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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.

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Chapter 16

Chapter 16

Process Costing and Analysis


Conceptual learning objectives
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.

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


Analytical learning objectives
Analytical Learning Objectives

A1: Compare process cost accounting and job order cost accounting.

A2: Explain and illustrate a hybrid costing system.


Procedural learning objectives
Procedural Learning Objectives

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 manufacturing operations
Process Manufacturing Operations

C1

  • Used for production of small, identical, low-cost items.

  • Mass produced in automated continuous production process.

  • Costs cannot be directly traced to each unit of product.

  • Examples: Crude Oil; Chemicals

  • Profen: Pain Reliever by GenX Co


Process manufacturing operations genx

FinishedGoods

DeliveredtoCustomers

Process Manufacturing Operations GenX

C3

Direct

Materials

Indirect

Goods in Process

FactoryOverhead

AllocatedOverhead

Indirect

Direct

Labor


Process manufacturing operations1
Process Manufacturing Operations

C1

PROCESS OPERATIONS: CHEMICALS

EXHIBIT 16.1: PAGE 675

-PREPARING the chemicals;-MIXING the chemicals;-BOTTLING the chemical mix;-Packaging the bottles.


Process manufacturing operations2
Process Manufacturing Operations

C1

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 manufacturing operations3
Process Manufacturing Operations

C1

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


Process manufacturing operations genx1

FinishedGoods

DeliveredtoCustomers

Process Manufacturing Operations GenX

C3

Direct

Materials

Indirect

Goods in Process

FactoryOverhead

AllocatedOverhead

Indirect

Direct

Labor


Comparing job order and process production

Job Order Systems

Custom orders

Heterogeneous products

Low production volume

High product flexibility

Low to medium standardization

Example: Aircraft

Process Systems

Repetitive operations

Homogeneous products

High production volume

Low product flexibility

High standardization

Exhibit 16.1 (Page 675): Chemicals Processing

Comparing Job Order and Process Production

A1


Job and process costing similarities

Sameobjective:to determine the cost of products

Sameinventory accounts:raw materials, work in process, and finished goods

Sameoverhead assignment method:predetermined rate times actual activity

Job and Process Costing Similarities

A1


Job and process costing similarities and differences

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 identical

Job and Process Costing Similarities and Differences

A1


Job order and process costing differences
Job Order and Process Costing Differences

A1

Process costing

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 of Production

C2

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 per equivalent unit

Cost perequivalent unit

Product costs for the periodEquivalent units for the period

=

Cost Per Equivalent Unit

C2


Equivalent units
Equivalent Units

C2

40% ofMaterial

60% ofMaterial

Stage 1

Stage 2

Stage 3

25% ofLabor andOverhead

25% ofLabor andOverhead

50% ofLabor andOverhead

The process is now complete.


Process manufacturing operations genx2

FinishedGoods

DeliveredtoCustomers

Process Manufacturing Operations GenX

C3

Direct

Materials

Indirect

Goods in Process

FactoryOverhead

AllocatedOverhead

Indirect

Direct

Labor




Accounting for genx2
Accounting for GenX

C5

GenX uses a weighted average cost flow system with the following four steps:

  • Determine physical flow of units.

  • Compute equivalent units of production.

  • Compute cost per equivalent unit.

  • Assign and reconcile costs.



Compute equivalent units of production materials
Compute Equivalent Units of Production - Materials

C5


Compute equivalent units of production direct labor and factory overhead
Compute Equivalent Units of Production – Direct Labor and Factory Overhead

C5


Compute equivalent units of production
Compute Equivalent Units of Production

C5


Compute cost per equivalent unit
Compute Cost Per Equivalent Unit

C5


Cost reconciliation

  • In the cost reconciliation, we willaccount for all costs incurredby assigning unit costs to the:

    • A. 100,000 units transferred out.

    • B. 20,000 units remaining in ending inventory.

Cost Reconciliation

C5



Process cost summary

Shows the flowof units and coststhrough work inprocess.

Provides costinformation forfinancial statements.

ProcessCostSummary

Helps factorymanagers evaluatedepartment managerperformance.

Helps managerscontrol theirdepartments.

Process Cost Summary

C4






Hybrid costing systems
Hybrid Costing Systems

A2

Hybrid costing systems contain featuresof both job order and process operations.

Job OrderCosting

Hybrid Costing

ProcessCosting

Materialcosts areaccounted for usinga job order system.

Conversioncosts areaccounted for usinga process system.


Process costing typical accounting entries
Process CostingTypical Accounting Entries

P1


Process costing typical accounting entries1
Process CostingTypical Accounting Entries

P1


Process costing typical accounting entries2
Process CostingTypical Accounting Entries

P3


Process costing typical accounting entries3
Process CostingTypical Accounting Entries

P2


Process costing typical accounting entries4
Process CostingTypical Accounting Entries

P1


Process costing typical accounting entries5
Process CostingTypical Accounting Entries

P3


Process costing typical accounting entries6
Process CostingTypical Accounting Entries

P3


Process costing typical accounting entries7
Process CostingTypical Accounting Entries

P6


Process costing typical accounting entries8
Process CostingTypical Accounting Entries

P6


Process costing typical accounting entries9
Process CostingTypical Accounting Entries

P6



Process manufacturing operations genx3

FinishedGoods

DeliveredtoCustomers

Process Manufacturing Operations GenX

C3

Direct

Materials

Indirect

Goods in Process

FactoryOverhead

AllocatedOverhead

Indirect

Direct

Labor


Process manufacturing operations genx4

FinishedGoods

DeliveredtoCustomers

Process Manufacturing Operations GenX

C3

Direct

Materials

Indirect

Goods in Process

FactoryOverhead

AllocatedOverhead

Indirect

Direct

Labor


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