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18. Process Cost Systems. Describe and illustrate the use of cost of production reports for decision making. 4. 1. Describe process cost systems. Journalize entries for transactions using a process cost system. Prepare a cost of production report. 2. 3. Learning Objective 1.

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Process cost systems

18

Process Cost Systems


Process cost systems

Describe and illustrate the use of cost of production reports for decision making.

4

1

Describe process cost systems.

Journalize entries for transactions using a process cost system.

Prepare a cost of production report.

2

3

Learning Objective 1

Learning Objective 1

Process Cost Systems

3-1

3-1

After studying this chapter, you should be able to:

Describe the nature of the adjusting process.

Describe the nature of the adjusting process.

18-2


Process cost systems

Compare just-in-time processing with traditional manufacturing processing.

5

Process Cost Systems (continued)

18-3


Process cost systems

1

Describe process cost systems.

18-4


Process cost systems

1

Process Cost System

A process manufacturer produces products that are indistinguishable from each other using a continuous production process. The process system used by process manufacturers is called the process cost system.


Process cost systems

1

Comparing Job Order and Process Cost Systems

Both systems:

  • Record and summarize product costs.

  • Classify product costs as direct materials, direct labor, and factory overhead.

  • Allocate factory overhead costs to products.

  • Use perpetual inventory system for material, work in process, and finished goods.

  • Provide useful product cost information for decision making.


Process cost systems

1

Differences Between Job Order and Process Cost Systems


Process cost systems

Exhibit 1

1

Job Order and Process Cost Systems Compared

(continued)


Process cost systems

Exhibit 1

1

Job Order and Process Cost Systems Compared (continued)


Process cost systems

1

Process cost systems are used to manufacture homogeneous products. Examples are:

  • Tennis balls

  • Motor oil

  • Candy bars

  • Soft drinks


Process cost systems

1

In contrast, job cost systems are used to manufacture unique products or provide unique services. Examples are:

  • Custom-built homes

  • Landscape design services

  • Custom cabinets

  • Airplanes


Process cost systems

1

Example Exercise 18-1

Job Order vs. Process Costing

Which of the following industries would normally use job order costing systems and which would normally use process costing systems?

Home constructionComputer chips

BeveragesCookies

Military aircraftVideo game design and production

18-12


Process cost systems

Follow My Example 18-1

For Practice: PE 18-1A, PE 18-1B

1

Example Exercise 18-1 (continued)

Job Order

Process

Job Order

Process

Process

Job Order

Home construction

Beverages

Military aircraft

Computer chips

Cookies

Video game design and

production

18-13


Process cost systems

Exhibit 2

1

Physical Flows for a Process Manufacturer


Process cost systems

Exhibit 3

1

Cost Flows for a Process Manufacturer—Frozen Delight

WIP – Packaging

Materials

WIP – Mixing

(a) Direct and indirect materials

Debit Materials and credit Accounts Payable when direct and indirect materials are purchased.

(a)The cost of materials are purchased and recorded in materials.

(continued)


Process cost systems

Exhibit 3

DM

(b) Direct Materials

1

Cost Flows for a Process Manufacturer—Frozen Delight (continued)

WIP – Packaging

Materials

WIP – Mixing

(a) Direct and indirect materials

DM

DM

DM

(b) The cost of direct materials used by the Mixing and Packaging department are recorded in the work in process account for each department.

(continued)


Process cost systems

Exhibit 3

1

Cost Flows for a Process Manufacturer—Frozen Delight (continued)

WIP – Packaging

Materials

WIP – Mixing

(a) Direct and indirect materials

DL

DL

DM

DM

DM

(c) The cost of direct labor used by the Mixing and Packaging departments is recorded in process accounts for each department.

DL

(c) Direct Labor—Mixing

(continued)


Process cost systems

Exhibit 3

1

Cost Flows for a Process Manufacturer—Frozen Delight (continued)

WIP – Packaging

Materials

WIP – Mixing

(a) Direct and indirect materials

DL

DL

DM

DM

DM

(d) The cost of factory overhead incurred for indirect materials and other factory overhead, such as depreciation, is recorded in the factory overhead accounts for each department.

