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Summary FBS222: Chapter 6 $4.49
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  3. University Of Pretoria (UP)
  4.  
  5. Financial accounting (FBS222)

Summary

Summary FBS222: Chapter 6
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  • Course
  • Financial accounting (FBS222)
  • Institution
  • University Of Pretoria (UP)

This is an aesthetic summary of chapter 6 for FBS222 at the University of Pretoria. I used class notes, lecture slides, past papers and other notes to gather the information. This chapter appears in semester test 2, the sick test, and the exam. I made these notes in 2023 but the module doesn't chan...

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  • October 18, 2023
  • October 22, 2023
  • 13
  • 2023/2024
  • Summary

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  • fbs222

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  • University of Pretoria (UP)
  • Financial accounting (FBS222)
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Process Costing

PROCESS COSTING is used for firms who mass-produce large quantities of similar or homogeneous
products or services. The cost of one unit or batch is same as another unit or batch. A process
costing system refers to the approach by which costs are accumulated by process or by
department for a given period of time.

A large number of similar products pass through identical sets of processes. Each product = similar
amounts of materials, labour, and overhead costs. Costs are accumulated by process.

Types of processes
Sequential Processing Parallel Processing
Requires that units pass through Requires two or more sequential processes to produce a finished
one process before they can be good. Partially completed units (two subcomponents of the main
I




worked on in the next process in unit) can be worked on simultaneously in different processes and
the sequence. then brought together in a final process for completion.

⑧ ⑱
⑪ ②



Cash flows under process costing
Cost flows under process costing are similar to those under job-order costing.
Raw materials are purchased and debited to the raw materials account. Direct materials used in
production, direct labour, and applied overhead are charged to the WIP account. In a production
process with several processes, there is a WIP account for each department or process. Goods
completed in one department are transferred out to the next department. When units are
completed in the final department or process, their cost is credited to Work in Process and is debited
to Finished Goods. As goods are sold, the cost of the finished goods is transferred to the cost of
goods sold account.

• The manufacturing cost flows for a process-costing system are the same as a job-order system.
• As raw materials are purchased, material costs flow into a raw materials inventory account.
• Raw materials, DL, and applied overhead costs flow into a work-in-process (WIP) account.
• When goods are completed, the cost of the completed goods is transferred from WIP to the
finished goods account.
• As goods are sold, the cost of the finished goods is transferred to the COGS account.
• The journal entries generally parallel those described in a job order costing system.
• Although job-order and process cost flows are generally similar, some differences exist.
• In process costing, each producing department has its own WIP account.
• As goods are completed in one department, they are transferred to the next department.
• The costs attached to the goods transferred out are also transferred to the next department.

,I

! Example 6.1:

Suppose that Health Blend decides to produce 2,000 bottles of multivitamins with the
following costs (there is no beginning or ending work in process for each department):

Mixing Department Encapsulating Department Bottling Department
Direct Materials 1700 1000 800
Direct Labour 50 60 300
Applied Overhead 450 500 600

1. Calculate the costs transferred out of each department

Mixing Department Encapsulating Department Bottling Department
Direct Materials 1700 * 1000 *
800
Direct Labour 50 *60 A
300
Applied Overhead 450 * 500 600
*




Costs Added 2200 1000 +
60 +
500 = B
1560 800 +
300 + 600
=


* 1700

Costs Transferred In 0 *
2200 *3760


Costs Transferred Out 2200 1568 + 1200 =
3760 1700 +
3760 5460

2. Prepare journal entries that reflect these cost transfers

Work in Process (Encapsulating) 2200
Work in Process (Mixing) 2200
Work in Process (Bottling) 3760
Work in Process (Mixing) 3760
Finished Goods 5460
Work in Process (Bottling) 5460

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