7-1
7
Process Costing
Student Tutorial
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 2000
7-2
Process Costing System Design
Process Costing is a costing system that
assigns costs equally to homogeneous units
within a particular time period.
This
This is
is an
an appropriate
appropriate system
system to
to use
use
when:
when:
•Units
•Units do
do not
not differ
differ from
from each
each other.
other.
•Unit
•Unit cycle
cycle time
time is
is relatively
relatively short.
short.
•The
•The production
production process
process is
is continuous.
continuous.
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 2000
7-3
Process Costing at Monterrey Bay
Abalone
Human
Humanand
and
physical
physical
resources
resources
Cultivation
Cultivation process
process
activities
activities
Grow-out
Grow-outprocess
process
activities
activities
Market-size
Market-sizeabalone
abalone
Finished
FinishedGoods
GoodsInventory
Inventory
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 2000
7-4
Process Costing: The Basics
Costs
Costs will
will be
be accumulated
accumulated by
by process.
process. They
They will
will
not
not be
be traced
traced to
to individual
individual units
units of
of product.
product.
Direct
Direct Materials
Materials
Irwin/McGraw-Hill
Conversion
Conversion Costs
Costs
© The McGraw-Hill Companies, Inc., 2000
7-5
Process Costing: The Basics
Costs
Costs will
will be
be accumulated
accumulated by
by process.
process. They
They will
will
not
not be
be traced
traced to
to individual
individual units
units of
of product.
product.
Direct
Direct Materials
Materials
Conversion
Conversion Costs
Costs
Raw
Rawmaterial
materialdirectly
directly
traceable
traceableto
tothe
the
process.
process.
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 2000
7-6
Process Costing: The Basics
Costs
Costs will
will be
be accumulated
accumulated by
by process.
process. They
They will
will
not
not be
be traced
traced to
to individual
individual units
units of
of product.
product.
Direct
Direct Materials
Materials
Conversion
Conversion Costs
Costs
labour
labourand
andoverhead
overhead
directly
directlytraceable
traceableto
tothe
the
process.
process.
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 2000
7-7
Process Costing: The Basics
Direct
Direct
Materials
Materials(DM)
(DM)
DM
$
Units
÷
Produced
=
DM Cost
per Unit
+
Conversion
Conversion
Costs
Costs(CC)
(CC)
CC
$
Units
÷
Produced
=
CC Cost
per Unit
Total Cost
per Unit
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 2000
7-8
Process Costing: The Basics
!
!Determine
Determine total
total Direct
Direct Material
Material costs
costs
"
"Compute
Compute DM
DM Cost
Cost per
per Unit
Unit
#
#Determine
Determine total
total Conversion
Conversion Costs
Costs
$
$Compute
Compute CC
CC Cost
Cost per
per Unit
Unit
%
%Add
Add Steps
Steps 22 and
and 44 to
to get
get Total
Total Cost
Cost
per
per Unit
Unit
&
&COGS
COGS == Step
Step 55 ×× Units
Units Sold
Sold
'
'Ending
Ending Inventory
Inventory == Step
Step 55 ×× Units
Units Not
Not
Sold
Sold
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 2000
7-9
Example 1: All Units Fully
Completed (No WIP)
Clark,
Clark, Inc.
Inc. is
is aa new
new company
company that
that makes
makes shingles
shingles
from
from storm-damaged
storm-damaged cedar
cedar trees.
trees. The
The product
product
sells
sellsat
at aapremium
premium and
and is
is in
in high
high demand.
demand.
During
During June,
June, they
theypurchased
purchased 90,000
90,000 board
board feet
feet
cedar
cedar costing
costing $350,000.
$350,000. They
They spent
spent $105,000
$105,000 on
on
labour.
labour. Clark,
Clark, Inc.
Inc. incurred
incurred other
other process
process
overhead
overhead (insurance,
(insurance, rent,
rent, benefits,
benefits, etc.)
etc.) of
of
$280,000.
