Example of Process Costing SMITH Consider a company Smith Co which reports the

Example of process costing smith consider a company

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Example of Process Costing -SMITHConsider a company Smith Co which reports the following for the Assembly Department for the month of JunePercent CompletedUnitsMaterialsConversionWork in process, June 130040%20%Cost of beginning inventory$6,119$3,920Units started into production in June6,000Costs added during June$118,621$81,130Units completed and transferred out5,400of Department A during JuneWork in process, June 3090060%30%
Calculation of Equivalent units under FIFO based on work done MATERIALS The beginning WIP was 40% complete so needs 60% to complete those 300 units 180 eq units 5400 units were transferred out, of which 300 came from beginning inventory 5100 started and completed The ending WIP (900 units) is 60% complete 540 eq units CONVERSION The beginning WIP was 20% complete so needs 80% to complete those 300 units 240 eq units 5400 units were transferred out, of which 300 came from beginning inventory 5100 started and completed (same) The ending WIP (900 units) is 30% complete 270 eq units Must be done separately for each cost component
Understanding Units Started and Completed (I) Beginning Work in Process 300 Units 40% Complete Ending Work in Process 900 Units 60% Complete 6,000 Units Started 5,400 Units Completed 5,100 Units Started and Completed Materials
Understanding Units Started and Completed (II) 6,000 Units Started 5,400 Units Completed 5,100 Units Started and Completed Beginning Work in Process 300 Units 20% Complete Ending Work in Process 900 Units 30% Complete Conversion
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Process Costing under Weighted Average Method (WAM) The WAM method slightly simplifies the calculation of equivalent units Beginning inventory is ignored in the calculation of equivalent units This causes very small differences in the calculation of costs transferred out and WIP 1 If prices are rising the WAM method is slightly more conservative
Example of Process CostingConsider a company Smith Co which reports the following for the Assembly Department for the month of JunePercent CompletedUnitsMaterialsConversionWork in process, June 130040%20%Cost of beginning inventory$6,119$3,920Units started into production in June6,000Costs added during June$118,621$81,130Units completed and transferred out5,400of Department A during JuneWork in process, June 3090060%30%
The calculations depend on the method Method WAM FIFO Applicable eq units of production All units completed + equivalent units in ending inventory Units based on work done Applicable Costs Costs in beginning inventory + costs added to department Costs added to department
Calculation of Equivalent units under WAM - SMITH MATERIALS The beginning WIP is not included in the calculation 5400 units were transferred out The ending WIP (900 units) is 60% complete

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