Study Unit 8: Cost Accumulation Systems - Process Costing

Weighted Ave Process Cost Ex 2 - Direct Materials

Beg WIP 2,000 Started 50,000 End WIP 6,000 Beg 2,000 x 100% S&C 50,000-6,000 = 44,000 x 100% End WIP 6000 x 10% = 600 EUP Total 46,600 Costs Beg WIP $410,000 Current costs $900,000 410,000 + 900,000 46,600 =28.1116

Weighted Ave Process Cost Ex 2 - Conversion Costs

Beg WIP 2,000 Started 50,000 End WIP 6,000 Beg 2,000 x 100% S&C 50,000-6,000 = 44,000 x 100% End WIP 6000 x 20% = 1200 Total 47,200 Beg $235,000 Current $750,000 235,000 + 750,000 47,200 = $20.8686

Weighted Ave Process Cost Ex 2 - Final Figures

Beg WIP 2,000 Started 50,000 End WIP 6,000 Direct Material cost Total = $410,00+900,000 = $1,310,000 Allocated to Tout and End WIP Inventory Value of End WIP Inventory 600 EUP x $28.116 = $16,866.96 rest is T out = $1,310,000-$16,866.96= $1,293,133.04 Conversion Costs $235,000 + $750,000 = $985,000 Ending WIP Inventory 1200 EUP x $20.8686 = $25,042.32 rest is T out $985,000 - $25,042.32 = $959,957.68 Ending Inventory in Total DM $16,866.96 + $25,042.32 = $41,909,28

FIFO method Process Costing Ex 2 - Ending Inventory

Beg WIP 2000 Started 50,000 End WIP 6000 S&C = 50,000-6000 = 44,000 Direct Materials Beg 2000 x 30% = 600 S&C 44,000 End 6000 x 10% = 600 Total EUP = 45,200 Cost per EU 900,000/45,200 = $19.9115 cost per EUP Conversion Costs Beg 2000 x 75% = 1500 S&C 44,000 End 6000 x 20% = 1200 Total EUP = 46,700 750,000/46,700= $16.0599 Ending Inventory Direct Materials All Beg WIP inventory costs are Tout Allocate Current period costs to Tout and End WIP 600 x $19.9115 = $11,946.90 Ending Inventory Tout cost = 900,000-11,946.90 = $888,053.10 Tout this period $888,053.10+$410,000 Beg WIP = 1,298,053.10 Ending Inventory Conversion Costs 1200 x $16.0599 = $19,271.88 Ending Inventory 750,000-19,271.88 = $730,728.12 Tout this period Total Tout = $730,728.12 +235,000 = Total Ending Inventory = $11,946.9+19,272 = $31,218,90

Comprehensive Process Costing Ex Weighted Ave

Beg WIP 300 S&C 4300 End WIP 700 Direct Materials Beg WIP 300 x 100% S&C 4300 x 100% End WIP 700 x 15% = 105 EUP = 4705 Costs $25,000 + $420,000 = $445,000 $445,000/4705 = $94.5802 per unit Ending Inventory 105 x $94.5802 = $9930.92 Tout = $445,000 - $9930.92 = $435,069.08 Conversion Costs (DL + MOH) Beg WIP 300 x 100% S&C 4300 x 100% End WIP 700 x 30% = 210 EUP = 4810 Cost per unit 16,000 + 390,000 = 406,000 406,000/4810 = $84.4075 Ending Inventory 210 x $84.4075 = $17,725.58 Tout = 406,000 - $17,725.58 = $488,274.42 Total Ending Inventory = $9930.92 + $17,725.58 = $27,656.50 Total Tout = $823,343.50

Comprehensive Process Costing Ex FIFO

Beg WIP 300 S&C 4300 End WIP 700 Direct Materials Beg WIP 300 x 80% = 240 S&C 4300 End WIP 700 x 15% = 105 Total = 4645 Costs $420,000/4645 = $90.4198 cost per unit Ending Inventory 105 x $90.4198 = $9494.08 Conversion Costs Beg WIP 300 x 75% = 225 S&C 4300 End WIP 700 x 30% = 210 Total = 4735 EUP Costs $390,000/4735 = $82.3654 cost per unit Ending Inventory 210 x $82.3654 = $17,296.73 Total Ending Inventory = $9494.08 + $17,296.73 = $26,790.81 Total Tout = 851,000 - $26,790.81 = $824,209.19

FIFO method Process Costing Ex 1 - Conversion Costs

Beg WIP 5,000 T out 90,000 End WIP 12,000 Beg WIP 5000 x 40% work done this period = 2000 S&C 90,000 - 5000 = 85,000 End 12,000 x 30% = 3600 Total EUP = 90,600 Cost per EU $220,000 90,600 = $2.4283

FIFO method Process Costing Ex 1 - Direct Materials

Beg WIP 5,000 T out 90,000 End WIP 12,000 Beg WIP 5000 x 60% work done this period = 3000 S&C 90,000 - 5000 = 85,000 End 12,000 x 20% = 2400 Total EUP = 90,400 FIFO Cost only used current costs $400,000 90,400 =$4.4248

