We're continuing on with our Process Costing series, and in this video
we're going to continue on with the steps used in process costing. So now that we have
accounted for our units and computed equivalent units we can now summarize
the total cost to account for. So in this slide you can see the Shaping Department
costs that were incurred while working on those 50,000 masks that we accounted
for in an earlier video. We have our beginning work in process cost, our
direct materials cost, our conversion cost and our total costs that we need to
account for $208,000, and we've divided that out
between materials and conversion in our spreadsheet. So our total cost that we
need to account for being the $208,000. So now if we use
that $208,000 and pull it apart to the $140,000 for
direct materials that we need to account for, the $68,000 dollars in
conversion costs that we need to account for pulling from that spreadsheet taking
the cost and dividing it by the total equivalent units that we computed in
step two, 50,000 equivalent units as to direct materials and
42,500 equivalent units as to conversion cost, we get a cost per
equivalent unit for materials of $2.80 for
conversion of $1.60. Once we have computed our cost per
equivalent unit we can use this cost to assign total cost to units that are
completed and transferred out as well as cost in our ending work in process.
So here we have our equivalent units as to materials and conversion that were
transferred out which was the 40,000 units multiplied times the cost per unit
that we just calculated in step four gives us the cost assigned to the units
that were completed and transferred out per direct materials of $112,000
$112,000 per conversion of $64,000.
Now the ending work in process had 10,000 equivalent units as to materials
multiplied by the 280 gives us $28,000 assigned to units in ending work in
process per materials. For conversion only 25% of them were complete as to
conversion so 2,500 equivalent units as to conversion times the $1.60
cent per equivalent unit gives us $4,000 assigned to work in process as of
conversion cost giving us total cost accounted for of $208,000. So to wrap up
let's try an example. Here we have Tristan Company. They produce its product
using a single production process. For the month of August, the company
determined its cost per equivalent unit to be as follows. So we've already
computed our cost per equivalent unit for materials of $4.20
cents for conversion to be $2.75.
During the month Tristan completed and transferred out 410,000
units to finish goods inventory. At month end 86,000 partially
completed units remained in ending work in process. These partially completed
units were equal to 69,000 equivalent units of direct materials and
50,000 equivalent units of conversion costs. So we need first to
determine the total cost that should be assigned to the following: units
completed and transferred out, units in ending work, and process inventory. Then we
should find out what was the total cost to account for and then what was
Tristan's average cost of making one unit of product? So push pause on your
player and attempt this problem. So the first thing we want to do is determine
the cost that should be assigned to the units completed and transferred out.
So the units that were completed and transfer out was 410,000
410,.000 units that were transferred to finished goods. Well if the average cost of
a unit is $4.20 per materials and $2.75
$2.75 per conversion we would take the total cost per unit multiply that
times the unit's completed and we find that the total cost assigned to the
units computed and transferred out completed
and transferred out is $2,849,500
dollars. To compute the total cost that should be assigned to the units in
ending work in process, well we know that we have 86,000 partially
completed units in ending work in process. Of those partially completed units
69,000 are equivalent as to direct materials and 50,000
equivalent as to conversion. So to find our total cost assigned to this ending
inventory we would take the direct material cost of $4.20
cent times equivalent units completed as to materials plus the $2.75
$2.75 our cost per equivalent unit as to
conversion cost multiply that times the equivalent units completed as to
conversion cost and that gives us our total cost of ending work in process to
be $427,300. Therefore the
total cost that we have accounted for is the total cost of units completed and
transferred out plus the total cost of ending work in process inventory which
is $3,276,800. Therefore
Tristan's average cost of making one unit of product is the cost per
equivalent unit for materials plus the cost per equivalent unit of conversion
cost given us $6.95.
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