Process Costing Module – Accounting 3300
Prof. Richard E McDermott
INTRODUCTION
This module was written as a supplement to Chapter 17 in the textbook, this
module has everything you will need to know for the examination. As is
usually the case that students must read a chapter, listen to a lecture, and
then read a chapter or module again to fully understand the material. Don‘t
be discouraged if you don’t get it all the first time. Cost accounting is a
difficult course, and this is probably the most difficult module.
Before we begin discussing process costing, however, I think it’s a good
idea to review the flow of cost through a factory. This material was learned
in Accounting 2020 but I know that a number of you took that course more
than a year ago.
How Costs Flow through Factories
Costs enter a production facility through the Raw Material Storeroom. Raw
materials leave the Raw Materials Storeroom and enter the Factory where
they become direct materials. In the storeroom, employees add conversion
costs (direct material + overhead). When the product is finished, it is
transferred to the Finished Goods Storeroom and then exits the facility as
cost of goods sold. In Accounting 2020, I use a diagram entitled
McDermott Manufacturing to illustrate this costs flow. I will provide you
with this diagram.
Beginning inventory. Inventory
on the factory floor the first day
of the month.
Conversion costs: The sum of
direct labor and overhead costs.
Ending inventory. Inventory on
the factory floor the last day of
the month.
Finished goods. Goods that are
completed.
Percent completion. In process
costing this refers to the percent
of direct labor or direct materials
that have been added to work-inprocess.
Transferred in costs. Costs
transferred in from a previous
department. These could have
been transferred in the previous
month or during the current
month.
Work-in-process: product that is
not yet completed.
Goods within the Factory are known as work-in-process. Work-in-process represents product that is not
yet been completed. As soon as it is completed, it moves from the factory into the Finish Good Storeroom
where it becomes finished goods. There are no finished goods within the factory.
Within the factory, there is usually a beginning inventory. This is the amount of inventory sitting on the
factory floor at the beginning of the month.
There is a formula we learn in Accounting 2020 to calculate the amount of work-in-process that was
completed and transferred to the Finished Goods Storeroom. The formula was:
BI + TI – EI = TO
Where
BI = beginning inventory work-in-process:
TI = cost transferred in (raw materials and conversion costs)
EI = ending inventory work-in-process
TO = cost transferred out of the factory into the finish good storeroom (finished goods).
Memorize this formula as we will be using it throughout the semester, beginning in this module.
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CLASSIFICATION OF COSTING SYSTEMS – JOB COSTING AND PROCESS COSTING
In Accounting 2020, we were told that there are two types of cost
accounting systems. The first is job costing.
Job costing is used for products that are unique one from another.
Products that might be manufactured under a job costing system would
include custom homes and battleships.
You were also told that the cost objective for job costing was the job cost
sheet. A cost objective is anyplace that we accumulate costs.
You were not taught much about process accounting in Accounting
2020, but you were told that process costing is used for products that are
homogeneous. Examples of products that would be costed using a
process costing system include gallons of paint, batches of ball bearings,
and so on.
We should mention here that the cost objective in process costing is the
factory department. Some factories have only one department; some have
many. For example, in a manufacturing plant for furniture we might have
three departments: cutting, assembly, and painting.
Cost objective. Anyplace costs are
assigned for a specific purpose.
FIFO costing. A cost accounting
system that separates the equivalent
units and cost of the previous month
from those of the current month.
Job costing. A cost accounting
system used for products that are
different one from another.
Process costing. A cost accounting
system used for products that are
homogeneous.
Standard costing. A process or job
costing system that uses standard
cost instead of actual costs. We will
not study standard costing process
costing systems in this module.
Weighted average costing. A
process costing system that
combines the equivalent units and
costs of the previous month with
those up
of the
current
month.per unit.
come
with
a cost
And process costing costs are charged to specific production departments.
At the end of the month, these costs are divided by the number of
homogeneous units manufactured during the month in that department to
For example, if we manufactured 100,000 gallons of paint, and had $1,000,000 of direct materials and
conversion costs that had been charged to the production department during the month, we would divide
the $1,000,000 by 100,000 gallons to get a per unit cost of $10 per gallon.
Now it would seem that process costing will be a fairly simple process. This would be the case if there
were no beginning or ending inventories. However, this is usually not the case.
