CHAPTER 04

PROCESS COSTING
EQUIVALENT UNITS:
The equivalent unit is the number of complete units that could have been obtained from the
materials and effort that went into the partially completed units.
Equivalent units are defined to be the product of the number of partially completed units and the
percentage completion of those units.

Equivalent units= Number of partially completed units × percentage of completion

Equivalent units are important to calculate total output of the department, so that unit cost can be
determined correctly.
Calculation of total equivalent units produced:

Units completed and transferred out to next department xxx

Units completed but in hand (not transferred out) xxx
xxx
Add: Units still in process (as equivalent units) xxx
xxx
Less: units in process at beginning (xxx)
Total equivalent units Xxx

Production report: instead of preparing job cost sheet, a production report is prepared for each
department in which work done on a product is recorded. The production report serves several
functions. It provides a summary of the number of units moving through a department during a
period, and it also provides a computation of unit costs. In addition, it shows what units were
charged to the department and what disposition was made of these costs. The department
production report is a key document in a process costing system.

PROBLEM 01:

The Sitarah Processing Company, which passes its product through three refining processes,
provides the following information for one month.

Process I Process II Process III

Direct material $10,000 $4,000 7,000
Direct labor 400 350 275
Overhead 900 864 423

All of the units of the product were completed.

Required:
(a) Prepare the cost accounts for process I, II & III.
(b) Calculate the cost per unit at the end of process III if 2000 units were produced.
PROBLEM 02:

The budgeted cost of processing 1000 units of product X is made up as follows:

$
Material transferred from a previous process (1000 1,500
units)
Added material 4,500
Direct labor in this process 20,000
Overhead (recovery based on 200% of direct labor) 40,000

Only 900 units have been completely processed. The other 100 are complete as to 80% material
and 50% labor.
Required:
(a) Calculate the number of equivalent units produced in the department.
(b) Calculate the cost of 900 complete units transferred to next department.
(c) Calculate the cost of 100 work in process units.

PROBLEM 03:
The following information pertains to the goods in process No.3 for the month of November 2009:
Goods in process November 1, (40,000 units 100% complete as to
Material and 75% complete as to conversion costs) Rs.387,000
Cost of 140,000 units transferred in from process No.2 during November 700,000
Manufacturing cost added in process No.3 during November:
Direct material 280,000
Direct labor 125,000
Factory overhead 375,000
1,867,000
On November 30, 50,000 units are still in process No.3 which are 100% complete as to materials
and 50% complete as to conversion cost.

Required:
(a) Calculate equivalent units of production.
(b) Cost per unit
(c) Cost of units transferred to finished goods warehouse.
(d) Cost of units in process on November 30, 2009.
(e) General entries to record transfer of 140,000 units from process 2 to process 3.

PROBLEM 04:
The production and cost data of Almgir Company for process No.3 for the period ended December
31, 2008 is as under:
UNITS COST
Beginning goods in process 10,000 Rs.42,000
(20% completed)
Material received from process No.2 80,000 800,000
Direct Labor 174,000
Factory Overhead 696,000
90,000 1,712,000

Completed and transferred to finished

75,000 ?
goods
Ending goods in process (60%
15,000 ?
completed)
90,000 1,712,000
Required:
Determine the missing cost data showing all calculations (use FIFO basis for valuation)
PROBLEM 05:
The following is the condensed information from the records of Quality Steel Mills, for the month
of November 2003.
500 units in process November 1, 2003
(80% completed to material and processing) Rs.3,850
Cost incurred during November:
Direct material 34,700
Direct Labor 45,000
Factory Overhead applied (90% of direct labor) ?
Company completed 11,000 units in November 2003. There is 500 units in process at the end of the
month in the following stage of completion:
Material 100%
Processing (labor and FOH) 40%
Required:
(a) Compute equivalent production units assuming FIFO method of inventory.
(b) Compute the unit cost for the November 2003.
(c) Compute the cost of units transferred to warehouse assuming FIFO method.
(d) Compute ending inventory of goods in process.
PROBLEM 06:
SHAHJAHAN Company processes its goods successively in Process “A” and Process “B” and then
transfers to finished goods. Its record shows the following information for the month of June 2008:

Process-A Process-B
Cost of goods in process June 1 Rs.15,000 0
Raw material used 63,000 Rs.34,000
Direct labor used 54,000 68,000
FOH applied on the basis of direct labor 50% 100%

Production report for June Process-A Process-B

Units in process-June 1. 1/3 complete 3,000 0
Units completed and transferred out 10,000 8,000
Units in process-June 30. ¼ complete 0 2,000

Required:
(a) Equivalent full units of production in process “A” and Process “B”.
(b) Unit cost in process “A” and Process “B”.
(c) Cost of units transferred out of process “A” and Process “B”.
Problem 07:
Jeddah Company produces a consumer item “Mashroob” which passes through two departments.
Company uses a process cost method. Cost data of the company for the month of September 2015,
is as under:

Dept. A Dept. B
Material 70,000 50,000
Labor 35,000 25,000
Factory overhead 35,000 25,000

There were no beginning inventories. Units started in process 50,000. Units in process of
September 30.

20,000 – 25% complete in Dept. A

10,000 – 50% complete in Dept. B

Required:
Prepare cost of production report.