Chapter 17
Sequential Processing Departments
T-Account Model of Process Costing Flows
Process Costing and Direct Labor
Dollar Amount
Direct
Materials
Direct
Labor
Direct labor costs
may be small
Mfg. Ovhd.
in comparison to
other product
costs in process
cost systems.
Type of Product Cost
Process Costing and Direct Labor
Dollar Amount
Direct
Materials
Direct labor costs
Conversion
may be small
in comparison to
other product
costs in process
cost systems.
Type of Product Cost
Direct labor and manufacturing overhead is
combined into one product cost called conversion.
Production Report Example
Global Defense uses process costing to determine
unit costs in its Assembly Department.
Upon completion, units are transferred to the
Testing Department.
Direct materials are added at the beginning of the
assembly process. Conversion costs are added
evenly during assembly.
Process Diagram - Assembly
Conversion costs added
evenly during process
Transfer
Assembly Department
Direct materials added at
beginning of process
Testing Department
January 2009
Assembly Department - No Beginning/No Ending Inventory
Work in process, January 1:
Materials:
Conversion:
0 units
$ 0
0
Production started during January:
Production completed during January:
400 units
400 units
Costs added to production in January
Materials cost
Conversion cost
$ 32,000
24,000
Work in process, January 31
0 units
Manufacturing Costs in Ending Inventory:
?
Manufacturing Costs transferred out in January:
?
February 2009
Assembly Department - No Beginning/Some Ending Inventory
Work in process, February 1:
Materials:
Conversion:
0 units
$ 0
0
Production started during February:
Production completed during February:
400 units
175 units
Costs added to production in February
Materials cost
Conversion cost
$ 32,000
18,600
Work in process, February 29
Materials
Conversion
225 units
100% complete
60% complete
Manufacturing Costs in Ending Inventory:
?
Manufacturing Costs transferred out in February:
?
Equivalent Units of Production
Equivalent units are partially complete and
are part of work in process inventory.
Partially completed products are
expressed in terms of a smaller number
of fully completed units.
Equivalent Units of Production
Two half completed products are
equivalent to one completed product.
+
=
1
So, 10,000 units 70 percent complete
are equivalent to 7,000 complete units.
Quick Check 
For the current period, Jones started 15,000
units and completed 10,000 units, leaving
5,000 units in process that were 30 percent
complete for conversion costs. How many
equivalent units of production did Jones have
for the period?
a. 10,000
b. 11,500
c. 13,500
d. 15,000
Calculating and Using Equivalent
Units of Production
To calculate the cost per
equivalent unit for the period:
Cost per
equivalent
unit
=
Costs for the period
Equivalent units of production
for the period
Quick Check 
Now assume that Jones incurred
$27,600 in conversion costs for the
11,500 equivalent units of production.
What was Jones’ conversion cost per
equivalent unit for the period?
a. $1.84
b. $2.40
c. $2.76
d. $2.90
Quick Check 
Now assume that Jones incurred
$27,600 in production costs for the
11,500 equivalent units of production.
What was Jones’ cost per equivalent unit
for the period?
a. $1.84
$27,600 ÷ 11,500 equivalent units
b. $2.40
= $2.40 per equivalent unit
c. $2.76
d. $2.90
March 2009
Assembly Department - Some Beginning/Some Ending Inventory
Work in process, March 1:
Materials:
Conversion:
100% complete
60% complete
225 units
$ 18,000
8,100
Production started during March:
Production completed during March:
275 units
400 units
Costs added to production in March:
Materials cost
Conversion cost
$ 19,800
16,380
Work in process, March 31:
Materials
Conversion
100 units
100% complete
50% complete
Manufacturing Costs in Ending Inventory:
?
Manufacturing Costs transferred out in March:
?
Process Diagram - Testing
Conversion
costs added
evenly during
process
Assembly
Department
Transfer
Testing
Department
Direct materials
added at the
end of the
process
Finished
Goods
March 2009
Testing Department with Transferred-in Costs – W.A.Method
Work in process, March 1:
Transferred-in
Materials:
Conversion:
100% complete
0% complete
62.5% complete
240 units
$ 33,600
0
18,000
Transferred-in during March:
Production completed during March:
400 units
440 units
Costs added to production in March:
Transferred-in cost
Materials cost
Conversion cost
$ 52,000
13,200
48,600
Work in process, March 31:
Transferred-in
Materials
Conversion
200 units
100% complete
0% complete
80% complete
Manufacturing Costs in Ending Inventory:
?
Manufacturing Costs transferred out in March:
?
March 2009
Testing Department with Transferred-in Costs – FIFO Method
Work in process, March 1:
Transferred-in
Materials:
Conversion:
100% complete
0% complete
62.5% complete
240 units
$ 33,600
0
18,000
Transferred-in during March:
Production completed during March:
400 units
440 units
Costs added to production in March:
Transferred-in cost
Materials cost
Conversion cost
$ 52,480
13,200
48,600
Work in process, March 31:
Transferred-in
Materials
Conversion
200 units
100% complete
0% complete
80% complete
Manufacturing Costs in Ending Inventory:
?
Manufacturing Costs transferred out in March:
?