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Chapter No. 06

Processing Costing. Chapter No. 06. It is a costing method used where products are produced in large quantities in a continues process e.g. production of bars of choclate, cans of soup or tins of paint etc. In process costing all products are identical and indistinguishable from each other.

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Chapter No. 06

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  1. Processing Costing Chapter No. 06

  2. It is a costing method used where products are produced in large quantities in a continues process e.g. production of bars of choclate, cans of soup or tins of paint etc. • In process costing all products are identical and indistinguishable from each other. • For this reason an average cost per unit is calculated for each process is: Average cost per unit: Cost of production Expected or normal output Process Costing

  3. Another main feature of process costing is that the output of one process forms the material input of next process. Where there is closing work in progress at the end of one period, this forms the opening WIP at the beginning of the next period. output output Input Process 1 Process 2 Process 3 Additional Labour Materials overheads Labour Materials Overheads Additional Labour Materials overheads

  4. Following details are about Blending Departent of Clonex Corporation for the month of January,19-: • Units Started: 50,000 • Output units: 45,000 fully worked units transferred to next department, 4,000 units only 50% complete with respect to Labour and Factory overhead and 100% complete with respect to materials. • There are 1000 units lost in process. • Cost of Production Raw Material: $24,500 Direct Labour: $29,140 Overheads: $28,200 Required: • Prepare the cost of production report for the month of January 19--. Example: Process Costing with Ending Work in Progress and normal loss Only.

  5. 2.Equivalent Production Units

  6. 3. Cost Per Unit

  7. Quantitative schedule: Units started 50,000 Units Transferred 45,000 Units lost in the process 1,000 Work in progress 4,00050,000 (All Material and ½ Labour and Factory overhead) The clonex corporationCost of production reportfor blending departmentfor the month of january,19--

  8. Cost Charged to the Department: Total Unit Cost Cost Cost Added by Department: $ $ Materials 24,500 0.50 Labour 29,140 0.62 Factory overhead 28,200 0.60 Total cost to be accounted for 81,840 1.72

  9. Cost accounted for as: Transferred to next department: Units transferred x total cost per unit 45000 x $1.72 = $77,400 Work in progress: Materials: 4000x0.50 =$2000 Labour: 4000x1/2x0.62 = 1240 Factory overhead4000x1/2x0.60 = 1200 4440 Total cost accounted for 81,840

  10. questions

  11. Read Inc instituted a new process in October , during which it started 10,000 units in Department A. of these units started, 1000 units are normal loss during the process, 7000 units were transferred to Department B and remaining 2000 units in process at the end of month, 100% complete as to materials and 50% complete to conversion cost. Cost charged during the month in department A were materials $27,000 and conversion costs 40,000. Required: Prepare cost of production report for the month of October of Department A. Exercise no.01

  12. Carola Company ‘s Department 2 costs for December were: Units received from Dept 1: 55,000 Litres Units transferred to Dept 3: 39,500 Units in process at end: 10,500 (with 1/3 Labour and FOH) Costs from department 1 $1.80 per unit Cost added in department 2: Labour $27520 Factory overhead $15480 Required: Prepare cost of production report for the month of December of Department 2. Exercise no.02

  13. Brooks Inc ‘s Department 2 costs for December were: Units received from Dept 1: 5,000 Litres Units transferred to Dept 3: 4,000 Units in process at end: 1,000 (the degree of completion of work in process as to costs in Dept 2 was 50% of the units were 40% complete: 20% were 30% complete and balances were 20% complete) Costs from department 1 $20,000 Cost added in department 2: Materials $21,816 Labour $7776 Factory overhead $4104 Required: Prepare cost of production report for the month of December of Department 2. Exercise no.03

  14. During April, 20,000 units were transferred in from Dept A at a cost of $39,000. Materials cost of $6,500 and conversion cost of $9,000 were added in Dept B. on 30th April Dept B had 5,000 units of work in process; 60% complete as to conversion cost and 100% as to materials in Dept B. Required: Prepare: 1. Equivalent production units. 2. Cost per unit for conversion cost. Exercise no.04

  15. Assembly Department’s data for February were: Units received from Cutting Dept : 60,000 units Units transferred : 50,000 Units in process at end: 9,000 (All Materials and 2/3 Labour and FOH) Abnormal Loss:(1/2 complete to Material and Conversion Cost) 1000 units Costs from Cutting Dept $3.54 per unit Cost added in Assembly Dept: Materials $41,650 Labour $101,700 Factory overhead $56,500 Required: Prepare cost of production report for the month of February of Assembly Department . Exercise no.05

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