$280,000. The
The result
result was
was 1,000,000
1,000,000 shingles
shingles
produced.
produced. There
There were
wereno
no units
units in
in beginning
beginning or
or
ending
ending WIP.
WIP.
Compute
Compute the
the cost
cost per
per shingle
shingle produced.
produced.
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 2000
7-10
Example 1: All Units Fully
Completed (No WIP)
Direct
Direct
Materials
Materials(DM)
(DM)
$350,000
÷ 1,000,000
=
$0.350
+
Conversion
Conversion
Costs
Costs(CC)
(CC)
$105,000
÷
1,000,000
Total Cost Per Unit
Irwin/McGraw-Hill
=
$0.105
$0.455
© The McGraw-Hill Companies, Inc., 2000
7-11
Some Units Not Fully Complete
(Ending WIP)
In
Inmany
manycases,
cases,
there
therewill
will be
be
some
someunits
unitsat
atthe
the
end
endof
of the
themonth
month
still
stillin
inthe
the
process.
process.
With
With aacontinuous
continuous
process,
process,itit would
wouldbe
be
unrealistic
unrealisticto
toexpect
expect
every
everyunit
unit to
tobe
becomplete
complete
at
at the
theend
endof
ofeach
each month
month
We
Wemust
must compute
computeEQUIVALENT
EQUIVALENT UNITS
UNITSof
of
Production
Productionfor
forthe
theitems
itemsstill
still in
in Ending
EndingWIP.
WIP.
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 2000
7-12
Some Units Not Fully Complete
(Ending WIP)
Equivalent Units represent
the amount of work
actually accomplished,
expressed as the number
of units that could have
been fully completed.
+
½
½
=
1
+
We
Wemust
must compute
computeEQUIVALENT
EQUIVALENT UNITS
UNITSof
of
Production
Productionfor
forthe
theitems
itemsstill
still in
in Ending
EndingWIP.
WIP.
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 2000
7-13
Some Units Not Fully Complete
(Ending WIP)
We
Wehave
haveto
tocompute
computeEQUIVALENT
EQUIVALENTUNITS
UNITS in
in
Ending
EndingWIP
WIP for
forboth
bothDirect
Direct Materials
Materialsand
and for
for
Conversion
Conversion Costs.
Costs.
# of Partially
Equivalent Units
× % Completion =
Completed Units
in Ending WIP
For
For example,
example, four
four quarters
quarters is
is equivalent
equivalent
to
to one
one dollar.
dollar.
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 2000
7-14
Some Units Not Fully Complete
(Ending WIP)
Total
TotalEQUIVALENT
EQUIVALENTUNITS
UNITS ==EU
EUin
inEnding
EndingWIP
WIP ++
Units
UnitsCompleted
Completedand
and Transferred
Transferred to
toFinished
Finished
Goods.
Goods.
# of Partially
Equivalent Units
× % Completion =
Completed Units
in Ending WIP
Units
Equivalent Units
Completed &
+
in Ending WIP
Transferred
Out
Irwin/McGraw-Hill
=
Total Equivalent
Units
© The McGraw-Hill Companies, Inc., 2000
7-15
Some Units Not Fully Complete
(Ending WIP)
!
Summarize the
the flow
flow of
of physical
physical
!Summarize
units.
units.
"
Compute the
the number
number of
of
"Compute
equivalent
equivalent units.
units.
#
Summarize the
the total
total costs
costs to
to
#Summarize
account
account for
for (for
(for both
both DM
DM and
and CC)
CC)
$
Compute costs
costs per
per equivalent
equivalent
$Compute
unit.
unit.
%
Assign costs
costs to
to COGS
COGS and
and to
to
%Assign
ending
ending WIP.
WIP.
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 2000
7-16
Example 2: Some Units Not Fully
Complete (Ending WIP)
In
In its
its first
firstmonth,
month, Clark,
Clark, Inc.
