This document discusses process costing concepts including: 1. Equivalent units is used to calculate average unit costs and represents partially completed units as a percentage of whole units. 2. Conversion costs include direct labor and overhead costs incurred throughout the production process. 3. Cost per equivalent unit is calculated by dividing the total costs (beginning WIP + costs incurred) by the total units (completed + equivalent units in ending WIP). 4. Reconciliation ensures calculations are correct and no units are lost by accounting for the total number of units.

1. Chapter 3
Process Costing
QUESTIONS
1. Job-order costing systems and process costing systems are the two primary accounting
systems used to record production costs.
2. Equivalent units is the quantity of partially completed units expressed in terms of whole
units. The number is used in calculating the average unit costs under process costing.
3. Direct labor and overhead, together, are called conversion costs.
4. The costs associated with units received from a preceding department within the company
for further processing are called transferred-in costs.
5. Material may enter at the start of a production process while labor and overhead are
incurred throughout the process.
6. Cost per equivalent unit = (Cost in beginning work in process + Cost incurred in current
period) ÷ (Units completed + Equivalent units in ending work in process).
7. Cost to account for = (Cost in beginning work in process + Cost incurred in current period).
8. Reconciliation helps to ensure that mistakes are not made in calculations and units are not
“lost.”
9. Transferred-in costs are the costs associated with units received from a preceding
department within the company received for further processing. Therefore, they occur in all
production departments except the first.
10. The four steps involved in preparing a production cost report are as follows:
a. Account for the number of physical units
b. Calculate the cost per equivalent unit for material, labor, and overhead
c. Assign costs to items completed and items in ending work in process
d. Account for the amount of product cost

2. Jiambalvo Managerial Accounting3-2
EXERCISES
E1. In the production of chips, much of manufacturing overhead is a fixed cost.
This cost is assigned to completed items and work in process. By starting a
large number of items at year end, and given the simplifying assumption that
items in process are 50% complete, a significant proportion of the fixed
manufacturing overhead will end up in work in process, which reduces the
cost of finished items and ultimately the cost of goods sold. The result is that
profit will be artificially inflated.
This approach to increasing profit may mislead investors and other
stakeholders and cause them to make bad decisions. Thus, the behavior is not
ethical.
E2. Cost per equivalent unit is calculated for material, labor and overhead. For
each of these items, we sum the cost in beginning work in process and the cost
incurred during the period. This becomes the numerator of the calculation.
Then, we determine the number of units completed and the equivalent units in
ending work in process. This becomes the denominator of the calculation.
It is important to note that the equivalent units in ending work in process may
be different for material, labor, and overhead. This is because material, labor,
and overhead enter the production process at different times.
E3. a. There are 11 steps:
Brew House
Step 1, malted barley—barley is mixed with water, dried and cured.
Step 2, mill—the grain is cracked by steel grinders.
Step 3, mash tun—malt is mixed with warm water in the mash tun.
Step 4, lauter tun—the mash is pumped into the lauter tun where it is sprayed
with hot water to help extract sugar from the malt.

3. Chapter 3 Process Costing 3-3
Step 5, brew kettle–the base of beer, or “wort,” is pumped into the brew kettle
where it is boiled, concentrated and clarified.
Step 6, heat exchanger—the wort is cooled before it is moved to a
fermentation cellar where it will become beer. In order to speed the cooling
process, it is passed through a heat exchanger.
In the cellar
Step 7, fermenter—here, specially cultured yeast, Saccharomyces cerevisiae,
is added to induce fermentation.
Step 8, filtration—after the beer has been cold cellared in the fermenter, it is
passed through a filter.
Packaging
Step 9, bottling—the bottling line is made up of several components. At the
heart of the system is a counter-pressured filler which is capable of filling 400
bottles a minute.
Step 10, kegging—Redhook uses ‘Snakey’ kegs, which have the advantage of
being much easier to sterilize and fill than older types such as ‘Golden Gates.’
Step 11, shipping—ales are shipped out to stores and pubs across the United
States in refrigerated trucks to keep them fresh.
b. For each type of beer that Red Hook produces, a large number of identical
units are produced in a continuous process. Thus, the company is likely to
use process costing.
c. Barley is added at the start. In step 7, yeast is added.
d. The process is capital intensive. Large pieces of equipment are maintained
by only one or two workers. For example, the automated bottling line fills
400 bottles a minute.

