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    Chapter 17 - PC - Rev

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    Lalang Palambang
    This document provides an overview of process costing and examples of how to calculate costs using both the weighted average and FIFO methods. It describes the 5 steps in process costing as: 1) Summarize the flow of physical units, 2) Compute output in terms of equivalent units, 3) Summarize total costs, 4) Compute equivalent unit costs, and 5) Assign total costs to units completed and work in process inventory. It then provides examples to demonstrate calculating costs using both weighted average and FIFO, highlighting the key differences between the two methods.

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    Chapter 17 - PC - Rev

    Uploaded by

    Lalang Palambang
    118 views38 pages
    This document provides an overview of process costing and examples of how to calculate costs using both the weighted average and FIFO methods. It describes the 5 steps in process costing as: 1) Summarize the flow of physical units, 2) Compute output in terms of equivalent units, 3) Summarize total costs, 4) Compute equivalent unit costs, and 5) Assign total costs to units completed and work in process inventory. It then provides examples to demonstrate calculating costs using both weighted average and FIFO, highlighting the key differences between the two methods.

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    This document provides an overview of process costing and examples of how to calculate costs using both the weighted average and FIFO methods. It describes the 5 steps in process costing as: 1) Summarize the flow of physical units, 2) Compute output in terms of equivalent units, 3) Summarize total costs, 4) Compute equivalent unit costs, and 5) Assign total costs to units completed and work in process inventory. It then provides examples to demonstrate calculating costs using both weighted average and FIFO, highlighting the key differences between the two methods.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    118 views38 pages

    Chapter 17 - PC - Rev

    Uploaded by

    Lalang Palambang
    This document provides an overview of process costing and examples of how to calculate costs using both the weighted average and FIFO methods. It describes the 5 steps in process costing as: 1) Summarize the flow of physical units, 2) Compute output in terms of equivalent units, 3) Summarize total costs, 4) Compute equivalent unit costs, and 5) Assign total costs to units completed and work in process inventory. It then provides examples to demonstrate calculating costs using both weighted average and FIFO, highlighting the key differences between the two methods.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 38

    PROCESS COSTING

    Chapter 17
    Example: All Units Fully
    Completed (No WIP)
    Toothpick, Inc. is a new company that makes
    toothpicks from damaged antique furniture. The
    product sells at a premium and is in high demand.
    During June, they purchased 8,000 pounds of
    wood scraps costing $67,000. They spent $6,500
    on labor. Toothpick, Inc. incurred other process
    overhead (insurance, rent, benefits, etc.) of $6,000.
    The result was 250,000 toothpicks produced and
    sold. There were no units in beginning or ending
    WIP inventory.
    Compute the cost per toothpick produced.
    Example: All Units Fully
    Completed (No WIP)
    Direct
    Materials (DM)

    +
    Conversion
    Costs (CC)
    Learning Objective 2

    Describe the five steps


    in process costing.
    Five Steps in Process Costing

    Step 1: Summarize the flow of physical units of


    output.
    Step 2: Compute output in terms of equivalent units.
    Step 3: Summarize total costs to account for.
    Step 4: Compute equivalent unit costs.
    Step 5: Assign total costs to units completed and to
    units in ending work in process inventory.
    Some Units Not Fully
    Complete (Ending WIP)
    Summarize the flow of physical
    units.
    Compute the number of equivalent
    units.
    Summarize the total costs to
    account for (for both DM and CC)
    Compute costs per equivalent unit.
    Assign costs to COGS and to
    ending WIP.
    Example: Some Units Not
    Fully Complete (Ending WIP)
    For July, Toothpick purchased 9,000 pounds of
    wood scraps for $72,000. They spent $7,500 on labor
    and had other process overhead of $7,404.
    Toothpick started 300,000 units in July, completing
    and selling 260,000 units. Ending WIP had 40,000
    toothpicks. Beginning WIP was zero.
    The ending WIP was 100% complete with respect to
    material, but only 40% of the conversion work has
    been done.
    Compute the cost per toothpick produced. Also,
    compute the Ending WIP Inventory and COGS.
    Example: Some Units Not
    Fully Complete (Ending WIP)

    . .

