COLLEGE OF BUSINESS EDUCATION | ACCOUNTANCY PROGRAM

Lecture Note Process Costing: FIFO Method – Even and Uneven

No. 1 Application of Costs

PROCESS COSTING: FIFO METHOD – EVEN AND UNEVEN

APPLICATION OF COSTS

Introduction

TWO BASIC PRODUCT-COSTING SYSTEMS

1. Job Order Costing – a system for allocating costs to groups of unique products. It is
applicable to the production of customer specified products such as the manufacture of
special machines. Each job becomes a cost center for which costs are accumulated.
2. Process Costing – a system applicable to a continuous process of production of the same
or similar goods, e.g., oil refining and chemical production. Since there is no need to
determine the costs of different groups of products because the product is uniform, each
processing department becomes a cost center.

PROCESS COSTING METHODS ARE USED BY THE FOLLOWING:

1. Industries producing chemicals, petroleum, textiles, steel, rubber, cement, flour,

pharmaceuticals, shoes, plastics, sugar, and coal.
2. Firms manufacturing items such as rivets, screws, bolts, and small electrical parts.
3. Assembly-type industry which manufactures typewriters, automobiles, airplanes, and
household electric appliances.
4. Service industries such as gas, water and heat.

CHARACTERISTICS OF PROCESS COSTING:

1. Costs are accumulated by department or cost center.

2. Each department has its own general ledger Work in Process Inventory account.
3. Equivalent units are used to restate work in process inventory to terms of completed
units at the end of the period.
4. Completed units and their corresponding costs are transferred to the last department
and then to finished goods inventory.
5. Total costs and unit costs for each department are periodically calculated and analyzed
with the use of department cost of production report.

COMPARISON OF JOB ORDER COSTING AND PROCESS COSTING

Job Order Costing Process Costing

1. Unique jobs are worked on during a time 1. Homogenous units pass through a series of
period. similar processes.

2. Costs are accumulated by individual job. 2. Costs are accumulated by processing

department.
3. Unit costs are determined by dividing the 3. Unit costs are computed by dividing the
total costs on the job cost sheet by the individual departments’ costs by the
number of units on the job. equivalent production
4. The job cost sheet provides the detail for 4. The cost of production report provides the
the Work in Process account. detail for the Work in Process account for each
department.

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JOB ORDER COSTING

Job #1
DM
DL Job #2 FG COGS
FOH

Job #3

PROCESS COSTING

Dept #1

DM
DL Dept #2
FO
H
Dept #3 FG COGS

ACCOUNTING PROCEDURES – JOURNAL ENTRIES UNDER BOTH COSTING SYSTEM

TRANSACTIONS
(Assuming there are 3 jobs or JOB ORDER COSTING PROCESS COSTING
departments)
1. Issuance of Materials,
P100,000:
Job/Department 1 – 40,000
Job/Department 2 – 30,000
Job/Department 3 – 20,000
Indirect Materials – 10,000
2. Distribution of Labor,
P200,000:
Job/Department 1 – 90,000
Job/Department 2 – 60,000
Job/Department 3 – 30,000
Indirect Labor – 20,000
3. FOH charged to production,
50% of Direct Labor

4. Transfer of Goods
Completed:
● For Job Order Costing:
Assuming Jobs 1 and 2 are
completed
● For Process Costing:
Assuming the units placed in
process is 10,000 units, all
are completed from
Department 1 to Department
3.

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 5. Sale of Finished Goods:
● For Job Order Costing: Job 1
is sold at 50% mark-up based
on cost.
● For Process Costing:
Assuming 8,000 units are
sold at P50 per unit.

METHODS OF COSTING UNDER PROCESS COSTING

1. FIFO Method – Under this method, it is considered that those units which are first placed
in process are presumed to be the first ones completed and those that are first completed
are presumed to be the first ones transferred out.
Characteristics:
a. The work in process beginning in the department will require a separate
computation for equivalent production.
b. The units started, completed and transferred will have its own computation for
equivalent production
2. Weighted Average Method – Under this method, there is no assumed flow of
manufacturing operations. (To be further discussed after FIFO).

METHODS OF APPLICATION

1. Even Application – Under this method, it is considered that at any stage of during the
process of production, the introduction of the three elements of cost is equal with one
another. Only one computation of equivalent production should be made.
2. Uneven Application – Under this method, the introduction of the elements of cost to
production varies at any stage of the process, hence, there should be as many
computations of equivalent production as the elements of cost that are unevenly applied.

