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Process Costing

Group B

Charlene Jane Espino Justine Palaypay Danilyn Vanguardia

Agenda

• (^) Process Costing
• (^) Job Costing Vs. Process Costing
• (^) 5 Steps in Process Costing
• (^) Flow of Cost of Process Costing
• (^) Weighted Average
• (^) FIFO

Importanc e of Process Costing

 (^) Process costing is particularly important in the oil, chemical, lumber, textile and food processing industries. Getting a handle on production costs enables these companies to set the right prices for their products and determine whether costs are tracking in line with projections. They can use process costing to analyze the costs of each step of the production and distribution process and use the information to identify areas where they can reduce costs.

Flow of Costs in a Processing Costing System

Presentation title

(^14) Process Costing Computations In process costing, each department needs to calculate two numbers for financial reporting purposes—the cost of its ending work in process inventory and the cost of its completed units that were transferred to the next stage of the production process. The key to deriving these two numbers is calculating unit costs within each department. There are two methods for performing the computations of departmental unit costs: the weighted-average method and the FIFO method. The weighted-average method of process costing calculates unit costs by combining costs and outputs from the current and prior periods The FIFO method of process costing, which will be covered in Chapter 5 Supplement, calculates unit costs based solely on the costs and outputs from the current period.

Presentation title

20XX Equivalent Units Equivalent units are the product of the number of partially completed units and the percentage completion of those units. Equivalent units need to be calculated because a department usually has some partially completed units in its beginning and ending inventories. These partially completed units complicate the determination of a department’s output for a given period, and the unit cost that should be assigned to that output.

20XX Calculating Equivalent Units Equivalent units = Number of partially completed units x Percentage completion. Equivalent units is the product of the number of partially completed units and the percentage completion of those units with respect to the processing in the department. The equivalent units is the number of complete units that could have been obtained from the materials and effort that went into the partially complete units.

Computation of Equivalent Production Computation of Equivalent Production a. Under a FIFO method: Total units actually completed xxx Add: Equivalent units of WIP, end xxx Total xxx Less: Equivalent units of WIP, beginning (last period) xxx Total Equivalent Production xxx b. Under the AVERAGE method: Total units actually completed xxx Add: Equivalent units of WIP, end xxx Total equivalent production for the period xxx

Presentation title (^20) Example: