Explore BrainMass

Process Costing

Process costing is appropriate where there are many units of a single product, each are indistinguishable from other units, and the identical nature of each unit of product makes it reasonable and efficient to assign the same average cost per unit. Processing departments have products that pass on to the next department or are sold. Often single products are produced on a continuing basis for a long period of time.

Process costing systems pool costs by department, compute unit costs based on these pools and allocate unit costs based on department production reports. Costs of goods sold, finished goods, and work in process (WIP) accounts are kept for each department.

Equivalent units of production are used to account for the costs of unfinished goods in work in progress at the end of the period. This is necessary because a department usually has some partially completed units in its beginning and ending inventory.


Equivalent Units = # of Partially Completed Units * the Percentage of Completion


Equivalent units are relative to each factor of production. That is, a different number of equivalent units may be considered complete relative to direct material, direct labor and factory overhead. For example, 80% of direct material, 60% of direct labor, and 100% of factory overhead may have been used so far.

Costing for equivalent units can be done using different inventory costing methods. The weighted-average costing method is usually chosen because it easily provides relatively accurate costs. However, FIFO may be better to use if costs go up significantly between the two periods.


Weighted cost per equivalent unit = [cost of beginning WIP inventory + cost added during period] / equivalent units of production


Equivalent Units of Production = Equivalent units to complete beginning inventory* + Units started and completed during the period + Equivalent units in ending work in process inventory


Equivalent Units of Production = Units transferred out + Equivalent units in ending work in process inventory − Equivalent units in beginning inventory.

*Equivalent units to complete beginning inventory = Units in beginning inventory × (100% − Percentage completion of beginning inventory)

© BrainMass Inc. brainmass.com August 15, 2018, 4:25 pm ad1c9bdddf

Manufacturing: Process Costing in Industry

1.Process costing differs from job order costing in the way costs are accounted for. Share your thoughts about the accounting differences in process costing versus job order costing, and explain how manufacturing costs are accounted for in process costing. Further explain why the cost per equivalent unit are determined separatel

Sample Solution: Cost Accounting

5. Assume that the following events occurred at a division of Admiral Enterprises for the current year. (1) Purchased $900,000 in direct materials. (2) Incurred direct labor costs of $520,000. (3) Determined that manufacturing overhead was $820,000. (4) Transferred 75% of the materials purchased to Work-in-Process Inventor

Cost of Goods Manufactured and Sold, Income Statement and Overhead Applied

Problem I The following data (in thousands of dollars) have been taken from the accounting records of ACME Corporation for the completed year. Sales $860 Purchase of raw materials $150 Direct labor $110 Manufacturing overhead $210 Administrative expenses $130 Selling expenses $180 Raw materials invent

West Chemical, Joint Costs, allocate physical units NRV

West Chemical, Joint Costs, allocate physical units NRV West Chemical manufactures Pentex and Glaxco - two industrial chemicals - in a joint process. In October, 16,000 pounds of Pentex and 4,000 pounds of Glaxco were processed. Management generally processes each of these chemicals further in separable processes to manufact