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Process Cost Accounting

5. Compute equivalent production and prepare a cost of production report with a beginning work in process inventory.

Work in Process InventorySection Objective

The company discussed in the previous section did not have any beginning work in process.

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However, beginning work in process inventories are a normal part of business operations.

Beginning Work in Process Inventory

The average method of process costing combines the cost of beginning inventory for each cost element with the costs of the current period.

ANSWER:

QUESTION:

What is the average method of process costing?

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Laminating Finishing Department Department

CostsWork in process—beginning

Costs in prior department $ 5,245.00 Costs in current department

Materials $ 1,500.00 900.00 Labor 1,750.00 1,125.00 Manufacturing overhead 895.00* 805.00*

Costs transferred in from prior department 39,390.00 Current department costs—July

Materials 16,000.00 8,000.00 Labor 25,300.00 18,000.00 Manufacturing overhead 12,000.00 13,000.00

Total costs $57,445.00 $86,465.00 QuantitiesWork in process—beginning 500 500 Started in production 4,050 -0- Transferred in from prior department -0- 3,000 Transferred out to next department 3,000 -0- Transferred out to finished goods 1,200 3,100 Work in proces—ending 350 400 Stage of Completion—Ending Work in Process

Materials Complete 50% Labor 30% 50 Manufacturing overhead 30 50

*Rounding adjustment included in overhead

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Departmental Data with Beginning Inventory

Beginning inventory costs

Beginning inventory quantities

Unit Costs Using the Average Method of Process Costing

Unit Cost = (Beginning work in process inventory + Current period costs) ÷ Equivalent units

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The beginning work in process inventory is shown on the cost of production report under the appropriate department.

Unit costs are calculated by adding the beginning inventory to the current period costs for each cost element, then dividing by equivalent units.

The ending work in process of one period becomes the beginning work in process of the following period.

Journal entries are made as shown earlier in Section 1 to record the transfer of costs.

Recording Cost Flows

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Transfer of goods from one department to another and to finished goods inventory:

Record the costs of goods from work in process to finished goods inventory:

20--July 31 Work in Process—Finishing Department 39,390.00

Finished Goods Inventory 15,756.00 Work in Process—Laminating Department 55,146.00

Cost of goods transferred out of laminating departmentin July

20--July 31 Finished Goods Inventory 78,833.00

Work in Process—Finishing Department 78,833.00

Cost of goods completedin July and transferred out

Recording Transfer of Costs

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_________ work in process inventories are a normal part of business operations.

The _______________________________ combines the cost of beginning inventory for each cost element with the costs of the current period.

The cost of production report contains two primary sections: the ________ ________ and the _____________.Schedule

average method of process costing

Beginning

Complete the following sentences:

Cost ScheduleQuantity

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The first step in calculating unit cost is to add ________________________________ and __________________.

The second step in calculating unit cost is to divide the sum of beginning work in process inventory and __________________ by ______________.

In a process cost system, the ending work in process of one period becomes the _______________________ of the following period.beginning work in process

current period costs

beginning work in process inventory

Complete the following sentences:

current period costs

equivalent units

Thank Youfor using

College Accounting, Tenth Edition

Price • Haddock • Brock