Ch.

2
Process Costing
 Process Costing
Used in companies that produce a single product 
for long periods of time.

Such as:
Coca cola cans.
Paper Co.
Cement Co.
Oil refinery
Product Cost per Unit = Total manufacturing costs / Total units produced
 Similarities Between Job-Order and
Process Costing:
1) Both systems assign Material, Labor and
Overhead costs to products.

2) Both systems use the same manufacturing

accounts, including Manufacturing Overhead,
Raw Materials, Work in Process, and Finished
Goods.
3) The flow of costs through the manufacturing
accounts is basically the same in both systems.
Cost Flow in Process
Costing

DM+DL+MOH (TMC)

WIP

FG

COGS
 Equivalent Units
Associated with the units that partially completed
at the end of an accounting period (WIP).

Equivalent units =
# of partially completed units x % of completion
Example (1):
A company have 500 units in ending WIP
inventory that are 60% complete. What are the
equivalent units?
solution
Equivalent units = # of partially completed units x
% of completion

Equivalent units = 500 units x 60% = 300 units

500 units the same as, 300 fully complete units computed
 Equivalent units
of production
Equivalent units of production =

= Units completed + Equivalent units for ending WIP

Example (2):
IF we have an output from cooking department as
follows:
 Complete units of 260 units,
 600 units in ending WIP inventory that are
40% complete.
What are the:
1) Equivalent units?
2) Equivalent units of production?
1) Equivalent units =
# of partially completed units x % of completion
=600*%40= 240 units
2) Equivalent units of production =

= Units completed + Equivalent units for ending WIP

=260+240=500 units
 Calculate the cost of units completed
& the cost of ending WIP
Example (3):
The XYZ company uses the process costing. The Painting
department started 1000 units into production during the
month and transferred 600 completed units to the next
department. The ending work-in process 400 units (25%
complete)
The total cost for the month is $21,000.
Required:
1) Compute equivalent units of production for the
Painting department?
2) Compute the cost of units completed & the cost of
ending WIP?
Equivalent units can be calculated two ways:

 The Weighted-Average Method.

The First-In, First-Out Method.
 The Weighted-Average Method

Equivalent units of production =

Units completed + Equivalent units for End.
WIP
Example:
Double Diamond Skis reported the following activity in
Shaping and Milling Department for the month of May:
Production Data:
• Beginning work in process 200 units
Materials: 55% complete
Conversion: 30% complete
• Units started into production during May 5,000 units
• Units completed and transferred out 4,800 units
• Ending work in process ? units
Materials: 40% complete
Conversion: 25% complete
 Cost Data:
• Beg. Work in Process
Materials cost $9,600
Conversion cost $5,575

Cost added during May:

Materials cost $368,600
Conversion cost $350,900

The company uses the weighted average method of

process costing.
 Instructions:
1. Compute Equivalent Units of Production for the
shaping department for May.
2. Compute Cost per Equivalent Unit for the
shaping department.
3. Compute the Cost of units completed and
transferred out, and the Cost of End. WIP.
4. Prepare a Cost Reconciliation report for the
shaping department for May.
Problem 4-15:
Sunspot Beverages reported the following activity in
Blending Department for the month of June:

Production Data: Percent completed

units Materials Conversion

work in process, 20,000 100% 75%

Beginning
started into production 180,000
completed and 160,000
transferred out
work in process, 40,000 100% 25%
Ending
 Materials Conversion
Beginning work in $25,200 $24,800
process
Cost added during June $334,800 $238,700

The company uses the weighted average

method of process costing.
 Instructions:
1. Compute equivalent units for the Blending
department for June.
2. Compute cost per equivalent units for the
Blending department.
3. Compute the cost of units completed and
Transferred to the Bottling department, and the
cost of ending work in process.
4. Prepare a cost reconciliation report for the
Blending department for June.
Problem 4-16:
Builder Products reported the following activity for the
month of May:
Production Data:
• work in process, May 1 10,000 units
Materials: 100% complete
Conversion: 80% complete
• Units started into production during May 100,000 units
• Units completed and transferred out ? units
• work in process, May 31 15,000
Materials: 60% complete
Conversion: 20% complete
 Cost Data:
• work in process, May 1
Materials cost $1,500
Conversion cost $7,200
Total $8,700
Cost added during May:
Materials cost $154,500
Conversion cost $ 90,800
Total $245, 300
The company uses the weighted average method of
process costing.
 Instructions:
1. Compute equivalent units of production.
2. Compute cost per equivalent units for the month.
3. Compute the cost of units completed and
Transferred out to the next department, and the
cost of ending work in process.
4. Prepare a cost reconciliation report for the month.
 Problem 1: (FIFO Method)
Assume the following information for Blue Sea
Company (month of May):

Production Data: Percent completed

units Materials Conversion

work in process, 200 55% 30%

Beginning
started into production 5,000
completed and 4,800
transferred out
work in process, ? 40% 25%
Ending
 Materials Conversion
Beginning work in $9,600 $5,575
process
Cost added during May $368,600 $350,900

The company uses the FIFO

method of process costing.
 Instructions:
1. Compute equivalent units of production.
2. Compute cost per equivalent units for the month.
3. Compute the cost of units completed and
Transferred out to the next department, and the
cost of ending work in process.
4. Prepare a cost reconciliation report for the month.
 Problem 2: (FIFO Method)
The following information for Easy Company (month
of May):

Production Data: Percent completed

units Materials Conversion

work in process, 300 60% 80%

Beginning
started into production 26,000
completed and 25,500
transferred out
work in process, 800 50% 40%
Ending
 Materials Conversion
Beginning work in $594 $8,256
process
Cost added during May $79,732 $887,626

The company uses the FIFO

method of process costing.
 Instructions:
1. Compute equivalent units of production.
2. Compute cost per equivalent units for the month.
3. Compute the cost of units completed and
Transferred out to the next department, and the
cost of ending work in process.
4. Prepare a cost reconciliation report for the month.
Problem 4-13: (FIFO Method)
Sunspot Beverages reported the following activity in
Blending Department for the month of June:

Production Data: Percent completed

units Materials Conversion

work in process, 20,000 100% 75%

Beginning
started into production 180,000
completed and 160,000
transferred out
work in process, 40,000 100% 25%
Ending
 Materials Conversion
Beginning work in $25,200 $24,800
process
Cost added during June $334,800 $238,700

The company uses the FIFO method of

process costing.
 Instructions:
1. Compute equivalent units for the Blending
department for June.
2. Compute cost per equivalent units for the
Blending department.
3. Compute the cost of units completed and
Transferred to the Bottling department, and the
cost of ending work in process.
4. Prepare a cost reconciliation report for the
Blending department for June.
Problem 4-14:
Builder Products reported the following
activity for the month of May:

Production Data:
• Work in Process, May 1 10,000 units
Materials: 100% complete
Conversion: 80% complete
• Units started into production during May 100,000 units
• Units completed and transferred out ? units
• Work in Process, May 31 15,000
Materials: 60% complete
Conversion: 20% complete
 Cost Data:
• Work in Process, May 1
Materials cost $1,500
Conversion cost $7,200
Total $8,700
Cost added during May:
Materials cost $154,500
Conversion cost $ 90,800
Total $245, 300

The company uses the FIFO method of

process costing.
 Instructions:
1. Compute equivalent units of production.
2. Compute cost per equivalent units for the month.
3. Compute the cost of units completed and
Transferred out to the next department, and the
cost of ending work in process.
4. Prepare a cost reconciliation report for the month.