Chapter 17
Job costing
Products are different from one another
Example: Custom home
Cost object is the job cost sheet
Process costing
Products are homogeneous
Example: Paint, marbles
Cost object is the department
The main difference is the extent of
averaging used to compute units costs of
products or services.
Costs are charged to the manufacturing
department, then divided by units
manufactured (later we will define this as
equivalent units).
Equivalent Unit
An equivalent unit of labor is the cost of labor it would
have taken to manufacture a complete product during
the month
Same definition applies for overhead and materials.
Three automobiles 1/3rd complete for labor
constitutes three physical units but one equivalent
unit.
We divide manufacturing costs incurred during the
month by equivalent units.
There are beginning work-in-process
inventories that probably have different costs
per equivalent unit for labor, material and
overhead than those incurred in this month.
There may be more than one manufacturing
department.
There may be products on the manufacturing
line at the end of the period that have
different stages of completion for labor,
materials, and overhead.
Labor and materials costs may be added at
different points in the production process.
To provide accurate ending costs for work-in-
process, finished goods, and cost of goods
sold.
Weighted average:
Calculates cost per equivalent unit of all work
done to date, (regardless of the accounting period
in which it was done).
Uses the cost per equivalent unit to assign costs to
goods completed and transferred out, and ending
work-in-process (EWIP).
First-in, First-out, (FIFO) Method:
Calculates the cost per equivalent unit of work
done in this period only.
Uses this to assign cost to goods completed and
transferred out, and ending work-in-process.
Summarize the flow of physical units.
Compute output in terms of equivalent units.
Compute cost per equivalent unit.
Summarize total costs to account for.
Assign total costs to units completed and
units in ending work-in-process.
BI + TI – EI = TO
BI + TI = EI + TO
BE + TI = TO + EI
Sound familiar? It is merely an adaptation of
the generic formula given when we worked
the McDermott Manufacturing formula.
The above formula works for both physical
units, and dollars.
We will use it in accounting for each.
Direct materials
Direct labor
Overhead
Transferred-in costs
These occur when we have more than one
production department.
For example a furniture manufacturer might
have three departments that products flow
through.
WIP Cutting Dept WIP Assembly WIP Varnishing
In the Assembly and Varnishing Department
we not only add direct materials, direct labor
and overhead, but we add costs from the
previous department.
WIP Cutting Dept WIP Assembly WIP Varnishing
How do we handle transferred-in costs?
Just like another category of direct material.
That makes sense.
For example, if we were building cars we could
buy the car frame (in which it would be added as a
direct material cost), or manufacture the frame in
a previous department, in which case it would be a
transferred in cost which is another category of
direct material.
They are both handled exactly the same!
Sometimes students confuse these two
concepts:
Transferred in costs: cost transferred in .from
another department.
with . . .
Beginning work-in-process: costs transferred
in from another time period.
Weighted Average Method
Beginning
inventory
+ Transferred in = Transferred out + Ending
inventory
Costs that we account for
FIFO Method
Beginning
inventory
+ Transferred in = Transferred out + Ending
inventory
In FIFO we break transferred
out into two components
Beginning
Started and
inventory
completed
finished and
during the period
transferred out
Weighted Average Method
Beginning
inventory
+ Transferred in = Transferred out + Ending
inventory
In the weighted average method, the costs of
the beginning inventory which was finished and
transferred out is averaged with the costs of the
goods started and completed during this period.
Thus the costs are treated in one cost pool.
FIFO Method
Beginning
inventory
+ Transferred in = Transferred out + Ending
inventory
Since the costs last
month may differ from
this month’s cost, in
FIFO we seek for more Beginning
accuracy for breaking Started and
inventory
them out and handling completed
finished and
them separately. during the period
transferred out
Aragon Industries manufactures an industrial
solvent in two departments: blending and
finishing.
The problem focuses on the Finishing
Department.
Direct materials are added at the end of the
process.
What this means in that any unit on the
production line is 0% in equivalent units for
materials.
Conversion costs are added evenly during the
process.
What are conversion costs?
Remember from Accounting 2020, that they are
defined as direct labor and factory overhead.
Conversion costs are the costs that it takes to
convert materials to a product.
The following information for June 2007 is
available:
Physical Transferred-in Direct Conversion
units costs materials Costs
WIP beginning 50 $50,000 $0 $20,000
inventory
Degree of 100% 0% 60%
completion BWIP
Interesting point! If WIP beginning has
Transferred-in 90 0% completion for direct materials, and
Completed & 100 WIP ending has 0% completion for direct
transferred out materials, where did the $25,000 go?
