Prepare a physical flow schedule for May (Step 1). 2. Prepare an equivalent units schedule for May using the FIFO method (Step 2). 3. What if 80 percent of the materials were added at the beginning of the process and 20 percent were added at the end of the process (assume the same type of materials)?
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
EXAMPLE 6.7
The HOW and WHY of Physical Flow Analysis and Equivalent Units: FIFO Method
Information: The production of Bienestar's antihistamine product begins in the Blending Department. All materials are added at the beginning of the blending process. Output is measured in ounces. The production data for May are as follows:
Production:
Units in process, May 1, 70% complete* Units completed and transferred out
Units in process, May 31, 40% complete* *With respect to conversion costs.
15,000 90,000 30,000
Why:
The physical flow schedule traces the units in process regardless of their stage of completion and provides the information needed for preparing the equivalent units schedule. FIFO uses only current output to calculate the current-period unit cost. Thus, FIFO treats the work (equivalent output) in BWIP as belonging to the prior period and only counts the work (equivalent output for each input) done this period as part of this period's output.
Required: 1. Prepare a physical flow schedule for May (Step 1). 2. Prepare an equivalent units schedule for May using the FIFO method (Step 2). 3. What if 80 percent of the materials were added at the beginning of the process and
20 percent were added at the end of the process (assume the same type of materials)?
How many equivalent units of materials would there be? Solution: 1. First, two calculations are needed:
Units started and completed = Units completed – Units, BWIP
= 90,000 – 15,000 = 75,000 Units started = Units started and completed + Units, EWIP
= 75,000 + 30,000 = 105,000
Chapter 6
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EXAMPLE 6.7
(Continued)
15,000 105,000 120,000
Step 1: Physical Flow Schedule: Blending Department Units to account for:
Units, beginning work in process (70% complete) Units started during May
Total units to account for Units accounted for:
Units completed and transferred out:
Started and completed
75,000 From beginning work in process
15,000 Units in ending work in process (40% complete) Total units accounted for
90,000 30,000 120,000
Step 2: Equivalent Units Schedule: Blending Department
Direct Conversion
Materials Costs Units started and completed
75,000 75,000 Add: Units in beginning work in process X
Percentage complete: 15,000 X 0% direct materials 15,000 X 30% conversion costs
4,500 Add: Units in ending work in process X
Percentage complete: 30,000 X 100% direct materials
30,000 30,000 X 40% conversion costs
12,000 Equivalent units of output
105,000 91,500 3. Equivalent units of materials = 75,000 + (0.20 X 15,000) + (0.80 X 30,000) =
102,000
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