Professional Documents
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Process Costing
Learning Objectives
1. How does process costing differ from job order product costing?
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5. How is a cost of production report prepared? 6. What use do standard costs have in a process
costing system?
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Costing Systems
Process
Materials
Conversion Costs
Process 2
Finished Product
Process 3
Production costs = Material + Labor + Overhead Costs assigned to each process during period Unit costs determined for each cost component and each process Cost of completed unit = Sum of costs per unit for all processes through which product passes
Production Costs
Direct material cost measured from material requisition slips and invoiced prices Direct labor cost determined from employee time sheets and wage rates Overhead costs assigned through use of predetermined rates or actual costs
Actual overhead costs can be used if relatively constant each period and production volume is relatively steady
Quantity of Production
Process costing assigns costs to both fully and partially completed units by converting partially completed units to equivalent whole units or to equivalent units of production.
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OR and
FIFO method
Keeps beginning inventory and current period production and costs separated
Completed and transferred Partially completed and remaining in ending WIP 3. Use either weighted average or FIFO method to determine EUP for each cost component
5. Compute cost per EUP for each cost component using either WA or FIFO EUP 6. Assign costs
Units completed and transferred Units remaining in ending WIP
$ 45,000.00 4,678.60
$ 49,678.60
$334,950.00 202,191.00
537,141.00
Beginning WIP Current Period Total Cost to Account For EUP Cost per EUP
$379,950.00 $206,869.60 $586,819.60 127,500 126,140 $2.98 $1.64 $4.62 ==== ==== ====
$4.55 ====
$558,123.60
$19,720.00 8,976.00
Beginning Inventory Transferred In To account for Completed Ending Inventory Accounted for
100%
Method of Neglect
Under the method of neglect:
Spoiled units are simply excluded from the equivalent unit production schedule. The total cost of producing both good and spoiled units is assigned solely to the good units, raising the cost of those units.