    100% complete for materials


    100% complete for conversion

    100% complete for materials


    40% complete for conversion
    Example: Some Units Not
    Fully Complete (Ending WIP)

    . .
    Example: Some Units Not
    Fully Complete (Ending WIP)

    . .
    Example: Some Units Not
    Fully Complete (Ending WIP)

    . .
    Example: Some Units Not
    Fully Complete (Ending WIP)

    .
    Example: Some Units Not
    Fully Complete (Ending WIP)

    Ending WIP = $9,600 + $864 = $10,464


    Learning Objective 4

    Use the weighted-average


    method of process costing.
    Beginning & Ending WIP

    When there is Beginning WIP, the


    determination of equivalent units
    becomes somewhat more complicated.

    Primary question to be answered:


    Which units were completed first
    during the period?
    (How you answer this question will
    affect the Total EU for the period.)
    Beginning & Ending WIP

    Weighted Average vs. FIFO

    Weighted-
    Average FIFO
    All units and costs Costs are accounted
    are considered for by layer. Cost per
    together to determine EU for this period is
    average cost per EU, computed separately
    regardless of from the Cost per EU
    whether the costs for last period.
    were incurred last
    period or currently.
    Beginning & Ending WIP

    Weighted Average vs. FIFO

    Weighted-
    Average Weighted-
    All units and costs Average is
    are considered
    together to determine the most
    average cost per EU, commonly
    regardless of
    whether the costs used
    were incurred last
    period or currently.
    method.
    Example: Weighted-Average
    For August, Toothpick purchased 9,500 pounds of
    wood scraps for $75,000. They spent $8,000 on labor
    and had other process overhead of $7,000.
    Toothpick started 320,000 units in July, completing
    335,000 units. Ending WIP had 25,000 toothpicks.
    Beginning WIP was 40,000 units.
    The ending WIP was 100% complete for material, and
    70% complete for conversion. Beginning WIP was
    100% for material and 40% complete for conversion.
    Compute the cost per toothpick produced. Also,
    compute the Ending WIP Inventory and COGS.
    Example: Weighted-Average

    . . .

    100% complete for materials


    40% complete for conversion

    100% complete for materials


    70% complete for conversion
    Example: Weighted-Average

    . .
    Example: Weighted-Average

    . .
    Example: Weighted-Average

    Step 2: Total Equivalent Units

    . .
    Example: Weighted-Average

    .
    Example: Weighted-Average

    Ending WIP = $5,875 + $789 = $6,664


    Learning Objective 5

    Use the first-in, first-out (FIFO)


    method of process costing.

    Lets go over that story again . . .


    Only this time, lets use FIFO!
    Example: FIFO

    . . .

    100% complete for materials


    40% complete for conversion

    100% complete for materials


    70% complete for conversion
    Example: FIFO

    . .
    Example: FIFO

    . .
    Example: FIFO

    Step 2: Total Equivalent Units

    . .
    Example: FIFO
    Step 2: With FIFO, compute the Current Period
    Equivalent Units by subtracting the Beg. WIP
    Equivalent Units.

    . .
    Example: FIFO
    Step
    Step 3:
    3: With
    With FIFO,
    FIFO, we
    we only
    only use
    use the
    the Current
    Current
    Period
    Period Costs,
    Costs, and
    and we
    we ignore
    ignore the
    the Beg.
    Beg. WIP
    WIP
    Costs.
    Costs.

    .
    Example 1: FIFO

    Ending WIP = $5,859 + $780 = $6,639


    Comparison of WA & FIFO

    Weighted Avg. FIFO


    COGS $93,800 $93,825
    Ending WIP $ 6,664 $ 6,639
    Comparison of WA & FIFO
    STEP WEIGHTED AVERAGE FIFO
    1. Summarize flow Use the basic cost flow model: Same, except keep track of units from
    of physical units BI + TI = TO + S + EI beginning WIP separately from units
    started in the current period
    2. Compute EUs for Multiply physical units by degree Same, except subtract EUs in
    each cost category of completion beginning WIP to obtain current EUs
    3. Summarize total Add costs in beginning WIP to Same as WA costing
    costs to account for costs of the current period
    4. Compute costs Divide total costs in process by Divide current costs in process by
    per EU total EUs in each cost category current EUs in each cost category to
    to get average cost/EU get current cost/EU
    5. Assign costs to Multiply EUs by cost category for Beginning WIP units started in the
    products and units completed, units spoiled, period are always transferred out or
    spoilage units in ending WIP by cost/EU in assigned to spoiled units. Costs of
    each cost category units completed or spoiled include
    costs of beginning WIP, costs to finish
    beginning WIP, and costs from the
    current period. Ending WIP units
    include costs from the current period.

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