# Example of Calculating Cost Units - PowerPoint

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```					Chapter Three

Process Costing
Objectives
1. Describe how products flow through departments
and how costs flow through accounts in process
costing.
2. Discuss the concept of an equivalent unit.
3. Calculate the cost per equivalent unit.
4. Calculate the cost of goods completed and the
ending Work in Process balance in a processing
department.
5. Describe a production cost report.
6. Describe process costing for multiple departments.
Difference Between Job-Order
and Process Costing Systems
Job-Order Costing Systems assign costs
to heterogeneous jobs.

manufacturing costs over total,
homogenous, units produced.
Difference Between Job-Order
and Process Costing Systems
Product and Cost Flows
1. Product Flows Through Departments (p 82)

2. Cost Flows Through Accounts (p 85)

3. Conversion direct +      manufacturing
Product Flows Through
Departments
Cost Flows Through Accounts
Calculating Unit Cost
To compute unit costs it is first necessary
to compute Equivalent Units.
How Equivalent Units are
Calculated
Cost Per Equivalent Unit
Weighted average unit cost in a Process
Costing System is calculated as follows:

Cost Per Equivalent Unit =

Cost in BWIP + Costs incurred currently
Units completed + Equivalent units in EWIP
Calculating and Applying Cost Per
Equivalent Unit: Mixing Department Example
Units:
Started:70,000 gallons, 60,000 of these completed
EWIP:20,000 gallons, 50% complete.
No spoilage or missing units.

Costs:
BWIP:\$18,000 material, \$7,800 labor, \$23,400 overhead
Overhead: applied at a predetermined rate of \$3 per dollar of
labor or \$186,600.
Calculating and Applying Cost Per
Equivalent Unit: Mixing Department
Example

Calculate: Cost per equivalent unit.
Solution:
Material: \$160,000/80,000=\$2
Labor:      \$ 70,000/70,000=\$1
Total Costs/Unit:            =\$6
Calculating and Applying Cost
Per Equivalent Unit: Mixing
Department Example
Calculating and Applying Cost
Per Equivalent Unit: Mixing
Department Example
Calculating and Applying Cost
Per Equivalent Unit: Mixing
Department Example
Production Cost Report
Production Cost Report Contains:
1. Reconciliation of units.
2. Reconciliation of costs.
3. Details of the cost per equivalent unit
calculations.
Reconciliation of Units

BWIP + the number of units started = the
number of units completed EWIP.
Reconciliation of Costs
BWIP + costs added = costs transferred
out + EWIP.
Basic Steps in Process
Costing: A Summary
1. Account for the number of physical
units.
2. Calculate the cost per equivalent unit
3. Assign cost to items completed and
items in EWIP.
4. Account for the amount of product cost
(reconciling costs and units identifies
spoilage or missing units).
Dealing With Transferred-In
Costs
1. Process Costing Systems generally use
several processes; not just one.
2. The costs from the previous processes are
called Transferred-In costs . They are
included in the current process, so the
product accumulates cost or value as it flows
through to finished goods inventory
3. Transferred-In costs are treated just like
other product costs (l.e. material, labor and
Process Costing and
Incremental Analysis
1. Decisions are based on costing
information obtained through Process
Costing Systems.
2. Incremental Analysis is frequently
used to make these decisions.
3. In incremental analysis we need to
identify the extra cost of further
processing to the extra benefit, and be
wary of including allocated sunk costs.
Quick Review Question #1

1. The best example of a business
requiring a process costing system
would be a(n);
a. Soap manufacturer.
b. Automobile repair shop.
c. Custom cabinet shop.
d. Antique furniture restorer.

1. The best example of a business
requiring a process costing system
would be a(n);
a. Soap manufacturer.
b. Automobile repair shop.
c. Custom cabinet shop.
d. Antique furniture restorer.
Quick Review Question #2

2. Costs in a process costing system are
ultimately traced to
a. Specific processes.
b. Specific customers.
c. Specific jobs.
d. Specific production personnel.

2. Costs in a process costing system are
ultimately traced to
a. Specific processes.
b. Specific customers.
c. Specific jobs.
d. Specific production personnel.
Quick Review Question #3
3. BWIP consisted of 2,500 units, 100%
complete for materials and 60% for
units were started. 9,000 units were
completed and transferred out. How
many physical units are in EWIP?
a. 1,500.
b. 10,500.
c. 14,500.
d. 0.
3. BWIP consisted of 2,500 units, 100%
complete for materials and 60% for
units were started. 9,000 units were
completed and transferred out. How
many physical units are in EWIP?
a. 1,500.
b. 10,500.
c. 14,500.
d. 0.
Quick Review Question #4
4. Using question #3 data, assume
ending inventory was 100% complete
for materials and 80% complete for
conversion costs? Calculate
equivalent units of production for
materials and conversion costs.
a. 6,500 & 6,500
b. 8,000 & 6,500
c. 8,000 & 8,700
d. 9,000 & 8,700
4. Using question #3 data, assume
ending inventory was 100% complete
for materials and 80% complete for
conversion costs? Calculate
equivalent units of production for
materials and conversion costs.
a. 6,500 & 6,500
b. 8,000 & 6,500
c. 8,000 & 8,700
d. 9,000 & 8,700

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