CHAPTER 17 PROCESS COSTING

LEARNING OBJECTIVES
1. Identify the situations in which process-costing systems are appropriate 2. Describe the five steps in process costing 3. Calculate equivalent units and understand how to use them . !repare "ournal entries for process-costing systems #. $se the weighted-average method of process costing %. $se the first-in& first-out '(I()* method of process costing +. Incorporate standard costs into a process-costing system ,. -pply process-costing methods to cases with transferred-in costs

CHAPTER OVERVIEW
Chapter 1+ presents a system of costing a product or service in which the cost assignment is more allocation& an averaging& than tracing of costs. .he costing system should reflect the underlying process leading to the product or service& and process costing does "ust that/the process forms the basis of the costing system. !rocess costing is appropriate when a common process or series of similar processes produce relatively homogeneous products. !rocess costing and "ob costing are viewed as the two ends of a continuum of costing systems0 from products produced through almost identical processes to a "ob that yields a distinctly identifiable product. .he accounting system supporting the manufacturing operation must be designed in a way that captures the underlying process. .he chapter gives e1amples and illustrations of the accounting required for process costing. - hybrid system of costing& operation costing& is also illustrated in the appendi1 to the chapter. .he visual approach to demonstrate process costing used in this te1t is student oriented. - five-step procedure is described in the chapter and illustrated through e1hibits. .he five steps are clear and straightforward& incorporating inventory flow. .he five-step process used in the te1t for developing costs in process costing has several e1cellent features. .he first step is simple but sets the pattern followed throughout the remaining steps0 to account for and accounted for categories. .he first two steps pertain only to units& both physical units and equivalent units. Costs are considered only after the units are clearly identified. 2tep 3 begins the calculation of the inventory cost flow to be used& allowing for a clear determination in connecting costs with equivalent units calculated in 2tep 2. 2teps and # use the categories established in 2tep 1 'to account for and accounted for* but for costs rather than units. .wo

separate steps are used& one for each category. .he feature of having units identified in the first two steps before loo3ing at costs is a plus.

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CHAPTER OUTLINE
I. Costing systems -. .ypes 1. 4ob costing0 cost ob"ect is a "ob that constitutes a distinctly identifiable product or service 2. !rocess costing0 process forms basis of costing system 5. !rincipal functions 1. Determining the cost of products or services that aid in planning decisions such as pricing and product mi1 2. 6aluing inventory and cost of goods sold for e1ternal reporting 3. Controlling and evaluating performance 'not emphasi7ed in this chapter* II. 5asics of process costing Learning Objective 1: Identify the situations in which process-costing systems are appropriate -. -ppropriate use of process costing0 unit cost of a product or service obtained by assigning total costs to many identical or similar units [Surveys of Company Practice] 1. In manufacturing& each unit receives same or similar amount of direct materials costs& direct manufacturing labor costs& and indirect manufacturing costs 2. In computing product unit costs& total costs incurred divided by number of units of output/ same average production cost per unit 3. In comparison to "ob costing& the e1tent of averaging is main difference . In mass production of product units& similar or identical units of product or service processed 5. (actors in computing product costs 1. Costs separated into cost categories according to when costs introduced into the process a. 8ach cost item assigned to category identified by when added to the process i. 5eginning of process 'includes different 3inds of costs but all added at start*

ii. 8venly through the process 'includes different 3inds of costs but all added evenly* iii. Different times within the process

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2. !resence of ending inventories '7ero beginning inventory* a. 9ero beginning:ending inventory0 all units started and completed in accounting period i. -verage costs for accounting period calculated from dividing total costs by total units produced

ii. 2ituation common in service-sector organi7ations b. 9ero beginning inventory but some amount of ending inventory0 i. Costs of partially assembled units not same as fully assembled units

ii. -ccuracy of completion estimate depends upon care& s3ill& and e1perience of estimator and nature of conversion process Learning Objective 2: Describe the five steps in process costing 3. 2teps to calculate costs with some fully assembled units and some partially assembled units in process costing a. 2tep 10 2ummari7e the flow of physical units of output [Exhibit 17-1] i. .rac3s physical units of output ;whether complete or incomplete

ii. Categori7es units to account for '<here did the units come from=* and units accounted for '<here did the units go=* Learning Objective 3: Calculate equivalent units and understand how to use them b. 2tep 20 Compute output in terms of equivalent units [Exhibit 17-1] i. >easures output as fully assembled and partially assembled from physical units

ii. Equivalent units0 derived amount of output units that ta3es the quantity of each input 'factor of production* in units completed or in incomplete units of wor3 in process& and converts the quantity of input into the amount of completed output units that could be made with that quantity of input

iii. Calculates equivalent units for each input 'cost category based on timing of costs introduced into process * c. 2tep 30 Compute equivalent unit costs '2teps 3& & and # together are production cost wor3sheet* [Exhibit 17-2]

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i.

