Process Costing

Solution to Quiz No. 9

Problem

Masipag Company produces a product that undergoes three

processes and the completed items at end of process 3 are
the items to be sold to customers.. For January 2019,
Masipag Company presented the following costs on three
processes:
Problem - continuation
Costs incurred: Process 1 Process 2 Process 3
Materials 25,000 18,800 13,290
Direct Labor 12,200 9,280 8,880
Overhead 7,320 6,960 6,660
50% at beginning, 30%
50% at beginning, 50% at 70% complete, and
Materials are added 100% at the beginning at 60% complete remaining 20 at 90%
at: complete.

Started/Transferred In
5,000 units 4,800 units 4,500 units
Completed and
transferred out 4,800 units 4,500 units 4,250 units
100 units 80%
complete,
In Process, end 200 units 40% 200 units 20% 100 units 60%
complete complete complete
Normal losses Inspection is made at end of the process.
Problem - continuation
Required:
A. Compute the following:
1. Equivalent units of materials and conversion for Process 1, 2 and 3 (6
points)
2. Unit costs of materials, labor and overhead for process 1, 2 and 3 (6 points)
3. Cost of completed and transferred out, and in-process inventories for
process 1, 2 and 3. (6 points)
4. Unit costs of completed and transferred goods to process 2, 3 and to
finished goods. (3 points)
B. Journalize the transactions for process 1, 2 and 3 (6 points)
C. How much is the total manufacturing cost? Finished Goods Inventory?
Work-in Process Inventory? (3 points)
Steps to solve the problem

1. Compute for the equivalent units of production (per

process);

2. Compute for the unit costs of materials and conversion

(per process);

3. Assign costs to completed and transferred out, in-process

ending inventory, normal losses at end of the process, and
abnormal losses at end of the process (per process).
Equivalent Units of Production
Process 1
Materials Conversion (Labor & OH)
Work Done Equivalent Work Done Equivalent
Units started: 5,000

Units accounted for as follows:

Completed 4,800 100% 4,800 100% 4,800
In-process: 100% complete RM,
40% converted
200 100% 200 40% 80
Normal loss 0
Abnormal loss 0
Total units
accounted for 5,000 5,000 4,880
Unit Costs of
Materials and Conversion Costs – Process 1

Total Costs Equivalent Units Unit Costs

Materials 25,000 5,000 5.000000

Labor 12,200 4,880 2.500000

Overhead 7,320 4,880 1.500000

Total unit cost 9.000000

To get the unit costs, divide the costs by the corresponding equivalent units.
Example: on materials, P25,000 divided by 5,000 equals P5.000000
Assign costs to completed and transferred
out, and in-process end units – Process 1

Total Manufacturing costs under process 1:

Materials P 25,000
Conversion (labor and overhead) 19,520
Total costs to account for P 44,520

Completed and transferred out:

4,800 units x P9.00 unit cost = P 43,200
In-Process, end, 200 units:
Materials: 200 units x P5.00 = P1,000
Conversion: 80 units x P4.00 = 320 1,320
Total costs accounted for P 44,520
Equivalent Units of Production
Process 2
Materials Conversion (Labor & OH)
Work Done Equivalent Work Done Equivalent
Units transferred in: 4,800

Units accounted for as follows:

Completed 4,500 100% 4,500 100% 4,500
In-process: 50% complete RM,
20% converted
200 50% 100 20% 40
Normal loss 100 100% 100 100% 100
Abnormal loss 0
Total units
accounted for 4,800 4,700 4,640
Unit Costs of transferred in,
Materials and Conversion Costs – Process 2

Total Costs Equivalent Units Unit

Costs

Transferred in 43,200 4,800 9.000000

Materials 18,800 4,700 4.000000

Labor 9,280 4,640 2.000000

Overhead 6,960 4,640 1.500000

Total unit cost 16.500000

Assign costs to completed and transferred
out, and in-process end units – Process 2
Total costs under process 2:
Transferred in costs P 43,200
Materials 18,800
Conversion (labor and overhead) 16,240
Total costs to account for P 78,240

Take note that costs

Completed and transferred out: of normal losses are
4,500 units x P16.50 unit cost = P 74,250
added to completed
and transferred out
Normal loss 100 units x P16.50 = 1,650 P 75,900
because they were
In-Process, end, 200 units: discovered at the
Transferred in cost: 200 x P9.00 = P 1,800 end of the process.
Materials: 100 units x P4.00 = 400
Conversion: 40 units x P3.50 = 140 2,340
Total costs accounted for P 78,240
Equivalent Units of Production
Process 3
Materials Conversion (Labor & OH)
Work Done Equivalent Work Done Equivalent
Units transferred in: 4,500

Units accounted for as follows:

Completed 4,250 100% 4,250 100% 4,250
In-process: 100 80% 80 80% 80
100 50% 50 60% 60
Normal loss 50 100% 50 100% 50
Abnormal loss 0
Total units
accounted for 4,500 4,430 4,440
Unit Costs of transferred in,
Materials and Conversion Costs – Process 3

Total Costs Equivalent Units Unit

Costs

Transferred in 75,900 4,500 16.866667

Materials 13,290 4,430 3.000000

Labor 8,880 4,440 2.000000

Overhead 6,660 4,440 1.500000

Total unit cost 23.366667

Assign costs to completed and transferred
out, and in-process end units – Process 3
Total costs under process 3:
Transferred in costs P 75,900
Materials 13,290
Conversion (labor and overhead) 15,540
Total costs to account for P104,730

Take note that costs

Completed and transferred out: of normal losses are
4,250 units x P23.366667unit cost = P 99,308.34
added to completed
and transferred out
Normal loss 50 units x P23.366667 = 1,168.33 100,476.67
because they were
In-Process, end, 200 units: discovered at the
Transferred in cost: 200 x P16.866667 = 3,373.33 end of the process.
Materials: 130 units x P3.00 = 390.00
Conversion:140 units x P3.50 = 490.00 4,253.33
Total costs accounted for P104,730.00
Journal entries
Work in Process #1 44,520
Materials 25,000
Payroll 12,200
Factory Overhead Applied 7,320

Work in Process #2 43,200

Work in Process #1 43,200

Work in Process #2 35,040

Materials 18,800
Payroll 9,280
Factory Overhead Applied 6,960
Journal entries - continuation
Work in Process #3 75,900.00
Work in Process #2 75,900.00

Work in Process #3 28,830.00

Materials 13,290.00
Payroll 8,880.00
Factory Overhead Applied 6,660.00

Finished Goods 100,476.67

Work in Process #3 100,476.67
Total Manufacturing Costs

Work in Process #1 (M, L, OH) P 44,520.00

Work in Process #2 (M, L, OH) 35,040.00
Work in Process #3 (M, L, OH) 28,830.00
Total Manufacturing Costs P 108,390.00
Cost of Finished Goods
and In-Process, end
Finished Goods (see slide No. 14) P 100,476.67
In-Process, end (see slide No. 14) P 4,253.33

Unit Cost of Finished Goods

P 100,476.67 divided by 4,250 units = P 23.641569
I hope you find this useful in the future.

Thank You!