Degree of 40 100% 0% 75%
completion EWIP
Total costs added $95,000 $25,000 $52,000
in month
Physical Transferred-in Direct Conversion
units costs materials Costs
WIP beginning 50 $50,000 $0 $20,000
inventory
Degree of 100% 0% 60%
completion BWIP
It went into the goods that were started and
Transferred-in 90 completed (therefore transferred out) this
Completed & 100 period. Hence it is shown in neither the
transferred out beginning nor ending inventories, but was
still spent in the period.
Degree of 40 100% 0% 75%
completion EWIP
Total costs added $95,000 $25,000 $52,000
in month
Equivalent Units
Physical Units Transferred in Direct Conversion
Costs Materials Costs
BWIP given 50 Don’t put any equivalent units
here—that would be double
Transferred-in counting
To account for
Completed and
transferred-out
EWIP
Accounted for
Equivalent Units
Physical Units Transferred in Direct Conversion
Costs Materials Costs
BWIP given 50 Don’t put any equivalent units
here—that would be double
Transferred-in 90 counting
To account for 140
Completed and
transferred-out
EWIP
Accounted for
Equivalent Units
Physical Units Transferred in Direct Conversion
Costs Materials Costs
BWIP given 50 Don’t put any equivalent units
here—that would be double
Transferred-in 90 counting
To account for 140
Completed and 100 100 100 100
transferred-out
EWIP
Accounted for
Now we show not only physical units but equivalent units. In weighted average
we always assume 100% complete for all cost categories.
Equivalent Units
Physical Units Transferred in Direct Conversion
Costs Materials Costs
BWIP given 50 Don’t put any equivalent units
here—that would be double
Transferred-in 90 counting
To account for 140
Completed and 100 100 100 100
transferred-out
EWIP 40 40 0 30
We assume all units of EWIP was started this period. Thus 100% of transferred-in
costs were incurred this period. 100% x 40 physical units = 40 equivalent units.
Equivalent Units
Physical Units Transferred in Direct Conversion
Costs Materials Costs
BWIP given 50 Don’t put any equivalent units
here—that would be double
Transferred-in 90 counting
To account for 140
Completed and 100 100 100 100
transferred-out
EWIP 40 40 0 30
The problem tells us that EWIP is 0% completed for direct materials.
Equivalent Units
Physical Units Transferred in Direct Conversion
Costs Materials Costs
BWIP given 50 Don’t put any equivalent units
here—that would be double
Transferred-in 90 counting
To account for 140
Completed and 100 100 100 100
transferred-out
EWIP 40 40 0 30
The problem tells us that EWIP is 75% completed for conversion costs
Equivalent Units
Physical Units Transferred in Direct Conversion
Costs Materials Costs
BWIP given 50 Don’t put any equivalent units
here—that would be double
Transferred-in 90 counting
To account for 140
Completed and 100 100 100 100
transferred-out
EWIP 40 40 0 30
Accounted for 140 140 100 130
What are we going to do with these figures? Divide them into the cost of work
done, to give us a cost per equivalent unit for transferred-in costs, direct
materials, and conversion costs.
Remember, we are concerned in the
weighted average method with the costs of
beginning work and process and costs added
this period.
Later in the FIFO method we will only be
concerned with the costs incurred this
accounting period.
Let’s get to it.
Total Prod'n Transferred-in Direct Materials Conversion
Costs Costs Costs
BWIP $70,000 $50,000 $0 $20,000
Not to get ahead of ourselves, but it might be noted that in the FIFO method we
do not enter values here. That is because we are working towards calculating
costs per equivalent unit, and in the FIFO method we do not include BWIP in
either costs or equivalent units.
