1. Chapter 3 Process Costing

2. Job-Order v. Process Costing
Job-Order Costing
Many jobs are worked on during each period, with each job having different production requirements.
Costs are accumulated by job.
The job cost sheet is the key document for accumulating costs.
Units costs are computed by job on a job cost sheet.
Process Costing
A homogeneous product is produced on a continuous basis or for long periods of time.
Costs are accumulated by department.
The departmental production report is the key document showing the accumulation and disposition of costs.
Unit costs are computed by department on production reports.

3. Problem Information

4. Problem Information (Continued)

5. Calculation of Equivalent Units
Beginning Work-in-Process Inventory: =
XXX
Physical Units X
100%
Started and Completed in Current Period:
Physical Units X % = XXX
Ending Work-in-Process Inventory:
Percent of work completed in the current period
Physical Units X
XXX =
Equivalent Units of Production
XXX

6. Equivalent Units Illustration - Mixing
Materials
Conversion Costs
Beginning WIP:
Beginning WIP:
10,000 x
100% = 10,000
10,000 x
100% = 10,000
Started & Completed:
Started & Completed:
50,000 x
100% = 50,000
50,000 x
100% = 50,000
Ending WIP:
Ending WIP:
20,000 x
100% = 20,000
20,000 x
50% = 10,000
Equivalent Units
80,000
70,000

7. Equivalent Units Illustration –Mixing (alternative approach)
Materials
Conversion Costs
Units Completed:
Units Completed:
60, x
100% = 60,000
60, x
100% = 60,000
Ending WIP:
Ending WIP:
20, x
100% = 20,000
20,000 x
50% = 10,000
Equivalent Units
80,000
70,000

8. Cost Per Equivalent Unit (EU) of Production
Production Cost for Component (include costs carried forward from beginning WIP)
Equivalent Units of Production for Component =
Equivalent Unit Cost for Component
Note:
Equivalent units and cost per equivalent unit are often computed for direct materials and conversion costs (direct labor & manufacturing overhead). Conversion costs may also be calculated separately.

9. Cost Per Equivalent Unit Illustration - Mixing
Materials
Conversion
$18,000 + $142,000
$31,200 + $248,800 =
$4.00 =
$2.00
80,000 EU
70,000 EU
Total Equivalent Unit Cost:
Materials $2.00
Conversion
Total EU Cost
$6.00
See Direct Material, DL, & MOH Journal Entries on Page 84

10. Costs Accounted For Transferred Out:
Transferred Out EU x Cost Per EU = XXX
Cost in Ending Work-in-Process Inventory:
Ending WIP EU x Cost Per EU = XXX
XXX
Note:
Total cost is computed for direct materials and conversion costs (direct labor & manufacturing overhead). Conversion costs may also be calculated separately.

11. Costs Accounted For Illustration - Mixing
Transferred Out:
360,000
60,000 EU x $6.00
Cost in Ending Work-in-Process Inventory:
$40,000
Materials: 20,000 EU x $2.00
Conversion: 10,000 EU x $4.00
40,000
80,000
$440,000
Total Cost
See Transferred In Journal Entry on Page 84

12. Equivalent Units Illustration - Packaging
Materials
Conversion Costs
Beginning WIP:
Beginning WIP:
15,000 x
100% = 15,000
15,000 x
100% = 15,000
Started & Completed:
Started & Completed:
55,000 x
100% = 55,000
55,000 x
100% = 55,000
Ending WIP:
Ending WIP:
5,000 x
100% = 5,000
5,000 x
40% = 2,000
Equivalent Units
75,000
72,000

13. Equivalent Units Illustration – Packaging (alternative approach)
Materials and Transferred In
Conversion Costs
Units Completed (includes 60,000 transferred in from Mixing):
Units Completed (includes 60,000 transferred in from Mixing):
70, x
100% = 70,000
70, x
100% = 70,000
Ending WIP:
Ending WIP:
5, x
100% = ,000
5,000 x
40% = 2,000
Equivalent Units
75,000
72,000

14. Cost Per Equivalent Unit Illustration - Packaging
Materials
Conversion
$10,500 + $49,500 =
$0.80
75,000 EU
$13,500 + $83,700 =
$1.35
Transferred In
72,000 EU
$92,250 + $360,000 =
$6.03
75,000 EU
Total Equivalent Unit Cost:
Materials $0.80
Transferred In
Conversion
Total EU Cost
$8.18

15. Costs Accounted For Illustration - Packaging
Transferred Out:
572,600
70,000 EU x $8.18
Cost in Ending Work-in-Process Inventory:
$34,150
Materials: 5,000 EU x $6.83
Conversion: 2,000 EU x $1.35
2,700
36,850
$609,450
Total Cost

16. Production Report Format
Quantity Schedule and Equivalent Units
Units to be accounted for:
Beginning work in process
Started into production
Units accounted for: (compute equivalent units)
Transferred out (from beginning WIP & started & completed)
Ending work in process
Total and Unit Cost
Costs to account for:
Beginning work in process
Started into production
Cost Reconciliation
Costs accounted for:
Transferred out (from beginning WIP & started & completed)
Ending work in process