1. Process Costing
Chapter 17

2. Identify the situations in which process-costing systems
Learning Objective 1
Identify the situations in which
process-costing systems
are appropriate.

3. Illustrating Process Costing
Direct Materials, Direct Labor
Indirect Manufacturing Costs
Department A
Department B
Finished Goods
Cost of Goods Sold

4. Describe the five steps
Learning Objective 2
Describe the five steps
in process costing.

5. Five Steps in Process Costing
Step 1: Summarize the flow of physical units of
output.
Step 2: Compute output in terms of equivalent units.
Step 3: Compute equivalent unit costs.
Step 4: Summarize total costs to account for.
Step 5: Assign total costs to units completed and to
units in ending work in process inventory.

6. Calculate equivalent units and understand how to use them.
Learning Objective 3
Calculate equivalent units and
understand how to use them.

7. Physical Units (Step 1) Physical units Flow of Production
Work in process, beginning
Started during current period ,000
To account for ,000
Completed and transferred out
during current period ,000
Work in process, ending (100%/20%) 5,000
Accounted for ,000

8. Compute Equivalent Units (Step 2)
Direct Conversion
Flow of Production Materials Costs
Completed and
transferred out 30, ,000
Work in process,
ending ,000 (100%) 1,000 (20%)
Current period work 35, ,000

9. Compute Equivalent Unit Costs (Step 3)
Total production costs are $146,050.
Direct Conversion
Materials Costs
$84,050 $62,000
Equivalent units , ,000
Cost per equivalent unit $ $2.00

10. Summarize and Assign Total Costs (Steps 4 and 5)
Step 4: Total costs to account for: $146,050
Step 5: Assign total costs:
Completed and transferred out
30,000 × $ $132,043
Work in process, ending (5,000 units)
Direct materials 5,000 × $ ,007
Conversion costs 1,000 × $ ,000
Total $146,050

11. Prepare journal entries for process-costing systems.
Learning Objective 4
Prepare journal entries for
process-costing systems.

12. Journal Entries Example
Assume that Omaha, Inc. has two processing
departments – Assembly and Finishing.
Omaha, Inc., purchases direct materials as needed.
What is the journal entry for materials?
Work in Process, Assembly 84,050
Accounts Payable Control ,050
To record direct materials purchased and used

13. Journal Entries Example
What is the journal entry for conversion costs?
Work in Process, Assembly ,000
Various accounts ,000
To record Assembly Department conversion costs
What is the journal entry to transfer completed
goods from Assembly to Finishing?

14. Journal Entries Example
Work in Process, Finishing ,043
Work in Process, Assembly ,043
To record cost of goods completed and transferred
from Assembly to Finishing during the period

15. Flow of Costs Example Accounts Payable 84,050 WIP Assembly
84, ,043
62,000
14,007
Various Accounts
62,000
WIP Finishing
132,043

16. Use the weighted-average method of process costing.
Learning Objective 5
Use the weighted-average
method of process costing.

17. Physical Units (Step 1) Work in process, beginning: 100% material
60% conversion costs 1,000
Units started in process 35, ,000
Units transferred out: 31,000
Units in ending inventory:
20% conversion costs 5, ,000

18. Compute Equivalent Units (Step 2)
Materials Conversion
Completed and transferred 31, ,000
Ending inventory , ,000
Equivalent units , ,000
100%
20%

19. Compute Equivalent Unit Costs (Step 3)
Materials Conversion
Beginning inventory $ 2,350 $ 5,200
Current costs , ,000
Total $86,400 $67,200
Equivalent units , ,000
Cost per unit $ $2.10

20. Summarize and Assign Total Costs (Steps 4 and 5)
Work in process beginning inventory:
Materials $ 2,350
Conversion ,200
Total beginning inventory $ 7,550
Current costs in Assembly Department:
Materials $ 84,050
Conversion ,000
Costs to account for $153,600

21. Summarize and Assign Total Costs (Steps 4 and 5)
This step distributes the department’s costs to units
transferred out: 31,000 units × $4.50 = $139,500
And to units in ending work in process inventory:
$12,000 + $2,100 = $14,100

22. Summarize and Assign Total Costs (Steps 4 and 5)
Costs transferred out:
31,000 × ($ $2.10) $139,500
Costs in ending inventory:
Materials 5,000 × $ ,000
Conversion 1,000 × $ ,100
Total costs accounted for: $153,600

23. Journalizing: Weighted-Average
What are the journal entries in the
Assembly Department?
Work in Process, Assembly 84,050
Accounts Payable Control 84,050
To record direct materials purchased and used
Work in Process, Assembly 62,000
Various accounts ,000
To record Assembly Department conversion costs

24. Journalizing: Weighted-Average
Work in Process, Finishing ,500
Work in Process, Assembly ,500
To record cost of goods completed and transferred
from Assembly to Finishing during the period

25. Key T-Account: Weighted-Average
Work in Process Inventory, Assembly
Beg. Inv. 7,550 Transferred
Materials 84,050 to Finishing
Conversion 62, ,500
Balance 14,100

26. Use the first-in, first-out (FIFO) method of process costing.
Learning Objective 6
Use the first-in, first-out (FIFO)
method of process costing.