Total Prod’n Transferred-in Direct Materials Conversion
Costs Costs Costs
BWIP (given) $70,000 $50,000 $0 $20,000
Costs added 172,000 95,000 25,000 52,000
Total Prod’n Transferred-in Direct Materials Conversion
Costs Costs Costs
BWIP (given) $70,000 $50,000 $0 $20,000
Costs added 172,000 95,000 25,000 52,000
Cost incurred to-date $145,000 $25,000 $72,000
Total Prod’n Transferred-in Direct Materials Conversion
Costs Costs Costs
BWIP (given) $70,000 $50,000 $0 $20,000
Costs added 172,000 95,000 25,000 52,000
Cost incurred to-date $145,000 $25,000 $72,000
Divide by equiv unit 140 100 130
Total Prod’n Transferred-in Direct Materials Conversion
Costs Costs Costs
BWIP (given) $70,000 $50,000 $0 $20,000
Costs added 172,000 95,000 25,000 52,000
Cost incurred to-date $145,000 $25,000 $72,000
Divide by equiv unit 140 100 130
Cost per equiv unit $1,035.71 $250.00 $553.85
Total Prod’n Transferred-in Direct Materials Conversion
Costs Costs Costs
BWIP (given) $70,000 $50,000 $0 $20,000
Costs added 172,000 95,000 25,000 52,000
Cost incurred to-date $145,000 $25,000 $72,000
Divide by equiv unit 140 100 130
Cost per equiv unit $1,035.71 $250.00 $553.85
Tot costs to acct for $242,000
Total Prod’n Transferred-in Direct Materials Conversion
Costs Costs Costs
BWIP (given) $70,000 $50,000 $0 $20,000
Costs added 172,000 95,000 25,000 52,000
Cost incurred to-date $145,000 $25,000 $72,000
Divide by equiv unit 140 100 130
Cost per equiv unit $1,035.71 $250.00 $553.85
Tot costs to acct for $242,000
Assignment costs:
Total Prod’n Transferred-in Direct Materials Conversion
Costs Costs Costs
BWIP (given) $70,000 $50,000 $0 $20,000
Costs added 172,000 95,000 25,000 52,000
Cost incurred to-date $145,000 $25,000 $72,000
Divide by equiv unit 140 100 130
Cost per equiv unit $1,035.71 $250.00 $553.85
Tot costs to acct for $242,000
Assignment of costs:
Transf-out (100 units) $183,956 (100 x $1,035.71) + (100 x $250) + (100 x $553.85)
Total Prod’n Transferred-in Direct Materials Conversion
Costs Costs Costs
BWIP (given) $70,000 $50,000 $0 $20,000
Costs added 172,000 95,000 25,000 52,000
Cost incurred to-date $145,000 $25,000 $72,000
Divide by equiv unit 140 100 130
Cost per equiv unit $1,035.71 $250.00 $553.85
Tot costs to acct for $242,000
Assignment costs:
Transf-out (100 units) $183,956 (100 x $1,035.71 + (100 x $250) + (100 x $553.85)
EWIP 58,044 (40 x $1,035.71) + (0 x $250) + (30 x $553.85)
Total Prod’n Transferred-in Direct Materials Conversion
Costs Costs Costs
BWIP (given) $70,000 $50,000 $0 $20,000
Costs added 172,000 95,000 25,000 52,000
Cost incurred to-date $145,000 $25,000 $72,000
Divide by equiv unit 140 100 130
Cost per equiv unit $1,035.71 $250.00 $553.85
Tot costs to acct for $242,000
Assignment costs:
Transf-out (100 units) $183,956 (100 x $1,035.71 + (100 x $250) + (100 x $553.85)
EWIP (40 units) 58,044 (40 x $1,035.71) + (0 x $250) + (30 x $553.85)
Total costs to acct for $242,000
Notice these two match
Now we will do the same problem using the
FIFO method.
The primary difference is the cost per
equivalent unit does not include work done in
beginning work-in-process for:
equivalent units,
or dollars in beginning work-in-process.
Instead, BWIP is separated from the current
period.
There is one other difference with respect to
this specific problem:
Total BWIP costs are $40,000 (instead of $50,000
in the previous problem) and total transferred-in
costs are added during June are $87,200 (instead
of $95,000).
Physical units Transferred-in Direct Conversion
costs materials Costs
WIP beginning 50 40,000 0 $20,000
inventory
Degree of 100% 0% 60%
completion
BWIP
Transferred-in 90
Completed & 100
transferred out
Degree of 40 100% 0% 75%
completion
EWIP
Total costs $87,200 $25,000 $52,000
added in
month
Equivalent Units
Transferred -in Direct Materials Conversion
Physical Units Costs Costs
BWIP Work done before current period
Transferred-in
during current
period
To account for
Completed and transferred-out during current period:
From BWIP
Started and Note that we break completed and transferred-
completed out into two figures. That is because we are
EWIP
separating beginning inventory work from work
done in the current period. Work, of course, is
Accounted for represented in equivalent units.
Work done
current period
Equivalent Units
Transferred - in Direct Materials Conversion
Physical Units Costs Costs
BWIP 50 Work done before current period
Transferred-in
during current
period
To account for
Completed and transferred-out during current period:
From BWIP
Started and
completed
EWIP
Accounted for
Work done
current period
Equivalent Units
Transferred in Direct Materials Conversion
Physical Units Costs Costs
BWIP 50 Work done before current period
Transferred-in 90
during current
period
To account for
Completed and transferred-out during current period:
From BWIP
Started and
completed
EWIP
Accounted for
Work done
current period
Equivalent Units
Transferred in Direct Materials Conversion
Physical Units Costs Costs
BWIP 50 Work done before current period
Transferred-in 90
during current At this point it is good go note that “to
period account for” (140) will also the be
number later accounted for.