Inc. purchased
purchased 90,000
90,000 board
board
feet
feet of
of cedar
cedar for
for $350,000.
$350,000. They
Theyspent
spent $105,000
$105,000 on
on
labour
labour and
and had
had other
other process
process overhead
overhead of
of $280,000.
$280,000.
Clark
Clarkstarted
started 1,200,000
1,200,000 shingles
shingles in
in July,
July, completed
completed
1,000,000
1,000,000shingles
shingles and
and sold
sold 900,000
900,000 shingles.
shingles.
The
The ending
ending WIP
WIPwas
was 80%
80% complete
complete with
with respect
respect to
to
material,
material, but
but only
only 30%
30% of
of the
the conversion
conversion work
workhas
has
been
been done.
done.
Compute
Compute the
the cost
cost per
per shingle
shingle produced.
produced.
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 2000
7-17
Example 2: Some Units Not Fully
Complete (Ending WIP)
Step 1: Compute the flow of physical goods
Beginning
Transfers
Transfers
Ending
+
=
Balance
In
Out
Balance
0
+ 1,200,000 - 1,000,000
= 200,000
.
.
100%
100%complete
completefor
formaterials
materials
100%
100%complete
completefor
forconversion
conversion
80%
80%complete
completefor
formaterials
materials
30%
30%complete
completefor
forconversion
conversion
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 2000
7-18
Example 2: Some Units Not Fully
Complete (Ending WIP)
Step 2: Compute Equivalent Units:
# of Partially
Equivalent Units
× % Completion =
Completed Units
in Ending WIP
.
.
Equivalent Units for Materials:
?
×
?
=
?
Equivalent Units for Conversion:
?
×
?
=
?
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 2000
7-19
Example 2: Some Units Not Fully
Complete (Ending WIP)
Step 2: Compute Equivalent Units:
# of Partially
Equivalent Units
× % Completion =
Completed Units
in Ending WIP
.
.
Equivalent Units for Materials:
200,000
×
80%
=
160,000
Equivalent Units for Conversion:
200,000
×
30%
=
60,000
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 2000
7-20
Example 2: Some Units Not Fully
Complete (Ending WIP)
Step 2: Compute Equivalent Units:
Units
Total
Equivalent Units
Completed &
+
= Equivalent
in Ending WIP
Transferred
Units
Out .
.
Equivalent Units for Materials:
?
+
?
=
?
Equivalent Units for Conversion:
?
+
?
=
?
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 2000
7-21
Example 2: Some Units Not Fully
Complete (Ending WIP)
Step 2: Compute Equivalent Units:
Units
Total
Equivalent Units
Completed &
+
= Equivalent
in Ending WIP
Transferred
Units
Out .
.
Equivalent Units for Materials:
160,000
+
?
=
?
Equivalent Units for Conversion:
60,000
+
?
=
?
From
Fromthe
theprior
prior
computation.
computation.
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 2000
7-22
Example 2: Some Units Not Fully
Complete (Ending WIP)
Step 2: Compute Equivalent Units:
Units
Total
Equivalent Units
Completed &
+
= Equivalent
in Ending WIP
Transferred
Units
Out .
.
Equivalent Units for Materials:
160,000
+
1,000,000
=
?
Equivalent Units for Conversion:
60,000
+
1,000,000
=
?
Transferred
Transferredfrom
fromWIP
WIP to
toFinished
Finished
Goods
Goods
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 2000
7-23
Example 2: Some Units Not Fully
Complete (Ending WIP)
Step 2: Compute Equivalent Units:
Units
Total
Equivalent Units
Completed &
+
= Equivalent
in Ending WIP
Transferred
Units
Out .
.
Equivalent Units for Materials:
160,000
+
1,000,000
=
1,160,000
Equivalent Units for Conversion:
60,000
+
1,000,000
=
1,060,000
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 2000
7-24
Example 2: Some Units Not Fully
Complete (Ending WIP)
Step 3: Summarize
the Total Costs to
Account For
.
