COST M7 – PROCESS COSTING 2

OBJECTIVES: 1. To describe the basic characteristics and cost flows associated with
process manufacturing and to identify how product costs flow through
accounts using process costing.
2. To prepare a cost of production report using weighted average method
and FIFO method of accounting for process costs.

Product Cost Flows in a Process Costing System

As products physically move through the production process, the product costs
associated with these products move through several important accounts. In this
section, we present a detailed look at how product costs flow through accounts using a
process costing system. Later, we explain how dollar amounts are established for
product costs that flow through the accounts. As you review each of the following cost
flows for a process costing system, remember that product costs are now tracked
by department rather than by job.

Direct Materials

Question: In a process costing setting, direct materials are often used by several
production departments. How do we record direct materials costs for each production
department?

Answer: When direct materials are requisitioned from the raw materials storeroom, a
journal entry is made to reduce the raw materials inventory account and increase the
appropriate work-in-process inventory account. For example, assume the Assembly
department of Gian Products, Inc., requisitions direct materials to be used in production.
The journal entry to reflect this is as follows:

1.a. WIP Inventory – Assembly xx

Raw Materials Inventory xx

The use of direct materials is not limited to one production department. Suppose the
Finishing department requisitions direct materials for production. The journal entry to
reflect this is as follows:

1. a. WIP Inventory – Finishing xx

Raw Materials Inventory xx

Notice that two different work-in-process inventory accounts are used to track
production costs—one for each department.
Direct Labor

Question: Each production department typically has a direct labor work force. How do
we record direct labor costs for each production department?

Answer: Direct labor costs are recorded directly in the production department’s work-in-
process inventory account. Assume direct labor costs are incurred by the Assembly
department. The journal entry to reflect this is as follows:

2.a. WIP Inventory – Assembly xx

Wages Payable xx

As with direct materials, the use of direct labor is not limited to one production
department. Suppose direct labor costs are incurred by the Finishing department. The
journal entry to reflect this is as follows:

2. b. WIP Inventory – Finishing xx

Wages Payable xx

Manufacturing Overhead

Question: Manufacturing overhead costs are typically assigned to products using a

predetermined overhead rate using a normal costing system, How do we record
manufacturing overhead costs for each department?

Answer: Assume manufacturing overhead costs (often simply called overhead costs)
are being applied to products going through the Assembly department. The journal entry
to reflect this is as follows:

3. a. WIP Inventory – Assembly xx

Manufacturing Overhead xx

The journal entry to reflect manufacturing overhead costs being applied to products
going through the Finishing department is as follows:

3. b. WIP Inventory – Finishing xx

Manufacturing Overhead xx

Transferred-In Costs

Question: At this point, we have discussed how to record product costs (direct
materials, direct labor, and manufacturing overhead) related to each production
department. Products often flow from one production department to the
next. Transferred-in costs are the costs associated with products moving from one
department to another. How do we record transferred-in costs for each department?
Answer: Assume the Assembly department at Gian Products, Inc., completes a batch of
desks and moves the desks to the Finishing department. The costs associated with
these desks must be transferred from the work-in-process inventory account for the
Assembly department to the work-in-process inventory account for the Finishing
department. Thus, these costs are being transferred in to the Finishing department. The
journal entry to reflect this is as follows:

4. WIP Inventory – Finishing xx

WIP Inventory – Assembly xx

Finished Goods

Question: Goods are completed and ready to sell once they have gone through the final
production department. The final production department at Gian Products, Inc., is the
Finishing department. How do we record production costs for products moved from the
final production department to the finished goods warehouse?

Answer: When goods go through the final production department and are completed,
the related costs are moved to the finished goods inventory account. The journal entry
to reflect this is as follows:

5. Fininshed Goods Inventory xx

WIP Inventory – Finishing xx

Cost of Goods Sold

Question: How do we record production costs for goods that have been sold?