To account for 140
Completed and transferred-out during current period:
From BWIP
Started and That is because: BWIP + Transferred in
completed = Transferred out + EWIP
EWIP
Accounted for
Work done
current period
Equivalent Units
Transferred in Direct Materials Conversion
Physical Units Costs Costs
BWIP 50 Work done before current period
Transferred-in 90
during current
period
To account for 140
Completed and transferred-out during current period:
From BWIP 50 0 50 20
Started and
completed For the first time, the numbers on this schedule start to differ
EWIP from those on the weighted-average method schedule.
Accounted for
Why? Because we are breaking units transferred out into
Work done
current period two components, one of which is BWIP!
Equivalent Units
Transferred in Direct Materials Conversion
Physical Units Costs Costs
BWIP 50 Work done before current period
Transferred-in 90
during current
period
To account for 140
Completed and transferred-out during current period:
From BWIP 50 0 50 20
Started and
completed Why are transferred in equivalent units zero? Because in
EWIP the FIFO method we only include work done in the
Accounted for current period. We are told in the problem that BWIP was
100% done at the beginning of the period. How much
Work done
current period
work was done this period? None!
Equivalent Units
Transferred in Direct Materials Conversion
Physical Units Costs Costs
BWIP 50 Work done before current period
Transferred-in 90
during current
period
To account for 140
Completed and transferred-out during current period:
From BWIP 50 0 50 20
Started and
completed
Refer again to the problem. It tells us that BWIP was 0%
EWIP complete with regard to the direct materials that are
Accounted for added in this department. So, how many equivalent
Work done units of work did we complete this period? 100% x 50
current period physical units = 50 equivalent units.
Equivalent Units
Transferred in Direct Materials Conversion
Physical Units Costs Costs
BWIP 50 Work done before current period
Transferred-in 90
during current
period
To account for 140
Completed and transferred-out during current period:
From BWIP 50 0 50 20
Started and
completed Lastly, the problem tells us that BWIP was 60% complete
EWIP at the beginning of the period for conversion costs added
Accounted for in this department ,. Thus the work done in this period was
(100% - 60%) x 50 physical units = 20 equivalent units!
Work done
current period
Equivalent Units
Transferred in Direct Materials Conversion
Physical Units Costs Costs
BWIP 50 Work done before current period
Transferred-in 90
during current
period
To account for 140
Completed and transferred-out during current period:
From BWIP 50 0 50 20
Started and 50 50 50 50
completed
EWIP
Before we showed 100 units transferred out. Now we break
Accounted for this into units transferred out from beginning inventory (50)
Work done and units transferred out that were started and completed
current period during this period (50).
Equivalent Units
Transferred in Direct Materials Conversion
Physical Units Costs Costs
BWIP 50 Work done before current period
Transferred-in 90
during current
period
To account for 140
Completed and transferred-out during current period:
From BWIP 50 0 50 20
Started and 50 50 50 50
completed
EWIP The work on started and completed units was all done this
Accounted for
period. Thus for transferred-in costs, direct materials, and
conversion costs we multiply 50 physical units by 100%
Work done
current period
Equivalent Units
Transferred in Direct Materials Conversion
Physical Units Costs Costs
BWIP 50 Work done before current period
Transferred-in 90
during current
period
To account for 140
Completed and transferred-out during current period:
From BWIP 50 0 50 20
Started and 50 50 50 50
completed
EWIP 40 40 0 30
Accounted for
Ending work in process was started this period. The book
Work done tells us it is 100% complete for transferred-in costs so we
current period
multiply 40 physical units by 100%
Equivalent Units
Transferred in Direct Materials Conversion
Physical Units Costs Costs
BWIP 50 Work done before current period
Transferred-in 90
during current
period
To account for 140
Completed and transferred-out during current period:
From BWIP 50 0 50 20
Started and 50 50 50 50
completed
EWIP 40 40 0 30
Accounted for
The book tells us that EWIP has 0% of the materials added
Work done in this period so the work done in this period is 0 x 40
current period
physical units.
Equivalent Units
Transferred in Direct Materials Conversion
Physical Units Costs Costs
BWIP 50 Work done before current period
Transferred-in 90
during current
period
To account for 140
Completed and transferred-out during current period:
From BWIP 50 0 50 20
Started and 50 50 50 50
completed
EWIP 40 40 0 30
Accounted for
The book tells us that EWIP has75% of conversion costs
Work done completed so we multiply 75% x 40 physical units = 30
current period
equivalent units.
Equivalent Units
Transferred in Direct Materials Conversion
Physical Units Costs Costs
BWIP 50 Work done before current period
Transferred-in 90
during current
period
To account for 140
Completed and transferred-out during current period:
From BWIP 50 0 50 20
Started and 50 50 50 50
completed
EWIP 40 40 0 30
Accounted for 140
Now we add up the units accounted for
Work done
current period to see if they equal the 140 shown
above.
Equivalent Units
Transferred in Direct Materials Conversion
Physical Units Costs Costs
BWIP 50 Work done before current period
Transferred-in 90
during current Lastly we total the work done this period
period to get a total figure.
To account for 140
Completed and transferred-out during current period:
From BWIP 50 0 50 20
Started and 50 50 50 50
completed
EWIP 40 40 0 30
Accounted for 140
Work done 90 100 100
current period
Equivalent Units
Transferred in Direct Materials Conversion
Physical Units Costs Costs
BWIP 50 Work done before current period
Transferred-in 90
during current
period
To account for 140
Completed and transferred-out during current period:
From BWIP 50 0 50 20
Started and 50 50 50 50
completed What are we going to do with these equivalent unit
EWIP figures? We will divide them into the cost of work 30
40 40 0
done this period to get a cost/equivalent unit!
Accounted for 140
Work done 90 100 100
current period
Total Production Transferred- Direct Conversion
Costs in Costs Materials Costs
BWIP Costs of work done before current period
Costs added
current period
Divide by
equivalent units
Cost per
Equivalent Unit
Total costs
accounted for
Remember, this is FIFO. We don’t count work done in the prior period or costs
incurred in the prior period in the calculation of equivalent units.!
Total Production Transferred- Direct Conversion
Costs in Costs Materials Costs
BWIP $60,000 Costs of work done before current period
Costs added
current period
Divide by
equivalent units
Cost per
Equivalent Unit
Total costs
accounted for
Total Production Transferred- Direct Conversion
Costs in Costs Materials Costs
BWIP $60,000 Costs of work done before current period
Costs added
current period
Divide by
equivalent units
Cost per
Equivalent Unit
Total costs
accounted for
Just to review, however, in weighted average, however, we do break out
BWIP in these boxes.
Total Production Transferred- Direct Conversion
Costs in Costs Materials Costs
BWIP $60,000 Costs of work done before current period
Costs added 164,200 $87,200 $25,000 $52,000
current period
Divide by
equivalent units
Cost per
Equivalent Unit
Total costs
accounted for
Total Production Transferred- Direct Conversion
Costs in Costs Materials Costs
BWIP $60,000 Costs of work done before current period
Costs added 164,200 $87,200 $25,000 $52,000
current period
Divide by ÷ 90 ÷ 100 ÷ 100
equivalent units
Cost per
Equivalent Unit Calculated in steps 2 & 3.
Total costs
accounted for
Total Production Transferred- Direct Conversion
Costs in Costs Materials Costs
BWIP $60,000 Costs of work done before current period
Costs added 164,200 $87,200 $25,000 $52,000
current period
Divide by ÷ 90 ÷ 100 ÷ 100
equivalent units
Cost per $224,200 $968.89 250 520
Equivalent Unit
Total costs
accounted for
Total Production Transferred- Direct Conversion
Costs in Costs Materials Costs
BWIP $60,000 Costs of work done before current period
Costs added 164,200 $87,200 $25,000 $52,000
current period
Divide by ÷ 90 ÷ 100 ÷ 100
equivalent units
Cost per $224,200 $968.89 250 520
Equivalent Unit
Total costs $224,200
accounted for
We will distribute this exact amount to transferred-out and EWIP
Weighted Average FIFO
Assignment of costs: Assignment of costs:
Completed and transferred-out
From BWIP
Costs added to complete BWIP
Total from BWIP
Started and completed
Completed and transferred out Total costs of units completed and
transferred out
EWIP EWIP
Total costs accounted for Total costs accounted for
Assignment of costs:
Completed and transferred out
(100 units)
From BWIP (50 units) $60,000
Assignment of costs:
Completed and transferred out
(100 units)
From BWIP (50 units) $60,000
Costs added current 22,900 (0 x $968.89) + (50 x $250) + (20 x $520)
period
Units were all 100% complete
For transferred in costs at the
beginning of period so no work
was done in this period.
Assignment of costs:
Completed and transferred out
(100 units)
From BWIP (50 units) $60,000
Costs added current 22,900 (0 x $968.89) + (50 x $250) + (20 x $520)
period
Units were 0% complete for
Materials at the beginning of the
period so (100% x 50 = 50)
equivalent units of work
was done this period.
Assignment of costs:
Completed and transferred out
(100 units)
From BWIP (50 units) $60,000
Costs added current 22,900 (0 x $968.89) + (50 x $250) + (20 x $520)
period
Units were 60% complete for
Conversion costs at the beginning of the
period so (40% x 50 = 20)
equivalent units of work
was done this period.
