ter 9 Process Costin Chap! 4 263 QMPUTATION OF EQUIVALENT PRODUCT! cl Units received trom preceding department oY Units completed and transferred a ote oe Units in process. end (60% completed) 2,000 aie Materials are added 100% at the beginningof the process SOLUTION: acta Materials Labor & Overhead ctual Workdone EP Workdone EP Units received 10,000 a Units completed 8,000 100% 8,000 100% 8,000 Units in process 2.000 100% 2,000 60% 1.200 10,000 10,000 2.200 Since materials are added at the beginning of process. then all units started during the period will get 100% materials. The percentage of completion is.always the work done for labor and sometimes overhead. é 2. Same data as in No. | except this time materials are added 100% at the end of the process in the department. Materials Labor & Overhead Actual Workdone EP Workdone EP Units received 10,000 Units completed 8,000 100% 8,000 ©—-:100% += 8,000 Units in process 2,000 ‘ ier See : 10,000 8,000 2,200 Inthis department, the units will get the materials upon reaching the end of the process in the department. The units in process at the end are only 60%, hence no materials Were added to these units.™~ 264 Cost Accounting pt this time, materials are added 50% at the begining in No. 1, exce| Se ie fs 0% when the units are 40% completed. and the remaining 5! of the process ing, varia . Actual Workdone EP Work done EP Units received 10,000 Units completed 8,000 100% 8,000 100% 8,000 Units in process 2,000 100% 2,000 60% 1.200 10,000 2,200 The units in process at the end are 60% completed, therefore the units have passed the second addition of materials which is done at 40% stage of completion. 4. Same data as in No. | except this time. materials are added as follows: 50% at the beginning of the process 30% when the units are 20% complete 20% at the end of the process Materials Labor & Overhead Actual Work.done EP Work done EP. Units received 40,000 Units completed 8,000 100% 8,000 100% 8,000 Units in process 2,000 80% 1,600 60% 1,200 10,000 2,600 2,200 in tis department, materials are added 50% at the beginning, so the in process end a Bet the first 50%, the second addition is at 20% stage of completion and because er ns in process end are 60% it means they have passed the second addition of ferials and this will make their materials 80% complete.Chapter 9 Process Costing 265 ILLUSTRATIVE PROBLEM 1 , The following data were taken from the books of Michelle Co, for the month of June, Units Started 25,000 Completed & transferred 20,000 18,000 In process, end \ 5,000 2,000 Stage of completion .saruaon 40% 50% Materials P 100,000 P 54,000 ieee 66,000 38,000 Overhead 44,000 19,000 In Department 1, materials are added at, the beginning of the process while in Department 2, materials are‘added at the end of the process. “MICHELLE CO. COST OF PRODUCTION REPORT for the month of June. 2022 (Department |) Materials Labor & Overhead Quantity Schedule Actual wD EP wD EP Units started . 25,000 Units completed 20,000 100% 20,000 100% 20,000 Units in process, end 5,000 100% 5.000 40% 2,000 25,000 25,000 22,000 Cost charged to the department Cost added in the department Materials P100,000/zs2 — P4.00 Labor 66,000 (22% 3.00 Overhead 44.000 784 2.00 Total added 210,000 9.00 Total cost to be accounted for P.210,000 p2.00 Cost accounted for as follows: Completed & transferred (20.000 x 9) P 180,000 In process. end Materials (5,000 x 4) Pp 20,000 Labor (2,000 x 3) S000 soled Overhead (2,000 x 2) 3 Total costs as accounted for 210.000~“ 266 Cost Accounting (Department 2) teri ve i Actual we EP we a Units received 20,000 Units completed 18,000 100% 18,000 100% 18,000 Units in process -2,000 sereoe 50% _ 1.000 20.000 18,000 19.000 tcl the tment Cost from preceding department P.180,000 P_9.00 Cost added in the department Materials 54,000 4% 3.00 Labor 38,000" = = 2.00 Overhead 19,000 #"" _ 1.00 Total added 111,000 __ 6.00 Total cost as accounted for P.291,000 P15.00 « as follows ‘Completed & transferred (18,000 x 15). P 270,000 In process, end Cost from preceding (2,000 x 9) P 18,000 Materials i Labor (1,000 x 2) 2,000 Overhead (1,000 x 1) 1,000 