Process

Costing

PROFESSOR: JOHN ANTHONY M. LABAY, CPA, MBA

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I. DISCUSSION

Cost accumulation procedures used by manufacturing concerns are classified as either job
order costing or process costing. The Job Order Costing System deals with the procedures
applicable to job order costing. It is important to understand that, except for some
modifications, the accumulation of materials costs, labor costs, and factory overhead also
applies to process costing system.

Process costing method is used for industries producing chemicals, petroleum, textiles, steel,
rubber, cement, flour, pharmaceuticals, shoes, plastics, sugar, and coal. Process costing
system is also used by firms manufacturing items such as rivets, screws, bolts, and small
electrical parts. A third type of industry using process costing system is the assembly type
industry which manufactures such things as typewriters, automobiles, airplanes, and
household electric appliances (washing machines, refrigerators, toasters, irons, radios,
television sets, etc.). Finally, certain service industries, such as gas, water, and heat, cost their
products by using process costing system. Thus, process costing is used when products are
manufactured under conditions of continuous processing or under mass production methods.
In fact, process costing procedures are often termed “continuous or mass production cost
accounting procedures”.

The type of manufacturing operations performed determines the cost procedures that must be
used. For example, company manufactures custom machinery will use job order costing,
whereas a chemical company will use process costing. In the case of machinery
manufacturer, a job order cost sheet is prepared for each order, accumulating the costs of
materials, labor, and factory overhead. In contrast the chemical company cannot identify
materials, labor, and factory overhead with each order, since each order is part of a batch or a
continuous process. The individual order identity is lost, and the cost of a completed unit
must be computed by dividing total cost incurred during a period by total units completed.
The summarization of the costs takes place via the cost of production report, which is an
extremely efficient, economical, and timesaving device for the collection of large amounts of
data.

The characteristics of process costing system:

1. A cost of production report is used to collect, summarize and compute total and unit
costs.
2. Production is accumulated and reported by departments.
3. Costs are posted to departmental work in process accounts.
4. Production in process at the end of a period is restated in terms of completed units.
5. Total cost charged to a department is divided by total computed production of the
department in order to determine a unit cost for a specific period.
6. Costs of completed units of a department are transferred to the next processing
department in order to arrive at the total costs of the finished products during a period. At the
same time, costs are assigned to units still in process.

The procedures of process costing are designed to:

1. Accumulate materials, labor, and factory overhead costs by departments.
2. Determine a unit cost for each department.
3. Transfer costs from one department to the next and to finished goods.
4. Assign costs to the inventory of work in process (WIP).

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If accurate units and inventory costs are to be established by process costing procedures,
costs of a period must be identified with units produced in the same period.

Costing by Departments:
The nature of manufacturing operations in firms using process or job order cost procedures is
usually such that work on product takes place in several departments.
With either procedure, departmentalization of materials, labor, and factory overhead costs
facilitates application of responsibility accounting. Each department performs a specific
operation or process towards the completion of the product. For example, after the blending
department has completed the starting phase of the work on product, units are transferred to
the testing department, after which they may go to the terminal department for completion
and transferred to the finished goods storeroom. Both units and costs are transferred from one
manufacturing department to another manufacturing department. Separate departmental work
in process (WIP) accounts are used to charge each department for the materials, labor, and
factory overhead used to complete its share of manufacturing process.
Process costing involves averaging costs for a particular period in order to obtain
departmental and cumulative unit costs. The cost of a completed unit is determined by
dividing the total cost of a period by the total units produced during the period. Determining
departmental production for a period includes evaluating units still in process. The
breakdown of costs for the computation of total unit costs and for costing units transferred
and departmental work in process (WIP) inventories is also desirable for cost control
purposes.
Departmental total and unit costs are determined by the use of the cost of production report,
which is described and illustrated in detail on the Cost of Production Report page. Most of
the activity in process costing system involves the accumulation of data needed for the
preparation of these reports.