Assignment of costs:
Completed and transferred out
(100 units)
From BWIP (50 units) $60,000
Costs to complete BWIP 22,900 (0 x $968.89) + (50 x $250) + (20 x $520)
Total transferred-out 82,900
from BWIP
Assignment of costs:
Completed and transferred out
(100 units)
From BWIP (50 units) $60,000
Costs added current 22,900 (0 x $968.89) + (50 x $250) + (20 x $520)
period
Total transferred-out 82,900
from BWIP
Started and completed (50 $86,944 (50 x $968.89) + (50 x $250) + (50 x $520)
units)
We always make the assumption that started and completed was done in this
period. Thus (100% X 50 = 50) units of work done this period for all cost categories.
Assignment of costs:
Completed and transferred out
(100 units)
From BWIP (50 units) $60,000
Costs added current 22,900 (0 x $968.89) + (50 x $250) + (20 x $520)
period
Total transferred-out 82,900
from BWIP
Started and completed (50 $86,944 (50 x $968.89) + (50 x $250) + (50 x $520)
units)
Total costs transferred-out $169,844
This is the total cost of what was shipped.
Assignment of costs:
Completed and transferred out
(100 units)
From BWIP (50 units) $60,000
Costs added current 22,900 (0 x $968.89) + (50 x $250) + (20 x $520)
period
Total transferred-out 82,900
from BWIP
Started and completed (50 $86,944 (50 x $968.89) + (50 x $250) + (50 x $520)
units)
Total costs transferred-out $169,844
EWIP $54,356 (40 x $968.89) + (0 x $250) + (30 x $520)
We make the assumption in this chapter that all EWIP was started this period.
Multiply the % completion for each category by physical units to get equivalent units.
Assignment of costs:
Completed and transferred out
(100 units)
From BWIP (50 units) $60,000
Costs added current 22,900 (0 x $968.89) + (50 x $250) + (20 x $520)
period
Total transferred-out 82,900
from BWIP
Started and completed (50 $86,944 (50 x $968.89) + (50 x $250) + (50 x $520)
units)
Total costs transferred-out $169,844
EWIP $54,356 (40 x $968.89) + (0 x $250) + (30 x $520)
For example, there are 40 units in EWIP that are 75% done. So the work done
this period is .75 x 40 = 30 equivalent units.
Assignment of costs:
Completed and transferred out
(100 units)
From BWIP (50 units) $60,000
Costs added current 22,900 (0 x $968.89) + (50 x $250) + (20 x $520)
period
Total transferred-out 82,900
from BWIP
Started and completed (50 $86,944 (50 x $968.89) + (50 x $250) + (50 x $520)
units)
Total costs transferred-out $169,844
EWIP $54,356 (40 x $968.89) + (0 x $250) + (30 x $520)
Total costs accounted for $224,200
Total costs accounted for equals total cost to account for.
Defense contractor
Two departments, Assembly and Testing
Two cost pools: direct costs and conversion
costs
Direct materials added at beginning of
process in Assembly
Conversion costs added evenly in Assembly
Company uses weighted-average method
Physical Units Direct Materials Conversion Costs
BWIP (100%, 60%) 20 $460,000 $120,000
Started 80
Completed 90
EWIP (100%, 70%) 10
Total costs added $2,000,000 $935,000
October
Beginning and ending inventories are both 100% completed because materials
are added at the beginning of the process.
