PROCESS COSTING Lost units (xxx)
Started & completed units xxx
Uses of Process Cost Systems
Completed/transferred-out units xxx
• Process cost systems are used to apply costs to Beginning inventory in units (xxx)
similar products that are mass-produced in a Started & completed units xxx
continuous fashion.
EUP SCHEDULE
• Once production begins, it continues until the
finished product emerges, and each unit of 1. Weighted average method
finished product is like every other unit.
Beginning inventory xxx
Process Cost Flow Started & completed xxx
Ending inventory x % of completion xxx
• The company can add materials, labor, and Weighted average, EUP xxx
manufacturing overhead in each production
department. 2. First-in First-out method
• The costs of units completed are transferred from Beginning inventory (1 - % of completion) xxx
one department to another as those units move Started & completed xxx
through the manufacturing process. Ending inventory x % of completion xxx
Weighted average, EUP xxx
• The costs of completed work are transferred to
Finished Goods Inventory.
• Lost units: EUP SCHEDULE
• When inventory is sold, costs are transferred to
▪ Discrete: Normal/Abnormal
Cost of Goods Sold.
✓ Direct materials
Assignment of manufacturing costs
o If the placement took place first, then
• The accumulation of the costs of materials, labor,
100%
and manufacturing overhead is the same in a
process cost system as in a job order cost system.
o If the inspection took place first, then 0%
• Entries to assign the costs of raw materials, factory
✓ Conversion costs
labor, and overhead consist of a debit to Work in
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Process for each department and a credit to Raw
o Lost units x % of inspection
Materials Inventory, Factory Labor, and
Manufacturing Overhead.
▪ Continuous Loss – method of neglect
• The entry to record units completed and
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✓ Normal loss = 0% as to materials and
transferred to the warehouse is a debit to Finished
conversion costs
Goods Inventory and a credit to Work in Process.
✓ Abnormal loss = 100% as to materials and
• The entry to record the sale of goods is a debit to
conversion costs.
Cost of Goods Sold and a credit to Finished Goods
Inventory.
ct
- - End - -
Formulas related to process costing
O
• Formula to compute completed/transferred-out
units:
Beginning inventory in units xxx
Started/transferred-in units xxx
Ending inventory in units (xxx)
Lost units (normal + abnormal) (xxx)
Completed/transferred-out units xxx
• Formulas to compute started a completed units:
Started/transferred-in units xxx
Ending inventory in units (xxx)
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PROCESS COSTING
THEORY
1. What is the best cost accumulation procedure to use when a single product is manufactured in a continuous
process?
a. Process c. Standard
b. Job order d. Actual
2. Process costing is used in companies that
a. Engage in road and bridge construction
b. Produce sailboats made to customer specifications
c. Produce hollow blocks for sale to the public
d. Construct houses according to customer plans
3. The FIFO method of process costing differs from the average method in that the FIFO method
a. Considers the stage of completion of beginning work in process inventory in computing equivalent
units of production, but the average method does not
b. Does not consider the stage of completion of beginning work in process inventory in computing
equivalent units of production, but the average method does
c. Is applicable only to those companies using the FIFO inventory pricing method, but the average
method may be used with any inventory pricing method
d. Allocates costs based on whole units, but the average method uses equivalent units
4. The average and FIFO process costing methods differ in that the average method:
a. Can be used under any cost flow assumption
b. Is much more difficult to apply than the FIFO method
c. Requires that ending work in process inventory be stated in terms of equivalent units of production
d. Does not consider the degree of completion of beginning work in process inventory when
computing equivalent units of production
5. Current period’s cost per equivalent unit under FIFO process costing considers current period costs
a. Only c. Less cost of beginning WIP
b. Plus cost of beginning WIP d. Plus cost of ending WIP
6. Equivalent units of production are equal to the
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a. Units completed by a production department in the period
b. Number of units worked on during the period by a production department
c. Number of whole units that could have been completed if all work of the period had been
used to produce whole units
d. Identifiable units existing at the end of the period in a production department
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7. In a process costing system using the weighted average method, cost per equivalent unit for a given cost
component is found by dividing which of the following by EUP?
a. Only current period cost
b. Current period cost plus the cost of beginning inventory
c. Current period cost less the cost of beginning inventory
ct
d. Current period cost plus the cost of ending inventory
8. In a cost of production report using process costing, transferred-in costs are similar to the
O
a. Cost of material added at the beginning of production
b. Conversion cost added during the period
c. Cost transferred out to the next department
d. Cost included in beginning inventory
9. A continuous loss
a. Occurs unevenly throughout a process
b. Never occurs during the production process
c. Always occurs at the same place in a production process
d. Occurs evenly throughout the production process
10. The method of neglect handles spoilage that is
a. Discrete and abnormal c. Continuous and abnormal
b. Discrete and normal d. Continuous and normal
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11. The cost of normal discrete losses is
a. Absorbed by all units past the inspection point on an equivalent unit basis
b. Absorbed by all units in ending inventory
c. Considered a period cost
d. Written off as a loss on an equivalent unit basis
12. The cost of abnormal continuous losses is
a. Considered a product cost
b. Absorbed by all units in ending inventory and transferred out on an equivalent unit basis
c. Written off as a loss on an equivalent unit basis
d. Absorbed by all units past the inspection point
13. Normal spoilage units resulting from a continuous process
a. Are extended to the EUP schedule
b. Result in a higher unit cost for the good units produced
c. Result in a loss being incurred
d. Cause estimated overhead to increase
14. If normal spoilage is detected at an inspection point within the process (rather than at the end), the cost of
that spoilage should be
a. Included with the cost of the units sold during the period
b. Included with the cost of the units completed in that department during the period
c. Allocated to ending work in process units and units transferred out based on their relative
values
d. Allocated to the good units that have passed the inspection point
PROBLEMS
1. The following information is available for Fatima Company for April:
Started this month 80,000 units
Beginning WIP
(40% complete) 7,500 units
Normal spoilage (discrete) 1,100 units
Abnormal spoilage 900 units
Ending WIP
(70% complete) 13,000 units
22
Transferred out 72,500 units
Beginning Work in Process Costs:
Material P10,400
Conversion 13,800
20
Current Costs:
Material P120,000
Conversion 350,000
All materials are added at the start of production and the inspection point is at the end of the process.
