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Process Costing
Cost Accounting:
Foundations and Evolutions, 8e
Kinney Raiborn
Learning Objectives
Why are equivalent units of production used in process costing?
How are equivalent units of production, unit costs, and inventory values
determined using the weighted average (WA) method of process costing?
How are equivalent units of production, unit costs, and inventory values
determined using the first-in, first-out (FIFO) method of process costing?
How are transferred-in costs and units accounted for in a multidepartment
production setting?
How are equivalent units of production, unit costs, and inventory values
determined using the standard costing method of process costing?
Why would a company use a hybrid costing system?
(Appendix 1) What alternative methods can be used to calculate
equivalent units of production?
(Appendix 2) How are normal and abnormal spoilage losses treated in an
EUP schedule?
Job Order vs. Process Costing
WA Method
Step 5Cost per Equivalent Unit
DM Conversion Total
Beginning WIP $ 5,943 $ 16,758 $ 22,701
Current costs 321,120 660,270 981,390
To account for $327,063 $677,028 $1,004,091
WA Method
Step 6Assign Costs to Inventories
WA Method
Process CostingFIFO
Emphasizes current period costs and production
Steps 1, 2, and 4 are the same
Step 3Compute Equivalent Units
DM Conversion
Beginning WIP/completed 0 3,000*
Started and completed 198,000 198,000
Ending WIP Inventory 2,700 2,160
Equivalent units 200,700 203,160
DM Conversion Total
Current costs $321,120 $660,270 $981,390
Process 1 Wait
Materials
Transferred-In Process 2
Cost
What is an EUP?
What is the difference between the WA and
FIFO methods of calculating equivalent
units?
Why would a company use a hybrid costing
system?
Potential Ethical Issues
Over- or underestimating completion %
for ending WIP inventory to distort results
Using outdated standard costs
spoilage