Processing Costing

It is a costing method used where products are produced in large quantities in a continues process e.g. production of bars of choclate, cans of soup or tins of paint etc.

In process costing all products are identical and indistinguishable from each other.

For this reason an average cost per unit is calculated for each process is:Average cost per unit:

Cost of productionExpected or normal output

Another main feature of process costing is that the output of one process forms the

material input of next process.

Where there is closing work in progress at the end of one period, this forms the

opening WIP at the beginning of the next period.

Input Process 1 Process 2 Process 3

LabourMaterialsOverheads

Additional LabourMaterialsoverheads

Additional LabourMaterialsoverheads

output output

Following details are about Blending Departent of Clonex Corporation for the month of January,19-:

Units Started: 50,000 Output units: 45,000 fully worked units transferred

to next department, 4,000 units only 50% complete with respect to Labour and Factory overhead and 100% complete with respect to materials.

There are 1000 units lost in process. Cost of Production

Raw Material: $24,500Direct Labour: $29,140Overheads: $28,200

Required: 1. Prepare the cost of production report for the

month of January 19--.

Output Materials Conversion cost

% EUs % EUs

Fully worke units

45000 100% 45000 100% 45000

WIP 4000 100% 4000 40% 2000

Total 49000 49,000 47,000

Materials Labour

Cost

FOH

Costs $24,500 $29,140 28,200

E.P.U 49,000 47,000 47,000

Cost Per Unit

$24,500/49000

=$0.50

$29,140/47000

= $0.62

$28,200/49,000

= $0.60

Total Cost Per Unit

= $0.50 + $0.62+0.60 = $1.72

Quantitative schedule:

Units started 50,000Units Transferred 45,000Units lost in the process 1,000

Work in progress 4,000 50,000

(All Material and ½ Labour and Factory overhead)

Cost Charged to the Department:

Total Unit

Cost CostCost Added by Department: $ $

Materials 24,500 0.50Labour 29,140 0.62Factory overhead 28,200 0.60Total cost to be accounted for 81,840

1.72

Cost accounted for as:Transferred to next department:Units transferred x total cost per unit45000 x $1.72 = $77,400Work in progress:Materials: 4000x0.50 =$2000Labour: 4000x1/2x0.62 = 1240

Factory overhead4000x1/2x0.60 = 1200 4440

Total cost accounted for 81,840

Read Inc instituted a new process in October , during which it started 10,000 units in Department A. of these units started, 1000 units are normal loss during the process, 7000 units were transferred to Department B and remaining 2000 units in process at the end of month, 100% complete as to materials and 50% complete to conversion cost. Cost charged during the month in department A were materials $27,000 and conversion costs 40,000.

Required: Prepare cost of production report for the month of October of Department A.

Carola Company ‘s Department 2 costs for December were:

Units received from Dept 1: 55,000 LitresUnits transferred to Dept 3: 39,500Units in process at end: 10,500(with 1/3 Labour and FOH)

Costs from department 1 $1.80 per unitCost added in department 2:

Labour $27520Factory overhead $15480

Required: Prepare cost of production report for the month of December of Department 2.

Brooks Inc ‘s Department 2 costs for December were:Units received from Dept 1: 5,000 LitresUnits transferred to Dept 3: 4,000Units in process at end: 1,000

(the degree of completion of work in process as to costs in Dept 2 was 50% of the units were 40% complete: 20% were 30% complete and balances were 20% complete)

Costs from department 1 $20,000Cost added in department 2:

Materials $21,816Labour $7776Factory overhead $4104

Required: Prepare cost of production report for the month of December of Department 2.

During April, 20,000 units were transferred in from Dept A at a cost of $39,000. Materials cost of $6,500 and conversion cost of $9,000 were added in Dept B. on 30th April Dept B had 5,000 units of work in process; 60% complete as to conversion cost and 100% as to materials in Dept B.

Required: Prepare:1. Equivalent production units.2. Cost per unit for conversion cost.

Assembly Department’s data for February were:Units received from Cutting Dept : 60,000 unitsUnits transferred : 50,000Units in process at end: 9,000(All Materials and 2/3 Labour and FOH)

Abnormal Loss:(1/2 complete to Material and Conversion Cost) 1000 units

Costs from Cutting Dept $3.54 per unitCost added in Assembly Dept:

Materials $41,650Labour $101,700Factory overhead $56,500

Required: Prepare cost of production report for the month of February of Assembly Department .