Determine cost incurred for wor3 done [Exhibit 17-2]

ii. Divide sum of cost of each input by related quantity of equivalent units of wor3 done d. 2tep 0 2ummari7e total costs to account for [Exhibit 17-2] e. 2tep #0 -ssign total costs to units completed and to units in ending wor3 in process i. !rovides summary of costs accounted for 'parallel to units accounted for*

ii. 8quals total of costs to account for [Exhibit 17-2] iii. -ttaches dollar amounts to equivalent output units for each input-cost category to units completed and units not yet completed 'ending wor3 in process* ?from 2tep 2@ by multiplying equivalent units by cost per equivalent unit ?from 2tep 3@ Learning Objective 4: !repare "ournal entries for process-costing systems . 4ournal entries for process costing [Exhibit 17-3] a. 2imilar to entries made in "ob-costing systems with respect to direct materials and conversion costs b. >ain difference is one <or3-in-!rocess account for each process rather than each "ob #. !resence of beginning inventory and ending inventory/requires choice of cost-flow method which produces differing amounts for cost of units completed and for ending wor3 in process Assign Exercises 17-16 17-17 an! 17-18" II. Inventory-flow methods and process costing Learning Objective 5: $se the weighted-average method of process costing -. #eighte!-average process-costing $etho!0 calculates equivalent-unit cost of all wor3 done to date and assigns this cost to equivalent units completed and transferred out of the process and those in ending wor3-in-process inventory 1. 2tep 10 2ummari7e the flow of physical units of output [Exhibit 17-4] a. $nits to account for are sum of units in beginning wor3 in process and of units started during the period b. $nits accounted for are sum of units completed and transferred out and of units in ending wor3-in-process inventory 2. 2tep 20 Compute output in terms of equivalent units [Exhibit 17-4] a. <eighted-average method merges equivalent units in beginning inventory with equivalent units of wor3 done in current period ?to account for@ because concern is wor3 done to date 'stage of completion of current-period beginning wor3 in process is irrelevant* b. <eighted-average method 3eeps separate equivalent units of completed and transferred out from ending wor3 in process ?accounted for@

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3. 2tep 30 Compute equivalent unit costs [Exhibit 17- ] a. Cost of wor3 done to date 'sum of costs of beginning wor3-in-process inventory plus costs of wor3 done in current period* divided by total equivalent units of wor3 done to date b. Cost per equivalent unit is weighted-average cost for each input-cost category . 2tep 0 2ummari7e total costs to account for 'same as cost of wor3 done to date in 2tep 3* [Exhibit 17- ] #. 2tep #0 -ssign total costs to units completed and to units in ending wor3 in process a. Costs assigned to equivalent units completed and transferred out/for each input-cost category& equivalent units multiplied by weighted-average cost of equivalent unit b. Costs assigned to equivalent units in ending wor3 in process by multiplying equivalent units within each input-cost category by weighted-average equivalent unit cost for that category %o $ultiple choice 1-3" Assign Exercises 17-19 20 an! 17-2& an! Pro'le$s 17-30 an! 17-31"

Learning Objective 6: $se the first-in& first-out '(I()* method of process costing 5. (irst-in )irst-out *(+(,- process-costing $etho!0 calculates and separates cost according to order of time periods in which the wor3 was done 'ordinal number of AfirstB*/wor3 done on beginning inventory before the current period is 3ept separate from wor3 done in current period 1. 2tep 10 2ummari7e the flow of physical units of output [Exhibit 17-!] a. $nits to account for is same regardless of inventory flow method b. $nits accounted for are subdivided by time period in which wor3 is done i. Completed and transferred out during current period 2tarted in prior period 'beginning wor3 in process* and completed this period 2tarted this time period and completed this period

ii. <or3 in process& ending 'started this time period but not completed this time period* 2. 2tep 2 a. 8quivalent units calculated only for wor3 done during current period for each input-cost category& includes i. <or3 done to complete units in beginning wor3-in-process inventory

