Video summary

INTRODUCCIÓN A LOS COSTOS POR PROCESOS...incluye caso práctico

Main summary

Key takeaways

Educational

Main Ideas and Concepts (Process Costing)

The video introduces process costing as a costing system used when production is:

  • Continuous
  • High volume (e.g., mass production / assembly line production)

Process costing vs. job order costing

  • Job order costing
    • Products are produced in defined batches
    • Costs are tracked per batch using a specific cost card
  • Process costing
    • It is not possible to identify product batches
    • Costs are tracked by processes instead

Core requirement: define the production cycle by processes

Process costing requires defining the production cycle as a sequence of processes, where each process includes:

  • A defined start and end
  • A set of homogeneous and interconnected activities
  • Completion that results in a substantial modification of the product (or service)

The creator notes that cost settlement in process costing is often complex and time-consuming, and promises a more complex example later (e.g., June).

Methodology / Instructions Shown (Basic Process Costing Steps)

1) Define the production cycle and processes

  • Identify the complete manufacturing/production cycle from start to finished product
  • Split the cycle into a reasonable number of processes (not too many)
  • Processes may be defined by:
    • the accountant
    • the production cost head
    • or both
  • Example (desk factory):
    • Process 1: Cutting
    • Process 2: Assembly and finishing

2) Gather two required reports for each period (month)

For each month, collect:

  • Production report (from production / production manager), including:
    • units started
    • units transferred to the next process
    • units finished and transferred out (completed)
    • units remaining in process at period end
  • Accounting costs report (from accounting), including:
    • cost elements applied during the month for each process:
      • Direct materials
      • Direct labor
      • Indirect manufacturing / overhead

3) Do “basic settlement” when there are no ending WIP units

This example is described as basic/simple because:

  • There are no units remaining in process in either process at month-end

Therefore:

  • Units started in Process 1 = units finished/received by Process 2
  • Units processed in Process 2 = units finished and transferred out

4) Compute cost per unit for each process

For each process:

  • Compute the total cost applied
  • Divide by the number of units processed to get cost per unit (by cost element)
  • Determine the process unit cost (total per unit within the process)

5) Accumulate costs across processes for total cost per finished unit

For the final process (e.g., Process 2):

  • Each unit includes:
    • the cost transferred from the previous process (accumulated cost)
    • plus additional costs added in the current process

Final unit cost formula:

  • Final unit cost = (unit cost from Process 1) + (unit cost added in Process 2)

Final monthly total:

  • Total cost = (total unit cost of finished goods) × (number of units completed and transferred out)

Practical Case Example (Wooden Student Desks — May, Basic Settlement)

Setup / processes

  • Company: “El Gorgojo” Limited
  • Product: wooden student desks
  • Production cycle divided into 2 processes:
    1. Cutting
    2. Assembly and finishing

Units (production report for May)

  • Units started in Process 1: 500
  • Transferred to Process 2: 500
  • Finished and transferred out at month end: 500
  • Ending WIP (work in process):
    • Process 1: none
    • Process 2: none

Because there is no ending WIP, the settlement is a basic liquidation/settlement.

Costs applied (accounting report)

Process 1: Cutting

  • Direct materials: 28,000,000
  • Direct labor: 4,200,000
  • Indirect manufacturing overhead: 1,500,000
  • Total Process 1 cost: 33,700,000

Cost per unit in Process 1 (500 units):

  • Direct materials per unit: 56,000
  • Direct labor per unit: 8,400
  • Indirect overhead per unit: 3,000
  • Total Process 1 cost per unit: 67,400

Process 2: Assembly and finishing

  • Direct materials: 0 (materials come from Process 1)
  • Direct labor: 6,300,000
  • Indirect manufacturing overhead: 5,200,000
  • Total Process 2 added cost: 11,500,000

Cost per unit added in Process 2 (500 units):

  • Direct labor per unit: 12,600 (as stated in the transcript)
  • Indirect overhead per unit: 10,400
  • Total Process 2 cost per unit added: 23,000

Note: The transcript’s numbers may be inconsistent due to auto-subtitle errors, but the intended method is clear: cost per unit = (process total ÷ units processed), then add Process 1 accumulated cost.

Total cost accumulation and results

  • Finished unit total cost:

    • Process 1 unit cost: 67,400
    • Process 2 additional/accumulated unit cost: 23,000
    • Total cost per finished desk: 90,400

  • Total production cost for the month (500 desks):

    • 500 × 90,400 = 45,200,000

The video states the production cost per wooden student desk for May was 90,400 pesos.

Key Takeaway / Lesson

  • Process costing assigns and accumulates production costs by processes, not by batches.
  • To settle costs, you need:
    • a production report (units flow through processes)
    • an accounting report (costs by process and cost element)
  • In a basic case (no ending WIP), settlement is simpler because:
    • units started = units completed

Speakers / Sources Featured

  • Video narrator/host (no name provided in the subtitles)
  • Example company: “El Gorgojo” Limited

Original video