Equivalent Units
Flow of Production Physical Direct Conversion
Units Materials Costs
BWIP 20
Started during period 80
To account for 100
Completed and transferred out 90 90 90
EWIP 10
To account for 100
Equivalent Units
Flow of Production Physical Direct Conversion
Units Materials Costs
BWIP 20
Started during period 80
To account for 100
Completed and transferred out 90 90 90
EWIP 10 10 7
To account for 100
Equivalent Units
Flow of Production Physical Direct Conversion
Units Materials Costs
BWIP 20
Started during period 80
To account for 100
Completed and transferred out 90 90 90
EWIP 10 10 7
To account for 100 100 97
Total Direct Conversion
Production Materials Costs
Costs
BWIP $580,000 $460,000 $120,000
Costs added
Costs to-date
Divide by equivalent units
Cost/equivalent unit
Total costs to account for
Assignment of costs:
Completed and transf. out
EWIP
Total costs accounted for
Total Direct Conversion
Production Materials Costs
Costs
BWIP $580,000 $460,000 $120,000
Costs added 2,935,000 2,000,000 935,000
Costs to-date
Divide by equivalent units
Cost/equivalent unit
Total costs to account for
Assignment of costs:
Completed and transf. out
EWIP
Total costs accounted for
Total Direct Conversion
Production Materials Costs
Costs
BWIP $580,000 $460,000 $120,000
Costs added 2,935,000 2,000,000 935,000
Costs to-date $2,460,000 $1,055,000
Divide by equivalent units 100 97
Cost/equivalent unit
Total costs to account for
Assignment of costs:
Completed and transf. out
EWIP
Total costs accounted for
Total Direct Conversion
Production Materials Costs
Costs
BWIP $580,000 $460,000 $120,000
Costs added 2,935,000 2,000,000 935,000
Costs to-date $2,460,000 $1,055,000
Divide by equivalent units 100 97
Cost/equivalent unit $24,600 $10,876.29
Total costs to account for
Assignment of costs:
Completed and transf. out
EWIP
Total costs accounted for
Total Direct Conversion
Production Materials Costs
Costs
BWIP $580,000 $460,000 $120,000
Costs added 2,935,000 2,000,000 935,000
Costs to-date $2,460,000 $1,055,000
Divide by equivalent units 100 97
Cost/equivalent unit $24,600 $10,876.29
Total costs to account for $3,515,000
Assignment of costs:
Completed and transf. out
EWIP
Total costs accounted for
Total Direct Conversion
Production Materials Costs
Costs
BWIP $580,000 $460,000 $120,000
Costs added 2,935,000 2,000,000 935,000
Costs to-date $2,460,000 $1,055,000
Divide by equivalent units 100 97
Cost/equivalent unit $24,600 $10,876.29
Total costs to account for $3,515,000
Assignment of costs:
Completed and transf. out $3,192,866 [90 x ($24,600 + $10,876.29)]
EWIP
Total costs accounted for
Total Direct Conversion
Production Materials Costs
Costs
BWIP $580,000 $460,000 $120,000
Costs added 2,935,000 2,000,000 935,000
Costs to-date $2,460,000 $1,055,000
Divide by equivalent units 100 97
Cost/equivalent unit $24,600 $10,876.29
Total costs to account for $3,515,000
Assignment of costs:
Completed and transf. out $3,192,866 [90 x ($24,600 + $10,876.29)]
EWIP 322,124 (10 x $24,600) + (7 x $10,876.29)
Total costs accounted for
Total Direct Conversion
Production Materials Costs
Costs
BWIP $580,000 $460,000 $120,000
Costs added 2,935,000 2,000,000 935,000
Costs to-date $2,460,000 $1,055,000
Divide by equivalent units 100 97
Cost/equivalent unit $24,600 $10,876.29
Total costs to account for $3,515,000
Assignment of costs:
Completed and transf. out $3,192,866 [90 x ($24,600 + $10,876.29)]
EWIP 322,124 (10 x $24,600) + (7 x $10,876.29)
Total costs accounted for $3,515,000
Journal entries for process costing are the
same as for job costing learned in accounting
2020.
Accounting entries for weighted average are
the same as for FIFO.
WIP--Assembly 2,000,000
Accounts payable 2,000,000
Direct materials purchased and used in production in October
WIP--Assembly 2,000,000
Accounts payable 2,000,000
Direct materials purchased and used in production in October
WIP--Assembly 935,000
Various credits 935,000
Conversion costs incurred in October
WIP--Assembly 2,000,000
Accounts payable 2,000,000
Direct materials purchased and used in production in October
WIP--Assembly 935,000
Various credits 935,000
Conversion costs incurred in October
WIP--Testing 3,192,866
WIP--Assembly 3,192,866
Cost of goods completed and transferred out in October from Assembly
Department to Testing Department
Do problem 17-30 using FIFO.
Explain any difference between the cost per
equivalent unit in the Assembly Department
under weighted-average and FIFO.
Equivalent Units
Physical Units Direct Materials Conversion Costs
BWIP (100%, 60%) 20
Started 80
To account for 100
Transferred out:
From BWIP 20 0 8
Started and completed 70 70 70
EWIP (100%, 70%) 10 10 7
Accounted for 100 80 85
How do we compute started and completed? Transferred-out – BWIP.
Total Costs Direct Materials Conversion Costs
BWIP $580,000
Costs added 2,935,000 2,000,000 935,000
Total added 2,000,000 935,000
Divide by eq units 80 85
Cost per eq unit $25,000 11,000
To account for $3,515,000
Assignment of Costs
Transferred out
BWIP $580,000 $460,000 + $120,000
To complete BWIP 88,000 (0 x $25,000) + (8 x 11,000)
From BWIP $668,000
Started & completed $2,520,000 70 x ($25,000 + $11,000)
Total transferred out $3,188,000
EWIP 327,000 (10 x $25,000) + (7 x 11,000)
Total costs accounted for $3,515,000
The difference in cost per equivalent reflects the fact that weighted-average
has included the equivalent units of work done in the prior period and the costs of
that work done.
