Preliminaries

I. Course Code CAC 102

II. Course Title COST ACCOUNTING AND CONTROL

III. Module Number 2 (Midterm)

IV. Module Title Process Costing Part 1

V. Overview of the Module Process Costing topics will cover different losses incurred by first and succeeding
departments. The quantity schedule, the costs charged to the department and
the costs accounted for shall be the major parts of the production reports and its
accompanying supporting schedules.

VI. Module Outcomes Cost of production report and related journal entries

Lesson Number 1

Lesson Title Process Costing Characteristics and Involving No Lost Units

Lesson Objectives: At the end of the lesson, the student is expected to:
1. Define process costing
2. Enumerate the characteristics of process costing
3. Prepare necessary journal entries of the flow of cost different process
departments with out lost units
4. Prepare the cost of production report for each department involving no
lost units.

Getting Started (Optional)

Discussion and Application

During the prelim period, we had completed the cost accounting cycle and had applied
job order costing in the cycle. We prepared job order cost sheets for different job orders
that are identifiable to a particular customer. These cost sheet summarize the direct
material, direct labor and overhead for each particular job. Examples are products that
may be customed made or may be distinguished from each other such as dress, furniture,
equipment, machineries and the like .

This midterm period, we will take up process costing for homogenous products such as
sugar, oil, cereals, milk and the like. This time we will prepare cost of report for each
department which will show the cost of materials, labor and overhead per department.
Process Costing
Definition: Process Costing is defined as a branch of operation costing, that determines the
cost of a product at each stage, i.e. process of production. It is an accounting method which
is adopted by the factories or industries where the standardized identical product is
produced, as well as it passes through multiple processes for being transformed into the
final product.

In simple words, process costing is a cost accounting technique, in which the costs incurred
during production are charged to processes and averaged over the total units
manufactured. For this purpose, process accounts are opened in the books of accounts, for
each process and all the expenses relating to the process for the period is charged to the
respective process account.

Hence, it ascertains the total cost and unit cost of a process, for all the
processes carried out in industry. Further, the average cost represents the cost
per unit, wherein the total cost is divided by the total number of outputs
produced during the period to arrive at the cost per unit. The cost per unit can
be calculated using First in First Out Method (FIFO), Average Method and
Weighted average Method. (https://businessjargons.com/process-
costing.html)

Process Costing Involving No lost Units

The first discussion will consider no lost units during the production process for both
the first and succeeding departments. Please refer to pages 290 -295 of the text book.
Format illustration and procedures for the first department
The cost of production has three major parts namely:
1. Quantity schedule which summarizes the units started, units completed
and units still in process at the end of the period.
2. Cost charged to the department enumerates the cost of materials, labor
and overhead incurred by the department with the unit cost.
3. Cost accounted for as follows enumerates the cost of units completed
and transferred to the succeeding department and cost of ending work
in process inventory.
 Below is the format (terms) to be written first and the peso values are to be written in
the money columns as they are computed.
ABC Manufacturing Company
Department A
Cost of Production Report
For the year ended, December 31, 202A
Quantity Schedule
Units started in process XXXX
Units completed and transferred to Department B XXXX
Units still in process XXXX XXXX

Cost charged to the department: Cost Unit Cost

Materials PXXX P xx.xx
Labor XXX xx.xx
Overhead XXX xx.xx
Total cost to be accounted for PXXX P xx.xx

Cost accounted for as follows:

Completed and transferred to Department B PXXX
Work in process ending inventory:
Materials PXXX
Labor XXX
Overhead XXX XXX
Total cost accounted for PXXX

Additional Computation:
Equivalent Production

Materials XXXX
Labor XXXX
Overhead XXXX

Unit Cost:
Materials Pxx.xx
Labor Pxx.xx
Overhead Pxx.xx

Journal entries:

Work in Process – Department A XXXX

Materials XXXX
Payroll (direct labor) XXXX
Factory Overhead Applied XXXX

Work in Process – Department B XXXX

Work in Process – Department A XXXX
Format illustration and procedures for the second/succeeding department

In the succeeding department, instead of unit started it will be units received from the
preceding department and the first cost that is charged to the department is the cost from
the preceding department

All the steps and computation done with the first deparment will be the same with the
succeeding department.
ABC Manufacturing Company
Department B
Cost of Production Report
For the year ended, December 31, 202A
Quantity Schedule
Units received from Department A XXXX
Units completed and transferred to Finished Goods XXXX
Units still in process XXXX XXXX

