Process Costing Chapter 9 Chapter 9: Process Costing.

Process Costing Chapter 9 Chapter 9: Process Costing.
Managers need to assign costs to products to facilitate external financial reporting and internal decision making. This chapter illustrates an absorption costing approach to calculating product costs known as process costing. Chapter 9

Similarities Between Job-Order and Process Costing
4-2 Similarities Between Job-Order and Process Costing Both systems assign material, labor and overhead costs to products and they provide a mechanism for computing unit product costs. Both systems use the same manufacturing accounts, including Manufacturing Overhead, Raw Materials, Work in Process, and Finished Goods. The flow of costs through the manufacturing accounts is basically the same in both systems. Job-order and process costing are similar in that they both deal with assigning materials, labor and overhead to products as a way to calculate the unit product cost. Both systems use Raw Materials Inventory, Work in Process Inventory, and Finished Goods Inventory. The flow of costs is similar, but not exactly the same, in the two systems.

Differences Between Job-Order and Process Costing
4-3 Differences Between Job-Order and Process Costing Process costing is used when a single product is produced on a continuing basis or for a long period of time. Job-order costing is used when many different jobs having different production requirements are worked on each period. Process costing systems accumulate costs by department or process. Job-order costing systems accumulated costs by individual jobs. Process costing systems compute unit costs by department or process. Job-order costing systems compute unit costs by job on the job cost sheet. Process costing is best suited for the production of a single product that is continuously produced for a long period of time. Recall the mixing and bottling of Coca-Cola from Chapter Eight. Job-order costing is best suited when jobs are produced as discrete projects. For example, building a house. Process costing accumulates costs by department or process, while job-order costing accumulates costs by individual jobs. Process costing uses a fundamental document called a department production report, while job-order costing uses the job cost sheet. In process costing unit cost is computed by department or process, while in job-order systems unit cost is computed by job. While there are similarities between the two systems, there are also significant differences.

Quick Check  Process costing is used for products that are:
4-4 Quick Check  Process costing is used for products that are: a. Different and produced continuously. b. Similar and produced continuously. c. Individual units produced to customer specifications. d. Purchased from vendors. Can you identify the most likely circumstances in which a process costing system may be used?

Quick Check  Process costing is used for products that are:
4-5 Quick Check  Process costing is used for products that are: a. Different and produced continuously. b. Similar and produced continuously. c. Individual units produced to customer specifications. d. Purchased from vendors. Can you identify the most likely circumstances where a process costing system may be used?

Processing Departments
4-6 Processing Departments Any unit in an organization where materials, labor or overhead are added to the product. The activities performed in a processing department are performed uniformly on all units of production. Furthermore, the output of a processing department must be homogeneous. Products in a process costing environment typically flow in a sequence from one department to another. A processing department is any unit in an organization where materials, labor, or overhead are added to the product. The output from a processing department is homogeneous, that is, they all appear the same. Products in a process costing environment typically flow in a sequence from one department to another.

4-7 Learning Objective 1 Record the flow of materials, labor, and overhead through a process costing system. Learning objective number 1 is to record the flow of materials, labor, and overhead through a processing costing system.

Comparing Job-Order and Process Costing
4-8 Comparing Job-Order and Process Costing Direct Materials Work in Process Finished Goods Direct Labor Cost of Goods Sold Manufacturing Overhead The flow of costs through the manufacturing accounts is basically the same for process and job-order costing, there is a key fundamental difference between the two costing systems. Direct materials, direct labor and manufacturing overhead are added to Work in Process. When work in process is completed, the costs are transferred to Finished Goods. When finished goods are sold, the costs are transferred to Cost of Goods Sold.

4-9 Comparing Job-Order and Process Costing Costs are traced and applied to individual jobs in a job-order cost system. Direct Materials Jobs Finished Goods Direct Labor There is a key fundamental difference between process and job-order costing systems. Job-order costing systems trace and apply manufacturing costs to jobs. One Work in Process account is often used to accumulate costs for all jobs. The individual job cost sheets serve as a subsidiary ledger. Manufacturing Overhead Cost of Goods Sold

4-10 Comparing Job-Order and Process Costing Costs are traced and applied to departments in a process cost system. Direct Materials Processing Department Finished Goods Direct Labor In a process costing systems, costs are traced to departments that process the goods. In some companies there may be several processing departments that goods must pass through to become finished goods. A separate Work in Process account is maintained for each processing department. Material, labor and overhead costs transferred from one department’s Work in Process account to another department’s Work in Process account are called transferred-in costs. Manufacturing Overhead Cost of Goods Sold

T-Account and Journal Entry Views of Process Cost Flows
4-11 T-Account and Journal Entry Views of Process Cost Flows For purposes of this example, assume there are two processing departments – Departments A and B. We will use T-accounts and journal entries. Let’s look at the flow of process costs through the t-accounts and related journal entries for a manufacturing company that has two departments – Department A and Department B.

Process Cost Flows: The Flow of Raw Materials (in T-account form)
4-12 Process Cost Flows: The Flow of Raw Materials (in T-account form) Work in Process Department A Raw Materials Direct Materials Direct Materials Work in Process Department B Direct materials can be requisitioned for use in both Department A and Department B. These direct materials are likely to be different in nature. Direct material costs are debited to the appropriate departmental Work in Process account depending upon where the materials were added to the production process. The Raw Materials Inventory account is credited for the corresponding amounts.

Process Cost Flows: The Flow of Raw Materials (in journal entry form)
4-13 Process Cost Flows: The Flow of Raw Materials (in journal entry form) The journal entry that shows the requisition of direct materials for use in Processing Departments A and B, is to debit the processing department of the direct materials requisitioned and credit Raw Materials Inventory. Notice that the direct materials are placed into a separate work in process account for each processing department.

Process Cost Flows: The Flow of Labor Costs (in T-account form)
4-14 Process Cost Flows: The Flow of Labor Costs (in T-account form) Salaries and Wages Payable Work in Process Department A Direct Materials Direct Labor Direct Labor Work in Process Department B Direct labor is transferred from the Salaries and Wages Payable account into the work in process account of Departments A and B depending upon where the individual employee worked. Direct labor costs are debited to the appropriate departmental Work in Process account depending upon where the labor was added to the production process. Salaries and Wages Payable is credited for the corresponding amounts. Direct Materials

Process Costing: The Flow of Labor Costs (in journal entry form)
4-15 Process Costing: The Flow of Labor Costs (in journal entry form) Here is the journal entry to place the direct labor into the Work in Process Inventory of departments A and B.

