Chapter 4

Process Costing and

Hybrid
Product-Costing
Systems

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Comparison of Job-Order Costing
and Process Costing

Job-order costing Process costing

Costs accumulated by Costs accumulated by
the job. department or process.
Work in process has a Work in process has a
job-cost sheet for production report for
each job. each batch of products.
Many unique, high A few identical, low
cost jobs. cost products.
Jobs built to customer Units continuously
order. produced for inventory
in automated process.
4-2
Process Cost Flows

4-3
Process Cost Flows

4-4
Equivalent Units: A Key Concept
Costs
Costs are
are accumulated
accumulated for
for aa period
period of
of time
time
for
for products
products inin work-in-process
work-in-process inventory.
inventory.
Products
Products inin work-in-process
work-in-process inventory
inventory at at the
the
beginning
beginning andand end
end of of the
the period
period are
are only
only
partially
partially complete.
complete.
Equivalent
Equivalent units
units is
is aa concept
concept expressing
expressing
these
these partially
partially completed
completed products
products asas aa
smaller
smaller number
number of of fully
fully completed
completed products.
products.

4-5
Equivalent Units Example
Two half completed products are
equivalent to one completed product.

+ = l

So, 10,000 units that are 70% complete

are equivalent to 7,000 complete units.

4-6
Calculating and Using Equivalent
Units of Production
To calculate the direct materials and conversion
costs per equivalent unit for the period:

Materials
cost per Materials cost for the period
= Materials equivalent units for
equivalent
the period
unit
Conversion
cost per Conversion cost for the period
equivalent = Conversion equivalent units for
the period
unit
4-7
Departmental Production Report
Analysis of Calculation
physical flow of equivalent
of units. units.

Production
Report

Computation Analysis of
of unit costs. total costs.

4-8
Equivalent Units of Production
Weighted-Average Method
The weighted-average method . . .
Makes no distinction between work done in the
prior period and work done in the current period.
Blends together units and costs from the prior
period and the current period.

The FIFO method is a more

complex method and is
rarely used in practice.

4-9
Production Report Example
Computation of unit costs

$140,000 50,000 equivalent units

$2.80 + $4.46
$200,700 45,000 equivalent units
4-10
Production Report Example
Analysis of total costs

4-11
Production Report Example
Analysis of total costs

4-12
Production Report Example
Analysis of total costs

All costs
accounted for

4-13
4-14
Departmental Production Report
Analysis of
physical flow
of units.
Calculation
of equivalent
units.
Computation
of unit costs.

Analysis of
total costs.

4-15
 Operation Costing
Operation costing employs some aspects
of both job-order and process costing.

Job-order Operation Costing Process

Costing (Products produced in batches) Costing

4-16
 Operation Costing
Operation costing employs some aspects
of both job-order and process costing.

Job-order Operation Costing Process

Costing (Products produced in batches) Costing

Material costs are charged Conversion costs

to batches as in are assigned to batches
job-order costing. as in process costing.

4-17