21,000 Total cost as accounted for P.291,000 vate Computation of unit cost: 4s: Department 1 att Department 2 + Materials= 100,000/25,000 Materials= 54,000/18,000 = 4.00 = 3.00 Labor = 66,000/22,000 Labor 8,000/19,000 = 3.00 00 Overhead= 44,000/22,000 = 2.00 Overhead= 19,000/19,000 = 1.00Chapter 9 Process Costing Journal entries: a, Work in process - Dept, 1 Work in process - Dept. 2 end Materials 7 Materials issued. b. Work in process - Dept. 1 66,000 Work in process - Dept. 2 38,000 Payroll , Labor cost. c. Work in process - Dept. 1 44,000 Work in process - Dept. 2 19,000 Factory overhead applied Overhead applied to production. d. Work in process - Dept. 2 180,000 Work in process - Dept. | Inter-dept. transfer of cost. e. Finished goods 270,000 Work in process - Dept. 2 MICHELLE CO. 154,000 104,000 63,000 180,000 270,000 Cost of Goods Manufactured Statement for the month of June, 2022 Direct materials Direct labor Factory overhead Total manufacturing cost ~ Less: Work in process, June 30 4» +21 Cost of goods manufactured 267~ 268 Cost Accounting Accounting for scrap and same as in a job order cost s; normally charged to Factory i its in a process cost system is . Sem’ Cont to rework defective units in a process we, thy Overhead Control ea ie to Work in Process po" ®t defecti in system are usually the result of an inte, case rather ene sonst y apetifcation. The units classified as lost in a mal mn system are actually the same as the spoiled under the. job order system. The unig at still with the company, but due to imperfections discovered during quality. com inspection, they ‘were removed from the manufacturing process. NORMAL/ABNORMAL LOSSES . ‘Normal losses are expected while abnormal losses are those in excess of what have been predicted. The cost of normal lost units are reported as product Cost, si eventually they become part of the cost of good units The cost of-abnormal lost units are recognized as period costs as charges for abnormal lost units are debited to Factory Overhead Control. A. The cost of normal lost units is charged to (@) completed units, and (b) units in process at the end when 1 Discovered at the beginning of the process, 2 Discovered during the process and no quality control inspection is indicated. 3 Discovered after substantial processing and the: WI IP, end units have passed final quality control inspection. (b) completed units only when 4 loss is discovered at the end of the process B. The cost of the abnormal lost units is charged to a loss account or factory overhead 1) Discovered at the beginning 2) Discovered during the process with the -point of discovery stated in the problem 3) Discovered at the end of the process . Suggested Procedures in calculating the equivalent units of production for normal lost units under: 1) A-land A-2 a) Do not assign work done to the lost units, and b) Adjust the unit cost from the Preceding department due to the decreased number of units 0) The above procedures automatically charge the cost of the normal. lost units to both completed units and units in Process at the end.Chapter 9 Process Costing 2 A- 3andA-4 a) Assign work done to the lost units: b) No need to adjust t! it ; i ) medias ljust the unit cost from the Preceding department despite the €) Calculate the cost of the lost units and 1 Under A*3, allocate to its and j a aaraee Completed units and in-process, end units by the use of 2 Under A-4, add the cost of the iost uni indeed ti Units to the cost of 9 BA a) Do not assign work done to the lost units b) Cost from the preceding department will be charged to factory overhead 4) B-2and B-3 a) Assign work done to the lost units b) The cost of abnormal lost units is charged as an abnormal loss and debited to Factory Overhead Control as a period cost. Suggested procedures in calculating the equivalent units of production abnormal lost units. . a) If discovered at.the beginning of the process, no need to assign work done. Any cost from the preceding department is charged as an abnormal loss. b) If discovered at any other points in the process, with or without indicated inspection point, assign work doné