232 Chapter 17

ii. <or3 done to complete units started this time period iii. <or3 done on units started this time period but not completed b. Co equivalencies calculated for wor3 done in prior period 3. 2tep 30 Compute equivalent unit costs/only costs for each input category added in the current period divided by equivalent units for each input-cost category of wor3 done in current period [Exhibit 17-7] . 2tep 0 2ummari7e total costs to account for 'costs of beginning wor3-in-process inventory plus costs added in the current period * #. 2tep #0 -ssign total costs to units completed and to units in ending wor3 in process a. $nits completed and transferred out assigned costs according to i. 5eginning wor3-in-process units assigned costs from costs to account for in beginning wor3-in-process

ii. 5eginning wor3-in-process units also assigned costs of costs used to complete them using equivalent units of wor3 for each input-cost category multiplied by equivalent cost per unit of wor3 done this period iii. 2tarted and completed this time period/assigned costs from multiplying equivalent units of wor3 for each input-cost category by equivalent cost per unit of wor3 for input category b. $nits in wor3 in process& ending/equivalent units of wor3 for the current time period multiplied by equivalent cost for corresponding input-cost category of current time period %. -verages cost transferred in for departments to become mo"ifie" or "epartmenta# (I() method rather than pure (I() %o $ultiple choice & . 6" Assign Exercises 17-21 22 an! 17-2/ an! Pro'le$ 17-32"

C. Comparison of process-costing methods 1. )perating income can differ materially between weighted-average and (I() methods when two conditions e1ist a. If direct materials or conversion costs per unit vary significantly from period to period b. If physical inventory levels of wor3 in process are large in relation to the total number of units transferred out 2. (eedbac3 about performance and information for pricing and product-mi1 decisions can differ between the two methods a. (I() has ma"or advantage of providing managers with information about changes in costs from one period to the ne1t

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b. <eighted average merges unit costs from different periods ma3ing comparisons difficult c. <eighted average has ma"or advantage of simple computations and more representative average unit cost when large fluctuations of input prices from period to period 3. -ctivity-based costing less applicable to process-costing environments than "ob-costing systems a. !roducts are homogeneous and use resources in similar way b. Cost of activities reduced by controlling costs of individual processes III. 2tandard costs and process costing Learning Objective 7: Incorporate standard costs into a process-costing system -. 2tandards determinable 1. 2tandards set for quantities of inputs needed to produce output straightforward 2. 2tandards set for different technical processing specifications for each product 5. 2tandard costing applicable to process costing 1. <eighted-average and (I() methods complicated for variety of similar products 2. <eighted-average and (I() methods yield inaccurate costs for variety of products when broad averaging of actual costs occurs C. 2tandard costing usable with five-step procedure [Exhibits 17-$ an" 17-%] 1. 2teps 1 and 2 can be same as for (I() 2. 2tep 3 uses standard cost per equivalent unit and is therefore not computed in same way as for actual cost-based weighted-average and (I() 3. 2tep debits <or3 in !rocess at standard costs rather than actual costs . 2tep # attaches standard cost per equivalent unit to assign costs as in (I() method D. 6ariances may be calculated when actual costs incurred in current period do not equal standard costs assigned to products on basis of wor3 done in current period [Exhibit 17-1&] %o $ultiple choice 7.9" Assign Exercises 17-23 an! 17-26"

6. >ultiple departments and process costing Learning Objective 8: -pply process-costing methods to cases with transferred-in costs -. 0rans)erre!-in costs 'also called previous !epart$ent costs* ['efer to Exhibits 17-11 throu(h 17-14]

23& Chapter 17

1. 0rans)erre!-in costs0 costs incurred in previous departments carried forward as the productDs cost as it moves to a subsequent process in production cycle 2. .ransferred-in costs are treated as if they are a separate direct material added at the beginning of the process in successive departments 5. .ransferred-in costs and process-costing methods 1. 2tandard costing0 accounting for transfers to successive departments relatively simple 2. <eighted-average method0 computations basically same for calculation of equivalent units e1cept for addition of transferred-in costs [Exhibits 17-11 an" 17-12] 3. (I() method0 computations basically same but only costs transferred in during current period are used with wor3 done during current period [Exhibits 17-13 an" 17-14] C. -ccounting for transferred-in costs 1. Eemember to include transferred-in costs of previous department 2. Eemember to include transferred-in costs in beginning wor3-in-process inventory costs for units started in prior period and completed during current period for (I() 3. Eemember that when units are transferred& they are costed at one average unit cost under (I() . Eemember that units may be measured in different denominations in different departments and each department& therefore& should be considered separately %o $ultiple choice 10" Assign Exercises 17-27 an! 17-28 an! Pro'le$s 17-33 an! 17-3&"

6I. Fybrid costing systems [Concepts in )ction] -. !roduct-costing systems are best viewed on a continuum between "ob-costing and process-costing systems 5. !roduct-costing systems should reflect the nature of the underlying operations C. -ppendi1 illustrates a hybrid-costing system/operation costing

CHAPTER QUIZ SOLUTIONS1 1.c

2.a 3.!

