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    Process Costing Notes

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    Megan Cruz
    This document discusses process costing and job order costing. Process costing is used for mass-produced, homogeneous products and involves calculating an average cost per unit. Job order costing is used for customized products and accumulates costs per job. A cost of production report shows the material, labor, overhead and unit costs for a department. Equivalent production represents the theoretically completed units based on applied material, labor and overhead. There are different methods for calculating equivalent production and applying costs evenly or unevenly based on material and conversion costs.

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    Process Costing Notes

    Uploaded by

    Megan Cruz
    91 views10 pages
    This document discusses process costing and job order costing. Process costing is used for mass-produced, homogeneous products and involves calculating an average cost per unit. Job order costing is used for customized products and accumulates costs per job. A cost of production report shows the material, labor, overhead and unit costs for a department. Equivalent production represents the theoretically completed units based on applied material, labor and overhead. There are different methods for calculating equivalent production and applying costs evenly or unevenly based on material and conversion costs.

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    PROCESS COSTING NOTES

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    This document discusses process costing and job order costing. Process costing is used for mass-produced, homogeneous products and involves calculating an average cost per unit. Job order costing is used for customized products and accumulates costs per job. A cost of production report shows the material, labor, overhead and unit costs for a department. Equivalent production represents the theoretically completed units based on applied material, labor and overhead. There are different methods for calculating equivalent production and applying costs evenly or unevenly based on material and conversion costs.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    91 views10 pages

    Process Costing Notes

    Uploaded by

    Megan Cruz
    This document discusses process costing and job order costing. Process costing is used for mass-produced, homogeneous products and involves calculating an average cost per unit. Job order costing is used for customized products and accumulates costs per job. A cost of production report shows the material, labor, overhead and unit costs for a department. Equivalent production represents the theoretically completed units based on applied material, labor and overhead. There are different methods for calculating equivalent production and applying costs evenly or unevenly based on material and conversion costs.

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    PROCESS COSTING

    BASIC COST SYSTEMS:


    A. Process Costing
    - Average cost per unit per product
    - Homogenous products (little variation) – standardized
    - Process is the same all throughout production
    - Examples: Potato Chips, Shampoo, Items in grocery stores, Etc.
    - If mass-produced, we use process costing

    B. Job Order Costing


    - Cost accumulated per job, batch, or customer order
    - Customized products (more variation)
    - Tailoring, printing, restaurants, etc.
    IDENTIFY WHETHER EACH BUSINESS LISTED IN THE FOLLOWING WOULD USE JOB
    COSTING OR PROCESS COSTING.
    1. Trash bag manufacturer - P
    2. Custom furniture manufacturer - J
    3. Shampoo manufacturer - P
    4. Automobile repair shop - J
    5. Sports drink manufacturer - P
    6. Antique boat restorer - J
    COST OF PRODUCTION REPORT (COPR)
    - It is a financial report of a particular department (or a group of departments) showing
    in quantity and costs how the operations were conducted during the month.
    - This report shows details of how the cost in units were processed together with its
    related cost change.

    Material Cost
    Conversion Cost
    Unit Cost
    *note: conversion cost = labor + overhead cost*
    A. Contents of COPR:
    - Any cost transferred to it from a preceding department
    - Cost of material, labor and factory overhead incurred by the department.
    - Unit cost added by the department.
    - Cumulative costs, unit and total, to the end of operation in the department.
    - The value of opening and ending work-in-process inventory.
    - Cost of transfer to succeeding department or to the finished good stockroom.
    EQUIVALENT PRODUCTION (EP) – Part of the Quantity Schedule
    - Represents the number of units which could have been completed if only the
    elements (material, labor and overhead) were applied to units that can be completed
    during the period.
    - A completion of theoretically completed units applied particularly to “in-process” units
    by determining its stage of completion.
    - This quantity is the base or denominator upon which the unit cost of a department is
    computed.
    A. Steps:
    1. Summarize the flow of physical units (Quantity Schedule).
    2. Compute output in terms of equivalent units (EP)
    3. Summarize the total costs to account for (Total costs from WIP)
    4. Compute unit costs
    5. Apply total costs to units completed and to units in ending Work-in Process.

    B. Ways for computing EP


    1. First In – First Out (FIFO) Method
    • work done (WD) for the current period only
    • WIP (Beg.) is separate and distinct from the started and completed by a
    process goods
    2. Weighted Average Method (WAM)
    • work done (WD) to date
    • considers all costs and units regardless of whether work done was before or
    during the current period
    • WD for WIP (Beg.) is always 100%
    COST APPLICATION
    1. Even Application of Cost Elements
    • Both material and conversion costs are equally distributed from start to end
    • EP is the same for both material and conversion costs
    2. Uneven Application of Cost Elements
    • Material cost is applied differently from conversion costs
    • EP for material and conversion costs are different

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