4. Jiambalvo Managerial Accounting3-4
E4. Units in beginning work in process 1,000
Units started in July 43,000
Units to account for 44,000 cans
Units completed 40,000
Units in ending work in process ?
Total units accounted for 44,000 cans
Units in ending work in process = 44,000 - 40,000 = 4,000 cans.
E5. Units in beginning work in process 10,000
Units started in August ?
Units to account for 52,000 gallons
Units completed 40,000
Units in ending work in process 12,000
Total units accounted for 52,000 gallons
Units started in August = 52,000 - 10,000 = 42,000 gallons.

5. Chapter 3 Process Costing 3-5
E6. Direct Labor
Beginning WIP $120,000
Cost incurred in May 500,000
Total cost $620,000
Units
Units completed 10,000 pounds
Equivalent units, ending WIP
(2,000 pounds × 50%) 1,000
Total 11,000 pounds
Cost per equivalent unit = $620,000 ÷ 11,000 pounds = $56.36 per pound
E7. Let X = the cost in beginning work in process
Material:
($140,000 + X) ÷ (30,000 + 10,000) = $5
X = $60,000
Labor:
($60,000 + X) ÷ (30,000 + 2,000) = $2
X = $4,000
Overhead:
($87,000 + X) ÷ (30,000 + 2,000) = $3
X = $9,000

6. Jiambalvo Managerial Accounting3-6
E8. The denominator is equal to units completed plus equivalent units in ending
work in process.
Material
Units completed 2,700
Equivalent units in ending work in process 400
Total 3,100
Labor
Units completed 2,700
Equivalent units in ending work in process 250
Total 2,950
Overhead
Units completed 2,700
Equivalent units in ending work in process 250
Total 2,950
E9. a. Cost per equivalent unit for material is $6.10. Material cost in items
completed is $244,000. Therefore, the number of completed units is 40,000
(i.e., $244,000 ÷ $6.10).
Units in beginning work in process 1,000
Units started in July 43,000
Units to account for 44,000 cans
Units completed 40,000
Units in ending work in process ?
Total units accounted for 44,000
This implies that 4,000 units are in ending work in process.
b. Cost of ending work in process is $5,800 as follows:
Material (.2 × 4,000 units × $6.10) $4,880
Labor and overhead (.1 × 4,000 units × $2.30) 920
Ending work in process $5,800

7. Chapter 3 Process Costing 3-7
E10. Ending Work in Process
Material (800 × 1.0 × $0.50) $400
Labor and overhead (800 × .8 × $0.90) 576
Total $976
Cost of Items Completed
Material (4,000 × $0.50) $2,000
Labor and overhead (4,000 × $0.90) 3,600
Total $5,600
E11. Ending Work in Process
Material (4 × .8 × $2,500) $ 8,000
Labor (4 × .6 × $1,000) 2,400
Overhead (4 × .6 × $2,000) 4,800
Total $15,200
Cost of Items Completed
Material (85 × $2,500) $212,500
Labor (85 × $1,000) 85,000
Overhead (85 × $2,000) 170,000
Total $467,500

8. Jiambalvo Managerial Accounting3-8
E12. a. Material:
Cost in beginning work in process $ 18,000
Cost incurred during the period 404,180
Total $422,180
Conversion costs:
Cost in beginning work in process $ 9,000
Cost incurred during the period 371,880
Total $380,880
Equivalent units in ending work in process:
Material (1,000 units × .8) 800
Conversion costs (1,000 × .4) 400
Cost per equivalent unit for material:
$422,180 ÷ (41,000 + 800) $10.10
Cost per equivalent unit for conversion costs:
$380,880 ÷ (41,000 + 400) 9.20
Total cost per equivalent units $19.30
b. Cost of items completed in October:
41,000 units × $19.30 $791,300
c. Cost of ending work in process:
Material cost
(800 × $10.10) $ 8,080
Conversion cost
(400 × $9.20) 3,680
Total cost of ending work in process $11,760

9. Chapter 3 Process Costing 3-9
PROBLEMS
P1. a. The company started the month with 5,000 units and 100,000 units were
entered into production. Thus, the company must account for 105,000
units. At the end of the month, the company had 2,000 units in ending
work in process. This implies that 103,000 units were completed
(105,000 - 2,000).
The denominators for the calculations of cost per equivalent are:
Units Equivalent Units
Completed in Ending WIP Total
Material 103,000 2,000 105,000
Labor 103,000 1,600 104,600
Overhead 103,000 1,600 104,600
Beginning WIP Cost Added Total Denominator Cost per EU
Material $3,000 $65,250 $68,250 105,000 $0.65
Labor 125 6,151 6,276 104,600 0.06
Overhead 175 7,147 7,322 104,600 0.07
Total $3,300 $78,548 $81,848 $0.78
b. Cost of items completed in May is $80,340:
103,000 units × $0.78 = $80,340
Cost of items in ending work in process:
Material (2,000 equivalent units × $0.65) $1,300
Labor (1,600 equivalent units × $0.06) 96
Overhead (1,600 equivalent units × $0.07) 112
Total $1,508
c. Beginning work in process $ 3,300
Cost added 78,548
Total $81,848
Cost of items completed $80,340
Cost of ending WIP 1,508
Total $81,848

