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ch17 slides - Process Costing Chapter 17 17 - 1 Process...

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Unformatted text preview: Process Costing Chapter 17 17 - 1 Process Costing Process costing systems are used where masses of identical or similar products are produced, and costs assigned. Where each individual process forms the basis of the cost system. Chemicals, pharmaceuticals, semiconductors, etc. 17 - 2 Process Costing Each unit of production receives the same or similar allocation of costs. Mass produced, not as individual products/jobs. Heavily weighted on "averages" 17 - 3 Process Costing Costs separated into categories according to when they are introduced into the process. Material A Material B Material C 50% DL 25% DL 10% DL 15% DL Overhead (may be) spread evenly as a factor of D/L 17 - 4 Illustrating Process Costing Direct Materials, Direct Labor Indirect Manufacturing Costs Department A Finished Goods Department B Cost of Goods Sold 17 - 5 The five steps in process costing. 17 - 6 Five Steps in Process Costing Step 1: Summarize the flow of physical units of output. Step 2: Compute output in terms of equivalent units. Step 3: Compute equivalent unit costs. Step 4: Summarize total costs to account for. Step 5: Assign total costs to units completed and to units in ending work in process inventory. 17 - 7 Equivalent Units 17 - 8 Equivalent Units Is a "derived" amount of output units that: Takes the quantity of each input (factor of production) in units completed or incomplete (partially finished) units of work in process, and Coverts the quantity of input into the amount of completed output units that could be made with the quantity of input Calculated for each cost category (materials, conv. costs) Focus solely on units (not dollars) 17 - 9 Physical Units (Step 1) 0 35,000 35,000 30,000 5,000 35,000 20% of conv. costs 17 - 10 Physical units w of Production k in process, beginning ted during current period ccount for pleted and transferred out ring current period k in process, ending (100%/20%) ounted for 100% of materials Compute Equivalent Units C/Costs added (Step 2) at different stages of production All of the materials are added at the start of the production process Flow of Production Completed and transferred out Work in process, ending Current period work Equivalent units Direct Conversion Materials Costs 30,000 5,000 (100%) 35,000 30,000 1,000 (20%) 31,000 17 - 11 5,000 units 20% complete Compute Equivalent Unit Costs (Step 3) Given Total production costs are $146,050 Direct Conversion Materials Costs $84,050 $62,000 35,000 31,000 $2.4014 Total Cost 17 - 12 Total Equivalent units Cost per equiv. unit $2.00 $4.4014 Summarize and Assign Total Costs (Steps 4 and 5) Step 4: Total costs to account for: $146,050 Step 5: Assign total costs: Completed and transferred out 30,000 $4.4014 $132,043 Work in process, ending (5,000 units) Direct materials 5,000 $2.4014 12,007 Conversion costs 1,000 $2.00 2,000 Total $146,050 5,000 units/20% complete 17 - 13 Journal entries for process-costing systems. 17 - 14 Journal Entries Example Assume that Omaha, Inc. has two processing departments Assembly and Finishing. Omaha, Inc., purchases direct materials as needed. What is the journal entry for materials? Work in Process, Assembly 84,050 Accounts Payable Control 84,050 To record direct materials purchased and used 17 - 15 Journal Entries Example What is the journal entry for conversion costs? Work in Process, Assembly 62,000 Various accounts 62,000 To record Assembly Department conversion costs 17 - 16 Journal Entries Example What is the journal entry to transfer completed goods from Assembly to Finishing? Work in Process, Finishing 132,043 Work in Process, Assembly 132,043 To record cost of goods completed and transferred from Assembly to Finishing during the period 17 - 17 Flow of Costs Example Accounts Payable 84,050 WIP Assembly 84,050 132,043 62,000 14,007 WIP Finishing 132,043 17 - 18 Various Accounts 62,000 From slide 17-13 $12,007+$2,000 Weighted-average method of process costing. 