COMPUTATION OF EQUIVALENT UNITS OF PRODUCTION (EUP) – FIFO

Under Process Costing, the volume of work done is measured in terms of equivalent units of
production (EUP).

Case 1 – Start of operation

Placed in Process 20,000 units
In Process, Dec. 31 6,000 units
Stage of Completion 1/3

Case 2
In Process, Dec. 1 4,000 units
Stage of Completion ¼
Placed in Process 30,000 units
In Process, Dec. 31 5,000 units
Stage of Completion 1/10

Case 3:
In Process, Beg 2,000 units
Stage of Completion 3/5 done
Transferred Out 24,000 units

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In Process, End 6,000
Stage of Completion 60% done

Case 4:
Placed in Process 60,000 units
In Process, Dec. 31 14,000 units
Stage of Completion 3/7

Case 5:
In Process, Beg ? units, 1/5 complete
Placed in Process 28,000 units
Transferred Out 24,000 units
In Process, End 6,000 units, 2/3 complete

Case 6:
In Process, Beg 3,000 units, 60% incomplete
Placed in Process 22,500 units
In Process, End 3,750 units, 2/3 incomplete

Case 7:
Transferred Out 6,000 units
In Process, Beg ? units, 2/5 incomplete
Placed In Process 7,000 units
In Process, End 1,500 units, 1/3 complete

Case 8:
Transferred Out 140,000 units
Finished and on Hand 800 units
In Process, Beg 36,000 units, 2/3 done
In Process, End 20,000 units, 3/5 done
Placed in Process ?

Case 9 Department 1 Department 2

In Process, Dec. 1 8,000 units 5,000 units
Stage of Completion 1/4 1/10
Placed in Process 50,000 units
In Process, Dec. 31 6,000 units 12,000 units
Stage of Completion 1/5 1/6

Case 10 Department A Department B

Quantity Data:
In Process, Sept. 1 3,000 units 2,000 units
Stage of Completion 1/3 1/5
Transferred to Department B 26,000

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 In Process, Sept. 30 4,000 units 7,000 units
Stage of Completion 20% 2/7

Case 11 Department I Department II

Quantity Data:
In Process, Sept. 1 ? units, 1/5 done 8,000 units, 1/8 complete
Placed in Process 35,000 units
Transferred to Stockroom 38,000 units
In Process, Sept. 30 12,000 units, 1/3 done 3,200 units, 1/10 complete

Case 12 Department M Department P

Quantity Data:
In Process, Sept. 1 5,000 units, 1/5 done 8,000 units, 75% complete
Placed in Process 30,000 units
Transferred to Stockroom 30,000 units
In Process, Sept. 30 7,000 units, 2/7 done ? units, 2/5 complete

PREPARATION OF COST OF PRODUCTION REPORT – FIFO METHOD (EVEN

APPLICATION OF COSTS)

Problem 1

GANYU CO. has its product processed in Department A and B. After the goods are processed in
Department A, they are transferred to Department B for additional processing. From Department
B, they are transferred to the stockroom for delivery to customers.

The production data for December 2023 are given below:

Department A Department B
Quantity Data:
In Process, Dec. 1 5,000 units 8,000 units
Stage of Completion 1/5 3/4
Placed in Process 30,000 units
Transferred Out 30,000 units
In Process, Dec. 31 7,000 units ? units
Stage of Completion 2/7 2/5

Cost Data:
In Process, Dec. 1 P 750.00 P 9,481.44
Factory Costs:
Materials P 17,400.00 P 7,920.00
Labor 8,990.00 3,960.00
Factory Overhead 3,480.00 2,640.00
Factory costs are applied evenly throughout the process.

Required:
1. Quantity Schedule
2. Cost of Production Report
3. Journal Entries

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 4. T-Account for Work-In-Process

Problem 2

HUTAO CO. operates in two consecutive departments, X and Y. The following information is
given on its December 2023 production:

Department X Department Y
Quantity Data:
In Process, Dec. 1 ? units 16,000 units
Stage of Completion 20% 75%
Placed in Process 70,000 units
Transferred to Stockroom 76,000 units
In Process, Dec. 31 24,000 units 6,000 units
Stage of Completion 25% 75%

Cost Data:
In Process, Dec. 1 P 18,680.00 P 113,400.00
Factory Costs:
Materials P 170,000.00 P 102,750.00
Labor 102,000.00 68,500.00
Factory Overhead 2/3 of Labor 50% of Labor
Factory costs are applied evenly throughout the process.