Reasons that process costing is more difficult job costing include:
1. There are inventories on the floor at the beginning of the month (known of course as the
beginning inventory). All inventories in the factory are incomplete. In addition the cost elements
(direct materials and conversion cost) for the inventories may be at different stages of completion.
For example, some of the beginning inventory might be 50% complete for direct materials but
only 20% complete for conversion costs.
This makes it impossible to divide the cost for the month by physical units in the factory, since
some of the units are only partially completed.
2. The cost of direct materials and conversion costs may have been different last month and they are
this month.
3. Materials may enter the production line at different times in the production process. This would
especially be true for a pharmaceutical company where different chemicals are added at different
points in the production process.
4. By name, there may be more than one production department.
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Within process costing, there are three subgroups.
1. Weighted average process costing
2. First-in-first-out costing (FIFO) and
3. Standard cost process costing
In this module we will only study the first two.
The primary teaching objectives in this model is the completion of a Cost of Production Report. This
report has one objective and that is to provide an accurate cost of goods transferred out and ending
inventory.
Preparing the cost of production report involves five steps:
1.
2.
3.
4.
5.
Summarize the flow of physical units
Compute output (production) in terms of equivalent units
Summarize total cost to account for
Compute cost per equivalent unit
Assign total cost to units completed and to units and ending work-inprocess
You should memorize the steps as we will be using them over and over again
as we go through the process costing module. I don’t expect you understand
fully what he steps mean at this point, but I will illustrate each step and by
the time we finish the example problem, the steps should be perfectly clear.
At this point, it makes sense to define several terms. The first is physical
unit. A physical unit is simply a unit of product. It may be finished, or may
only be in a partial stage of completion.
Physical unit. A unit of
product that may or may
not be complete.
Equivalent unit. An
equivalent a unit of material
is the amount of material it
would take into complete
one product. An equivalent
unit of conversion cost is the
amount of conversion costs
it would've taken to
complete one product.
The second term is
equivalent unit. An
equivalent
unit
is
basically a relative value unit (RVU) similar to what
we studied in the service industry cost accounting
module. No one in manufacturing accounting calls if
that, but having had the benefit of service industry
cost accounting you understand what an RVU is.
One equivalent unit of material is the amount of
material it would have taken to complete one unit of
product during the month. To illustrate: if we have
three automobiles on an assembly line at the end of
the month, and each are 1/3rd complete for direct
materials, then we have one equivalent unit of direct materials but three physical units of raw materials in
ending inventory. See the diagram above.
Okay, the best way to illustrate the preparation of a cost of production report is to work one.
PREPARATION OF A COST OF PRODUCTION REPORT – WEIGHTED-AVERAGE
We will first prepare a Cost of Production Report for a company that uses the weighted average method.
When preparing a cost of production report, you will always be given a table with the following
information. Let’s assume that we are dealing with month of April.
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Information Given
The company has two departments
Materials are added when conversion costs are
80% Complete
Conversion costs are added evenly
The company uses the weighted average method
This is the second production department In the production process
A
1
2
3
4
5
6
7
Beginning work in process
Degree of completion beginning work in process
Transferred in during April
Completed and transferred out during April
Ending work in process
Degree of completion ending work in process
Total costs added during April
B
C
Physical units Transferred in
Costs
600.00
$21,850
100%
1,800.00
2,000.00
400.00
100%
$96,000
D
Direct
Materials
E
Conversion
Costs
0
$10,000
0%
40%
0%
$17,800
60%
$46,000
Let’s discuss what we have here. This is a
manufacturer that has two departments. This
problem is concerned with the second
department only.
We assume that during the production process
that conversion costs are added evenly
throughout the process. In this problem there is
only one direct material and it is added when
80% of the conversion costs have been added.
One question you might have is: “What were
the workers working on before they added the
material at 80% of the production process?
Since this is the second department, they were
working on material transferred in from the first
department!
For ease of calculation, I have named the columns in the table A, B, C, D and E. I have numbered the
rows (in the above example 1 through 7).
Column B
Let’s explain each of the figures in column B.
At the beginning of the month, the company had 600 physical units of product in the beginning inventory.
These 600 physical units were only not complete for direct materials in conversion costs (specifically they
were 0% complete for direct materials and 40% complete for conversion costs).