(continued)


Process cost systems

Exhibit 3

1

Cost Flows for a Process Manufacturer—Frozen Delight (continued)

WIP – Packaging

Materials

WIP – Mixing

(a) Direct and indirect materials

DL

DL

DM

DM

DM

IM

Factory OH – Mixing

Factory OH – Packaging

(d) Factory overhead incurred

(d) Factory overhead incurred

IM

(d) Indirect materials

(continued)


Process cost systems

Exhibit 3

1

Cost Flows for a Process Manufacturer—Frozen Delight (continued)

WIP – Packaging

Materials

WIP – Mixing

(a) Direct and indirect materials

DL

DL

DM

DM

DM

IM

(e) The factory overhead incurred in the Mixing and Packaging departments is applied to the work in process accounts for each department.

Factory OH – Mixing

Factory OH – Packaging

(d) Factory overhead incurred

(d) Factory overhead incurred

(continued)


Process cost systems

Exhibit 3

1

Cost Flows for a Process Manufacturer—Frozen Delight (continued)

WIP – Packaging

Materials

WIP – Mixing

(a) Direct and indirect materials

DL

DL

DM

DM

DM

FOA

FOA

IM

Factory OH – Mixing

Factory OH – Packaging

(d) Factory overhead incurred

(d) Factory overhead incurred

FOA

FOA

FOA

(e) Factory overhead applied—Mixing

FOA

(e) Factory overhead applied—Packaging

(continued)


Process cost systems

Exhibit 3

1

Cost Flows for a Process Manufacturer—Frozen Delight (continued)

WIP – Packaging

Materials

WIP – Mixing

(a) Direct and indirect materials

DL

DL

DM

DM

DM

FOA

FOA

IM

(f) The cost of units completed in the Mixing Department is transferred to the Packaging Department.

Factory OH – Mixing

Factory OH – Packaging

(d) Factory overhead incurred

(d) Factory overhead incurred

FOA

FOA

(continued)


Process cost systems

Exhibit 3

1

Cost Flows for a Process Manufacturer—Frozen Delight (continued)

WIP – Packaging

Materials

WIP – Mixing

(f) Costs trans-ferred out

(a) Direct and indirect materials

DL

DL

DM

DM

DM

FOA

FOA

IM

CTI

Factory OH – Mixing

Factory OH – Packaging

(d) Factory overhead incurred

(d) Factory overhead incurred

FOA

FOA

CTI

(f) Costs transferred in (to packaging)

(continued)


Process cost systems

Exhibit 3

1

Cost Flows for a Process Manufacturer—Frozen Delight (continued)

WIP – Packaging

Materials

WIP – Mixing

(f) Costs trans-ferred out

(a) Direct and indirect materials

DL

DL

DM

DM

DM

FOA

FOA

IM

CTI

(g) The cost of units completed in the Packaging Department is transferred to Finished Goods.

Factory OH – Mixing

Factory OH – Packaging

(d) Factory overhead incurred

(d) Factory overhead incurred

FOA

FOA

(continued)


Process cost systems

Exhibit 3

1

Cost Flows for a Process Manufacturer—Frozen Delight (continued)

WIP – Packaging

Materials

WIP – Mixing

(f)Costs trans-ferred out

(i)Costs trans-ferred out

(a) Direct and indirect materials

DL

DL

DM

DM

DM

FOA

FOA

IM

CTI

Factory OH – Mixing

Factory OH – Packaging

(d) Factory overhead incurred

(d) Factory overhead incurred

Finished Goods

FOA

FOA

CTI

CTI

(i)Cost transferred in from WIP—Packaging

(continued)


Process cost systems

Exhibit 3

1

Cost Flows for a Process Manufacturer—Frozen Delight (continued)

WIP – Packaging

Materials

WIP – Mixing

(f) Costs trans-ferred out

(i) Costs trans-ferred out

(a) Direct and indirect materials

DL

DL

DM

DM

DM

FOA

FOA

IM

CTI

Factory OH – Mixing

Factory OH – Packaging

(h) The cost of units sold is transferred to Cost of Goods Sold.

(d) Factory overhead incurred

(d) Factory overhead incurred

Finished Goods

FOA

FOA

CTI

(continued)


Process cost systems

Exhibit 3

1

Cost Flows for a Process Manufacturer—Frozen Delight (concluded)

WIP – Packaging

Materials

WIP – Mixing

(f) Costs trans-ferred out

(i) Costs trans-ferred out

(a) Direct and indirect materials

DL

DL

DM

DM

DM

FOA

FOA

IM

CTI

Factory OH – Mixing

Factory OH – Packaging

(d) Factory overhead incurred

(d) Factory overhead incurred

Finished Goods

FOA

FOA

CTI

CGS

Cost of Goods Sold

(j) Cost transferred to Cost of Goods Sold

CGS

CGS


Process cost systems

2

Prepare a cost of production report.

