 Hello in this lecture, we're going to talk about a process cost system and equivalent units using the FIFO method We will be able to at the end of this calculate equivalent units use equivalent units to allocate material and conversion cost to departments and create journal entry to transfer cost from one department to the next Alright, so this is the information that we will have here. We're gonna be looking at focusing in on Department a we're assuming there are two departments in a process cost system So remember when we're thinking about a process cost system We're thinking about something that makes the same type of units something like taffy or oil or something like that That's every unit is the same and therefore we're going to allocate the cost of the production using a process cost system Allocating the costs to a particular process in this case We're gonna have the process a and process be department a and department b and follow the costs through that flow in This way. Alright, so we have the information in terms of units over here We have the information in terms of costs This is typical information that would generally be given within a problem of this kind when we're calculating the equivalent units We have the materials and the conversion that we're talking about and now materials was pretty straightforward It's the materials the raw materials that are going into it. The conversion is gonna be the direct Direct labor and overhead labor and overhead the things that are going to convert The materials to the end product So we got to break those things out think about equivalent units in terms of materials and conversion Our goal here is to use those equivalent units to help us to allocate these costs to the proper area That the proper department proper function and that's what we will be doing at this time So note what we have here in dollars. We actually kind of know the dollars here Our goal here is to take these and then allocate the dollars to the proper department using kind of a ratio analysis That's what the equivalent units will help us to do All right, so who we have our information down here working through the problem We're gonna start with beginning working process in units. That's gonna be given in the problem So we have three thousand we would know it in real life because that's what we ended last time So that's where we're gonna start this time. This is units not dollars We want to keep these two separated as we go in this case We're talking of course units not dollars and then we're gonna have the units started and completed so units started and completed here We want to break this out. This is a bit unusual a bit new to break this out The reason we're breaking this out is because under any method or first in first out or any method if it's started and Completed we'll know how much has been allocated to those units because everything has been allocated to those unit They were both started and completed as opposed to the units that were in there at the beginning It's hard we have to think about well How much of the conversion has been done and how much hasn't been done the units that we can specifically say these were Started and completed will then we can allocate all of the information or the costs to them So we're gonna back into this number that now they're gonna give us the total units to account for 24600 minus the units that were in there at the beginning because if they were in there at the beginning We did not start them and complete them so minus 3000 and then we're gonna also subtract out the units that are still in there at the end Because if units are still in there at the end then we did not start them and complete them That's gonna be the 2400 That gives us our 19 to so this is the number. We're gonna back in to Then they've got the ending working process. We got the 2400 we would be given that in a problem We would know that in real life because we would kind of be able to count what's still left and then we have the total units So note the total units are counted for as the 3000 plus the 19 to plus the 2004 and that gives us the 24 6 but note what we really had to figure out here was actually this number So if you put all these in there, you would know this you would know this you would know this Backing in to this number. That's the kind of unusual Calculation we need to put in place so that we can allocate our equivalent units in a first in first out method So now what we're gonna do is we're gonna take this is the total units We need to account for they're not completely done all of them in terms of the materials Materials and in turn of the conversion So these are the units that are kind of half done or you know We're thinking of them have as being partially done the materials for the Units for materials the units for conversion both those equivalent units will be less than this number So we're gonna take these this number think about the materials The those same units in terms of materials then think about the same number in terms of conversion We're gonna break it out line by line So starting with the beginning units here if the units were already in there as of the beginning say if we're like making Some kind of bread or something like that and the dough was already in there. That's the first thing that goes in there We're not putting any more dough in there. It was already in there We just need to convert it or finish converting it to the ending product So here there's zero in terms of materials because it was that's nothing's gonna go in this my this Time period because it was all in there last month and therefore we have zero on the conversion side We're gonna have to say okay How done is this dough in this case in terms of going to bread and well last time they're gonna have to give us a number We're gonna have to make an estimate as of the end of the period last time Which was 40% complete as of the end of last month Therefore this month 100% minus 40% is 60% that we need to complete So we're gonna take these 3,000 units times 60% for conversion in terms of labor and overhead the stuff to convert the raw materials to the End finished goods 1,800 units. Okay, so 3,000 is zero for materials and 1,800 for the conversion in equivalent units Next we have to start it and complete it. That's this one's gonna be really easy That's why we broke it out if we started it and completed it Then all the stuff in terms of materials like dough and whatnot or you know flour and stuff went into the process this month So 100% same equivalent units for materials 19,002 same for the conversion if we started it and completed it all the direct labor and overhead went in this month Therefore we had the same 19,002 in terms of equivalent units for conversion So total units is the same as equivalent units for material and the equivalent units for conversion because We started them and completed them this time beard then we have the ending work in process ending work in process now if it's Still in the working process at the end We're assuming that we started it We like put the materials in this time and we didn't finish it if the materials were in there at the beginning We of course would have finished that round of stuff and then put more stuff in there That's the assumption under a 5-0 first in first out method Therefore if it's still in there at the end a hundred percent of the materials have been input