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PRODUCT COSTING 2

PRODUCT COSTING 2. JOIN KHALID AZIZ. ECONOMICS OF ICMAP, ICAP, MA-ECONOMICS, B.COM. FINANCIAL ACCOUNTING OF ICMAP STAGE 1,3,4 ICAP MODULE B, B.COM, BBA, MBA & PIPFA. COST ACCOUNTING OF ICMAP STAGE 2,3 ICAP MODULE D, BBA, MBA & PIPFA. CONTACT: 0322-3385752 0312-2302870

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PRODUCT COSTING 2

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  1. PRODUCT COSTING2

  2. JOIN KHALID AZIZ • ECONOMICS OF ICMAP, ICAP, MA-ECONOMICS, B.COM. • FINANCIAL ACCOUNTING OF ICMAP STAGE 1,3,4 ICAP MODULE B, B.COM, BBA, MBA & PIPFA. • COST ACCOUNTING OF ICMAP STAGE 2,3 ICAP MODULE D, BBA, MBA & PIPFA. • CONTACT: • 0322-3385752 • 0312-2302870 • R-1173,ALNOOR SOCIETY, BLOCK 19,F.B.AREA, KARACHI, PAKISTAN.

  3. JOIN KHALID AZIZ • FRESH CLASSES • ICMAP STAGE 3 • FINANCIAL ACCOUNTING & COST ACCOUNTING PERFORMANCE APPRAISAL • INDIVIDUAL & GROUPS

  4. JOIN KHALID AZIZ • FRESH CLASSES • ICMAP STAGE 1 & 2 • FUNDAMENTALS OF FINANCIAL ACCOUNTING & COST ACCOUNTING • INDIVIDUAL & GROUPS

  5. ProcessCosting Job-orderCosting ProcessCosting • 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. Comparison of Job-Order Costing and Process Costing

  6. ProcessCosting Job-orderCosting ProcessCosting • Typical process cost applications: • Petrochemical refinery • Paint manufacturer • Paper mill Comparison of Job-Order Costing and Process Costing

  7. Job-order costing Costs accumulated by the job. Work in process has a job-cost sheet for each job. Many unique, high cost jobs. Jobs built to customer order. Process costing Costs accumulated by department or process. Work in process has a production report for each batch of products. A few identical, low cost products. Units continuously produced for inventory in automated process. Comparison of Job-Order Costing and Process Costing

  8. Differences Between Job-Order and Process Costing The work-in-process account consists of individual jobs in ajob-order cost system. Direct Material FinishedGoods Direct Labor Jobs ManufacturingOverhead Cost of GoodsSold

  9. Differences Between Job-Order and Process Costing The work-in-process account consists of individual products in a process cost system. Direct Material Direct Labor& Overhead(Conversion) FinishedGoods Products Cost of GoodsSold When direct labor is a relatively small amount compared to material and overhead, it is often combined with overhead.

  10. Process Cost Flows

  11. Process Cost Flows

  12. Equivalent Units: A Key Concept • Costs are accumulated for a period of time for products in work-in-process inventory. • Products in work-in-process inventory at the beginning and end of the period are only partially complete. • Equivalent units is a concept expressing these partially completed products as a smaller number of fully completed products.

  13. Equivalent Units of Production Equivalent unitsare partially complete and are part of work in process inventory. Partially completed products are expressed in terms of a smaller number of fully completed units.

  14. Cost of GoodsManufactured Process Cost Flows Work in Process Department B Finished Goods • Direct Materials • Cost of Goods Manufactured • Cost of GoodsSold • Direct Labor • AppliedOverhead • Transferred from Dept. A Cost of Goods Sold • Cost of GoodsSold

  15. + = 1 Equivalent Units of Production Two half completed products are equivalent to one completed product. So, 10,000 units 70 percent completeare equivalent to 7,000 complete units.