During the month, the company transferred in 1,800 physical units of product from the previous
department. The company finished and completed 2,000 physical units and transferred them to the
Finished Goods Department.
At the end of the month, the company still had unfinished product sitting on the floor which is known as
ending inventory. The table shows us we had 400 physical units of ending inventory partially complete
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for direct materials and conversion costs. Specifically ending inventory was 100% complete for
transferred in costs, 0% complete for direct materials and 60% complete for conversion costs).
Column C
Now let’s look at Column C which gives us information about
transferred in costs. Transferred in costs are those cost that came from a
previous department. There was $21,850 of transferred in costs in the
beginning inventory.
Row 2 tells us that transferred in costs were 100% complete. Transferred
in costs are always 100% complete. Moving down to cell C6, we see that
the transferred in costs for ending inventory were also 100% complete.
I should note that transferred in costs are simply another category of direct
material. Let me illustrate this, as some students have trouble with this
concept.
Transferred in costs. The cost
of a product started in the
previous department and
transferred to a subsequent
department. These costs may
include direct labor and
conversion costs, but upon
their transfer are grouped into
a category known as
transferred in costs.
If I were building automobiles and purchased carburetors from an outside manufacturer, these carburetors
would be classified as direct materials. If I manufactured these carburetors in-house, however, (in
Department One), and then transferred them to Department Two, they would be known as transferred in
costs. In either case they are essentially the same thing – only with different names.
Cell C7 tells us during the month of April, $96,000 of costs were transferred from Department One to
Department Two.
Column D
Now let’s move to column D which deals with direct materials. Cell D1 has a balance of $0. This means
that we had yet to any direct materials to beginning inventory from Department Two. Cell D6 addresses
the amount of direct materials Department Two had in ending inventory. Again, there is none.
Cell D7 tells us that $17,800 of direct materials were added during the month of April.
Column E
Let’s move to Column E which gives us information on conversion costs. At the beginning of the month
there was $10,000 of conversion costs from Department two. Exactly 40% of the total conversion costs
that would be added during the month had been added. Conversion costs were, therefore, 40% complete.
Ending inventory conversion costs were 60% complete. During the month we added $46,000 of
conversion costs.
PREPARATION OF FLOW PRODUCTION SECTION OF PRODUCTION COST REPORT
Flow of Production Section
The first section of the Cost of Production Report is The Flow of Production section. In the first column,
we are going to verify that the number of units in beginning inventory plus the number of units transferred
in equals the number of units transferred out plus the number of units in ending inventory. Let’s take the
equation given above, and use a little algebra to illustrate this.
BI + TI – EI = TO
Rearranging through the use of algebra
BI + TI = TO + EI
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The Flow of Production section is shown below.
A
B
C
Flow of Production
8
9
10
11
12
13
14
Physical
Units
600.00
1,800.00
2,400.00
2,000.00
400.00
2,400.00
Beginning work in process
Transferred in
To account for
Completed and transferred out
Ending work in process
Accounted for
Equivalent units
D
E
Equivalent Units
Transferred in
Direct
Conversion
Costs
Materials
Costs
2,000.00
400.00
2,000.00
-
2,000.00
240.00
2,400.00
2,000.00
2,240.00
Column A
Rows 1 through 13 simply duplicate the formula given above. Beginning inventory + transferred in =
transferred out + ending inventory. If the numbers in
sales B10 and B13 do not equal each other, then we have
A
units that are unaccounted for.
Beginning work in process
Column B
In Column B we essentially copy the information given
to us in a slightly different format. Compare the numbers
and you’ll see what I’m talking about.
Transferred in during April
Completed and transferred out during April
Ending work in process
Degree of completion ending work in process
Total costs added during April
BI + TI
TO + EI
Column C, D and E
In columns C, D, and E we calculate equivalent units. We will do this by multiplying physical units by
percent of work completed and the current month.
For beginning inventory we take (100% minus beginning inventory percent of completion) and then
multiply that by physical units.
For ending inventory, we take percentage of completion and multiply it by physical units. We are
concerned about is the amount of work done this month.
The amount of work done to complete beginning work-in-process is represented by 100% minus the work
done in the previous month.
We assume that all ending inventory was started this month. Therefore if it inventory is 40% for
conversion costs, that 40% was completed this month.