Required:

1. Quantity Schedule
2. Cost of Production Report
3. Journal Entries
4. T-Account for Work-In-Process

EQUIVALENT UNITS OF PRODUCTION – FIFO METHOD (UNEVEN APPLICATION OF

COSTS)

Case 1:
In Process, Beg 5,000 units
Stage of Completion 3/4 done
Placed in Process 60,000 units
In Process, End 8,000
Stage of Completion 1/5 done
All the materials are added at the start of the process. Conversion costs are evenly applied
throughout the process.

Case 2:
In Process, June 1 10,000 units, 2/5 complete
Transferred Out 35,000 units
In Process, End 9,000 units, 2/3 complete
All the materials are added at the end of the process. Conversion costs are evenly applied
throughout the process.

Case 3:
In Process, Beg 12,000 units, 2/3 incomplete
Placed in Process 60,000 units
In Process, End 20,000 units, 4/5 incomplete

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 60% of the materials are added at the start of the process and the remainder when the goods
are 80% done.
Case 4:
In Process, Beg 12,000 units, 2/3 incomplete
Placed In Process 35,000 units
In Process, End 10,000 units, 4/5 complete
70% of the materials are added at the start of the process and the remainder when the goods
are 75% done.

Case 5:
In Process, Beg 8,000 units, 1/8 done
In Process, End 6,000 units, 3/4 done
Received from preceding dept 35,000 units
Materials are added as follows: 20% at the start of the process, 70% at the middle, and 10% at
the end.

Case 6:
In Process, Beg 2,000 units, 20% done
Received from preceding dept 50,000 units
In Process, End 9,000 units, 60% done
30% of the materials are added at start of the process, 50% when the goods are 2/5 done and
the remainder when the goods are 4/5 done.

COST OF PRODUCTION REPORT – FIFO METHOD (UNEVEN APPLICATION OF COSTS)

Problem 1
The Furina Manufacturing Corp. has its product processed in Mixing and Cooking. After the
goods are processed in Mixing Department, they are transferred to Cooking Department for
additional processing. From Cooking Department, they are transferred to the storage room for
delivery to customers.

The production data for December 2023 are given below:

Mixing Cooking
Quantity Data:
In Process, Dec. 1 3,000 units 5,000 units
Stage of Completion 30% 25%
Placed in Process 20,000 units
In Process, Dec. 31 5,000 units 7,000 units
Stage of Completion 20% 5/7

Cost Data:
In Process, Dec. 1 P 3,450.00 P 21,750.00
Factory Costs:
Materials P 50,000.00 P 24,080.00
Labor 18,100.00 11,850.00

In Mixing Department, all the materials are added at the start of the process and factory overhead
rate is 50% of labor cost.

In Cooking Department, 60% of the materials are added at the start of the process with the
remaining 40% when the goods are 4/5 done. Factory overhead rate in Department II is P0.40 per
equivalent unit of production.

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Required:

1. Quantity Schedule
2. Cost of Production Report
3. Journal Entries
4. T-Account for Work-In-Process

Problem 2

Focalor Manufacturing Co. operates in two consecutive departments, Sanding and Polishing. The
following information is given on its September 2023 production:

Sanding Polishing
Quantity Data:
In Process, Sept. 1 10,000 units 20,000 units
Stage of Completion 1/5 done 60% done
Placed in Process 50,000 units
Transferred to Stockroom 60,000 units
In Process, Sept. 30 9,000 units ? units
Stage of Completion 4/9 done 30% done

Cost Data:
In Process, Dec. 1 P 22,200.00 P70,800
Factory Costs:
Materials P 61,200.00 P 39,600
Labor 31,800.00 20,520
Factory Overhead 50% of Labor P0.30 per EUP

In Sanding Department, materials are added at the middle of the process.

In Polishing Department, 50% of the materials are added at the start of the process, 30% when the
goods are 40% done, and the remaining 20% when the goods are 90% done.

Required:

1. Quantity Schedule
2. Cost of Production Report
3. Journal Entries
4. T-Account for Work-In-Process

- END -

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