.' #.! %.a +.' ,.c

G.' 1H.!

Process costing

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CHAPTER QUIZ
2se the )ollo3ing in)or$ation )or questions 1.10" .op .hat manufactures baseball-style hats. >aterial is introduced at the beginning of the process in Cutting Department. Conversion costs are incurred 'and allocated* uniformly throughout the process. -s the cutting of material is completed& the pieces are immediately transferred to the 2ewing Department. Data for the Cutting Department for the month of (ebruary 2HH3 follow0 <or3 in process& 4anuary 31 - #H&HHH units 1HHI complete for direct materials& HI completed for conversion costs actual costs of direct materials& J+H&#HHK actual costs of conversion& J3 &H#H $nits started during (ebruary& 22#&HHH $nits completed during (ebruary& 2HH&HHH <or3 in process& (ebruary 2, - +#&HHH units 1HHI complete for direct materials& 2HI completed for conversion costs Direct materials added during (ebruary [actua# costs] J3 2&HHH Conversion costs added during (ebruary [actua# costs] J3#2&G#H 1. -ssuming .op .hat uses the weighted-average method to account for inventories& the equivalent units of wor3 for the month of (ebruary are Direct >aterials Conversion Costs a. 22#&HHH 22#&HHH b. 2HH&HHH 2HH&HHH c. 2+#&HHH 21#&HHH d. 22#&HHH 2HH&HHH 2. -ssuming .op .hat used the weighted-average method to account for inventories& the cost per equivalent whole unit produced during (ebruary is a. J3.3H. b. J3.##. c. J3.++. d. J .HH.

3. -ssuming .op .hat uses the weighted-average method to account for inventories& the assignment of costs to wor3 in process at the end of (ebruary is a. J3HH&HHH. b. J2%%&2#H. c. J1%%&#2#. d. J13G&#HH.

. If .op .hat uses the first-in& first-out '(I()* method to account for inventories& the equivalent units of wor3 for the month of (ebruary are Direct >aterials Conversion Costs a. 22#&HHH 22#&HHH b. 22#&HHH 1G#&HHH c. 2+#&HHH 2HH&HHH d. 2HH&HHH 1G#&HHH #. If .op .hat uses the (I() method to account for inventories& the costs per equivalent unit for (ebruary are Direct >aterials Conversion Costs a. J1.#H J1.+% b. J1.,3 J1.+2 c. J1.+1 J1.,1

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d.

J1.#2

J1.,1

%. -ssuming .op .hat uses the first-in& first-out '(I()* method to account for inventories& the assignment of costs to units completed and transferred to the 2ewing Department during (ebruary is a. J%#,&3#H. b. J%3%& #H. c. J%%%&HHH. d. J%#2&HHH.

0he )ollo3ing a!!itional !ata applies to questions 7.9" 2tandard costs for the Cutting Department0 Direct materials - J1.#H per unitK Conversion costs - J1.+# per unit +. .he standard costs of units completed and transferred from the Cutting Department during (ebruary is a. J+31&2#H. b. J%#H&HHH. c. J%+,&+#H. d. J%HH&HHH.

,. .he conversion costs variance for the month of (ebruary is a. J H&,HH favorable. b. JG &2#H favorable. c. J11&+HH unfavorable. d. J2G&+#H unfavorable.