Once again we are working a problem that uses weighted-average. The format for the Flow of Production
section will change slightly when we get to FIFO. Let’s go to cell 11C, 11D and 11E and calculate the
equivalent units of work for all of the units transferred out during the month.
Remember with weighted-average, we are combining the work done last month with work done this
month. Since the units are complete, they must be 100% complete for transferred in costs, direct material
cost, and conversion cost. The number of physical units equals the number of equivalent units for each of
these three categories. Simple calculation!
Now let’s move to Row 12 where we calculate equivalent units for ending work-in-process for these three
cost categories. If we go back to the data that was given, and look at cell 6C, we can see that ending
work-in-process was 100% done. If 100% of the work was done, then the way to calculate equivalent
units in ending work-in-process is to multiply 100% by the number of physical units which is 400. That
6
will give us a figure of 400. There are, therefore, 400 equivalent units of transferred in cost in ending
inventory.
If we go back to the data that was given, and look at cell D6, we see that ending work-in-process was 0%
completed for direct materials. Moving down to Cell D12, we calculate the equivalent units of direct
materials in ending work-in-process by multiplying 0% by 400 physical units which gives us zero
equivalent units.
Now let’s do the same thing for conversion costs. Going back to the data given, we can see in cell E6, that
ending work-in-process was 60% completed for conversion costs. How do we calculate, therefore, the
number of equivalent units in ending work-in-process? We multiply 60% by the physical units which are
400 to get 240 equivalent units.
Now let’s go down to Row 14. Here we are going to calculate the total number of equivalent units of
work done last month for each of our three cost categories (transferred in costs, direct materials costs, and
conversion costs). We do that by totaling rows 11 and 12 for each column.
We had 2,400 equivalent units (relative value units or units of work done) for “transferred in costs,” 2,000
equivalent units for direct material costs, and 2,240 equivalent units for conversion costs.
We have now finished the flow of production section of the production cost report.
FLOW OF COST SECTION OF THE PRODUCTION COST REPORT
Remember a moment ago we used the formula BI + TI = TO + EI to
account for physical units?
Now we are going to do the same thing for dollars. The amount of money
we invested in beginning inventory, plus the amount of money we added
during the month, should equal the amount of money transferred out, plus
the amount of money in ending inventory. If not, we have a problem.
Someone may have defrauded us!
As a reminder, in our formula:
BI = beginning inventory
TI = transferred in
TO = transferred out
EI = ending inventory
We have already been given the dollar amount in beginning inventory and the dollar amount transferred
in during the month. In this section of the report, we will distribute this amount of money to the goods
transferred out and to ending inventory.
The first few rows of the Flow of Cost section are shown below:
A
B
C
D
E
Total
Production Transferred in
Direct
Conversion
Costs
Costs
Materials
Costs
$ 31,850.00 $ 21,850.00 $
$ 10,000.00
159,800.00
96,000.00
17,800.00
46,000.00
117,850.00
17,800.00
56,000.00
Flow of Cost
15 Beginning work in process
16 Cost added in current.
17 Costs incurred to date
Where do we get the numbers for Row 15? This data was given to us! Transferred in costs of $21,850
plus direct material costs of $0 plus conversion costs of $10,000 are equal to $31,850.
Where do we get the numbers for Row 16? Again this data was given at the beginning of the problem.
Totaling the columns in rows 15 and 16 gives us the amounts in the columns of Row 17 four columns C,
D, and the. At this point, we do not calculate a total for column B. That will be done further down the cost
report.
7
The next thing we are going to do is to divide the total costs for the three categories (transferred in costs
direct material costs and conversion costs) as found in column C, D and E by the equivalent units we
calculated in the flow production section. This will give us a cost per equivalent unit for transferred in
costs, direct materials costs, and conversion costs.
What are we going to do with these three figures? We are going to use them to distribute costs to the
product that was transferred out and the ending inventory. Let’s expand the flow of cost production report
to illustrate this calculation.
A
B
C
D
E
Total
Production Transferred in
Direct
Conversion
Costs
Costs
Materials
Costs
$ 31,850.00 $ 21,850.00 $
$ 10,000.00
159,800.00
96,000.00
17,800.00
46,000.00
117,850.00
17,800.00
56,000.00
2,400.00
2,000.00
2,240.00
49.10
8.90
25.00
191,650.00
Flow of Cost
15
16
17
18
19
20
Beginning work in process
Cost added in current.
