Question

Process Cost Excel Project

Create a new Excel spreadsheet and name it “Last name_PC”. You project is to create a model for a production cost report using the weighted average method for the month of May.   Following good Excel design techniques, you should have an input area in which you put the department information for the month, and an output area that calculates the production cost report. As always, you should have only formulas or references in your output area. You should also include directions (in a text box) for users.

After completion of the production cost report using the weighted average method, create a new worksheet and label the tab “FIFO”. Create a production cost report using the same information using the FIFO method.

Department Data:

Information about units:
Units in beginning WIP	21,000
Started during the month	240,000
Units in Ending WIP	20,000
Percentage of Completion:
Beginning Inventory:
Direct materials	40%
Conversion	70%
Ending Inventory:
Direct Materials	30%
Conversion	60%
Costs in Beginning WIP:
Direct materials	$210,000
Conversion	$135,000
Costs incurred during the month:
Direct Materials	$1,150,000
Direct Labor	$45,000
Overhead	$605,000

Process Cost Project – non-Excel

Answer questions 1 – 4. Use your Excel spreadsheet to answer questions 5 - 9

	Possible Points	Earned Points
1. Describe how process costing is different than job costing. Identify at least three differences.	3
2. Describe the two basic differences between the weighted average and the FIFO method.	2
3. What is the purpose of a production cost report?	2
4. Describe the concept of an equivalent unit and how to compute equivalent units.	2
5. What is the total cost to be accounted for?	1
6. How much cost will you transfer to the next WIP department using the FIFO method?	2
7. What is the value of materials in beginning inventory at the start of NEXT month for the current process department using weighted average?	2
8. Draw the WIP process T accounts for the two departments, mixing and baking, and show the cost flow from one to the other (do this for both methods – 4 T accounts)	4
9. Do the journal entry transferring costs from one process to the next under both methods.	2
Total	20

Answer 1

1)

Process Costing

    It is one method for collecting and assigning manufacturing costs to the units produced.Process costing is a method of costing used mainly in manufacturing where units are continuously mass-produced through one or more processes Examples of this include the manufacture of erasers, chemicals or processed food.

Job Costing

   It is a costing method used to determine the cost of specific jobs, which are performed according to the customer's specifications. It is a basic costing method which is applicable where work consists of separate projects or contract.It enables management to detect the jobs which are more profitable and unprofitable ones.

Difference Between process and job costing

On the basis of	Process costing	Job costing
Uniqueness of product	process costing is used for standardized products	Job costing is used for unique products
Size of job	process costing is used for large production runs	Job costing is used for very small production runs
Record keeping	since time and materials must be charged to specific jobs. Process costing aggregates costs, and so requires less record keeping.	job costing is required Much more record keeping

2)

FIFO METHOD

It is stands for "First-In, First-Out". It is a method used for cost flow assumption purposes in the cost of goods sold calculation. The FIFO method assumes that the oldest products in a company's inventory have been sold first.

WEIGHTED AVERAGE METHOD

In the weighted average cost method, the cost of goods available for sale is divided by the number of units available for sale and is commonly used when inventory items are so melded or identical to each other that it is impossible to assign specific costs to single units.

DIFFERENCE BETWEEN FIFO AND WEIGHTED AVERAGE METHOD

FIFO METHOD
The earliest inventory received will be excluded from the business first and the cost will be allocated in accordance.	The inventory will be excluded from a business based on an average cost of all goods present in a business.
FIFO method will report higher profits if inflation is rising and vice versa.	Weighted average method will report higher profits if inflation is decreasing and vice versa.

3)

The production cost report. summarizes the production and cost activity within a department for a reporting period. It is simply a formal summary of the four steps performed to assign costs to units transferred out and units in ending work-in-process (WIP) inventory.

4)

An equivalent unit of production is an expression of the amount of work done by a manufacturer on units of output that are partially completed at the end of an accounting period. Basically the fully completed units and the partially completed units are expressed in terms of fully completed units.

Equivalent units. are calculated by multiplying the number of physical (or actual)units on hand by the percentage of completion of the units.Assume that a manufacturer uses direct labor continuously in one of its production departments. During June, the department began with no units in inventory and then started and completed 10,000 units. In addition, it started 1,000 units but they were only 30% complete at the end of June. The production cost report for this department will indicate that it manufactured 10,300 (10,000 + 300) equivalent units of product during June.