Chapter 16. Process Costing and Analysis. Conceptual Learning Objectives. C1: Explain process operations and the way they differ from job order operations. C2: Define equivalent units and explain their use in process cost accounting.
Process Costing and Analysis
C1: Explain process operations and the way they differ from job order operations.
C2: Define equivalent units and explain their use in process cost accounting.
C3: Explain the four steps in accounting for production activity in a period.
C4: Define a process cost summary and describe its purposes.
C5: Appendix 16A: Explain and illustrate the four steps in accounting for production activity using FIFO. NOT COVERED
A1: Compare process cost accounting and job order cost accounting.
A2: Explain and illustrate a hybrid costing system.
P1:Record the flow of direct materials costs in process cost accounting.
P2: Record the flow of direct labor costs in process cost accounting.
P3: Record the flow of factory overhead costs in process cost accounting.
P4: Compute equivalent units produced in a period.
P5: Prepare a process cost summary.
P6: Record the transfer of completed goods to Finished Goods Inventory and Cost of Goods Sold.
PROCESS OPERATIONS: CHEMICALS
EXHIBIT 16.1: PAGE 675
-PREPARING the chemicals;-MIXING the chemicals;-BOTTLING the chemical mix;-Packaging the bottles.
PRODUCTION FLOOR : PROFEN
EXHIBIT 16.3: PAGE 676
Profen is produced by: -Mixing its active ingredient, Profelene, with flavorings and preservatives, -Molding it into tablets, and -Packaging the tablets.
Process Operations & Costs: GenX
EXHIBIT 16.4: PAGE 676: FLOWCHART
How GenX uses Process Cost Accounting to compute product costs: COST FLOWS 1 thru 10
EXHIBIT 16.21: PAGE 688: Cost Flow thru GenXSummary of Cost Flows: COST FLOWS 1 thru 10
Low production volume
High product flexibility
Low to medium standardization
High production volume
Low product flexibility
Exhibit 16.1 (Page 675): Chemicals ProcessingComparing Job Order and Process Production
Sameobjective:to determine the cost of products
Sameinventory accounts:raw materials, work in process, and finished goods
Sameoverhead assignment method:predetermined rate times actual activityJob and Process Costing Similarities
The difference between job order and process costing lies in how the cost of goods transferred to finished goods is determined.
Journal entries for both job order and process costing are identicalJob and Process Costing Similarities and Differences
The cost of goods transferred to finished goods equals the number of completed units times the cost per equivalent unit
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
=Equivalent Units of Production
Equivalent units is a concept expressing a number of partially completed units as a smaller number of fully completed units.
Twoone-half full pitchers are equivalent to one full pitcher.
Cost perequivalent unit
Product costs for the periodEquivalent units for the period
=Cost Per Equivalent Unit
25% ofLabor andOverhead
25% ofLabor andOverhead
50% ofLabor andOverhead
The process is now complete.
GenX uses a weighted average cost flow system with the following four steps:
Shows the flowof units and coststhrough work inprocess.
Provides costinformation forfinancial statements.
Helps factorymanagers evaluatedepartment managerperformance.
Helps managerscontrol theirdepartments.Process Cost Summary
Hybrid costing systems contain featuresof both job order and process operations.
Materialcosts areaccounted for usinga job order system.
Conversioncosts areaccounted for usinga process system.