G. .he "ournal entry to record inventory costs and direct-material variances for the month of (ebruary is a. Cutting Department Control 3 2&HHH Direct >aterial 6ariances <or3 in !rocess/Cutting Department b. <or3 in !rocess/Cutting Department Direct >aterial 6ariances Cutting Department Control c. <or3 in !rocess/Cutting Department Direct >aterial 6ariances Cutting Department Control d. <or3 in !rocess/Cutting Department Direct >aterial 6ariances Cutting Department Control 33+&#HH &#HH 3 2&HHH 3 2&HHH &#HH 33+&#HH 3 1&2#H +#H 3 2&HHH &#HH 33+&#HH

1H. In the 2ewing Department& additional direct materials are added to the product at the end of production. <ithout pre"udice to your answer for questions 1- G& assume that 2HH&HHH units were transferred from the Cutting Department and that the weighted-average method is used. Data for (ebruary follow0 <or3 in process& 4anuary 31 - +H&HHH units '3HI complete as to conversion* $nits completed during (ebruary - 2 H&HHH units <or3 in process& (ebruary 2, - 3H&HHH units ',HI complete as to conversion* (or the 2ewing Department& the equivalent units of wor3 done in (ebruary is .ransferred In Direct >aterials Conversion Costs a. 2HH&HHH 2HH&HHH 2HH&HHH b. 2HH&HHH 1+H&HHH 1G &HHH c. 2 H&HHH 2 H&HHH 2 #&HHH d. 2+H&HHH 2 H&HHH 2% &HHH

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WRITING/DISCUSSION EXERCISES
1. Ident !" t#e $ t%&t 'n$ n (# )# *+')e$$,)'$t n- $"$te.$ &+e &**+'*+ &te

So many different costing systems existabsorption costing, variable costing, throughput costing, job costing, actual costing, normal costing, standard costing, activity-based costing, and now process costing. How does a company know which costing system to use -ny costing system used by a company should be designed to reflect the underlying operations of that particular company. -s noted in the te1t& costing systems serve three principal functions determining the cost of products or services& valuing inventory and cost of goods sold& controlling and managing costs and evaluating performance. 4ob costing and process costing are the principal systems used to determine the cost of products or services through the assignment of costs to the cost ob"ect 'the product or service*. -s noted& they form the ends of a continuum with hybrid methods available for reflecting the underlying operations used in any one company. -bsorption costing& variable costing& and throughput costing are primarily descriptive of inventory costs. .hese Acosting methodsB were introduced in the study of "ob costing& but they can be used with process or hybrid systems. -ctual costing& normal costing& and standard costing are terms used to describe the costs used within the Acosting systemB of "ob or process costing. -ctual costs& normal costs& or standard costs may be used in absorption process costing& variable "ob costing& or throughput "ob costing& for e1ample. -s activity-based costing is a refinement of "ob costing& it has less applicability in process costing 'as noted in the chapter*. Fow are costs assigned to a product= 4ob costing or process costing <hich of those costs are used to value inventory= -bsorption costing or variable costing <hat costs are assigned through the accounting system= -ctual& normal& or standard .he term AcostB is relative. -ll actual manufacturing costs could be assigned to a common-process& mass-produced product meaning that the costing system used was an Aactual absorption process-costing system.B
/. De$)+ 0e t#e ! 1e $te*$ n *+')e$$ )'$t n-

!iscuss the scorekeeping function of management accounting "#bean counter$ image% in conjunction with step one of the five-step procedure used in calculating costs for process costing. .he purpose of the costing system is to assign costs to the products produced. .he product& cost ob"ect& must be clearly identified before costs can be assigned. Counting is an integral aspect of measurement& especially in process costing. !rocess costing is used for operations in which many identical or similar units are produced. $nit costs are computed by dividing total costs by the number of units. Lnowing the number of units is critical/step one of the five steps.

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2. C&3)%3&te e4% 1&3ent %n t$ &nd %nde+$t&nd #'( t' %$e t#e.

&ive an example of the use of e'uivalencies other than in process costing. (f possible, explain how and why they are used. )ne e1ample noted in the te1t is that which is used in academic situations of full-time equivalents for teachers and students. (unding may be based upon a formula using the number of enrolled credit hours as a means of counting students. !art-time students are counted by equating them to full-time students. .otal hours in which the part-time students are enrolled are summed& then divided by a set number of hours considered Afull-timeB to determine the amount of full-time equivalents. 8quivalencies are also used when shopping for food items. In determining the best buy& two si1 pac3s of soft drin3s are the same quantity as a twelve pac3 but the prices might not be equivalent.
5. P+e*&+e 6'%+n&3 ent+ e$ !'+ *+')e$$,)'$t n- $"$te.$