Weighted Ave Process Cost Ex 1 - Direct Materials

Beg WIP 5000 units 40% Started & Completed 90,000-5000=85,000 Ending WIP 12,000 20% Assume Beg WIP is 100% complete Started & Completed 100% End WIP is 20% complete (12,000 x 20% = 2400) Add Beg, S&C, End = 5,000 + 85,000 + 2,400 = 92,400 EUP Cost per EUP Beg WIP Cost $50,000 Current costs $400,000 50,000 + 400,000 92,400 EUP = $4.8701 cost per Equivalent unit for Direct materials

Weighted Ave Process Cost Ex 1 - Conversion Costs

Beg WIP 5000 units 40% Started & Completed 90,000-5000=85,000 Ending WIP 12,000 20% Beg WIP $12,000 Current costs $220,000 End WIP 30% 12,000 units x 30% = 3,600 EUP = 5,000 + 85,000 + 3,600 = 93,600 EUP Cost per EUP $12,000 + $220,000 93,600 = 2.4786 per unit for Conversion costs

EUP Ex 5

Began month 12,000 units in WIP. Goods started in production this month 80,000 units. Completed 74,000 units. Beg 12,000 Start 80,000 92,000 units to account for 92,000 total - completed 74,000 = 18,000 ending WIP 74,000 comp - 12,000 beg = 62,000 started and completed

EUP Ex 3

Began month 14,000 units in WIP that were 10% complete During month, transferred 65,000 units to Finished Goods. End of month 20,000 units in WIP that were 40% complete. Beg 14,000 End 20,000 65,000+20,000 = 85,000 Total units to account for 65,000-14,000 = 51,000 started and completed

EUP Ex 2

Began month 2000 units in WIP that were 70% complete Goods started in production this month 50,000 units. End of month 6,000 units in WIP that were 20% complete. Total units to account for Began 2,000 Started 50,000 Total units = 52,000 End WIP 6,000 50,000 started - 6,000 in ending WIP = 44,000 units started and completed

EUP Ex 4

Began month 28,000 units in WIP that were 90% complete Goods started in production this month 100,000 units. End of month transferred out 115,000 units to finished goods Ending WIP inventory was 40% complete Beg 28,000 started 100,000 128,000 units to account for 128,000 -115,000 TO = 13,000 ending inventory started 100,000 - 13,000 end = 87,000 started and completed

EUP Ex 6

Began month 40,000 units in WIP During month, transferred 200,000 units to next dept. End of month 57,000 units in WIP inventory Beg 40,000 TO 200,000 End 57,000 Total to account for 257,000 units 200,000-40,000 = 160,000 started and completed units

EUP Ex 1

Began month 5000 units in WIP that were 80% complete During month, transferred 90,000 units to Finished Goods. End of month 12,000 units in WIP that were 60% complete. Don't know units started and completed. Total units to account for Transfer out 90,000 End 12,000 = 102,000 units to account for 85,000 units started and completed (90,000 - 5,000)

Accumulation of Cost

Cost is accumulated by department not by project. normally be a work-in-process inventory account for each department. This reflects the continuous, homogeneous nature of the manufacturing process.

weighted-average method

Costs of prior period and current period averaged together to calculate costs. beginning WIP is treated as if it is started and completed during the current period.

Materials Added at a Specific Time during Production - EX

For example, assume that materials are added at 50% completion. If beginning WIP is 20% complete, materials have not been added yet. All materials will be added in the current period, and the units will count 100% toward EUP under both methods. If beginning WIP is 60% complete, materials were added in the prior period and no more materials will be added in the current period. **These materials will not produce EUP in the current period under the FIFO method. **Under the weighted-average method, these materials are treated as if added in the current period. Units started and completed are always 100% complete with respect to direct materials under both methods. Ending WIP If the point at which materials are added occurred during the current period, ending WIP will produce EUP for the current period. If the point at which materials are added occurs during the next period, ending WIP will not produce EUP for the current period. For example, assume that materials are added at 50% completion. If ending WIP is 20% complete, materials have not been added yet. Therefore, these units will not produce EUP in the current period under either method. If ending WIP is 60% complete, materials were added during the current period and these units will produce EUP in the current period under both methods.

Equivalent Units of Production - Materials

Materials can be added at the beginning of the process, throughout the process, or at a specific time in the process.

Comprehensive Process Costing Ex

Mixing Baking Packaging Departments so 3 different process costs Beg WIP 300 Completed & Tout 4,600 (not Started & Completed) End WIP 700 Beg 300 4600+700 = 5300 total to account for 5300 - 700 - 300 = 4300 S&C

Accounting for EUP

Need to calculate all 3 of the above

Conversion Costs - Beginning WIP -- FIFO method

Since we are looking for the amount completed in the current period, we subtract the completion percentage from 100%. This will give us the percentage completed in the current period. For example, if there are 1,000 units in beginning WIP that are 20% complete with respect to conversion costs, 80% (100% - 20%) will be completed in the current period. EUP from beginning WIP will be 800 units (1,000 units × 80%).