18-28


Process cost systems

2

Production Report—Mixing Department

Inventory in process, July 1, 5,000 gallons:

Direct materials cost, 5,000 gallons$ 5,000

Conversion costs, 5,000 gallons, 70% completed 1,225

Total inventory in process, July 1$ 6,225

Direct materials cost for July, 60,000 gallons$66,000

Direct labor for July10,500

Factory overhead applied for July 7,275 83,775

Total production costs to account for$90,000

Goods transferred to Packaging in July (including

units in process on July 1), 62,000 gallons?

Inventory in process, July 31, 3,000 gallons, 25%

complete as to conversion costs?


Process cost systems

2

Step 1: Determine the Units to Be Assigned Costs

Total units (gallons) charged toproduction:

In process July 15,000 gallons

Received from materials storage60,000 gallons

Total units accounted for by theMixing Department65,000 gallons


Process cost systems

Exhibit 4

2

July Units to Be Costed—Mixing Department


Process cost systems

2

Total Units to Be Assigned Costs

  • Inventory in process, July 1, completedin July5,000 gal.

  • Started and completed in July57,000 gal.*

  • Transferred out to the Packaging Department in July62,000 gal.

  • Inventory in process, July 31 3,000 gal.

  • Total gallons to be assigned costs65,000 gal.

*62,000 – 5,000


Process cost systems

2

Example Exercise 20-1

Example Exercise 18-2

Units to be Assigned Costs

Rocky Springs Beverage Company has two departments, Blending and Bottling. The Bottling Department received 57,000 liters from the Blending Department. During the period, the Bottling Department completed 58,000 liters, including 4,000 liters of work in process at the beginning of the period. The ending work in process was 3,000 liters. How many liters were started and completed during the period?

18-33


Process cost systems

Follow My Example 18-2

For Practice: PE 18-2A, PE 18-2B

2

Example Exercise 18-2 (continued)

54,000 liters started and completed (58,000 completed – 4,000 beginning work in process), or (57,000 started – 3,000 WIP)

18-34


Process cost systems

2

Step 2:Compute Equivalent Units of Production

Whole units are the number of units in production during a period, whether completed or not. Equivalent units of production are the portion of whole units that are complete with respect to either materials or conversion (direct labor and factory overhead) costs.


Process cost systems

Important: Note the word “Added”

2

Frozen Delight’s Equivalent Units Computation for Materials in July

PercentEquivalent

TotalMaterialsUnits for

WholeAddedDirect

Unitsin JulyMaterials

Inventory in process, July 15,0000%0

Started and completed in July (62,000 – 5,000) 57,000100% 57,000

Transferred out to Packaging Dept.62,000—57,000

Inventory in process, July 31 3,000100% 3,000

Total gallons to be assigned cost65,00060,000


Process cost systems

Exhibit 5

2

Direct Materials Equivalent Units


Process cost systems

2

Example Exercise 20-1

Example Exercise 18-3

Equivalent Units of Materials Cost

The Bottling Department of Rocky Springs Beverage Company had 4,000 liters in beginning work in process inventory (30% complete). During the period, 58,000 liters were completed. The ending work in process inventory was 3,000 liters (60% complete). What are the total equivalent units for direct materials if materials are added at the beginning of the process?

18-38


Process cost systems

Follow My Example 18-3

For Practice: PE 18-3A, PE 18-3B

2

Example Exercise 18-3 (continued)

PercentEquivalent

TotalMaterialsUnits for

WholeAddedDirect

Unitsin PeriodMaterials

Inventory in process, beginning of period4,000 0%0

Started and completed during the period54,000*100%54,000

Transferred out of Bottling (completed)58,00054,000

Inventory in process, end of period 3,000 100% 3,000

Total units to be assigned costs61,00057,000

*(58,000 – 4,000)

18-39


Process cost systems

2

Equivalent Units for Conversion Costs

To compute equivalent units for conversion costs, it is necessary to know how direct labor and factory overhead enter the manufacturing process.


