Process costing
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Process Costing. Objective 1. Distinguish between process costing and job order costing. Job 92. Job 91. Finished Goods. Job 90. Cost of Goods Sold. Job Order Costing. Materials Inventory. Manufacturing Wages. Work in Process. Manufacturing Overhead. Cost of Goods Sold.

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Process Costing

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Process costing

Process Costing


Objective 1

Objective 1

Distinguish between process

costing and job order costing


Job order costing

Job 92

Job 91

FinishedGoods

Job 90

Cost of GoodsSold

Job Order Costing

Materials Inventory

Manufacturing Wages

Work in Process

Manufacturing

Overhead


Process costing1

Cost of GoodsSold

Process Costing

Materials Inventory

Work in Process,

Mixing Dept

Manufacturing Wages

Work in Process,

Molding Dept

FinishedGoods

Manufacturing

Overhead

Work in Process,

Packaging Dept


Tracking costs

Tracking Costs

  • Account for the goods completed and transferred out

  • Account for the cost of incomplete units that remain as a department’s ending work in process inventory


Key concepts

Key Concepts

  • Conversion costs

    • Costs incurred to convert raw materials into a finished product

    • Direct labor plus manufacturing overhead

  • Equivalent unit of production

    • Amount of work done during a period in terms of fully complete units of output


Objective 2

Objective 2

Compute equivalent units


E20 16

E20-16

Step 1: Summarize the flow of physical units

Blending Department

Units to account for

Units accounted for

Beginning

WIP

Units placed

in production

Units

completed

Units in

Ending WIP

+

+

0

8,000

6,000

2,000

+

+


E20 161

Dyes

added

30%

complete

100%

complete

Start

6,000 units completed and transferred out

2,000 units startedbut not finished

E20-16

Step 2: Compute output in terms of equivalent units


E20 162

E20-16

  • Equivalent units for direct materials:

    8,000 units x 100% complete8,000

  • Equivalent units for conversion costs:

    6,000 units x 100% complete6,000

    2,000 units x 30% complete600

    6,600


Objective 3

Objective 3

Use process costing to assign costs to units completed and to units in ending work in process inventory


E20 163

E20-16

Blending Department

Step 3: Compute the cost pre equivalent unit

$4,800

$2,970

÷ 8,000

÷ 6,600

$0.60

$0.45


E20 164

E20-16

Step 4: Assign costs to units completed and to

units in ending work in process inventory

$6,300

6,000 x ($0.60 + 0.45)

$1,200

2,000 x $0.60

600 x 0.45

270

1,470

$7,770


E20 165

E20-16

Work in process inventoryblending department7,770

Materials inventory4,800

Manufacturing wages800

Manufacturing overhead2,170


E20 166

E20-16

Work in process inventorypackaging department6,300

Work in process inventory blending department6,300


Objective 4

Objective 4

Use the weighted-average method to assign costs to units completed and to units in ending work in process inventory in a second department


E20 23

E20-23

Step 1: Summarize the flow of physical units

Bottling Department

Units to account for

Units accounted for

Beginning

WIP

Units placed

in production

Units

completed

Units in

Ending WIP

+

+

8,000

160,000

154,000

14,000

+

+


E20 231

E20-23

Step 1: Summarize the flow of physical units

Work in process, bottling department (units)

Beg. Bal. 8,000

154,000

Transferred in 160,000

End Bal. 14,000


E20 232

Materials

added

100%

complete

Start

146,000 units started and completed

14,000 units started but not finished

E20-23

Step 2: Compute output in terms of equivalent units

70%

complete

40%

complete

8,000 units in processand completed


E20 233

Equivalent units:

Transferred in costs

Completed and transferred out154,000

Ending work in process14,000

Total168,000

E20-23


E20 234

Equivalent units:

Direct materials

Completed and transferred out154,000

Ending work in process -0-

Total154,000

E20-23


E20 235

E20-23

Equivalent units for conversion costs:

Completed and transferred out154,000

Ending WIP -14,000 x 70% 9,800

Total163,800


E20 236

E20-23

Step 3: Compute the cost per equivalent unit


E20 237

E20-23

Step 3: Compute the cost per equivalent unit


E20 167

E20-16

Work in process inventorybottling department223,010

Work in process inventory department 1136,000

Materials inventory30,800

Manufacturing wages33,726

Manufacturing overhead22,484


E20 168

E20-16

Finished goods inventory210,980

Work in process inventory bottling department210,980


Process costing

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