27. Compute Equivalent Units (Steps 1 and 2)
Quantity schedule (Step 1) is the same as
the weighted-average method.
Materials Conversion
Completed and transferred:
From beginning inventory
Started and completed 30, ,000
Ending inventory , ,000
35, ,400

28. Compute Equivalent Units (Step 2)
Materials Conversion
Completed
and transferred: 31, ,000
Ending inventory 5,000 (100%) 1,000 (20%)
36, ,000
Beginning inventory 1,000 (100%) (60%)
Equivalent units 35, ,400

29. Compute Equivalent Unit Costs (Step 3)
Materials Conversion
Current costs $84, $62,000
Equivalent units , ,400
Cost per unit $ $1.975

30. Summarize and Assign Total Costs (Steps 4 and 5)
Work in process beginning inventory: $ 7,550
Current costs:
Material ,050
Conversion ,000
Total $153,600
Same as using weighted-average

31. Summarize and Assign Total Costs (Steps 4 and 5)
Costs transferred out:
From beginning inventory: $7,550
Conversion costs added:
1,000 × 40% × $ $ 8,340
From current production:
30,000 × $ ,250
Total $139,590

32. Summarize and Assign Total Costs (Steps 4 and 5)
Work in process ending inventory:
Materials: 5,000 × $2.40 $12,000
Conversion:
5,000 × 20% × $ ,975
Total $13,975

33. Summarize and Assign Total Costs (Steps 4 and 5)
Costs transferred out $139,590 +
Cost in ending inventory $ 13,975 =
$153,565
($35 rounding error)
An alternative approach:
Costs to account for $153,600 –
Cost in ending inventory $ 13,975 =
Costs transferred out $139,625

34. Key T-Account: FIFO Work in Process Inventory, Assembly
Beg. Inv. 7,550 Transferred
Materials 84,050 to Finishing
Conversion 62, ,625
Balance 13,975

35. Comparison of Weighted-Average and FIFO Methods
Average FIFO Difference
Costs of units
completed and
transferred out $139,500 $139,625 +$125
Work in process,
ending , ,975 –$125
Total costs
accounted for $153,600 $153,

36. Incorporate standard costs into a process-costing system.
Learning Objective 7
Incorporate standard costs
into a process-costing system.

37. Standard-Costing Method of Process-Costing Example
Process-costing systems using standard costs
usually accumulate actual costs incurred
separately from the inventory accounts.
Assume that actual materials cost is $84,050
and standard materials cost is $84,250
What are the journal entries in the
Assembly Department?

38. Standard-Costing Method of Process-Costing Example
Direct Materials Control 84,050
Accounts Payable Control ,050
Work in Process ,250
Direct Material Variances
Direct Materials Control ,050
To record direct materials purchased and used in
production during the period and variances

39. Apply process-costing methods to cases with transferred-in costs.
Learning Objective 8
Apply process-costing methods
to cases with transferred-in costs.

40. Transferred-In Costs Weighted-Average Example
Finishing Department beginning WIP inventory:
4,000 units (60% materials) (25% conversion)
Ending work in process inventory:
2,000 units (100% materials) (40%) conversion)
31,000 units transferred-in from Assembly.

41. Physical Units (Step 1) Beginning inventory 4,000
Units started in process ,000
35,000
Units completed and transferred
to finished goods ,000
Ending inventory ,000
35,000

42. Compute Equivalent Units (Step 2)
Equivalent units for transferred-in costs:
Transferred to finished goods 33,000
Ending inventory ,000
35,000
Inventory is 100% complete for the work
performed in the Assembly Department.

43. Compute Equivalent Units (Step 2)
Equivalent units for direct materials costs:
Transferred to finished goods 33,000
Ending inventory (100%) 2,000
35,000

44. Compute Equivalent Units (Step 2)
Equivalent units for conversion costs
(ending inventory 2,000):
Transferred to finished goods 33,000
Ending inventory (40%)
33,800

45. Compute Equivalent Unit Costs (Step 3)
Assume the following costs in the
Finishing Department:
Work in process beginning inventory from:
Assembly Department $30,200
Direct materials ,400
Conversion costs ,000
Total cost in beginning inventory $47,600

46. Compute Equivalent Unit Costs (Step 3)
Current costs in Finishing Department
are as follows:
Costs received from the
Assembly Department $139,500
Direct materials ,780
Conversion ,640
Total $191,920