Process cost systems

2

Percent

TotalConversionEquivalent

WholeCompletedUnits for

Unitsin JulyConversion

Inventory in process, July 1 (70% complete)5,00030%1,500

Started and completed in July(62,000 – 5,000) 57,000100% 57,000

Transferred out to Packaging Department in July62,000—58,500

Inventory in process, July 31(25% complete) 3,00025% 750

Total gallons to be assigned cost65,00059,250


Process cost systems

Exhibit 6

2

Conversion Equivalent Units


Process cost systems

2

Example Exercise 20-1

Example Exercise 18-4

Equivalent Units of Conversion Costs

The Bottling Department of Rocky Springs Beverage Company had 4,000 liters in beginning work in process inventory (30% complete). During the period, 58,000 liters were completed. The ending work in process inventory was 3,000 liters (60% complete). What are the total equivalent units for conversion costs?

18-43


Process cost systems

Follow My Example 18-4

For Practice: PE 18-4A, PE 18-4B

2

Example Exercise 18-4 (continued)

PercentEquivalent

ConversionUnits for

WholeCompletedConver-

Unitsin Periodsion

Inventory in process, beginning of period4,000 70%2,800

Started and completed during theperiod54,000* 100%54,000

Transferred out of Bottling(completed)58,00056,800

Inventory in process, end of period 3,000 60% 1,800

Total units to be assigned costs61,00058,600

*(58,000 – 4,000)

18-44


Process cost systems

Total Conversion Costs for the Period

Total Equivalent Units of Conversion Costs

Conversion Cost per Equivalent Unit

=

2

Cost per Equivalent Unit

Total Direct Materials Cost for the Period

Total Equivalent Units of Direct Materials

Direct Materials Cost per Equivalent Unit

=


Process cost systems

2

Step 3:Determine the Cost per Equivalent Unit

Equivalent Units from Step 2

DirectMaterialsConversion

Inventory in process, July 101,500

Started and completed in July(62,000 – 5,000)57,00057,000

Transferred out to Packaging Dept. in July57,00058,500

Inventory in process, July 31 3,000 750

Total gallons to be assignedcosts60,00059,250


Process cost systems

Conversion Cost per Equivalent Unit

$0.30 per gallon

$17,775 conversion costs

=

59,250 gallons

2

Direct Materials Cost per Equivalent Unit

$1.10 per gallon

$66,000 direct materials costs

=

60,000 direct materials equivalent units


Process cost systems

2

Example Exercise 20-1

Example Exercise 18-5

Cost per Equivalent Unit

The cost of direct materials transferred into the Bottling Department of Rocky Springs Beverage Company is $22,800. The conversion cost for the period in the Bottling Department is $8,790. The total equivalent units for direct materials and conversion are 57,000 and 58,600 liters, respectively. Determine the direct materials and conversion cost per equivalent unit.

18-48


Process cost systems

Follow My Example 18-5

For Practice: PE 18-5A, PE 18-5B

2

Example Exercise 18-5 (continued)

$22,800

57,000 liters

Equivalent units of materials:

= $0.40 per liter

$8,790

58,600 liters

Equivalent units of conversion:

= $0.15 per liter

18-49


Process cost systems

2

Step 4:Allocate Costs to Units Transferred Out and Partially Completed Units

Direct Conver-MaterialssionTotal

CostsCostsCosts

Inventory in process, July 1, balance $6,225

Equivalent units for completing the July 1 in-process inventory01,500

Equivalent unit cost× $1.10× $0.30

Cost of completed July 1 in-process inventory0$450 450

Cost of July 1 in-process inventory transferred to Packaging Department$6,675


Process cost systems

2

Costs Associated With the Units Started and Completed

Direct MaterialsConversionTotalCostsCostsCosts

Units started and completedin July57,00057,000

Equivalent unit cost× $1.10× $0.30

Cost to complete the units started and completed inJuly$62,700$17,100$79,800


Process cost systems

2

Costs Associated With the Partially Completed Units in the Ending Inventory

Direct MaterialsConversionTotalCostsCostsCosts

Equivalent units in endinginventory3,000750

Equivalent unit cost× $1.10× $0.30

Cost to ending inventory$ 3,300$ 225$3,525


Process cost systems

TotalGallonsCosts

Inventory in process, July 1,

completed in July5,000gallons$ 6,675

Started and completed in July57,000 79,800

Transferred out to the Packaging

Department in July62,000gallons$86,475

Inventory in process, July 31 3,000 3,525

Total65,000gallons$90,000

2

Summary


Process cost systems

2

Example Exercise 20-1

Example Exercise 18-6

Cost of Units Transferred Out and Ending Work in Process

The cost per equivalent unit of direct materials and conversion in the Bottling Department of Rocky Springs Beverage Company is $0.40 and $0.15, respectively. The equivalent units to be assigned cost are as follows:

Direct

MaterialsConversion

Inventory in process, beginning of period02,800

Started and completed during the period54,00054,000

Transferred out of Bottling (completed)54,00056,800

Inventory in process, end of period 3,000 1,800

Total units to be assigned costs57,00058,600

The beginning work in process inventory had a cost of $1,860. Determine the cost of units transferred out and the ending work in process inventory.

