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21.6 Luxembourg Manufacturing SME Process Costing

Luxembourg Manufacturing Sector​

Luxembourg has a diverse manufacturing sector, including:

  • Food processing
  • Beverage production
  • Chemical manufacturing
  • Metal processing
  • Electronics
  • Textiles
  • Plastics

Food Processing Example​

Luxembourg Food Processor - Pasta Production:

Process 1: Mixing Department

Physical Flow:

  • Units started: 5,000 kg
  • Units completed: 4,500 kg
  • Units in process: 500 kg (100% materials, 40% conversion)

Costs:

  • Direct materials (flour, eggs): €3,000
  • Direct labor: €800
  • Manufacturing overhead: €600
  • Total: €4,400

Equivalent Units:

  • Materials: 4,500 + 500 = 5,000
  • Conversion: 4,500 + (500 × 40%) = 4,700

Cost per Equivalent Unit:

  • Materials: €3,000 ÷ 5,000 = €0.60 per kg
  • Conversion: €1,400 ÷ 4,700 = €0.298 per kg
  • Total: €0.898 per kg

Cost Allocation:

  • Completed: 4,500 × €0.898 = €4,041
  • In process: (500 × €0.60) + (200 × €0.298) = €359.60

Process 2: Drying Department

Physical Flow:

  • Units transferred in: 4,500 kg
  • Units completed: 4,200 kg
  • Units in process: 300 kg (100% transferred-in, 50% conversion)

Costs:

  • Transferred-in: €4,041
  • Direct labor: €600
  • Manufacturing overhead: €400
  • Total: €5,041

Equivalent Units:

  • Transferred-in: 4,200 + 300 = 4,500
  • Conversion: 4,200 + (300 × 50%) = 4,350

Cost per Equivalent Unit:

  • Transferred-in: €4,041 ÷ 4,500 = €0.898 per kg
  • Conversion: €1,000 ÷ 4,350 = €0.230 per kg
  • Total: €1.128 per kg

Cost Allocation:

  • Completed: 4,200 × €1.128 = €4,737.60
  • In process: (300 × €0.898) + (150 × €0.230) = €303.40

Process 3: Packaging Department

Physical Flow:

  • Units transferred in: 4,200 kg
  • Units completed: 4,000 kg (packaged)
  • Units in process: 200 kg (100% transferred-in, 30% conversion)

Costs:

  • Transferred-in: €4,737.60
  • Packaging materials: €800
  • Direct labor: €400
  • Manufacturing overhead: €300
  • Total: €6,237.60

Equivalent Units:

  • Transferred-in: 4,000 + 200 = 4,200
  • Materials: 4,000 + 0 = 4,000 (packaging added at end)
  • Conversion: 4,000 + (200 × 30%) = 4,060

Cost per Equivalent Unit:

  • Transferred-in: €4,737.60 ÷ 4,200 = €1.128 per kg
  • Materials: €800 ÷ 4,000 = €0.20 per kg
  • Conversion: €700 ÷ 4,060 = €0.172 per kg
  • Total: €1.50 per kg

Final Cost:

  • Completed units: 4,000 kg × €1.50 = €6,000
  • Cost per package: Depends on package size

Beverage Production Example​

Luxembourg Beverage Company - Bottling Operation:

Process 1: Mixing

Physical Flow:

  • Units started: 10,000 liters
  • Units completed: 9,500 liters
  • Units in process: 500 liters (100% materials, 60% conversion)

Costs:

  • Direct materials: €2,000
  • Direct labor: €1,000
  • Overhead: €800
  • Total: €3,800

Equivalent Units:

  • Materials: 9,500 + 500 = 10,000
  • Conversion: 9,500 + (500 × 60%) = 9,800

Cost per Liter:

  • Materials: €2,000 ÷ 10,000 = €0.20
  • Conversion: €1,800 ÷ 9,800 = €0.184
  • Total: €0.384 per liter

Process 2: Bottling

Physical Flow:

  • Units transferred in: 9,500 liters
  • Units completed: 9,000 liters (bottled)
  • Units in process: 500 liters (100% transferred-in, 40% conversion)

Costs:

  • Transferred-in: €3,648 (9,500 × €0.384)
  • Bottles and caps: €1,500
  • Direct labor: €800
  • Overhead: €600
  • Total: €6,548

Equivalent Units:

  • Transferred-in: 9,000 + 500 = 9,500
  • Materials (bottles): 9,000 + 0 = 9,000
  • Conversion: 9,000 + (500 × 40%) = 9,200

Cost per Liter:

  • Transferred-in: €3,648 ÷ 9,500 = €0.384
  • Materials: €1,500 ÷ 9,000 = €0.167
  • Conversion: €1,400 ÷ 9,200 = €0.152
  • Total: €0.703 per liter

Cost per Bottle (0.5 liter): €0.703 ÷ 2 = €0.3515 per bottle

Luxembourg-Specific Considerations​

VAT in Process Costing​

Materials:

  • VAT on materials is recoverable (not part of cost)
  • Record separately as VAT Recoverable
  • Exclude from product costs

Finished Goods:

  • VAT added when sold
  • Not included in product cost
  • Collected and paid to authorities

Social Charges​

Direct Labor:

  • Include employer social charges in direct labor cost
  • Significant in Luxembourg (24% typical)
  • Affects conversion costs

Example:

  • Direct labor: €1,000
  • Employer social charges (24%): €240
  • Total labor cost: €1,240

PCN Account Structure​

For Process Costing:

  • 300000: Raw Materials
  • 310000: Work in Process (can use sub-accounts for departments)
  • 320000: Finished Goods
  • 601000: Cost of Raw Materials Used
  • 603000: Cost of Finished Goods Sold
  • 610000-619999: Manufacturing Overhead

Cost Control in Process Costing​

Key Metrics:

  • Cost per unit (by process)
  • Equivalent units
  • Process efficiency
  • Cost variances
  • Yield (output ÷ input)

Example:

  • Input: 1,000 kg materials
  • Output: 950 kg finished product
  • Yield: 950 ÷ 1,000 = 95%
  • Lost: 50 kg (5% waste)

Luxembourg Compliance Note​

For Luxembourg manufacturing SMEs:

  • Process costing supports accurate inventory valuation
  • Cost records must be maintained
  • Use appropriate PCN accounts
  • Consider VAT and social charges
  • Process cost reports support management
  • Cost information supports pricing decisions
  • Compliance with accounting standards required

Think It Through​

How does process costing help a Luxembourg manufacturing SME manage costs and make pricing decisions? What are the key benefits compared to not tracking process costs?