Manufacturing Overhead Overhead Applied to Work in Process
4-16 Process Cost Flows: The Flow of Manufacturing Overhead Costs (in T-account form) Work in Process Department A Direct Materials Manufacturing Overhead Direct Labor Actual Overhead Overhead Applied to Work in Process Applied Overhead Work in Process Department B Manufacturing overhead is applied to each processing department based on a predetermined rate for each department. The predetermined rate does not have to be based on the same cost driver for each processing department. Manufacturing overhead costs are debited to the respective departmental Work in Process accounts. Manufacturing overhead is credited by the corresponding amounts. Direct Materials Direct Labor Applied Overhead

4-17 Process Cost Flows: The Flow of Manufacturing Overhead Costs (in journal entry form) This is the journal entry we use to apply overhead to the Work in Process Inventory of each of the processing departments.

Work in Process Department A Work in Process Department B
4-18 Process Cost Flows: Transfers from WIP-Dept. A to WIP-Dept. B (in T-account form) Work in Process Department A Work in Process Department B Direct Materials Transferred to Dept. B Transferred from Dept. A Direct Materials Direct Labor Direct Labor Applied Overhead Applied Overhead The cost of units complete as to processing in Department A are transferred into Department B for additional work. Department B has incurred additional costs to work on units that were in process at the beginning of the period. The transferred-in costs from Department A are added to the manufacturing costs incurred in Department B. Department A Department B

4-19 Process Cost Flows: Transfers from WIP-Dept. A to WIP-Dept. B (in journal entry form) To transfer the costs, we debit the Work in Process Inventory in Department B, and credit, or reduce, the Work in Process Inventory in Department A.

Cost of Goods Manufactured
4-20 Process Cost Flows: Transfers from WIP-Dept. B to Finished Goods (in T-account form) Work in Process Department B Finished Goods Direct Materials Cost of Goods Manufactured Cost of Goods Manufactured Direct Labor Applied Overhead Transferred from Dept. A Here we see the transfer of completed goods from Work in Process – Department B into Finished Goods Inventory. The costs transferred represent the cost of good manufactured.

4-21 Process Cost Flows: Transfers from WIP-Dept. B to Finished Goods (in journal entry form) The necessary journal entry is to debit Finished Goods Inventory and credit Work in Process Inventory in Department B to transfer finished production.

4-22 Process Cost Flows: Transfers from Finished Goods to COGS (in T-account form) Work in Process Department B Finished Goods Direct Materials Cost of Goods Manufactured Cost of Goods Manufactured Cost of Goods Sold Direct Labor Applied Overhead Transferred from Dept. A Cost of Goods Sold Once we sell finished goods, we debit Cost of Goods Sold and credit Finished Goods Inventory. Cost of Goods Sold

4-23 Process Cost Flows: Transfers from Finished Goods to COGS (in journal entry form) When finished goods are sold to the customer, we will debit Cost of Goods Sold and credit Finished Goods Inventory for the cost of sales.

Equivalent Units of Production
4-24 Equivalent Units of Production Equivalent units are the product of the number of partially completed units and the percentage completion of those units. We need to calculate equivalent units because a department usually has some partially completed units in its beginning and ending inventory. These partially completed units complicate the determination of a department’s output for a given period and the unit cost that should be assigned to that output. Equivalent units are the product of the number of partially completed units and the percentage completion of those units. Equivalent units need to be calculated because a department usually has some partially completed units in its beginning and ending inventory. These partially completed units complicate the determination of a department’s output for a given period and the unit cost that should be assigned to that output.

Equivalent Units – The Basic Idea
4-25 Equivalent Units – The Basic Idea Two half completed products are equivalent to one complete product. + = 1 The basic idea behind equivalent units is quite easy to understand, but the computation of equivalent can become complex. Here we can say the two half-completed units of production are equal to one complete unit. Using this logic, we can say that 10,000 units that are 70% complete are equivalent, or the same as, 7,000 complete units. So, 10,000 units 70% complete are equivalent to 7,000 complete units.

4-26 Quick Check  For the current period, Jones started 15,000 units and completed 10,000 units, leaving 5,000 units in process 30 percent complete. How many equivalent units of production did Jones have for the period? a. 10,000 b. 11,500 c. 13,500 d. 15,000 Read the information carefully and determine how many equivalent units of production were manufactured during the period.

4-27 Quick Check  For the current period, Jones started 15,000 units and completed 10,000 units, leaving 5,000 units in process 30 percent complete. How many equivalent units of production did Jones have for the period? a. 10,000 b. 11,500 c. 13,500 d. 15,000 10,000 units + (5,000 units × 0.30) = 11,500 equivalent units The correct answer is 11,500 equivalent units. How did you do?

Calculating Equivalent Units
4-28 Calculating Equivalent Units Equivalent units can be calculated two ways: The First-In, First-Out Method – FIFO is covered in the appendix to this chapter. The Weighted-Average Method – This method will be covered in the main portion of the chapter. Equivalent units may be calculated using the FIFO method or the weighted-average method. The weighted-average method is included within the main portion of the chapter, and is covered next, while the FIFO method is covered in the appendix.

4-29 Learning Objective 2 Compute the equivalent units of production using the weighted-average method. Learning objective number 2 is to compute the equivalent units of production using the weighted average method.

Equivalent Units of Production Weighted-Average Method
4-30 Equivalent Units of Production Weighted-Average Method The weighted-average method . . . Makes no distinction between work done in prior or current periods. Blends together units and costs from prior and current periods. Determines equivalent units of production for a department by adding together the number of units transferred out plus the equivalent units in ending Work in Process Inventory. When we use the weighted-average method we make no distinction between work done in the prior period and work done in the current period. We blend together the units and costs from both the prior and current period. We determine the cost per equivalent unit by dividing costs for the period by the equivalent units of production. The equivalent units of production for a department are the number of units transferred to the next department (or finished goods) plus the equivalent units in the department’s ending Work in Process Inventory.