Cost charged to the department: Cost Unit Cost

Cost received from Department A P XXX P xx.xx
Cost added in the department
Materials XXX xx.xx
Labor XXX xx.xx
Overhead XXX xx.xx
Total cost added PXXX P xx.xx
Total cost to be accounted for PXXX P xx.xx

Cost accounted for as follows:

Completed and transferred to Finished Goods PXXX
Work in process ending inventory:
Cost from Department A P XXX
Materials XXX
Labor XXX
Overhead XXX XXX
Total cost accounted for PXXX
Additional Computation:
Equivalent Production
Materials XXXX
Labor XXXX
Overhead XXXX
Unit Cost:
Materials Pxx.xx
Labor Pxx.xx
Overhead Pxx.xx
Journal entries:

*Work in Process – Department B XXXX

Work in Process – Department A XXXX

Work in Process – Department B XXXX

Materials XXXX
Payroll (direct labor) XXXX
Factory Overhead Applied XXXX

**Finished Goods XXXX

Work in Process – Department B XXXX
*Recorded in department A
**If already the last department

Steps to be done

1. Have the format of the cost of production report written. Mastery of the
format of the cost of production report is a must.
2. Start completing the quantity schedule considering the data given.
3. Write the amount of the costs (materials, labor and overhead) incurred by
the department in the cost charged to the department
4. Compute the equivalent production based on the quantity schedule data
5. Compute for the unit cost to be forwarded in the unit cost column to arrive
at the total unit costs
6. Considering the unit costs and equivalent production computation, the cost
accounted for as follows will be already completed.
7. Based on the figures obtained in the cost accounted for as follows,
formulate the journal entries.

STEPS TO BE DONE WILL ALWAYS BE FOLLOWED IN SOLVING PROBLEMS.

Illustration:

ABM Company uses two departments to produce a product. The following data were
taken from the book for the month of January, 202A.
Department 1 Department 2

Units:
Started 60,000
Completed and transferred 40,000 30,000
In process, end 20,000 10,000
Stage of completion 75% 80%
Costs:
Materials P480,000 P245,000
Labor 330,000 190,000
Overhead 220,000 114,000

Department 1 – all materials added at the beginning of the process.

Department 2 – 50% of the materials are added at the beginning of the process,
remaining 50% at the end of the process.

Required: Cost of production report for Department 1 and 2 and related journal entries.

ABM Manufacturing Company

Department 1
Cost of Production Report
For the month ended, January 31, 202A
Quantity Schedule
Units started in process 60,000
Units completed and transferred to Department 2 40,000
Units still in process 20,000 60,000

Cost charged to the department: Cost Unit Cost

Materials P480,000 P 8.00
Labor 330,000 6.00
Overhead 220,000 4.00
Total cost to be accounted for P1,030,000 P18.00

Cost accounted for as follows:

Completed and transferred to Department B (40,000 X P18.00) P720,000
Work in process ending inventory:
Materials (20,000 x P8.00) P160,000
Labor (20,000 x 75% X P6.00) 90,000
Overhead (20,000 x 75% x P4.00) 60,000 310,000
Total cost accounted for P1,030,000
Additional Computation:

Equivalent Production

Materials 60,000 (100% complete)

Labor and overhead 40,000 (100% complete) + 20,000 (75% complete) = 55,000

Unit Cost:
Materials P480,000/60,000 = P8.00
Labor P330,000/55,000 = P6.00
Overhead P220,000/55,000 = P4.00

Journal entries:

Work in Process – Department 1 1,030,000

Materials 480,000
Payroll (direct labor) 330,000
Factory Overhead Applied 220,000

Work in Process – Department 2 720,000

Work in Process – Department 1 720,000

On January 31, 202A the Work in Process – Department A will have a balance of P310,000

Work in Process – Department 1___

1,030,000 720,000

Balance 310,000*

*Same balance in the Work in Process inventory in the cost of production report.
 ABM Manufacturing Company
Department 2
Cost of Production Report
For the month ended, January 31, 202A
Quantity Schedule
Units received from Department 1 40,000
Units completed and transferred to Finished Goods 30,000
Units still in process 10,000 40,000