Now we are going to work a problem with
transferred-in costs.
This means of course:
There is a department before the department we
are doing to cost of production for
Transferred-in costs will be treated just like
another form of direct costs.
I will probably give you a problem with
transferred in costs on the test!
Global Defense makes
missiles.
Two departments
Assembly
Testing
This problem focuses
on the second
department--testing
Direct materials are added when the process
is 90% complete.
Conversion costs are added evenly.
After testing, missiles go to finished goods.
The company uses weighted average.
The author provides the following data:
Physical Trans-in Direct Conversion
Units Costs Materials Costs
Beginning WIP 30 $ 985,800.00 $ - $ 331,800.00
Transferred-in ?
Completed during month 105
Ending WIP 15
Total costs added during month
$ 3,192,866.00 $ 3,885,000.00 $ 1,581,000.00
Trans-in Direct Conversion
Costs Materials Costs
Degree of completion BWIP % ? ? 70%
Degree of completion EWIP % ? ? 60%
Given what we have been taught, we can complete the degree of
completion box above.
Transferred in costs are always 100% complete.
Direct materials are added when conversion costs are 90% complete.
Since that has not happened for either beginning or ending WIP, both
will be zero.
Trans-in Direct Conversion
Costs Materials Costs
Degree of completion BWIP % 100% 0% 70%
Degree of completion EWIP % 100% 0% 60%
Since we have been through the process of
preparing this report fairly extensively, I only
show the end results. I did all of the steps to
review once more their format.
Step 1 Step 2
Equivalent Units
Physical Transferred Direct Conversion
Flow of Production Units in costs Materials Costs
WIP beginning 30
Started current period 90
To account for 120
Completed and transferred out 105 105 105 105
Ending WIP 15 15 0 9
Accounted for 120
120 105 114
Steps 3, 4 and 5 Total
Prod'n Transf-in Direct Conversion
Costs Costs Materials Cost
WIP beginning $ 1,317,600.00 $ 985,800.00 $ - $ 331,800.00
Costs added current period 8,658,866.00 3,192,866.00 3,885,000.00 1,581,000.00
Costs incurred to date 9,976,466.00 4,178,666.00 3,885,000.00 1,912,800.00
Equivalent units to date 120.00 105.00 114.00
Cost per equivalent unit to date 34,822.22 37,000.00 16,778.95
Assignment of costs
Completed and transferred-out 9,303,122.22 3,656,332.75 3,885,000.00 1,761,789.47
WIP ending 673,343.78 522,333.25 - 151,010.53
Total costs accounted for $ 9,976,466.00 $ 4,178,666.00 $ 3,885,000.00 $ 1,912,800.00
This problem is essentially 17-33 but with the
following changes:
It is done using the FIFO method.
The cost of beginning WIP goods transferred-in
costs are changed.
Physical Trans-in Direct Conversion
Units Costs Materials Costs
Beginning WIP 30 $ 980,060.00 $ - $ 331,800.00
Transferred-in ?
Completed during month 105
Ending WIP 15
Total costs added during month $ 3,188,000.00 $ 3,885,000.00 $ 1,581,000.00
Trans-in Direct Conversion
Costs Materials Costs
Degree of completion BWIP % 100% 0% 70%
Degree of completion EWIP % 100% 0% 60%
Equivalent Units
Physical Transferred Direct Conversion
Flow of Production Units in costs Materials Costs
WIP beginning 30
Started current period 90
To account for 120
Completed and transferred out
From WIP Beginning 30 0 30 9
Started and completed 75 75 75 75
Ending WIP 15 15 0 9
Accounted for 120
90 105 93
Steps 3, 4 and 5 Total
Prod'n Transf-in Direct Conversion
Costs Costs Material Cost
WIP beginning $ 1,311,860.00
Costs added current period 8,654,000.00 3,188,000.00 3,885,000.00 1,581,000.00
Costs incurred to date 9,965,860.00
Equivalent units to date 90.00 105.00 93.00
Cost per equivalent unit to date 35,422.22 37,000.00 17,000.00
Assignment of costs
Completed and transferred-out
WIP Beginning 1,311,860.00
Costs to complete WIP Beginning 1,263,000.00 - 1,110,000.00 153,000.00
Total from WIP Beginning 2,574,860.00
Started and completed 6,706,666.67 2,656,666.67 2,775,000.00 1,275,000.00
Total costs completed and trans-out 9,281,526.67
WIP ending 684,333.33 531,333.33 - 153,000.00
Total costs accounted for $ 9,965,860.00