Treatment of Direct Labor
4-31 Treatment of Direct Labor Direct Materials Direct labor costs may be small in comparison to other product costs in process cost systems. Manufacturing Overhead Dollar Amount Direct Labor In today’s economy, direct labor costs are becoming small when compared to materials and overhead costs. Automation is one of the causes for this shift. Type of Product Cost

Treatment of Direct Labor
4-32 Treatment of Direct Labor Direct Materials Direct labor and manufacturing overhead may be combined into one classification of product cost called conversion costs. Conversion Direct Labor Dollar Amount Direct Labor Manufacturing Overhead As a consequence of the change in volume of direct labor costs, many companies combine labor and overhead costs and refer to the total as conversion costs. That is, these are the costs incurred to convert the direct materials into a finished good. We will make extensive use of the notion of direct materials and conversion costs in the remainder of this chapter. Type of Product Cost

Weighted-Average – An Example
Smith Company reported the following activity in the Assembly Department for the month of June: Let’s look at an example of calculating the cost per equivalent unit for the Assembly Department of Smith Company. The Assembly Department is only one of the company’s processing departments. Notice that the Department started the month of June with 300 units that are 40% complete as to materials, and 20% complete as to conversion (direct labor and overhead). During the month the Department started 6,000 units into production. During the month 5,400 units were transferred out to the next department. At the end of June, the Department had 900 units, 60% complete as to materials, and 30% complete as to conversion. Since the Department began the month with 300 units and started 6,000 units into production, we have 6,300 units to account for. Of these 6,300 units, 5,400 were completed and transferred out and 900 remain in Department as work in process inventory.

The first step in calculating the equivalent units is to identify the units completed and transferred out of Assembly Department in June (5,400 units) The first step in calculating the equivalent units is to identity the units completed and transferred out. In the case of the Assembly Department there were 5,400 units completed and transferred out. We know these units are 100% complete as to materials and conversion.

The second step is to identify the equivalent units of production in ending work in process with respect to materials for the month (540 units) and adding this to the 5,400 units from step one. The second step is to calculate the equivalent units as to materials in ending inventory. We know there are 900 units in ending inventory that are 60% complete as to materials. So we know that there are 540 equivalent units as to materials in ending working in process inventory. For materials we add the units completed and transferred out to the equivalent units as to materials, for total units as to materials of 5,940 units.

The third step is to identify the equivalent units of production in ending work in process with respect to conversion for the month (270 units) and adding this to the 5,400 units from step one. The third step is to calculate the equivalent units in ending inventory as to conversion. We know there are 900 units in ending work in process inventory that are 30% complete as to conversion. So there are 270 equivalent units as to conversion in ending inventory. For conversion, we add the units completed and transferred out to the equivalent units as to conversion to arrive at a total equivalent units as to conversion of 5,670 units. We always follow these three steps when using the weighted-average method.

Equivalent units of production always equals: Units completed and transferred + Equivalent units remaining in work in process We can restate the three-step process more quickly by saying that, when using the weighted-average method, equivalent units of production will always be equal to the units completed and transferred out plus the equivalent units remaining in work in process inventory. Some of you may prefer the three-step approach while others may prefer the short-cut approach.

Materials 6,000 Units Started Beginning Work in Process 300 Units 40% Complete Ending Work in Process 900 Units 60% Complete 5,100 Units Started and Completed Here is a visual showing the computation of equivalent units as to materials. Recall, we started 6,000 units into production this month. The equivalent units of production equals the units completed and transferred out (5,400 units) plus the equivalent units remaining in work in process (540 units for materials and 270 units for conversion). 5,400 Units Completed 5,400 Units Completed 900 × 60% 540 Equivalent Units 5,940 Equivalent units of production

Conversion 6,000 Units Started Ending Work in Process 900 Units 30% Complete Beginning Work in Process 300 Units 20% Complete 5,100 Units Started and Completed Here is a similar visual for conversion costs. Again, the key to understanding the visual is units started and completed this period. 5,400 Units Completed 900 × 30% 270 Equivalent Units 5,670 Equivalent units of production

4-40 Learning Objective 3 Compute the cost per equivalent unit using the weighted-average method. Learning objective number 3 is to compute the cost per equivalent unit using the weighted-average method.

Compute and Apply Costs
4-41 Compute and Apply Costs Beginning Work in Process Inventory: units Materials: % complete $ 6,119 Conversion: 20% complete $ 3,920 Production started during June ,000 units Production completed during June ,400 units Costs added to production in June Materials cost $ 118,621 Conversion cost $ 81,130 Ending Work in Process Inventory: units Materials: 60% complete Conversion: 30% complete We used this information to calculate the equivalent units earlier. Here we have added the dollar amount in beginning Work in Process Inventory, and the material and conversion costs incurred during June. Let’s begin the process of calculating cost per equivalent unit for June.

4-42 Compute and Apply Costs The formula for computing the cost per equivalent unit is: Cost per equivalent unit = Cost of beginning Work in Process Inventory Cost added during the period Equivalent units of production + We calculate the cost per equivalent unit by adding together the cost of beginning Work in Process Inventory and the cost added during the period. We divide the total dollar amount by the number of equivalent units we previously calculated.

4-43 Compute and Apply Costs Here is a schedule with the cost and equivalent unit information. We begin by adding the costs in beginning inventory to the costs incurred during the current period. The sum of the cost of materials and conversion equal the total cost to be accounted for during the period. Notice that we have 5,940 equivalent units as to materials, and 5,670 equivalent units as to conversion. Let’s look at the calculation of the cost per equivalent unit.

4-44 Compute and Apply Costs Here is a schedule with the cost and equivalent unit information. $124,740 ÷ 5,940 units = $21.00 $85,050 ÷ 5,670 units = $15.00 Part I We begin by calculating the cost per equivalent unit as to materials and as to conversion costs. Part II We have a total cost of $124,740 and 5,940 equivalent units, so the cost per equivalent unit is $21.00 for materials. Part III With total costs of $85,050 and total equivalent units of 5,670, we have an average cost per equivalent unit of $15.00 for conversion. Part IV So, the total cost of materials and conversion is $36.00 per equivalent unit. Cost per equivalent unit = $ $15.00 = $36.00

Assign costs to units using the weighted-average method.
4-45 Learning Objective 4 Assign costs to units using the weighted-average method. Learning objective number 4 is to assign costs to units using the weighted-average method.

4-46 Applying Costs Let’s start the process of computing the cost of ending Work in Process Inventory. The first step is to record the equivalent units of production in ending Work in Process Inventory (540 units for materials, and 270 units for conversion).

4-47 Applying Costs The second step is to record the cost per equivalent unit ($21.00 for materials, and $15.00 for conversion).

4-48 Applying Costs The third step is to compute the cost of ending the Work in Process Inventory ($11,340 for materials, $4,050 for conversion, and $15,390 in total).

Computing the Cost of Units Transferred Out
4-49 Computing the Cost of Units Transferred Out Now, let’s compute the cost of units transferred. The first step is to record the units transferred out to the next department (5,400 units for materials and conversion).