Materials
Conversion
$350,000
$385,000
Step 4: Compute
Cost per Equivalent
Unit
÷ 1,160,000 ÷
Per Unit Cost
$0.3017
Irwin/McGraw-Hill
1,060,000
$0.3632
© The McGraw-Hill Companies, Inc., 2000
7-25
Example 2: Some Units Not Fully
Complete (Ending WIP)
Step 5: Assign Costs to Units Completed and InProcess
Goods Completed
Ending WIP:
Materials
Conversion
Total
Cost Per
Units
Unit
1,000,000
0.6649
160,000
60,000
0.3017
0.3632
Total
$664,936
48,272
21,792
$735,000
Note
Notethat
that this
thisnumber
numberis
isrounded
rounded by
by$36.
$36.
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 2000
7-26
Example 2: Some Units Not Fully
Complete (Ending WIP)
Step 5: Assign Costs to Units Completed and InProcess
Goods Completed
Ending WIP:
Materials
Conversion
Total
Cost Per
Units
Unit
.
1,000,000
0.6649
160,000
60,000
0.3017
0.3632
Total
$664,936
48,272
21,792
$735,000
Ending
EndingWIP
WIP ==$48,272
$48,272++$21,792
$21,792== $70,064
$70,064
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 2000
7-27
Recognizing Spoilage
Spoilage
Spoilagerepresents
representsthe
theamount
amount of
ofresources
resourcesthat
thatgo
go
into
into the
theprocess,
process, but
butDO
DONOT
NOTresult
resultin
infinished
finishedproduct.
product.
The
The5-step
5-step approach
approachdiscussed
discussedearlier
earliercan
canbe
bemodified
modified
by
byincluding
including Spoilage
Spoilageas
asan
anadditional
additionaltype
typeof
ofinput
inputand
and
adjusting
adjustingthe
theformulas
formulasaccordingly.
accordingly.
Step 1: Compute the flow of physical goods
Transfers
Transfers
Ending
Beginning
+
=
.
Balance
In
Out
Balance
This
Thisnow
nowincludes
includesFinished
Finished
Goods
Goods&&Spoilage.
Spoilage.
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 2000
7-28
Recognizing Spoilage
Step 2: Computing Equivalent Units:
# of
Equivalent Units
Partially
%
= of Production
×
Completed
Completion
(EU)
Units
Use this computation for EU in Ending WIP and
EU in Spoilage.
EU in
Ending
WIP
Irwin/McGraw-Hill
+
EU in
Spoilage
Total
Units Completed
+
= Equivalent
& Transferre d Out
Units
© The McGraw-Hill Companies, Inc., 2000
7-29
Recognizing Spoilage
Steps
Steps 33 &
& 44 are
are not
not affected
affected by
by Spoilage.
Spoilage.
Step 5: Assign Costs
Cost Per
Units
Unit
Total
Goods Completed
Spoilage
Spoilage
Spoilageis
isadded
addedas
asan
an
additional
Ending WIP:
additionalline
lineitem
itemin
in
Step
Step 5.
5.
Materials
Conversion
Total
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 2000
7-30
Beginning & Ending WIP Plus
Spoilage
When
When there
there is
is Beginning
Beginning WIP,
WIP, the
the
determination
determination of
of equivalent
equivalent units
units
becomes
becomes somewhat
somewhat more
more complicated.
complicated.
Primary
Primaryquestion
question to
tobe
beanswered:
answered:
Which
Which units
unitswere
werecompleted
completedfirst
first
during
duringthe
theperiod?
period?
(How
(Howyou
youanswer
answerthis
thisquestion
questionwill
will
affect
affectthe
theTotal
TotalEU
EUfor
for the
theperiod.)
period.)