and the cost.is charged to Factory Overhead Control. ny ILLUSTRATIVE PROBLEM 2 - Woodrose Corporation produces a product in two departments - A and B. Data for the month of August, 2022 are given as follows for Department B. UNITS Received from Department A 30,000 Completed and transferred to warehouse 40,000 In process. Aug. 31 (60% completed) 5,000 Lost during the month 5,000——__—— ™~—~ Cost Accounting 270 From Department A P 225,000 ‘Added in Department B during the month Materials 135,000 Labor 103,200 Factory overhead 103,200 In this department, materials are added 100% at the beginning of the process Requirements: Prepare cost of production report under the following assumptions: 1. Lost units classified as normal, discovered at the beginning of the process. « 2. Lost units classified as normal, discovered at the end of the process. “ 3. Lost units classified as abnormal - discovered at the end of the process. SOLUTION: 1. Lost units classified as normal, discovered at the beginning of the process (A-1). WOODROSE CORPORATION Cost of Production Report for the month ended August 31, 2022 Materials abor & OH 3 ity Schedule .ctual WD EP We EP Units received 50,000 Units completed 40,000 100% 40,000 100%. 40,000 Units in process 5,000 100% 5,000 60% 3,000 Units lost 5,000 - : - 30,000. 45,000 43,000 artment Costs from preceding department P__225,000/se P__ 4.50 Cost added in the department Materials 135,000 3.00 fey wi 103,200 2.40 overhead 103,200 2.40 Total costs added 341,400 7.80 Adjustment for lost units . 50 Total costs to be accounted for P_566.400° _B12.80 WS; oe Completed & transferred P $12,000 In process, endChapter 9 Process Costing mn Cost trom preceding department P 25,000 Materials, Labor 13,090 Overhead an Total costs accounted for 1a 54.400 Computations: Unit cost: Materials. = 135,000 = 3.00 45,000 Labos = 103.200 = 2.40 43,000 Factory OH" = 103,200 = 2.40 43,000 Adjustment for lost units: Method 1= Cost from preceding department - unit-cost from Total units less lost units preceding dept. = 225,000 - 4.50 45,000 = 0.50 Method 2= Units lost x unit cost from preceding dept. Total units less units lost = 5,000 x 4.50 45,000 = 0.50 Cost of units completed = 40,000 x 12.80 In process at the end Cost from preceding dept. = 5,000 x 5.00 Materials = 5,000 x 3.00 Labor = 3,000x2.40 Overhead 19,000. 2.40 The unit cost:framthe preceding department was increased by P 0.50 representing the adjustment for the lost units. Each unit at this point must absorb an additional cost of P.0.50 as share in the cost of the lost units. 4272 Journal Entries 1. Work in process - Department B Work in process - Department A 2.Work in Process - Department B Materials Payroll Factory Overhead Applied 3. Finished Goods Work in Process - Departinent B ~~ Cost Accounting 225,000 225,000 341,400 135,000 103,200 103,200 512,000 512,000 2. Lost units classified as normal, discovered at the end of the process (A-3) Materials Quantity Schedule Actual WD EP Units received 50,000 Units completed 40,000 100% 40,000 Units in process 5,000 100% 5,000 Units lost 5,000 100% 5,000 50,000 30,000 Cost charged to the department Cost from preceding department Cost added in the department Materials Labor Factory overhead Total cost added Total costs to be accounted for Cost accounted for as follows Completed & transferred 43 ¥ Sr In process, end Cost from preceding department Materials Labor Factory overhead Total costs as accounted for Labor & OH WD EP 100% — 40,000 60% 3,000 100% — _5,000 48,000 P_ 4.50 P___225,000 135,000 2.70 103,200 215 103,200 —213 341,400 — __7.00 P__566,400 PLLLSO P 517,500 P 22,500 an ¢va-s2 13,500 6,450 6,450 48,900Chapter 9 Process Costing 273 ‘Computations: Unit cost: Materials = 135,000 = 2.79 50,000 bor = a 103.200 = 2.15 48,000 Overhead = 103,200 = 2.15 48,000 No adjustment for lost units is necessary to the.cost of the completed units onl completed will be as follows: Units.completed (40,000 x 11.50) + (5,000 x 11.50) = 517,500 Units in process, end 2 Since the cost of the lost units will be added ly. The computation for the cost of the units Cost from preceding dept. = 5,000x4.50 Materials = 5,000 x 2.70 Labor = 3,000 x 2.15 Overhead = 3000x215 Journal entries 1. Work in process - Department B 225,000 Work in process — Department A 225,000 2.Work in Process — Department B 341,400 Materials 135,000 Payroll 103,200 Factory Overhead Applied 103,200 3. Finished Goods . 