1 / 28

CHAPTER 17

CHAPTER 17. Process Costing. Job-Costing and Process Costing: Opposite Ends of a Continuum. Job-Costing Systems Distinct, identifiable units of a product or service Examples: Custom-made machines, Houses. Process-Costing Systems Masses of identical or similar units of a

len-morales
Download Presentation

CHAPTER 17

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. CHAPTER 17 Process Costing Contrôle Interne Avancé-HEC Lausanne-2007/2008

  2. Job-Costing and Process Costing: Opposite Ends of a Continuum Job-Costing Systems Distinct, identifiable units of a product or service Examples: Custom-made machines, Houses Process-Costing Systems Masses of identical or similar units of a product or service Examples: Food, Chemical processing

  3. Basic Cost Accounting Procedures ProcessCosting Job OrderCosting • Used for production of large, unique, high-cost items. • Built to order rather than mass produced. • Many costs can be directly traced to each job.

  4. Basic Cost Accounting Procedures Job OrderCosting ProcessCosting • Typical job order cost applications: • Special-order printing • Building construction • Also used in service industry • Hospitals • Law firms

  5. Basic Cost Accounting Procedures ProcessCosting Job OrderCosting • 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.

  6. Basic Cost Accounting Procedures ProcessCosting Job OrderCosting • Typical process cost applications: • Petrochemical refinery • Paint manufacturer • Paper mill

  7. Job and Process Costing The Work in Process account consists of individual jobsinjob costing. DirectMaterials DirectLabor FinishedGoods Jobs FactoryOverhead Cost per unit for each job

  8. Job and Process Costing The Work in Process account consists of specific processesin process costing. DirectMaterials DirectLabor FinishedGoods Processes FactoryOverhead Cost per unit processed

  9. Same objective: to determine the cost of products Same inventory accounts: raw materials, work in process, and finished goods Same overhead assignment method:predetermined rate times actual activity Job and Process Costing Similarities

  10. Work in Process Accounts — The Key to Process Costing Direct Materials Work in ProcessAssembly Indirect Work in ProcessPackaging FinishedGoods FactoryOverhead AppliedOverhead Indirect DeliveredtoCustomers Direct Labor

  11. Process Costing • Process costing is a system where the unit cost of a product or service is obtained by assigning total costs to many identical or similar units, • Each unit receives the same or similar amounts of direct materials costs, direct labor costs, and manufacturing overhead, • Unit costs are computed by dividing total costs incurred by the number of units of output from the production process.

  12. Process-Costing Assumptions • Direct Materials are added at the beginning of the production process, or at the start of work in a subsequent department down the assembly line, • Conversion Costs are added equally along the production process.

  13. Costs are accumulated for a period of time by process or department. Understanding Cost Flows Unit cost is computed by dividing the accumulated costs by the number of units produced in the period.

  14. Understanding Cost Flows Costs are accumulated for a period of time by process or department. Unit cost is computed by dividing the accumulated costs by the number of units produced in the period. If partially complete units remain in process, we must use equivalent units as the divisor to obtain unit costs.

  15. Equivalent units is a concept expressing a number of partially completed units as a smaller number of fully completed units. + = Process Costing and Equivalent Units Twoone-half full pitchers are equivalent to one full pitcher. 1

  16. Process Costing and Equivalent Units For the current period, PencilCo started 15,000 units and completed 10,000 units, leaving 5,000 units in process 30 percent complete. How many equivalent units of production did PencilCo have for the period? a. 10,000 b. 11,500 c. 1,500 d. 15,000

  17. Process Costing and Equivalent Units For the current period, PencilCo started 15,000 units and completed 10,000 units, leaving 5,000 units in process 30 percent complete. How many equivalent units of production did PencilCo have for the period? a. 10,000 b. 11,500 c. 1,500 d. 15,000 10,000 units + (5,000 units × .30) = 11,500 equivalent units

  18. Cost perequivalent unit Product costs for the periodEquivalent units for the period = Cost per Equivalent Unit

  19. Cost per Equivalent Unit Now assume that PencilCo incurred $27,600 in production costs. What was PencilCo’s cost per unit for the period? a. $1.84 b. $2.40 c. $2.76 d. $2.90

  20. Cost per Equivalent Unit Now assume that PencilCo incurred $27,600 in production costs. What was PencilCo’s cost per unit for the period? a. $1.84 b. $2.40 c. $2.76 d. $2.90 $27,600 ÷ 11,500 equivalent units = $2.40 per equivalent unit

  21. Weighted-Average Process-Costing Method • Calculates cost per equivalent unit of all work done to date (regardless of the accounting period in which it was done), • Assigns this cost to equivalent units completed and transferred out of the process, and to incomplete units still in process.

  22. Weighted-Average Process-Costing Method • Weighted-average cost is the total of all costs in the Work-in-Process account divided by the total equivalent units of work done to date, • The beginning balance of the Work-in-Process account (work done in a prior period) is blended in with current period costs.

  23. Five-Step Process-Costing Allocation • Summarize the flow of physical units of output, • Compute output in terms of equivalent units, • Compute cost per equivalent unit, • Summarize total costs to account for, • Assign total costs to units completed and to units in ending Work in Process.

  24. Steps 1 - 5 Weighted-Average Method Contrôle Interne Avancé-HEC Lausanne-2007/2008

  25. Step 1: Summarize OutputStep 2: Compute Equivalent Units

  26. Step 3: Compute Cost per UnitStep 4: Summarize Total Costs

  27. Step 5: Assign Costs to Units Completed and Ending Work in Process

  28. Result of the Process (as before) • Two critical figures arise out of Step Five of the cost allocation process: • The amount of the Journal Entry transferring the allocated cost of units completed and sent from Work-in-Process Inventory to Finished Goods Inventory, • The ending balance of the Work-in-Process Inventory account that will appear on the Balance Sheet.

More Related