) direct materials and (2) conversion costs?

(A) Completed (transferred out) 29,000 Inventory in process (beginning) (2,000) Started and completed 27,000 (B) 1. Direct Materials(whole units; % materials added in month; equiv. units for direct materials) Inv. in process, beg of mon. 2,000; 0%; 0 Started & completed during month 27,000; 100%; 27,000 Transferred out of Co. (completed) 29,000;-; 27,000 Inv. in process, end of month 1,500; 100%; 1,500 Total units to be assigned costs 30,500; -; 28,500 (B) 2. Conversion Costs (Whole units; % conversion completed in month; Equiv. units for conversion) Inv. in process, beginning of month 2,000; 70%; 1,400 Started & completed during month 27,000; 100%; 27,000 Transferred out of Co. (Completed) 29,000;-;28,400 Inv. in process, end of month 1,500; 60%; 900 Total units to be assigned costs 30,500;-; 29,300

Journal: Transferred goods of $106,000 out of the Packaging Dept, to Finished Goods according to the Packaging Dept. cost of production report

(D) Finished goods - ice cream 106,000 (c) Work in process - packaging 106,000

Journal: Purchased materials, including milk, cream sugar, packaging, and indirect materials on account, $88,000

(Debit) Material $88,000 (credit) Accounts Payable $88,000

Journal: The mixing dept. requisitioned milk, cream, and sugar, $66,000. This is the total amount from the original July data. Packaging materials of $8,000 were requisitioned by the Packaging Dept. Indirect materials for the Mixing and Packaging Depts were $4,125 and $3,000, respectively

(Debit) Work in process - mixing $66,000 work in process - packaging 8,000 Factory overhead - mixing 4,125 Factory overhead - packaging 3,000 (credit) Materials 81,125

Journal: Recorded the cost of goods sold out of the finished goods inventory of $107,000

(d) cost of goods sold 107,000 (c) Finished Goods - ice cream 107,000

Journal: Recognized equipment depreciation for the Mixing and Packaging Dept's of $3,350 and $1,000, respectively

(d)Factory overhead-mixing 3,350 Factory overhead-packaging 1,000 (c) Accumulated depreciation 4,350

Journal: Applied factory overhead to mixing and packaging dept's of $7,275 and $3,500, respectively

(d)Work in process - mixing 7,275 work in process - packaging 3,500 (c) factory overhead-mixing 7,275 factory overhead - packaging 3,500

Manufacturing Cell

A grouping of processes where employees are cross-trained to perform more than one function

Ex: The cost of materials transferred into the Bottling Dept. Beverage Co. is $22,800, including $20,000 from the Blending Dept. are $2,800 form the materials storeroom. The conversion costs for the period in the Bottling Dept. are $8,790 ($3,790 factory overhead applied and $5,000 direct labor). The total cost transferred to Finished Goods during the period is $31,980. The Bottling Dept. had a beginning work in process inventory of $1,860. A) Journalize (1) cost of transferred-in materials (2) conversion costs & (3) the costs transferred out to Finished Goods B) Determine the balance of work in process - bottling at the end of the period.

A) 1. (d)Work in process - Bottling 22,800 (c) work in process - blending 20,000 Materials 2,800 2. (d)work in process - bottling 8,790 (c) wages payable 5,000 factory overhead - bottling 3,790 3. (d) finished goods 31,980 (c) work in process - bottling 31,980 B) $1,470

cost per equivalent unit

Rate used to allocate costs between completed and partially completed production

First-In, First Out (FIFO) Method

The method of inventory costing based on the assumption that the costs of merchandise sold should be charged against revenue in the order in which the costs were incurred.

Whole Units

The number of units in production during a period, whether completed or not.

How to compute conversion cost per equivalent unit?

Total conversion cost for period/total equivalent units of conversion costs

How to compute direct materials cost per equivalent unit?

Total direct materials cost for the period/Total equivalent units of direct materials

Ex: Assume that a 1,000 gallon batch (vat) of ice cream at Frozen Delights is only 40% complete in mixing process on May 31. Thus, the batch is only 40% complete as to conversion costs such as power. In this case, whole units and equivalent units of production are as follows:

Whole Units Equivalent Units Materials Cost 1,000 Gallons 1,000 Gallons Conversion Costs 1,000 gallons 400 gal (1,000x40%)

There were 2,000 pounds in process at the beginning of the period in the Packing Department. Packing received 24,000 pounds from the Blending Department during the month, of which 3,000 pounds were in process at the end of the month. How many pounds were completed and transferred to finished goods from the Packing Department? a. 23,000 b. 21,000 c. 26,000 d. 29,000

a. 23,000

For which of the following businesses would the process cost system be most appropriate? a. custom furniture b. commercial building contractor c. crude oil refinery d. automobile repair shop

c. crude oil refinery

lean manufacturing

management approach that produces products with high quality, low cost, fast response, and immediate availability

Equivalent Units of Production

portion of whole units that are complete with respect to materials or conversion costs

Process Cost System

the cost accounting system used by process manufacturers