In a process costing several process may be occurred ,in every process total cost are must be transferred to next department like 2nd department and also 2nd department added some cost like material+labor+ factory overhead cost thus again total cost must be transfer to the 3rd department.it is the inherent nature of the process costing but problem is when any department take place inspection like 90% stage when tracing normal and abnormal spoilage and recommended material are added after 90% inspection as a good unit and also indicate spoilage rate of 3% of good output considered normal. we may exercise
In a process costing there are two types of process costing method are applied,like
01.FIFO costing Method
02.Average costing method
01.Details description under FIFO costing method:-
Under FIFO costing method there is no change in quantity schedule same as normal. but change in cost charged to the department section & also change in cost accounted for as follows section & Equivalent production units.but where existing more department lost unit not adjust in the beginning inventory
Cost charged to the department section :-
under this section beginning inventory cost included in total cost but not apply per unit cost.
Say for example,
Cost from beginning inventory total cost unit cost
Material 1020 -
conversion cost 8925 -
Cost added by department,
Material
TK. 31488.00
3.2
Conversion cost (Labor+factory overhead) Tk.259548.00 25.8
Total cost added TK,291036 29.00
Cost accounted for as follows section:-
under this section cost transferred to finished good at first charging the beginning inventory cost+cost added work this unit in this period and then cost transfer from current year cost of production+cost of wip ending inventory like,
Cost Accounted for as follows:-
Cost Transfer to finished goods:
Cost from beginning inventory
Material = 1020
+ work this period (200*3.20)= 640
Conversion cost = 8925
+ work this period (150*25.80)= 3870
total transfer from beginning inventory =14455
Cost from current year unit of production:-
(9100units*29 per unit) =263900
Cost from wip ending inventory
material (540*3.20) =1728
conversion(810*25.80) = 20898
Total cost accounted for 300981
Additional computations
Equivalent of production:-
Material conversion cost
units transfer to finished goods 9600 units 9600 units
less beginning inventory (60% complete) ( 500 ) (500)
unit tarted & complete this period 9100 9100
Add.Beginning inventory work this period (40%,30%) 200 150
Wip ending inventory(60%,90%) 540 810
Total
equivalent units
are 9840 10060
Cost per unit
Material =Tk.31488/9840units
tk.3.20 per units
Conversion cost=tk.259548/10060
=TK.25.80
02.Details description under Average costing method:-
Cost of completed units (25000Units*10 per unit) Tk.250000
normal spoilage all related to unit transferred to finished googds
cost from pre deppt(750units*4.50per unit) TK.3375
conversion(720units*5per unit) TK.3600
Total cost accounted for
following Example
Example:-01.
Department 02 record for April shows
Received from department -1 30000 units
Cost Tk.135000.00
Cost added in 2nd department,
Material TK. 12500.00
Conversion cost (Labor+factory overhead) Tk.139340.00
Transferred to finished goods 25000 units
Ending work in process inventory (50% complete) 4200 units
Required
Prepared a cost production report for department -2
Solution
Quantity schedule
Units received from preceding department 30000 units
units transfer to finished goods 25000
wip (50 % complete) 4200
unit lost in process (normal spoilage 25000*3%) 750
unit lost in process (abnormal spoilage 800-750) 50
Total 30000 units
Cost charged to the deppt total cost (TK) unit cost
Cost from predeppt (30000units) TK.135000.00 4.50
Cost added by the deppt :
Material TK.12500 0.50
Conversion cost TK. 139340 5.00
Total cost added TK,151840 5.50
Total cost to be accounted for TK.286840 Tk.10. per unit
Cost accounted for as follows:-
Transfer to finished goods:
cost of completed units (25000Units*10 per unit) Tk.250000
normal spoilage all related to unit transferred to finished googds
cost from pre deppt(750units*4.50per unit) TK.3375
conversion(720units*5per unit) TK.3600
Cost transfered to factory oH-Abnormal spoilage:
Cost from pre deppt (50*4.50per unit) TK. 225
Conversion (48*5per unit) TK. 240
Wip ending inventory:
Cost from pre deppt (4200*4.50 per unit) TK. 18900
Conversion cost(2100*5perunits) TK. 10500
Total cost accounted for TK. 286840
Additional computations
Equivalent of production:-
Material conversion cost
units transfer to finished goods 25000 units 25000 units
Ending work in process inventory (50% complete) 2100units
(4200*50%)
unit lost in process (normal spoilage- 750*96%) 720units
unit lost in process (abnormal spoilage- 50*96%) 48units
Total equivalent units are 27868 units
Cost per unit
Material =Tk.12500/2500units
tk.50 .00 per units
Conversion cost=tk.139340/27868
=TK.5.00