Answer: Once the completed goods are sold, the related costs are moved out of the
finished goods inventory account and into the cost of goods sold account. The journal
entry to reflect this is as follows:

6. Cost of Goods Sold xx

Finished Goods Inventory xx

Many businesses produce large quantities of a single product or similar products. Pepsi-
Cola makes soft drinks, Exxon Mobil produces oil, and Kellogg Company produces
breakfast cereals on a continuous basis over long periods. For these kinds of products,
companies do not have separate jobs. Instead, production is an ongoing process.
Job costing and process costing have important similarities:

 Both job and process cost systems have the same goal: to determine the
cost of products.
 Both job and process cost systems have the same cost flows. Accountants
record production in separate accounts for materials inventory, labor, and
overhead. Then, they transfer the costs to a Work in Process Inventory
account.
 Both job and process cost systems use predetermined overhead rates to
apply overhead.

Job costing and process costing systems also have their significant differences:

 Types of products produced. Companies that use job costing work on many
different jobs with different production requirements during each period.
Companies that use process costing produce a single product, either on a
continuous basis or for long periods. All the products that the company
produces under process costing are the same.
 Cost accumulation procedures. Job costing accumulates costs by individual
jobs. Process costing accumulates costs by process or department.
 Work in Process Inventory accounts. Job cost systems have one Work in
Process Inventory account for each job. Process cost systems have a Work
in Process Inventory account for each department or process.
A process cost system (process costing) accumulates costs incurred to produce a
product according to the processes or departments a product goes through on its way to
completion. Companies making paint, gasoline, steel, rubber, plastic, and similar
products using process costing. In these types of operations, accountants must
accumulate costs for each process or department involved in making the product. As
an example, view this How’s It Made video.

Can you imagine having to determine the cost of making just ONE lego when we can
make 1.7 million legos per hour? Cost accountants have to do this. They will use
process costing! Accountants compute the cost per unit by first accumulating costs for
the entire period (usually a month) for each process or department. Second, they divide
the accumulated costs by the number of units produced (tons, pounds, gallons, or feet)
in that process or department.

The cost flows in a process cost system processes the products in a specified
sequential order. That is, the production and processing of products begin in
Department A. From Department A, products go to Department B. Department B inputs
direct materials and further processes the products. Then Department B transfers the
products to Finished Goods Inventory.

There are two methods for using process costs: Weighted Average and FIFO (First In
First Out). Each method uses equivalent units and cost per equivalent units but
calculates them just a little differently. In this class we will be covering the weighted
average method only.

Equivalent Units (Weighted Average)

Essentially, the concept of equivalent units involves expressing a given number of

partially completed units as a smaller number of fully completed units. We do this
because it is easier to account for whole units then parts of a unit. We are adding
together partially completed units to make a whole unit. For example, if we have 3 units
1/3 of the way complete, we can add them together to make 1 equivalent unit (1/3 + 1/3
+ 1/3). We can make this calculation easier by multiplying the units by a percentage of
complete.

For example, if we bring 1,000 units to a 40 % state of completion, this is equivalent to

400 units (1,000 x 40%) that are 100% complete. Accountants base this concept on the
supposition that a company must incur approximately the same amount of costs to bring
1,000 units to a 40% level of completion as it would to complete 400 units.

Here is a diagram of the concept of equivalent units. As you examine the diagram, think of
the amount of water in the glasses as costs that the company has already incurred

Units in Beg. Work in Process Units completed and transferred

+ Units Started this period + Units in End. WIP

= Total Units = Total Units

The total units in each column must agree with one another. This formula explains how
many units we had to work with (including units in beginning work in process + units started
this period) and what happened to those units (units completed or units remain in work in
process inventory since there are not complete).

Under the weighted average method, equivalent units are calculated based on 2
things: units completed and transferred out and units in ending work in process
inventory.

Units completed and transferred are finished units and will always be 100% complete for
equivalent unit calculations for direct materials, direct labor and overhead. For units in
ending work in process, we would take the units unfinished x a percent complete. The
percent complete can be different for direct materials, direct labor or overhead.