Costs incurred to date
Divide by equivalent units
Cost per equivalent unit
Total cost to account for
In row 20, we now calculate the total cost to account for. Put another way, this is the cost for BI + TI.
This is the amount that we will allocate to goods that are transferred out plus ending inventory (TO + EI).
Now we continue to the second portion of the flow of cost statement by adding rows 21 through 24. Here
we are going to allocate the $191,650 to goods transferred out and the ending inventory. We’re going to
do this using the equivalent units for each of these categories times the cost per equivalent unit calculated
above.
A
B
C
D
E
Total
Production Transferred in
Direct
Conversion
Costs
Costs
Materials
Costs
$ 31,850.00 $ 21,850.00 $
$ 10,000.00
159,800.00
96,000.00
17,800.00
46,000.00
117,850.00
17,800.00
56,000.00
2,400.00
2,000.00
2,240.00
49.10
8.90
25.00
191,650.00
Flow of Cost
15
16
17
18
19
20
21
22
23
24
Beginning work in process
Cost added in current.
Costs incurred to date
Divide by equivalent units
Cost per equivalent unit
Total cost to account for
Assignment of costs:
Completed and transferred out
Ending working process
Total costs accounted for
166,008.33
25,641.67
191,650.00
98,208.33
19,641.67
17,800.00
-
50,000.00
6,000.00
Let’s start with cell C22 which lists the amount of transferred in costs in goods that were completed and
transferred out... How do we calculate this? We multiply the cost per equivalent unit times the number of
equivalent units for costs that were completed and transferred out (cell D1 × D11). Thus, $49.10 times
sign 2,000 equivalent units = 98,208.33. That’s the dollar amount of “transferred in” costs in the product
that was completed and transferred out during the month.
Do the same thing for direct materials and conversion costs. All of those costs are then totaled in cell B22.
Thus, $166,008.33 is the cost of goods that were transferred out during the month.
8
Now the live allocated cost to the goods that were transferred out, all that remains is to allocate costs to
ending inventory.
Let’s go to cell C23 and follow the same procedure. The cost per equivalent unit is $49.10 for transferred
in costs. There are 400 equivalent units in ending inventory for transferred in costs (cell C12).
Multiplying these two figures we get it $19,641.67. We follow the same procedure to get the costs in
ending inventory for direct materials and for conversion costs. Totaling these three figures, we have
$25,641.67 in ending inventory.
The amount thus allocated is $166,008.33 + $25,641.67 = $191,650 which is the same amount that we
had to allocate in column B21. We had been successful!
PREPARATION OF A COST OF PRODUCTION REPORT – FIFO
The production report for FIFO is similar but not identical to that of weighted-average. The information
given is the same. So that you don’t have to flip back to many pages I repeat the information given in the
table below.
Transferred in Costs, FIFO
Information Given (Same as Above)
The company has two departments
Materials are added when the spinning process is
Conversion costs are added evenly
The company uses the weighted average method
This is the second department
80% Complete
A
25
26
27
28
29
30
31
B
C
D
E
Physical
Transferred in
Direct
Conversion
Units
Costs
Materials
Costs
600.00 $ 21,850.00 $
$ 10,000.00
100%
0%
40%
1,800.00
2,000.00
400.00
100%
0%
60%
$ 96,000.00 $ 17,800.00 $ 46,000.00
Beginning work in process
Degree of completion beginning work in process
Transferred in during April
Completed and transferred out during April
Ending work in process
Degree of completion ending work in process
Total costs added during April
In the flow of production report, the first section (rows 25 through 27) is identical to the weighted-average
report.
A
B
C
D
E
Physical
Transferred in
Direct
Conversion
Units
Costs
Materials
Costs
600.00 $ 21,850.00 $
$ 10,000.00
100%
0%
40%
1,800.00
25 Beginning work in process
26 Degree of completion beginning work in process
27 Transferred in during April
Beginning with row 27, “Completed and Transferred out”, however, the FIFO report begins to change.
9
You will remember with weighted-average we had one line in the flow production report “completed and
transferred out.” This is shown below.
11 Completed and transferred out
2,000.00
2,000.00
2,000.00
2,000.00
Since we are now using FIFO, however, we must separate the units of last month from units of this
month. Later we will do the same thing for costs.
Let’s focus on units first.
