ACCT 2102 - Ch. 4

Equivalent Units of Production

the product of the number of partially completed units and the percentage completion of those units. They complicate the determination of the department's output for a given period and the unit cost that should be assigned to that output. ex. 10,000 units 70% complete are equivalent to 7,000 complete units.

Cost per Equivalent Unit

(Cost of beginning Work in Process Inventory + Cost added during the period )/ Equivalent units of production

Equivalent Units can be calculated in two ways:

1. First-In, First-out FIFO Method 2. Weighted-Average Method

Weighted-Average Method

1. makes no distinction between work done in prior or current periods. 2. blends together units and costs from prior and current periods. 3. Determines equivalent units of prodcution for a department by adding together the number of units transferred out plus the equivalent units in ending Work in Process Inventory

Processing Departments

A unit in an organization where material, labor or overhead are added to the product. Activities performed in a processing department are performed uniformly on all units of production. Furthermore, the output of a processing department must be homogenous. Products in a process costing environment typically flow in a sequence from one department to another.

Similarities between Job-Order and Process Costing

Both systems assign material, labor and overhead costs to products and they provide a mechanism for computing unit product costs. Both systems use the same manufacturing accounts, including Manufacturing Overhead, Raw Materials, Work in Process, and Finished Goods. The flow of costs thorugh the manufacturing accounts is basically the same in both systems.

Process Cost Flows Journal Entry: Transfer from Finished Goods to COGS

Cost of Goods Sold Finished Goods

Process Cost Flows Journal Entry: Transfer from WIP-Dept. B to Finished Goods

Finished Goods Work in Process - Department B

Differences between Job-Order and Process Costing

Process costing: 1. Is used when a single product is produced on a continuing basis or for a long period of time. Job-order costing is used when many different jobs having different production requirements are worked on each period. 2. Systems accumulate costs by department. Job-order costing systems accumulated costs by individual jobs. 3. Systems compute unit costs by department. Job-order costing systems compute unit costs by job on the job cost sheet.

Process Cost Flows Journal Entry: The Flow of Manufacturing Overhead Costs

Work in Process - Department A Work in Process - Department B Manufacturing Overhead

Process Cost Flows Journal Entry: The Flow of Raw Materials

Work in Process - Department A Work in Process - Department B Raw Materials

Process Cost Flows Journal Entry: The Flow of Labor Costs

Work in Process - Department A Work in Process - Department B Salaries and Wages Payable

Process Cost Flows Journal Entry: Transfers from WIP- Dept. A to WIP Dept. B

Work in Process - Department B Work in Process - Department A

For the current period, Jones started 15,000 units and complete 10,000 units, leaving 5,000 units in process 30 percent complete. How many equivalent units of production did Jones have for the period? a. 10,000 b. 11,500 c. 13,500 d. 15,000

b. 11,500 --- 10,000 + (5,000*0.3) = 11,500