17 - 19 Weighted Average Calculates the equivalent unit costs of all work done to date, regardless of the accounting period. q Total of all costs entering WIP whether from beginning WIP or from new work started in the current accounting period, divided by total equivalent units of work done to date. q 17 - 20 Physical Units (Step 1) Work in process, beginning: 100% material 60% conversion costs 1,000 Units started in process 35,000 Units transferred out: 31,000 Units in ending inventory: 100% material 20% conversion costs 5,000 36,000 36,000 17 - 21 Compute Equivalent Units (Step 2) Materials Conversion Completed and transferred 31,000 31,000 Ending inventory 5,000 1,000 Equivalent units 36,000 32,000 100% 20% 17 - 22 Compute Equivalent Unit Costs (Step 3) Materials Conversion Beginning inventory $ 2,350 $ 5,200 Current costs 84,050 62,000 Total $86,400 $67,200 Equivalent units 36,000 32,000 Cost per unit $2.40 $2.10 $4.50 17 - 23 Summarize and Assign Total Costs (Steps 4 and 5) Work in process beginning inventory: Materials $ 2,350 Conversion 5,200 Total beginning inventory $ 7,550 Current costs in Assembly Department: Materials $ 84,050 Conversion 62,000 Costs to account for $153,600 17 - 24 Summarize and Assign Total Costs (Steps 4 and 5) This step distributes the department's costs to units transferred out: 31,000 units $4.50 = $139,500 And to units in ending work in process inventory: $12,000 + $2,100 = $14,100 $153,600 Costs to be accounted for 17 - 25 Summarize and Assign Total Costs (Steps 4 and 5) Costs transferred out: 31,000 ($2.40 + $2.10) Costs in ending inventory: Materials 5,000 $2.40 Conversion 1,000 $2.10 Total costs accounted for: $139,500 12,000 2,100 $153,600 17 - 26 Journalizing: Weighted-Average What are the journal entries in the Assembly Department? Work in Process, Assembly 84,050 Accounts Payable Control 84,050 To record direct materials purchased and used Work in Process, Assembly 62,000 Various accounts 62,000 To record Assembly Department conversion costs 17 - 27 Journalizing: Weighted-Average Work in Process, Finishing 139,500 Work in Process, Assembly 139,500 To record cost of goods completed and transferred from Assembly to Finishing during the period 17 - 28 Key T-Account: Weighted-Average Work in Process Inventory, Assembly Beg. Inv. 7,550 Transferred Materials 84,050 to Finishing Conversion 62,000 139,500 Balance 14,100 From slide 17-25 17 - 29 Using the first-in, first-out (FIFO) method of process costing. 17 - 30 FIFO Method Assigns costs from the prior accounting period's equivalent units in beginning (WIP) inventory to the first units completed and transferred out of the process. Assigns costs of equivalent units worked on during the period, first to complete beginning inventory , next to start new units, then, to units in ending WIP inventory. 17 - 31 Compute Equivalent Units (Steps 1 and 2) Quantity schedule (Step 1) is the same as the weighted-average method. Materials Conversion Completed and transferred: From beginning inventory 0 400 Started and completed 30,000 30,000 Ending inventory 5,000 1,000 35,000 31,400 17 - 32 Compute Equivalent Units (Step 2) Materials Completed and transferred: Ending inventory Conversion 31,000 31,000 5,000 (100%) 1,000 (20%) 36,000 32,000 Beginning inventory (1,000) (100%) (600) (60%) Equivalent units 35,000 31,400 17 - 33 Compute Equivalent Unit Costs (Step 3) Current costs Equivalent units Cost per unit Materials $84,050 35,000 $2.40 Conversion $62,000 31,400 $1.975 $4.375 17 - 34 Summarize and Assign Total Costs (Steps 4 and 5) Work in process beginning inventory: $ 7,550 Current costs: Material Conversion Total 84,050 62,000 $153,600 Same as using weighted-average 17 - 35 Summarize and Assign Total Costs (Steps 4 and 5) Costs transferred out: From beginning inventory: $7,550 Conversion costs added: 1,000 40% $1.975 790 From current production: 30,000 $4.375 Total At current cost rate $8,340 $131,250 $139,590 Balance of completion: units were 60% complete (beg inv) thus 40% to be completed in current period 17 - 36 Summarize and Assign Total Costs (Steps 4 and 5) Work