A
B
Flow of Production
28
29
30
31
32
33
Physical
Units
600.00
1,800.00
2,400.00
Beginning work in process
Transferred in during the current.
To account for
Completed and transferred out during the current.
From beginning work in process
Started and completed
600.00
1,400.00
C
D
Equivalent Units
Transferred in
Direct
Costs
Materials
1,400.00
600.00
1,400.00
E
Conversion
Costs
360.00
1,400.00
Go to Row 31st. Notice that completed and transferred out during is divided into two categories: “from
beginning work-in-process” and “started and completed.”
How do we calculate the physical units (600 units) from beginning work-in-process? That figure is given
to us (cell B25). How do we calculate the 1,400 units that were started and completed? We take the total
number transferred out (Cell B28) and subtract the number that was completed from the beginning
inventory.
How do we calculate equivalent units? In the same way we were taught under the weighted average
method. We multiply the physical units by the percent completion given above.
Let’s use cell E33 as an example. In cell E 26 we see that the beginning work-in-process was 40%
complete. That means that during this month we had to add 60% to complete the product (40% +60% =
100%).
Multiplying 60% work done this month by 600 physical units in beginning inventory gives us 360 (Cell
E32) equivalent units of work done in this month.
Once again we must emphasize that equivalent units in FIFO are calculated only on the work done this
month. In the same way, costs in FIFO only include those costs incurred this month.
Later, when we calculate the cost per equivalent unit in FIFO, we will divide only the costs incurred this
month, by the equivalent units of work done this month.
The completed Flow of Production Section is shown below. Notice that the equivalent units for FIFO are
different than the equivalent units for weighted-average. This is because the FIFO figures do not include
work done in the previous accounting month.
10
A
B
Flow of Production
28
29
30
31
32
33
34
35
36
Physical
Units
600.00
1,800.00
2,400.00
Beginning work in process
Transferred in during the current.
To account for
Completed and transferred out during the current.
From beginning work in process
Started and completed
Ending work in process
Accounted for
Equivalent units
600.00
1,400.00
400.00
2,400.00
C
D
Equivalent Units
Transferred in
Direct
Costs
Materials
E
Conversion
Costs
1,400.00
400.00
600.00
1,400.00
-
360.00
1,400.00
240.00
1,800.00
2,000.00
2,000.00
Now let’s turn to the Flow of Costs Report. Let’s begin by considering only the first row of that report
(row 37) since an important difference between weighted-average and five full appears here.
A
Flow of Costs
37 Beginning work in process
B
C
D
E
Total
Production Transferred in
Direct
Conversion
Costs
Costs
Materials
Costs
$ 31,850.00
Costs done in prior period!!!
Unlike weighted-average, we put no dollar figures in column C, D, and E. These costs were incurred in
the previous month and should not be included when calculating cost per equivalent unit.
Let’s continue down the report.
A
Flow of Costs
37
38
39
40
41
Beginning work in process
Costs added during the current period
Divide by equivalent units
Cost per equivalent unit
Total cost to account for
B
C
D
E
Total
Production Transferred in
Direct
Conversion
Costs
Costs
Materials
Costs
$ 31,850.00
Costs done in prior period!!!
$ 159,800.00 $ 96,000.00 $ 17,800.00 $ 46,000.00
1,800.00
2,000.00
2,000.00
$
53.33 $
8.90 $
23.00
$ 191,650.00
On row 38 we do show costs for Columns C, D, and E. These costs were incurred in the present month.
Remember we are only going to divide costs incurred in the present month by equivalent units of work
done in the present month. Thus we divide row 38 by the figures in row 39 to calculate cost per
equivalent unit shown in row 40.
Okay, now we have the Total Cost to Account for. It is $191,650. Now we are going to allocate these
costs to (1) goods that were transferred out and (2) ending inventory, just as we did in weighted-average,
but with one modification. When we calculate the cost of goods transferred out we’re going to have to
break them into cost from the previous month and cost from the present month.
Let’s focus first on allocating costs to the goods transferred out during the current month nth. Remember
that under weighted-average, the allocation looked like this.
22 Completed and transferred out
166,008.33
11
98,208.33
17,800.00
50,000.00
Pretty simple. Only one line. The costs completed and transferred out include both the cost from last
month and from this month combined.
With FIFO we are going separate last month’s cost from this month’s cost.