Cost charged to the department: Cost Unit Cost

Cost received from Department 1 P 720,000 P 18.00
Cost added by the department
Materials P 245,000 P 7.00
Labor 190,000 5.00
Overhead 114,000 3.00
Total cost added P 549,000 P15.00
Total cost to be accounted for P1,269,000 P33.00
Cost accounted for as follows:
Completed and transferred to Finished Goods (30,000 x P33.00) P 990,000
Work in process ending inventory:
Cost from Department 1 (10,000 x P18.00) P 180,000
Materials (10,000 x 50% x P7.00) 35,000
Labor (10,000 x 80% x P5.00) 40,000
Overhead (10,000 x 80% x P3.00) 24,000 279,000
Total cost accounted for P1,269,000

Additional Computation:
Equivalent Production
Materials 30,000 (100% complete) + 10,000 (50% complete) = 35,000
Labor and overhead 30,000 (100% complete) + 10,000 (80% complete) = 38,000

Unit Cost:
Materials P245,000/35,000 = P7.00
Labor P190,000/38,000 = P5.00
Overhead P114,000/38,000 = P3.00
Journal entries:

Work in Process – Department 2 549,000

Materials 245,000
Payroll (direct labor) 190,000
Factory Overhead Applied 114,000

Finished Goods 990,000

Work in Process – Department 2 990,000
On January 31, 202A the Work in Process – Department 1will have a balance of P279,000

Work in Process – Department 2__

720,0000 990,000
549,000
Balance 279,000*

*Same balance in the Work in Process inventory in the cost of production report.

Summary of the Lesson

 Process costing accumulates cost incurred by department. Products which are

homogenous usually adopt process costing.
 Cost of production report is prepared for each department on a regular basis.
 Journal entries are prepared at the end of each cut off period.
 It is very ideal that there may be no lost units during production
Enrichment Activities

Problem 1

Metal Fabrication Corporation manufactures their product in two departments. For the
month of June of the current year, Cutting Department, the first department started to
process 4,600 units. Materials amounting to P11,500 all were placed at the beginning of the
process. Direct labor paid was P6,450 and overhead applied was P7,525. The department
completed and transferred 4,000 units to the Assembly Department, the last department.
Units still in process were 50% completed.

Assembly Department completed and transferred to finished goods store room 3,400
units. No materials were added by the department. Direct labor paid was P8,460 and
overhead applied was P6,768. At the end of the month, units still in process were 60%
converted.

Instructions: Prepare cost of production reports and necessary journal entries for Cutting
department for the month of June of the current year.
Assessment

Problem 1

Metal Fabrication Corporation manufactures their product in two departments. For the
month of June of the current year, Cutting Department, the first department started to
process 4,600 units. Materials amounting to P11,500 all were placed at the beginning of the
process. Direct labor paid was P6,450 and overhead applied was P7,525. The department
completed and transferred 4,000 units to the Assembly Department, the last department.
Units still in process were 50% completed.

Assembly Department completed and transferred to finished goods store room 3,400
units. No materials were added by the department. Direct labor paid was P8,460 and
overhead applied was P6,768. At the end of the month, units still in process were 60%
converted.

Instructions: Prepare cost of production reports and necessary journal entries for Assembly
department for the month of June of the current year.

Suggested Links (Optional)

1. https://businessjargons.com/process-costing.html
2. https://opentextbc.ca/principlesofaccountingv2openstax/chapter/distinguish-
between-job-order-costing-and-process-costing/

References
1. De Leon (2019), Cost Accounting and Control 2019 Edition: Manila GIC Enterprise & Co., Inc
(Text Book).
2. Rante (2013) Cost Accounting 2013 Edition : Manila: Millenium Books Inc.
3. Cabrera, M. E. B. (2019) Cost Accounting and Control 2019 Edition) Manila: GIC Enterprise &
Co. Inc.
Lesson Number 2
Lesson Title Process Costing involving normal lost units

Lesson Objectives: At the end of the lesson, the student is expected to:
1. Prepare necessary journal entries of the flow of cost in different process
departments with normal lost units
2. Prepare the cost of production report for each department involving lost units
normal

Getting Started (Optional)

Discussion of Content and Application

Normal or unavoidable loss is produced under efficient operating conditions and is

uncontrollable.

Normally lost units are expected during production. The lost may be incurred in the
different stages of production – at the beginning or at the end of the process.

Illustration of process costing involving lost units incurred at the beginning of the process

When the lost is incurred at the beginning of the process, the cost from the preceding
department will be adjusted. Thus, the lost will be distributed to all the units received from
the preceding department by increase in its unit cost.
Since the lost units will no longer be processed, it will not be included in the equivalent
production computation.

