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Chapter 3 Process Costing. Job-Order Costing Many jobs are worked on during each period, with each job having different production requirements. Costs are accumulated by job. The job cost sheet is the key document for accumulating costs. Units costs are computed by job on a job cost sheet.

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Chapter 3 process costing
Chapter 3Process Costing


Job order v process costing

Job-Order Costing

Many jobs are worked on during each period, with each job having different production requirements.

Costs are accumulated by job.

The job cost sheet is the key document for accumulating costs.

Units costs are computed by job on a job cost sheet.

Process Costing

A homogeneous product is produced on a continuous basis or for long periods of time.

Costs are accumulated by department.

The departmental production report is the key document showing the accumulation and disposition of costs.

Unit costs are computed by department on production reports.

Job-Order v. Process Costing




Calculation of equivalent units
Calculation of Equivalent Units

Beginning Work-in-Process Inventory:

=

XXX

Physical Units

X

100%

Started and Completed in Current Period:

Physical Units X 100% = XXX

Ending Work-in-Process Inventory:

Percent of work completed in the current period

Physical Units X

XXX

=

Equivalent Units of Production

XXX


Equivalent units illustration mixing
Equivalent Units Illustration - Mixing

Materials

Conversion Costs

Beginning WIP:

Beginning WIP:

10,000 x

100% = 10,000

10,000 x

100% = 10,000

Started & Completed:

Started & Completed:

50,000 x

100% = 50,000

50,000 x

100% = 50,000

Ending WIP:

Ending WIP:

20,000 x

100% = 20,000

20,000 x

50% = 10,000

Equivalent Units

80,000

70,000


Equivalent units illustration mixing alternative approach
Equivalent Units Illustration –Mixing (alternative approach)

Materials

Conversion Costs

Units Completed:

Units Completed:

60,000 x

100% = 60,000

60,000 x

100% = 60,000

Ending WIP:

Ending WIP:

20,000 x

100% = 20,000

20,000 x

50% = 10,000

Equivalent Units

80,000

70,000


Cost per equivalent unit eu of production
Cost Per Equivalent Unit (EU) of Production approach)

Production Cost for Component (include costs carried forward from beginning WIP)

Equivalent Units of Production for Component

=

Equivalent Unit Cost for Component

Note:

Equivalent units and cost per equivalent unit are often computed for direct materials and conversion costs (direct labor & manufacturing overhead). Conversion costs may also be calculated separately.


Cost per equivalent unit illustration mixing
Cost Per Equivalent Unit Illustration - Mixing approach)

Materials

Conversion

$18,000 + $142,000

$31,200 + $248,800

=

$4.00

=

$2.00

80,000 EU

70,000 EU

Total Equivalent Unit Cost:

Materials $2.00

Conversion 4.00

Total EU Cost

$6.00

See Direct Material, DL, & MOH Journal Entries on Page 84


Costs accounted for
Costs Accounted For approach)

Transferred Out:

Transferred Out EU x Cost Per EU = XXX

Cost in Ending Work-in-Process Inventory:

Ending WIP EU x Cost Per EU = XXX

XXX

Note:

Total cost is computed for direct materials and conversion costs (direct labor & manufacturing overhead). Conversion costs may also be calculated separately.


Costs accounted for illustration mixing
Costs Accounted For Illustration - Mixing approach)

Transferred Out:

360,000

60,000 EU x $6.00

Cost in Ending Work-in-Process Inventory:

$40,000

Materials: 20,000 EU x $2.00

Conversion: 10,000 EU x $4.00

40,000

80,000

$440,000

Total Cost

See Transferred In Journal Entry on Page 84


Equivalent units illustration packaging
Equivalent Units Illustration - Packaging approach)

Materials

Conversion Costs

Beginning WIP:

Beginning WIP:

15,000 x

100% = 15,000

15,000 x

100% = 15,000

Started & Completed:

Started & Completed:

55,000 x

100% = 55,000

55,000 x

100% = 55,000

Ending WIP:

Ending WIP:

5,000 x

100% = 5,000

5,000 x

40% = 2,000

Equivalent Units

75,000

72,000


Equivalent units illustration packaging alternative approach
Equivalent Units Illustration – Packaging (alternative approach)

Materials and Transferred In

Conversion Costs

Units Completed (includes 60,000 transferred in from Mixing):

Units Completed (includes 60,000 transferred in from Mixing):

70,000 x

100% = 70,000

70,000 x

100% = 70,000

Ending WIP:

Ending WIP:

5,000 x

100% = 5,000

5,000 x

40% = 2,000

Equivalent Units

75,000

72,000


Cost per equivalent unit illustration packaging
Cost Per Equivalent Unit Illustration - Packaging approach)

Materials

Conversion

$10,500 + $49,500

=

$0.80

75,000 EU

$13,500 + $83,700

=

$1.35

Transferred In

72,000 EU

$92,250 + $360,000

=

$6.03

75,000 EU

Total Equivalent Unit Cost:

Materials $0.80

Transferred In 6.03

Conversion 1.35

Total EU Cost

$8.18


Costs accounted for illustration packaging
Costs Accounted For Illustration - Packaging approach)

Transferred Out:

572,600

70,000 EU x $8.18

Cost in Ending Work-in-Process Inventory:

$34,150

Materials: 5,000 EU x $6.83

Conversion: 2,000 EU x $1.35

2,700

36,850

$609,450

Total Cost


Production report format

Quantity Schedule and Equivalent Units approach)

Production Report Format

Units to be accounted for:

Beginning work in process

Started into production

Units accounted for: (compute equivalent units)

Transferred out (from beginning WIP & started & completed)

Ending work in process

Total and Unit Cost

Costs to account for:

Beginning work in process

Started into production

Cost Reconciliation

Costs accounted for:

Transferred out (from beginning WIP & started & completed)

Ending work in process


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