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Prepared byDiane TannerUniversity of North Florida

Chapter 17

Process Costing

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Assigning Costs to Cost Objects

Direct materials –Traced Direct labor – Traced Manufacturing overhead - Allocated

Direct materials – Allocated Direct labor – Allocated Manufacturing overhead - Allocated

Unique

HomogeneousJob Costing

Process Costing

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The Use of Process Costing

Used in environments where Production passes through multiple cost centers A single product is produced on a continuing basis

or for a long period of time Computes unit costs by department Determines the cost of ending work in process

account and the cost transferred out of each work in process account

Cost flows are the same as job order costing:RM WIP FG CGS

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Equivalent Units Estimates are made about the percentage of

completion of unfinished units How many full units could have been completed if

all efforts had been put forth to only start and complete units rather than leaving some units partially finished?

Why equivalent units?• Each department will have some partially completed

units in beginning and ending inventory• Partially completed units complicate the output and

the unit cost to assign to that output

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Process Costing Methods

Two methods to calculate equivalent units Weighted-average method

Averages current period production costs with beginning inventory costs

Blends units and costs from prior and current periods

FIFO method Segregates current period production costs from the

production costs in beginning work-in-process Considered more accurate than the weighted-

average method

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Production Cost Report

A separate report is created for each department, usually monthly

Identifies the total cost transferred out of each WIP account into FG, and the cost of ending WIP

Contains 5 sections1: Summarizes the flow of physical units of output2: Computes equivalent units3: Summarizes total costs to account for4: Computes the cost per equivalent unit5: Assigns total costs to units completed and to units in

ending work-in-process

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Cost Categories on Production Cost Report

Costs are separately tracked in three categories: Direct materials Conversion costs

Assumes overhead is assigned at the same rate direct labor is incurred

Transferred-in costs Costs associated with units completed in the

previous department

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The End