Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116
Week 6 & &: Unit Learning Outcomes (ULO): At the end of the unit, you are
expected to
a. Compute for the product cost using process costing system by preparing cost
of production report considering the effect of beginning work in process
inventory using FIFO and Average method of computing the product under
process costing system.
b. Apply the appropriate methods for costing joint and by products.
Big Picture in Focus: ULOa. Compute for the product cost using
process costing system by preparing cost of production report
considering the effect of beginning work in process inventory using FIFO
and Average method of computing the product under process costing
system;
Metalanguage
For you to demonstrate ULOa, you will need operational understanding of the terms
enumerated below.
FIFO Method is the method of first in, first out consideration
Average Method is the method of computing cost and units in average format and
not consider the concept of which is first in and which is first out.
Essential Knowledge
To perform the aforesaid big picture (unit learning outcomes), you need to fully
understand the following essential knowledge laid down in the succeeding pages.
Please note that you are not limited to exclusively refer to these resources. Thus, you
are expected to utilize other books, research articles and other resources that are
available in the university’s library e.g. ebrary, search.proquest.com etc., and even
online tutorial websites.
METHODS OF COSTING IN PROCESS COSTING SYSTEM
FIFO METHOD
The method that assumes the flow of production that the units first placed in the
process is presumed to be the completed first and those that are first completed are
those first transferred out.
Under this method, the work in process beginning will require a separate computation
of equivalent unit of production and the units started, completed and transferred is will
also have separate computations of equivalent units of production.
Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116
The equivalent unit of production of this period shall consist only of those that
completed this period and the completed last period is recorded last period.
Example if the product is 70% completed last period. The 70% is recorded as work
done last period so, how many percentage do we need to complete the product? Yes,
30% then the 30% completion is recorded as work done this period.
The unit cost are computed by current period product cost divided by the equivalent
units of current work done.
The cost of goods transferred out is computed as the sum of the following:
a. The cost in beginning work in process inventory
b. The current period cost to complete beginning inventory, computed by the
equivalent unit of production of the beginning work in process multiplied by
the current period unit cost
c. The cost to start and complete units, calculated by number of units
multiplied by the current cost computed
The cost of work in process ending is computed by multiplying the equivalent units of
production by the current product cost per unit.
AVERAGE METHOD
The method the merges all the departmental costs by elements of the beginning work
in process and cost incurred for the period an getting the average units cost by dividing
the total cost by elements tot equivalent units of production.
Under this method, the computation of equivalent units of production from the
beginning work in process is ignored and the total units completed and transferred are
considered to be 100% completed.
The equivalent unit of production of this period does not consider or ignore the work
done last month in computing equivalent unit of production.
The unit cost are computed as follows cost of the beginning work in process added to
the current period product cost divided by the sum of equivalent units of production of
the beginning work in process and the equivalent units of the current work done.
The cost of goods transferred out and the cost of work in process ending is computed
as follows: total units transferred multiply by the weighted average unit cost.
The cost of work in process, ending is equal to the equivalent units of production
multiplied by the weighted average unit cost.
Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116
COMPUTATION OF EQUIVALENT UNITS OF PRODUCTION
The following information pertains to Brill John Corporation for its May 2020
production.