10. Jiambalvo Managerial Accounting3-10
P2. a. The company started the month with 600 units and 3,200 units were
entered into production. Thus, the company must account for 3,800 units.
At the end of the month, the company had 800 units in ending work in
process. This implies that 3,000 units were completed (3,800 - 800).
The denominators for the calculations of cost per equivalent are:
Units Equivalent Units
Completed in Ending WIP Total
Material 3,000 480 3,480
Labor 3,000 400 3,400
Overhead 3,000 400 3,400
Beginning Cost per
WIP Cost Added Total Denominator EU
Material $ 48,000 $ 317,400 $ 365,400 3,480 $105.00
Labor 12,600 94,500 107,100 3,400 31.50
Overhead 84,000 590,900 674,900 3,400 198.50
Total $144,600 $1,002,800 $1,147,400 $335.00
b. Cost of items completed in May is $1,005,000:
3,000 units × $335.00 = $1,005,000
Cost of items in ending work in process:
Material (480 equivalent units × $105.00) $ 50,400
Labor (400 equivalent units × $31.50) 12,600
Overhead (400 equivalent units × $198.50) 79,400
Total $142,400
c. Beginning work in process $ 144,600
Cost added 1,002,800
Total $1,147,400
Cost of items completed $1,005,000
Cost of ending WIP 142,400
Total $1,147,400

11. Chapter 3 Process Costing 3-11
P3. a. Olympic Laminators—September
Unit Reconciliation
Units in beg. WIP (60% material, 30% conversion costs) 3,000
Units started during 4,000
Units to account for 7,000
Units completed 2,000*
Units in ending WIP (50% material, 20% conversion costs) 5,000
Units accounted for 7,000
*Computed as 7,000 - 5,000 = 2,000.
Cost per Equivalent Unit Calculation
Material Labor Overhead Total
Cost
Beginning WIP $144,000 $120,000 $ 20,000 $ 284,000
Cost incurred during Sept. 216,000 531,000 52,000 799,000
Total $360,000 $651,000 $72,000 $1,083,000
Units
Units completed 2,000 2,000 2,000
Equivalent units,
ending WIP 2,500 1,000 1,000
Total 4,500 3,000 3,000
Cost per equivalent unit $80 $217 $24 $321
Cost Reconciliation
Total cost to account for $1,083,000
Cost of completed units (2,000 units × $321) $ 642,000
Cost of ending WIP
Material (2,500 equivalent units × $80) $200,000
Labor (1,000 equivalent units × $217) 217,000
Overhead (1,000 equivalent units × $24) 24,000 441,000
Total cost accounted for $1,083,000
b. Finished Goods Inventory 642,000
Work in Process Inventory 642,000

12. Jiambalvo Managerial Accounting3-12
P4. Aussie Yarn Company—August
Unit Reconciliation
Units in beg. WIP ((100% material, 60% conversion costs) 5,000
Units started during 25,000
Units to account for 30,000
Units completed 26,000*
Units in ending WIP (100% material, 40% conversion costs) 4,000
Units accounted for 30,000
*Computed as 30,000 - 4,000 = 26,000.
Cost per Equivalent Unit Calculation
Material Labor Overhead Total
Cost
Beginning WIP $ 4,000 $ 1,050 $ 1,450 $ 6,500
Cost incurred during Sept. 22,280 9,990 11,522 43,792
Total $26,280 $11,040 $12,972 $50,292
Units
Units completed 26,000 26,000 26,000
Equivalent units,
ending WIP 4,000 1,600 1,600
Total 30,000 27,600 27,600
Cost per equivalent unit $0.876 $0.400 $0.470 $1.746
Cost Reconciliation
Total cost to account for $50,292
Cost of completed units (26,000 units × $1.746) $45,396
Cost of ending WIP
Material (4,000 equivalent units × $0.876) $3,504
Labor (1,600 equivalent units × $0.400) 640
Overhead (1,600 equivalent units × $0.470) 752 4,896
Total cost accounted for $50,292