Product Flow in Process Costing System:

A product can flow through a factory in numerous ways. Three product flow formats
associated with process costing – sequential, parallel, and selective – are illustrated here to
indicate that basically the same costing procedures can be applied to all types of product flow
situations.
Sequential Product Flow:
In a sequential product flow, each item manufactured goes through the same set of operation,
as illustrated below.

Work in Work in Work in

Process Process Process Finished
Department 1 → Department 2 → Department 3 → Goods

Materials Labor Labor

Labor OH OH
OH

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Materials are placed into production in the Blending Department, and labor and factory
overhead are added. When the work is finished in the Blending Department, it moves to the
Testing Department. The second process, and any succeeding processes, may add more
materials or simply work on the partially completed input from the preceding departments,
adding only labor and factory overhead, as in this example. After the product has been
processed by the Terminal Department, it is a completed product and becomes a part of
finished goods inventory.

Parallel Flow:
In a parallel product flow, certain portion of the work are done simultaneously and then
brought together in a final process or processes for completion and transfer to finished goods
inventory. As in the previous illustration, materials may be added in subsequent processes.

Processing
Department 1
(Material A)

Processing Processing Finished

Department 2 Department 4 Goods
(Material B)

Processing
Department 3
(Material C)

Selective Product Flow:

In a selective product flow, the product moves to different departments within the plant,
depending upon the desired final product. For example, in meat processing, after the initial
butchering process, some of the product goes directly to the Packaging Department and then
to finished goods inventory; some goes to the Smoking Department and then to the Packaging
Department and finally to finished goods inventory; Some goes to the grinding department,
then to the packaging department and lastly to finished goods inventory. Transfer of costs
from the Butchering Department involves joint cost allocation, discussed on By-Products and
Joint Products Costing page.

Smoking
Department

Butchering Packaging Finished

Department Department Goods

Grinding
Department

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Procedures for Materials, Labor, and Factory Overhead Costs Accumulations:

In process costing, materials, labor, and factory overhead costs are accumulated in the usual
accounts, using normal cost accounting procedures. Costs are then analyzed by departments
or processes and charged to departments by appropriate journal entries. The details involved
in process costing are usually fewer than those in the job order costing, where accumulation
of costs for many orders can become unwieldy.

Materials Costs:
In job order costing system, materials requisitions are used to charge jobs for direct materials
used. If requisitions are used in process costing, details are considerably reduced because
materials are charged to departments rather than to jobs, and the number of departments using
materials is usually less than the number of jobs a firm might handle at a given time.
Frequently materials are issued only to the process-originating department; subsequent
department other than the first, they are charged to that department performing the specific
operation.

For materials control purposes, materials need not always be priced individually on
requisition forms. The cost of materials used can be determined at the end of the production
period through inventory difference procedures, i.e., adding purchases to beginning inventory
and then deducting ending inventory. Or consumption reports which state the cost of
materials or quantity of materials put into process by various departments can be used. Costs
or quantities charged to departments by consumption reports may be based on formulas or
proration. Formulas specify the type and quantities of materials required in the various
products and are applied to finished production in order to calculate the materials consumed.
Chemical and pharmaceutical industries use such procedures, particularly when more than
one product is manufactured by a department. Frequently the cost of materials used by a
department must be prorated to different products on various estimated bases.

Direct Labor:
Labor costs are identified by and charged to departments in process costing, thus eliminating
the detailed clerical work of accumulating labor costs by jobs. Daily time tickets or weekly
time clock cards are used instead of job time tickets. Summary labor charges are made to
departments through an entry which distributes the direct manufacturing payroll:

Factory Overhead Costs:

Factory overhead incurred in process costing as well as in job order costing should be
accumulated in the factory overhead subsidiary ledger for producing and service departments.
This procedure is consistent with requirements for responsibility accounting and
responsibility reporting.

Normally it is emphasized to use the predetermined overhead rates for charging overhead to
jobs and products. However, in various process and job order costing procedures, actual
rather than applied overhead is sometimes used for product costing. This practice is feasible
when production remains comparatively stable from period to period, since factory overhead
will then remain about the same from one month to the next. The use of actual overhead can
also be justified when factory overhead is not an important part of total cost. However,
predetermined overhead rates for producing departments should be used if:
1. Production is not stable.
2. Factory overhead, especially fixed overhead, is a significant cost.