Units in process, beg, 60% completed
10,000
Units Started
40,000
Units Completed
35,000
Units in process, End, 90% completed
15,000
Materials are added at the beginning of the process
Solution: FIFO
Materials
Quantity Schedule
Units in process, beg
Unit Started
Total
Units in Process, beg
Units Completed
Units in Process, end
Actual
10,000
40,000
50,000
10,000
25,000
15,000
50,000
WD
EP
100%
100%
25,000
15,000
40,000
Actual
10,000
40,000
50,000
35,000
15,000
50,000
WD
EP
100%
100%
35,000
15,000
50,000
Conversion Cost
WD
EP
40%
100%
90%
4,000
25,000
13,500
42,500
Solution: Average
Materials
Quantity Schedule
Units in process, beg
Unit Started
Total
Units Completed
Units in Process, end
Conversion Cost
WD
EP
100%
90%
35,000
13,500
48,500
Illustration for Preparation of Cost of Production Report
The following information pertains to Brill John Corporation for its June 2020
production. Finishing department and the previous department is Molding Department
Units in process, beg, 60% completed
5,000
Units Started
30,000
Units Completed
30,000
Units in process, End, 90% completed
5,000
Materials are added at the beginning of the process
Costs
Cost from preceding department
Materials
Labor and Overhead(Conversion cost)
Beg
85,000
21,000
38,000
450,000
360,000
425,250
Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116
Solution for FIFO Method
Brill John Corporation
Cost of Production Report
For the month of June 2020
(Finishing Department)
Materials
Quantity Schedule
Units in process, beg
Unit Started
Total
Units in Process, beg
Units Completed
Units in Process, end
Actual
5,000
30,000
35,000
5,000
25,000
5,000
35,000
Conversion Cost
WD
EP
WD
EP
100%
100%
25,000
5,000
30,000
Cost Charge to the department
In Process, beg
144,000
Cost from Preceding department
450,000
Cost added in the department
Materials
360,000
Conversion cost
425,250
Total cost to be accounted for
1,379,250
Cost accounted for as follows:
Completed and transferred
From IP, beginning
Cost last month
144,000
Cost added this month:
Materials
Conversion cost
27,000
27,000
This month completed and transferred
40%
100%
90%
2,000
25,000
4,500
31,500
15.00
12.00
13.50
40.50
171,000
1,012,500
1,183,500
In Process, end
Cost from preceding department
Materials
Conversion Costs
Total cost as accounted for
75,000
60,000
60,750
195,750
1,379,250
Journal entries:
Work in process – Finishing Department
450,000
Work in Process – Molding Department
450,000
Work in Process – Finishing Department
Materials
Payroll/Factory Overhead Applied
360,000
425,250
785,250
Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116
Finished Goods
1,183,500
Work in process – Forming Department
1,183,500
Solution for Average
Brill John Corporation
Cost of Production Report
For the month of June 2020
(Finishing Department)
Materials
Quantity Schedule
Units in process, beg
Unit Started
Total
Units Completed
Units in Process, end
Actual
5,000
30,000
35,000
30,000
5,000
35,000
WD
EP
100%
100%
30,000
5,000
35,000
Conversion Cost
WD
EP
100%
90%
30,000
4,500
34,500
Cost Charge to the department
Cost from Preceding department (85,000+450,000) 535,000
15.28571429
Cost added in the department
Materials (21,000+360,000)
381,000
10.88571429
Conversion cost (38,000+425,250)
463,250
13.42753623
Total cost to be accounted for
1,379,250
39.59896481
Cost accounted for as follows:
Completed and transferred (30,000*39.59896481)
In Process, end
Cost from preceding department (5,000*15.28571429)
Materials
(5,000*10.88571429)
Conversion Costs (4,500*13.42753623)
Total cost as accounted for
1,187,969
76,429
54,429
60,423
191,281
1,379,250
Journal entries:
Work in process – Finishing Department
450,000
Work in Process – Molding Department
Work in Process – Finishing Department
Materials
Payroll/Factory Overhead Applied
450,000
785,250
Finished Goods
1,187,969
Work in process – Forming Department
360,000
425,250
1,187,969
Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116
Let’s Check!
I.
Questions:
1. What is FIFO costing?
________________________________________________________
________________________________________________________
________________________________________________________
2. What is Weighted Average costing?
________________________________________________________
________________________________________________________
________________________________________________________
3. What are distinguishing characteristics of FIFO and Weighted average
costing?
________________________________________________________
________________________________________________________
________________________________________________________
II. True or False
1. To calculate weighted-average equivalent production you do not need to
know the number of units in the beginning inventory.
2. Equivalent production calculated using FIFO is higher than equivalent
production calculated using weighted average.
3. If a company has no inventories, the weighted-average approach and the
FIFO approach will result in the same income.
4. Although weighted average and FIFO may give different values for
inventory, the resulting income will always be the same.
5. When the beginning work in process inventory is zero, the peso amounts
assigned to units transferred out under FIFO and weighted-average method
is equal.
III. Multiple choice
1. Which of the following is NOT relevant in determining weighted-average
unit cost in process costing?
a. Cost of beginning inventory.
b. Equivalent unit production in beginning inventory.
c. Equivalent unit production in ending inventory.
d. Units completed.
2. Which company is most likely to use process costing?
a. A manufacturer of nuclear reactors. c. A construction contractor.
b. A cannery.
d. A textbook publisher.
Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116
3. The numerator of weighted-average unit cost calculations is
a. current period cost.
b. cost of beginning inventory.
c. cost of goods sold.
d. current period cost plus cost of beginning inventory.