Let’s see what that schedule looks like. Again we are only dealing with one section of the flow of cost
report. We will show the entire section later.
43
44
45
46
47
48
Completed and transferred out
From beginning work in process
$ 31,850.00
Costs added to beginning work in process
13,620.00
Total from beginning inventory
$ 45,470.00
Started and completed
119,326.67
Total costs of goods completed and transferred out $ 164,796.67
0
5,340.00
8,280.00
74,666.67
12,460.00
32,200.00
Now instead of one row for “completed and transferred out” we have six. Let’s examine each
individually.
Row 44 gives us the cost incurred in beginning work-in-process last month.
Row 45 gives us the cost to complete this beginning work in process.
Row 46 adds the costs in the beginning inventory to the costs to complete the beginning inventory. Now
we know the cost of the completed inventory when it was shipped.
However, that was not all we shipped. To meet demand, we had to start and complete additional units of
product. That is shown on Row 47. All of those costs were incurred in this month.
Now we can calculate the total cost of all goods transferred out of Department two during the month. This
consists of the total of beginning inventory goods transferred out, plus goods that were started and
completed. This total is shown on Row 48.
There is now one more allocation we must make. We must allocate costs to inventory.
The completed flow of cost report is therefore shown below.
A
Flow of Costs
37
38
39
40
41
42
43
44
45
46
47
48
49
50
Beginning work in process
Costs added during the current period
Divide by equivalent units
Cost per equivalent unit
Total cost to account for
Assignment of costs:
Completed and transferred out
From beginning work in process
Costs added to beginning work in process
Total from beginning inventory
Started and completed
Total costs of goods completed and transferred out
Ending work in process
Total costs accounted for
B
C
D
E
Total
Production Transferred in
Direct
Conversion
Costs
Costs
Materials
Costs
$ 31,850.00
Costs done in prior period!!!
$ 159,800.00 $ 96,000.00 $ 17,800.00 $ 46,000.00
1,800.00
2,000.00
2,000.00
$
53.33 $
8.90 $
23.00
$ 191,650.00
$ 31,850.00
13,620.00
$ 45,470.00
119,326.67
$ 164,796.67
26,853.33
$ 191,650.00
12
0
5,340.00
8,280.00
74,666.67
12,460.00
32,200.00
21,333.33
-
5,520.00
Note that the total goods shipped of $164,796.67 plus the cost of ending work-in-process of $26,853.33
equals “costs accounted for” of $191,650.
How did we calculate the equivalent units for Rows 45 through 49 (columns C, D and E)?
In the same way we did for weighted-average. We multiply the cost per equivalent by the number of
equivalent units.
Total report is shown below.
A
Cost of Production Report
B
Flow of Production
28
29
30
31
32
33
34
35
36
Physical
Units
600.00
1,800.00
2,400.00
Beginning work in process
Transferred in during the current.
To account for
Completed and transferred out during the current.
From beginning work in process
Started and completed
Ending work in process
Accounted for
Equivalent units
600.00
1,400.00
400.00
2,400.00
A
Flow of Costs
37
38
39
40
41
42
43
44
45
46
47
48
49
50
Beginning work in process
Costs added during the current period
Divide by equivalent units
Cost per equivalent unit
Total cost to account for
Assignment of costs:
Completed and transferred out
From beginning work in process
Costs added to beginning work in process
Total from beginning inventory
Started and completed
Total costs of goods completed and transferred out
Ending work in process
Total costs accounted for
C
D
Equivalent Units
Transferred in
Direct
Costs
Materials
E
Conversion
Costs
1,400.00
400.00
600.00
1,400.00
-
360.00
1,400.00
240.00
1,800.00
2,000.00
2,000.00
B
C
D
E
Total
Production Transferred in
Direct
Conversion
Costs
Costs
Materials
Costs
$ 31,850.00
Costs done in prior period!!!
$ 159,800.00 $ 96,000.00 $ 17,800.00 $ 46,000.00
1,800.00
2,000.00
2,000.00
$
53.33 $
8.90 $
23.00
$ 191,650.00
$ 31,850.00
13,620.00
$ 45,470.00
119,326.67
$ 164,796.67
26,853.33
$ 191,650.00
13
0
5,340.00
8,280.00
74,666.67
12,460.00
32,200.00
21,333.33
-
5,520.00