Set of three schedules that help managers track and analyze costs in a process costing system; it consists of the schedule of equivalent production, the unit cost analysis schedule, and the cost summary schedule. This statement traces the flow of units produced and costs incurred in the production process. The report is prepared for each process and it provides a reconciliation of the physical flow of units and the total costs for the period. Assuming no spoilage or losses, the following relationships will always hold:
1. Physical Units:
Beginning W.LP + Units started – Units to account for the period.
= Units completed and transferred + Ending work in progress – Units accounted for.
2. Costs:
Cost of Beginning W.I.P. + Current costs incurred – Costs to account for = Costs of units completed and transferred
Steps in preparing process costing statement
(1) FIFO Method
(a) Physical flow of units; this identifies the units to be accounted for (units in beginning WIP inventory plus the units started during the period) and the units accounted for (the units completed during the current period plus the units in the ending WIP)
(b) Equivalent units of production: the common denominator for completed units and partially completed units are computed by multiplying the units accounted for by their percentage of completion by each category of costs i.e. material cost (100%), labour cost, e.t.c. (75%).
(c) Costs to be accounted for: total costs to be accounted for (the cost of units in the beginning WIP plus the costs added to production during the current period) are identified for each category of costs.
(d) Cost per equivalent unit of production: these are computed by dividing the costs to be accounted for by the total equivalent units of production.
(e) Costs accounted for (Cost allocation): total costs to be accounted for are allocated for each category of costs to the units accounted for by multiplying the equivalent units of production by the cost per equivalent unit of production.
1) Weighted Average Method (WAM)
(a) Physical flow of units; the WAM does not keep the beginning inventory units separate from the units that were started and completed during the period
(b) Equivalent units of production: in computing equivalent units of production, the WAM does not keep the percentage of completion performed in the prior period separate from the percentage of completion performed in the current period.
(c) Costs to be accounted for: in identifying costs to be accounted for, the WAM does not keep the costs of the units in the beginning inventory at the start of the current period separate from the costs added to the production during the current period
(d) Cost per equivalent unit of production: these are computed by dividing the costs to
be accounted for by the total equivalent units of production
(e) Costs accounted for (Cost allocation): total costs to be accounted are allocated for each category of costs to the units accounted for by multiplying the equivalent units of production by the cost per equivalent unit of production. The WAM does not keep the cost of the units in beginning WIP separate from the costs added to production during the current period.
>>> Example
Assume that the beginning work in progress in Maendeleo Company Ltd in the month of November was 1,000 units which were 100% complete in terms of materials and 75% complete as to conversion. Raw materials costs relating to beginning work in progress amounted to shs.3,000 and conversion was Shs.1,000. Some 10,000 units were completed during the period and transferred to finished goods stock a/c. Some 2,000 units were still in process and were 100% complete in relation to materials and 50% complete in relation to conversion costs. Costs incurred during the period for raw materials Shs.33,000, conversion Shs.43,000;
Required
Use both weighted average and FIFO methods, to determine cost per equivalent unit and value
of ending inventory. Prepare the process cost report.
MAENDELEO COMPANY LIMITED.
PROCESS COST REPORT
Note that the totals are the same. There are no units lost as normal loss or abnormal losses.
FIFO method