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 2000
7-31
Beginning & Ending WIP Plus
Spoilage
Weighted
Weighted Average
Average vs.
vs. FIFO
FIFO
WeightedWeightedAverage
Average
All
Allunits
unitsand
andcosts
costs
are
areconsidered
considered
together
togetherto
todetermine
determine
average
averagecost
costper
perEU,
EU,
regardless
regardlessof
ofwhether
whether
the
thecosts
costswere
were
incurred
incurredlast
lastperiod
period
or
orcurrently.
currently.
Irwin/McGraw-Hill
FIFO
FIFO
Costs
Costsare
areaccounted
accounted
for
forby
bylayer.
layer.Cost
Costper
per
EU
EUfor
forthis
thisperiod
periodis
is
computed
computedseparately
separately
from
fromthe
theCost
Costper
perEU
EU
for
forlast
lastperiod.
period.
© The McGraw-Hill Companies, Inc., 2000
7-32
Beginning & Ending WIP Plus
Spoilage
Weighted
Weighted Average
Average vs.
vs. FIFO
FIFO
WeightedWeightedAverage
Average
All
Allunits
unitsand
andcosts
costs
are
areconsidered
considered
together
togetherto
todetermine
determine
average
averagecost
costper
perEU,
EU,
regardless
regardlessof
ofwhether
whether
the
thecosts
costswere
were
incurred
incurredlast
lastperiod
period
or
orcurrently.
currently.
Irwin/McGraw-Hill
WeightedWeightedAverage
Average is
is
the
the most
most
commonly
commonly
used
used method.
method.
© The McGraw-Hill Companies, Inc., 2000
7-33
Example: Weighted-Average
For
For August,
August, Clark
Clark purchased
purchased 100,000
100,000 board
board feet
feet of
of
cedar
cedar for
for $400,000.
$400,000. They
They spent
spent $120,000
$120,000 on
on labour
labour
and
and had
had other
other process
processoverhead
overhead of
of $155,000.
$155,000.
Clark
Clarkstarted
started 1,400,000
1,400,000 units
units in
in August,
August, completing
completing
1,200,000
1,200,000units.
units. Ending
Ending WIP
WIP had
had 350,000
350,000 shingles.
shingles.
Beginning
Beginning WIP
WIP was
was200,000
200,000 shingles.
shingles. Spoilage
Spoilage was
was
50,000
50,000 completed
completed shingles.
shingles.
The
The ending
ending WIP
WIPwas
was 70%
70% complete
complete for
for material,
material, and
and
40%
40% complete
complete for
for conversion.
conversion. Beginning
Beginning WIP
WIPwas
was
80%
80% for
for material
material and
and 30%
30% complete
complete for
for conversion.
conversion.
Compute
Compute the
the cost
cost per
per toothpick
toothpick produced
produced in
in August.
August.
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 2000
7-34
Example: Weighted-Average
Goods
GoodsCompleted
Completed++Spoilage
Spoilage
Step 1: Compute the flow of physical goods
Beginning
Transfers
Transfers
Ending
+
=
Balance
In
Out
Balance
.
.
.
200,000
+ 1,400,000 - 1,250,000
= 350,000
80%
80%complete
completefor
formaterials
materials
30%
30%complete
completefor
forconversion
conversion
70%
70%complete
completefor
formaterials
materials
40%
40%complete
completefor
forconversion
conversion
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 2000
7-35
Example: Weighted-Average
Step 2: Compute Equivalent Units:
Equivalent Units
# of Partially
× % Completion = in Beginning
Completed Units
WIP
.
.
Equivalent Units for Materials:
200,000
×
80%
=
160,000
Equivalent Units for Conversion:
200,000
×
30%
Irwin/McGraw-Hill
=
60,000
© The McGraw-Hill Companies, Inc., 2000
7-36
Example: Weighted-Average
Step 2: Compute Equivalent Units:
# of Partially
Equivalent Units
× % Completion =
Completed Units
in Ending WIP
.
.