18-54


Process cost systems

Follow My Example 18-6

For Practice: PE 18-6A, PE 18-6B

2

Example Exercise 18-6 (continued)

Direct

MaterialsConversionTotal

Inventory in process, balance$ 1,860

Inventory in process, beginningof period0+2,800 × $0.15420

Started and completed during the period54,000 × $0.40+54,000 × $0.15 29,700

Transferred out of Bottling(completed)$31,980

Inventory in process, end ofperiod3,000 × $0.40+1,800 × $0.15 1,470

Total costs assigned by the Bottling Department$33,450

Completed and transferred out of production$31,980

Inventory in process, ending$ 1,470

18-55


Process cost systems

2

Cost of Production Report

A cost of production report is normally prepared for each processing department at periodic intervals. The report summarizes the following production quantity and cost data:

  • The units for which the department is accountable and the deposition of these units.

  • The production costs incurred by the department and the allocation of those costs between completed and partially completed units.


Process cost systems

Exhibit 7

2

Cost of Production Report for Frozen Delight’s Mixing Department—FIFO

Step 1

Step 2


Process cost systems

Exhibit 7

2

Cost of Production Report for Frozen Delight’s Mixing Department—FIFO (continued)

Step 3

Step 4


Process cost systems

3

Journalize entries for transactions using a process cost system.

18-59


Process cost systems

3

Journal Entries for Frozen Delight

a.Purchased materials, including milk, cream, sugar, packaging, and indirect materials on account, $88,000.


Process cost systems

3

b.Milk, cream, and sugar were requisitioned by the Mixing Department, $66,000. Another $8,000 of packaging materials was requisitioned by the Packaging Department. Indirect materials for the Mixing and Packaging Department were $4,125 and $3,000, respectively.


Process cost systems

3

c.Direct labor in the Mixing and Packaging departments was $10,500 and $12,000, respectively.


Process cost systems

3

d.Equipment depreciation for the Mixing and Packaging departments was $3,350 and $1,000, respectively.


Process cost systems

3

e.The factory overhead applied to Mixing and Packaging was $7,275 and $3,500, respectively.


Process cost systems

3

f.The amount of costs transferred from the Mixing Department to the Packaging Department was $86,475 per the cost of production report in Exhibit 7.


Process cost systems

3

g. The goods transferred out of the Packaging Department to Finished Goods according to the Packaging Department cost of production report was $106,000.


Process cost systems

3

h. The cost of goods sold out of the finished goods inventory of $107,000.


Process cost systems

3

Ending Inventories for Frozen Delight

July 31

Materials$ 6,875

Work in Process—Mixing Dept.3,525

Work in Process—PackagingDepartment7,725

Finished Goods 4,000

Total inventories$22,125


Process cost systems

Exhibit 8

3

Frozen Delight’s Cost Flows


Process cost systems

3

Example Exercise 20-1

Example Exercise 18-7

Process Cost Journal Entries

The cost of materials transferred into the Bottling Department of Rocky Springs Beverage Company is $22,800, with $20,000 from the Blending Department, plus an additional $2,800 from the materials storeroom. The conversion cost for the period in the Bottling Department is $8,790 ($3,790 factory overhead applied and $5,000 direct labor). The total cost transferred to Finished Goods for the period was $31,980. The Bottling Department had a beginning inventory of $1,860.

  • Journalize (1) the cost of transferred-in materials, (2) conversion costs, and (3) the costs transferred out to Finished Goods.

  • Determine the balance of Work in Process—Bottling at the end of the period.

18-70


Process cost systems

Follow My Example 18-7

For Practice: PE 18-7A, PE 18-7B

3

Example Exercise 18-7 (continued)

  • 1. Work in Process—Bottling22,800

    • Work in Process—Blending20,000

    • Materials2,800

  • 2. Work in Process—Bottling8,790

    • Factory Overhead—Bottling3,790

    • Wages Payable5,000

  • 3. Finished Goods31,980

    • Work in Process—Bottling31,980

b. $1,470 ($1,860 + $22,800 + $8,790 – $31,980)

18-71


Process cost systems

4

Describe and illustrate the use of cost of production reports for decision making.

