Steps for preparing a Process Cost Report
1. Determine total costs to account for.
2. Summarize total physical and equivalent units, including spoilage (if any).
3. Compute cost per equivalent unit.
4. Assign costs to good units completed, spoilage (if any), and ending WIP.
Measure of the resources used in partially completed units relative to the resources needed to complete the units.
How is the Weighted Average Method used in process costing?
Costs from beginning WIP (performed last period) are averaged with costs incurred during the current period and then allocated to units completed and ending WIP.
Cost per Equivalent Unit = (BeginningWIP + CurrentPeriodCosts) / TotalEquivalentUnits
How is FIFO Method used in process costing?
First-in, First-out (FIFO) Method:
The current period's costs are used to allocate cost to work performed this period.
Cost per Equivalent Unit = (CurrentPeriodCosts / EquivalentUnitsForWorkPerformedThisPeriod)
How is process costing performed for multiple production departments?
Transferred-In Costs: costs of processing performed in a previous department Transferred-in costs are pooled separately from other costs.
How are normal spoilage costs handled in process costing?
Defective units that arise as part of regular operations are allocated to good units produced.
How are abnormal spoilage costs handled in process costing?
Spoilage that is not part of everyday operations (costs) are recorded as a loss for the period.
What are the uses of process cost information?
* Measure costs of mass-produced products.
* Assign costs to inventory and cost of goods sold for financial statements & income tax returns.
* Monitor operations and costs.
* Develop estimates of future costs for decision making.
* Analyze the costs and benefits of quality improvements.
* Identify potential areas for process improvements.
What are some mismeasurements in process costing?
* Actual cost flows might not be known (When are direct materials added? When are conversion costs incurred? How complete are the units in ending WIP?)
* What amount of spoilage is normal?
* How achievable are standard costs?