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Fluctuations in production can lead to the unequal incurrence of actual factory overhead from
month to month. In such cases, factory overhead should be applied to production using
predetermined rates, so that units produced receive proper charges for factory overhead.
Similarly, if factory overhead – especially fixed factory overhead – is significant, it is
desirable to allocate factory overhead on the basis of normal or uniform production using
predetermined overhead rates. Indeed, the use of predetermined rates is highly recommended
for improving cost control and facilitating cost analysis.

The use of factory overhead control account requires a subsidiary ledger for factory overhead,
with departmental expense analysis sheet to which all expenses are posted. Service
department expenses are kept in like manner and distributed later to producing departments.
At the end of each period, departmental expense analysis sheets are totaled. These totals,
which also include distributed service department costs, represent factory overhead for each
department.

Cost of Production Report (CPR):

Definition and Explanation of Cost of Production Report (CPR):
A departmental cost of production report (CPR) shows all costs chargeable to a
department. It is not only the source for summary journal entries at the end of the month but
also a most convenient vehicle for presenting and disposing of costs accumulated during the
month. A production cost report shows:
1. Total unit costs transferred to it from a preceding department.
2. Materials, labor, and factory overhead added by the department.
3. Unit cost added by the department.
4. Total and unit costs accumulated to the end of operations in the department.
5. The cost of the beginning and ending work in process inventories.
6. Cost transferred to a succeeding department or to a finished goods storeroom.

It is customary to divide the cost section of the report into two parts: one showing costs for
which the department is accountable, including departmental and cumulative total and unit
costs, the other showing the disposition of these costs. A quantity schedule showing the total
number of units for which a department is accountable and the disposition made of these
units is also part of each department’s cost of production report. Information in this schedule,
adjusted for equivalent production is used to determine the unit costs added by a department,
the costing of the ending work in process inventory, and the cost to be transferred out of the
department.

A cost of production report determines periodic total and unit costs. However, a report that
would merely summarize the total costs of materials, labor, and factory overhead and shows
only the unit cost for the period would not be satisfactory for controlling costs. Total figures
mean very little; cost control requires detailed data. Therefore, in most instances, the total
cost is broken down by cost elements for each department head responsible for the costs
incurred. Furthermore, detailed departmental figures are needed because of the various
completion stages of the work in process inventories.
Either in the cost of production report itself or in the supporting schedules, each item of
material used by a department is listed; every labor operation is shown separately; factory
overhead components are noted individually; and a unit cost is derived for each item. To
condense the illustrated cost of production reports, only total materials, labor, and factory

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overhead charged to departments are considered; and unit costs are computed only for each
cost element rather than for each item.

Addition of Materials, Average and FIFO Costing

In numerous industries, all materials needed for the product are put in process in the first
department. However, additional materials might be required in subsequent departments in
order to complete the units. The addition of materials has two possible effects on units and
costs in process:
1. The additional materials increase the unit cost, since these materials become a part of
the product manufactured, but do not increase the number of final units. For example, in a
finishing plant of textile company, the material added is often a bleach; in a wire company, a
plating mixture; in an automobile assembly plant, additional parts. These materials are
needed to give the product certain specific quantities, characteristics, or completeness; or
2. The added materials increase the number of units and also cause a change in unit cost.
In processing a chemical, water is often added to a mixture, causing an increase in the
number of units and a spreading of costs over a greater number.

Addition of Materials – Increase in Unit Cost

In the simplest case, added materials, such as parts of an automobile, do not increase the
number of units but increase total cost and unit costs. A materials unit cost must be computed
for the department, and a materials cost must be included in the work in process inventory.

Addition of Materials – Increase in Units and Change in Unit Cost

When additional materials result in additional units, different computations are necessary.
The greater number of units causes a decrease in unit cost which necessitates an adjustment
of the preceding department’s unit cost, since the increased number of units will absorb the
same total cost transferred from the preceding department.