47. Compute Equivalent Unit Costs (Step 3)
(Transferred-in costs $30,200 + Costs transferred
in from the Assembly Department $139,500)
÷ 35,000 units $4.85
(Direct materials $9,400 + $9,780)
÷ 35,000 units $0.55
(Conversion costs $8,000 + $42,640)
÷ 33,800 units $1.50
Total unit cost $6.90

48. Summarize and Assign Total Costs (Steps 4 and 5)
Total costs in beginning inventory $ 47,600
Current costs in Finishing Department ,920
$239,520
Costs to account for: $47,600 + $ 191,920 = $239,520

49. Summarize and Assign Total Costs (Steps 4 and 5)
Costs in work in process ending inventory:
Transferred-in costs: 2,000 × $4.85 $ 9,700
Direct materials: 2,000 × $ ,100
Conversion: 2,000 × 40% × $ ,200
Total cost in ending inventory $12,000

50. Summarize and Assign Total Costs (Steps 4 and 5)
Costs to account for: $239,520
Costs transferred to finished goods inventory:
33,000 × $ $227,700
Costs in ending work in process inventory:
$12,000 – $180 rounding error ,820
Total $239,520

51. T-Account Finishing Department
Work in Process Inventory, Finishing
Beg. Inv ,600 Transferred to
Transferred-in 139,500 Finished Goods
Materials , ,700
Conversion 42,640
Balance ,820

52. Transferred-In Costs FIFO Method
The physical units (Step 1) is the same
as in weighted-average.
Beginning inventory ,000
Units started in process ,000
35,000
Units transferred to finished goods 33,000
Ending inventory ,000
35,000

53. Compute Equivalent Units FIFO (Step 2)
Equivalent units for transferred-in costs:
From beginning work in process 0
Started and completed ,000
Work in process, ending (100%) 2,000
Total equivalent units ,000

54. Compute Equivalent Units FIFO (Step 2)
Equivalent units for transferred-in costs:
Transferred to finished goods 33,000
Ending work in process inventory 2,000
Total ,000
Beg. work in process inventory – 4,000
Equivalent units ,000
Inventories are 100% complete for the work
performed in the Assembly Department.

55. Compute Equivalent Units FIFO (Step 2)
Equivalent units for materials costs:
From beginning work in process ,600
Started and completed ,000
Work in process, ending (100%) 2,000
Total equivalent units ,600

56. Compute Equivalent Units FIFO (Step 2)
Equivalent units for material costs
(beginning inventory 4,000):
Transferred to finished goods 33,000
Ending inventory (100%) 2,000
Total ,000
Beginning inventory (60%) –2,400
Equivalent units ,600

57. Compute Equivalent Units FIFO (Step 2)
Equivalent units for conversion costs:
From beginning work in process ,000
Started and completed ,000
Work in process, ending (40%)
Total equivalent units ,800

58. Compute Equivalent Units FIFO (Step 2)
Equivalent units for conversion costs (beginning
inventory 4,000, ending inventory 2,000):
Transferred to finished goods ,000
Ending inventory (40%)
Total ,800
Beginning inventory (25%) –1,000
Equivalent units ,800

59. Compute Equivalent Unit Costs FIFO (Step 3)
Cost per equivalent unit:
Transferred-in: $139,590 ÷ 31,000 $4.50
Direct materials: $9,780 ÷ 32,
Conversion: $42,640 ÷ 32,
Total unit cost $6.10

60. Summarize and Assign Total Costs FIFO (Steps 4 and 5)
Current costs in Finishing Department: $192,010
Work in process beginning inventory: ,600
Costs to account for:(same as weighted-average) $239,610

61. Summarize and Assign Total Costs FIFO (Steps 4 and 5)
Work in process ending inventory:
Transferred-in: 2,000 × $4.50 $ 9,000
Direct materials: 2,000 × $
Conversion: 800 × $ ,040
Total $10,640

62. Summarize and Assign Total Costs FIFO (Steps 4 and 5)
Costs transferred out:
From beginning inventory: $47,600
Direct materials added:
4,000 × 40% × $
Conversion costs added:
4,000 × 75% × $ ,900
Total $51,980

63. Summarize and Assign Total Costs FIFO (Steps 4 and 5)
Total costs transferred out:
From beginning inventory $ 51,980
From current production: 29,000 × $ ,900
Total $228,880

64. Summarize and Assign Total Costs FIFO (Steps 4 and 5)
Total costs accounted for:
Transferred to finished goods:
$176,900 + $51, $228,880
Work in process ending inventory ,640
Rounding error
Total $239,610

65. Summarize and Assign Total Costs FIFO (Steps 4 and 5)
Costs to account for $239,610
Work in process ending inventory – 10,640
Transferred to finished goods $228,970

66. End of Chapter 17