There therefore we have the 2004 in there for materials It's the conversion that hasn't yet been done the direct labor in the overhead So in terms of direct labor and overhead They're gonna have to give us a number in real life We would have to give some kind of estimate and say okay. How done are they we're saying 80% done therefore in terms of direct labor and overhead conversion We're gonna take that two thousand four times the eighty percent and come up to the one thousand nine twenty So now we can add up our totals here So we're gonna say this is the total units to account for whether they're done or not these are the Equivalent units in terms of materials and this twenty four six compared to the equivalent units in terms of conversion Of course adding up this column here and adding up this column here. All right So now let's let's put these numbers to use next thing we're gonna do is we're gonna say all right Well, we've got our equivalent units here. We're gonna compare that to the costs and come up with a cost per equivalent unit So we're gonna just the pretty easy calculation once we have these numbers We're just gonna take the cost incurred for the period and notice it's important to take the right number here We're taking the costs during the month, right? So that's gonna be the 248 for not the total here because we're not taking into account the beginning Information that was accounted for last month. So we've got the 248 for And we're gonna divide that by the equivalent units for materials, which of course is this number that we just calculated This is a dollar amount This is a unit amount and that gives us the dollar amount of eleven dollars and fifty cents per Equivalent unit in terms of materials. We're gonna do the same thing for conversion So we had the conversion costs up here conversion costs Coming from there and that's dollar amount divided by the units Gives us the cost per unit in terms of conversion, which is gonna be labor and the overhead So now we got our equivalent units now We can take these and apply them out to the process So we know how much stuff is still in department a in terms of units and in terms of dollars That are allocated those units as well as in department B or what was transferred out of department A All right, so let's do this We have our information on this side that we've done so far. It's a little small But it's there and then we're gonna have our calculation. So here's our beginning inventory. That's what was in there at the beginning That's what was in there at the beginning then we're gonna add to that We're gonna calculate the cost to complete the beginning inventory so that's what what you're gonna do is we're gonna go through this one kind of line by line and Convert our equivalent units line by line to dollar amounts using our equivalent unit costs here So we've got the beginning costs. We're gonna say the direct materials was zero So that's this number here direct materials is zero and times of course the 1150 here gives us of course zero And then we're gonna take the conversion in terms of this beginning line was this 1008 1008 times the conversion cost per unit the 4725 gives us the 8550 and If we then add those up we got the total cost completed in the beginning Inventory and then we're gonna add up these two the outer column the Beginning inventory plus the total cost to completed and that gives us the total cost of units in the beginning inventory. It's everything That was that was in there prior prior month Costs and what's in there at this point in time is these two numbers there then we're gonna go to the next line item We're basically going down. Okay. Now. We're on this stuff that was started and completed and we're gonna say, okay Well, there's 19 to in terms of units times our cost per unit the 1150 of that gives us the To 2800 same thing for conversion. So conversion. We're taking this number 19 to times the cost per unit 4725 means we have a total cost of the 907 200 and if we add those up we got the total cost of units started and completed 1,128,000 and then if we add up this number and this number We're gonna get the total cost units transferred out So we added this and this to get to this number then we're adding this and this to get to this number This is what's been transferred out because remember the beginning inventory under the FIFO method If if it was still in there at the beginning we finished it and transferred out That's the assumption and if it was started and completed we finished it and transferred it out So in terms of the dollar amount now, we've applied the dollar amount to the units This is the dollar amount of the journal entry that's going to be there That's going to take it out of the work in process for a and transfer it to the next process to work in process for B Which if if we were making bread or something will probably like the packaging department From you know the production of the bread department. All right, but we're not quite done yet because we haven't done the ending Work in process. That's the stuff that's still left in the process the stuff that's still not quite done in a and Here we have the 2004 so here's the 2004 times the cost per unit the 1150 gives us the 276 and We have the conversion the conversion one nine two zero times the forty seven twenty five costs per unit of conversion gives us the ninety thousand seven twenty and that adds up to a total cost of ending work in process 118 320 and then if we add up these outer columns Here plus the 118 320 that gives us the 1 million 452 240 the reason we want to calculate that is because that should tie out to Our total cost number here that we we started with so we started with our total cost number Remember what our goal was was to take this allocation and allocate it between the department's departments a Which is kind of the making of the bread of this case in department B Which is going to be the processing or the stuff that's going to transfer to department B or like packaging or something like that So remember this will be the actual journal entry then to take it to take the stuff out and that will leave us with ending Inventory here. Let's see what that looks like in terms of a journal entry. So here's our same information So then we're going to take a look at at this journal entry. We've got the work in process for a we got the working process for B we have the 1 million of four One million four fifty two two forty in department a the journal entry here will be the credit To department a of the one million three thirty three two nine twenty that remember came from our worksheet here So there it is there. We're going to take that out of department a that's the stuff that we have then completed And it's going to transfer to department B So it's going to go into department B and now department B is going up by that amount So that would be the flow of the transaction that journal entry to take it out and the allocation method Here it is if we pull in all the other accounts, of course, what we are basically doing It's taking it out of one asset account being the inventory account moving it to the next asset account the next inventory account it will then go to the finished goods and then we will have the Cost of goods sold finally once it is then sold at the end of the day That's when we're going to actually expense all these costs that we are talking about at this time