Beginning Work in Process Inventories

Average Costing Method:
When beginning work in process inventory costs are merged with costs of the new period, the
problem is essentially one of securing representative average costs. Ordinarily, the averaging
process is quite simple.

Beginning Work in Process Inventories

First In First Out (FIFO) Costing Method:
It is possible to keep beginning work in process inventory costs separate rather than average
them with the additional new costs incurred in the next period. This procedure gives separate
unit costs (1) for beginning work in process units completed and (2) for units started and
finished in the same period.
Some accountants believe that the beginning work in process costs should be kept intact,
adding only that portion of additional costs required to complete units in the beginning work
in process. Under the first in first out (FIFO) costing method, the cost of completing units in
process at the beginning of the period is computed first, followed by the computation of the
cost of units started and finished within the period. This procedure leads to at least two
different unit costs for work completed within a specific period. The averaging process
produces only one completed unit cost.

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Average Costing Method Versus FIFO Costing Method:

Both average costing and FIFO costing have certain advantages. It would be arbitrary to
state that one method is either simpler or more accurate than the other. The selection of either
method depends entirely upon management’s opinion regarding the most appropriate and
practical cost determination procedures.

The basic difference between the average costing and FIFO costing method concerns the
treatment of beginning work in process inventory. The averaging method adds beginning
work in process inventory costs to the preceding department’s materials, labor and factory
overhead costs incurred during a period. Unit costs are determined by dividing these costs by
equivalent production figures. Units and costs are transferred to the next department as one
cumulative figure.

The FIFO method retains the beginning work in process inventory cost as a separate figure.
Costs necessary to complete the beginning work in process units are added to this total cost.
The sum of these two costs totals is transferred to the next department. Units started and
finished during the period have their own unit cost which is usually different from the
completed unit cost of the units in process at the beginning of the period. The FIFO method
thus separately identifies for management the current period unit cost originating in a
department. Unfortunately, the costs are averaged out in the next department, resulting in a
loss of much of the value associated with the use of the FIFO method.

If the FIFO method is used, units lost during a period must be identified as to whether they
came from in process at the beginning or from units received during the period. Also, in
computing equivalent production figures in FIFO costing., the degree of completion of both
the beginning and ending work in process inventories must be considered.

The principle disadvantage of FIFO costing is that if several unit cost figures are used at the
same time, extensive detail is required within the cost of production report. which can lead to
complex procedures and even inaccuracy. Whether the extra detail yields more representative
unit costs than the average costing method is debatable, especially in a firm using process
costing where production is continuous and more or less uniform and appreciable fluctuations
in unit costs are not expected to develop. Under such conditions, the average costing method
leads to more satisfactory cost computations.

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Cost of Production Report

(Average Method)
1. Summary of Physical Units
Units to be accounted for: Units accounted for as follows:
Work in Process, beginning xx Units transferred out xx
Units started xx Work in Process, ending xx
Total units to be accounted for xx Total units accounted for xx

2. Equivalent Units of Production (EUP)

Physical
Units Materials Conversion
Units transferred out xx xx xx
Work in process, ending xx xx xx
Equivalent units of production xx xx

3. Cost per Equivalent Unit

Materials Conversion
Cost of beginning work in process xx xx
Cost added during the period xx xx
Total cost xx xx
÷ Equivalent units of production xx xx
Cost per equivalent unit xx xx

4. Assign Costs to Units Transferred Out and Units Ending Work in Process
Materials Conversion Total
Units transferred out (EUP) xx xx
X Cost per equivalent unit xx xx
Cost of units transferred out xx xx xx

Work in process, ending (EUP) xx xx

X Cost per equivalent unit xx xx
Cost of work in process, ending xx xx xx

5. Cost Reconciliation
Costs to be accounted for:
Cost of work in process, beginning xx
Cost added during the period xx
Total cost to be accounted for xx

Cost accounted for as follows:

Cost of work in process, ending xx
Cost of units transferred out xx
Total cost accounted for xx