18-72


Process cost systems

$5,000

5,000 gallons

Direct Materials Cost per Equivalent Unit

=

Direct Materials Cost per Equivalent Unit

$1.00 per gallon

=

4

Frozen Delight

Total Direct Materials Cost for the Period

Total Equivalent Units of Direct Materials

Direct Materials Cost per Equivalent Unit

=


Process cost systems

$1,225

(5,000 × 70%) gallons

Conversion Cost per Equivalent Unit

=

Conversion Cost per Equivalent Unit

$0.35 per gallon

=

4

Frozen Delight

Total Conversion Costs for the Period

Total Equivalent Units of Conversion Costs

Conversion Cost per Equivalent Unit

=


Process cost systems

4

Holland Beverage Company


Process cost systems

4

Holland Beverage Company


Process cost systems

4

Yield

In addition to unit costs, managers of process manufacturers are also concerned about yield trends. The Yield is computed as follows:

Quantity of Material Output Quantity of Material Input

Yield =


Process cost systems

Quantity of Material Output Quantity of Material Input

Yield =

900 pounds 1,000 pounds

Yield =

4

Assume that 1,000 pounds of sugar enter the Packaging Department and 980 pounds of sugar were packed. The yield is 98% as computed below.

Yield = 98%


Process cost systems

4

Example Exercise 20-1

Example Exercise 18-8

Using Process Costs for Decision Making

The cost of energy consumed in producing good units in the Bottling Department of Rocky Springs Beverage Company was $4,200 and $3,700 for March and April, respectively. The number of equivalent units produced in March and April was 70,000 and 74,000 liters, respectively. Evaluate the cost of energy between the two months.

18-79


Process cost systems

$3,700

74,000 liters

Energy cost per liter, April:

= $0.05

Follow My Example 18-8

For Practice: PE 18-8A, PE 18-8B

4

Example Exercise 18-8 (continued)

$4,200

70,000 liters

Energy cost per liter, March:

= $0.06

The cost of energy has appeared to improve by 1 cent per liter between March and April.

18-80


Process cost systems

5

Compare just-in-time processing with traditional manufacturing processing.

18-81


Process cost systems

5

JIT organizes manufacturing cells that perform several manufacturing steps. Workers are cross-trained to perform more than one task. This provides flexibility and worker pride and involvement in the final product.


Process cost systems

Exhibit 9

5

Traditional Production Line


Process cost systems

Exhibit 10

5

Just-in-Time Production Line


Process cost systems

Appendix:

Average Cost Method

18-85


Process cost systems

S&W Ice Cream Company

S&W Ice Cream Company mixes direct materials in refrigerated vessels and has two manufacturing departments, Mixing and Packaging.


Process cost systems

Mixing Department, July 2010

Work in process inventory, July 1,

5,000 gallons (70% completed)$ 6,200

Direct materials cost incurred in July,

60,000 gallons68,000

Direct labor cost incurred in July10,500

Factory overhead applied in July 6,405

Total production costs to account for$89,105

Goods transferred to Packaging in July (including units in process on July 1), 62,000 gallons

Work in process inventory, July 31, 3,000 gallons, 25% completed as to conversion costs


Process cost systems

Total gallons to account for:

Work in process, July 15,000gallons

Received from materials storeroom60,000

Total units to account for by the

Packaging Department65,000 gallons

Total gallons to be assigned costs:

Units transferred to the Packaging

Department in July62,000gallons

Work in process inventory, July 31 3,000

Total gallons to be assigned cost65,000gallons

Step 1


Process cost systems

Equivalent units completed and

transferred to the Packaging

Department during July62,000gallons

Equivalent units in ending work in

process, July 31 (3,000 × 25%) 750

Total equivalent units62,750gallons

Total Production Costs

Total Equivalent Units

Cost per Equivalent Unit =

$89,105

62,750

Cost per Equivalent Unit =

Steps 2 and 3

= $1.42


Process cost systems

Step 4

Transferred out to the Packaging

Department (62,000 gallons × $1.42)$88,040 Work in process inventory, July 31

(3,000 × 25% × $1.42) 1,065

Total production costs assigned$89,105


Process cost systems

Exhibit 11

Cost of Production Report for S&W Mixing Department – Average Cost

Step 1

Step 2

(continued)


Process cost systems

Exhibit 11

Cost of Production Report for S&W’s Mixing Department – Average Cost (continued)

Step 3

Step 4


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