Equivalent Units for Materials:
350,000
×
70%
=
245,000
Equivalent Units for Conversion:
350,000
×
40%
=
140,000
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 2000
7-37
Example: Weighted-Average
Step
Step 2:
2: Total
Total Equivalent
Equivalent Units
Units
EU in
Ending
WIP
EU in
+
Spoilage
Total
Units Completed
= Equivalent
+
& Transferre d Out
Units
.
.
EU for Materials
245,000 + 50,000
+
1,200,000
=
1,495,000
EU for Conversion
140,000 + 50,000
+
1,200,000
=
1,390,000
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 2000
7-38
Example: Weighted-Average
Materials
Step 3:
$48,272
Beg. WIP Costs
.400,000
Current Costs
$448,272
Total
Step 4:
÷ 1,495,000 ÷
Per Unit Cost
0.2998
Irwin/McGraw-Hill
Conversion
$21,792
275,000
$296,792
1,390,000
0.2135
© The McGraw-Hill Companies, Inc., 2000
7-39
Example: Weighted-Average
Step 5: Assign Costs
Cost Per
Units
Unit
Goods Completed
1,200,000
0.5133
Spoilage
50,000
0.5133
Ending WIP:
Materials
245,000
0.2998
Conversion
140,000
0.2135
Total
* rounded
Total
$616,040 *
$25,668 *
$73,463 *
$29,893 *
$745,064
Ending
EndingWIP
WIP ==$73,463
$73,463++$29,893
$29,893== $103,356
$103,356
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 2000
7-40
Let’s go over
that story
again . . .
Only this
time, let’s
use FIFO!
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 2000
7-41
Example: FIFO
Goods
GoodsCompleted
Completed++Spoilage
Spoilage
Step 1: Compute the flow of physical goods
Beginning
Transfers
Transfers
Ending
+
=
Balance
In
Out
Balance
.
.
.
200,000
+ 1,400,000 - 1,250,000
= 350,000
80%
80%complete
completefor
formaterials
materials
30%
30%complete
completefor
forconversion
conversion
70%
70%complete
completefor
formaterials
materials
30%
30%complete
completefor
forconversion
conversion
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 2000
7-42
Example: FIFO
Step
Step 2:
2: With
With FIFO,
FIFO, compute
compute the
the Current
Current Period
Period
Equivalent
Equivalent Units
Units by
by subtracting
subtracting the
the Beg.
Beg. WIP
WIP
Equivalent
Equivalent Units.
Units.
Beg. WIP
EU
=.
Current Period
EU .
160,000
=
1,335,000
EU for Conversion
1,390,000
–
60,000
=
1,330,000
Total EU
–
EU for Materials
1,495,000
–
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 2000
7-43
Example: FIFO
Step
Step 3:
3: With
With FIFO,
FIFO, we
we only
only use
use the
the Current
Current
Period
Period Costs,
Costs, and
and we
we ignore
ignore the
the Beg.
Beg. WIP
WIP
Costs.
Costs.
Materials
Step 3:
Beg. WIP Costs
Current Costs
Total
Step 4:
÷
Per Unit Cost
Irwin/McGraw-Hill
Conversion
.
Ignore!
400,000
$400,000
1,335,000 ÷
$0.2996
Ignore!
275,000
$275,000
1,330,000
$0.2068
© The McGraw-Hill Companies, Inc., 2000
7-44
Example: FIFO
Step 5: Assign Costs
Cost Per
Units
Unit
Goods Com pleted
1,200,000
Mixed
Spoilage
50,000
$0.5064
Ending WIP:
Materials
245,000
$0.2996
Conversion
140,000
$0.2068
Total
* rounded
Total
$617,390 *
$25,320 *
$73,402 *
$28,952 *
$745,064
Ending
EndingWIP
WIP ==$73,402
$73,402++$28,952
$28,952== $102,354
$102,354
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 2000
7-45
Example: FIFO
Proof of Cost of Completed Goods
Cost Per
Units
Unit
Beginning Costs
200,000
Costs to Complete Beg.
