This is the third video in our process costing series. Where we'll be looking at the creation of a scuba mask and our scuba
masks are actually going to go through two different processes. The first
process being the shaping process, which will actually focus most of our time on
and then we'll transfer to the second department, which is the insertion
process. This particular video is going to focus on the first process
which is the shaping process. So just like we discussed earlier, each process
has materials, labor, and overhead that would be applied to the process. Where
we'll eventually have a shaped mask as our outcome. So for this particular
process in our shaping department we can draw our timeline here like we did
before, We find the conversion cost as we anticipate are added evenly throughout
the production process. Direct materials in this department are added at the
beginning of the process. We also find that 40,000 masks have been completed
and transferred out by the end of the period. Their one 100% complete
and they're moved to the next process. However 10,000 masks were started, but
not completed. So they remain in ending work in process in our shaping
department, or our shaping process and they are 25% complete.
So step one in the process costing scenario is we have to summarize the
flow of physical units. So the first thing in this step is to total our
physical units to account for. How many individual units were worked on,
completed or not and then we have to show how we accounted for them. What
happened to those products? Are they finished and transferred out or are they
still in our work in process inventory? So if we look at our spreadsheet here we
find our flow of physical units, the units that we need to account for, we had
none in beginning inventory. Then we started in production 50,000 units. So we
need to be able to account for 50,000 units,
50,000 masks. So the way we accounted for them is we completed and transferred out
40,000 masks 40,000 were completed and transferred out during the period. Plus
we still had 10,000 masks in ending work in process that were not yet completed.
So 40,000 plus 10,000 gives me my 50,000 masks that I have now completely
accounted for. Step two in the process is to compute the output in terms of
equivalent units. So again I given us our timeline here, remember conversion costs
are added evenly throughout the process, direct materials are added at the
beginning of the process, 40,000 are completed and transferred out so they're
gone, but we still have 10,000 left in ending work in process. So we need
to compute equivalent units for what we have completed and
transferred out as well as what's still in working process. So if a unit has been
completed and transferred out, it is 100% complete as to materials and
conversion. So there's 40,000 units that were complete and transferred out are
all equivalent units because they are completed units. As for the 10,000 that
are left in ending work in process however, they are only 25% complete as to
conversion cost, but they are 100% complete as to direct materials
because direct materials were added at the beginning of the process. So we can
see under our direct materials column there, 40,000 that were transferred out
our all completest materials and all completest to conversion, but what's left
in ending, the 10,000 units in ending work in process is 100% complete as to
direct materials. So we have 10,000 equivalent units as to materials, but
only 25% of that and was completed as to conversion. So equivalent units as to
conversion is only 2,500, 25% times 10,000. So we have 50,000 equivalent
units as to direct materials and we have 42,500 equivalent units as to
conversion cost. Now what if instead of direct materials
being added at the beginning of the process,
what if direct materials were added at the end of the process? How would that
change your computation of direct materials? So I'd like for you to think
about that for a second and then we'll go over it. So push pause on your player
and then we'll look at the answer. So in this situation if direct materials are
added at the end of the process, then we only have 40,000 units completed as to
materials. So only 40,000 equivalent units as to materials, because those 10,000
that are still in work in process haven't gotten to the point where direct
materials are added. So none of them are complete as to materials and we still
have 2,500 that are complete as to conversion. So we'd have 40,000 units
completed as to materials and 42,500 units completed as to conversion. Let's
look at a quick example. The Frying Department of crinkle chips had 110,000
partially completed units in work in process at the end of March. All
of the direct materials have been added to these units, but the units were only
68% of the way through the conversion process. In addition, 1.2
million units have been completed and transferred out of the frying department
to the packaging department during the month. How many equivalent units of
direct materials and equivalent units of conversion cost are associated with the
1.2 million units completed and transferred out. The second part, compute
the equivalent units of direct materials and the equivalent units of conversion
cost associated with 110,000 partially completed units still in ending
work in process, and 3, what are the total equivalent units of direct materials and
the total equivalent units of conversion cost for the month? So I'd like for you
to give this a shot and then we'll take a look at it. So we need to set up our
spreadsheet to where we have our units accounted for.
We have 1.2 million units that are completed and transferred out and we
still have a 110,000 units that is still in work in process
that are 68% of the way through the conversion process. So total units that
we've accounted for are 1,310,000 units. If we
compute the equivalent units for direct materials and conversion, we first find
that all of the materials have been added to these units, so that must mean
they were added at some point the process prior to being 68% of the
way through. So all of them are completed as to materials and 68%
are completed as to conversion cost. So the ones that are completed and
transferred out are all equivalent units because they're completely through the
process. The ending work in process is the one we really have to worry about.
They are 100% complete as to direct materials. The entire
110,000. However 68% through the conversion process. So 68%
of one 110,000 units is 74,800.
So to compute the total equivalent units for materials is 1,310,000
and total equivalent units as to conversion
would be 1,274,800.