4-50 Computing the Cost of Units Transferred Out The second step is to record the cost per equivalent unit ($21.00 for materials and $15.00 for conversion).

4-51 Computing the Cost of Units Transferred Out The third step is to compute the cost of units transferred out ($113,400 for materials, $81,000 for conversion and $194,400 in total).

Prepare a cost reconciliation report.
Learning Objective 5 Prepare a cost reconciliation report. Learning objective number 5 is to prepare a cost reconciliation report.

4-53 Reconciling Costs Now, we must reconcile the costs. The first step is to record the cost of beginning Work in Process Inventory of $10,039 (as shown in slide 43). The second step is to record the costs added to production during the period as shown of $199,751 ( as shown in slide 43). The third step is to sum these two costs for a total to be accounted for of $209,790.

4-54 Reconciling Costs Computing the costs accounted for: The first step is to record the previously computed cost of ending Work in Process Inventory $15,390. The second step is to record the previously computed cost of units transferred out $194,400. The third step is to sum these two costs for a total of $209,790. Notice the two totals agree indicating that all costs have been accounted for.

4-55 Operation Costing Operation cost is a hybrid of job-order and process costing because it possesses attributes of both approaches Operation costing is commonly used when batches of many different products pass through the same processing department. Operation costing is similar to job-order costing. For example, a shoe manufacturer may charge each batch of shoes for its own specific material costs (e.g., shoes made with expensive leather would be charged accordingly, as would shoes made with inexpensive synthetic materials). It is also similar to process costing, the shoe manufacturer may accumulate the labor and overhead costs by department and assign the same conversion cost per unit to each shoe regardless of the shoe style

Supplementary Notes for the Weighted Average Method
The work of process costing calculations can be concluded in a table format with the following five steps with the defined color to help follow the steps: Summarize the physical flow of units (the Green area) Compute equivalent units of productions (the Blue area) Summarize the total cost incurred for the period and then compute the cost per equivalent unit (the Yellow areas) Calculate the values of completed units and ending work in process inventories (the Peach area) Check cost reconciliation (the Black cells: Total cost = Total value)

To Summarize the Physical Flow of Units
For the weighted average calculation, the percentages of completion related to BWIP with respect to material and conversion are not used. To Summarize the Physical Flow of Units Inputs = Outputs Inputs = Beginning Work in Process + Units Started Outputs = Units Completed (Transferred Out)+ Ending Work in Process In the weighted average method, Inputs figures are identified to help check the outputs values but are irrelevant for further calculations. Only the outputs are relevant for the weighted average costing approach. All finished goods are pooled together and valued regardless whether they were from the beginning WIP or started in the current period. All costs are averaged out among the outputs.

Compute the equivalent Units of Production
For the weighted average calculation, the Inputs information is not required for the remaining calculation. Compute the equivalent Units of Production The percentages of completion for each category of product status are labeled next to the quantity to help calculate the appropriate quantity for material and conversion. For example, completed goods of 5,400 units would have 100% of raw material and conversion done; therefore, the equivalent units of production are 5,400 for materials and conversion. For the ending work in process of 900 units, 60% completed with respect to materials and 20% completed with respect to conversion. Hence the equivalent units of production are 540 (= 900 x 60%) and 270 (= 900 x 30%) for materials and conversion respectively. The total equivalent units of materials and conversion are then summed up for each column. The total equivalent units for Materials and Conversion are 5,940 and 5,670 respectively.

Summarize the Total Cost Incurred in the Period
After summarizing the cost for materials and conversion in the table in accordance to “Beginning WIP” and “Incurred in the period”, we can sum up the costs horizontally and vertically giving rise total material and conversion costs of $124,740 and $85,050 respectively.

Compute the Cost per Equivalent Unit
Costs of Materials and Conversion are then divided by the total equivalent units of production of Materials and Conversion respectively to give rise the cost per equivalent unit for the respective category. In this case, material is $21 per equivalent unit and conversion is $15 per equivalent unit.

Calculate The Values Of Completed Goods And Ending WIP Inventories
Value of Materials for the Completed Goods (Goods Transferred Out to the next process) can be obtained by multiplying the equivalent unit of completed goods and the cost per equivalent unit within the Materials column. Similarly, the value of Ending WIP for the materials can be calculated by multiplying the equivalent unit of Ending WIP and the Cost per equivalent unit within the materials column. For relevant conversion costs, the same exercises are repeated within the conversion column. Consequently, we can obtain the value of Completed Goods (or Goods transferred out) amounting $194,400 by adding the relevant materials ($113,400) and conversion ($81,000) costs. Same exercise is repeated for the Value of EWIP totaling $15,390.

Check Cost Reconciliation
Total cost incurred from BWIP and Incurred during period amounting $209,700 should match with the total valuation of inventories which was a result of adding the value of goods transferred out and value of EWIP.

4-63 FIFO Method Appendix 9A – FIFO Method. Appendix 9A

FIFO vs. Weighted-Average Method
4-64 FIFO vs. Weighted-Average Method The FIFO method (generally considered more accurate than the weighted-average method) differs from the weighted-average method in two ways: The computation of equivalent units. The way in which the costs of beginning inventory are treated. FIFO is considered a more accurate measure of cost than weighted-average. It is important to be careful with your handling of beginning work in process inventory when using the FIFO method. While the calculations in weighted-average and FIFO appear to be similar, there are significant differences between the two methods. We will be using our previous example to illustrate the FIFO method.

Compute the equivalent units of production using the FIFO method.
4-65 Learning Objective 6 Compute the equivalent units of production using the FIFO method. Learning objective number 6 is to compute the equivalent units of production using the FIFO method.

Equivalent Units – FIFO Method
4-66 Equivalent Units – FIFO Method Let’s revisit the Smith Company example. Here is information concerning the Assembly Department for the month of June. Recall this basic information from the Smith Company example. We completed the calculation of equivalent units for the company using the weighted-average method. Now, we will use the same information to determine equivalent units under FIFO.

4-67 Equivalent Units – FIFO Method Step 1: Determine equivalent units needed to complete beginning Work in Process Inventory. The first step in the accounting process is to determine the equivalent units needed to complete beginning Work in Process Inventory (180 units for materials and 240 units for conversion). Recall that the units in beginning inventory were 40% complete as to materials, so we must have to add 60% of the materials this month to complete the units. As to conversion costs, the units in beginning inventory were 20% complete so we must incur 80% of the conversion costs this month to complete the units.