ABC Manufacturing Company

Department B
Cost of Production Report
For the year ended, December 31, 202A
Quantity Schedule
Units received from Department A XXXX
Units completed and transferred to Finished Goods XXXX
Units still in process XXXX
Units lost in process XXXX XXXX

Cost charged to the department: Cost Unit Cost

Cost received from Department A P XXX P xx.xx

Adjusted cost from the preceding department P xx.xx

Cost added by the department

Materials XXX xx.xx
Labor XXX xx.xx
Overhead XXX xx.xx
Total cost added PXXX P xx.xx
Total cost to be accounted for PXXX P xx.xx
Cost accounted for as follows:
Completed and transferred to Department B PXXX
Work in process ending inventory:
Adjusted cost from preceding department PXXX
Materials XXX
Labor XXX
Overhead XXX XXX
Total cost accounted for PXXX

Additional Computation:
Equivalent Production
Materials XXXX
Labor XXXX
Overhead XXXX

Adjusted cost from the preceding department Pxx.xx

Unit Cost:
Materials Pxx.xx
Labor Pxx.xx
Overhead Pxx.xx
Journal entries:

*Work in Process – Department B XXXX

Work in Process – Department A XXXX

Work in Process – Department B XXXX

Materials XXXX
Payroll (direct labor) XXXX
Factory Overhead Applied XXXX

**Finished Goods XXXX

Work in Process – Department B XXXX

*Recorded in department A
**If already the last department

Illustration of process costing involving lost units incurred at the end of the process
 When the lost is incurred at the end of the process, the cost incurred by the lost units
will be added to the cost completed and transferred to the next department.

Since these lost units occurred after processing, they will be included in the
computation of equivalent production.

ABC Manufacturing Company

Department B
Cost of Production Report
For the year ended, December 31, 202A
Quantity Schedule
Units received from Department A XXXX
Units completed and transferred to Finished Goods XXXX
Units still in process XXXX
Units lost in process XXXX XXXX

Cost charged to the department: Cost Unit Cost

Cost received from Department A P XXX P xx.xx

Cost added by the department

Materials XXX xx.xx
Labor XXX xx.xx
Overhead XXX xx.xx
Total cost added PXXX P xx.xx
Total cost to be accounted for PXXX P xx.xx

Cost accounted for as follows:

Completed and transferred to Department B PXXX
Work in process ending inventory:
Cost from the preceding department PXXX
Materials XXX
Labor XXX
Overhead XXX XXX
Total cost accounted for PXXX

Additional Computation:
Equivalent Production
Materials XXXX
Labor XXXX
Overhead XXXX

Adjusted cost from the preceding department Pxx.xx

Unit Cost:
Materials Pxx.xx
Labor Pxx.xx
Overhead Pxx.xx

Journal entries:
 *Work in Process – Department B XXXX
Work in Process – Department A XXXX

Work in Process – Department B XXXX

Materials XXXX
Payroll (direct labor) XXXX
Factory Overhead Applied XXXX

**Finished Goods XXXX

Work in Process – Department B XXXX
*Recorded in department A
**If already the last department

Illustration:

Cleaner Corporation applies process costing in three departments namely: Blending,

Testing and Terminal Departments.

For the month of March of the current year the following information from Testing
Department were obtained:

1. Received 45,000 units from Blending department at a total cost of P77,400.

2. 40,000 units were transferred to Terminal department.
3. 3,000 units were still in process which were 1/3 completed.
4. Direct labor cost paid was P37,310.00.
5. Factory Overhead applied was P 32,800.00
6. All units lost were considered normal.

Required: Prepare cost of production report and related entries if (a) units were lost at the
beginning of the process (b) units were lost at the end of the process. Carry unit cost upto
five decimal places. Round figures to the nearest peso.
(a) Units were lost at the beginning of the process

Cleaner Corporation
Testing Department
Cost of Production Report
For the month ended, March 31, 202A
Quantity Schedule
Units received from Blending Department 45,000
Units completed and transferred to Terminal Department 40,000
Units still in process (1/3 labor and overhead) 3,000
Units lost in process (all normal) 2,000 45,000

Cost charged to the department: Cost Unit Cost

Cost received from Department A P 77,400 P 1.72

Adjusted cost from the preceding department

P77,400 / (45,000 – 2000) P 1.80
Cost added in the department
Labor P 37,31 P 0.91
Overhead 32,800 0.80
Total cost added P70,110 P 1.71
Total cost to be accounted for P147,510 P 3.51

