1. Universidad Cuauhtémoc
Campus Aguascalientes
Process Cost Systems
Análisis de Costos
Maestría en Administración

2. Job Order Cost System
Job Cost
Sheets
Dept. A and
Dept. B
Comparing Job Order
Costing and Process Costing
Direct materialsFactory overheadDirect labor
Work in Process
Account
to Finished
Goods

3. Process Cost System
Direct
materials
Work in Process
Account
Work in Process
Account
DEPT. A DEPT. B
Factory
Overhead
Direct
Labor
Factory
Overhead
Direct
Labor
to Finished
Goods
Comparing Job Order
Costing and Process Costing

4.  determine a product cost by measuring the amount
of direct materials and direct labor used and
allocating overhead costs.
 allocate overhead using a predetermined overhead
rate (or activity-based costing).
 maintain perpetual inventory records with subsidiary
ledgers for Materials, Work in Process, and
Finished Goods.
Both systems:
Comparing Job Order
Costing and Process Costing

5. Physical Flows for a Process Manufacturer
Scrap
Metal
Materials
Melting
Department
Casting
Department

6. Molten
metal
transferred
from
Melting
To finished goods
Casting
Department
Melting
Department
Physical Flows for a Process Manufacturer

7. Materials WIP – Melting
Factory OH – Melting
DMPurchases of
direct and
indirect
materials
Direct materials used in productionDM
DM
Finished Goods
Cost of Goods Sold
Factory OH – Casting
WIP – Casting
Cost Flows for a Process Manufacturer

8. Materials WIP – Melting
DM
DL
DM
Direct labor used in productionDL
Purchases of
direct and
indirect
materials
Finished Goods
Cost of Goods Sold
Factory OH – Casting
Actual
costs
incurred
WIP – Casting
Factory OH – Melting
Cost Flows for a Process Manufacturer

9. Materials WIP – Melting
Finished Goods
WIP – Casting
Cost of Goods Sold
DM
DL
DM
Indirect materials used in productionIM
Purchases of
direct and
indirect
materials
IM
Factory OH – CastingFactory OH – Melting
Actual
costs
incurred
Actual
costs
incurred
Cost Flows for a Process Manufacturer

10. Materials WIP – Melting
Finished Goods
WIP – Casting
Cost of Goods Sold
DM
DL
DM
Factory overhead appliedFOA
Purchases of
direct and
indirect
materials
IM
Factory OH – Casting
Actual
costs
incurred
FOA Actual
costs
incurred
FOA
Factory OH – Melting
Cost Flows for a Process Manufacturer

11. Materials WIP – Melting
Finished Goods
WIP – Casting
Cost of Goods Sold
DM
DL
DM
Cost transferred out/transferred inTO/TI
Purchases of
direct and
indirect
materials
IM
Factory OH – Casting
Actual
costs
incurred
FOA Actual
costs
incurred
FOA
TO TI
Factory OH – Melting
Cost Flows for a Process Manufacturer

12. Materials WIP – Melting
Finished Goods
WIP – Casting
Cost of Goods Sold
DM
DL
DMPurchases of
direct and
indirect
materials
IM
Factory OH – Casting
Actual
costs
incurred
FOA Actual
costs
incurred
FOA
TO TI
DL
Factory overhead appliedFOA
Direct labor used in productionDL
FOA
FOA
Factory OH – Melting
Cost Flows for a Process Manufacturer

13. Materials WIP – Melting
Finished Goods
WIP – Casting
Cost of Goods Sold
DM
DL
DMPurchases of
direct and
indirect
materials
IM
Factory OH – Casting
Actual
costs
incurred
FOA Actual
costs
incurred
FOA
TO TI
DL
FOA
FOA
Cost transferred out/transferred inTO/TI
TO
TI
Factory OH – Melting
Cost Flows for a Process Manufacturer

14. Cost Flows for a Process Manufacturer
Materials WIP – Melting
Finished Goods
WIP – Casting
Cost of Goods Sold
DM
DL
DMPurchases of
direct and
indirect
materials
IM
Factory OH – Casting
Actual
costs
incurred
FOA Actual
costs
incurred
FOA
TO TI
DL
FOA
FOA
Cost of goods soldCOGS
TO
TI COGS
COGS
Factory OH – Melting

16. Melting Department of McDermott Steel Inc.
Inventory in process, July 1, 500 tons:
Direct materials cost, 500 tons $24,550
Conversion costs, 500 tons, 70% completed 3,600
Total inventory in process, July 1 $28,150
Direct materials cost for July, 1,000 tons 50,000
Conversion costs for July 9,690
Goods transferred to Casting in July, 1,100 tons ?
Inventory in process, July 31, 400 tons, 25%
complete as to conversion costs ?