4-68 Equivalent Units – FIFO Method Step 2: Determine units started and completed during the period. The second step is to add the units started and completed during the period (5,100 units for materials and conversion). The 5,100 units represent the total units completed and transferred out this month (5,400 units) less those units in beginning inventory (300). Remember, in FIFO we must keep track of the units in beginning inventory, started this month, and ending inventory separately. The first units in inventory, beginning inventory, are the first units transferred out this month.

4-69 Equivalent Units – FIFO Method Step 3: Add the equivalent units in ending Work in Process Inventory. The third step is to add the equivalent units in ending Work in Process Inventory (540 units for materials and 270 units for conversion). This calculation results in 5,820 equivalent units as to materials and 5,610 equivalent units as to conversion costs.

Materials FIFO Example 6,000 Units Started 180 Equivalent Units
4-70 FIFO Example Materials 6,000 Units Started Beginning Work in Process 300 Units 40% Complete Ending Work in Process 900 Units 60% Complete 5,100 Units Started and Completed Here is a visual showing the computation of equivalent units as to materials. The equivalent units of production equals the units completed and transferred out plus the equivalent units remaining in work in process. 300 × 60% 180 Equivalent Units 5,100 Units Completed 900 × 60% 540 Equivalent Units 5,820 Equivalent units of production

Conversion FIFO Example 6,000 Units Started 240 Equivalent Units
4-71 FIFO Example Conversion 6,000 Units Started Beginning Work in Process 300 Units 20% Complete Ending Work in Process 900 Units 30% Complete 5,100 Units Started and Completed Here is a visual showing the computation of equivalent units as to conversion costs. Some of you may find this equation approach more useful than the tabular approach. 300 × 80% 240 Equivalent Units 5,100 Units Completed 900 × 30% 270 Equivalent Units 5,610 Equivalent units of production

Equivalent Units: Weighted-Average vs. FIFO
4-72 Equivalent Units: Weighted-Average vs. FIFO As shown below, the equivalent units in beginning inventory are subtracted from the equivalent units of production per the weighted-average method to obtain the equivalent units of production under the FIFO method. The FIFO method removes the equivalent units that were already in beginning inventory from the equivalent units as defined using the weighted-average method. Thus, the FIFO method isolates the equivalent units due to work performed during the current period. This can be illustrated using the Smith Company example. The equivalent units of material produced per the weighted-average method (5,940 units) minus the equivalent units of material in beginning inventory (120 units) equals the equivalent units of production per the FIFO method (5,820 units). The equivalent units of conversion per the weighted-average method (5,670 units) minus the equivalent units of conversion in beginning inventory (60 units) equals the equivalent units of production per the FIFO method (5,610 units).

Compute the cost per equivalent unit using the FIFO method.
4-73 Learning Objective 7 Compute the cost per equivalent unit using the FIFO method. Learning objective number 7 is to compute the cost per equivalent unit using the FIFO method.

Cost per Equivalent Unit - FIFO
4-74 Cost per Equivalent Unit - FIFO Let’s revisit the Smith Company Assembly Department for the month of June to prepare our production report. Beginning work in process: units Materials: % complete $ 6,119 Conversion: 20% complete $ 3,920 Production started during June 6,000 units Production completed during June 5,400 units Costs added to production in June Materials cost $ 118,621 Conversion cost $ 81,130 Ending work in process units Materials: 60% complete Conversion: 30% complete Let’s return to the Smith Company illustration and apply FIFO to our production report. The information on your screen the information about the Assembly Department for the month of June. We have added information about the costs of units in beginning inventory and the costs incurred during the month of June.

4-75 Cost per Equivalent Unit - FIFO The formula for computing the cost per equivalent unit under FIFO method is: Cost per equivalent unit = Cost added during the period Equivalent units of production We calculate the cost per equivalent unit by dividing costs added during the period by the equivalent units we previously calculated.

4-76 Cost per Equivalent Unit - FIFO $118,600 ÷ 5,820 $81,130 ÷ 5,610 Part I We begin by gathering information concerning the total costs incurred during June for materials and conversion. Do not include the costs associated with the units in beginning inventory. We calculate the cost per equivalent units as to materials by dividing $118,621 by 5,820 units. We calculate the cost per equivalent unit as to conversion by dividing $81,130 by 5,610 units. In an attempt to minimize the impact of rounding errors, we will carry the per unit cost out to four significant decimal places. Part II Finally, we determine the total cost per equivalent unit by adding together the cost per equivalent unit for materials, $ , and the cost per equivalent unit for conversion, $ , to get the total cost of $ Total cost per equivalent unit = $ $ = $

Assign costs to units using the FIFO method.
4-77 Learning Objective 8 Assign costs to units using the FIFO method. Learning objective number 8 is to assign costs to units using the FIFO method.

4-78 Applying Costs - FIFO Step 1: Record the equivalent units of production in ending Work in Process Inventory. 900 units × 60% 900 units × 30% Let’s compute the cost of ending Work in Process Inventory. The first step is to record the equivalent units of production in ending Work in Process Inventory (540 units for materials and 270 units for conversion).

Step 2: Record the cost per equivalent unit.
4-79 Applying Costs - FIFO Step 2: Record the cost per equivalent unit. The second step is to record the cost per equivalent unit ($ for materials and $ for conversion).

Step 3: Compute the cost of ending Work in Process Inventory.
4-80 Applying Costs - FIFO Step 3: Compute the cost of ending Work in Process Inventory. The third step is to compute the cost of ending Work in Process Inventory ($11,006 for materials, $3,905 for conversion, and $14,911 in total). 540 × $ 270 ×

Cost of Units Transferred Out
4-81 Cost of Units Transferred Out Step 1: Record the cost in beginning Work in Process Inventory. Now, we will compute the cost of units transferred out. The first component of the computation is to record the cost in beginning work in process inventory ($6,119 for materials, $3,920 for conversion, and $10,039 in total)

4-82 Cost of Units Transferred Out Step 2: Compute the cost to complete the units in beginning Work in Process Inventory. The second component of the computation is to compute the cost to complete the units in beginning Work in Process Inventory. Start by recording the equivalent units of production required to complete the units in beginning inventory (180 units for materials and 240 units for conversion). Next, record the cost per equivalent unit ($ for materials and $ for conversion). Finally, compute the cost to complete the units in beginning work in process inventory ($3,668 for materials, $3,471 for conversion, and a total of $7,139).

