PROCESS COSTING
UNIT COSTS OF PRODUCTION
 (1)                    TOTAL MATERIAL COST
                            EQU OF MATERIALS
 

(2)                    TOTAL DIRECT LABOR COST
                               EQU OF LABOR

(3)                    TOTAL OVERHEAD COST
                            EQU OF OVERHEAD

 INVENTORY METHODS

WEIGHTED AVERAGE
CHARACTERISTICS
(1) Opening inventory costs are added to the current month's costs to develop average unit costs.

(2) Calculation of EQU's requires that work performed on the beginning inventory last month be treated as if it were work performed this month.

(3) Cost elements in WIP inventory must be separately identifiable by type: i.e., material, labor and overhead.
 

FIFO  COST
CHARACTERISTICS
(1) Additional work performed this month on beginning WIP inventory is added to cost of WIP
 
(2) EQU calculations include only work done this month.

(3) Cost elements in WIP do not have to be separately identified.
 

CALCULATION OF EQUIVALENT UNITS OF PRODUCTION
 
METHOD 1: 

Completion of EQU of 
  beginning WIP inventory 

+ Units started and completed 

+ EQU work done on 
   ending inventory 

= EQUivalent units of production 
 

 METHOD 2: 

Units completed and transferred 

+ work done on ending WIP Inventory 

- work done last period on beginning 
  WIP inventory 

= EQUivalent units of production 
 
 
 
 3 EQU NUMBERS NEEDED

a.  Materials--usually differs from (b) and (c) below--material usually added at a given point in time, i.e.,  beginning or end of the process--must know when material is added!

b, Direct labor
c. Overhead
 (b) and (c) are usually the same (Both are conversion costs)  BUT NOT ALWAYS!

 return to cpa problems outline