13. Chapter 3 Process Costing 3-13
P5. a. Work in process, dept. 1 80,000
Material inventory 80,000
To record material used in department 1
Work in process, dept. 2 20,000
Material inventory 20,000
To record material used in department 2
b. Work in process, dept. 1 45,000
Wages payable 45,000
To record labor in department 1
Work in process, dept. 2 55,000
Wages payable 55,000
To record labor in department 2
c. Work in process, dept. 1 230,000
Manufacturing overhead 230,000
To record overhead applied in department 1
Work in process, dept. 2 110,000
Manufacturing overhead 110,000
To record overhead applied in department 2
d. Work in process, dept. 2 381,000
Work in process, dept. 1 381,000
To record cost of units transferred from department 1 to department 2
Note: This includes all beginning costs and costs incurred, since there is
no ending work in process in this department (26,000 + 80,000 + 45,000
+ 230,000).
Finished goods inventory 576,000
Work in process, dept. 2 576,000
To record cost units completed and transferred to finished goods.
Note: 46,000 + 20,000 + 55,000 + 110,000 + 381,000 – 36,000 =
576,000.

14. Jiambalvo Managerial Accounting3-14
P6. a. Work in process 40,000
Material inventory 40,000
To record material used in production
b. Work in process 8,000
Wages payable 8,000
To record labor
c. Work in process 32,000
Manufacturing overhead 32,000
To record overhead applied
d. Finished goods inventory 80,000
Work in process 80,000
To record cost of units completed
e. Cost of goods sold 80,000
Finished goods inventory 80,000
To record cost of units sold
P7. a. 300
b. 2,000
c. 300
d. 180
e. 180
f. 2,000
g. 1,880
h. 1,880
i. 2.25
j. 5.40
k. 10.80
l. 18.45

15. Chapter 3 Process Costing 3-15
P8. Step 1.
Cost per equivalent unit = 1.6667 + 1.3091 + 2.6182 = 5.594
Cost of completed items (given) = $2,797,000
Cost per equivalent unit = $5.594
Therefore, the number of completed units = $2,797,000 ÷ 5.594 = 500,000
Step 2.
Units in ending WIP (given) 10,000
Add number of completed units 500,000
Units accounted for 510,000
Step 3.
Units to account for = units accounted for 510,000
Less units in beginning WIP (given) 20,000
Units started during December 490,000
Step 4.
Equivalent units, ending WIP:
Material (10,000 × 100%) 10,000
Labor (10,000 × 10%) 1,000
Overhead (10,000 × 10%) 1,000
Step 5.
Units completed (calculated above) 500,000
Total units for cost per equivalent unit calculation:
Material = 500,000 + 10,000 510,000
Labor and Overhead = 500,000 + 1,000 501,000

16. Jiambalvo Managerial Accounting3-16
Step 6.
Total cost in cost per equivalent unit calculation:
Material = 510,000 × $1.6667 $850,017.00
Labor = 501,000 × 1.3091 $655,859.10
Overhead = 501,000 × 2.6182 $1,311,718.20
Step 7.
Cost incurred in December:
Material = $850,017.00 - 33,334.00 $816,683.00
Labor = $655,859.10 - 5,236.40 $650,622.70
Overhead = $1,311,718.20 - 10,472.80 $1,301,245.40
Step 8.
Cost Reconciliation:
Total cost to account for $2,817,594.30
Cost of completed units (500,000 × $5.594) $2,797,000.00
Cost of Ending WIP
Materials (10,000 × $1.6667) $16,667.00
Labor (1,000 × $1.3091) 1,309.10
Overhead (1,000 × $2.6182) 2,618.20 20,594.30
Total cost accounted for: $2,817,594.30

17. Chapter 3 Process Costing 3-17
P9. Mixing Department, Oral Care Toothpaste—April
Unit Reconciliation
Units in beg. WIP (100% material, 80% conversion costs) 10,000
Units started during 600,000
Units to account for 610,000
Units completed 590,000*
Units in ending WIP (100% material, 70% conversion costs) 20,000
Units accounted for 610,000
*Computed as 610,000 - 20,000 = 590,000.
Cost per Equivalent Unit Calculation
Material Labor Overhead Total
Cost
Beginning WIP $ 4,000 $ 800 $ 1,680 $ 6,480
Cost incurred during April 246,100 65,640 119,120 430,860
Total $250,100 $66,440 $120,800 $437,340
Units
Units completed 590,000 590,000 590,000
Equivalent units,
ending WIP 20,000 14,000 14,000
Total 610,000 604,000 604,000
Cost per equivalent unit $0.41 $0.11 $0.20 $0.72