4-83 Cost of Units Transferred Out Step 3: Compute the cost of units started and completed this period. The third component of the computation is to compute the cost of units started and completed this period. The first step is to record the units started and completed this period (5,100 units for materials and conversion). The second step is to record the cost per equivalent unit ($ for materials and $ for conversion). The third step is to compute the cost of units started and completed during this period ($103,946 for materials, $73,755 for conversion, and $177,701 in total).

4-84 Cost of Units Transferred Out Step 4: Compute the total cost of units transferred out. The final computation is to compute the total cost of units transferred out ($194,879).

Prepare a cost reconciliation report using the FIFO method.
Learning Objective 9 Prepare a cost reconciliation report using the FIFO method. Learning objective 9 is to prepare a cost reconciliation report using the FIFO method.

4-86 Reconciling Costs When computing the costs to be accounted for, the first step is to record the cost of beginning Work in Process Inventory of $10,039. The second step is to record the costs added to production during the period of $199,751. The third step is to sum these two costs for a total of $209,790.

4-87 Reconciling Costs When computing the costs accounted for, begin by recording the cost of ending Work in Process Inventory ($14,911). Next, record the cost of units transferred out ($194,879). Finally, sum these two costs ($209,790). Notice that the two totals agree so all costs have been accounted for.

A Comparison of Costing Methods
4-88 A Comparison of Costing Methods In a lean production environment, FIFO and weighted-average methods yield similar unit costs. When considering cost control, FIFO is superior to weighted-average because it does not mix costs of the current period with costs of the prior period. In most situations, the weighted-average and FIFO methods will produce very similar unit costs, particularly in a lean production environment. From a cost control standpoint, the FIFO method is superior to the weighted-average method because it does not mix costs of the current period with costs of the prior period.

Supplementary Notes for the FIFO Method
The work of process costing calculations can be concluded in a table format with the following five steps with the defined color to help follow the steps, same as the weighted average method: Summarize the physical flow of units (the Green area) Compute equivalent units of productions (the Blue area) Summarize the total cost incurred for the period and then compute the cost per equivalent unit (the Yellow areas) Calculate the values of completed units and ending work in process inventories (the Peach area) Check cost reconciliation (the Black cells: Total cost = Total value)

Physical Flow of Units: FIFO
Completed – BWIP = 5400 – 300 = 5100 To Summarize the Physical Flow of Units Inputs = Outputs Inputs = Beginning Work in Process + Units Started Outputs = Units Completed (Transferred Out)+ Ending Work in Process In the weighted average method, Inputs figures are identified to help check the outputs values. In the FIFO method, the same inputs = outputs can be done because the outputs of FIFO should match with the weighted average method. Same as the weighted average method, it focuses on the Outputs. It is important to note that in the FIFO method, the first item on the production process is the first one to complete. Therefore, the outputs are in the following sequence: First to finish all BWIP till they all become finished goods (completed items) After finishing all BWIP, the production can start with the new ones till finish them At the end of the period, there may be uncompleted items (Ending WIP) which would have started in the period but not yet complete. Therefore, the examination of outputs in the period is based on the work done in accordance to the sequence above. For BWIP, it is the remaining work performed in the current period. For the “Started and Complete” should have work all 100% done. For EWIP, work done in the period should match with the progress to-date.

Compute the Equivalent Units of Production
Same as the weighted average method, after identifying all relevant physical flow and percentage of completion, we can start calculating the equivalent units of production by dividing them into materials and conversion columns. For example, BWIP of 300 units would have 60% of raw material completed in this period; therefore, the equivalent units of production are 180 for materials whereas the 80% of conversion completed in this period would provide the equivalent units of 240 for the conversion purpose. For the started and completed of 5,100 units, both materials and conversion must be 100% completed therefore, 5,100 equivalents for both materials and conversion. For the ending work in process of 900 units, 60% completed with respect to materials and 30% completed with respect to conversion. Hence the equivalent units of production are 540 (= 900 x 60%) and 270 (=900 x30%) for materials and conversion respectively, identical figures as those in the weighted average method. The total equivalent units of materials and conversion are then summed up for each column. The total equivalent units for Materials and Conversion are 5,820 and 5,610 respectively.

Summarize The Total Cost Incurred For The Period and Compute the Cost Per Equivalent Unit
Summarize the Total Cost Incurred in the Period and Compute the Cost Per Equivalent Unit To summarize the cost, the FIFO method only accounts for the work done in the current period, therefore it only recognizes the cost incurred in the period. Different from the weighted average method, the costs associated with BWIP are not included in the calculation at this stage. After summarizing the cost for materials and conversion incurred in the period, we can calculate the cost per equivalent unit, column by column. Materials cost per equivalent unit is $20.38 (= Total cost incurred in the period ÷total equivalent unit = $118,621 ÷ 5,820). Conversion cost per equivalent unit is $14.46 (= Total cost incurred in the period ÷total equivalent unit = $81,130 ÷ 5,610).

Calculate the Values of Completed Goods and Ending WIP inventories
In the FIFO method, there are two types of completed goods: One from the completion of BWIP and the other from those started and completed in the period. 1. For those completed from BWIP, cost brought forward from the previous period by the BWIP together with the cost incurred in the current period to complete the BWIP accounts for the full cost associated with them (shown in the light purple color boxes). Therefore, in the FIFO method, in addition to extracting the brought forward cost by the BWIP, we need to compute the completion cost associated with BWIP by multiplying the percentage of completion in the period and the cost per equivalent unit. This concept applies to both materials and conversion column in order to form a complete picture and full cost associated with BWIP, $17,178 which is the sum of $10,039 and $7,139. 2. For those Started and Completed in the current period, same as the weighted average method, value of Materials for the Completed Goods (Goods Transferred Out to the next process) can be obtained by multiplying the equivalent unit of completed goods and the cost per equivalent unit within the Materials column whereas the cost of conversion cost can be done with the same mechanic by multiplying the equivalent unit of completed goods and the cost per equivalent unit within the Conversion column. Consequently, we can obtain the cost of materials ($103,946) and conversion ($73,755). Adding the cost of materials and conversion together gives us the total cost for the started and completed goods, totaling, $177,701. Combining the two categories of finished goods, the total value of goods transferred out is $194,879. Ending WIP Similar to the started and completed goods, the value of Ending WIP for the materials can be calculated by multiplying the equivalent unit of Ending WIP and the Cost per equivalent unit within the materials column. For relevant conversion costs, the same exercises are repeated within the conversion column. Same exercise is repeated for the Value of EWIP giving rise the value of $14,911.