Cost accounted for as follows:

Completed and transferred to Terminal Department (40,000 x P 3.51) P140,400
Work in process ending inventory:
Adjusted cost from preceding department( P1.80 x 3,000) P 5,400
Labor (3,000 x 1/3 x P0.91) 910
Overhead (3,000 x 1/3 x P0.80) 800 7,110
Total cost accounted for P147,510

Additional Computation:
Equivalent Production
Labor and overhead 40,000 (100% complete) + 3,000 (1/3 complete) = 41,000

Unit Cost:
Labor P37,310/41,000 = P0.91
Overhead P32,800/41,000 = P0.80
Journal entries:

Work in Process – Testing Department 77,400

Work in Process – Blending Department 77,400

Work in Process – Testing Department 70,110

Payroll (direct labor) 37,310

Work in Process – Testing Department 32,800

Factory Overhead Applied 32,800

Work in Process – Terminal Department 140,400

Work in Process – Testing Department 140,400
(b) Units were lost at the end of the process

Cleaner Corporation
Testing Department
Cost of Production Report
For the month ended, March 31, 202A
Quantity Schedule
Units received from Blending Department 45,000
Units completed and transferred to Terminal Department 40,000
Units still in process (1/3 labor and overhead) 3,000
Units lost in process (all normal) 2,000 45,000

Cost charged to the department: Cost Unit Cost

Cost received from Department A P 77,400 P 1.72

Cost added in the department

Labor P 37,310 P0.86767
Overhead 32,800 0.76279
Total cost added P70,110 P 1.63046
Total cost to be accounted for P147,510 P 3.35046

Cost accounted for as follows:

Completed and transferred to Terminal Department
(40,000 x P 3.35046) + (2,000 x P3.35046) P140,719*
Work in process ending inventory:
Cost from preceding department( P1.72 x 3,000) P 5,160
Labor (3,000 x 1/3 x P0.86767) 868
Overhead (3,000 x 1/3 x P0.76279) 763 6,791
Total cost accounted for P147,510
*Difference due to rounding off

Additional Computation:
Equivalent Production
Labor and overhead
40,000 (100% complete) + 3,000 (1/3 complete) + 2,000 (100% complete) = 43,000
Unit Cost:
Labor P37,310/43,000 = P0.86767
Overhead P32,800/43,000 = P0.76279
Journal entries:

Work in Process – Testing Department 77,400

Work in Process – Blending Department 77,400

Work in Process – Testing Department 70,110

Payroll (direct labor) 37,310
Factory Overhead Applied 32,800

Work in Process – Terminal Department 140,479

Work in Process – Testing Department 140,479
Summary of the Lesson

 When the lost is incurred at the beginning of the process, the cost from the
preceding department will be adjusted. Thus, the lost will be distributed
to all the units received from the preceding department by increase in its
unit cost.
Since the lost units will no longer be processed, it will not be included in
the equivalent production computation.
 When the lost is incurred at the end of the process, the cost incurred by
the lost units will be added to the cost completed and transferred to the
next department.
Since these lost units occurred after processing, they will be included in
the computation of equivalent production.

Enrichment Activities

Problem 1 Chem Phil Corporation produces a product in tow departments – Mixing and
Packaging. For the month of August of the current year, Packaging Department received
from Mixing Department 50,000 units (costing P225,000) out of which 40,000 units were
completed and transferred to finished goods warehouse. Packaging department completed
only 60% of the 5,000 units still in process.

During the month, Packaging department added 100% of the materials (costing
P135,000) at the beginning of the process. The department also incurred labor and
overhead amounting to P103,200 and P206,400 respectively.

Required: Cost of production reports and necessary journal entries for Packaging
Department assuming lost was discovered (a) at the beginning of the process

Assessment

Problem 1 Chem Phil Corporation produces a product in tow departments – Mixing and
Packaging. For the month of August of the current year, Packaging Department received
from Mixing Department 50,000 units (costing P225,000) out of which 40,000 units were
completed and transferred to finished goods warehouse. Packaging department completed
only 60% of the 5,000 units still in process.

During the month, Packaging department added 100% of the materials (costing
P135,000) at the beginning of the process. The department also incurred labor and
overhead amounting to P103,200 and P206,400 respectively.

Required: Cost of production reports and necessary journal entries for Packaging
Department assuming lost was discovered (a) at the end of the process.