17. Step 1: Determine the Units to be Assigned Costs
Beginning
Inventory
500 Tons
Work in Process – Melting
Started
1,000 Tons

18. Beginning
Inventory
500 Tons
Work in Process – Melting
Started
1,000 Tons
Transferred
1,100 Tons
In a perpetual
inventory system,
outflows are recorded
as they occur.
Step 1: Determine the Units to be Assigned Costs

19. Beginning
Inventory
500 Tons
Work in Process – Melting
Started
1,000 Tons
Transferred
1,100 Tons
Ending
Inventory
400 Tons
Step 1: Determine the Units to be Assigned Costs
Beginning Inventory 500 Tons1

20. Beginning
Inventory
500 Tons
Work in Process – Melting
Started
1,000 Tons
Transferred
1,100 Tons
Ending
Inventory
400 Tons
Step 1: Determine the Units to be Assigned Costs
Beginning Inventory 500 Tons1
Started & Completed ? Tons
+
2

21. Beginning
Inventory
500 Tons
Work in Process – Melting
Started
1,000 Tons
Transferred
1,100 Tons
Ending
Inventory
400 Tons
Step 1: Determine the Units to be Assigned Costs
Beginning Inventory 500 Tons1
Started & Completed 600 Tons
+
2

22. Beginning
Inventory
500 Tons
Work in Process – Melting
Started
1,000 Tons
Transferred
1,100 Tons
Ending
Inventory
400 Tons
Beginning Inventory 500 Tons1
Started & Completed 600 Tons
+
2
=
Transferred Out 1,100 Tons
+
Ending Inventory 400 Tons3
Total units 1,500 Tons
=
Step 1: Determine the Units to be Assigned Costs
Total tons to be
assigned costs

23. The equivalent units of
production are the number of
units that could have been
completed within a given
accounting period.
Step 2: Calculate
equivalent
units of
production

24. Step 2: Calculate Equivalent Units of Production
Materials Equivalent Units
Total Percent Equivalent
Units Added Units
Inventory in process, July 1 500 0% 0
Started and completed in July 600 100% 600
Transferred out to Casting Dept. 1,100 600
Inventory in process, July 31 400 100% 400
Total tons to be assigned cost 1,500 1,000

25. Step 2: Calculate Equivalent Units of Production
500 EU of
materials
500 tons beginning inventory
100% materials added in June
JULY 1
600 EU of
materials
600 tons started and completed
100% materials added in July
JULY 31
400 EU of
materials
400 tons ending inventory
100% materials added in July
1,000 Equivalent Units
Inventory in
process, July 1
Note: Started
and completed
Inventory in
process, July 31
No materials
equivalent units
added to beginning
inventory for July

26. Step 2: Calculate Equivalent Units of Production
Conversion Equivalent Units
Inventory in process, July 1 500 30% 150
Started and completed in July 600 100% 600
Transferred out to Casting Dept. 1,100 750
Inventory in process, July 31 400 25% 100
Total tons to be assigned cost 1,500 850
Total Percent Equivalent
Units Added Units

27. 350 EU
500 tons beginning inventory
70% completed for
conversion in June
JULY 1
600 EU
600 tons started and
completed
100% completed for
conversion in July
JULY 31
100
EU
400 tons ending inventory
25% completed for
conversion in July
850 Equivalent Units
Inventory in
process, July 1
Step 2: Calculate Equivalent Units of Production
150
EU
300 EU
Inventory in
process, July
31 (75% to be
completed for
conversion in
August)
30%
completed
for
conversion
in July

28. Step 3: Determine the Cost per Equivalent Unit
Equivalent Units
Direct Materials Conversion
Inventory in process, July 1 0 150
Started and completed in July
(1,100 – 500) 600 600
Transferred out to Casting Dept.
in July 600 750
Inventory in process, July 31 400 100
Total tons to be assigned cost 1,000 850

