Process Costing (Weighted Average Method) Example
Summary
TLDRThe video tutorial illustrates process costing, specifically the weighted average method, using Fitz's Rootbeer as an example. It explains how to assign costs to 2,000 completed units and 500 in-process units in the bottling department. The direct materials are 100% complete for the in-process units, while conversion costs are only 80% complete. The video demonstrates calculating cost per equivalent unit for direct materials (49 cents) and conversion costs (60 cents), then assigning these costs to completed and in-process units, resulting in $1,180 for completed units and $485 for those still in the department.
Takeaways
- 🍻 The video discusses process costing, specifically the weighted average method, for a company named Fitz's Rootbeer.
- 🔄 Fitz's Rootbeer uses process costing for its bottling department, focusing on how to assign costs to units.
- 📊 The company bottled 2,000 units of root beer during the period, with 500 units still in process at the end of the period.
- 📈 All 500 in-process units are 100% complete in direct materials but only 80% complete in conversion costs.
- 💼 Conversion costs include direct labor and manufacturing overhead, which are not fully completed for the in-process units.
- 📝 The video explains how to calculate the cost per equivalent unit for direct materials and conversion costs.
- 💡 The cost per equivalent unit is used to assign costs to completed units and those still in process.
- 📉 For the 2,000 completed units, $980 is assigned for direct materials and $1,200 for conversion costs.
- 📋 For the 500 in-process units, $245 is assigned for direct materials and $240 for conversion costs, considering their completion percentage.
- 🔢 The total cost assigned to the completed and transferred units is $2,180, while the in-process units have $485 assigned to them.
Q & A
What is process costing?
-Process costing is a method of assigning costs to products when the production process is continuous, and it's particularly useful for companies that produce items in a flow, such as in a manufacturing setting.
What is the weighted average method in process costing?
-The weighted average method in process costing is a technique used to calculate the cost per equivalent unit by taking into account both the beginning work in process inventory and the costs added during the period.
Which company is used as an example in the video?
-The company used as an example in the video is Fitz's Rootbeer, a manufacturer that uses process costing for their bottling department.
How many units of root beer did Fitz's Rootbeer bottle during the period mentioned in the video?
-Fitz's Rootbeer bottled 2,000 units of root beer during the period.
What is the status of the 500 units still being processed at the end of the period?
-At the end of the period, the 500 units still being processed are 100% complete with respect to direct materials but only 80% complete with respect to conversion costs.
What are conversion costs in the context of the video?
-Conversion costs in the video refer to the combination of direct labor and manufacturing overhead costs that are used to convert direct materials into finished goods.
How is the cost per equivalent unit calculated for direct materials and conversion costs?
-The cost per equivalent unit is calculated by dividing the total costs of direct materials and conversion costs by the number of equivalent units produced, which in the video is 49 cents per unit for direct materials and 60 cents per unit for conversion costs.
How are costs assigned to the completed units in the bottling department?
-Costs are assigned to the completed units by multiplying the number of units completed (2,000) by the cost per equivalent unit for direct materials (49 cents) and conversion costs (60 cents), then summing these amounts.
What is the total cost assigned to the bottles that were completely finished during the period?
-The total cost assigned to the bottles that were completely finished during the period is $2,180, which is the sum of the direct materials cost ($980) and the conversion cost ($1,200).
How are costs assigned to the units still in process in the bottling department?
-For the units still in process, the direct materials cost is assigned at 100% (500 units * $0.49), while the conversion cost is assigned at 80% completion (400 equivalent units * $0.60).
What is the total cost assigned to the units still in the bottling department at the end of the period?
-The total cost assigned to the units still in the bottling department at the end of the period is $485, which includes $245 for direct materials and $240 for conversion costs.
Outlines
🍺 Process Costing at Fitz's Root Beer Bottling Department
This paragraph explains the concept of process costing, specifically the weighted average method, using Fitz's Root Beer as an example. The company's bottling department is highlighted, where they produced 2,000 units of root beer during a certain period. However, at the end of this period, 500 units remained in process. These 500 units are 100% complete in terms of direct materials but only 80% complete concerning conversion costs, which include direct labor and manufacturing overhead. The paragraph discusses the challenge of assigning costs to units that are completed and those still in process, introducing the concept of cost per equivalent unit. The cost per equivalent unit is calculated as 49 cents for direct materials and 60 cents for conversion costs. The paragraph concludes with an explanation of how these costs are assigned to the completed and in-process units.
📊 Assigning Costs to Completed and In-Process Units
The second paragraph delves into the process of assigning costs to the completed and in-process units at Fitz's Root Beer. For the 2,000 completed units, the direct material cost is calculated as $980 (2,000 units * $0.49 per unit), and the conversion cost is $1,200 (2,000 units * $0.60 per unit). The total cost assigned to these completed units is $2,180. For the 500 in-process units, the direct material cost is straightforward at $245 (500 units * $0.49 per unit) since they are 100% complete in this aspect. However, for conversion costs, only 80% of the work is done, so the equivalent units are 400 (500 units * 80%), leading to a cost of $240 (400 units * $0.60 per unit). The total cost assigned to the in-process units is $485. The paragraph concludes by summarizing the total costs assigned to both the completed units and those still in the bottling department.
Mindmap
Keywords
💡Process Costing
💡Weighted Average Method
💡Direct Materials
💡Conversion Costs
💡Equivalent Units
💡Work in Process (WIP)
💡Cost per Equivalent Unit
💡Direct Labor
💡Manufacturing Overhead
💡Finished Goods Inventory
💡Cost Assignment
Highlights
Introduction to process costing and the weighted average method.