Suggested Links (Optional)

1.https://www.zeepedia.com/read.php?
process_costing_system_normal_loss_at_the_end_of_process_cost_and_management_acc
ounting&b=42&c=21

References

1. De Leon (2019), Cost Accounting and Control 2019 Edition: Manila GIC Enterprise & Co., Inc
2. Rante (2013) Cost Accounting 2013 Edition : Manila: Millenium Books Inc.
3. Cabrera, M. E. B. (2019) Cost Accounting and Control 2019 Edition) Manila: GIC Enterprise &
Co. Inc.

Lesson Number 3
Lesson Title Process Costing involving abnormal and normal lost units

Lesson Objectives: At the end of the lesson, the student is expected to:
1. Prepare necessary journal entries of the flow of cost in different process departments
with normal and abnormal lost units
2. Prepare the cost of production report for each department involving both normal and
abnormal lost units

Getting Started (Optional)

Discussion and Application

Usually manufacturing companies set standards through quality control. This is to

ensure that products produced will satisfy customers and be competitive in the market.

Production schedules are made regularly. The level of efficiency for output is also a
basis for the evaluation of the management. A minimum number of expected wastage is
also set and beyond this minimum level means an abnormal situation that is not to be
charged to the product cost but to Factory Overhead Control.

Abnormal or avoidable loss is considered unnecessary, because the conditions resulting

in the loss are controllable.

The quantity schedule will show how many abnormal units were lost. The cost charged
to the department will be the same as discussed. While the cost accounted for as follows
will show the cost of the abnormal lost to be charged to Factory Overhead Control and/or
Spoiled Goods inventory if the spoiled units have a reasonably stable resale value.

ABC Manufacturing Company

 Department B
Cost of Production Report
For the year ended, December 31, 202A
Quantity Schedule
Units received from Department A XXXX
Units completed and transferred to Finished Goods XXXX
Units still in process XXXX
Units lost – Normal XXXX
-Abnormal xxxx xxxx

Cost charged to the department: Cost Unit Cost

Cost received from Department A P XXX P xx.xx

Cost added in the department

Materials XXX xx.xx
Labor XXX xx.xx
Overhead XXX xx.xx
Total cost added PXXX P xx.xx
Total cost to be accounted for PXXX P xxx

Cost accounted for as follows:

Completed and transferred to Department B PXXX
Cost transferred to Factory Overhead Control XXX
Work in process ending inventory:
Cost from the preceding department PXXX
Materials XXX
Labor XXX
Overhead XXX XXX
Total cost accounted for PXXX
Additional Computation:
Equivalent Production
Materials XXXX
Labor XXXX
Overhead XXXX
Unit Cost:
Materials Pxx.xx
Labor Pxx.xx
Overhead Pxx.xx

Journal entries:
 *Work in Process – Department B XXXX
Work in Process – Department A XXXX

Work in Process – Department B XXXX

Materials XXXX
Payroll (direct labor) XXXX
Factory Overhead Applied XXXX

**Finished Goods XXXX

Work in Process – Department B XXXX

Factory Overhead Control XXXX

Work in Process – Department B XXXX

*Recorded in department A
**If already the last department

Illustration:

Yares Company uses process costing in its two producing departments. The following
information pertains to Department 2 for November.
Normal spoilage is 5% of good output; inspection and identification of spoilage take
place at the 90% stage of completion; materials are added after inspection.
Department 2 received 14,000 units from Department 1 at a cost of P140,000.
Department 2 costs were P12,000 for materials and P89,250 for conversion costs.
A total of 8,000 units were completed and transferred to finished goods. At the end of
the month, 5,000 units were still in process, estimated to be 60% complete as to conversion
costs.

Required: Prepare cost of production report and related journal entries for Department 2.

Yares Company
Department 2
 Cost of Production Report
For the month ended, November 30, 202A
Quantity Schedule
Units received from Department 1 14,000
Units completed and transferred to Finished Goods 8,000
Units still in process (60% complete) 5,000
Units lost – Normal (5% x 8,000) 400
Abnormal (1,000 – 400) 600 14,000

Cost charged to the department: Cost Unit Cost

Cost received from Department 1 P 140,000 P10.00

Cost added in the department

Materials P 12,000 P 1.50
Conversion Costs 89,250 7.50
Total cost added P 101,250 P 9.00
Total cost to be accounted for P241,250 P19.00

Cost accounted for as follows:

Completed and transferred to finished goods:
Completed (8,000 x P19) P152,000
Normal lost (400 x P 16.75*) 6,700 P 158,700
Cost transferred to Factory Overhead Control:
Cost from the preceding department (600 X P P10) P 6,000
Conversion Cost (600 X 90% x P7.50) 4,050 10,050
Work in process ending inventory:
Cost from the preceding department (5,000 X P10) P 50,000
Conversion Cost (5,000 x 60% x P7.50) 22,500 72,500
Total cost accounted for P241,250

Additional Computation:
*( P7.50 x 90% complete) + P10 (cost from preceding department) = P16.75
Equivalent Production
Materials 8,000 (100% complete) No materials were added to the lost
since they were added after inspection to good units only.