Example – Jomari Company

Assume that Jomari Company manufactures and sells a chemical product used to clean
kitchen counters and sinks. The company processes the product in two departments.
Department A crushes powders and blends the basic materials. Department B packages
the product and transfers it to finished goods. We will look at equivalent units for
Department B. The June production data for Department B is:

Beginning work in process 0

Units started this period 11,000

Units completed and transferred 9,000

Ending work in process units 2,000

Direct materials $1,100

Direct labor 2,880

Applied overhead 8,880

Step 1: The physical flow of units shows:

Units in Beg. WIP 0 Units Completed and Transferred 9,000

Units Started this period 11,000 Units in End. WIP 2,000

Total Units 11,000 Total units 11,000

The beginning step in computing Department B’s equivalent units for Jom Company is
determining the stage of completion of the 2,000 unfinished units (remember units
completed and transferred are always 100% complete). In Department B, the ending units
may be in different stages of completion regarding the materials, labor, and overhead costs.
Assume that Department B adds all materials at the beginning of the production process.
Then ending inventory would be 100% complete as to materials since we received all
materials at the beginning of the process.

Accountants often assume that units are at the same stage of completion for both labor and
overhead. Accountants call the combined labor and overhead costs conversion
costs. Conversion costs are those costs incurred to convert raw materials into the final
product (meaning, direct labor and overhead).

Let us assume that, on average, the 2,000 units in ending inventory are 40% complete as to
conversion costs. This means that Department B transferred out 9,000 units fully completed
and brought 2,000 units to a 40% completion state. Department B now has an equivalent of
800 fully completed units remaining in inventory (800 = 2,000 X 40 per cent).

Step 2: Equivalent Units of Production

The equivalent units for materials, labor and overhead (often referred to as Conversion
Costs) would be calculated as:

Materials Conversion

Units Completed and Transferred 9,000 9,000

(9,000 x 100% complete)

Units in Ending WIP

Materials (2,000 x 100% complete) 2,000

Conversion Cost (2,000 x 40% complete) 800

Total Equivalent Units 11,000 9,800

Total equivalent units for each cost element (materials, conversion cost) is calculated as:

Equivalent units = Units completed + (Units in ending inventory X percent complete)

The key to equivalent units is determining the percent complete, especially for materials can
be confusing. Common terms you will see when determine ending work in process percent
complete:
Description % complete

Materials added at the beginning of the process 100% complete for materials

Materials added evenly throughout the process use % complete for ending WIP

Materials added at the end of the process 0% complete for material

Process Costing (Weighted Average)

Process Costing consists of the following steps:

1. Physical flow of units

2. Equivalent Units of Production
3. Cost per Equivalent Unit
4. Assign Costs to Units completed and Ending work in process inventory
5. Reconcile Costs

Keep in mind, there are no Generally Accepted Accounting Principles (GAAP) that mandate
how we must do a process cost report. We will focus on the calculations involved and show
you an example of a process cost summary report but know there are several ways to
present the information, but the calculations are all the same.

In the previous page, we discussed the physical flow of units (step 1) and how to calculate
equivalent units of production (step 2) under the weighted average method. We will
continue the discussion under the weighted average method and calculate a cost per
equivalent unit.

Step 3: Cost per Equivalent

We calculated total equivalent units of 11,000 units for materials and 9,800 for conversion.

To calculate cost per equivalent unit by taking the total costs (both beginning work in
process and costs added this period) and divide by the total equivalent units.
Materials Conversion

Beg. Work in Process Costs -0- 0

+ Costs added this period $ 1,100 $11,760

= Total Costs $ 1,100 $11,760

÷ Total Equivalent Units 11,000 9,800

 = Cost per Equivalent Units $ 0.10 $1.20

In this example, beginning work in process is zero. This will not always be the case. The
problem will provide the information related to beginning work in process inventory costs
and units.