517,500 Work in Process — Department B 517,500 st units classified as abnormal, discovered at the end be the same as when the lost units are classified as It follows then that the unit cost will also be the .d for will appear as follows: 3. The equivalent production will normal discovered at the end. same. The total cost as accounte274 sts accounted for as follows: Completed & transferred (40,000 x 11.50) Factory overhead control (5,000 x 11.50) In process, end . Cost from preceding (5,000 x 4.50) Materials (5,000 x 2.70) Labor (3,000 x 2.15) Overhead (3,000 x 2.15) Total costs as accounted for Journal entries 1. Work in process — Department B Work in process — Department A 2. Work in Process — Department B Materials Payroll Factory Overhead Applied 3. Finished Goods Factory Overhead Control Work in Process — Department B oN Cost Accounting -460,000 57,500 22,500 13,500 6,450 6.450 _48,900 - 366.400 225.000 225.000 341,400 135,000 103,200 103,200 460,000 57,500 517,500 NOTE: If the department given in the previous problem is the last department in the Process and the spoiled units (lost units) are with a sales. value P 7.00 each, the cost accounted for section will appear as follows: inted for as follows: Completed & transferred (40,000 x 1 1.50) Transferred to Spoiled Goods Inventory (5,000 x oD) Factory Overhead Control (5,000 x 11.50) Less: Market value of spoiled units In process, end Cost from preceding (5,000 x 4.50) Materials (5,000 x 2.70) Labor (3,000 x 2.15) Overhead (3,000 x 2.15) 460,000 35,000 57,500 35,000 22,500 22,500 13,500 6,450 6.450 48,900 566,400Chapter 9 Process Costing 275 Journal entries 1, Work in process — Department B ‘ A 225, Wark in process ~Depatitient A gh 25,000 2.Work in Process — Department B * 341,400 Materials 135,000 Payroll 103,200 Factory Overhead Applied 103,200 3. Finished Goods 460,000 Spoiled Goods Inventory 35,000 Factory Overhead Control 22,500 Work in Process — Department B 517,500 INCREASE IN UNITS DUE TO ADDITION OF MATERIALS With some products, the addition of materials in the subsequent departments may cause the units to increase. This require an adjustment in the unit cost from the preceding department because the total. cost will remain the same while the units to absorb the same cost will increase and this will result in a decrease in the unit cost from preceding department. : Computation of adjusted cost from preceding department = Total cost from preceding department Units received + increase in units Iflost units are discovered in the same department where we had an increase in units, the adjusted cost will be computed based on the following assumptions. a units normal, discovered at the beginning of the process Adjusted cost = Cost from preceding department Total units received less lost units b. Lost units normal, discovered at the end of the process Adjusted cost = _ Cost from preceding department Total units received © Lost units abnormal, discovered at the beginning, during or at the end Adjusted cost = fr Total units received“Ss 276 Cost Accounting TRATIVE PROBLEM 3 yt aco Copipany ouons a prodist which recllen ee aain® in the departmens In the second department, materials are added at the beginning, creasing the unit received by 20%. The following data pertain to the operations of Dept. 2 for june i 50,000 units Units received from Dept.1 , i Units completed & transferred to Dept. 3_ 45,000 units Units in process, end 15,000 units Stage of completion 80% Cost from Department 1 P 600,000 Cost added in the Department Materials 240,000 Labor 171,000 Overhead 114,000 Required: Cost of production report. Solution: 8 SEASHORE COMPANY Cost of Production Report for the month ended June 30, 2022 Materials Labor & OH Quantity Schedule Actual WD EP sWP EP Units received 50,000 Increase in units 10,000 90,000 Units completed 