Keep in mind, tbelow are no Typically Accepted Accounting Principles (GAAP) that mandate just how we should execute a procedure price report. We will certainly focus on the calculations associated and display you an instance of a process price summary report yet know there are several means to current the indevelopment, however the calculations are all the same.
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In the previous page, we questioned the physical circulation of devices (step 1) and also just how to calculate indistinguishable units of production (action 2) under the weighted average approach. We will continue the discussion under the weighted average strategy and calculate a expense per tantamount unit.
Tip 3: Cost per Equivalent Unit
The formula we will usage is alert we are primarily making use of the dollar prices and not devices for this area (except we will certainly usage TOTAL equivalent units we calculated in the previous section):
|Beg. Work in Process Costs|
|+ Costs added this period|
|= Total Costs|
|÷ Total Equivalent Units|
|= Cost per Equivalent Units|
We will certainly calculate a expense per tantamount unit for each cost element (straight products and also conversion expenses (or direct labor and overhead).
Example – Jax Company
To continue with our previous example, we were provided the following information:
|Beg. Work in Process Costs||-0-||-0-|
|+ Costs added this period||$ 1,100||$ 11,760|
|(Conv. Cost = DL $2,880 + OH $8,880)|
|= Total Costs||$ 1,100||$ 11,760|
|÷ Total Equivalent Units||11,000||9,800|
|= Cost per Equivalent Units||$ 0.10||$ 1.20|
In this instance, start work in process is zero. This will not constantly be the situation. The difficulty will certainly carry out the information regarded start occupational in process inventory expenses and units.
Step 4: Assign Costs
In this following area, we will integrate the identical devices (from action 2) and the cost per indistinguishable devices (step 3) to assign costs to devices completed and also transferred out (likewise dubbed cost of goods manufactured) and also prices of units remaining ending work in process inventory. The basic formula to asauthorize prices is:
Equivalent Units per expense element
(straight products, conversion)
|x expense per equivalent unit for expense element|
(direct products, conversion)
|Units Completed and Transferred||9,000||9,000|
|Units in Ending WIP||2,000||800|
|Total Equivalent Units||11,000||9,800|
|Cost per Equivalent Units||$ 0.10||$ 1.20|
We would certainly asauthorize costs as follows:
|Cost assigned to units completed and transferred|
|Direct Materials (9,000 equiv devices x $0.10)||$ 900|
|Conversion (9,000 equiv systems x $1.20)||10,800|
|Total cost assigned to units completed||$ 11,700|
|Cost assigned to ending occupational in process|
|Direct Materials (2,000 equiv devices x $0.10)||200|
|Convariation (800 equiv systems x $1.20)||960|
|Total price assigned to finishing work-related in process inventory||$ 1,160|
For expenses of devices completed and also moved, we take the identical units for units completed x expense per identical unit. We perform the exact same of ending work in procedure but utilizing the tantamount devices for finishing job-related in process.
Step 5: Cost Reconciliation
Finally, we can examine our job-related. We desire to make sure that we have assigned all the prices from beginning occupational in procedure and costs incurred or included this period to units completed and also transferred and ending job-related in process inventory.
First, we must know our complete costs for the duration (or total costs to account for) by adding start occupational in process expenses to the prices incurred or added this duration. Then, we compare the complete to the price assignment in action 4 for devices completed and also moved and ending job-related in procedure to get full systems accounted for. Both totals need to agree.
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For Jax Company kind of, the price reconciliation would certainly be:
|Beg. Work in Process Cost||-0-|
|+ Costs included this period||$ 12,860|
|($1,100 DM + $2,880 DL + $8,880 OH)|
|= Total costs to account for||$ 12,860|
|Cost assigned to devices completed and also moved (from action 4 above)||$ 11,700|
|+ Cost assigned to finishing job-related in process inventory (from step 4 above)||1,160|
|= Total prices accounted for||$ 12,860|
The full process cost report deserve to be found by clicking Jax_process cost).