Evenly - Beginning WIP -- FIFO method

Since we are looking for the amount completed in the current period, we subtract the completion percentage from 100%. This will give us the percentage completed in the current period. Example, if there are 1,000 units in beginning WIP that are 30% complete with respect to materials, 70% (100% - 30%) will be completed in the current period. EUP from beginning WIP will be 700 units (1,000 units × 70%).

Equivalent Units of Production

Some units remain unfinished at the end of the period. For each department to account adequately for costs attached to its unfinished units, the units must be restated in terms of equivalent units of production (EUP). EUP are the number of complete units that could have been produced using the inputs consumed during the period. Cost-per-unit can be calculated using EUP (cost per EUP).

Process Costing Steps

Step 1: As in job-order costing, the physical inputs required for the production process are obtained from suppliers. Step 2: Direct materials actually used by the first department in the process (Department A) are added to work-in-process for that department. Step 3: Conversion costs, which include direct labor and manufacturing overhead used by the first department, are added to work-in-process for that department. Actual amounts are used. Step 4: The products can move from one department to the next (from Department A to Department B). Step 5: The second department (Department B) can add more direct materials and conversion costs. Standard costing adjustments are applied before transfer from WIP to Finished Goods. Differences are accumulated in variance accounts Step 6: When processing is finished in the last department, all the costs are transferred to finished goods. Step 7: As products are sold, the costs are transferred to cost of goods sold.

Materials Added at the Beginning

Units in beginning WIP are already 100% complete with respect to direct materials; however, whether or not they produce current-period EUP depends on the method used to calculate EUP. Can use Weighted Ave or FIFO Units started and completed are 100% complete with respect to direct materials under both methods. Units in ending WIP are 100% complete with respect to direct materials when materials are all added at the beginning of the production process. All materials in ending WIP inventory will be treated as being added during the current period under both methods.

Conversion Costs - Beginning WIP -- Weighted-average method

Units in beginning WIP are treated as 100% complete and will produce EUP in the current period even though conversion costs were added in the previous period.

Beginning WIP -- Weighted-average method

Units in beginning WIP are treated as 100% complete and will produce EUP in the current period even though materials were added in the previous period.

Evenly - Beginning WIP -- Weighted-average method

Units in beginning WIP are treated as 100% complete and will produce EUP in the current period even though some materials may have been added in the previous period.

Units in beginning work-in-process

Units in beginning WIP can be calculated as follows: Units transferred out+Ending WIP-Units started = Beginning WIP

Beginning WIP -- FIFO method

Units in beginning WIP will not produce EUP in the current period since materials were added in the previous period.

Units in ending work-in-process (ending WIP)

Units in ending WIP can be calculated as follows: Beginning WIP+Units started-Units transferred out = Ending WIP These units have not been completed during the period.

Units started and completed during the current period

Units started and completed can be calculated as follows: Units transferred out-Beginning WIP = Units started and completed OR Units started-Ending WIP = Units started and completed

Materials Added Evenly throughout the Process

When materials are added evenly throughout the process, it is important to note both the method used and the completion percentage. Units started and completed are always 100% complete with respect to direct materials under both methods. Units in ending WIP will be complete based on the completion percentage. For example, if there are 1,000 units in ending WIP that are 60% complete with respect to materials, 60% were completed in the current period. EUP from ending WIP will be 600 units (1,000 units × 60%).

Materials Added at a Specific Time during Production

Whether or not materials are included in the current period's calculation of EUP depends on when materials would have been added and whether that point was reached. **Beginning WIP - If the point at which materials are added occurs during the current period, beginning WIP will produce EUP. If the point at which materials are added occurred during the previous period, beginning WIP will not produce EUP for the current period under the FIFO method but will produce EUP for the current period under the weighted-average method.

Equivalent Units of Production - Conversion Costs

conversion costs are generally added throughout the process, these calculations are similar to those when materials are added evenly throughout the process. It is important to note both the method used and the completion percentage. Units started and completed are always 100% complete with respect to conversion costs under both methods. Units in ending WIP will be complete based on the completion percentage under both methods. Example, if there are 1,000 units in ending WIP that are 10% complete with respect to conversion costs, 10% were completed in the current period. EUP from ending WIP will be 100 units (1,000 units × 10%).

Process cost accounting

used to assign costs to inventoriable goods or services. It is applicable to relatively homogeneous products that are mass produced on a continuous basis (e.g., petroleum products, thread, computer monitors). Assigning an exact amount of materials, labor, and indirect costs to thousands, or even millions, of individual end products is simply not cost-effective. For this reason, process costing involves averaging the costs of production and allocating them to work-in-process and finished goods.

first-in, first-out (FIFO) method

work done in the current period on units in beginning WIP are included in the calculation. EX. units in beginning WIP that are 40% complete at the beginning of the period will require an additional 60% of work in the current period for those units to be completed. The 60% of work done in the current period is included in EUP, while the 40% done in the previous period is not.