Step 4: Assign Costs In this next section, we will combine the equivalent units (from step
2) and the cost per equivalent units (step 3) to assign costs to units completed and
transferred out (also called cost of goods manufactured) and costs of units remaining
ending work in process inventory. The basic formula to assign costs is:
Equivalent Units per cost element x Cost per equivalent unit per cost element
d
(direct materials, conversion)

Using the example company, Jom Company, we have the following information:
Materials Conversion

Units Completed and Transferred 9,000 9,000

Units in Ending WIP 2,000 800

Total Equivalent Units 11,000 9,800

Cost per Equivalent Units $ 0.10 $1.20

We would assign costs as follows:

Cost assigned to units completed and transferred

Direct Materials (9,000 equivalent units x $0.10) $900

Conversion (9,000 equivalent units x $1.20) 10,800

Total cost assigned to units completed $11,700

Cost assigned to ending work in process

Direct Materials (2,000 equivalent units x $0.10) $200

Conversion (800 equivalent units x $1.20) 960

Total cost assigned to ending work in process inventory $1,160

Total Cost Assigned or accounted for $12,860
For costs of units completed and transferred, we take the equivalent units for units
completed x cost per equivalent unit. We do the same of ending work in process but using
the equivalent units for ending work in process.

Step 5: Cost Reconciliation

Finally, we can check our work. We want to make sure that we have assigned all the costs
from beginning work in process and costs incurred or added this period to units completed
and transferred and ending work in process inventory.

First, we need to know our total costs for the period (or total costs to account for) by
adding beginning work in process costs to the costs incurred or added this period. Then,
we compare the total to the cost assignment in step 4 for units completed and transferred
and ending work in process to get total units accounted for. Both totals should agree.

For Jom Company, the cost reconciliation would be:

Beg. Work in Process Cost 0

+ Costs added this period $12,860

($1,100 DM + $2,880 DL + $8,880 OH)

= Total costs to account for $ 12,860

Cost assigned to units completed and transferred (from step 4 above) $11,700

+ Cost assigned to ending work in process inventory (from step 4 above) 1,160

= Total costs accounted for $12,860

Process Costing (FIFO Method)

Another acceptable method for determining unit cost under process costing is the first-
in, first-out (FIFO) cost method. Under the FIFO method, we assume any units that
were not completed last period (beginning work in process) are finished before anything
else is started. We will look at each item individually as we discuss the steps of process
costing. Under either method, weighted average or FIFO, process costing consists of 5
steps:
1. Physical Flow of Units
2. Equivalent Units
3. Cost per Equivalent Unit
4. Assign Costs to Units Completed and Ending Work in Process Inventory
5. Reconcile Costs
Step 1: Physical Flow of Units

The physical flow of units is as follows under the weighted average method:

Units in Beg. WIP Units completed and Transferred

+ Units Started this period + Units in Ending WIP

= Total Units Total Units

This is altered just slightly under the FIFO method as we must separate the items in
units completed into Units Completed from beginning work in process and Units started
and completed this period since under FIFO, we must finish anything from beginning
work in process before we start something new. Under the FIFO, we the physical flow
of units would be documented as:

Units in Beginning WIP Units completed and transferred:

+ Units Started this period Beg. WIP Units Completed

= Total Units + Units started and completed this period

= Units completed and transferred

+ Units in End WIP

= Total Units

Just as in the weighted average method, the 2 Total Units figures must agree!

Step 2: Equivalent Units of Production

Under the FIFO method, we will calculate equivalent units for 3 things: Units completed
from beginning work in process, units started and completed this period and units
remaining in ending work in process.