  16. Quick Check  For the current period, Jones 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 Jones have for the period? a. 10,000 b. 11,500 c. 13,500 d. 15,000

  17. Quick Check  For the current period, Jones 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 Jones have for the period? a. 10,000 b. 11,500 c. 13,500 d. 15,000 10,000 units + (5,000 units × 0.30) = 11,500 equivalent units

  18. Calculating and Using Equivalent Units of Production To calculate the cost perequivalent unit for the period: Cost perequivalent unit Costs for the periodEquivalent units of productionfor the period =

  19. Quick Check  Now assume that Jones incurred $27,600 in production costs for the 11,500 equivalent units of production. What was Jones’ cost per equivalent unit for the period? a. $1.84 b. $2.40 c. $2.76 d. $2.90

  20. Quick Check  Now assume that Jones incurred $27,600 in production costs for the 11,500 equivalent units of production. What was Jones’ cost per equivalent 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. Let’s see how this works! Equivalent Units of Production –Weighted Average Method The weighted average method . . . • Makes no distinction between work done in prior and current period. • Blends together units and costs from prior period and current period.

  22. EXP 1: Production Report Example • MVP Sports Equipment Company makes baseball gloves in two departments, Cutting and Stitching. • MVP uses the weighted-average cost procedure. • Material is added at the beginning of the Cutting Department, and conversion is incurred uniformly throughout the process. • Using the following information for the month of March, let’s prepare a production report for the Cutting Department.

  23. Production Report Example Work in process, March 1: 20,000 units Cost Materials: 100% complete. $ 50,000 Conversion: 10% complete. 7,200 Units started into production in March: 30,000 units Units completed and transferred out in March: 40,000 units Work in process, March 31: 10,000 units Materials 100% complete. Conversion 50% complete. Costs incurred during March Materials cost 90,000 Conversion costs: Direct labor $ 86,000 Applied manufacturing overhead 107,500 Total conversion costs 193,500 Total costs to account for $ 340,700

  24. Production Report Example • Analysis of Physical Flow of Units

  25. 50% of 10,000 units Beginning inventory % is not used in weighted-average method. Production Report Example • Calculation of Equivalent Units

  26. Production Report Example • Calculation of Equivalent Units 100% of 10,000 units, allmaterial added at beginning

  27. $140,000 ÷ 50,000 equivalent units $2.80 + $4.46 $200,700 ÷ 45,000 equivalent units Production Report Example • Computation of unit costs

  28. Production Report Example • Analysis of total costs

  29. Production Report Example • Analysis of total costs

  30. All costs accounted for Production Report Example • Analysis of total costs

  31. EXP 2: Production Report Example • Double Diamond Skis uses process costing to determine unit costs in its Shaping and Milling Department. • Double Diamond uses the weighted average cost procedure. • Using the following information for the month of May, let’s prepare a production report for Shaping and Milling.

  32. Production Report Example Work in process, May 1: 200 units Materials: 55% complete. $ 9,600 Conversion: 30% complete. 5,575 Production started during May: 5,000 units Production completed during May: 4,800 units Costs added to production in May Materials cost $ 368,600 Conversion cost 350,900 Work in process, May 31: 400 units Materials 40% complete. Conversion 25% complete.

  33. Production Report Example Section 1: Quantity Schedule with Equivalent Units

  34. Production Report Example Section 1: Quantity Schedule with Equivalent Units

  35. Production Report Example Section 1: Quantity Schedule with Equivalent Units

  36. Production Report Example Section 2: Compute cost per equivalent unit

  37. Production Report Example Section 2: Compute cost per equivalent unit $378,200 ÷ 4,960 units = $76.25

  38. Production Report Example Section 2: Compute cost per equivalent unit $356,475 ÷ 4,900 units = $72.75

  39. Production Report Example Section 3: Cost Reconciliation

  40. Production Report Example Section 3: Cost Reconciliation 4,800 units @ $149.00

  41. Production Report Example Section 3: Cost Reconciliation 160 units @ $76.25 100 units @ $72.75 All costs accounted for

  42. JOIN KHALID AZIZ • ECONOMICS OF ICMAP, ICAP, MA-ECONOMICS, B.COM. • FINANCIAL ACCOUNTING OF ICMAP STAGE 1,3,4 ICAP MODULE B, B.COM, BBA, MBA & PIPFA. • COST ACCOUNTING OF ICMAP STAGE 2,3 ICAP MODULE D, BBA, MBA & PIPFA. • CONTACT: • 0322-3385752 • 0312-2302870 • R-1173,ALNOOR SOCIETY, BLOCK 19,F.B.AREA, KARACHI, PAKISTAN.

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