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Cost of Production Report

(FIFO Method)
1. Summary of Physical Units
Units to be accounted for: Units accounted for as follows:
Work in Process, beginning xx Units transferred out xx
Units started xx Work in Process, ending xx
Total units to be accounted for xx Total units accounted for xx

2. Equivalent Units of Production (EUP)

Physical
Units Materials Conversion
Work in process, beginning xx xx xx
Units started and completed xx xx xx
Work in process, ending xx xx xx
Equivalent units of production xx xx

3. Cost per Equivalent Unit

Materials Conversion
Cost added during the period xx xx
÷ Equivalent units of production xx xx
Cost per equivalent unit xx xx

4. Assign Costs to Units Transferred Out and Units Ending Work in Process
Materials Conversion Total
Cost from the WIP, beginning xx xx xx
Cost to complete the WIP, beginning:
Equivalent units to complete xx xx
X Cost per equivalent unit xx xx
Cost to complete xx xx xx
Cost of units started and completed:
Units started and completed xx xx
X Cost per equivalent unit xx xx
Cost of units started and completed xx xx xx
Cost of units transferred out xx

Work in process, ending (EUP) xx xx

X Cost per equivalent unit xx xx
Cost of work in process, ending xx xx xx

5. Cost Reconciliation
Costs to be accounted for:
Cost of work in process, beginning xx
Cost added during the period xx
Total cost to be accounted for xx

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Cost accounted for as follows:

Cost of work in process, ending xx
Cost of units transferred out xx
Total cost accounted for xx

Difficulties Encountered in Process Costing Procedures:

Certain difficulties likely to be encountered in actual practice should be mentioned with
regard to process cost accounting procedures:

1. The determination of production quantities and their stage of completion presents

problem. Every computation is influenced by these figures. Since the data generally come to
the cost department from operating personnel often working under circumstances that make a
precise count difficult, a certain amount of double counts and unreliable estimates are bound
to exist. Yet, the data submitted from the basis for the determination of inventory costs.

2. Materials cost computations frequently require careful analysis in the illustration’s

materials are generally considered to the cost of first department. In certain industries,
materials costs are not even entered on production reports. When materials prices are
influenced by fluctuating market quotations, the materials cost may be recorded in a separate
report designed to facilitate management decisions in relation to the materials market.

3. The discussion of lost units by shrinkage, spoilage, or evaporation indicates that the
time when the loss occurs influences the final cost calculation. Different assumptions
concerning the loss would result in departmental unit costs, which, in turn effect inventory
costs, the cost of units transferred, and the completed unit cost. Another consideration
involves the possibility of treating cost attributable to avoidable loss as an expense of the
current period.

4. Industries using process cost procedures are generally of the multiple product type. Joint
processing cost must be allocated the products resulting from the processes. Weighted unit
averages or other bases are used to prorate the joint cost to the several products. If units
manufactured are used as a basis for cost allocation, Additional clerical expenses are
necessary if the labor hour or machine hour basis is used for charging overhead to work in
process. Management must decide whether economy and low operational cost are compatible
with increased information based on additional cost computations and procedures.

It should be noted that some companies use both process costing and job order costing
procedures for various purposes in different departments. This is particularly true when a
parallel or selective cost flow format is required. Each system or method employed by a
company must be based on reliable production and performance data which, when combined
with output, budget, or standard cost data, will provide the foundation for effective cost
control and analysis.

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II. PROBLEMS

1. Malt Corporation uses the weighted-average method in its process costing. The following
data pertain to its Assembly Department for September.
Percent Complete .
Units Materials Conversion
Work in process, September 1 300 85% 60%
Units started into production during
September 7,200
Units completed during September and
transferred to the next department 6,600
Work in process, September 30 900 80% 10%

Required:
Compute the equivalent units of production for both materials and conversion costs for the
Assembly Department for September using the weighted-average method.

2. Augte Corporation uses the FIFO method in its process costing. The following data pertain
to its Assembly Department for October.
Percent Complete .
Units Materials Conversion
Work in process, October 1 500 70% 15%
Units started into production during
October 9,400
Units completed during October and
transferred to the next department 8,800
Work in process, October 31 1,100 75% 20%

Required:
Compute the equivalent units of production for both materials and conversion costs for the
Assembly Department for October using the FIFO method.