Inventory
Materials (20% left)
200,000
$0.2996
Conversion (70% left)
200,000
$0.2068
Started & Finished
1,000,000
$0.5064
Total
* rounded
Total
$70,064
11,984 *
$28,952 *
$506,400 *
$617,400
Return
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 2000
7-46
Now let’s see if you can
compute the Cost per
Equivalent Unit yourself. Of
course, if you don’t think
you can handle the
challenge, you can end this
session by clicking on the
sad fellow below.
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 2000
Cost Per Equivalent Unit
Example: Weighted-Average
7-47
For
For September,
September, Clark,
Clark, Inc.
Inc. purchased
purchased 95,000
95,000 board
board
feet
feet of
of cedar
cedar for
for $375,000.
$375,000. Clark
Clark spent
spent$140,000
$140,000 on
on
labour
labour and
and had
had other
other process
process overhead
overhead of
of $120,000.
$120,000.
Clark
Clarkstarted
started 1,100,000
1,100,000 units
units in
in July,
July, completing
completing
1,000,000
1,000,000units.
units. Beginning
Beginning WIP
WIPwas
was 350,000
350,000units.
units.
They
They were
were 70%
70% complete
complete for
for material
material ($78,719)
($78,719)and
and
40%
40% complete
complete for
for conversion
conversion ($32,214).
($32,214). Spoilage
Spoilage
was
was 60,000
60,000 completed
completed shingles.
shingles.
The
The ending
ending WIP
WIPwas
was 75%
75% complete
complete for
for material,
material, and
and
60%
60% complete
complete for
for conversion.
conversion.
Compute
Compute the
the September
September cost
cost per
per shingle
shingle produced.
produced.
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 2000
7-48
Cost Per Equivalent Unit
Example: Weighted-Average
What are the equivalent units in Ending WIP
with respect to materials?
A.
350,000 shingles
B.
390,000 shingles
C.
245,000 shingles
D.
292,500 shingles
Return to original
info.
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 2000
7-49
Cost Per Equivalent Unit
Example: Weighted-Average
What are the equivalent units in Ending WIP
with respect to materials?
A.
350,000 shingles
B.
390,000 shingles
C.
245,000 shingles
D.
292,500 shingles
This is the number of
units (at various stages
of completion) in
Beginning WIP. Try
again.
Return to original
info.
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 2000
7-50
Cost Per Equivalent Unit
Example: Weighted-Average
What are the equivalent units in Ending WIP
with respect to materials?
A.
350,000 shingles
B.
390,000 shingles
C.
245,000 shingles
D.
292,500 shingles
This is the number of
units (at various stages
of completion) in
Ending WIP. Try again.
Return to original
info.
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 2000
7-51
Cost Per Equivalent Unit
Example: Weighted-Average
What are the equivalent units in Ending WIP
with respect to materials?
A.
350,000 shingles
B.
390,000 shingles
C.
245,000 shingles
D.
292,500 shingles
This is the number of
equivalent units in
Beginning WIP. Try
again.
Return to original
info.
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 2000
7-52
Cost Per Equivalent Unit
Example: Weighted-Average
What are the equivalent units in Ending WIP
with respect to materials?
A.
350,000 shingles
B.
390,000 shingles
C.
245,000 shingles
D.
292,500 shingles
Congratulations!
You can now
proceed.
390,000 × 75.00% =
Irwin/McGraw-Hill
292,500
© The McGraw-Hill Companies, Inc., 2000
Cost Per Equivalent Unit
Example: Weighted-Average
7-53
For
For September,
September, Clark,
Clark, Inc.
Inc. purchased
purchased 95,000
95,000 board
board
feet
feet of
of cedar
cedar $375,000.
$375,000. Clark
Clark spent
spent $140,000
$140,000 on
on
labour
labour and
and had
had other
other process
process overhead
overhead of
of $120,000.