Equivalent units for the period will be calculated as follows under FIFO (keep in mind,
you may have different percent complete for materials, labor and overhead):

1. Units from beginning work in process: you want to complete this units, so
how much MORE effort will be needed to finish these units. You will
 calculate this as beginning work in process units x (100% – given %
complete) to calculate the amount of additional work necessary to make the
unit 100% complete.
2. Units started and completed this period: take the units x 100% complete
since they were started and completed they have received all of their
materials, labor and overhead and will not receive any more since they are
finished.
3. Units in Ending work in process: just like with the weighted average
method, we will take the ending work in process units x a given %
complete.
To illustrate the computation of equivalent units under the FIFO method, assume the
following facts (for simplicity we are using just one percent complete for materials, labor and
overhead):
Beginning work in process inventory 3,000 units, 40% complete

Units started this period 10,000 units

Ending work in process inventory 5,000 units, 20% complete

The physical flow of units would be (calculate units started and completed as units started
10,000 – units in ending work in process 5,000):
Units in Beg. WIP 3,000 Units completed and Transferred:

Units Started this period 10,000 Units from Beg. WIP 3,000

Total Units 13,000 Units started and completed (10,000 – 5,000) 5,000

Total Units Completed 8,000

Units in End. WIP 5,000

Total Units 13,000

The equivalent production for the period would be:

Units from beginning WIP 3,000 units x (100% - 40% complete) 1,800

Units started and completed 5,000 units x 100% complete 5,000

Units in ending WIP 5,000 units x 20% complete 1,000

Total Equivalent Units 7,800

Step 3: Cost per Equivalent Unit

Under the weighted average method, we use beginning work in process costs AND
costs added this period. Under the FIFO method, we will only use the costs added this
period. This video will explain the differences between the two approaches.

The formula we will use for calculating cost per equivalent unit under the FIFO Method is:
Current Costs added this period

÷ Total Equivalent Units

= Cost per Equivalent Units

Step 4: Assign Costs

When we assign costs to units completed and transferred and units remaining in ending
work in process under the FIFO method, we need the following items:

1. Costs from beginning work in process: these were the costs we started
the period with or the unfinished items from the previous period (no
calculation required — just bring over the costs from beginning work in
process). Remember, under FIFO, these are finished first so their costs
must be passed along to completed units.
2. Costs to complete beginning work in process: you will take the Equivalent
units calculated for completing beginning work in process x the cost per
equivalent unit. You will do this for materials, labor and overhead (or for
conversion costs which is the both direct labor and overhead).
3. Costs of units started and completed: you will take the equivalent units
calculated for units started and completed x the cost per equivalent unit for
materials, labor and overhead (or conversion).
4. The sum of these 3 will be the cost of units completed and transferred
which is also known as cost of goods manufactured. This amount is
transferred to the next department or to finished goods and out of work in
process for the units completed this period.
5. Cost of units remaining in ending work in process: you will take the ending
work in process equivalent units x the cost per equivalent unit for materials,
 labor and overhead (or conversion) just as we did under the weighed
average method. This amount rolls over to be the next period’s beginning
work in process inventory.

Step 5: Reconcile Costs

Finally, something is the same under FIFO and Weighted Average.

We want to make sure that we have assigned all the costs from beginning work in
process and costs incurred or added this period to units completed and transferred and
ending work in process inventory.

First, we need to know our total costs for the period (or total costs to account for) by
adding beginning work in process costs to the costs incurred or added this period.
Then, we compare the total to the cost assignment in step 4 for units completed and
transferred and ending work in process to get total units accounted for. Both totals
should agree.
The cost reconciliation would be:
Beg. Work in Process Cost

+ Costs added this period

= Total costs to account for

Cost assigned to units completed and transferred

+ Cost assigned to ending work in process inventory

= Total costs accounted for

Continued- Process Cost Demonstration (FIFO Method)

To illustrate more completely the operation of the FIFO process cost method, we use an
example of the month of June production costs for a company’s Department B.
Department B adds materials only at the beginning of processing. The May 31
inventory in Department B (June’s beginning work in process) consists of 2,000 units
that are fully complete as to materials and 60% complete as to conversion. Beginning
work in process inventory has accumulated costs of $6,180.