Conversion Cost 8,000 (100% complete) + 5,000 (60% complete) + 1,000 (90%
complete) = 11,900
Unit Cost:
Materials P12,000/8,000 = P 1.50
Conversion Cost P89,250/11,900 = P 7.50

Journal entries:
 *Work in Process – Department 2 140,000
Work in Process – Department 1 140,000

Work in Process – Department 2 101,250

Materials 12,000
Conversion Cost 89,250

Finished Goods 158,700

Work in Process – Department 2 158,700

Factory Overhead Control 10,050

Work in Process – Department 2 10,050

*Recorded in department 1

Summary of the Lesson

 Normal or unavoidable loss is produced under efficient operating conditions

and is uncontrollable.
 Abnormal or avoidable loss is considered unnecessary, because the conditions
resulting in the loss are controllable.
 Abnormal lost is to be charged Factory Overhead Control and/or Spoiled Goods
inventory if the spoiled units have a reasonably stable resale value.

Enrichment Activities

Mamay Corporation produces a product trough a continuous process in two

departments. Materials in this department are added at the beginning of the process. The
production and cost data were taken from Department B during September of the current
year.

Production data:

Received from department A 80,000 units

Completed and transferred 60,000 units
In process, end (50% completed) 10,000 units
Lost 10,000 units
Cost data:
Received from Department A P560,000
Materials 175,000
Labor 121,875
Overhead 243,750

Required: Cost of production report if the lost unit are abnormal discovered at the end and
necessary journal entries.

Assessment
 ABC Manufacturing Corporation uses process costing. In Department 2, conversion
costs are uncured uniformly throughout the process. All materials are added at the
beginning of the process. Thus, all the units received from Department 1 had complete
materials. Inspection occurs at the 90% state of completion. Normal spoilage is discovered
during inspection and is expected to be 5% of good units.

Units received from Department 1 were 12,000 units with a total cost of P84,000.
Department 2 completed and transferred to Finished goods 9,000 units and 2,000 units (70%
completed) were still in process at the end of the period. Department 2 incurred P24,000
for materials and P45,200 conversion costs.

Required: Prepare cost of production report for the month of January of the current year for
Department 2.

Suggested Links (Optional)

1. https://www.facebook.com/notes/md-abu-bakkar-siddik/concept-of-loss-in-process-
costing-normal-loss-and-abnormal-loss/1540584246224534/

References
1. De Leon (2019), Cost Accounting and Control 2019 Edition: Manila GIC Enterprise & Co., Inc
(Text Book). 2. Rante (2013) Cost Accounting 2013 Edition : Manila: Millenium Books Inc.
3. Cabrera, M. E. B. (2019) Cost Accounting and Control 2019 Edition) Manila: GIC Enterprise &
Co. Inc.

Lesson Number 4

Lesson Title Process Costing involving increase in units

Lesson Objectives: At the end of the lesson, the student is expected to:

1. Prepare journal entries of the the flow of production cost resulting in increase in units
2. Prepare related cost of production report showing the effect of increase in units.

Getting Started (Optional)

Discussion and Application

In some departments, process will require additional materials. This results to increase
in the number of units. Hence, decreasing the unit cost from the preceding department.