18. Jiambalvo Managerial Accounting3-18
Cost Reconciliation
Total cost to account for $437,340
Cost of completed units (590,000 units × $0.72) $ 424,800
Cost of ending WIP
Material (20,000 equivalent units × $.41) $8,200
Labor (14,000 equivalent units × $.11) 1,540
Overhead (14,000 equivalent units × $.20) 2,800 12,540
Total cost accounted for $437,340
Packing Department, Oral Care Toothpaste—April
Unit Reconciliation
Units in Beg. WIP (50% material, 40% conversion costs) 10,500
Units started during 590,000
Units to account for 600,500
Units completed 570,500*
Units in ending WIP (90% material, 80% conversion costs) 30,000
Units accounted for 600,500
*Computed as 600,500 - 30,000 = 570,500.

19. Chapter 3 Process Costing 3-19
Cost per Equivalent Unit Calculation
Material Labor Overhead Trans.In Total
Cost
Beginning WIP $ 630 $ 42 $ 84 $ 7,455 $ 8,211
Cost incurred during Sept. 77,045 5,903 11,890 424,800 519,638
Total $77,675 $5,945 $11,974 $432,255 $527,849
Units
Units completed 570,500 570,500 570,500 570,500
Equivalent units,
ending WIP 27,000 24,000 24,000 30,000
Total 597,500 594,500 594,500 600,500
Cost per equivalent unit $0.130 $0.010 $0.020 $0.720 $0.880
Cost Reconciliation
Total cost to account for $527,849
Cost of completed units (570,500 units × $0.880) $ 502,040
Cost of ending WIP
Material (27,000 equivalent units × $.130) $ 3,510
Labor (24,000 equivalent units × $.010) 240
Overhead (24,000 equivalent units × $.020) 480
Trans. in (30,000 equivalent units × $.720) 21,600 25,830
Total cost accounted for $527,870*
* Difference between cost to account for and cost
accounted for due to rounding.

20. Jiambalvo Managerial Accounting3-20
P10. Mixing Department, Carnival Caramel Company—March
Unit Reconciliation
Units in beg. WIP (100% material, 80% conversion costs) 2,000
Units started during 40,000
Units to account for 42,000
Units completed 41,000*
Units in ending WIP (100% material, 60% conversion costs) 1,000
Units accounted for 42,000
*Computed as 42,000 - 1,000 = 41,000.
Cost per Equivalent Unit Calculation
Material Labor Overhead Total
Cost
Beginning WIP $ 2,000 $ 800 $ 960 $ 3,760
Cost incurred during Sept. 40,840 20,832 23,168 84,840
Total $42,840 $21,632 $24,128 $88,600
Units
Units completed 41,000 41,000 41,000
Equivalent units,
ending WIP 1,000 600 600
Total 42,000 41,600 41,600
Cost per equivalent unit $1.02 $0.52 $0.58 $2.12

21. Chapter 3 Process Costing 3-21
Cost Reconciliation
Total cost to account for $88,600
Cost of completed units (41,000 units × $2.12) $86,920
Cost of ending WIP
Material (1,000 equivalent units × $1.02) $1,020
Labor (600 equivalent units × $.52) 312
Overhead (600 equivalent units × $.58) 348 1,680
Total cost accounted for $88,600
Shaping Department, Carnival Caramel Company—March
Unit Reconciliation
Units in beg. WIP (70% conversion costs) 3,000
Units started during 41,000
Units to account for 44,000
Units completed 43,500*
Units in ending WIP (50% conversion costs) 500
Units accounted for 44,000
*Computed as 44,000 – 500 = 43,500.

22. Jiambalvo Managerial Accounting3-22
Cost per Equivalent Unit Calculation
Material Labor Overhead Trans.In Total
Cost
Beginning WIP — $ 450 $ 290.00 $ 6,360 7,100.00
Cost incurred during Sept. — 11,800 8,022.50 86,920 106,742.50
Total — $12,250 $8,312.50 $93,280 $113,842.50
Units
Units completed 43,500 43,500 43,500
Equivalent units, ending WIP 250 250 500
Total 43,750 43,750 44,000
Cost per equivalent unit $0.28 $0.19 $2.12 $2.59
Cost Reconciliation
Total cost to account for $113,842.50
Cost of completed units (43,500 units × $2.59) $ 112,665.00
Cost of ending WIP
Material $ 0.00
Labor (250 equivalent units × $.28) 70.00
Overhead (250 equivalent units × $.19) 47.50
Trans. in (500 equivalent units × $2.12) 1,060.00 1,177.50
Total cost accounted for $113,842.50