Case study of Fitz's Rootbeer's bottling department.
2,000 units of root beer were bottled during the period.
500 units remain in process at the end of the period.
Direct materials for the in-process units are 100% complete.
Conversion costs for the in-process units are only 80% complete.
Explanation of cost assignment for completed and in-process units.
Calculation of cost per equivalent unit for direct materials and conversion costs.
Cost calculation for completed units: $0.49 per unit for direct materials.
Cost calculation for completed units: $0.60 per unit for conversion costs.
Total cost assigned to completed units: $2,180.
Cost calculation for in-process units: 100% complete direct materials.
Cost calculation for in-process units: 80% complete conversion costs.
Total cost assigned to in-process units: $2,185.
How to determine equivalent units for direct materials and conversion costs.
Final assignment of costs to units transferred out and still in process.
Transcripts
in this video I want to show you an
example of how to assign cost to units
for a company that uses process costing
specifically the weighted average method
so let's take a company called Fitz's
rootbeer and they're a manufacturer and
they use process costing for their
bottling department okay so they might
have other departments but let's just
focus on the bottling department so they
bottled 2,000 units of root beer during
the period and then at the end of the
period they still have 500 units that
are still being processed yeah
now the 500 units that are still being
processed are a hundred percent complete
with respect to direct materials but
with respect to conversion costs which
are direct labor plus manufacturing
overhead it's only eighty percent
complete okay so think about it like
this they poured all the root beer in
the bottle so it's a hundred percent
complete those five hundred units that
are still left but there's other work
that needs to be done some direct labor
some overhead so the question is how do
we assign costs because we're gonna have
costs that we're already in work in
process at the beginning of the period
and then we have costs that are incurred
during the period how do we assign those
costs because if you think about there
are some units that were completed and
we bottled it and we did all the labor
all the conversion caused everything and
those two thousand have been transferred
out of the department okay they either
went to the next department or if this
was the final department then they're in
finished goods inventory okay so those
two thousand are done but there's the
five hundred that are still in process
and how do we assign these costs how do
we split the costs up among those
different units okay the ones that are
still in in process and the ones that
have been transferred out so to do that
we need something called the cost per
equivalent unit and I showed you how to
calculate that in the last video but
it's basically 49 cents a unit for
direct material sixty cents a unit for
conversion costs and in case you didn't
see that video or you need a refresher
here's how those calculations were made
okay so I've got the conversion costs
over here and then over here at the
direct materials okay so we've got our
cost per equivalent unit and what we're
gonna do is we're gonna multiply that so
we're gonna go so the I'm gonna try to
make a table McGee simple for you to
follow so cost is lying to the units
that are complete
and transferred out of the department
during the period that's the two
thousand where we said look they've been
bottled we've done all the labor and we
need to do we did everything they're out
of this department okay so the units
that are completed and then the units
that are still in process okay so let's
start assigning these costs so the units
that are completed
we'll start with direct materials so two
thousand times forty nine cents okay so
that's gonna be nine hundred and eighty
nine hundred and eighty okay and then
with the cost per equivalent unit for
conversion costs for the ones that were
completed we have two thousand two
thousand times sixty cents okay so
that's gonna be twelve hundred dollars
that's gonna be twelve hundred dollars
so then if you were to say so this is
basically saying look the ones that were
completed nine hundred eighty dollars of
the direct materials cost should go to
that should be assigned to those units
that were completed and twelve hundred
dollars of the conversion cost should be
assigned to those they were completed so
if we were to add up and say what is the
total amount that should be assigned to
the bottles that were completely
finished during the period two thousand
one hundred and eighty dollars okay we
just add the cost that were from Dark
Materials the cost that were from
conversion costs okay so now bear in
mind what the only the only thing that's
really tricky here is we use the cost
per equivalent unit for direct materials
and the cost per equivalent unit for
conversion costs we don't use the same
cost per equivalent you know for each
one now the units that are still in
process so there's five hundred that are
still in process or direct materials and
there are a hundred percent complete
with respect to direct materials so we
don't have to do any adjustment to get
two equivalent units because there are
five hundred equivalent units so five
hundred times 0.49 okay that's gonna be
200 hundred forty five dollars okay
maybe I should write this out so that's
five hundred times 0.49 okay and this up
here was two thousand times 0.49 and
this here was two thousand
time's point six oh okay so you can so
you can see what the numbers came from
and then of course this was just these
two things added together all right now
the unit's tone process for conversion
costs 500 but here's the thing it's 500
but they were only 80% complete with the
respective conversion cost so the
equivalent units is really four hundred
and that's just five hundred times
eighty percent okay so we're gonna take
four hundred and we're gonna multiply it
so let me sit here 400 times point six
so the cost per equivalent unit okay and
so that's going to be two hundred and
forty dollars of the conversion costs
are assigned to the unit's still in
process now let's say we're gonna add
this together because we want to say
well what's the total what's the total
amount of costs of whether it be direct
materials or conversion costs that are
assigned to the units that are still in
the bottling department still they
haven't been transferred to the next
apartment because they're not completely
been finished by this department yet the
cost of sign to them would be four
hundred and eighty five dollars and then
the costs assign to the bottles that
were done with this depart like they've
been moved on to the next apartment or
if this was the final Department it goes
to finish goods inventory those costs
the ones that were completed and
transferred out was two thousand one
hundred and eighty
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