ABC Manufacturing Company

Department B
Cost of Production Report
For the year ended, December 31, 202A
Quantity Schedule
Units received from Department A XXXX Increase in units
XXXX XXXX
Units completed and transferred to Finished Goods XXXX
Units still in process XXXX XXXX

Cost charged to the department: Cost Unit Cost

Cost received from Department A P XXX P xx.xx
Cost added in the department
Materials XXX xx.xx
Labor XXX xx.xx
Overhead XXX xx.xx
Total cost added PXXX P xx.xx
Total cost to be accounted for PXXX P xx.xx

Cost accounted for as follows:

Completed and transferred to Finished Goods PXXX
Work in process, ending inventory:
Cost from the preceding department PXXX
Materials XXX
Labor XXX
Overhead XXX XXX
Total cost accounted for PXXX

Additional Computation:
Equivalent Production
Materials XXXX
Labor XXXX
 Overhead XXXX
Unit Cost:
Materials Pxx.xx
Labor Pxx.xx
Overhead Pxx.xx

Journal entries:

*Work in Process – Department B XXXX

Work in Process – Department A XXXX

Work in Process – Department B XXXX

Materials XXXX
Payroll (direct labor) XXXX
Factory Overhead Applied XXXX

Finished Goods XXXX

Work in Process – Department B XXXX

Illustration:

Wildflower Corporation produces hand cream, which requires processing in three

departments. Materials are added at the beginning of the process in Department 2. The
following data pertain to the operations of Department 2 for February:

Units received from Department 1 20,000

Units added in Department 2 10,000
Units transferred to Department 3 24,000
Units in ending inventory (50% complete as to conversion cost) 6,000
Cost transferred in from Department 1 P60,000
Materials cost added in Department 2 P30,000
Conversion cost added in Department 2 P54,000

Required: Cost of production report and related journal entries for department 2 for
February.

ABC Manufacturing Company

Department 2
Cost of Production Report
For the month of ended February 28 , 202A
Quantity Schedule
Units received from Department 1 20,000 Increase in units
10,000 30,000
Units completed and transferred to Department 3 24,000
Units still in process 6,000 30,000

Cost charged to the department: Cost Unit Cost

Cost received from Department 1 P 60,000 P 2.00
Cost added in the department
Materials P 30,000 P 1.00
Conversion Cost 54,000 2.00
Total cost added P 84,000 P 3.00
Total cost to be accounted for P 144,000 P 5.00

Cost accounted for as follows:

Completed and transferred to Department 3 (24,000 x P 5.00) P120,000
Work in process, ending inventory:
Cost from the department 1(6,000 x P2.00) P 12,000
Materials (6,000 x P1.00) 6,000
Conversion cost (6,000 x 50% x P2.00) 6,000 24,000
Total cost accounted for P144,000

Additional Computation:

Cost from the preceding department (adjustment)

P60,000 / 30,000 units = P 2.00 per unit

Equivalent Production
Materials 24,000 (100% complete) + 6,000 (100% complete)30,000
Conversion cost 24,000 (100% complete) + 6,000 (50% complete) = 27,000

Unit Cost:
Materials P30,000/30,000 P 1.00
Conversion cost P54,000/27,000 P2.00

Journal entries:
*Work in Process – Department 2 60,000
Work in Process – Department 1 60,000

Work in Process – Department 2 84,000

Materials 30,000
Conversion cost 54,000

Work in process – Department 3 120,000

Work in Process – Department 2 120,000

Summary of the Lesson

  Process may require additional materials resulting in additional units. The
greater the number of units causes a decrease in unit cost from the
preceding department. Thus, the unit cost from the preceding department
will be decreased and will be adjusted.

Enrichment Activities

Data presented below were taken from the books of Diamond Company for the month
of September of the current year.
Units transferred in 55,000
Units added to production 5,000
Units transferred out 48,000
Units in process, end 12,000
Materials 100% complete, conversion costs 70% complete
Cost transferred in P24,750
Cost added in the department:
Materials P 7,200
Conversion costs 53,580
Required: 1. Determine the equivalent production for materials and conversion cost
2. Determine the cost of the units transferred
3. Determine the cost of the units in process, end

Assessment

Oxygen Inc. produces a cologne, which requires processing in three departments. In the
third department, materials are added, doubling the number of units. The following data
pertain to the operations of Department 3 for March:

Units received from Department 2 20,000

Units transferred to finished goods storeroom 32,000
The balance of the units are still in process – 100% complete
As to materials, 50% complete as to labor and overhead
Cost transferred from Department 2 P30,000
Cost added by the department:
Materials P 8,800
Labor 9,000
Overhead 7,200
Total P25,000
Required: Prepare cost of production report.

References
1. De Leon (2019), Cost Accounting and Control 2019 Edition: Manila GIC Enterprise & Co., Inc
(Text Book).
2. 2. Rante (2013) Cost Accounting 2013 Edition : Manila: Millenium Books Inc.
3. Cabrera, M. E. B. (2019) Cost Accounting and Control 2019 Edition) Manila: GIC Enterprise &
Co. Inc.