3. Voj Inc. uses the weighted-average method in its process costing. The following data
concern the company's Assembly Department for the month of April.
Materials Conversion
Work in process, April 1 P13,932 P18,563
Cost added to production in the Assembly
Department during April P242,173 P346,963
Equivalents units of production for April 9,775 9,670

Required:
Compute the costs per equivalent unit for the Assembly Department for April.

4. Ahl Corporation uses the FIFO method in its process costing. The following data concern
the company's Assembly Department for the month of October.
Materials Conversion
Work in process, October 1 P13,870 P12,400
Cost added to production in the Assembly
Department during October P23,360 P29,760

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Equivalents units of production for October 3,650 3,100

Required:
Compute the costs per equivalent unit for the Assembly Department for October using the
FIFO method.

5. Alleg Corporation uses the weighted-average method in its process costing. The following
data concern the company's Assembly Department for the month of January.
Materials Conversion
Cost per equivalent unit P32.60 P17.20
Equivalents units in ending working in process 1,190 420

During the month, 8,700 units were completed and transferred from the Assembly
Department to the next department.

Required:
Determine the cost of ending work in process inventory and the cost of units transferred out
of the department during January using the weighted-average method.

6. Buff Corporation uses the FIFO method in its process costing system. The following data
concern the company's Assembly Department for the month of September.
Cost in beginning work in process inventory P4,980
Units started and completed this month 3,490

Materials Conversion
Cost per equivalent unit P22.50 P9.80
Equivalent units required to complete the
units in beginning work in process 170 100
Equivalents units in ending work in process 350 154

Required:
Determine the cost of ending work in process inventory and the cost of units transferred out
of the department during September using the FIFO method.

7. In December, one of the processing departments at Garo Corporation had beginning work
in process inventory of P34,000 and ending work in process inventory of P29,000. During the
month, P357,000 of costs were added to production and the cost of units transferred out from
the department was P362,000.

Required:
Construct a cost reconciliation report for the department for the month of December.

8. In October, one of the processing departments at Julian Corporation had ending work in
process inventory of P14,000. During the month, P240,000 of costs were added to production
and the cost of units transferred out from the department was P248,000. The company uses
the FIFO method in its process costing system.

Required:
Construct a cost reconciliation report for the department for the month of October.

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9. Harm Company uses the weighted-average method in its process costing system. The
Curing Department of Harm Company reported the following information for the month of
November.
Units Percentage Complete with
Respect to Conversion
Work in process, November 1 10,000 80%
Units started 28,000
Completed and transferred out 30,000
Work in process, November 30 8,000 30%

Costs for November: Materials Conversion

Work in process, November 1 P34,500 P48,600
Added during the month P146,000 P194,400

All materials are added at the beginning of the process.

Required:
Compute the following items using the weighted-average method:
A. The equivalent units of production for materials.
B. The cost per equivalent unit for conversion.
C. The total cost assigned to units transferred out of the Curing Department during
November.
D. The cost assigned to work in process inventory as of November 30.

10. Dame Inc. uses the FIFO method in its process costing system. The following data
concern the operations of the company's first processing department for a recent month.
Work in process, beginning:
Units in process 100
Percent complete with respect to materials 90%
Percent complete with respect to conversion 30%
Costs in the beginning inventory:
Materials P153
Conversion P711
Units started into production during the month 25,000
Units completed and transferred out 24,400
Costs added to production during the month:
Materials P37,200
Conversion P591,600
Working in process, ending:
Units in process 700
Percent complete with respect to materials 70%
Percent complete with respect to conversion 40%

Required:
Using the FIFO method:
A. Determine the equivalent units of production for materials and conversion costs.
B. Determine the cost per equivalent unit for materials and conversion costs.
C. Determine the cost of ending work in process inventory.
D. Determine the cost of units transferred out of the department during the month.