)ould one look at the journal entries for a manufacturing company and identify the type of costing system being used ?Eefer to Mearning )b"ective 1 e1ercise this chapter and M. ). # of Chapter for related material.@ )ne can identify the type of costing system being used and the types of costs being assigned to the products by e1amining the "ournal entries in a manufacturing company. .he accounting system& that includes the "ournal entries& tells the story or gives an account of the manufacturing system 'underlying operations* of the company. - process-costing system will typically use a wor3-in-process account for each process 'or department*& whereas a "ob-costing system would use one wor3-in-process account for each "ob being produced. <ith standard costing& one would note the presence of variances. <ith normal costing or standard costing& manufacturing overhead would be separated as to actual and allocated. -ctual costing would have neither allocated overhead or variances. (or the absorption costing method& one would note all manufacturing costs charged to the wor3-inprocess account. (i1ed manufacturing costs would not be in wor3 in process for variable costing.
7. U$e t#e (e -#ted,&1e+&-e .et#'d '! *+')e$$ )'$t n-

*ote the use of the term #average$ in describing e'uivalent cost per unit with the weighted-average method versus first-in, first-out method of inventory costing. +hat makes the e'uivalent cost per unit an #average$ and how is it #weighted$ In step 3 of the five 3ey steps& the costs are identified as either beginning wor3-in-process inventory costs or costs added during the current period. .he equivalent cost per unit uses both of these costs& thus ma3ing it an AaverageB equivalent cost per unit. .he (I() method uses only the current costs so no averaging occurs 'until those costs are AtransferredB to the ne1t process as a lump sum*. .he use of total cost from both the beginning <-I-! account and costs added during the current period give the weighting to the unit cost.

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8. U$e t#e ! +$t, n9 ! +$t,'%t :;I;O< .et#'d '! *+')e$$ )'$t n-

,ne of the advantages noted for the weighted-average method of process costing is its computational simplicity. +ith the advent of and pervasive use of computers, is computational simplicity considered an advantage In wor3ing the e1ercises or problems for process costing by hand& one quic3ly notes the computational simplicity of the weighted-average method over the (I() method. .hat type of advantage is diminished with the technology advances in computing. In loo3ing at advantages& a company must decide what method has the most benefit for the cost needed to obtain that benefit. <hichever method is selected& the persons using the information must also understand what the information means. In some cases the understanding comes from being able to compute the information/helping to learn AwhyB by learning Ahow.B )ther considerations are given in the te1t as to the reasons for choosing one method over the other.
7. In)'+*'+&te $t&nd&+d )'$t$ nt' & *+')e$$,)'$t n- $"$te.

(s the use of standards different in process costing than in job costing If standards are developed at the most elemental cost level& inputs& perhaps standard costing is no different in process costing than in "ob costing. Consider the descriptions ta3en from the te1t for costing a AuniqueB product by Dell Computer ?Chapter introduction@ and for costing products from a steel-rolling mill ?this chapterDs A2tandard-Costing >ethod of !rocess CostingB@. .hough ADell considers each computer order as a separate "ob& and it can trac3 its costs down to any individual computer&B the company probably has an inventory of parts and components it uses along with specific methods of assembling each computer. .he steel-rolling mill would also have an inventory of Avarious steel alloysB used in various combinations to Aproduce sheets of various si7es and finishes.B If the companies use standard costs for the inputs& materials 'the parts& components& and alloys*& labor& and overhead 'conversion costs*& then the use of standards is much the same for the two companies. .hough most products today are considered specialty items& they are usually some variation of a common product. Developing standards for costs of inputs at the most basic level allows for combinations of those inputs to be costed at standard.
=. A**3" *+')e$$,)'$t n- .et#'d$ t' )&$e$ ( t# t+&n$!e++ed, n )'$t$

+hy aren-t transferred-in costs separated into the categories of direct materials and conversion costs rather than used as a new category .he use of standard costing might enable the combining of direct material costs and conversion costs through each department& but not the use of actual costs. Costs are totaled in step # using the categories of inputs& but as they are ta3en in to the ne1t process or department& they are used as unit costs with no identification as to type of cost. <ithout the use of standard costing& it would be very difficult to identify the amount of direct material cost or conversion cost in a per unit cost for a product manufactured in a process costing system. .his is the same type of situation for attempting to identify costs of each period& as described for modified (I().

2&0 Chapter 17

SUGGESTED READINGS
Clements& E. and 2poede& C.& A.raneDs 2)$! -ccounting&B *ana(ement )ccountin( '4une 1GG2* p. % ?+p@. Mongmore& !.& A!rocess Costing Demystified&B )ccountancy ')ctober 1GG * p.,, ?3p@.

Process costing

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