{"id":33,"date":"2015-06-03T19:11:02","date_gmt":"2015-06-03T19:11:02","guid":{"rendered":"https:\/\/courses.candelalearning.com\/managacct2x10xmaster\/?post_type=chapter&p=33"},"modified":"2015-12-27T15:11:41","modified_gmt":"2015-12-27T15:11:41","slug":"the-cost-production-report","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/suny-managacct\/chapter\/the-cost-production-report\/","title":{"raw":"3.3 Process Costing (Weighted Average)","rendered":"3.3 Process Costing (Weighted Average)"},"content":{"raw":"
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\r\n\r\nProcess Costing consists of the following steps:\r\n
    \r\n\t
  1. Physical flow of units<\/li>\r\n\t
  2. Equivalent Units of Production<\/li>\r\n\t
  3. Cost per Equivalent Unit<\/li>\r\n\t
  4. Assign Costs to Units completed and Ending work in process inventory<\/li>\r\n\t
  5. Reconcile Costs<\/li>\r\n<\/ol>\r\nKeep in mind, there are no Generally Accepted Accounting Principles (GAAP) that mandate how we must do a process cost report.\u00a0 We will focus on the calculations involved and show you an example of a process cost summary report but know there are several ways to present the information, but the calculations are all the same.\r\n\r\nIn the previous page, we discussed the physical flow of units (step 1) and how to calculate equivalent units of production (step 2)\u00a0under the weighted average method.\u00a0 We will continue the discussion under the weighted average method and calculate a cost per equivalent unit.\r\n\r\nStep 3:\u00a0Cost per Equivalent Unit<\/strong>\r\n\r\nThe formula we will use is notice we are primarily using the dollar costs and not units for this section (except we will use TOTAL equivalent units we calculated in the previous section):\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n
    Beg. Work in Process Costs<\/td>\r\n<\/tr>\r\n
    + Costs added this period<\/td>\r\n<\/tr>\r\n
    = Total Costs<\/td>\r\n<\/tr>\r\n
    \u00f7 \u00a0 Total Equivalent Units<\/td>\r\n<\/tr>\r\n
    = Cost per Equivalent Units<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\nWe will calculate a cost per equivalent unit for each cost element (direct materials and conversion costs (or direct labor and overhead).\r\n\r\nhttps:\/\/youtu.be\/Txv05196CWs\r\n\r\nExample - Jax Company<\/strong>\r\n\r\nTo continue with our previous example, we were given the following information:\r\n\r\n<\/div>\r\n<\/div>\r\n<\/div>\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n
    \r\n
    \r\n
    The June production and cost data for Jax Company are:<\/div>\r\n<\/div><\/td>\r\n<\/tr>\r\n
    \u00a0<\/strong><\/td>\r\nDepartment B<\/strong><\/td>\r\n<\/tr>\r\n
    Beginning work in process<\/td>\r\n-0-<\/td>\r\n<\/tr>\r\n
    Units started this period<\/td>\r\n11,000<\/td>\r\n<\/tr>\r\n
    Units completed and transferred<\/td>\r\n9,000<\/td>\r\n<\/tr>\r\n
    Ending work in process units<\/td>\r\n2,000<\/td>\r\n<\/tr>\r\n
    Direct materials cost<\/td>\r\n$ 1,100<\/td>\r\n<\/tr>\r\n
    Direct labor cost<\/td>\r\n$ 2,880<\/td>\r\n<\/tr>\r\n
    Applied overhead cost<\/td>\r\n$ 8,880<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nWe calculated total equivalent units of 11,000 units for materials and 9,800 for conversion.\r\n
    \r\n
    \r\n
    \r\n\r\nTo calculate cost per equivalent unit by taking the total costs (both beginning work in process and costs added this period) and divide by the total equivalent units.\r\n\r\n<\/div>\r\n<\/div>\r\n<\/div>\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n
    <\/td>\r\nMaterials<\/td>\r\nConversion<\/td>\r\n<\/tr>\r\n
    Beg. Work in Process Costs<\/td>\r\n-0-<\/td>\r\n-0-<\/td>\r\n<\/tr>\r\n
    + Costs added this period<\/td>\r\n$\u00a0\u00a0 1,100<\/span><\/td>\r\n$\u00a0\u00a0 11,760<\/span><\/td>\r\n<\/tr>\r\n
    (Conv. Cost = DL $2,880 + OH $8,880)<\/td>\r\n<\/tr>\r\n
    = Total Costs<\/td>\r\n$\u00a0\u00a0 1,100<\/td>\r\n$\u00a0\u00a0 11,760<\/td>\r\n<\/tr>\r\n
    \u00f7 \u00a0 Total Equivalent Units<\/td>\r\n11,000<\/span><\/td>\r\n9,800<\/span><\/td>\r\n<\/tr>\r\n
    = Cost per Equivalent Units<\/td>\r\n$\u00a0 0.10<\/td>\r\n$\u00a0\u00a0\u00a0 1.20<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nIn this example, beginning work in process is zero.\u00a0 This will not always be the case.\u00a0 The problem will provide the information related to beginning work in process inventory costs and units.\r\n\r\nStep 4:\u00a0 Assign Costs<\/strong>\r\n\r\nIn this next section, we will combine the equivalent units (from step 2) and the cost per equivalent units (step 3) to assign costs to units completed and transferred out (also called cost of goods manufactured) and costs of units remaining ending work in process inventory.\u00a0 The basic formula to assign costs is:\r\n\r\n\r\n\r\n
    \n\nEquivalent Units per cost element<\/strong>\r\n\r\n (direct materials, conversion)<\/em><\/td>\r\n\n\nx cost per equivalent unit for cost element<\/strong>\r\n\r\n(direct materials, conversion)<\/em><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nUsing the example company, Jax Company, we have the following information:\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n
    <\/td>\r\nMaterials<\/strong><\/td>\r\nConversion Costs<\/strong><\/td>\r\n<\/tr>\r\n
    Units Completed and Transferred<\/td>\r\n9,000<\/td>\r\n9,000<\/td>\r\n<\/tr>\r\n
    Units in Ending WIP<\/td>\r\n\u00a02,000<\/span><\/td>\r\n\u00a0800<\/span><\/td>\r\n<\/tr>\r\n
    Total Equivalent Units<\/td>\r\n11,000<\/td>\r\n9,800<\/td>\r\n<\/tr>\r\n
    <\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
    Cost per Equivalent Units<\/td>\r\n$\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 0.10<\/td>\r\n$\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 1.20<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nWe would assign costs as follows:\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n
    Cost assigned to units completed and transferred<\/strong><\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
    \u00a0 \u00a0 Direct Materials (9,000 equiv units\u00a0 x $0.10)<\/td>\r\n\u00a0$ 900<\/td>\r\n<\/td>\r\n<\/tr>\r\n
    \u00a0 \u00a0 Conversion (9,000 equiv units x $1.20)<\/td>\r\n10,800<\/span><\/td>\r\n<\/td>\r\n<\/tr>\r\n
    \u00a0 \u00a0 Total cost assigned to units completed<\/td>\r\n<\/td>\r\n$ 11,700<\/td>\r\n<\/tr>\r\n
    <\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
    Cost assigned to ending work in process<\/strong><\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
    \u00a0 \u00a0 Direct Materials (2,000 equiv units x $0.10)<\/td>\r\n200<\/td>\r\n<\/td>\r\n<\/tr>\r\n
    \u00a0 \u00a0 Conversion (800 equiv units x $1.20)<\/td>\r\n960<\/span><\/td>\r\n<\/td>\r\n<\/tr>\r\n
    \u00a0 \u00a0 Total cost assigned to ending work in process inventory<\/td>\r\n<\/td>\r\n$ 1,160<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nFor costs of units completed and transferred, we take the equivalent units for units completed<\/strong> x cost per equivalent unit.\u00a0 We do the same of ending work in process but using the equivalent units for ending work in process<\/strong>.\r\n\r\nStep 5:\u00a0 Cost Reconciliation<\/strong>\r\n\r\nFinally, we can check our work.\u00a0 We want to make sure that we have assigned all the costs from beginning work in process and costs incurred or added this period to units completed and transferred and ending work in process inventory.\r\n\r\nFirst, we need to know our total costs for the period (or total costs to account for)\u00a0by adding\u00a0beginning work in process costs to the costs incurred or added this period.\u00a0 Then, we compare the total to the cost assignment in step 4 for units completed and transferred and ending work in process to get total units accounted for.\u00a0 Both totals should agree.\r\n\r\nFor Jax Company, the cost reconciliation would be:\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n
    Beg. Work in Process Cost<\/td>\r\n-0-<\/td>\r\n<\/tr>\r\n
    + Costs added this period<\/td>\r\n$ 12,860<\/span><\/td>\r\n<\/tr>\r\n
    ($1,100 DM + $2,880 DL + $8,880 OH)<\/em>\u00a0<\/em><\/td>\r\n<\/tr>\r\n
    = Total costs to account for<\/strong><\/td>\r\n$ 12,860<\/strong><\/td>\r\n<\/tr>\r\n
    <\/td>\r\n<\/td>\r\n<\/tr>\r\n
    Cost assigned to units completed and transferred (from step 4 above<\/em>)<\/td>\r\n$ 11,700<\/td>\r\n<\/tr>\r\n
    + Cost assigned to ending work in process inventory (from step 4 above<\/em>)<\/td>\r\n1,160<\/span><\/td>\r\n<\/tr>\r\n
    = Total costs accounted for<\/strong><\/td>\r\n$ 12,860<\/strong><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nThe full process cost report can be found by clicking Jax_process cost<\/a>).\r\n\r\n ","rendered":"
    \n
    \n
    \n
    \n