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III. ASSESSMENT

1. Mill Company manufactures a product for which materials are added at the beginning of
the manufacturing process. A review of the company's inventory and cost records for the
most recently completed year revealed the following information:
Units Materials Conversion
Work in process, Jan. 1 (80% complete
with respect to conversion costs) 100,000 P100,000 P157,500
Units started into production 500,000
Costs added during the year:
Materials P650,000
Conversion P997,500
Units completed during the year 450,000

The company uses the weighted-average cost method in its process costing system. The
ending inventory is 50% complete with respect to conversion costs.

Required:
A. Compute the equivalent units of production and the cost per equivalent units for materials
and for conversion costs.
B. Determine the cost transferred to finished goods.
C. Determine the amount of cost that should be assigned to the ending work in process
inventory.

2. Aug Inc. uses the weighted-average method in its process costing system. The following
data concern the operations of the company's first processing department for a recent month.

Work in process, beginning:

Units in process 700
Percent complete with respect to materials 80%
Percent complete with respect to conversion 40%

Costs in the beginning inventory:

Materials P1,904
Conversion P8,624
Units started into production during the month 29,000
Units completed and transferred out 28,800
Costs added to production during the month:
Materials P104,044
Conversion P875,266
Working in process, ending:
Units in process 900
Percent complete with respect to materials 70%
Percent complete with respect to conversion 20%
Required:
A. Determine the equivalent units of production.
B. Determine the costs per equivalent unit.
C. Determine the cost of ending work in process inventory.
D. Determine the cost of the units transferred to the next department.

Cost Accounting and Control Page 14

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454 GRC Bldg. Rizal Ext. cor. 9th Avenue Grace Park, Caloocan City

3. Sha Company has a process costing system. The following data relate to the company's
Mixing Department for a recent month:

Units Conversion Percentage

of Completion
Beginning work in process inventory 5,000 60%
Units started into production 40,000
Units completed and transferred out 37,000
Ending work in process inventory 8,000 25%

All materials are added at the beginning of the Mixing process.

Required:
A. Compute the equivalent units of production for materials using the FIFO method.
B. Compute the equivalent units of production for conversion using the FIFO method.
C. Compute the equivalent units of production for materials using the weighted-average
method.
D. Compute the equivalent units of production for conversion using the weighted-average
method.

4. Baro Inc. uses the weighted-average method in its process costing system. The following
data concern the operations of the company's first processing department for a recent month.

Work in process, beginning:

Units in process 100
Percent complete with respect to materials 70%
Percent complete with respect to conversion 40%
Costs in the beginning inventory:
Materials P364
Conversion P1,120
Units started into production during the month 23,000
Units completed and transferred out 22,900
Costs added to production during the month:
Materials P124,160
Conversion P637,088
Working in process, ending:
Units in process 200
Percent complete with respect to materials 80%
Percent complete with respect to conversion 70%

Required:
Using the weighted-average method:
A. Determine the equivalent units of production for materials and conversion costs.
B. Determine the cost per equivalent unit for materials and conversion costs.
C. Determine the cost of units transferred out of the department during the month.
D. Determine the cost of ending work in process inventory in the department.

Cost Accounting and Control Page 15

 Global Reciprocal Colleges
454 GRC Bldg. Rizal Ext. cor. 9th Avenue Grace Park, Caloocan City

5. Epstein Inc. uses the FIFO method in its process costing system. The following data
concern the operations of the company's first processing department for a recent month.

Work in process, beginning:

Units in process 700
Percent complete with respect to materials 70%
Percent complete with respect to conversion 70%
Costs in the beginning inventory:
Materials P3,332
Conversion P14,602
Units started into production during the month 23,000
Units completed and transferred out 23,300
Costs added to production during the month:
Materials P152,394
Conversion P690,193
Working in process, ending:
Units in process 400
Percent complete with respect to materials 70%
Percent complete with respect to conversion 30%

Required:
Using the FIFO method:
a. Determine the equivalent units of production for materials and conversion costs.
b. Determine the cost per equivalent unit for materials and conversion costs.
c. Determine the cost of ending work in process inventory.
d. Determine the cost of units transferred out of the department during the month.

Cost Accounting and Control Page 16