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PROCESS COSTING
Managerial Accounting
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Team
Fayaz khan
Omer Ali
Hamid Hassan
Yasir Fawad
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Identify the situations in which
process-costing systems
are appropriate.
Continuous or Mass Production
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Illustrating Process
Costing
Direct Materials, Direct LaborIndirect Manufacturing Costs
Department
A
Department
B
Finished Goods Cost of Goods Sold
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Product Flow
Sequential Product Flow
WIP-Dept 1
WIP-Dept 2F.Goods
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Product flow
Parallel Product flowWIP Dept-1
WIP Dept-2
WIP Assembly Dept
WIP Packaging
WIP Dept-1
WIP Department-2 Finished Goods
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Journal Entries Example
What is the journal entry for conversion costs?
Work in Process, Assembly 62,000Various accounts 62,000
To record Assembly Department conversion costs
What is the journal entry to transfer completedgoods from
Assembly to Finishing?
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Journal Entries Example
Work in Process, Finishing 132,043Work in Process, Assembly
132,043
To record cost of goods completed and transferredfrom Assembly
to Finishing during the period
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Flow of Costs Example
Accounts Payable84,050
Various Accounts
62,000
WIP Assembly84,050 132,04362,000
14,007
Finishing
132,043
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Five Steps in Process Costing
(Cost of production report)
Step 1: Summarize the flow of physical units of
output Or Quantity Scheduled.
Step 2: Compute output in terms of equivalent units.
Step 3: Compute equivalent unit costs.
Step 4: Summarize total costs to account for.
Step 5: Assign total costs to units completed and to
units in ending work in process inventory.
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A companys department 2 costs for june were:
Cost from dept 1.. $ 16320Cost added in dept 2:
Materials. $ 43415Labor. $ 56100Factory overhead $ 58575
The quantity schedule shows 12,000 units were receivedduring the
month from dept 1; 7,000 units weretransferred to finished goods;
and 5,000 units in processat the end of June were 50% complete as
to materials costand 25% complete as to conversion cost.
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1. Flow of physical units
outputQuantity schedule:
Units received from dept 1....... 1,2000Units transferred to
finished goods 7,000
Units still in process
( 50% material, 25% conversion) 5,000 1,2000
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Cost charged to the Department: T. Cost unit cost
Cost from preceding department:
Transferred in during the month (1,2000 units) $ 16,320 $
1.36
Cost added by Department:
Material (43415/9500) 43,415 $ 4.57
Labor (56100/8250) 56,100 6.80
Factory overhead (58575/8250) 58,575 7.10
Total cost to be accounted for $174,410 $19.83
2. Compute output in terms of equivalent
units cost
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3. Computeequivalent units
Dept 1 Dept 2 Labor FOH
Transferred 7,000 7,000 7,000 7,000
W/Process 5,000 2,500 1,250 1,250Total 12,000 9,500 8,250
8,250
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4 & 5.Cost accounted for as follows:
Transferred to finished goods(7,000*19.83) $ 138,810
Work in process Ending inventory:
Cost from preceding dept(5,000*1.36)$ 6,800
Materials(5,000*50%*$4.57) 11,425
Labor (5,000*25%*6.80) 8,500
Factory overhead (5,000*25%*7.10) 8,875 35,600
Total cost accounted for .. 174,410
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