Process costing is used in situations where homogeneous products or services are produced on a continuous basis. Costs flow through the manufacturing accounts in basically the same way in a process costing system as in a job-order costing system. However, costs are accumulated by department rather than by job in process costing. In process costing, the equivalent units of production must be determined for each cost category in each department. Under the weighted-average method, the equivalent units of production equals the number of units transferred out to the next department or to finished goods plus the equivalent units in ending work in process inventory. The equivalent units in ending inventory equals the product of the number of partially completed units in ending work in process inventory and their percentage of completion with respect to the specific cost category.

Under the weighted-average method, the cost per equivalent unit for a specific cost category is computed by adding the cost of beginning work in process inventory and the cost added during the period and then dividing the result by the equivalent units of production. The cost per equivalent unit is then used to value the ending work in process inventory and the units transferred out to the next department or to finished goods.

Costs are transferred from one department to the next until the last processing department. At that point, the cost of completed units is transferred to finished goods.

Record the flow of materials, labor, and overhead through a process costing system.

Compute the equivalent units of production using the weighted-average method.

Compute the cost per equivalent unit using the weighted-average method.

Assign costs to units using the weighted-average method.

(Appendix 4A) Compute the equivalent units of production using the FIFO method.

(Appendix 4A) Compute the cost per equivalent unit using the FIFO method.

(Appendix 4A) Assign costs to units using the FIFO method.

(Appendix 4B) Allocate service department costs to operating departments using the direct method.

(Appendix 4B) Allocate service department costs to operating departments using the step-down method.