4. Which item is NOT relevant in determining FIFO unit cost?
a. Cost of beginning inventory.
b. Equivalent unit production in beginning inventory.
c. Equivalent unit production in ending inventory.
d. Units completed.
5. The FIFO method of calculating equivalent production and unit costs
a. is less likely to be accurate than the weighted-average method.
b. is more useful for control purposes than the weighted-average
method.
c. cannot be used unless a company also uses standard costing.
d. eliminates the need to calculate separate equivalent-production
numbers for each element of manufacturing cost.
6. Falgoma Corporation completed 10,000 units, had beginning inventory of
2,500 units 40% complete, and ending inventory of 1,000 units 20%
complete. Weighted-average EUP was
a. 9,200.
b. 10,000.
c. 10,200.
d. 11,000.
7. Dwendwey Company had a beginning inventory of 3,000 units 35%
complete, and an ending inventory of 2,500 units 20% complete. If 17,500
units were completed and transferred, under FIFO costing what is the EUP
is conversion cost
a. 17,500.
b. 16,950.
c. 16,050.
d. 15,050.
8. Cheating Corporation has a weighted-average EUP of conversion cost
30,000 units. Beginning inventory was 4,000 units 40% complete; ending
inventory was 5,000 units 60% complete. The number of units completed
for the period is
a. 27,000.
b. 29,000.
c. 30,000.
d. 31,000.
9. Susasa Inc. had P 3,000 cost of beginning work in process and incurred an
additional for the period P 28,500 during the period. If weighted-average
EUP was 10,000 units, unit cost would be
a. P 2.85.
b. P 3.15.
c. P 9.50.
d. P 3.00.
10. Woods Run has a weighted-average EUP of 49,750 units. Beginning
inventory of 4,500 units was 60% complete; the ending inventory of 4,800
units was 60% complete. Conversion costs in beginning inventory were P
1,960; conversion costs added during the period were P 40,825.
Conversion costs per unit are
a. P 0.82.
b. P 0.86.
c. P 0.70.
d. P 1.00.
Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116
Let’s Analyze!
Senikel Company uses FIFO process costing. Data are as follows:
Beginning inventory 40% complete
5,000 units
Units completed during period
100,000 units
Ending inventory 70% complete
9,000 units
The cost of the beginning inventory was P 2,900 and current period production
costs were P 166,880.
Required:
a. Compute equivalent production.
b. Compute the unit cost.
c. Compute the cost of the ending inventory of work in process.
d. Compute the cost of goods completed and transferred to finished goods
inventory.
In a Nutshell
The following data are available for 2020 for Hunter Y Field, Inc., which uses
weighted-average process costing.
Beginning inventory (30% complete)
Units transferred in during 2020
Units completed during 2020
Ending inventory (60% complete)
Lost-normal (discovered at the end)
4,000 units
56,000 units
55,000 units
4,500 units
500 units
Materials are added at the beginning of the process
Costs of inventory at beginning of 2020
Cost from preceding department
P
6,600
Materials
12,000
Conversion Cost
6,750
Production costs incurred during 2020
Cost from preceding department
P 660,000
Materials
405,000
Conversion Cost
458,850
Required:
a. Prepare Cost of Production Report for 2020.
b. Compute equivalent production fo-33r 2020.
b. Compute the unit cost for 2020 to the nearest cent.
c. Compute the cost of the ending inventory of work in process.
d. Compute the cost of goods completed and transferred to finished
goods.
Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116
Q&A List
Do you have any question for clarification?
Questions/Issues
1.
2.
3.
4.
5.
Answers
Keywords index
FIFO Costing
Work in Process Beginning
Weighted Average Costing
Self-Help: You can also refer to the sources below to help you
further understand the lesson.
You can also refer to the sources below to help you further understand the
lesson:
De Leon, N. D., De Leon, E. D. and De Leon, G. Jr. M. (2019). Cost accounting and
control. Manila: GIC Enterprise & Co., Inc.
Garrison, R.H., & Noreen, E.W. (2003). Managerial accounting (10th ed.). McGrawHill Company, Inc.
Cabrera, E. B. (2014). Management accounting: concepts and application. Manila:
GIC Enterprise & Co., Inc.
Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116
Big Picture in Focus: ULOb. Apply the appropriate methods for costing joint
and by products.
Metalanguage
For you to demonstrate ULOb, you will need operational understanding of the terms
enumerated below.
•
Joint products – are individual. Products each with significant sales values