chapter 16 process costing. cost accounting systems determine the costs associated with products (or...
TRANSCRIPT
CHAPTER 16
Process Costing
Cost Accounting Systems
determine the costs associated with products (or services).
• _________ Cost System (last chapter) used for unique or custom ordered
products• _________ Cost System (this
chapter) is used for mass produced items
Process Costing• Process costing is used to attach cost
to units produced that are Identical and low in cost Mass produced Manufactured with an automated and
continuous flow of production• _____________ is used when costs
cannot be directly traced to each individual unit
• _____________ = department or process rather than the individual job.
Flow of Costs • We must be able to understand the
flow of costs through a process costing system. Remember though The flow of costs is similar to that for a job
cost system except• Each department or process has its own WIP
inventory account The products may go through several
processing departments ________ being transferred to Finished Goods Inventory.
Job Order Cost System
Job Order and Process Cost Systems Compared
Job CostSheets
Dept. A and Dept. B
Process Cost System
Direct materials
Direct labor
Factory overhead
Finished goods
Dept. A Dept. B
Factoryoverhead
Directlabor
Directmaterials
Factoryoverhead
Directlabor
Finished goods
determine a product cost by measuring the amount of direct materials and direct labor used and allocating overhead costs.
allocate overhead using a predetermined overhead rate (or activity-based costing).
maintain perpetual records with subsidiary ledgers for materials, work in process, and finished goods.
Both systems:
Job Costing versus Process Costing
Job order costing
The cost of goods transferred to finished goods is equal to the sum of all of the completed jobs for that period
Process costing
The cost of goods transferred to finished goods equals the number of completed units times the ______________________
Cost Categories• At its simplest, we use 2 - 3 cost
categories in the first department _____________
• added all at the beginning of the process _____________– (direct labor and overhead)
• added evenly throughout each process
• In a subsequent processing departments, we will have an additional cost category _____________
• costs attaching in all previous departments
Flow of Costs in a Process Cost System
FOH – Melting WIP – Melting Finished Goods
FOH – Casting WIP – Casting
Cost of Goods Sold
DM
DL
Actualcosts
incurred
Actualcosts
incurredDL
Direct materials used in productionDM
Direct labor used in productionDL
Flow of Costs in a Process Cost System
FOH – Melting WIP – Melting Finished Goods
FOH – Casting WIP – Casting
Cost of Goods Sold
DM
DL
FOHA
Actualcosts
incurred
Actualcosts
incurredFOHA
FOHA
FOHA
DL
Factory overhead applied to work in processFOHA
Flow of Costs in a Process Cost System
FOH – Melting WIP – Melting Finished Goods
FOH – Casting WIP – Casting
Cost of Goods Sold
DM
DL
FOHA
Actualcosts
incurred
Actualcosts
incurredFOHA
FOHA
TRANFOHA
DL
TRAN
Cost of goods transferred to WIP – CastingTRAN
Flow of Costs in a Process Cost System
FOH – Melting WIP – Melting Finished Goods
FOH – Casting WIP – Casting
Cost of Goods Sold
DM
DL
FOHA
COGMActualcosts
incurred
Actualcosts
incurredFOHA
FOHA
TRAN COGMFOHA
DL
TRAN
Cost of goods manufactured and transferred to finished goodsCOGM
Flow of Costs in a Process Cost System
FOH – Melting WIP – Melting Finished Goods
FOH – Casting WIP – Casting
Cost of Goods Sold
SOLD
DM
DL
FOHA
COGM SOLDActualcosts
incurred
Actualcosts
incurredFOHA
FOHA
TRAN COGMFOHA
DL
TRAN
Finished goods soldSOLD
Flow of Costs in a Process Cost System
FOH – Melting WIP – Melting Finished Goods
FOH – Casting WIP – Casting
Cost of Goods Sold
SOLD
DM
DL
FOHA
COGM SOLDActualcosts
incurred
Actualcosts
incurredFOHA
Summary of cost flows
FOHA
TRAN COGMFOHA
DL
TRAN
Four Step Program• To attach cost to the units worked on
during the period, we follow a five step process 1. Summarize the physical flow of
units 2. Calculate the equivalent units of
production. 3. Calculate Costs per Equivalent
Unit for each component of cost. 4. Assign costs to the units
completed and transferred out and to the WIP EI units.
• After the four steps are completed, we will prepare the production cost report.
Beginning and Ending WIP Inventories
• We need to make an assumption about how costs flow through a department. _____________ is where we will focus our
study and will be used in all of our problems.
We will not cover the FIFO method.
The Four Steps…• Step 1: Determine the physical flow of
goods. We will summarize the actual units that
were worked on during the month:Beginning Inventory (BI)+ Units Started = Total Number of Units Accounted
for Then reconcile to the actual units
transferred out to the next dept. during the month:Completed & Transferred Out (C&T Out)+ Ending Inventory (EI)= Total Number of Units Accounted for
Comments
• We make separate unit calculations for direct materials and conversion costs (DL and FOH) because They are typically added at different
times.• If direct materials are all added at the
beginning of the process, then any units left on hand will be ______% complete with respect to the materials.
Step 2: Equivalent units• Compute _________________of
Production: In accounting for the units in process during the period, we must compute the equivalent units worth of work done during the period for Material costs Conversion costs
• Direct Labor • Factory Overhead
For the current period, PencilCo started 15,000 units and completed 10,000 units, leaving 5,000 units in process 30 percent complete. How many equivalent units of production did PencilCo have for the period?
a. 10,000b. 11,500c. 1,500d. 15,000
For the current period, PencilCo started 15,000 units and completed 10,000 units, leaving 5,000 units in process 30 percent complete. How many equivalent units of production did PencilCo have for the period?
a. 10,000b. 11,500c. 1,500d. 15,000
QuestionC2
Step 3: Calculating Costs per Equivalent Unit
• Once you know how many equivalent units of material, labor and OH have been completed on all units in process during the period, you can express _________________________
• Cost incurred to date / equivalent units• Calculate cost/EU for each component of
cost direct materials and conversion costs (DL & FOH).
Step 3: Calculating Costs per Equivalent Unit (Weighted
Average)• We focus on the equivalent units of work done in the previous period and in the current period.
• The W/A method combines the Costs of Beginning Inventory in Process with Costs Incurred during the period.
Step 4: Assigning & Reconciling Costs
• Multiply these unit costs times the equivalent units worth of work done on The units completed and transferred out
during the period. The units left in ending inventory
• The total of the cost of units completed and transferred out during the period Goes out of WIP(1) and into WIP(2).
• The Cost of units left remains in ending WIP inventory
Now on to the Sample Problem