    Process Costing consists of the following steps:<\/p>\n

      \n
    1. Physical flow of units<\/li>\n
    2. Equivalent Units of Production<\/li>\n
    3. Cost per Equivalent Unit<\/li>\n
    4. Assign Costs to Units completed and Ending work in process inventory<\/li>\n
    5. Reconcile Costs<\/li>\n<\/ol>\n

      Keep in mind, there are no Generally Accepted Accounting Principles (GAAP) that mandate how we must do a process cost report.\u00a0 We will focus on the calculations involved and show you an example of a process cost summary report but know there are several ways to present the information, but the calculations are all the same.<\/p>\n

      In the previous page, we discussed the physical flow of units (step 1) and how to calculate equivalent units of production (step 2)\u00a0under the weighted average method.\u00a0 We will continue the discussion under the weighted average method and calculate a cost per equivalent unit.<\/p>\n

      Step 3:\u00a0Cost per Equivalent Unit<\/strong><\/p>\n

      The formula we will use is notice we are primarily using the dollar costs and not units for this section (except we will use TOTAL equivalent units we calculated in the previous section):<\/p>\n\n\n\n\n\n\n\n
      Beg. Work in Process Costs<\/td>\n<\/tr>\n
      + Costs added this period<\/td>\n<\/tr>\n
      = Total Costs<\/td>\n<\/tr>\n
      \u00f7 \u00a0 Total Equivalent Units<\/td>\n<\/tr>\n
      = Cost per Equivalent Units<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n

      We will calculate a cost per equivalent unit for each cost element (direct materials and conversion costs (or direct labor and overhead).<\/p>\n