The following costs were added in June: Direct materials issued $ 1,300; direct labor
$ 7,200; and manufacturing overhead applied $ 6,000. The units for the period were:
 Beginning work in process inventory 2,000 units

Units started this period 10,000 units

Ending work in process inventory 3,000 units

Ending work in process inventory was 1/3 complete as to conversion costs.

Step 1: Physical Flow of Units

For the physical flow of units, we calculate units started AND completed this period as Units
started 10,000 – units remaining in ending work in process 3,000 = 7,000 units.

Units in Beg. WIP 2,000 Units Completed and Transferred:

Units Started this period 10,000 Units from Beg. WIP 2,000

Total Units 12,000 Units started and completed (10,000 – 3,000) 7,000

Total units completed 9,000

Units in End. WIP 3,000

Total Units 12,000

Step 2: Equivalent Units of Production

We are concerned with the right side of our physical flow of units. We must first FINISH
beginning work in process, add units started and completed and units remaining in
ending work in process. Beginning work in process is fully complete for materials (or
100% complete) and 60% complete for conversion so to complete these units we will
need NO (or 0%) materials and 40% of conversion (100% – 60%). Units started and
completed are always 100% complete for materials, labor and overhead! Ending work in
process is 1/3 complete for conversion costs, but what about materials? The problem
information reads “Department B adds materials only at the beginning of processing”
which means we receive all (or 100%) of the materials at the beginning of the process
and ending work in process will be fully complete for materials.

Materials Conversion Costs

Units from beginning WIP 0 800

[ 2,000 units x (100% – 100% complete)] [ 2,000 units x (100% - 60% complete)}
 Units started and completed 7,000 7,000

(7,000 units x 100% complete) (7,000 units x 100% complete)

Units in ending WIP 3,000 1,000

(3,000 units x 100% complete) (3,000 units x 1/3 complete)

Total Equivalent Units 10,000 8,800

Step 3: Cost per Equivalent Units

Under FIFO, we are only interested in the current period costs which is June for this
example. Conversion costs are direct labor $7,200 + overhead $6,000.

Materials Conversion Costs

Current Costs added this period $ 1,300 $ 13,200

÷ Total Equivalent Units 10,000 8,800

= Cost per Equivalent Unit $ 0.13 $ 1.50

Step 4: Assign Costs to Units Completed and Ending Work in Process Inventory

Under FIFO, remember to bring over the costs of beginning work in process first, then
multiply the individual equivalent units calculated in step 2 (not the total equivalent units) by
the cost per equivalent unit from step 3.

Cost assigned to units completed and transferred out:

Cost of beginning work in process inventory $6,180

Cost to complete beginning work in process inventory

Materials (0 equivalent units) $ 0

Conversion (800 equiv. units x $1.50) 1,200

$1,200
 Cost of units started and completed

Materials (7,000 equiv. units x $0.13) $910

Conversion (7,000 equiv. units x $1.50) 10,500

$11,410

Total cost of units completed and transferred $18,790

Cost assigned to ending work in process inventory:

Materials (3,000 equiv. units x $0.13) $ 390

Conversion (1,000 equiv. units x $1.50) 1,500

Total cost of units remaining in ending work in process inventory $1,890

Step 5: Reconcile Costs

Here is our chance to check our work. Total costs to account for should always equal what
was assigned in total costs accounted for.

Cost of beginning work in process $6,180

Costs added in June $14,500 (1,300 DM + 7,200 DL + 6,000 OH) 0

Total costs to account for $20,680

Costs assigned to units completed $18,790 (from step 4 above) (

Costs assigned to ending work in process 1,890 (from step 4 above) (

Total costs accounted for $20,680

EVALUATION:
True or False:

1. Examples of industries that would use process costing include the soft-drink bottling and
oil industry.

2. The principal difference between process costing and job costing is that in job costing an
averaging process is used to compute the unit costs of products or services.

3. Process-costing systems separate costs into cost categories according to the timing of
when costs are introduced into the process.

