These lectures cover CPA questions covering process costing  where costs are accumulated by department and cost per equivalent unit computed.

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Process costing is used in situations where homogeneous products or services are produced on a continuous basis. Costs flow through the manufacturing accounts in basically the same way in a process costing system as in a job-order costing system. However, costs are accumulated by department rather than by job in process costing.

In process costing, the equivalent units of production must be determined for each cost category in each department. Under the weighted-average method, the equivalent units of production equals the number of completed units transferred out to the next department or to finished goods  plus the equivalent units in ending work in process inventory. The equivalent units in ending work in process inventory equals the product of the number of partially completed units and the percentage completion of those units with respect to the specific cost category.

Under the weighted-average method, the cost per equivalent unit for a specific cost category is computed by combining the cost of beginning work in process inventory and the cost added during the period and then dividing this sum by the equivalent units of production. The cost per equivalent unit then is used to value the ending work in process inventory and the units transferred out to the next department or to finished goods.

The cost reconciliation report reconciles the cost of beginning inventory and the costs added to production during the period to the cost of ending inventory and the cost of units transferred out.

Costs are transferred from one department to the next until the last processing department. At that point, the cost of completed units is transferred to finished goods.

Process costing is a product costing system that accumulates costs in processing departments and allocates them to all units processed during the period, including both completed and partially completed units. It is used by firms producing homogeneous products on a continuous basis to assign manufacturing costs to units in production during the period. Firms that use process costing include paint, chemical, oil-refining, and food-processing companies.

Process costing systems provide information so managers can make strategic decisions regarding products and customers, manufacturing methods, pricing options, overhead alloca- tion methods, and other issues.
Equivalent units are the number of the same or similar completed units that could have been produced given the amount of work actually performed on both complete and partially completed units.

The key document in a typical process costing system is the production cost report that summarizes the physical units and equivalent units of a production department, the costs incurred during the period, and the costs assigned to goods both completed and transferred out as well as to ending work-in-process inventories. The preparation of a production cost report includes five steps: (1) analyze physical units, (2) calculate equivalent units, (3) determine total costs to account for, (4) compute unit costs, and (5) assign total manufacturing costs.

The two methods of preparing the departmental production cost report in process costing are the weighted-average method and the first-in, first-out (FIFO) method. The weighted- average method includes costs incurred in both current and prior periods that are shown as the beginning work-in-process inventory of this period. The FIFO method includes only costs incurred during the current period in calculating unit cost.