in process ending inventory: Materials: 5,000 $2.40 Conversion: 5,000 20% $1.975 Total $12,000 1,975 $13,975 17 - 37 Summarize and Assign Total Costs (Steps 4 and 5) Costs transferred out $139,590 + = = Cost in ending inventory $ 13,975 $153,565 ($35 rounding error) An alternative approach: Costs to account for Costs transferred out $153,600 $139,625 17 - 38 Cost in ending inventory $ 13,975 Key T-Account: FIFO Work in Process Inventory, Assembly Beg. Inv. 7,550 Transferred Materials 84,050 to Finishing Conversion 62,000 139,625 Balance 13,975 Slide 17-37 17 - 39 Comparison of Weighted-Average and FIFO Methods Wgt'd. Avg smooths higher beg. Inv. costs into cogs and end inv. Higher costs in beg inv charged to cogs 1st Weighted Average Costs of units completed and transferred out Work in process, ending Total costs accounted for FIFO Difference $139,500 $139,625 +$125 Just timing 14,100 13,975 $125 0 17 - 40 $153,600 $153,600 Incorporate standard costs into a process-costing system. 17 - 41 Standard-Costing Method of Process-Costing Example Process-costing systems using standard costs usually accumulate actual costs incurred separately from the inventory accounts. Inventory accounts carried @ Std. Cost Assume that actual materials cost is $84,050 and standard materials cost is $84,250 What are the journal entries in the Assembly Department? 17 - 42 Standard-Costing Method of Process-Costing Example Direct Materials Control Accounts Payable Control 84,050 84,050 Work in Process (@Std.) 84,250 Direct Material Variances (Fav) 200 Direct Materials Control 84,050 To record direct materials purchased and used in production during the period and variances 17 - 43 Process-costing methods with transferred-in costs. 17 - 44 Transferred in Costs Transferred in from one or more other operating departments. Treated as "transferred-in costs, as part of direct materials of the department receiving the units. Material A Material B Costs Tfrd In Material C 50% DL 25% DL 10% DL 15% DL Overhead (may be) spread evenly as a factor of D/L 17 - 45 Transferred-In Costs Weighted-Average Example Finishing Department beginning WIP inventory: 4,000 units (60% materials) (25% conversion) Ending work in process inventory: 2,000 units (100% materials) (40%) conversion) 31,000 units transferred-in from Assembly. 17 - 46 Physical Units (Step 1) Beginning inventory Units started in process Units completed and transferred to finished goods Ending inventory 4,000 31,000 35,000 33,000 2,000 35,000 17 - 47 Compute Equivalent Units (Step 2) Equivalent units for transferred-in costs: 33,000 2,000 35,000 Inventory is 100% complete for the work performed in the Assembly Department. 17 - 48 Transferred to finished goods Ending inventory Compute Equivalent Units (Step 2) Equivalent units for direct materials costs: Transferred to finished goods 33,000 Ending inventory (100%) 2,000 35,000 17 - 49 Compute Equivalent Units (Step 2) Equivalent units for conversion costs (ending inventory 2,000): Transferred to finished goods 33,000 Ending inventory (40%) 800 33,800 17 - 50 Compute Equivalent Unit Costs (Step 3) Assume the following costs in the Finishing Department: Work in process beginning inventory from: Assembly Department $30,200 Direct materials 9,400 Conversion costs 8,000 Total cost in beginning inventory $47,600 17 - 51 Compute Equivalent Unit Costs (Step 3) Current costs in Finishing Department are as follows: Costs received from the Assembly Department $139,500 Direct materials 9,780 Conversion 42,640 Total $191,920 17 - 52 From beg wip Compute Equivalent Unit Costs (Step 3) Current costs in Fin'g. (Transferred-in costs $30,200 + Costs transferred in from the Assembly Department $139,500) 35,000 units $4.85 (Direct materials $9,400 + $9,780) 35,000 units (Conversion costs $8,000 + $42,640) 33,800 units Total unit cost $0.55 $1.50 $6.90 17 - 53 Summarize and Assign Total Costs (Steps 4 and 5) Total costs in beginning inventory $ 47,600 Current costs in Finishing Department 191,920 $239,520 Costs to account for: $47,600 + $ 191,920 = $239,520 17 - 54 Summarize and Assign Total Costs (Steps 4 and 5) Costs in work in process ending inventory: Transferred-in costs: 2,000 $4.85 $ 9,700 Direct materials: 2,000 $0.55 Conversion: 2,000 40% $1.50 Total cost in ending inventory 1,100 1,200 $12,000 17 - 55 Summarize and Assign Total Costs (Steps 4 and 5) Costs to account for: $239,520 Costs transferred to finished goods inventory: 33,000 $6.90 $227,700 Costs in ending work in process inventory: $12,000 $180 rounding error 11,820 Total $239,520 Slide 17-55 17 - 56 T-Account Finishing Department Work in Process Inventory, Finishing Beg. Inv. 47,600 Transferred to Transferred-in 139,500 Finished Goods Materials 9,780 227,700 Conversion 42,640 Balance 11,820 Slide 17-56 17 - 57 Transferred-In Costs FIFO Method The physical units (Step 1) is the same as in weighted-average. Beginning inventory 4,000 Units started in process 31,000 35,000 Units transferred to finished goods 33,000 Ending inventory 2,000 35,000 17 - 58 Compute Equivalent Units FIFO (Step 2) Equivalent units for transferred-in costs: From beginning work in process 0 Started and completed 29,000 Work in process, ending (100%) 2,000 Total equivalent units 31,000 17 - 59 Compute Equivalent Units FIFO (Step 2) Equivalent units for transferred-in costs: Transferred to finished goods Ending work in process inventory Total Beg. work in process inventory 33,000 2,000 35,000 4,000 Equivalent units 31,000 Inventories are 100% complete for the work performed in the Assembly Department. 17 - 60 Compute Equivalent Units FIFO (Step 2) Equivalent units for materials costs: From beginning work in process 1,600 Started and completed 29,000 Work in process, ending (100%) 2,000 Total equivalent units 32,600 17 - 61 Compute Equivalent Units FIFO (Step 2) Equivalent units for material costs (beginning inventory 4,000): Transferred to finished goods 33,000 Ending inventory (100%) Total Beginning inventory (60%) Equivalent units 2,000 35,000 2,400 32,600 17 - 62 Compute Equivalent Units FIFO (Step 2) Equivalent units for conversion costs: From beginning work in process 3,000 Started and completed 29,000 Work in process, ending (40%) 800 Total equivalent units 32,800 17 - 63 Compute Equivalent Units FIFO (Step 2) Equivalent units for conversion costs (beginning inventory 4,000, ending inventory 2,000): Transferred to finished goods 33,000 Ending inventory (40%) Total Beginning inventory (25%) Equivalent units 800 33,800 1,000 32,800 17 - 64 Compute Equivalent Unit Costs FIFO (Step 3) Cost per equivalent unit: Transferred-in: $139,590 31,000 Direct materials: $9,780 32,600 Conversion: $42,640 32,800 Total unit cost $4.50 0.30 1.30 $6.10 17 - 65 Summarize and Assign Total Costs FIFO (Steps 4 and 5) Current costs in Finishing Department:$192,010 Work in process beginning inventory: 47,600 Costs to account for:(same as weighted-average) $239,610 17 - 66 Summarize and Assign Total Costs FIFO (Steps 4 and 5) Work in process ending inventory: Transferred-in: 2,000 $4.50 Direct materials: 2,000 $0.30 Conversion: 800 $1.30 Total $ 9,000 600 1,040 $10,640 17 - 67 Summarize and Assign Total Costs FIFO (Steps 4 and 5) Costs transferred out: From beginning inventory: Direct materials added: 4,000 40% $0.30 Conversion costs added: 4,000 75% $1.30 Total $47,600 480 3,900 $51,980 17 - 68 Summarize and Assign Total Costs FIFO (Steps 4 and 5) Total costs transferred out: From beginning inventory $ 51,980 From current production: 29,000 $6.10 176,900 Total $228,880 17 - 69 Summarize and Assign Total Costs FIFO (Steps 4 and 5) Total costs accounted for: Transferred to finished goods: $176,900 + $51,980 $228,880 Work in process ending inventory 10,640 Rounding error Total 90 $239,610 17 - 70 Summarize and Assign Total Costs FIFO (Steps 4 and 5) Costs to account for Transferred to finished goods $239,610 $228,970 Work in process ending inventory 10,640 17 - 71 End of Chapter 17 17 - 72 ...
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This note was uploaded on 04/05/2008 for the course ACCT 451 taught by Professor Stangota during the Spring '08 term at Rutgers.

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