Check Cost Reconciliation
BWIP $ 6,119 $ 3,920 $10,039 Total Cost Accountable For Check Cost Reconciliation In order to calculate the total cost accountable for, the brought forward BWIP cost needs to be added. Then the total cost incurred from BWIP ($10,039) and Incurred during period ($199,731), totaling $209,700 should match with the sum of the inventory valuation figures arising from goods transferred out ($194,879) and EWIP ($14,911). Total Inventory Value

Weighted Average vs FIFO
There are numerous differences between the weighted average method and the FIFO methods. A direct cross comparison provides a better overview. The shown tables provide a line-by-line comparison whereas the next slide will provide summarized differences.

Summary of Weighted Average vs FIFO
This table provides an overview of treatments and differences.

Losses in Process Costing
4-97 Losses in Process Costing Appendix 9B – Losses in Process Costing. Appendix 9B

Production Losses Losses in production can be classified into:
Expected – Normal Losses In packaged/canned manufacturing – parts of vegetables purchased are not suitable for consumption Expected – Normal Losses with scrap value In clothes/shirts manufacturing – part of the fabrics are in irregular formats after trimming out the shape required, leaving some losses which may be able to sell as scrap Unexpected – Abnormal Losses In packaged/canned manufacturing – the refrigerator broke down without notice and food stored inside cannot be used – abnormal losses Unexpected – Abnormal Losses with scrap value In clothes/shirts manufacturing – a batch of shirts being rejected due to wrong fabric being used could be sold to rejected clothing merchandisers after removing the logos. There are different types of losses: expected (Normal Losses) and unexpected (Abnormal Losses). Some losses or residuals may have scrap values while some may not. Examples are given as follows: Expected – Normal Losses In packaged/canned manufacturing – parts of vegetables purchased are not suitable for consumption Expected – Normal Losses with scrap value In clothes/shirts manufacturing – part of the fabrics are in irregular formats after trimming out the shape required, leaving some losses which may be able to sell as scrap Unexpected – Abnormal Losses In packaged/canned manufacturing – the refrigerator broke down without notice and food stored inside cannot be used – abnormal losses Unexpected – Abnormal Losses with scrap value In clothes/shirts manufacturing – a batch of shirts being rejected due to wrong fabric being used could be sold to rejected clothing merchandisers after removing the logos.

Accounting for Normal Losses and Scrap Value
It is part of the production outputs It is treated as part of the normal production cost for the finished items (i.e. is absorbed into all products and is included in inventory valuation) Normal Losses with scrap value Scrap value is part of the expected income to offset the expense therefore is net-off from the expenses. How do we value and treat different losses in process costing calculations? Normal Losses It is part of the production outputs It is treated as part of the normal production cost for the finished items (i.e. is absorbed into all products and is included in inventory valuation) Normal Losses with scrap value Scrap value is part of the expected income to offset the expense therefore is net-off from the expenses.

Accounting for Abnormal Losses and Scrap Value
They are a part of the production outputs They are not part of the normal production cost, and therefore are expensed off separately from the production costs (i.e. cannot be used for inventory valuation) Abnormal Losses with scrap value Scrap value receivable is also not part of the normal production income, and therefore is treated as other income. Abnormal Losses They are a part of the production outputs They are not part of the normal production cost, and therefore are expensed off separately from the production costs (i.e. cannot be used for inventory valuation) Abnormal Losses with scrap value Scrap value receivable is also not part of the normal production income, and therefore is treated as other income.

An Example: Losses with Scrap Value
4-101 An Example: Losses with Scrap Value Let’s revisit the Smith Company Assembly Department for the month of June with the additional losses information. Beginning Work in Process Inventory: units Materials: % complete $ 6,119 Conversion: 20% complete $ 3,920 Production started during June ,000 units Production completed during June ,400 units Expected losses of 2% completed units cannot pass quality check. These rejected items can normal be sold for $5 each as scrap. In addition to the normal losses of 2%, 200 of the latest produced items were found out of shape during the problem of the finishing touch from the machine. Costs added to production in June Materials cost $ 118,621 Conversion cost $ 81,130 Ending Work in Process Inventory: units Materials: 60% complete Conversion: 30% complete We used this information to calculate the equivalent units earlier. Here we have added the dollar amount in beginning Work in Process Inventory, and the material and conversion costs incurred during June. Let’s begin the process of calculating cost per equivalent unit for June.

Understand the treatment of losses in process costing
4-102 Learning Objective 10 Understand the treatment of losses in process costing weighted average Learning objective number 10 is to understand the treatment of losses in the weighted average process costing method.

Physical Flow of Units (the Weighted Average Method)
Normal and Abnormal Losses are parts of the outputs Completed quantity is most effectively calculated as a balancing figure Same logic and key procedures of the previous process calculations, there are five keys procedures. First, Physical Flow of Units (the Weighted Average Method): Process Costing with losses follows the same logic and computation process. Losses (normal or abnormal) are part of the outputs therefore are included in the outputs calculation. Total inputs and outputs of $6,300 are the same as the one in the weighted average or FIFO methods. Four common outputs Completed (i.e. transferred out) Normal loss Abnormal loss Ending work in process (EWIP) can be traced and are handled similarly to those in the previous methods. The example in the slide provides a good overview of the calculations.

Same calculation processes for weighted average without losses is used to compute the equivalent units of production for this example with losses.

Summarize the Total Cost Incurred and Compute the Cost Per Equivalent Unit
Scrap value receivable from Normal Losses normally is netting-off the cost as the loss and the income are part of the expected process. In most cases, scrap value is off-setting the material cost because scrap is normal valuing the material. In some cases, conversion work may even reduce the value of the scrap because the conversion may make it difficult to salvage the scrap material. Summarize the Total Cost Incurred and Compute the Cost Per Equivalent Unit Scrap value receivable from Normal Losses normally is netting-off the cost as the loss and the income are part of the expected process. In most cases, scrap value is off-setting the material cost because the buyer is normal paying for the material scrap. In some cases, conversion work done may even reduce the value of the scrap because the conversion may make it difficult to salvage the scrap material. In this example, the scrap value of $540 reduces the cost of the materials to $124,200 while the conversion cost totaling $85,050. The costs per equivalent unit are then calculated using the same principle as the one without losses, giving rise the value of $20.91 and $15.00 for materials and conversion respectively.

