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Materials, Labors and Factory Overhead
are charged to cost centers.
The cost assigned to each unit isdetermined by dividing the total cost
charged to the cost centers within
departments.
The primary requirement: all theproducts manufactured must be the same
in terms of resources consumed.
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Generally materials, labors and factory
overhead charged to the producing
departments.
One department can be a cost center or
one department can contains one or
more cost centers.
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Sequential Product FlowWhere a product goes trough same series of steps
Parallel Product Flow
Where certain portions of the work are donesimultaneously and then brought together in a finalprocess or proceses for completion and transfer toFinished Goods
Selective Product FlowWhere the products moves to different departments
within the plants, depending on what final product isto be produced.
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Cost of production report is a worksheetpresenting the amount of costs accumulatedand assigned to production during a
specified period. It should show:
1) Total and unit costs of work received from one or moreother departments;
2) Total and unit cost of materials, labor and FOH added by
department;3) The cost of beginning and ending work in process
inventories; and
4) The cost a suceeding department or to finished goods.
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An equivalent units (EU) is the amount of
a resource (such as materials, labor and
FOH) that is required to complete oneunit of the product.
Example if 3 units in ending inventory
had 1/3 of the materials then the EU is:
3x1/3= 1 EU of materials.
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Cutting Assembly
Units in WIP, beginning inventory 100 180
Units started in Cutting Dept. 600
Units transferred to Assembly Dept. 500
Units received from Cutting Dept. 500
Units transferred to Finished Goods
inventory
580
Units in WIP, ending inventory 200 100
Percentage of Completion:
Ending Inventory Cutting Assembly
aterials 60 100
Labors 20 70
FOH 40 70
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Cost Data:
Cutting Assembly
WIP, beginning inventory: - 8,320
Materials 1,892 830
Labor 400 475
FOH 796 518
Cost added to process during the
current period:Materials 13,608 7,296
Labor 5,000 9,210
FOH 7,904 11,052
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In average costing, the cost of each EU contains a
portion of the cost in beginning inventory and a portion
of the cost added during the current period.
The average cost per EU for each element of cost is
determined by dividing the total cost for each cost
elements (the amount in beginning inventory plus the
amount added during the current period) by the
number of EU
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Cutting Department Materials Labor Overhead
EU transferred out 500 500 500
EU in ending inventory 120 40 80
Total EU 620 540 580
Average cost per EU in Cutting department
Materials Labor Overhead
Cost in beginning
Inventory
1,892 400 796
Cost added during thecurrent period 13,6
085
,000 7,904
Total cost to accounted for 15,500 5,400 8,700
Divided by total EU 620 540 580
Cost per EU 25 10 15
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WIP-Assemby Department $ 25,000
WIP- Cutting Department $25,000*
$25,000= 500 units(transferred out) x $50 (unit cost)
See Cost of production report
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Assembly Department Preceding
department
Materials Labor Overhead
EU transferred out 580 580 580 580
EU in ending inventory 100 100 100 70
Total EU 680 680 650 650
Average cost per EU in Cutting department
Preceding
department
Materials Labor Overhead
Cost in beginning Inv. 8,320 830 475 518
Cost added during the
current period
25,000 7,296 9,210 11,052
Total cost to accounted 33,320 8,126 9,685 11,570
Divided by total EU 680 680 650 65049
Cost per EU 49 11,95 14,90 17,80
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Finished Goods Inventory $54,317
WIP-Assembly Department $54,317
$5
4,317 =5
80 (transferred out) x $ 93.65
(Unit cost)See Cost of Production Report
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Essence:
Under FIFO, the cost of the first unitstransferred out of the department are
deemed to come from beginning inventory If the units are not complete at the
beginning of the period, they must becompleted with the current period cost
before they can be transferred out.The balance of the units to be accounted for,
contain only current period cost.
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EU in FIFO is;
I. EU of current period cost added to
complete the units in beginninginventory; plus
II. The numbers of units started and
completed during the current
period; plus
III. EU in ending inventory
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