ACCT2102 Lecture Notes - Lecture 6: Eu Three
ACCT2102: Lecture 6 Process Costing summary for exam
Process Costing characteristics
Process Costing (aka average costing system):
-homogenous products (indistinguishable)
-Each unit is assigned the same average cost
-Cost object = department/process (instead of jobs)
-Cost accumulation is more about averaging (instead of tracing)
-Direct labour + Mfg Overhead are now combined and called ‘Conversion Costs’ (CC)
Process costing systems separate costs into cost categories according to the timing of when costs
are introduced into the process. Often, only two cost classifications, direct materials and conversion
costs, are necessary.
1. Direct materials are frequently added at one point in time, often the start or the end of the
process.
2. All conversion costs are added at about the same time, but in a pattern different from direct
materials costs. Conversion costs are often added throughout the process, which can of any length
of time, lasting from seconds to several months.
Equivalent units is a derived amount of output units that takes the quantity of each input (factor of
production) in units completed or in incomplete units in work in process, and converts the quantity
of input into the amount of completed output units that could be made with that quantity of input.
Each equivalent unit is comprised of the physical quantities of direct materials or conversion costs
inputs necessary to produce output of one fully completed unit.
Equivalent unit measures are necessary since all physical units are not completed to the same extent
at the same time. At the end of accounting period, there may be partially finished products (WIP),
causing no whole number of units to put into the denominator.
EU helps to solve this. Each EU has all the physical quantities of DM or CC inputs necessary, to
produce output of 1 fully completed units.
Weighted average process-costing method:
Calculates the equivalent-unit cost of all the work done to date (regardless of the accounting period
in which it was done), assigns this cost to equivalent units completed and transferred out of the
process, and to equivalent units in ending work-in-process inventory.
First-in-First-out (FIFO) method:
FIFO assumes costs in opening WIP are the first units to be transferred out as completed units in the
period
BUT Work done & related costs from the prior period are kept separate from that done in the
current period.
EU of each input = Current period costs / Current Period EU
A major advantage of FIFO is that managers can judge the performance in the current period
independently from the performance in the preceding period.
To find FIFO EU = Weighted Average EU - WIP (beg)
find more resources at oneclass.com
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Document Summary
Acct2102: lecture 6 process costing summary for exam. Each unit is assigned the same average cost. Cost object = department/process (instead of jobs) Cost accumulation is more about averaging (instead of tracing) Direct labour + mfg overhead are now combined and called conversion costs" (cc) Process costing systems separate costs into cost categories according to the timing of when costs are introduced into the process. Conversion costs are often added throughout the process, which can of any length of time, lasting from seconds to several months. Each equivalent unit is comprised of the physical quantities of direct materials or conversion costs inputs necessary to produce output of one fully completed unit. Equivalent unit measures are necessary since all physical units are not completed to the same extent at the same time. At the end of accounting period, there may be partially nished products (wip), causing no whole number of units to put into the denominator.
