Process Costing

Accretion & Evaporation

 Accretion- Learning Objectives
• What is accretion in process costing?
• How is accretion or increase in units treated in
EUP?
• Illustrate accretion in process costing
 Accretion or Increase in Units
• In some processes, the addition of materials in
a subsequent department increases the
number of units being processed. This has the
opposite effect of lost units and requires an
adjustment to the unit cost for the previous
department’s transferred-in units. In effect,
the cost from the prior department is now
spread over more units, resulting in a reduced
unit cost.
Example
Step 1 – Units to Account For
Step 2 & 3 —Units Accounted For
and Calculation of EUP
Step 4—Costs to Account For
and Cost per EUP
Step 5—Assign Costs to Inventories
 Evaporation- Learning Objectives
• What is the nature of evaporation loss?
• How to account for loss from evaporation
• Illustrate preparation of Cost of Production
Report involving evaporation loss
 Evaporation Loss
• Evaporation is a normal loss which is to be
expected in certain products because of the
nature of the basic materials that compose
the product and the manufacturing operation
entailed. Computations involve working
backward to arrive at original quantities from
available production data which is generally
net of the evaporation loss.
 Illustration
• The following production data are taken from
the books of Sweet Scents, Inc., a
manufacturer of a variety of perfumes.
Processing in Department 2 takes 10 days,
during which time, a loss of 20% is suffered on
account of evaporation. D2 uses FIFO costing.
• Refer to the next slide for the given data.
 Data for May 2020
Units BWIP, May 1, 4 days completed 2,700
(in gallons) Transferred to storeroom 24,000
EWIP, 8 days processed 1,680
Costs BWIP P28,800
Transferred in cost from D1 580,000
Added in D2
DM 365,760
DL 243,840
FO 121,920
 Sweet Scents
Cost of Production Report
For the Month of May, 2020
• Department 2
 Computations
Evap Loss: 20%/10 days 2% per day
* BWIP, 4 days processed = 8% loss
2760 gals = 92%
Orig. units = 3,000

** EWIP, 8 days processed = 16% loss

1,680 gal = 84%
Orig. Units 2,000
• See attached excel file for the complete CPR