29. Beginning
Inventory
$28,150
Work in Process – Melting
Materials
$50,000
Conversion
Costs
$9,690
Conversion Equivalent Unit Cost
Direct Materials Equivalent Unit Cost
$11.40
per EU
of con-
version
=
$50,000 direct materials cost
1,000 direct materials equivalent units
$9,690 conversion cost
850 conversion equivalent units
Step 3: Determine the Cost per Equivalent Unit
$50.00
per EU of
DM
=

30. Inventory in process, July 1
beginning balance $28,150
Equivalent units for completing
the July in-process inventory 0 150
Equivalent unit cost x $50.00 x $11.40
Cost of completed July 1 in-
process inventory $0 $1,710 1,710
Cost of July 1 in-process
inventory transferred to
Casting Department $29,860
Step 4: Allocate Costs to Transferred and
Partially Completed Units
Direct Materials Conversion Total
Costs Costs Costs

31. Units started and completed
in July 600 600
Equivalent unit cost x $50.00 x $11.40
Cost to complete the units
started and completed in
July $ 30,000 $ 6,840 $36,840
Direct Materials Conversion Total
Costs Costs Costs
Step 4: Allocate Costs to Transferred and
Partially Completed Units

32. Equivalent units in ending
inventory 400 100
Equivalent unit cost x $50.00 x $11.40
Cost of ending inventory $ 20,000 $ 1,140 $21,140
Direct Materials Conversion Total
Costs Costs Costs
Step 4: Allocate Costs to Transferred and
Partially Completed Units

33. Beginning
Inventory
$28,150
Materials
Costs
$50,000
Started and
Completed
$36,840
Beginning
Inventory
$29,860
Work in Process – Melting
Total Costs
Charged
$87,840
Ending
Inventory
$21,140
Conversion
Costs
$9,690
Total Costs
Assigned
$87,840
M 600 x 100% x $50.00 = $30,000
C 600 x 100% x $11.40 = 6,840
$36,840
M 400 x 100% x $50.00 = $20,000
C 400 x 25% x $11.40 = 1,140
$21,140
Beginning cost $28,150
M 500 x 0% x $50.00 = 0
C 500 x 30% x $11.40 = 1,710
$29,860
Total Costs Assigned $87,840
Costs
Step 4: Allocate Costs to Transferred and
Partially Completed Units

34. A cost of production report is
prepared for each processing
department at periodical intervals.

35. Cost of Production Report
The cost of production report provides the
following production quantity and cost data:
 The units for which the department
is accountable and the deposition of
those units.
 The production costs incurred by the
department and the allocation of
those costs between completed and
partially completed units.

36. A cost of production report
also is used to control costs.

37. Units
Step 1 Step 2
Units charged to production:
Inventory in process, July 1 500
Received from materials 1,000
Total units accounted for 1,500
Units to be assigned cost:
Inventory in process, July 1
(70% complete) 500 0 150
Started and completed in July 600 600 600
Transferred to Casting Dept. 1,100 600 750
Inventory in process, July 31
(25% complete) 400 400 100
Total units to be assigned cost 1,500 1,000 850
Whole Direct
Units Materials Conversion
Equivalent Units
Cost of Production Report—Melting Department

38. Costs
Direct Materials Conversion Total Costs
Costs
Step 3
Unit costs:
Total costs for July in
Melting Department $50,000 $9,690
Total equivalent units
(from Slide 43) ÷ 1,000 ÷ 850
Cost per equivalent unit $ 50.00 $11.40
Cost of Production Report—Melting Department

39. Costs Direct Conversion Total
Materials Costs Costs
Step 4
Costs charged to production:
Inventory in process, July 1 $28,150
Cost incurred in July 59,690
Total costs accounted for $87,840
Costs allocated to completed and
partially completed units
Inventory in process, July 1 $28,150
To complete inventory of July 1 $ 0 $1,710 1,710
Started and completed in July 30,000 6,840 36,840
Transferred to Casting Dept. $66,700
Inventory in process, July 31 $20,000 $1,140 21,140
Total costs assigned $87,840
Cost of Production Report—Melting Department

40. Universidad Cuauhtémoc
Campus Aguascalientes
Questions?
Maestría en Administración