production to a product. includes costs in beginning inventory and current period costs to establish an average cost per unit
6 Steps in Process Costing 1. Calculate the total physical units to account for 2. Calculate the physical units accounted for 3. Calculate the equivalent units of production 4. Calculate the total cost to account for 5. Calculate the cost per equivalent unit of production 6. Assign costs to inventories Production and Cost Information for Colorful Candles for April 2008 Candles in beginning WIP inventory (40% complete as to labor and overhead or conversion) 10,000
Candles started during current period 401,400
Candles completed and transferred to FG inventory 406,000
Candles ending WIP inventory (80% complete as to labor and overhead or conversion) 5,400
Costs of beginning WIP inventory Direct material $11,886 Direct labor 3,600 Overhead 29,916 $ 45,402
Current period costs Direct material $642,240 Direct labor 345,372 Overhead 975,168 1,962,780
Total Cost to account for $ 2,008,182 Example: Step 1: Calculate the Total Physical Units to Account For Candles in beginning WIP inventory Candles started during current period Candles to account for 10,000 401,400 411,400 Step 2: Calculate the Physical Units Accounted For Candles completed and transferred to FG inventory Candles in ending WIP inventory Candles accounted for 406,000 5,400 411,400 Step 3: Calculate the Equivalent Units of production DM Conversion (Labor & Overhead)
Beginning WIP inventory(whole units) Candles started and completed Ending WIP inventory(candles x %complete) Equivalent units of production 10,000 10,000 396,000 396,000 5,400 4,320 411,400 410,320 Production and Cost Information for Colorful Candles for April 2008 Candles in beginning WIP inventory (40% complete as to labor and overhead or conversion) 10,000
Candles started during current period 401,400
Candles completed and transferred to FG inventory 406,000
Candles ending WIP inventory (80% complete as to labor and overhead or conversion) 5,400
Costs of beginning WIP inventory Direct material $11,886 Direct labor 3,600 Overhead 29,916 $ 45,402
Current period costs Direct material $642,240 Direct labor 345,372 Overhead 975,168 1,962,780
Total Cost to account for $ 2,008,182 Step 4: Calculate the Total Cost to Account For DM DL OH Total
Beginning WIP inventory Current period costs Total cost to account for $ 45,402 $ 11,886 1,962,780 642,240 $ 2,008,182 $ 654,126 $ 3,600 345,372 $ 348,972 $ 29,916 975,168 $ 1,005,084 Total Cost to Account For = Beginning WIP inventory + Current period costs
Production and Cost Information for Colorful Candles for April 2008 Candles in beginning WIP inventory (40% complete as to labor and overhead or conversion) 10,000
Candles started during current period 401,400
Candles completed and transferred to FG inventory 406,000
Candles ending WIP inventory (80% complete as to labor and overhead or conversion) 5,400
Costs of beginning WIP inventory Direct material $11,886 Direct labor 3,600 Overhead 29,916 $ 45,402
Current period costs Direct material $642,240 Direct labor 345,372 Overhead 975,168 1,962,780
Total Cost to account for $ 2,008,182 Step 5: Calculate the Cost per Equivalent Unit of Production Unit Cost = Total Cost incurred Total Equivalent Units of Effort
= (Beginning WIP Inventory Cost + Current Period Cost) WA EUP Direct Material + Conversion = Total
Beginning WIP inventory cost Current period costs Total cost component Divided by EUP(step 3) Cost per EUP
$ 45,402 $ 11,886 1,962,780 $ 33,516 642,240 1,320,540 $ 2,008,182 $ 654,126 $ 1,354,056 411,400 $ 1.59 $ 3.30 $ 4.89 410,320 Step 6: Assign Costs to Inventories This step assigns total production costs to units of product by determining the cost of (1) goods completed and transferred out during the period and (2) units in the ending WIP inventory.
Transferred Out = Total Units Transferred x Cost per EUP Transferred out = 406, 000 x $4.89 = $1, 985, 340 Ending WIP Inventory cost is calculated by multiplying the EUP for each cost component by the component cost for EUP (computed in step 5). Ending WIP Inventory Direct material (5, 400 x $1.59) Conversion (4,320 x $3.30) Total cost of ending WIP inventory 22,842 $ 8,586 14,256 Cost of Production Report Summarizes the production and cost results for a period. Colorful Candles Cost of Production Report for the Month Ended April 30, 2008
Production Data Whole Units Direct Material Conversion Beginning WIP inventory Candles started Candles to account for Beginning WIP inventory(completed) Started and Completed Candles completed Ending WIP inventory Candles accounted for
Cost Data Total Direct material Conversion
Costs in beginning WIP inventory Current period costs Total cost to account for Divided by EUP Cost per EUP
Cost Assignment Transferred out (406,000 x $4.89) Ending WIP inventory Direct material (5,400 x $1.59) Conversion (5,400 x 80% x $3.30) Total cost accounted for EQUIVALENT UNITS OF PRODUCTION $2,008,182 22,842 10,000 401,400 411,400 10,000 10,000 10,000 396,000 396,000 396,000 406,000 5,400 4,320 5,400 411,400 411,400 410,320 $ 45,402 $ 11,886 1,962,780 $ 33,516 642,240 1,320,540 $ 2,008,182 $ 654,126 $ 1,354,056 411,400 642,240 $ 4.89 $ 1.59 $ 3.30 $ 1,985,340 $ 8,586 14,256 Thank You