Principles of Cost Accounting, 16th Edition, Edward J. VanDerbeck, ©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for
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Chapter 6
Process Cost AccountingAdditional Procedures;
Accounting for Joint Products
and By-Products
Learning Objectives
Compute unit costs when materials are
not added uniformly throughout the
Account for units lost in the production
Account for units gained in the production
Learning Objectives (cont.)
Assign costs to inventories, using the first-in,
first-out method.
Identify the methods used to apportion joint
costs products and account for by-products.
Materials not Uniformly
• Materials may be put into production in
varying quantities and at different points in
the processing cycle.
• When industries apply materials into
production in different quantities and at
varying points in the production cycle,
equivalent units must be computed for
each element of production cost.
Materials not Uniformly
• The valuation of the ending work in
process requires the allocation of cost for
each element:
Factory Overhead
All materials added at the
• The only difference between equivalent unit
calculations for the material components and the
labor and overhead components would concern
the ending work in process inventory.
Example: Ending inventory of 400 units that were
¾ complete.
Materials – 400 equivalent units (received all materials
when started)
Labor and overhead – 300 equivalent units (400 x ¾
completed as to processing costs)
All materials added at the
• Once the equivalent production figures
are calculated, the unit cost for the period
can be calculated.
• Add the cost of each element in beginning
WIP to the cost of production for that
element incurred in the current month.
• Total cost is then divided by the
appropriate equivalent production figure.
• Cost is then applied to inventory to arrive
at cost of goods finished and the cost of
the ending WIP.
All materials added at the
close of processing
• Only units finished will have materials cost
• Units in process at the end of the
accounting period will have no equivalent
production for the period.
• Equivalent units for labor and factory
overhead would be computed as the
previous example.
Materials added at different
• The state of completion must be carefully
• Finished units will include all materials
• Example:
• 60 % of the materials at beginning
• 40 % of the materials at one-half completed
• 2,400 units were finished
Materials added at different
Example cont.
• 200 units are one-fourth completed as to labor
and overhead; because they are not yet 50 %
complete, only 60% of materials are added.
(200 X 60%) = 120 units
• 400 are three-fourth completed as to labor and
overhead; because they are more than 50%
complete all the materials have been added.
Materials added at different
Example cont.
• Therefore, equivalent production for materials
is figured as follows
2,400 X 100 % = 2,400
200 X 60 % = 120
400 X 100 % = 400
2,920 units
Units Lost in Production
• Some production processes are of the
nature that some units will always be lost
due to evaporation, shrinkage, spillage, or
other factors.
• Normal losses are expected in the
manufacturing process and cannot be
avoided and are treated as product losses.
Units Lost in Production
• Abnormal losses are treated as a period
costs and are charged to a separate
account, such as Loss from Abnormal
• These losses do not become a part of
inventory costs.
Units Gained in Production
• The increase in units has the opposite
effect on unit cost than did lost units, and
requires an adjustment to the unit cost.
• Total cost for the original units are now
spread over a greater number of units,
thereby reducing the cost per unit.
Equivalent Production: FIFO
Equivalent Production: FIFO
Equivalent Production: FIFO
Joint Products and ByProducts
Joint Products and ByProducts
• The cost of materials, labor, and overhead
incurred during such a joint production
process are called joint costs.
• The point where these joint products
become separately identifiable is known
as the split-off point.
Joint Products and ByProducts
• Typical bases for apportionment of joint
costs to joint products follow:
• Relative(or adjusted) sales value of each
A physical unit measure such as volume,
weight, size, or grade.
Chemical, engineering, or other types of
Joint Products and ByProducts
Joint Products and ByProducts