45,000 100% 45,000 100% 45,000 Units in process 15,000 100% 15.000 80% 12,000 $0,000 90,000 32.000 Costs charged to the department Cost from preceding department P___ 600,000 P_12,00 Cost‘added in the department Materials 240,000 4.00 Labor 171,000 3.00 Overhead 114,000 ——2.00 Total cost added 525,000 9.00 Adjusted cost from preceding department, ——_10.00 Total cost to be accounted for P_1,125,000 P__19.00Chapter 9 Process Costing Costs accounted as follows * Completed & transferred ' : 855,000 In process, end Cost from precedi Materials ene Nepartiect =P 130,000 Overhead 36,000 Total costs as accounted for —— 24.000 ——210,000 Computations:Unit cost: Materials = 240,000 = 4.00 : 60,000 Labor = 171,000 = 3.00 $7,000 Overhead = 114,000 = 2:00 57,000 ‘Adjusted cost from preceding = 600,000 = 10.00 60,000 Journal entries 1. Work in process — Department 2 600,000 Work in process ~ Department | 600.000 2.Work in Process — Department 2 525,000 Materials 240,000 Payroll 171,000 Factory Overhead Applied 114,900 3. Finished Goods 855,000 vork ta Ph 855,000 Work in Process - Department B 277| 784 Cost Acco Ming Problem 4 ; ‘The following data appeared in the accounting records of The Beautiful Company Started in process 12,000 units ‘Completed and transferred: 10,500 units Work in process, end of month 1,500 units Stage of completion 2/5 complete Costs: Materials P 72,000 Labor 88,800 Overhead 44,400 One half of the materials are added at the beginning of the process and the balance when the units are one-half completed. Required: Calculate the following: 1. Equivalent production for materials and conversion cost. 2. Cost of the units completed and transferred. 3. Cost of the units in process at the end of the month. Problem 5 ‘ABM-Company uses two departments to produce a product. The following data were taken from the books for the month of January, 2022. Department 1 Department 2 Units: Started 60,000 Completed & transferred 40.000 30,000 In process, end 20,000 10,000 ‘Stage of completion 715% 80% Materials P> 480,000 P 245,000 Labor 330,000 ” 190,000 Factory overhead 220,000 114,000 Department | - all materials added at the beginning of the process. Department 2 - 50% of the materials are added at the beginning of the process Temaining 50% added at the end of the process. Required: Cost of production report.Chapter 9 Process Costing 285 ) 6 Ten-Ten Corporation manufactures a chocolate covered st 4 candy using two departments, Processing and Packaging. Can ag. = ‘The first step in the Processing Department is to add strawberry. The strawberry is then cooked and seasoned. Conversion costs are assumed 16 be incurred evenly throughout the process. The last step in the Processing Department before going on the Packaging is the covering of the’strawberry with chocolate. For the month of July, 2022, 90,000 units were completed and at the end of the month,10,000 remains in process and are 70% completed. Materials cost incurred, strawberry - P180,000; chocolate — P 135,000, and conversion costs, P 116.400. Required: 1. Equivalent production for strawberry, chocolate and conversion cost 2 .Unit cost for strawberry, chocolate and conversion cost \ 3. Total costs of units completed and transferred to the next department 4. Total costs of the units in process, eid / Problem 7 Z CBee?” Conporaton produces a product through a continuous process in two departments. Materials in this department are added at the beginning of the process. The production and cost data were taken from Department B during September, 2022. Production data: Received from Department A 80,000 units Completed and transferred 60,000 units In process. end (50% complete) 10,000 units Lost 10,000 units Cost data: Received from Department A P $60,000 Materials 175,000 Labor 121,875 » Overhead 243,750 Required: Cost of production report under the following assumptions: a. Lost units - normal, discovered at the beginning b. Lost units - normal, discovered at the end ¢. Lost units - abnormal, discovered when 60% completed 4. Lost units - abnormal, discovered at the end. The estimated value of the spoiled units P 12.00 each.