4. Estimating the degree of completion for the calculation of equivalent units is usually
easier for conversion costs than it is for direct materials.

5. When identical or similar units of products or services are mass produced, job-costing is
used to calculate an average production cost for all units produced.

6. The last step in a process-costing system is to compute cost per equivalent unit.

7. The equivalent unit concept is a means by which a process costing system can compare
partially completed work done in each of the various process categories to obtain a total
measure of work done.

8. Equivalent units are calculated separately for each input.

9. A production cost worksheet is used to summarize total costs to account for, compute
cost per equivalent unit, and assign total costs to units completed and to units in ending
work-in-process.

10. Process-costing journal entries and job-costing journal entries are similar with respect to
direct materials and conversion costs.

11. The accounting entry to record the transfer of rolls from the assembly department to the
finishing department is:

Work in Process-Assembly Department

Work in Process-Finishing Department

12. The weighted-average process costing method does NOT distinguish between units
started in the previous period but completed during the current period and units started and
completed during the current period.

13. The cost of units completed can differ materially between the weighted average and the
FIFO methods of process costing.

14. In calculating cost per equivalent unit, the FIFO method of process costing merges the
work and the costs of the beginning inventory with the work and the costs done during the
current period.

15. In the weighted-average costing method, the costs of direct materials in beginning
inventory are NOT included in the cost per unit calculation since direct materials are almost
always added at the start of the production process.

Multiple Choice:

1. Which one of the following statements is true?

A) In a job-costing system, individual jobs use different quantities of production resources.
B) In a process-costing system each unit uses approximately the same amount of
resources.
C) An averaging process is used to calculate unit costs in a job-costing system.
D) Both A and B are correct.

2. An example of a business which would have no beginning or ending inventory but which
could use process costing to compute unit costs would be a:
A) clothing manufacturer
B) corporation whose sole business activity is processing the customer deposits of several
banks
C) manufacturer of custom houses
D) manufacturer of large TVs

Answer the following questions using the information below:

Dada Plastics, Inc., manufactures plastic moldings for car seats. Its costing system utilizes
two cost categories, direct materials and conversion costs. Each product must pass through
Department A and Department B. Direct materials are added at the beginning of production.
Conversion costs are allocated evenly throughout production.

Data for Department A for February 2012 are:

Work in process, beginning inventory, 40% converted 200 units
Units started during February 600 units
TO/completed
Work in process, ending inventory,30% complete - CC100 units

Costs for Department A for February 2012 are:

Work in process, beginning inventory:
Direct materials $200,000
Conversion costs $200,000
Direct materials costs added during February $2,000,000
Conversion costs added during February $2,500,000

3. How many units were completed and transferred out of Department A during February?
A) 100 units
B) 600 units
C) 700 units
D) 800 units

BWIP 200 units TO 700 units

Started 600 EWIP 100
Units to acct. 800 Units acctd. 800

4. What were the equivalent units of direct materials and conversion costs, respectively, at
the end of February? Assume Dada Plastics, Inc., uses the weighted-average process
costing method.
A) 800; 730
B) 800; 800
C) 800; 700
D) 600; 500
EUP - Mat. CC
TO/comp - 700 700 700
EWIP – 100, .3 100 30
Tot. EUP 800 730

Unit Cost Per EUP

Mat. - $200,000 + 2,000,000/800units = $2750
CC - $200,000 + 2,500,000/730units = $3,698.63

5. The weighted-average process-costing method calculates the equivalent units by:

A) considering only the work done during the current period
B) the units started during the current period minus the units in ending inventory
C) the units started during the current period plus the units in ending inventory
D) the equivalent units completed during the current period plus the equivalent units in
ending inventory.

6. An assumption of the FIFO process-costing method is that:

A) the units in beginning inventory are not necessarily assumed to be completed by the end
of the period
B) the units in beginning inventory are assumed to be completed first
C) ending inventory will always be completed in the next accounting period
D) no calculation of conversion costs is possible

7. Which of the following manufactured products would NOT use process costing?
A) 747 jet aircraft
B) 46-inch television sets
C) Construction of a commercial office building
D) Both A and C are correct.