$120,000.
Clark
Clarkstarted
started 1,100,000
1,100,000 units
units in
in July,
July, completing
completing
1,000,000
1,000,000units.
units. Beginning
Beginning WIP
WIPwas
was 350,000
350,000units.
units.
They
They were
were 70%
70% complete
complete for
for material
material ($78,719)
($78,719)and
and
40%
40% complete
complete for
for conversion
conversion ($32,214).
($32,214). Spoilage
Spoilage
was
was 60,000
60,000 completed
completed shingles.
shingles.
The
The ending
ending WIP
WIPwas
was 75%
75% complete
complete for
for material,
material, and
and
60%
60% complete
complete for
for conversion.
conversion.
Compute
Compute the
the September
September cost
cost per
per shingle
shingle produced.
produced.
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 2000
7-54
Cost Per Equivalent Unit
Example: Weighted-Average
What
What is
is the
the cost
cost per
per equivalent
equivalent unit
unit with
with
respect
respect to
to materials?
materials?
A.
.2258 per
per shingle
shingle
A. $$ .2258
B.
B. $$ .3213
.3213 per
per shingle
shingle
C.
C.
D.
D.
$$ .3355
.3355 per
per shingle
shingle
$$ .3655
.3655 per
per shingle
shingle
Return to original
info.
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 2000
7-55
Cost Per Equivalent Unit
Example: Weighted-Average
A.
A.
B.
B.
C.
C.
D.
D.
What
What is
is the
the cost
cost per
per equivalent
equivalent unit
unit with
with
respect
respect to
to materials?
materials?
$$ .2258
.2258 per
per shingle
shingle
This is not the
$$ .3213
correct answer.
.3213 per
per shingle
shingle
Try again.
$$ .3355
per
shingle
.3355 per shingle
$$ .3655
.3655 per
per shingle
shingle
Return to original
info.
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 2000
7-56
Cost Per Equivalent Unit
Example: Weighted-Average
A.
A.
B.
B.
C.
C.
D.
D.
What
What is
is the
the cost
cost per
per equivalent
equivalent unit
unit with
with
respect
respect to
to materials?
materials?
$$ .2258
.2258 per
per shingle
shingle
This is not the
$$ .3213
correct answer.
.3213 per
per shingle
shingle
Try again.
$$ .3355
per
shingle
.3355 per shingle
$$ .3655
.3655 per
per shingle
shingle
Return to original
info.
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 2000
7-57
Cost Per Equivalent Unit
Example: Weighted-Average
What
What is
is the
the cost
cost per
per equivalent
equivalent unit
unit with
with
respect
respect to
to materials?
materials?
A.
.2258 per
per shingle
shingle
A. $$ .2258
This is the cost per
equivalent with
B.
B. $$ .3213
.3213 per
per shingle
shingle
C.
C.
D.
D.
$$ .3355
.3355 per
per shingle
shingle
$$ .3655
.3655 per
per shingle
shingle
respect to
conversion. Try
again.
Return to original
info.
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 2000
7-58
Cost Per Equivalent Unit
Example: Weighted-Average
What
What is
is the
the cost
cost per
per equivalent
equivalent unit
unit with
with
respect
respect to
to materials?
materials?
A.
.2258 per
per shingle
shingle
A. $$ .2258
B.
B. $$ .3213
.3213 per
per shingle
shingle
C.
C.
D.
D.
$$ .3355
.3355 per
per shingle
shingle
$$ .3655
.3655 per
per shingle
shingle
$453,719
Irwin/McGraw-Hill
÷
1,352,500
Congratulations!
You can now
proceed.
=
0.3355
© The McGraw-Hill Companies, Inc., 2000
7-59
End of Chapter 7
I get the
feeling
I’m in
over my
head!
Irwin/McGraw-Hill
© The McGraw-Hill Companies, Inc., 2000