Ch 4 - Addl - Process Costing Characteristics of Process...

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Process Costing
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2 Characteristics of Process Manufacturing Process costing works well whenever relatively homogeneous products pass through a series of processes and they receive similar amounts of manufacturing costs. Example industries: Large manufacturing plants Tire manufacturers Chemicals Food
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3 Types of Processes Sequential processing Requires that units pass through one process before they can be worked on in later processes. In each department materials, labor, and overhead may be added. After completing one process, the partially completed goods are transferred to the next department.
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4 Types of Processes Parallel processing Partially completed units can be worked on simultaneously in different processes and then brought together in a final process for completion.
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5 Raw Materials Cost Flow The manufacturing cost flows are generally the same as those for a job- order system. Raw Materials Materials purchases As raw materials are purchased, the cost of these materials flow into a raw materials account. +
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6 Cost Flows into Work in Process Work in Process + Materials + Direct Labor + Overhead Materials, labor and overhead flow into the Work in Process account
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7 Cost Flows into Finished Goods Work in Process + Materials + Direct Labor + Overhead Finished Goods + Completed Goods Completed Goods Completed goods are transferred out of Work in Process and into Finished Goods
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8 Cost Flows into Cost of Goods Sold Finished Goods Cost of Goods Sold + Sold Goods Sold Goods Goods that are sold are transferred out of Finished Goods and into Cost of Goods Sold + Completed Goods
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HOW TO Calculate Cost Flows Without Work-in-Process (WIP)
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10 Example: Picking Dept. Healthblend decides to produce 2,000 bottles of multivitamins with the following costs: Encapsulating Dept. Direct Materials Direct Labor $1,700 Applied Overhead Bottling Dept. $1,000 $ 800 50 60 300 450 500 600 Information:
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11 Example Required: Calculate the costs transferred out of each department. Prepare journal entries that reflect these cost transfers.
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12 Picking Dept. Encapsulating Dept. Direct Materials Direct Labor $1,700 Applied Overhead Bottling Dept. $1,000 $ 800 50 60 300 450 500 600 Costs added $2,200 $1,560 $1,700 Costs transferred in 0 3760 2,200 Costs transferred out $2,200 $3,760 $5,460 Costs Transferred Out
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13 Work in Process (Encapsulating) Work in Process (Picking) $2,200 $2,200 Work in Process (Bottling) Work in Process (Encapsulating) $3,760 $3,760 Finished Goods $5,460 Work in Process (Bottling) $5,460 Journal Entries
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14 Transferred-In Costs Transferred-In Costs are costs transferred from a prior process to a subsequent process. From the viewpoint of the subsequent process, transferred-in costs are a type of raw material cost.
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Production Report Summarizes the manufacturing activity of a process department for a given period of time. Two sections:
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Ch 4 - Addl - Process Costing Characteristics of Process...

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