ct
Question 1: What are equivalent units of production for material using FIFO?
a. 80,000 c. 78,900
b. 79,100 d. 87,500
O
Question 2: What are equivalent units of production for conversion costs using FIFO?
a. 79,700 c. 81,100
b. 79500 d. 80,600
Question 3: What are equivalent units of production for material using weighted average?
a. 86,600 c. 86,400
b. 87,500 d. 85,500
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Page | 41
Question 4: What are equivalent units of production for conversion costs using weighted average?
a. 83,600 c. 82,500
b. 82,700 d. 81,600
Question 5: What is cost per equivalent unit for material using FIFO?
a. P1.63 c. P1.50
b. P1.37 d. P1.56
Question 6: What is cost per equivalent unit for conversion costs using FIFO?
a. P4.000 c. P4.34
b. P4.19 d. P4.38
Question 7: What is cost per equivalent unit for material using weighted average?
a. P1.49 c. P1.56
b. P1.63 d. P1.44
Question 8: What is cost per equivalent unit for conversion costs using weighted average?
a. P4.19 c. P4.55
b. P4.41 d. P4.35
Question 9: What is the cost assigned to ending inventory using FIFO?
a. P75,920 c. P56,420
b. P58,994 d. P53,144
Question 10: What is the cost assigned to abnormal spoilage using FIFO?
a. P1,350 c. P5,256
b. P3,906 d. P6,424
Question 11: What is the cost assigned to normal spoilage and how is it classified using weighted average?
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a. P6,193 allocated between WIP and Transferred Out
b. P6,424 allocated between WIP and Transferred Out
c. P6,193 assigned to loss account
d. P6,424 assigned to units Transferred Out
20
Question 12: What is the total cost assigned to goods transferred out using weighted average?
a. P435,080 c. P428,656
b. P429,824 d. P423,400
ct
2. The following information is available for Jorralyn Company for the current year:
Beginning Work in Process Costs of Beginning Work in Process:
(75% complete) 14,500 units Material P25,100
O
Started 75,000 units Conversion 50,000
Ending Work in Process Current Costs:
(60% complete) 16,000 units Material P120,000
Abnormal spoilage 2,500 units Conversion 300,000
Normal spoilage 5,000 units
(continuous)
Transferred out 66,000 units
All materials are added at the start of production.
Question 1: Using weighted average, what are equivalent units for material?
a. 82,000 c. 84,500
b. 89,500 d. 70,000
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Question 2: Using weighted average, what are equivalent units for conversion costs?
a. 80,600 c. 83,100
b. 78,100 d. 75,600
Question 3: What is the cost per equivalent unit for material using weighted average?
a. P1.72 c. P1.77
b. P1.62 d. P2.07
Question 4: What is the cost per equivalent unit for conversion costs using weighted average?
a. P4.62 c. P4.48
b. P4.21 d. 4.34
Question 5: Using FIFO, what are equivalent units for material?
a. P75,000 c. P84,500
b. P72,500 d. P70,000
Question 6: Using FIFO, what are equivalent units for conversion costs?
a. P72,225 c. P69,725
b. P67,225 d. P78,100
Question 7: Using FIFO, what is the cost per equivalent unit for material?
a. P1.42 c. P1.71
b. P1.66 d. P1.60
Question 8: Using FIFO, what is the cost per equivalent unit for conversion costs?
a. P4.46 c. P4.30
b. P4.15 d. P3.84
3. Irish Company employs process cost system. A unit of product passes through two departments: Assembly
22
and Finishing before it is complete. Information regarding Assembly Department follow:
Work in-process, Aug 1 4,000 units
Spoiled units 3,000
Started in Production 26,000
20
Transferred out 24,000
Raw materials are added at the beginning of processing in the Assembly department without changing the
number of units being processed. Work in Process on August 1 was 90% complete as to conversion while
80% converted on August 31. In the Assembly Department, inspection takes place when the units are 75%
converted. The company usually experienced a 5% loss based on the completed units. Cost data for the
ct
month of August follow:
Materials Labor Overhead
Work in-process beginning P32,400 P26,400 P28,500
O
Current cost P111,600 P88,200 P 114,750
Using Weighted Average Costing, compute
Total cost of units transferred-out and total cost of work in process, end
a. P331,200; P37,376 c. P331,200; P36,000
b. P343,684; P37,376 d. P343,684; P36,000
- - End - -
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Page | 43
