Process Costing Examples

Use these process costing formulas to reconcile physical units, compute equivalent units, determine cost per equivalent unit, and assign costs to completed units and ending work in process.

This dashboard contains one randomized process costing scenario. The values feed the LO worked problems below.

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Process costing fits settings where units are homogeneous or highly similar, production is continuous or repetitive, and costs are accumulated by process or department by process or department.

Worked sample problem using the live scenario

Objective: Reconcile the physical flow of units through the department. Does the scenario account for all units?

Weighted-average equivalent units combine prior-period work and current-period work. The method treats beginning WIP as if it were started during the current period.

Worked sample problem using the live scenario

Objective: Compute weighted-average equivalent units for direct materials and conversion costs.

Weighted-average EU = Units completed + (Ending WIP units × Ending WIP % complete)

The weighted-average production report reconciles units, calculates equivalent units, computes average cost per equivalent unit, and assigns costs to completed units and ending WIP.

Worked sample problem using the live scenario

Objective: Use the weighted-average method to assign costs to units completed and ending WIP.

FIFO equivalent units count only current-period work. The calculation includes work needed to finish beginning WIP, units started and completed, and work performed on ending WIP.

Worked sample problem using the live scenario

Objective: Compare weighted-average and FIFO equivalent-unit logic. Which method isolates current-period work?

FIFO EU =
Beginning WIP units × (1 − Beginning WIP % complete)
+ Units started and completed × 100%
+ Ending WIP units × Ending WIP % complete

Concept Summary: The FIFO production report separates work and costs from the prior period from work and costs added during the current period. It assigns current-period costs to three places: work needed to complete beginning WIP, units started and completed this period, and ending WIP.

Example A: Determine FIFO equivalent units

Objective: Calculate the direct materials and conversion-cost equivalent units that represent current-period work.

FIFO equivalent units =
Work to complete beginning WIP
+ Units started and completed
+ Work in ending WIP

Example B: Determine current-period cost per equivalent unit

Objective: Divide current-period costs by FIFO equivalent units.

FIFO cost per equivalent unit =
Current-period cost ÷ FIFO equivalent units

Example C: Assign cost to complete beginning WIP

Objective: Combine prior-period beginning WIP cost with the current-period work needed to finish those units.

Cost to complete beginning WIP =
Beginning WIP prior cost
+ Current DM work to finish beginning WIP
+ Current conversion work to finish beginning WIP

Example D: Assign cost to units started and completed

Objective: Assign full current-period direct materials and conversion cost to units both started and completed this period.

Cost of units started and completed =
Units started and completed × Total FIFO cost per equivalent unit

Example E: Assign cost to ending WIP and reconcile assigned costs

Objective: Assign cost to incomplete ending WIP units and verify that FIFO assigned costs reconcile to costs available.

Ending WIP cost =
Ending WIP DM equivalent units × DM cost per EU
+ Ending WIP CC equivalent units × CC cost per EU

Total FIFO assigned cost =
Cost assigned to completed units + Cost assigned to ending WIP

Concept Summary: A subsequent department receives units and costs from a prior department. The transferred-in cost becomes an input cost in the receiving department, alongside the receiving department's own direct materials and conversion costs.

Example A: Determine transferred-in cost per unit

Objective: Calculate the cost per completed unit transferred from the current department to the next department.

Transferred-in cost per unit =
Cost transferred out ÷ Units transferred out

Example B: Build the receiving department cost layers

Objective: Treat transferred-in cost as one input layer in the receiving department's production report.

Example C: Record journal entries for current department costs

Objective: Record direct materials, conversion costs, and transferred-out cost in the production flow.

Example D: Record the receiving department entry

Objective: Show how the next department records costs received from the prior department.