Calculate the Values of Completed and Ending WIP Inventories
Abnormal loss is not a part of the inventory valuation Calculate the Values of Completed and Ending WIP Inventories To calculate the values of completed goods transferred out, in the case with losses, we need to include the normal loss which is considered as a part of the cost of manufacturing the goods. That means transferred out and normal loss are added together to provide the final transferred out value. The same mechanics of multiplying the equivalent units with the cost per equivalent unit applies for completed goods transferred out, normal loss and ending work in process within the respective materials and conversion column. After summing up the material and conversion costs, the final values for goods transferred out and ending work in process are $186,727 and $15,341 respectively. Abnormal loss is not part of inventory valuation therefore is excluded from the inventory valuation calculation.

Cost Reconciliation Abnormal loss is not a part of the inventory valuation. It is treated as a part of the expense in COGS. Cost Reconciliation Cost related to the abnormal loss items did incur and was a part of the total input costs. However, abnormal loss is not a part of the inventory valuation, it is treated as a part of the expense. Therefore, in the cost reconciliation with abnormal loss, the total input costs of $209,250 matches the sum of inventory values ($202,068) and the abnormal loss expense ($7,182).

Understand the treatment of losses in process costing
4-108 Understand the treatment of losses in process costing FIFO Learning objective number 10 b is to understand the treatment of losses in the FIFO process costing method.

Process Costing with Losses Physical Flow of Units (the FIFO Method)
Process Costing with losses (the FIFO method) Employing the same concept applied to the weighted average method with losses. The quantities of the physical units on the outputs are the focus at the starting point. Similar to the previous the FIFO method, physical units for the “started and completed” in the period are calculated together with the normal and abnormal losses. The total output of 6,300 units is the same as the weighted average method. The quantity for Beginning and ending work in process (300 and 900 respectively) are the same as the weighted average method (with or without losses). Started and completed together with the losses should in total account for 5,400 units (6,300 – ), matching the started and completed quantity in the FIFO method without losses. Abnormal loss of 200 units remains the same. Normal loss should be 2% of 5,400 which can be further broken down into 2% on the 300 BWIP (i.e. 6 units) and 2% on the 5,100 (5,400 – 300) started and completed before accounting for any losses, i.e. 102 units. Further accounting for the abnormal loss of 200 units, the remaining started and completed quantity is 4,792 (5,100 – 102 – ). Same as the FIFO method without losses, the 300 BWIP requires tracking of the percentage of work done in the current period to complete the units. Therefore, the 300 units of BWIP records 60% material and 80% conversion completed in the current period. For the “started and completed” as well as the normal and abnormal losses, they all have 100% materials and conversion completed. For the 900 units of ending work in process (EWIP), 60% materials and 30% conversion were completed in the period therefore, therefore there was no adjustment required.

Same calculation processes for FIFO without losses is used to compute the equivalent units of production.

Summarize the Total Cost Incurred and Compute the Cost Per Equivalent Unit
Similar to the Weighted average method, the scrap value from Normal Losses is netting-off the cost incurred in the period. In this FIFO example, the scrap value of $540 reduces the cost of the materials to $118,081 while the conversion cost totaling $81,130. The costs per equivalent unit are then calculated using the same principle as the one without losses, giving rise the value of $20.29 and $14.46 for materials and conversion respectively. These figures are significantly lower than the weighted average method because the costs related to BWIP brought forward will be included directly in the finished goods valuation, not part of the cost per equivalent unit in the FIFO method.

Calculate the Values of Completed and Ending WIP Inventories
Different from the FIFO method without losses, there are three types of completed goods (instead of two): the first from the completion of BWIP, the second from those started and completed in the period and the last from the normal loss. For those completed from BWIP, cost brought forward from the previous period by the BWIP together with the cost incurred in the current period to complete the BWIP accounts for the full cost associated with them (shown in the light purple color boxes). Therefore, in the FIFO method, in addition to extracting the brought forward cost by the BWIP, we need to compute the completion cost associated with BWIP by multiplying the percentage of completion in the period and the cost per equivalent unit. This concept applies to both materials and conversion column in order to form a complete picture and full cost associated with BWIP, $17,162 which is the sum of $10,039 and $7,123. For those Started and Completed in the current period, same as the weighted average method, value of Materials for the Completed Goods (Goods Transferred Out to the next process) can be obtained by multiplying the equivalent unit of completed goods and the cost per equivalent unit within the Materials column whereas the cost of conversion cost can be done with same mechanic by multiplying the equivalent unit of completed goods and the cost per equivalent unit within the Conversion column. Adding the cost of materials and conversion together gives us the total cost for the started and completed goods, totaling, $166,524. Normal losses are part of the completed goods but fail to materialize for consumption. Their existence is part of the production process therefore their costs are part of the expected costs. Hence, adding them into the completed goods value to provide the full cost. In this example, total value of normal losses is $3,753. Combining the cost arising from the three categories of finished goods, the total value of goods transferred out is $187,439. Similar to the started and completed goods, the value of Ending WIP for the materials can be calculated by multiplying the equivalent unit of Ending WIP and the Cost per equivalent unit within the materials column. For relevant conversion costs, the same exercises are repeated within the conversion column. Consequently, we can obtain the value of EWIP totaling $14,861. Abnormal loss is not part of inventory valuation therefore is excluded from the inventory valuation calculation.

Cost Reconciliation Cost Reconciliation
Same as the weighted average with losses method, cost related to the abnormal loss items did incur and was a part of the total input costs. However, abnormal loss is not a part of the inventory valuation, it is treated as a part of the expense. Therefore, in the cost reconciliation with abnormal loss, the total input costs of $209,250 matches the sum of inventory values ($202,300) and the abnormal loss expense ($6,950).

Activity-based Process Costing
4-114 Activity-based Process Costing Appendix 9C – Activity-based Process Costing. Appendix 9C

Overview and example of activity-based process costing
4-115 Learning Objective 11 Overview and example of activity-based process costing Learning objective number 11 is to provide an overview and example of activity-based process costing

Activity-based Process Costing
Large quantity homogeneous products with similarities Sharing production facilities Premium and low-end products with different consumption of the shared production facilities Resource and activity consumption being traceable by using the activity-based costing technique within the process costing environment Examples: Candies manufacturing, instant noodle manufacturing and wine bottling Activity-based Process Costing Activity-based Process Costing can apply to the following type of business conditions: Large quantity homogeneous products with similarities Sharing production facilities Premium and low-end products with different consumption of the shared production facilities Resource and activity consumption being traceable by using the activity-based costing technique within the process costing environment Examples: Candies manufacturing, instant noodle manufacturing and wine bottling

End of Chapter 9 End of chapter 9.

Process Costing Chapter 9 Chapter 9: Process Costing.

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Process Costing Chapter 9 Chapter 9: Process Costing.

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