Answer the following questions using the information below:

The Fran chair company manufacturers a standard recliner. During February, the firm's
Assembly Department started production of 75,000 chairs. During the month, the firm
completed 80,000 chairs, and transferred them to the Finishing Department. The firm ended
the month with 10,000 chairs in ending inventory. There were 15,000 chairs in beginning
inventory. All direct materials costs are added at the beginning of the production cycle and
conversion costs are added uniformly throughout the production process. The FIFO method
of process costing is used by Fran Co. Beginning work in process was 30% complete as to
conversion costs, while ending work in process was 80% complete as to conversion costs.

Beginning inventory:
Direct materials $24,000
Conversion costs $35,000

Manufacturing costs added during the accounting period:

Direct materials $168,000
Conversion costs $278,000

8. How many of the units that were started during February were completed during
February?
A) 85,000
B) 80,000
C) 75,000
D) 65,000
BWIP 15,000
Started 75,000
To account 90,000
EUP Mat. CC
TO – BWIP 15,000, 0%, 70% to compl 0 10,500
Started 65,000 and completed 65,000 65,000
TO 80,000
EWIP 10,000, 80% 10,000 8,000
Accounted for 90,000 Tot EUP 75,000 83,500

9. What were the equivalent units for conversion costs during February?
A) 83,500
B) 85,000
C) 75,000
D) 79,500

10. What is the amount of direct materials cost assigned to ending work-in-process
inventory at the end of February?
A) $19,200
B) $22,400
C) $25,600
D) $22,500
$168,000/75,000 EUP – Mat = $2.24 UC x 10,000 EUP EWIP = $22,400
Problem Solving:

1. Jomar Woolens is a manufacturer of wool cloth. The information for March is as follows:

Beginning work in process 10,000 units

Units started 20,000 units
Units completed 25,000 units

Beginning work-in-process direct

materials $ 6,000
Beginning work-in-process conversion $ 2,600
Direct materials added during month $30,000
Direct manufacturing labor during
month $12,000
Factory overhead $ 5,000

Beginning work in process was half converted as to labor and overhead. Direct materials
are added at the beginning of the process. All conversion costs are incurred evenly
throughout the process. Ending work in process was 60% complete.

Required:
Prepare a production cost worksheet using the weighted-average method. Include any
necessary supporting schedules.

Answer: PRODUCTION COST WORKSHEET

Physical
Flow of production Units Direct Materials Conversion
Work in process,
beginning 10,000
Started during period 20,000
To account for 30,000

Units completed 25,000 25,000 25,000

Work in process, ending 5,000 5,000 3,000
Accounted for 30,000 30,000 28,000

Costs Totals Direct Materials Conversion

Work in process,
beginning $ 8,600 $ 6,000 $ 2,600
Costs added during
period 47,000 30,000 17,000
Total costs to account for $55,600 $36,000 $19,600
Divided by equivalent
units 30,000 28,000
Equivalent unit costs $ 1.90 $ 1.20 $ 0.70

Assignment of costs
Costs transferred out (25,000 ×
$1.90) $47,500
Work in process, ending
Direct materials (5,000 × $1.20) 6,000
Conversion (5,000 × $0.70 ×
0.60) 2,100
Costs accounted for $55,600

2. Pan Products Company uses an automated process to manufacture its pet replica
products. For June, the company had the following activities:

Beginning work in process

inventory 4,500 items, 1/4 complete
Units placed in production 15,000 units
Units completed 17,500 units
Ending work in process inventory 2,000 items, 3/4 complete

Cost of beginning work in process $5,250

Direct material costs, current $16,500
Conversion costs, current $23,945

Direct materials are placed into production at the beginning of the process and conversion
costs are incurred evenly throughout the process.

Required:
Prepare a production cost worksheet using the FIFO method.